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Item 8. Financial Statements and Supplementary Data

2024-03-14 compared with 2023-03-16 · 608 added, 555 removed, 1376 unchanged (46% of the section changed)

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of condition of Bank of Marin Bancorp and Subsidiary (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive (loss) income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated statements of condition of Bank of Marin Bancorp and Subsidiary (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting.

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses for Loans

As discussed in Notes 1 and 3 to the consolidated financial statements, the allowance for credit losses for loans at December 31, 2022, was $23 million on a total loan portfolio of $2.1 billion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses on Loans

As discussed in Notes 1 and 3 to the consolidated financial statements, the Allowance for Credit Losses on Loans at December 31, 2023, was $25.2 million on a total loan portfolio of $2.1 billion.

The allowance for credit losses provides an estimate of lifetime expected losses in the loan portfolio.

The measurement of expected credit losses is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.

We identified the allowance for credit losses for loans as a critical audit matter.

The principal considerations for our determination of the allowance for credit losses for loans as a critical audit matter are subjectivity of the estimation and application of forecasted economic conditions and qualitative internal and external risk factors used in the calculation of the allowance for credit losses for loans.

The economic forecast component of the allowance for credit losses for loans is used to compare the conditions that existed during the historical period to current conditions and future expectations.

We identified the Allowance for Credit Losses on Loans as a critical audit matter.

The principal considerations for our determination of the Allowance for Credit Losses on Loans as a critical audit matter are subjectivity of the estimation and application of forecasted economic conditions and qualitative internal and external risk factors used in the calculation of the Allowance for Credit Losses on Loans.

The economic forecast component of the Allowance for Credit Losses on Loans is used to compare the conditions that existed during the historical period to current conditions and future expectations.

The qualitative internal and external risk factors are used to adjust for differences in segment-specific risk characteristics or conditions that differ from those that existed during the historical period for which the probability of default and loss given default factors were developed.

Auditing management’s judgements regarding forecasted economic conditions and qualitative internal and external risk factors applied to the allowance for credit losses for loans involved a high degree of subjectivity.

Auditing management’s judgements regarding forecasted economic conditions and qualitative internal and external risk factors applied to the Allowance for Credit Losses on Loans involved a high degree of subjectivity.

The primary procedures we performed to address this critical audit matter included:

• Testing the design, implementation, and operating effectiveness of controls related to management’s calculation of the allowance for credit losses for loans, including controls over qualitative internal and external risk factors and the forecasted economic conditions utilized.

• Testing the appropriateness of the methodology used in the calculation of the allowance for credit losses for loans, as well as testing completeness and accuracy of the data used in the calculation, application of the forecasted economic conditions, and qualitative internal and external risk factors determined by management and used in the calculation, and verifying calculations in the allowance for credit losses for loans.

• Obtaining management’s analysis and supporting documentation related to the forecasted economic conditions, and testing whether the forecasts used in the calculation of the allowance for credit losses for loans are reasonable and supportable based on the analysis provided by management.

• Testing the design, implementation, and operating effectiveness of controls related to management’s calculation of the Allowance for Credit Losses on Loans, including controls over qualitative internal and external risk factors and the forecasted economic conditions utilized.

• Testing the appropriateness of the methodology used in the calculation of the Allowance for Credit Losses on Loans, as well as testing completeness and accuracy of the data used in the calculation, application of the forecasted economic conditions, and qualitative internal and external risk factors determined by management and used in the calculation, and verifying calculations in the Allowance for Credit Losses on Loans.

• Obtaining management’s analysis and supporting documentation related to the forecasted economic conditions, and testing whether the forecasts used in the calculation of the Allowance for Credit Losses on Loans are reasonable and supportable based on the analysis provided by management.

• Obtaining management’s analysis of internal and external qualitative factors, and evaluating the reasonableness of the assumptions used in determining the qualitative factor adjustments.

Goodwill Impairment Assessment

As described in Note 1 to the consolidated financial statements, the Company’s goodwill balance was $72.8 million at December 31, 2023, which is allocated to the Company’s sole reporting unit.

Goodwill is evaluated for impairment, at a minimum, on an annual basis.

To test for goodwill impairment, the Company may apply a qualitative analysis of conditions in order to determine whether it is more likely than not that the carrying value is impaired.

If the qualitative analysis is bypassed or in the event the qualitative analysis suggests that the carrying value of goodwill may be impaired, the Company uses several quantitative valuation methodologies in evaluating goodwill for impairment.

We identified the quantitative goodwill impairment evaluation performed as of the annual impairment testing date as a critical audit matter.

The Company bypassed the qualitative analysis and the quantitative goodwill impairment assessment is considered a significant accounting estimate for which our audit procedures to evaluate management's judgments involved subjectivity and increased audit effort, including use of an internal valuation specialist.

The primary procedures we performed to address this critical audit matter included:

• Testing the design, implementation, and operating effectiveness of the management review control related to the management’s quantitative goodwill impairment test, including the reporting unit determination and the determination of the fair value of the reporting unit.

• Testing the Company’s financial projections utilized in the discounted cash flow methodology for reasonableness, including the terminal period growth rate.

• Utilizing an internal valuation specialist to assist in performing the following:

◦ Evaluating the methodologies and weighting of methodologies utilized by management.

◦ Testing key inputs used by management to determine the fair value of the reporting unit, including:

▪ Independently assessing the appropriateness of selected peers in the publicly traded guideline market approach.

▪ Independently assessing the appropriateness of selected acquisitions in the guideline transactions market approach.

▪ Independently obtaining data to verify key ratios and market value indicators for selected acquisitions.

▪ Independently assessing the appropriateness of cost savings and equity cost of capital assumptions utilized in the discounted cash flow methodology.

/s/ Moss Adams LLP

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CONSOLIDATED STATEMENTS OF CONDITION

December 31, 2022 and 2021

As of December 31, 2023 and 2022

(in thousands, except share data) 2023 2022

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BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years ended December 31, 2023, 2022 and 2021

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Net interest income 102,761 127,492 104,951

(Reversal of) provision for credit losses on loans ( 63 ) ( 1,449 ) 4,594

(Reversal of) provision for credit losses on unfunded loan commitments ( 318 ) ( 992 ) 1,570

Provision for (reversal of) credit losses on loans 2,575 ( 63 ) ( 1,449 )

Reversal of credit losses on unfunded loan commitments ( 342 ) ( 318 ) ( 992 )

Net interest income after (reversal of) provision for credit losses 100,528 127,873 107,392

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Wealth management and trust services 2,145 2,227 2,222

Debit card interchange fees, net 2,051 1,812 1,438

Service charges on deposit accounts 2,083 2,007 1,593

Debit card interchange fees, net 1,831 2,051 1,812

Earnings on bank-owned life insurance, net 1,802 1,229 2,194

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Merchant interchange fees, net 496 549 422

(Losses) gains on sale of investment securities, net ( 63 ) ( 16 ) 915

Losses on sale of investment securities, net of gains

( 5,893 ) ( 63 ) ( 16 )

Other income 1,260 1,849 1,145

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Professional services 3,598 3,299 4,974

Deposit network fees 2,783 258 26

Depreciation and amortization 2,098 1,840 1,740

Federal Deposit Insurance Corporation insurance 1,878 1,179 889

Information technology 1,569 2,197 1,550

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Directors' expense 1,212 1,107 957

Federal Deposit Insurance Corporation insurance 1,179 889 474

Charitable contributions 717 709 587

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Diluted 16,026 15,969 14,422

Comprehensive (loss) income:

Comprehensive income (loss):

Net income $ 19,895 $ 46,586 $ 33,228

Other comprehensive (loss) income:

Other comprehensive income (loss):

Change in net unrealized gains or losses on available-for-sale securities 20,358 ( 88,620 ) ( 21,281 )

Reclassification adjustment for losses (gains) on available-for-sale securities in net income 63 16 ( 915 )

Reclassification adjustment for realized losses on available-for-sale securities in net income 8,700 63 16

Reclassification adjustment for gains or losses on fair value hedges ( 1,359 ) — —

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 1,743 1,580 493

Other comprehensive (loss) income, before tax ( 101,824 ) ( 20,772 ) 11,500

Deferred tax (benefit) expense ( 30,102 ) ( 6,147 ) 3,402

Other comprehensive (loss) income, net of tax ( 71,722 ) ( 14,625 ) 8,098

Comprehensive (loss) income $ ( 25,136 ) $ 18,603 $ 38,340

Other comprehensive income (loss), before tax 29,442 ( 101,824 ) ( 20,772 )

Deferred tax expense (benefit) 8,702 ( 30,102 ) ( 6,147 )

Other comprehensive income (loss), net of tax 20,740 ( 71,722 ) ( 14,625 )

Comprehensive income (loss) $ 40,635 $ ( 25,136 ) $ 18,603

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

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Balance at December 31, 2020

Net income — — 30,242 — 30,242

Other comprehensive income, net of tax — — — 8,098 8,098

Cumulative effect of change in accounting principal ASU 2016-13 1

13,500,453 $ 125,905 $ 219,747 $ 12,601 $ 358,253

Net income — — 33,228 — 33,228

Other comprehensive loss, net of tax — — — ( 14,625 ) ( 14,625 )

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 36,338 463 — — 463

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Stock issued in payment of director fees 6,443 217 — — 217

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

Stock repurchased, including commissions ( 1,117,666 ) ( 40,722 ) — — ( 40,722 )

Balance at December 31, 2021

15,929,243 $ 212,524 $ 239,868 $ ( 2,024 ) $ 450,368

Net income — — 46,586 — 46,586

Other comprehensive loss — — — ( 14,625 ) ( 14,625 )

Other comprehensive loss, net of tax — — — ( 71,722 ) ( 71,722 )

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 40,674 821 — — 821

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Stock issued in payment of director fees 10,145 355 — — 355

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

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

Balance at December 31, 2022

16,029,138 $ 215,057 $ 270,781 $ ( 73,746 ) $ 412,092

Net income — — 19,895 — 19,895

Other comprehensive loss — — — ( 71,722 ) ( 71,722 )

Other comprehensive income, net of tax — — — 20,740 20,740

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 11,530 230 — — 230

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— — ( 16,106 ) — ( 16,106 )

Stock purchased by directors under director stock plan 515 16 — — 16

Stock issued in payment of director fees 18,362 398 — — 398

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

Balance at December 31, 2023

1 Refer to Note 1, Summary of Accounting Policies, for information on the adoption of ASU 2016-13 in 2020.

16,158,413 $ 217,498 $ 274,570 $ ( 53,006 ) $ 439,062

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

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

(Reversal of) provision for credit losses on loans ( 63 ) ( 1,449 ) 4,594

(Reversal of) provision for credit losses on unfunded loan commitments ( 318 ) ( 992 ) 1,570

Provision for (reversal of) credit losses on loans 2,575 ( 63 ) ( 1,449 )

Reversal of credit losses on unfunded loan commitments

( 342 ) ( 318 ) ( 992 )

Noncash contribution expense to employee stock ownership plan 1,315 1,233 1,330

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Amortization of investment security premiums, net of accretion of discounts 6,897 9,056 5,799

Amortization of premiums (accretion of discounts) on acquired loans, net 153 ( 571 ) ( 165 )

(Accretion of discounts) amortization of premiums on acquired loans, net ( 573 ) 153 ( 571 )

Accretion of discount on subordinated debenture — — 1,347

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Write-down of other real estate owned 40 345 —

Losses (gains) on sale of investment securities, net 63 16 ( 915 )

Losses on sale of investment securities, net of gains

Depreciation and amortization 2,098 1,840 1,740

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Proceeds from paydowns/maturities of available-for-sale securities 59,316 130,178 110,059

Loan principal collected, net of originations 164,019 256,856 ( 249,337 )

Proceeds from sale of Visa Inc.

Class B restricted common stock 2,807 — —

Decrease in loans receivable, net 16,945 164,019 256,856

Proceeds from sale of loan 3,263 — —

Purchase of bank-owned life insurance policies — ( 4,714 ) ( 1,943 )

Cash receipts from bank-owned life insurance policies 350 2,478 —

Proceeds from bank-owned life insurance policies 766 350 2,478

Purchase of premises and equipment ( 1,749 ) ( 2,266 ) ( 1,044 )

Proceeds from sale of other real estate owned 420 — —

Cash and cash equivalents acquired from American River Bankshares — — 140,577

Purchase of Federal Home Loan Bank stock — — ( 176 )

Cash paid for low income housing tax credit investment ( 42 ) ( 30 ) ( 398 )

Net cash used in investing activities ( 218,097 ) ( 340,666 ) ( 173,443 )

Net cash provided by (used in) investing activities 334,691 ( 218,097 ) ( 340,666 )

Cash Flows from Financing Activities:

Net (decrease) increase in deposits ( 283,273 ) ( 235,202 ) 514,279

Federal Home Loan Bank borrowings (repayment) 112,000 ( 13,885 ) —

(Repayment of) proceeds from short-term borrowings, net ( 86,000 ) 112,000 ( 13,885 )

Repayment of finance lease obligations ( 148 ) ( 131 ) ( 86 )

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Supplemental disclosure of cash flow information:

Cash paid in interest $ 2,560 $ 2,105 $ 2,948

Cash paid in income taxes $ 14,325 $ 12,350 $ 13,065

Interest paid on deposits and borrowings

$ 34,038 $ 2,560 $ 2,105

Income taxes paid, net of refunds

$ 8,428 $ 13,730 $ 12,350

Supplemental disclosure of noncash investing and financing activities:

Change in net unrealized gain or loss on available-for-sale securities $ ( 88,620 ) $ ( 21,281 ) $ 11,891

Cumulative effect of change in accounting principle ASU 2016-13 $ — $ — $ ( 1,216 )

Change in net unrealized gains or losses on available-for-sale securities $ 20,358 $ ( 88,620 ) $ ( 21,281 )

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 $ 1,743 $ 1,580 $ 493

Transfer of loan to loans held-for-sale

$ 3,263 $ — $ —

Repurchase of stock not yet settled $ — $ — $ 373

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

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

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Summary of Significant Accounting Policies

Nature of Operations - Bank of Marin Bancorp ("Bancorp"), headquartered in Novato, California, conducts business primarily through its wholly-owned subsidiary, Bank of Marin (the "Bank"), a California state-chartered commercial bank that provides a wide range of financial services through 31 retail branches and 8 commercial banking offices across 10 counties, including Alameda, Amador, Contra Costa, Marin, Napa, Placer, Sacramento, San Francisco, San Mateo and Sonoma.

Nature of Operations:

Bank of Marin Bancorp ("Bancorp"), headquartered in Novato, California, conducts business primarily through its wholly-owned subsidiary, Bank of Marin (the "Bank"), a California state-chartered commercial bank that provides a wide range of financial services through 27 retail branches and 8 commercial banking offices across 10 counties, including Alameda, Amador, Contra Costa, Marin, Napa, Placer, Sacramento, San Francisco, San Mateo and Sonoma.

Our customer base is made up of business, not-for-profit and personal banking relationships from the communities within our Northern California footprint.

Basis of Presentation - The consolidated financial statements include the accounts of Bancorp, a bank holding company, and its wholly-owned bank subsidiary, Bank of Marin, a California state-chartered commercial bank.

Basis of Presentation:

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

References to “we,” “our,” “us” mean Bancorp and the Bank that are consolidated for financial reporting purposes.

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We evaluated subsequent events through the date of filing with the Securities and Exchange Commission (“SEC”) and determined there were no subsequent events that required additional recognition or disclosure.

Accounting Changes and Reclassifications - Certain items in prior financial statements have been reclassified to conform to the current presentation, including the reclassification of the provision for credit losses on unfunded commitments in the second quarter of 2021 from non-interest expense to a separate line item under the provision for credit losses on loans in the consolidated statements of comprehensive (loss) income.

In addition, on December 31, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments and all applicable amendments as subsequently updated for certain clarifications, targeted relief and codification improvements.

Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) replaced the incurred loss method for measuring credit losses with a current expected credit loss ("CECL") method for financial assets recorded at amortized cost (i.e., loans originated by us and held-to-maturity investment securities).

The previous incurred loss method included a general allowance on loans for known and inherent losses within the portfolio, which reflected adjusted historical loss rates and a specific allowance component for impaired loans.

The CECL method requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance-sheet credit exposures to consider credit losses expected to be incurred over the life of the financial asset based on past events, current conditions, and reasonable and supportable forecasts.

ASC 326 also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards.

In addition, ASC 326 include certain changes to the accounting for available-for-sale investment securities including the requirement to recognize an allowance wh en management intends to sell or believes that it is more likely than not they will be required to sell the security before recovery of its amortized cost.

ASC 326 was effective January 1, 2020.

However, in accordance with the accounting relief provisions of the Coronavirus Aid, Relief and Economic Security ("CARES") Act passed in March 2020, we postponed the adoption of the CECL standard to the earlier of the end of the national emergency or December 31, 2020.

Therefore, we adopted this standard using the modified retrospective method for all financial assets measured at amortized cost, and off-balance-sheet credit exposures, 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.

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.

Upon adoption, we recorded a cumulative adjustment to retained earnings, net of taxes, based on economic forecasts and other assumptions as of January 1, 2020.

That adjustment resulted in an increase to our allowance for credit losses of $ 1.6 million and an increase to the allowance for unfunded loan commitments of $ 122 thousand.

In addition, we recognized the remaining difference between the allowance for credit losses calculated under the CECL model as of December 31, 2020 and the allowance for credit losses calculated under the incurred loss model as of September 30, 2020 as a reversal of the provision for credit losses and a provision for credit losses on unfunded loan commitments, as shown in the tables below.

The following tables show the impact to our financial statement line items due to adoption of ASC 326 as of and during the quarter ended December 31, 2020.

(in thousands) Pre-Tax Increase (Decrease) Upon the Adoption of CECL Deferred Tax Effect After Tax Impact of Adoption of CECL

Impact to allowance for credit losses on loans:

Allowance for credit losses on loans $ 748

Retained earnings (cumulative transition adjustment) $ ( 1,604 ) $ 474 $ ( 1,130 )

Net income (reversal of provision for credit losses on loans) $ 856 $ ( 253 ) $ 603

Impact to allowance for credit losses on unfunded loan commitments:

Allowance for credit losses on unfunded commitments $ 1,082

Retained earnings (cumulative transition adjustment) $ ( 122 ) $ 36 $ ( 86 )

Net income (provision for credit losses on unfunded commitments) $ ( 960 ) $ 284 $ ( 676 )

The following table shows the impact on the allowance for credit losses due to the transition from the incurred loss method to the CECL method by loan class.

(in thousands) Pre-Adoption Balance at

September 30, 2020 Cumulative Transition Adjustment 1

Post Adoption Adjusted Balance at

October 1, 2020

Allowance for credits losses on loans:

Commercial and industrial $ 2,525 $ ( 278 ) $ 2,247

Commercial owner-occupied 3,135 138 3,273

Commercial investor-owned 11,624 1,755 13,379

Construction 860 201 1,061

Home equity 1,038 ( 361 ) 677

Other residential 1,260 ( 212 ) 1,048

Installment and other consumer loans 406 ( 125 ) 281

Unallocated 1,265 486 1,751

Total $ 22,113 $ 1,604 $ 23,717

Allowance for credit losses on unfunded commitments $ 1,697 $ 122 $ 1,819

1 The cumulative transition adjustment resulted from applying the CECL method, which was based on economic forecasts and other assumptions as of January 1, 2020.

Refer to Note 3, Loans and Allowance for Credit Losses, for more information.

The Bank did not record an allowance for credit losses on available-for-sale or held-to-maturity investment securities upon the adoption of CECL as the investment portfolio consisted primarily of debt securities backed by the U.S.

government and high credit quality obligations of state and political subdivisions.

Refer to Note 2, Investment Securities, for more information.

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 (loss) income.

Use of Estimates - The preparation of financial statements in conformity with U.S.

Accounting Changes and Reclassifications:

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

Use of Estimates:

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Significant accounting estimates reflected in the consolidated financial statements include the allowance for credit losses, income taxes, and fair value measurements (including fair values of acquired assets and assumed liabilities at acquisition dates) as discussed in the Notes herein.

Cash, Cash Equivalents and Restricted Cash - include cash, due from banks, federal funds sold and other short-term investments with maturities of less than three months at the time of purchase.

Significant accounting estimates reflected in the consolidated financial statements include the allowance for credit losses, fair value measurements, and goodwill impairment assessment, as discussed in the Notes herein.

Cash, Cash Equivalents and Restricted Cash:

This includes cash, due from banks, federal funds sold and other short-term investments with maturities of less than three months at the time of purchase.

Restricted cash includes balances not immediately available for business operations such as Federal Reserve Bank of San Francisco reserve requirements and cash pledged for interest rate swap contracts and local agency deposits.

Investment Securities:

Investment securities are classified as "held-to-maturity," "trading securities" or "available-for-sale." Investments classified as held-to-maturity are those that we have the ability and intent to hold until maturity and are reported at cost, adjusted for the amortization or accretion of premiums or discounts.

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Investments that are neither held-to-maturity nor trading are classified as available-for-sale and are reported at fair value.

Unrealized gains and losses for available-for-sale securities, net of related taxes, are reported as a separate component of comprehensive (loss) income and included in stockholders' equity until realized.

Unrealized gains and losses for available-for-sale securities, net of related taxes, are reported as a separate component of comprehensive income (loss) and included in stockholders' equity until realized.

For discussion of our methodology in determining fair value, see Note 9, Fair Value of Assets and Liabilities.

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The specific identification method is used to calculate realized gains and losses on sales of securities.

Securities transferred from the available-for-sale category to the held-to-maturity category are recorded at fair value at the date of transfer.

Unrealized holding gains or losses on the dates of the transfer of securities from available-for-sale to held-to-maturity are included in the balance of accumulated other comprehensive (loss) income, net of tax, in the consolidated balance sheets.

Securities transferred from the available-for-sale category to the held-to-maturity category are recorded at fair value

at the date of transfer.

Unrealized holding gains or losses on the dates of the transfer of securities from available-for-sale to held-to-maturity are included in the balance of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets.

These unrealized holding gains or losses on the dates of transfer are amortized over the remaining life of the securities as yield adjustments in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security.

Allowance for Credit Losses on Investment Securities - The allowance for credit losses on h eld-to-maturity securities is a contra-asset valuation account determined in accordance with ASC 326, which is deducted from the securities' amortized cost basis at the balance sheet date as a result of management's assessment of the net amount expected to be collected.

Non-marketable equity securities include stock held for membership and regulatory purposes, such as Federal Home Loan Bank ("FHLB") stock and other non-marketable equity securities.

These securities are accounted for at cost, evaluated for impairment as of each reporting period, and included in interest receivable and other assets on the consolidated statements of condition.

During 2023, the Bank sold its remaining investment in Visa Inc.

Class B restricted common stock, as discussed in Note 2 - Investment securities.

As of December 31, 2023 and 2022 our investment in FHLB stock was carried 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.

Both cash and stock dividends from the FHLB are reported as non-interest income.

Allowance for Credit Losses on Investment Securities:

The allowance for credit losses on h eld-to-maturity securities is a contra-asset valuation account determined in accordance with ASC 326, which is deducted from the securities' amortized cost basis at the balance sheet date as a result of management's assessment of the net amount expected to be collected.

The allowance is measured on a pooled basis for securities with similar risk characteristics using historical credit loss information, adjusted for current conditions and reasonable and supportable forecasts.

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If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss component.

Any impairment due to non-credit-related factors that has not been recorded through an allowance for credit losses is recognized in other comprehensive (loss) income.

Any impairment due to non-credit-related factors that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss).

The discount rate used in determining the present value of the expected cash flows is based on the effective interest rate implicit in the security at the date of purchase.

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There were no non-accrual investment securities in any of the years presented in the consolidated financial statements.

Originated Loans - are reported at amortized cost, which is the principal amount outstanding net of deferred fees (costs), purchase premiums (discounts) and net charge-offs (recoveries).

Amortized cost excludes accrued interest,

which is reflected in interest receivable and other assets in the consolidated statements of condition.

Originated Loans:

Loans are reported at amortized cost, which is the principal amount outstanding net of deferred fees (costs), purchase premiums (discounts) and net charge-offs (recoveries).

Amortized cost excludes accrued interest, which is reflected in interest receivable and other assets in the consolidated statements of condition.

We do not measure an allowance for credit losses on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status as discussed below.

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Upon prepayment or other disposition of the underlying loans before their contractual maturities, any associated unearned fees or unamortized costs are recognized.

Acquired Loans - ASC 326 modified the accounting for purchased loans and requires that an allowance for credit losses be established at the date of acquisition.

Acquired Loans:

ASC 326 modified the accounting for purchased loans and requires that an allowance for credit losses be established at the date of acquisition.

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

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

Past-Due and Non-Accrual Loan Policy - A loan is considered past due when a payment has not been received by the contractual due date.

Past-Due and Non-Accrual Loan Policy:

A loan is considered past due when a payment has not been received by the contractual due date.

Loans are placed on non-accrual status when management believes that there is substantial doubt as to the collection of principal or interest, generally when they become contractually past due by 90 days or more with respect to principal or interest, except for loans that are well-secured and in the process of collection.

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• The borrower has resumed paying the full amount of the principal and interest and we are satisfied with the borrower's financial position.

In order to meet this test, we must have received repayment of all past due principal and interest, unless the amounts contractually due are reasonably assured of repayment within a reasonable period of time, and there has been a sustained period of repayment performance (generally, six consecutive monthly payments), according to the original contractual terms or modified terms for loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties (“troubled debt restructuring”).

• The loan has become well secured and is in the process of collection.

Loan Charge-Off Policy - For all loan types excluding overdraft accounts, we generally make a charge-off determination at or before 90 days past due.

Loan Charge-Off Policy:

For all loan types excluding overdraft accounts, we generally make a charge-off determination at or before 90 days past due.

A collateral-dependent loan is partially charged down to the fair value of collateral securing it if:

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Overdraft accounts are generally charged off when they exceed 60 days past due.

Troubled Debt Restructured Loans - Our loan portfolio includes certain loans modified in a troubled debt restructuring (“TDR”), where we have granted economic concessions to borrowers experiencing financial difficulties.

These concessions typically result from our loss mitigation activities and may 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 six months, and obtains reasonable assurance of repayment and performance.

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

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

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

• Performance on the loan is reasonably assured;

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

Section 4013 of the 2020 CARES Act, subsequently amended by section 541 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act of 2020 ("Economic Aid Act"), provided optional, temporary relief from evaluating loans that may have been considered TDRs under GAAP.

This relief applies to loan modifications executed between March 1, 2020 and the earlier of 60 days after the national emergency is terminated or January 1, 2022.

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

Accordingly, modifications that met certain criteria of the CARES Act were not categorized as troubled debt restructurings during 2021 and 2020.

There were no loans remaining under this payment relief program as of December 31, 2022.

Collateral Dependent Loans - A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral.

Collateral Dependent Loans:

A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral.

For collateral dependent loans, including those for which management determines foreclosure is probable, each loan is individually evaluated and the allowance for credit losses is based on the fair value of the collateral, adjusted for estimated selling costs when repayment is expected from the sale of the collateral, less the loan's amortized c ost.

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We may obtain appraisals more frequently if we believe the collateral value is subject to market volatility, if a specific event has affected the collateral, or if we believe foreclosure is imminent.

Allowance for Credit Losses on Loans ("ACL") - is a valuation account that is deducted from the amortized cost basis at the balance sheet date to present the net amount of loans expected to be collected.

Allowance for Credit Losses on Loans ("ACL"):

The ACL is a valuation account that is deducted from the amortized cost basis at the balance sheet date to present the net amount of loans expected to be collected.

Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses (refer to the Past-Due and Non-Accrual Loan Policy section above).

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Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments and curtailments, when appropriate.

The pooled loans' contractual loan terms exclude extensions, renewals, and modifications unless one or more of the following applies:

1) management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower, 2) the extension or renewal options are included in the original or modified contract, or 3) an existing troubled debt restructuring is within six months of maturity.

Loans that do not share the same risk characteristics as pooled loans are evaluated individually for credit loss and generally include all non-accrual loans, collateral dependent loans, and certain troubled debt restructured loans and loans graded substandard or worse as determined by management.

The pooled loans' contractual loan terms exclude assumptions about extensions, renewals, and modifications.

Loans that do not share the same risk characteristics as pooled loans are evaluated individually for credit loss and generally include all non-accrual loans, collateral dependent loans, and certain modified loans and loans graded substandard or worse, as determined by management.

Management considers whether adjustments to the quantitative portion of the ACL are needed for differences in segment-specific risk characteristics or to reflect the extent to which it expects current conditions and reasonable and supportable forecasts of economic conditions to differ from the conditions that existed during the historical period included in the development of PD and LGD.

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There were no material changes to the ACL methodology during 2023.

However, changes in assumptions that influenced management's current estimate of the expected credit losses were primarily related to a decrease in applicable loan portfolio balances and improvements in the Moody's Analytics' Baseline Forecast of California unemployment rates since December 31, 2021, which decreased the quantitative "modeled" allowance for credit losses.

These decreas es were partially offset by adjustments to the qualitative economic risk factor to account for the ongoing deterioration in the economic outlook that management believes is not captured in the quantitative portion of the allowance.

However, assumptions that mainly influenced management's current estimate of the expected credit losses were primarily adjustments to qualitative risk factors from continued uncertainty about inflation and recession risks, the potential impact of rapidly increasing interest rates and other external factors on both our non-owner-occupied commercial real estate and construction portfolios, loan and collateral concentration risks in our construction and commercial real estate portfolios, heightened portfolio management in light of current economic conditions, and continued negative trends in adversely graded loans and/or collateral values for our non-owner occupied commercial real estate office and multi-family real estate portfolios.

Other elements of the estimated current expected credit losses included increased allowances for individually analyzed loans exhibiting unique credit risk characteristics and a slight increase in Moody's Analytics' Baseline Forecast of California's unemployment rate, partially offset by the impact of an overall decrease in loans.

While we believe we use the best information available to determine the allowance for credit losses, our results of operations could be significantly affected if circumstances differ substantially from the assumptions used in determining the allowance.

Our ACL model is sensitive to changes in unemployment rate forecasts and certain other assumptions that could result in material fluctuations in the allowance for credit losses and adversely affect our financial condition and results of operations.

As discussed in the Other Recently Adopted Accounting Standards section below, as of January 1 2023, we adopted ASU No.

2022-02 under which the concept of troubled debt restructured loans and its impact on the ACL calculation was eliminated in favor of the disclosure of certain loan modifications made to borrowers experiencing financial difficulty.

Such modified loans are now subject to the Bank's standard ACL process, as outlined above.

For further information regarding the allowance for loan losses, see Note 3, Loans and Allowance for Loan Losses.

Allowance for Credit Losses on Unfunded Loan Commitments - We make commitments to extend credit to meet the financing needs of our customers in the form of loans or standby letters of credit.

Allowance for Credit Losses on Unfunded Loan Commitments:

We make commitments to extend credit to meet the financing needs of our customers in the form of loans or standby letters of credit.

We are exposed to credit losses over a loan's contractual period in the event that a decline in credit quality of the borrower leads to nonperformance.

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Adjustments to the allowance for unfunded commitments are included in non-interest expense as a provision for (or reversal of) the allowance for unfunded commitments.

Transfers of Financial Assets - We have entered into certain loan participation agreements with other organizations.

Transfers of Financial Assets:

We have entered into certain loan participation agreements with other organizations.

We account for these transfers of financial assets as sales when control over the transferred financial assets has been surrendered.

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We recognized no gains or losses on the sale of these participation interests in 2023, 2022 and 2021.

Premises and Equipment - Land is carried at cost and not depreciated.

Premises and Equipment:

Lan d is carried at cost and not depreciated.

Bank-owned buildings, leasehold improvements, furniture, fixtures, software and equipment and are stated at cost, less accumulated depreciation, and depreciated/amortized on a straight-line basis.

Furniture an d fixtures are depreciated over eight years and equipment is generally depreciated over three to twenty years .

Furniture an d fixtures are depreciated over eight years and

equipment is generally depreciated over three to twenty years .

Bank-owned buildings are depreciated over twenty-five to thirty years .

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The cost of maintenance and repairs is charged to expense as incurred.

Leases - We lease certain premises under long-term non-cancelable operating leases, most of which include escalation clauses and one or more options to extend the lease term, and some of which contain lease termination clauses.

We lease certain premises under long-term non-cancelable operating leases, most of which include escalation clauses and one or more options to extend the lease term, and some of which contain lease termination clauses.

Only those renewal and termination options that management determines are reasonably certain of exercising are included in the calculation of the lease liability.

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Refer to Note 12, Commitments and Contingencies, for further information.

Business Combinations - Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations .

A business is defined as a set of activities and assets that is

both self-sustaining and managed to provide a return to investors and generally has three elements:

Business Combinations:

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations .

A business is defined as a set of activities and assets that is both self-sustaining and managed to provide a return to investors and generally has three elements:

inputs, processes and outputs.

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If substantially all of an acquisition is made up of one asset or several similar assets, or without a substantive process that together contributes to the ability to create outputs, the acquisition is accounted for as an asset acquisition and acquisition costs will be capitalized as part of the assets acquired, rather than expensed in a business combinations.

Goodwill and Other Intangible Assets - Goodwill is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

Goodwill that arises from a business combination is periodically evaluated for impairment at the reporting unit level, at least annually.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

Core deposit intangible ("CDI") represents the estimated future benefit of deposits related to an acquisition and is booked separately from the related deposits and evaluated periodically for impairment.

The CDI asset is amortized on an accelerated method over its estimated life of ten years .

At December 31, 2022, the future estimated amortization expense for the CDI arising from our past acquisitions is as follows:

Goodwill and Other Intangible Assets:

Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

Goodwill is deemed to have an indefinite life, is not subject to amortization, and as such is tested for impairment at least annually or more frequently if events and circumstances lead management to believe the value of goodwill may be impaired.

Goodwill is the only intangible asset with an indefinite life recorded in the Company’s consolidated statements of financial condition.

Impairment testing is performed at the reporting unit level.

Management considered the Company to be its sole reporting unit for the year ended December 31, 2023.

Management’s assessment of goodwill impairment is performed in accordance with ASC 350-20, Intangibles - Goodwill and Other - Goodwill and encompasses a two-step process.

First, the Company has the option to perform a qualitative assessment to evaluate relevant events or circumstances to determine whether it is more likely than not the fair value of the Company is less than its carrying amount, including goodwill.

The factors considered in the qualitative assessment typically include macroeconomic conditions, industry and market conditions and the overall financial performance of the Company, among other factors.

If the Company determines that it is more likely than

not the fair value of the Company may be less than its carrying amounts, then it proceeds to the quantitative impairment test, whereby it calculates the fair value of the Company.

Under GAAP, in its performance of impairment testing, management has the unconditional option to proceed directly to the quantitative impairment test, bypassing the qualitative assessment.

If the carrying amount of the Company exceeds its fair value, the amount by which the carrying amount exceeds fair value, up to the carrying value of goodwill, is recorded through earnings as an impairment charge recorded in non-interest expense.

If the results of the qualitative assessment indicate that it is not more likely than not that an impairment has occurred, or if the quantitative impairment test results in a fair value of the Company that is greater than the carrying amount, then no impairment charge is recorded.

The Company performs its annual goodwill impairment test as of November 30 th each year.

Due to the market volatility experienced in the banking sector during 2023, the Company elected to bypass a qualitative assessment of goodwill and proceed directly to a quantitative assessment, the results of which indicated that goodwill totaling $ 72.8 million was not impaired as of December 31, 2023, and there were no changes to our assessment through December 31, 2023.

In addition, the Company recorded no goodwill impairment for the years ended December 31, 2022, and 2021.

Core deposit intangibles ("CDI") arising from the acquisition of other financial institutions are considered to have definite useful lives and are amortized on an accelerated method over their estimated useful life of ten years .

At December 31, 2023, the future estimated amortization expens e for the CDI arising from our past acquisitions was as follows:

(in thousands) 2024 2025 2026 2027 2028 Thereafter Total

Core deposit intangible amortization $ 975 $ 875 $ 773 $ 634 $ 242 $ 267 $ 3,766

We make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit where goodwill is assigned is less than its carrying amount.

If we conclude that it is more likely than not that the fair value is more than its carrying amount, no impairment is recorded.

Goodwill is tested for impairment on an interim basis if circumstances change or an event occurs between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

The qualitative assessment includes adverse events or circumstances identified that could negatively affect the reporting units’ fair value as well as positive and mitigating events.

Such indicators may include, among others, significant changes in legal factors or in the general business climate, significant changes in our stock price and market capitalization, unanticipated competition, and an action or assessment by a regulator.

If the fair value of a reporting unit is less than its carrying amount, an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value is recognized.

The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

We recorded no impairment adjustments to either the CDI or goodwill in 2022, 2021 and 2020.

Other Real Estate Owned ("OREO") - OREO is comprised of property acquired through a business combination, foreclosure, in substance repossession or acceptance of deeds-in-lieu of foreclosure when the related loan receivable is de-recognized.

The CDI represents the estimated future benefit of deposits related to an acquisition and is recorded separately from the related deposits and evaluated at least annually or when events and circumstances change.

We recorded no impairment adjustments for the CDI in 2023, 2022 and 2021.

Other Real Estate Owned ("OREO"):

OREO is comprised of property acquired through a business combination, foreclosure, in substance repossession or acceptance of deeds-in-lieu of foreclosure when the related loan receivable is de-recognized.

OREO is recorded at fair value of the collateral less estimated costs to sell, establishing a new cost basis, and subsequently accounted for at the lower of cost or fair value less estimated costs to sell.

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Revenues and expenses associated with OREO, and subsequent adjustments to the fair value of the property and to the estimated costs of disposal, are realized and reported as a component of non-interest income and expense when incurred.

We recorded a $ 345 thousand valuation adjustment to OREO in 2022.

Bank Owned Life Insurance ("BOLI") - The Bank owns life insurance policies on certain key current and former officers.

We recorded a $ 40 thousand and $ 345 thousand valuation adjustment to OREO in 2023 and 2022, respectively.

In July 2023, the Bank completed the sale of its only OREO property.

Bank Owned Life Insurance ("BOLI"):

The Bank owns life insurance policies on certain key current and former officers.

BOLI is recorded in interest receivable and other assets on the consolidated statements of condition at the amount that can be realized under the insurance contract at period-end, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement.

Federal Home Loan Bank of San Francisco ("FHLB") Stock - The Bank is a member of the FHLB.

Members are required to own a certain amount of stock based on the level of borrowings and other factors.

As of December 31,

2022 and 2021 our investment in FHLB stock was carried 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.

We periodically evaluate FHLB stock for impairment based on ultimate recovery of par value.

FHLB stock is included as part of interest receivable and other assets on the consolidated statements of condition.

Both cash and stock dividends are reported as non-interest income.

Investments in Low Income Housing Tax Credit Funds - We have invested in limited partnerships that were formed to develop and operate affordable housing projects for low or moderate-income tenants throughout California.

Investments in Low Income Housing Tax Credit Funds:

We have invested in limited partnerships that were formed to develop and operate affordable housing projects for low or moderate-income tenants throughout California.

Our ownership percentage in each limited partnership ran ges from 1.0 % to 3.5 %.

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We record an impairment charge if the value of the future tax credits and other tax benefits is less than the carrying value of the investments.

Employee Stock Ownership Plan (“ESOP”) - We recognize compensation cost for ESOP contributions when funds become committed for the purchase of Bancorp's common shares into the ESOP in the year in which the employees render service entitling them to the contribution.

Employee Stock Ownership Plan (“ESOP”):

We recognize compensation cost for ESOP contributions when funds become committed for the purchase of Bancorp's common shares into the ESOP in the year in which the employees render service entitling them to the contribution.

If we contribute stock, the compensation cost is the fair value of the shares when they are committed to be released (i.e., when the number of shares becomes known and formally approved).

In 2023, 2022 and 2021, Bancorp only made stock contributions to the ESOP.

Income Taxes - Income taxes reported in the consolidated financial statements are computed based on an asset and liability approach.

Income Taxes:

Income taxes reported in the consolidated financial statements are computed based on an asset and liability approach.

We recognize the amount of taxes payable or refundable for the current year and we record deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the temporary differences are expected to reverse.

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Revision of our estimate of accrued income taxes also may result from our own income tax planning, which may affect effective tax rates and results of operations for any reporting period.

position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) we intend to and are able to use the deferred tax asset for that purpose.

We present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss ("NOL") carryforward, or similar tax loss or tax credit carryforward, rather than as a liability, when (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) we intend to and are able to use the deferred tax asset for that purpose.

Otherwise, the unrecognized tax benefit is presented as a liability instead of being netted with deferred tax assets.

Earnings per share (“EPS”) - are based upon the weighted average number of common shares outstanding during each year.

Earnings per share (“EPS”):

EPS is based upon the weighted average number of common shares outstanding during each year.

The following table shows:

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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.

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

We have two forms of outstanding common stock:

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Weighted average anti-dilutive common shares not included in the calculation of diluted EPS 364 211 97

Share-Based Compensation - All share-based payments, including stock options and restricted stock, are recognized as stock-based compensation expense in the consolidated statements of comprehensive (loss) income based on the grant-date fair value of the award with a corresponding increase in common stock.

Share-Based Compensation:

All share-based payments, including stock options and restricted stock, are recognized as stock-based compensation expense in the consolidated statements of comprehensive income (loss) based on the grant-date fair value of the award with a corresponding increase in common stock.

The grant-date fair value of the award is amortized on a straight-line basis over the requisite service period, which is generally the vesting period.

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The fair value of restricted stock is based on the stock price on the grant date.

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

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

In addition, we reflect excess tax benefits as an operating activity in the consolidated statements of cash flows.

Cash paid for tax withholdings when shares are surrendered in a cashless stock option exchange is classified as a financing activity in the consolidated statements of cash flows.

Derivative Financial Instruments and Hedging Activities - Fair Value Hedges - All of our interest rate swap contracts are designated and qualified as fair value hedges.

The terms of our interest rate swap contracts are closely aligned to the terms of the designated fixed-rate loans.

Derivative Financial Instruments and Hedging Activities - Fair Value Hedges:

All of our interest rate swap contracts are designated and qualified as fair value hedges.

The terms of our loan interest rate swap contracts are closely aligned to the terms of the designated fixed-rate loans.

The hedging relationships are tested for effectiveness on a quarterly basis using a qualitative approach.

The qualitative analysis includes verification that there are no changes to the derivative's or hedged item's key terms and conditions and no adverse developments regarding risk of counterparty default, and validation that we continue to have fair value hedge designation.

Our rate swaps on available-for-sale securities were designated as partial term fair value hedges and structured such that the changes in fair value of the interest rate swaps are expected to be perfectly effective in offsetting the changes in the fair value of the hedged items attributable to changes in the swap rate.

Because the hedges met the criteria for using the shortcut method, there is no need to periodically reassess effectiveness during the term of the hedges.

The interest rate swaps are carried on the consolidated statements of condition at their fair value in other assets (when the fair value is positive) or in other liabilities (when the fair value is negative).

The changes in the fair value of the interest rate swaps are recorded in interest income.

The unrealized gains or losses due to changes in fair value of the hedged fixed-rate loans due to changes in benchmark interest rates are recorded as an adjustment to the hedged loans and offset in interest income.

For fair value designated

hedges, the gain or loss on the hedging instruments, as well as the offsetting loss or gain on the hedged items, are recognized in current earnings as fair values change.

For derivative instruments executed with the same counterparty under a master netting arrangement, we do not offset fair value amounts of interest rate swaps in liability positions with the ones in asset positions.

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Subsequent to the point of the swap designations, the fair value of the related yield maintenance agreements at the designation date that was recorded in other assets is amortized using the effective yield method over the life of the respective designated loans.

The net effect of the change in fair value of interest rate swaps, the amortization of the yield maintenance agreement and the change in the fair value of the hedged loans due to changes in benchmark interest rates result in an insignificant amount recognized in interest income.

For further detail, see Note 14, Derivative Financial Instruments and Hedging Activities.

Revenue Recognition - We utilize the following five-step model for non-financial instrument related revenue that is in scope for ASC 606, Revenue from Contracts with Customers :

For further detail, refer to Note 14, Derivative Financial Instruments and Hedging Activities.

Revenue Recognition:

We utilize the following five-step model for non-financial instrument related revenue that is in scope for ASC 606, Revenue from Contracts with Customers :

1) identify the contract, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and, 5) recognize revenue when (or as) the entity satisfies the performance obligation.

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Performance obligations for monthly maintenance fees and account analysis fees are satisfied, and the related revenue recognized, when we complete our performance obligation each month.

business accounts subject to analysis where the transaction-based fees are part of the monthly account analysis fees.

Performance obligations related to transaction-based services (such as check orders) are satisfied, and the related revenue recognized, at a point in time typically when the transaction is completed, except for business accounts subject to analysis where the transaction-based fees are part of the monthly account analysis fees.

• Debit card interchange fees - We issue debit cards to our consumer and small business customers that allow them to purchase goods and services from merchants in person, online, or via mobile devices using funds held in their demand deposit accounts held with us.

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Because we act in an agent capacity, we recognize network costs on a net basis with interchange fees in non-interest income.

Advertising Costs:

Advertising costs are expensed as incurred.

For the years ended December 31, 2022, 2021, and 2020, advertising costs totaled $ 1.1 million, $ 908 thousand, and $ 769 thousand, respectively.

Comprehensive (Loss) Income - includes net income, changes in the unrealized gains or losses on available-for-sale investment securities, and amortization of net unrealized gains or losses on securities transferred from available-for-sale to held-to-maturity, net of related taxes, reported on the consolidated statements of comprehensive (loss) income and as components of stockholders' equity.

Fair Value Measurements - We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

For the years ended December 31, 2023, 2022, and 2021, advertising costs totaled $ 1.2 million, $ 1.1 million, and $ 908 thousand, respectively.

Comprehensive Income (Loss):

Comprehensive income (loss) primarily includes net income, changes in the unrealized gains or losses on available-for-sale investment securities, reclassification adjustment for gains or losses

on fair value hedges, reclassification adjustment for realized (gains) losses on available-for-sale securities in net income, and amortization of net unrealized gains or losses on securities transferred from available-for-sale to held-to-maturity, net of related taxes, reported on the consolidated statements of comprehensive income (loss) and as components of stockholders' equity.

Fair Value Measurements:

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price notion) reflecting factors such as a liquidity premium.

Securities available-for-sale and derivatives are recorded at fair value on a recurring basis.

Our equity investments that do not have readily determinable fair values are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

FHLB stock and Visa Inc.

Class B common stock are carried at cost as of December 31, 2022 and 2021, as there was no impairment or changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

Additionally, from time to time, we may be required to record certain assets and liabilities at fair value on a non-recurring basis, such as purchased loans and acquired deposits recorded at acquisition date, certain impaired loans, other real estate owned and securities held-to-maturity that are other-than-temporarily impaired.

Equity investments that do not have readily determinable fair values are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

FHLB stock was carried at cost as of December 31, 2023, as there was no impairment or changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

Additionally, from time to time, we may be required to record certain assets and liabilities at fair value on a non-recurring basis, such as purchased loans and acquired deposits recorded at acquisition date, certain collateral dependent loans, other real estate owned and securities held-to-maturity that are other-than-temporarily impaired.

These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting.

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Other Recently Adopted Accounting Standards

Other than the early adoption of a portion of ASU No.

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

Troubled Debt Restructurings and Vintage Disclosures, as discussed below, w e did not adopt any new or amended accounting standards in 2022.

Accounting Standards Not Yet Effective

In March 2022, the FASB issued ASU No.

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

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

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

The amendments in this ASU may be elected through 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 are intended to clarify certain optional expedients and scope of derivative instruments.

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

Amendments may be elected through December 31, 2024 (as amended by ASU No.

2022-06 discussed below).

We have four interest rate swap contracts with notional values totaling $ 12.0 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.

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 require 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.

The amendment eliminated the recognition measurement guidance for troubled debt restructured ("TDR") loans and instead enhanced disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty.

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

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

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

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

Refer to Note 5, Loans and Allowance for Credit Losses on Loans, for additional information.

In March 2022, the FASB issued ASU No.

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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.

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

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

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

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

We adopted the amendments on January 1, 2023, which had no effect on our existing hedge accounting, disclosures, financial condition or results of operations.

In March 2020, the FASB issued Accounting Standards Update ("ASU") No.

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

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

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 December 31, 2023, we had three interest rate swap contracts with notional values totaling $ 8.6 million that were 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.

Accounting Standards Not Yet Effective

In June 2022, the FASB issued ASU No.

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The amendment reduces diversity in practice by clarifying that a separate contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

In addition, this ASU

provided amended examples to illustrate that a restriction that is a characteristic of the equity security, which market participants would take into account when pricing them, would be considered in measuring fair value.

In addition, this ASU provided amended examples to illustrate that a restriction that is a characteristic of the equity security, which market participants would take into account when pricing them, would be considered in measuring fair value.

This ASU also introduces new disclosure requirements.

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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 2, Investment Securities, in July 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.

2023-01, Leases (Topic 842):

Common Control Arrangements .

For public companies, the amendment requires entities to amortize leasehold improvements associated with common control lease arrangements over the useful life of the improvements to the common control group, as opposed to the shorter of the remaining lease term and the useful life of the improvements for all other operating leases.

The amendments are effective for years beginning after December 15, 2023, and may be adopted either prospectively or retrospectively.

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

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

In March 2023, the FASB issued ASU No.

2023-02, Investments—Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method .

Under current GAAP, an entity can only elect to apply the proportional amortization method to investments in low-income housing tax credit ("LIHTC") structures.

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

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

Other than investments in LIHTC funds, as disclosed in Note 4, Investment Securities, we currently have no other equity investments made primarily for the purpose of receiving income tax credits, and therefore do not anticipate that the amendments will impact our financial condition and results of operations.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

The amendments are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, enhanced interim disclosure requirements, clarifying circumstances in which an entity can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and requiring other disclosures.

The amendments are effective for annual reporting periods beginning after December 15, 2023 (i.e., 2024 Form 10-K) and interim periods within fiscal years beginning after December 31, 2024, and shall be applied retrospectively to all prior periods presented in the financial statements.

Early adoption is permitted.

We currently have only one reportable segment and are evaluating the impact of the amendments on our financial statement disclosures upon adoption.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

The amendments require disaggregated information about the effective tax rate reconciliation and additional disclosures on reconciling items and taxes paid that meet a quantitative threshold.

The amendments are effective for annual reporting periods beginning after December 15, 2024, and may be adopted either prospectively or retrospectively.

Early adoption is permitted.

We are currently evaluating the impact of the amendments on our financial statement disclosures upon adoption.

Investment Securities

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Treasury securities, obligations of state and political subdivisions, 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, U.S.

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

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

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

Corporations.

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.

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government-sponsored enterprises:

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

MBS pass-through securities issued by FHLMC, FNMA and GNMA $ 331,281 $ — $ 331,281 $ — $ ( 50,147 ) $ 281,134

CMOs issued by FHLMC 235,971 — 235,971 59 ( 29,503 ) $ 206,527

CMOs issued by FNMA 111,904 — 111,904 — ( 5,419 ) 106,485

4,866 — 4,866 128 — 4,994

CMOs issued by GNMA 52,356 — 52,356 11 ( 3,076 ) 49,291

SBA-backed securities 2,372 — 2,372 — ( 133 ) 2,239

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Obligations of state and political subdivisions 62,500 — 62,500 — ( 10,741 ) 51,759

Corporate bonds 30,000 — 30,000 — ( 1,552 ) 28,448

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

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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 and corporate bonds by Moody's and/or Standard & Poor's bond ratings as of December 31, 2022.

Obligations of state and political subdivisions Corporate bonds

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Aa2 / AA 19,457 19,514 — —

A — 101 30,000 —

A2 / A — — 30,000 30,000

Total $ 62,034 $ 62,500 $ 30,000 $ 30,000

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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.

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

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

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Total $ 925,198 $ 814,830 $ 613,479 $ 552,028 $ 972,207 $ 845,239 $ 892,605 $ 802,096

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

Sales of investment securities and gross gains and losses for the years ended December 31, 2023, 2022 and 2021 are shown in the following table.

(in thousands) 2023 2022 2021

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Gross realized losses $ ( 8,705 ) $ ( 80 ) $ ( 17 )

Pledged investment securities are shown in the following table.

Sale of equity securities:

Sales proceeds $ 2,807 $ — $ —

Gross realized gain $ 2,807 $ — $ —

1 Refer to VISA Inc.

Class B Common Stock section below for more information.

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

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

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Bankruptcy trustee deposits pledged with Federal Reserve Bank 1,151 1,686

Pledged to FHLB Securities-Backed Credit Program 383,484 —

Pledged to the Federal Reserve "BTFP" 265,660 —

Total pledged investment securities $ 938,959 $ 234,226

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Held-to-maturity:

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

MBS pass-through securities issued by FHLMC, FNMA and GNMA $ 62,627 $ ( 5,960 ) $ 218,507 $ ( 44,187 ) $ 281,134 $ ( 50,147 )

CMOs issued by FHLMC 78,144 ( 5,874 ) 113,796 ( 23,629 ) 191,940 ( 29,503 )

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

CMOs issued by FNMA 106,485 ( 5,419 ) — — 106,485 ( 5,419 )

CMOs issued by GNMA 27,570 ( 1,676 ) 10,331 ( 1,400 ) 37,901 ( 3,076 )

SBA-backed securities 2,239 ( 133 ) — — 2,239 ( 133 )

Debentures of government-sponsored agencies 38,645 ( 2,530 ) 80,711 ( 23,937 ) 119,356 ( 26,467 )

Obligations of state and political subdivisions 15,155 ( 589 ) 36,603 ( 10,152 ) 51,758 ( 10,741 )

Corporate bonds 28,448 ( 1,552 ) — — 28,448 ( 1,552 )

Total held-to-maturity $ 359,313 $ ( 23,733 ) $ 459,948 $ ( 103,305 ) $ 819,261 $ ( 127,038 )

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 )

MBS pass-through securities issued by FHLMC, FNMA and GNMA $ 44,630 $ ( 4,501 ) $ 52,235 $ ( 7,632 ) $ 96,865 $ ( 12,133 )

CMOs issued by FHLMC 169,760 ( 15,144 ) 143,995 ( 18,538 ) 313,755 ( 33,682 )

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CMOs issued by FNMA 8,214 ( 374 ) 23,612 ( 2,922 ) 31,826 ( 3,296 )

SBA-backed securities 37,845 ( 3,228 ) 6,133 ( 143 ) 43,978 ( 3,371 )

Debentures of government- sponsored agencies 19,054 ( 946 ) 116,052 ( 13,062 ) 135,106 ( 14,008 )

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

As of December 31, 2022, the investment portfolio included 232 investment securities that had been in a continuous loss position for twelve months or more and 175 investment securities 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 December 31, 2023, the investment portfolio included 306 investment securities that had been in a continuous loss position for twelve months or more and 7 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 from the U.S.

federal government.

However, since 2008, FNMA and FHLMC have been under government conservatorship and, therefore, contractual cash flows for these investments carry explicit guarantees by the U.S.

federal government.

federal government while FNMA and FHLMC remain under conservatorship.

Securities issued by the SBA and GNMA have explicit credit guarantees by the U.S.

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

Our investment 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 December 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 w e 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 December 31, 2022.

Non-Marketable Securities

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

In addition, for any available-for-sale securities in an unrealized loss position at December 31, 2023 and 2022, the Bank assessed whether it intended to sell the securities, or if it was more likely than not that it would be required to sell the securities before recovery of its amortized cost basis, which would require a write-down to fair value through net income.

Because the Bank did not intend to sell those securities that were in an unrealized loss position, and it was not more-likely-than-not that the Bank would be required to sell the securities before recovery of their amortized cost bases, the Bank determined that no write-down was necessary as of the reporting date.

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

For additional details, refer to Note 14, Derivative Financial Instruments and Hedging Activities.

Non-Marketable Securities Included in Other Assets

FHLB Capital Stock

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

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

The minimum investment requirements can increase in the event we increase our total asset size or borrowings with the FHLB.

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We held $ 16.7 million of FHLB stock included in other assets on the consolidated statements of condition at both December 31, 2023 and 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 December 31, 2022 and 2021.

The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and 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 December 31, 2023 or 2022.

On February 21, 2024 , FHLB announced a cash dividend for the fourth quarter of 2023 at an annualized dividend rate of 8.75 % to be distributed in mid-March 2024.

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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 both December 31, 2022 and 2021.

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

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

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

When converting this Class B common stock to Class A common stock based on the estimated conversion rate of 1.5991 and 1.6181 , as of December 31, 2022 and 2021, respectively, 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 $ 3.5 million and $ 3.7 million at December 31, 2022 and 2021, 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.

Class B common stock as of December 31, 2022.

These shares had a carrying value of zero because they lacked a readily determinable fair value due to the restriction 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, and uncertainty about the conversion rate to Class A shares.

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, refer to Note 12, Commitments and Contingencies.

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We invest in low-income housing tax credit funds as a limited partner, which totaled $ 2.0 million and $ 2.5 million recorded in other assets as of December 31, 2023 and 2022, respectively.

In 2022, we recognized $ 634 thousand of low income housing tax credits and other tax benefits, offset by $ 533 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

In 2023, we recognized $ 600 thousand of low income housing tax credits and other tax benefits, offset by $ 503 thousand of amortization expense for low-income housing tax credit investments, as a component of income tax expense.

As of December 31, 2023, our unfunded commitments for these low-income housing tax credit funds totaled $ 344 thousand.

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

Loans and Allowance for Credit Losses

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

Loans and Allowance for Credit Losses on Loans

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

(in thousands) 2023 2022

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Commercial owner-occupied 333,181 354,877

Commercial investor-owned 1,191,889 1,189,021

Commercial non-owner occupied

1,219,385 1,191,889

Construction 99,164 114,373

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Total loans, net of allowance for credit losses on loans $ 2,048,548 $ 2,069,563

1 A mortized cost includes net deferred loan origination costs (fees) of $ 1.8 million and $( 901 ) thousand at December 31, 2022 and 2021, respectively.

1 A mortized cost includes net deferred loan origination costs of $ 2.7 million and $ 1.8 million at December 31, 2023 and 2022, respectively.

Amounts are also net of unrecognized purchase discounts of $ 2.0 million and $ 2.6 million at December 31, 2023 and 2022, respectively.

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Lending Risks

Concentrations of Credit - Virtually all of our loans are from customers located in Northern California.

Approximately 90 % and 86 % of total loans were secured by real estate at December 31, 2022 and 2021, respectively.

At December 31, 2022 and 2021, 74 % and 70 %, respectively, of our loans were for commercial real estate, the majority of which were secured by real estate located in Marin, Sonoma, Napa, Alameda, San Francisco,

Sacramento, and Contra Costa counties (California).

The increase in the percentages secured by real estate from 2021 to 2022 was primarily due to a $ 107.7 million reduction in unsecured loans guaranteed by the SBA under the Paycheck Protection Program ("PPP"), which are included in commercial and industrial loans.

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

Concentrations of Credit:

Virtually all of our loans are from customers located in Northern California.

Approximately 90 % of total loans were secured by real estate at both December 31, 2023 and 2022.

At December 31, 2023 and 2022, 75 % and 74 %, respectively, of our loans were for commercial real estate, the majority of which were secured by real estate located in Marin, Sonoma, San Francisco, Napa, Alameda, Sacramento, and Contra Costa counties (California).

Commercial and Industrial Loans:

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

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

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

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

Pursuant to the 2020 CARES Act, Bank of Marin originated 2,876 SBA-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 AMRB as of the merger date.

As of December 31, 2022, there were 18 PP loans outstanding totaling $ 3.5 million (net of $ 99 thousand in unrecognized fees and costs), compared to 368 loans 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 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 loan is forgiven by the SBA and/or paid off prior to maturity.

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

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.

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

Commercial Real Estate Loans:

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

We underwrite these loans to be repaid from cash flow from either the business or investment property and supported by real property collateral.

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

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

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

In the event of a vacancy, we expect guarantors to carry the loans until they find a replacement tenant.

The owner's substantial equity investment provides a strong economic incentive to continue to support the commercial real estate projects.

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

Construction Loans - Construction loans are generally made to developers and builders to finance construction, renovation and occasionally land acquisitions in anticipation of near-term development.

The owner's substantial equity investment provides a strong economic incentive to continue to support their commercial real estate projects.

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

Construction Loans:

Construction loans are generally made to developers and builders to finance construction, renovation and occasionally land acquisitions in anticipation of near-term development.

Construction loans include interest reserves that are used for the payment of interest during the development and marketing periods and are capitalized as part of the loan balance.

When a construction loan is placed on nonaccrual status before the depletion of the interest reserve, we apply the interest funded by the interest reserve against the loan's principal balance.

These loans are underwritten after evaluation of the borrower's financial strength, reputation, prior track record, and independent appraisals.

When a construction loan is placed on nonaccrual status before the

depletion of the interest reserve, we apply the interest funded by the interest reserve against the loan's principal balance.

These loans are underwritten after an evaluation of the borrower's financial strength, reputation, prior track record, and independent appraisals.

We monitor all construction projects to determine whether they are on schedule, completed as planned and in accordance with the approved construction budgets.

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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 luxury 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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Our internally assigned grades are as follows:

Pass and Watch - Loans to borrowers of acceptable or better credit quality.

Pass and Watch:

Loans to borrowers of acceptable or better credit quality.

Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history, and management expertise.

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Negative external industry factors are generally not present.

The loan may be secured, unsecured or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain.

The loan may be secured, unsecured, or supported by non-real estate collateral for which the value is more difficult to determine and/or whose marketability is more uncertain.

This category also includes “Watch” loans, where the primary source of repayment has been delayed.

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

Special Mention - Potential weaknesses that deserve close attention.

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

Special Mention:

Potential weaknesses that deserve close attention.

If left uncorrected, those potential weaknesses may result in deterioration of the payment prospects for the asset.

Special Mention assets do not present sufficient risk to warrant adverse classification.

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

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

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

A Substandard asset has well-defined weaknesses that jeopardize the liquidation of the debt.

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

Well-defined weaknesses include adverse trends or developments of the borrower’s financial condition, managerial weaknesses and/or significant collateral deficiencies.

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

Well-defined weaknesses include adverse trends or developments in the borrower’s financial condition, managerial weaknesses, and/or significant collateral deficiencies.

Critical weaknesses that make collection or liquidation in full improbable.

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

6 unchanged sentences

and refinancing.

Such loans are placed on non-accrual status and usually are collateral-dependent.

We regularly review our credits for accuracy of risk grades whenever we receive new information and at each quarterly and year-end reporting period.

Such loans are placed on non-accrual status and are usually collateral-dependent.

We regularly review our credits for the accuracy of risk grades whenever we receive new information and at each quarterly and year-end reporting period.

Borrowers are generally required to submit financial information at regular intervals.

2 unchanged sentences

We monitor construction loans monthly.

We review home equity and other consumer loans based on delinquency.

We review home

equity and other consumer loans based on delinquency.

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

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

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

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

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

12 unchanged sentences

Substandard — 2,231 — — — 1,778 — 4,009

Doubtful — — 99 — — — — 99

Total commercial real estate, owner-occupied $ 14,559 $ 48,537 $ 65,523 $ 38,528 $ 41,280 $ 124,698 $ 56 $ 333,181

Commercial real estate, investor-owned:

Gross current period charge-offs $ — $ — $ — $ — $ ( 406 ) $ — $ — $ ( 406 )

Commercial real estate, non-owner occupied:

Pass and Watch $ 76,718 $ 172,028 $ 196,340 $ 150,831 $ 139,860 $ 368,675 $ 9,832 $ 1,114,284

1 unchanged sentence

Substandard 878 272 2,204 — — 20,373 — 23,727

Total commercial real estate, investor-owned $ 177,822 $ 214,664 $ 167,375 $ 164,604 $ 129,844 $ 337,523 $ 57 $ 1,191,889

Total commercial real estate, non-owner occupied

$ 77,596 $ 175,090 $ 208,042 $ 162,607 $ 155,568 $ 430,650 $ 9,832 $ 1,219,385

Construction:

Pass and Watch $ 13,138 $ 24,403 $ 19,521 $ 29,512 $ — $ — $ — $ 86,574

Special Mention 12,590 — — — — — — 12,590

Total construction $ 25,728 $ 24,403 $ 19,521 $ 29,512 $ — $ — $ — $ 99,164

7 unchanged sentences

Pass and Watch $ 22,038 $ 14,528 $ 10,632 $ 4,687 $ 5,300 $ 9,399 $ 1,061 $ 67,645

Substandard — — — — — 91 — 91

Total installment and other consumer $ 22,038 $ 14,528 $ 10,632 $ 4,687 $ 5,300 $ 9,399 $ 1,061 $ 67,645

3 unchanged sentences

Total Substandard $ 878 $ 2,503 $ 2,204 $ — $ 1,311 $ 25,217 $ 211 $ 32,324

Total Doubtful $ — $ — $ 99 $ — $ — $ — $ — $ 99

Totals $ 183,397 $ 291,859 $ 320,078 $ 264,689 $ 239,856 $ 610,122 $ 163,719 $ 2,073,720

13 unchanged sentences

Total commercial real estate, owner-occupied $ 54,188 $ 68,279 $ 40,468 $ 46,262 $ 35,111 $ 110,569 $ — $ 354,877

Commercial real estate, investor-owned:

Commercial real estate, non-owner occupied:

Pass and Watch $ 177,822 $ 211,228 $ 155,278 $ 160,670 $ 129,166 $ 308,509 $ 57 $ 1,142,730

1 unchanged sentence

Substandard — 2,264 — — — 19,724 — 21,988

Total commercial real estate, investor-owned $ 225,722 $ 187,428 $ 190,132 $ 155,496 $ 77,206 $ 352,953 $ 84 $ 1,189,021

Total commercial real estate, non-owner occupied

$ 177,822 $ 214,664 $ 167,375 $ 164,604 $ 129,844 $ 337,523 $ 57 $ 1,191,889

Construction:

9 unchanged sentences

Pass and Watch $ 20,054 $ 13,022 $ 5,727 $ 6,492 $ 4,181 $ 6,478 $ 944 $ 56,898

Substandard — — — — — 91 — 91

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

4 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 December 31, 2022 and 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

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

Loan Aging Analysis by Portfolio 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

December 31, 2023

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

There were $ 264 thousand and $ 229 thousand in SBA PPP loans included in commercial and industrial that were past due ninety days as of December 31, 2022 and 2021, respectively, for which the loan was either in process of SBA forgiveness or purchase.

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

We recognized no interest income on non-accrual loans in 2023, 2022 or 2021.

Accrued interest of $ 48 thousand was reversed from interest income for the loans that were placed on non-accrual status in 2022.

Accrued interest of $ 206 thousand and $ 48 thousand was reversed from interest income for the loans that were placed on non-accrual status in 2023 and 2022, respectively.

No interest income was reversed for the single loan that was placed on non-accrual status in 2021.

Collateral Dependent Loans

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

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

Amortized Cost by Collateral Type

2 unchanged sentences

December 31, 2023

Commercial and industrial $ 1,311 $ — $ — $ 1,311 $ —

Commercial real estate, owner-occupied 434 — — 434 —

Commercial real estate, non-owner occupied

3,081 — — 3,081 408

Home equity — 469 — 469 —

Installment and other consumer — — 91 91 —

Total $ 4,826 $ 469 $ — $ 5,295 $ 408

1 unchanged sentence

Commercial real estate, owner-occupied $ 1,563 $ — $ — $ 1,563 $ —

Commercial real estate, investor-owned 694 — — 694 —

Home equity — 778 — 778 —

Installment and other consumer — — 91 91 —

Total $ 1,563 $ 778 $ 91 $ 2,432 $ —

1 unchanged sentence

The weighted average loan-to-value of collateral-dependent loans was approximately 70 % and 42 % at December 31, 2023 and 2022, respectively.

Troubled Debt Restructuring

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

(in thousands) 2022 2021

Commercial and industrial $ 900 $ 1,183

Loan Modifications to Borrowers Experiencing Financial Difficulty

We adopted ASU No.

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

Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, as described in the Other Recently Adopted Accounting Standards section of Note 1 - Summary of Significant Accounting Policies.

The amendments eliminated the accounting guidance for troubled debt restructurings and 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, which are intended to minimize the economic loss and avoid foreclosure or repossession of collateral.

The following table summarizes the amortized cost of loans as of December 31, 2023 modified for borrowers experiencing financial difficulty during the year ended December 31, 2023 by portfolio class and type of modification granted.

(in thousands) Term Extension

Percent of Portfolio Class Total

December 31, 2023

Commercial real estate, owner-occupied

Commercial real estate, investor-owned 160 179

Home equity 619 386

Installment and other consumer 549 607

$ 1,431 0.4 %

1 TDR loans on non-accrual status totaled $ 1.6 million and $ 7.4 million at December 31, 2022 and 2021, respectively.

Unfunded commitments for TDR loans totaled $ 209 thousand and $ 441 thousand as of December 31, 2022 and 2021, respectively.

After meeting all of the conditions specified in Note 1, we removed one commercial loan with a remaining amortized cost of $ 2 thousand and an unfunded commitment of $ 600 thousand from TDR designation during 2021.

There were no loans removed from TDR designation during either 2022 or 2020.

The following table presents information for loans modified in a TDR during the presented periods, including the number of modified contracts, the amortized cost of the loans prior to modification, and the amortized cost of 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 Amortized Cost Post-Modification Amortized Cost Post-Modification Amortized Cost at Period End

TDRs modified during 2022:

Commercial real estate, non-owner occupied

As of December 31, 2023, there were no unfunded loan commitments for loans that were modified during the year ended December 31, 2023.

The following table summarizes the financial effect of loan modifications presented in the table above during the year ended December 31, 2023 by portfolio class.

(in thousands) Weighted-Average Term Extension (in years)

Year ended December 31, 2023

Commercial real estate, owner-occupied

Home equity 3 247 247 240

Total 4 $ 2,005 $ 2,005 $ 1,400

TDRs modified during 2021:

Commercial and industrial 1 $ 1,101 $ 1,101 $ 901

Home equity 1 120 120 120

Commercial real estate, non-owner occupied

The loan modifications did not significantly impact the determination of the allowance for credit losses on loans during the year ended December 31, 2023.

The Bank closely monitors the performance of the modified loans to understand the effectiveness of its modification efforts.

The following table summarizes the amortized cost and payment status of loans as of December 31, 2023 that were modified during the year ended December 31, 2023 by portfolio class.

(in thousands) Current

30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due

December 31, 2023

Commercial real estate, owner-occupied

$ 1,431 $ — $ — $ — $ 1,431 $ —

Commercial real estate, non-owner occupied

878 — — — 878 878

$ 2,309 $ — $ — $ — $ 2,309 $ 878

There were no loans to borrowers experiencing financial difficulty that were modified within the previous twelve months that had subsequently defaulted (i.e., fully or partially charged-off or became 90 days or more past due).

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 class as of December 31, 2023 and 2022.

Allocation of the Allowance for Credit Losses on Loans

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

December 31, 2023

Modeled expected credit losses $ 897 $ 1,270 $ 7,380 $ 185 $ 482 $ 619 $ 634 $ — $ 11,467

Qualitative adjustments 622 1,205 6,327 1,647 70 33 342 2,038 12,284

Specific allocations 193 1 1,226 — — 1 — — 1,421

Total $ 1,712 $ 2,476 $ 14,933 $ 1,832 $ 552 $ 653 $ 976 $ 2,038 $ 25,172

TDRs modified during 2020:

Commercial and industrial 1 $ 170 $ 162 $ 96

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

Home equity 1 276 276 271

Installment and other consumer 2 204 204 201

December 31, 2022

Modeled expected credit losses $ 1,079 $ 1,497 $ 7,937 $ 453 $ 504 $ 571 $ 610 $ — $ 12,651

Qualitative adjustments 706 990 4,739 1,484 54 24 258 2,068 10,323

Specific allocations 9 — — — — — — — 9

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

The loan modifications in 2022 included one or more of the following:

payment deferment, maturity date extension, interest rate concession, and/or other payment modifications.

The loans modified during 2021 and 2020 reflected debt consolidation, interest rate concessions, and/or other loan term and payment modifications that did not meet the criteria specified by the 2020 CARES Act for temporary relief from TDR accounting.

During 2022, 2021 and 2020, there were no other 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.

Allowance for Credit Losses on Loans Rollforward

1 unchanged sentence

Allowance for Credit Losses on Loans Rollforward

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

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, non-owner occupied

Construction Home equity Other residential Installment and other consumer Unallocated Total

Year ended December 31, 2023

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

Provision (reversal) 72 ( 289 ) ( 63 ) 251 ( 37 ) ( 49 ) 270 ( 218 ) ( 63 )

(Reversal) provision ( 100 ) 395 2,257 ( 130 ) ( 6 ) 58 131 ( 30 ) 2,575

(Charge-offs) ( 11 ) ( 406 ) — — — — ( 24 ) — ( 441 )

4 unchanged sentences

Provision (reversal) 72 ( 289 ) ( 63 ) 251 ( 37 ) ( 49 ) 270 ( 218 ) ( 63 )

Initial allowance for PCD loans 1

405 559 533 — — 6 2 — 1,505

(Charge-offs) ( 9 ) — — — — — ( 23 ) — ( 32 )

3 unchanged sentences

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

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

(Charge-offs) ( 30 ) — — — — — — — ( 30 )

Recoveries 13 — — 3 — — — — 16

Balance at September 30, 2020 2,525 3,135 11,624 860 1,038 1,260 406 1,265 22,113

Impact of CECL adoption ( 278 ) 138 1,755 201 ( 361 ) ( 212 ) ( 125 ) 486 1,604

Post adoption balance at October 1, 2020 2,247 3,273 13,379 1,061 677 1,048 281 1,751 23,717

Provision (reversal) - CECL method 269 ( 495 ) ( 697 ) 496 61 ( 50 ) 11 ( 451 ) ( 856 )

(Reversal) provision ( 1,240 ) ( 561 ) ( 476 ) 62 ( 193 ) ( 360 ) 333 986 ( 1,449 )

Initial allowance for PCD loans 1

405 559 533 — — 6 2 — 1,505

(Charge-offs) — — — — — — ( 5 ) — ( 5 )

1 unchanged sentence

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

1 The initial allowance for PCD loans relates to the AMRB merger discussed in Note 18, Merger.

2 Refer to Note 1, Summary of Significant Accounting Policies, for a discussion of our methodology for the adoption of the current expected credit loss ("CECL") accounting standards in 2020.

1 The initial allowance for purchased credit impaired ("PCD") loans relates to the AMRB merger discussed in Note 18, Merger.

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 $ 1.288 billion and $ 1.298 billion at December 31, 2023 and 2022, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 105.0 million and $ 106.2 million at December 31, 2022 and 2021, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

In addition, we pledged eligible TIC loans, which totaled $ 110.4 million and $ 105.0 million at December 31, 2023 and 2022, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

For additional information, see Note 7, Borrowings.

11 unchanged sentences

Balance at end of year $ 5,832 $ 6,445 $ 7,942

Undisbursed commitments to related parties totaled $ 562 thousand and $ 8.6 million as of December 31, 2022 and 2021, respectively.

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

Undisbursed commitments to related parties totaled $ 212 thousand and $ 562 thousand as of December 31, 2023 and 2022, respectively.

Bank Premises and Equipment

12 unchanged sentences

We own life insurance policies on the lives of certain current and former officers designated by the Board of Directors to fund our employee benefit programs.

Death benefits provided under the specific terms of these insurance policies are estimated to be $ 131.9 million at December 31, 2022.

The benefits to employees' beneficiaries are limited to each employee's active service period.

The investment in BOLI policies are reported at their cash surrender value, net of surrender charges, of $ 67.1 million and $ 61.5 million at December 31, 2022 and 2021, respectively.

The cash surrender value includes both the original premiums paid for the life insurance policies and the accumulated accretion of policy income since inception of the policies, net of mortality costs and other fees.

Earnings on BOLI totaled $ 1.2 million, $ 2.2 million and $ 973 thousand in 2022, 2021 and 2020, respectively.

These earnings included death benefit proceeds in excess of the cash surrender values of the BOLI policies of $ 86 thousand in 2022 and $ 1.1 million in 2021.

There were no death benefits on BOLI in 2020.

We regularly monitor the financial information and credit ratings of our insurance carriers to ensure that they are credit worthy and comply with our policy.

Death benefits, including gross amounts under split dollar agreements, were estimated to be $ 131.8 million as of December 31, 2023.

Generally, under split dollar agreements, the benefits to the employees' beneficiaries are limited to each employee's active service period.

The investments in BOLI policies are reported at their cash surrender value, net of surrender charges, of $ 68.1 million and $ 67.1 million at December 31, 2023 and 2022, respectively.

The cash surrender value includes both the original premiums paid for the life insurance policies and the accumulated accretion of policy income since the inception of the policies, net of mortality costs and other fees.

Earnings on BOLI totaled $ 1.8 million, $ 1.2 million and $ 2.2 million in 2023, 2022 and 2021, respectively.

These earnings included death benefit proceeds in excess of the cash surrender values of the BOLI policies of $ 313 thousand in 2023, $ 86 thousand in 2022 and $ 1.1 million in 2021.

We regularly monitor the financial information and credit ratings of our insurance carriers to ensure that they are creditworthy and comply with our policy.

A stratification of time deposits is presented in the following table:

3 unchanged sentences

Total time deposits $ 251,317 $ 119,030

Interest on time deposits was $ 323 thousand, $ 246 thousand and $ 554 thousand in 2022, 2021 and 2020, respectively.

Interest on time deposits was $ 4.7 million, $ 323 thousand and $ 246 thousand in 2023, 2022 and 2021, respectively.

Scheduled maturities of time deposits at December 31, 2023 are as follows:

6 unchanged sentences

When we place funds through CDARS, ICS and DDM, on behalf of a customer, we have the option of receiving matching deposits through the network's reciprocal deposit program, or placing deposits "one-way" for which we receive no matching deposits.

We consider the reciprocal deposits to be in-market deposits as distinguished from traditional out-of-market brokered deposits.

We consider reciprocal deposits to be in-market deposits, as distinguished from traditional out-of-market brokered deposits.

The following table shows the composition of our network deposits at December 31, 2023 and 2022.

6 unchanged sentences

The aggregate amount of deposit overdrafts that have been reclassified as loan balances was $ 320 thousand and $ 247 thousand at December 31, 2023 and 2022, respectively.

The Bank accepts deposits from shareholders, board of directors and employees in the normal course of business, and the terms are comparable to those with non-affiliated parties.

The Bank accepts deposits from shareholders, members of the board of directors, and employees in the normal course of business, and the terms are comparable to those with non-affiliated parties.

The total deposits from board directors and their businesses, and executive officers were $ 23.6 million and $ 11.2 million at December 31, 2023 and 2022, respectively.

Borrowings and Other Obligations

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

Federal Home Loan Bank:

The Bank had lines of credit with the FHLB totaling $ 1.009 billion and $ 711.6 million as of December 31, 2023 and 2022, respectively , based on the 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 as of December 31, 2023 and 2022, respectively.

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

There were no overnight borrowings under these credit facilities at December 31, 2022 and 2021.

Federal Home Loan Bank Borrowings – As of December 31, 2022 and 2021, the Bank had total lines of credit with the FHLB of $ 711.6 million and $ 820.5 million, respectively , based on the eligible collateral of certain loans.

F HLB overnight borrowings at December 31, 2022 were $ 112.0 million at a rate of 4.65 %, for a net available line of $ 599.6 million.

There were no overnight borrowings at December 31, 2021.

As part of our acquisition of AMRB, we assumed FHLB fixed-rate advances totaling $ 13.9 million that we early redeemed on August 25, 2021.

In February 2023, we increased our borrowing capacity at the FHLB by pledging certain held-to-maturity securities to Securities-Backed Credit Program, which increased our total FHLB borrowing capacity to $ 1.0372 billion as of February 28, 2023 from $ 711.6 million as of December 31, 2022.

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

At December 31, 2022 and 2021, the Bank had borrowing capacity under this line totaling $ 58.7 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 a 251.5 % effective rate in 2021, and included accelerated accretion of the $ 1.3 million remaining purchase discount due to the early redemption.

Other Obligations - Equipment finance lease liabilities totaling $ 439 thousand and $ 419 thousand at December 31, 2022 and 2021, respectively, are included in borrowings and other obligations in the consolidated statements of condition.

Federal Reserve Bank:

The Bank had a line of credit with the FRBSF secured by certain residential loans totaling $ 64.0 million and $ 58.7 million as of December 31, 2023 and 2022, respectively.

In addition, under the Federal Reserve’s Bank Term Funding Program ("BTFP") facility, the Bank could borrow an additional $ 270.2 million based on the par values of pledged investment securities as of December 31, 2023.

Other Obligations:

Finance lease liabilities totaling $ 298 thousand and $ 439 thousand at December 31, 2023 and 2022, respectively, are included in borrowings and other obligations in the Consolidated Statements of Condition.

Refer to Note 12, Commitments and Contingencies, for additional information.

The carrying values, and average balances and rates of borrowings and other obligations as of and for the years ended December 31, 2022, 2021 and 2020 are summarized in the following table.

The carrying values, average balances and average rates on borrowings and other obligations as of and for the years ended December 31, 2023, 2022 and 2021 are summarized in the following table.

2023 2022 2021

(dollars in thousands) Carrying Value Average Balance Average Rate Carrying Value Average Balance Average Rate Carrying Value Average Balance Average Rate

FHLB overnight borrowings $ 112,000 $ 1,921 4.48 % $ — $ — — % $ — $ 42 0.75 %

Other obligations (finance leases) $ 439 $ 374 0.65 % $ 419 $ 250 0.71 % $ 58 $ 132 2.62 %

FHLB short-term borrowings $ — $ 164,299 5.10 % $ 112,000 $ 1,921 4.48 % $ — $ — — %

FHLB fixed-rate advances — — — % — — — % — 642 1.18 %

Federal funds lines of credit — — — % — — — % — — — %

FRBSF short-term borrowings under the BTFP 26,000 56,959 5.30 % — — — % — — — %

Other obligations (finance leases) 298 364 1.88 % $ 439 $ 374 0.65 % 419 250 0.71 %

Total borrowings and other obligations $ 26,298 $ 221,623 5.15 % $ 112,439 $ 2,295 3.90 % $ 419 $ 892 1.08 %

Subordinated Debenture:

$ 2,777 $ 2,741 5.68 %

As part of an acquisition, 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.

Stockholders' Equity and Stock Plans

Share-Based Awards

On May 12, 2020, our shareholders approved the 2020 Director Stock Plan, replacing and superseding the 2010 Director Stock Plan (collectively "the Plan").

The Plan provides for the payment of director fees in common shares of Bancorp's common stock not to exceed 250,000 shares and a way for directors to purchase shares at fair market value.

During 2022, 2021 and 2020 we issued 10,145 , 6,443 and 5,723 shares of common stock, respectively, for director fees.

The 2020 Director Stock Plan (the "Plan") provides for the payment of director fees in common shares of Bancorp's common stock not to exceed 250,000 shares and a way for directors to purchase shares at fair market value.

During 2023, 2022 and 2021 we issued 18,362 , 10,145 and 6,443 shares of common stock, respectively, for director payments.

As of December 31, 2023, 209,642 shares were available for future director fees and purchases.

5 unchanged sentences

Options are issued at an exercise price equal to the fair value of the stock at the date of grant.

Options granted to officers and employees generally vest by one-third on each anniversary of the grant for

three years and expire ten years from the grant date.

Options granted to officers and employees generally vest by one-third on each anniversary of the grant for three years and expire ten years from the grant date.

Options granted to non-employee directors vest immediately and expire ten years from the grant date.

10 unchanged sentences

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

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

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

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

4 unchanged sentences

Options outstanding at December 31, 2020

371,584 $ 29.92 $ 2,262 5.12

Granted 55,861 36.39 8.84

2 unchanged sentences

Options outstanding at December 31, 2021

365,381 31.97 2,326 5.57

Exercisable (vested) at December 31, 2021

315,744 30.85 2,264 5.15

Options outstanding at December 31, 2021

365,381 31.97 2,326 5.57

Granted 39,094 34.16 8.49

2 unchanged sentences

Options outstanding at December 31, 2022

329,705 33.22 813 5.59

Exercisable (vested) at December 31, 2022

287,228 32.81 813 5.15

Options outstanding at December 31, 2022

329,705 33.22 813 5.59

Granted 10,040 32.54 8.49

2 unchanged sentences

Options outstanding at December 31, 2023

303,777 33.22 1 4.86

Exercisable (vested) at December 31, 2023

283,578 33.46 1 4.65

A summary of the options outstanding and exercisable by price range as of December 31, 2023 is presented in the following table:

Stock Options Outstanding as of December 31, 2022 Stock Options Exercisable as of December 31, 2022

Stock Options Outstanding as of December 31, 2023

Stock Options Exercisable as of December 31, 2023

Range of Exercise Prices Stock Options Outstanding Remaining Contractual Life (in years) Weighted Average Exercise Price Stock Options Exercisable Weighted Average Exercise Price

11 unchanged sentences

Non-vested awards at December 31, 2020

61,328 $ 39.50

Granted 30,742 38.00

10 unchanged sentences

Non-vested awards at December 31, 2023

107,552 30.88

We determine the fair value of stock options at the grant date using the Black-Scholes pricing model that takes into account the stock price at the grant date, exercise price, and the following assumptions (weighted-average shown).

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Expected price volatility 34.68 % 33.44 % 33.12 %

The fair value of stock options as of the grant date is recorded as stock-based compensation expense in the consolidated statements of comprehensive (loss) 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.

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

Stock options and restricted stock awards issued include a retirement eligibility clause whereby the requisite service period is satisfied at the retirement eligibility date.

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

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

Total compensation expense for stock options and restricted stock awards was $ 962 thousand, $ 972 thousand, and $ 1.2 million during 2022, 2021, and 2020, respectively, and the total recognized deferred tax benefits related thereto were $ 257 thousand, $ 213 thousand, and $ 341 thousand, respectively.

As of December 31, 2022, there was $ 1.4 million of total unrecognized compensation expense related to non-vested stock options and restricted stock awards, which is expected to be recognized over a weighted-average

period of approximately 2.1 years.

Total compensation expense for stock options and restricted stock awards was $ 522 thousand, $ 962 thousand, and $ 972 thousand during 2023, 2022, and 2021, respectively, and the total recognized deferred tax benefits related thereto were $ 146 thousand, $ 257 thousand, and $ 213 thousand, respectively.

As of December 31, 2023, there was $ 1.3 million of total unrecognized compensation expense related to non-vested stock options and restricted stock awards, which is expected to be recognized over a weighted-average period of approximately 2.2 years.

The total grant-date fair value of stock options vested during the years ended December 31, 2023, 2022, and 2021 was $ 255 thousand, $ 356 thousand, and $ 514 thousand, respectively.

The total grant-date fair value of restricted stock awards vested during 2022, 2021, and 2020 was $ 431 thousand, $ 1.0 million, and $ 1.2 million, respectively.

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

In 2022, 2021, and 2020 we recognized $ 3 thousand, $ 87 thousand, and $ 120 thousand, respectively, in excess tax benefits recorded as a reduction to income tax expense related to these types of transactions.

The total grant-date fair value of restricted stock awards vested during 2023, 2022, and 2021 was $ 428 thousand, $ 431 thousand, and $ 1.0 million, respectively.

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

In 2023, 2022, and 2021 we recognized $ 2 thousand, $ 3 thousand, and $ 87 thousand, respectively, in excess tax benefits recorded as a reduction to income tax expense related to these

types of transactions.

The tax benefits realized from disqualifying dispositions of incentive stock options were recognized in tax expense to the extent of the book compensation cost recorded.

Presented below is a summary of cash dividends paid in 2023, 2022 and 2021 to common shareholders, recorded as a reduction from retained earnings.

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

On January 25, 2024, the Board of Directors declared a $ 0.25 per share cash dividend, paid on February 15, 2024 to the shareholders of record at the close of business on February 8, 2024.

Years ended December 31,

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Cash dividends per common share $ 1.00 $ 0.98 $ 0.94

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

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

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

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

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

Under the California Corporations Code, payment of dividends by Bancorp to its shareholders is restricted to the amount of retained earnings immediately prior to the distribution or the amount of assets that exceeds the total liabilities immediately after the distribution.

As of December 31, 2022, Bancorp's retained earnings and amount of total assets that exceeds total liabilities were $ 270.8 million and $ 412.1 million, respectively.

As of December 31, 2023, Bancorp's retained earnings and total assets that exceeded total liabilities were $ 274.6 million and $ 439.1 million, respectively.

Under the California Financial Code, payment of dividends by the Bank to Bancorp is restricted to the lesser of retained earnings or the amount of undistributed net profits of the Bank from the three most recent fiscal years.

Under this restriction, approximately $ 6.1 million of the Bank's retained earnings balance was available for payment of dividends to Bancorp as of December 31, 2023.

Bancorp held $ 4.5 million in cash at December 31, 2022.

Bancorp held $ 7.2 million in cash as of December 31, 2023.

Share Repurchase Program

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.

The last activity under the program was in the first quarter of 2022 when the Bancorp repurchased 23,273 shares totaling $ 877 thousand.

A total of $ 34.7 million remained available to repurchase under the program as of December 31, 2022.

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

The last activity under the program was in the first quarter of 2022 when Bancorp repurchased 23,275 shares totaling $ 877 thousand.

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

There were no repurchases under this program in 2023.

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

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(in thousands)

Description of Financial Instruments Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Measurement Categories:

Description of Financial Instruments

Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Measurement Categories:

Changes in Fair Value Recorded In 1

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Corporate bonds $ 10,718 $ — $ 10,718 $ — OCI

Asset-backed securities $ 1,462 $ — $ 1,462 $ — OCI

Derivative financial assets (interest rate contracts) $ 287 $ — $ 287 $ — NI

Derivative financial liabilities (interest rate contracts) $ 1,361 $ — $ 1,361 $ — NI

December 31, 2022

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Asset-backed securities $ 1,462 $ — $ 1,462 $ — OCI

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

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

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

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

Available-for-sale securities are recorded at fair value on a recurring basis.

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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.

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

As of December 31, 2023 and 2022, 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 not record any write-downs during 2022 or 2021.

Fair value of held-to-maturity securities is determined using the same techniques discussed above for available-for-sale 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 2023 or 2022.

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

On a recurring basis, derivative financial instruments are recorded at fair value, which is based on the income approach using observable Level 2 market inputs, reflecting market expectations of future interest rates as of the measurement date.

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

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

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

We project spot rates at reset days specified by each swap contract to determine future cash flows, then discount to

present value using OIS curves as of the measurement date.

These unobservable inputs are not considered significant inputs to the fair value measurement overall.

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

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

We project spot rates at reset days specified by each swap contract to determine future cash flows, then discount to present value using OIS curves as of the measurement date.

When the value of any collateral placed with counterparties is less than the interest rate derivative liability, a credit valuation adjustment ("CVA") is applied to reflect the credit risk we pose to counterparties.

We have used the spread between the Standard & Poor's BBB rated U.S.

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

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

For further discussion on our methodology in valuing our derivative financial instruments, refer to Note 14, Derivative Financial Instruments and Hedging Activities.

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

Because there is little to no counterparty risk, we did not incorporate credit adjustments from our assessment of the counterparty credit risk in determining fair value.

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

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

These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as 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.

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 is classified as Level 3 and represents collateral acquired through foreclosure and is initially recorded at fair value as established by a current appraisal of the collateral.

Subsequent to foreclosure, OREO is carried at the lower of cost or fair value, less estimated costs to sell.

OREO values are reviewed on an ongoing basis and any subsequent decline in fair value is recorded as a foreclosed asset expense in the current period.

The value of OREO is classified as Level 3.

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

On July 12, 2023, the Bank completed the sale of its only OREO property.

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 December 31, 2023 and 2022.

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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 December 31, 2022 and 2021.

Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco stock at cost as of December 31, 2023 and 2022, and Visa Inc.

Class B common stock with no carrying value as of December 31, 2022, which was sold entirely in July of 2023.

There were no impairments or changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer as of December 31, 2023 and 2022.

See further discussion on values within Note 2, Investment Securities , above.

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Time deposits 251,317 252,824 Level 2 119,030 118,333 Level 2

Federal Home Loan Bank overnight borrowings 112,000 112,000 Level 1 — — Level 1

Federal Home Loan Bank overnight borrowings

112,000 112,000 Level 1

FRBSF short-term borrowings under the BTFP

26,000 25,998 Level 2 — — Level 2

Interest payable 2,752 2,752 Level 2 75 75 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 differ from actual price from a prospective buyer.

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

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

Fair 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 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.

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Deferred Compensation Plans

We established a Deferred Compensation Plan, which allows certain key management personnel designated by the Board of Directors of the Bank to defer up to 80 % of their salary and 100 % of their annual bonus.

Amounts deferred earn interest that is equal to the prime rate as published in the Wall Street Journal, on the first business day of the year, which was 3.25 % on January 1, 2022 and January 1, 2021.

As part of the acquisition of AMRB in August 2021, we assumed $ 2.9 million of deferred compensation plans for former members of AMRB's management team and non-employee directors.

Prior to January 1, 2022, amounts deferred earned interest based on the 5-year U.S.

Government Treasury rate plus 4.0%.

This rate was 4.36% for 2021.

Beginning January 1, 2022, the rate converted to the prime rate.

A similar Deferred Director Fee Plan, which allows members of the Board of Directors to defer the cash portion of their director compensation, went into effect on January 1, 2021, and the first deferral of their fees was in July 2021.

Our deferred compensation obligation under these plans totaled $ 7.1 million and $ 7.9 million at December 31, 2022 and 2021, respectively, and is included in interest payable and other liabilities.

We established the Bank of Marin Executive Deferred Compensation Plan, which allows certain key management personnel designated by the Board of Directors of the Bank to defer up to 80 % of their salary and 100 % of their annual bonus.

In addition, we assumed deferred compensation plans for certain members of management and non-employee directors as part of an acquisition in 2021.

In 2021, we established a similar Deferred Director Fee Plan, which allows members of the Board of Directors to defer the cash portion of their director compensation.

Amounts deferred earn interest equal to the prime rate, as published in the Wall Street Journal, on the first business day of each year, which was 7.50 % on January 1, 2023, and 3.25 % on January 1, 2022.

Benefit payments will generally commence upon separation from service at or after normal retirement age, as elected by the participant.

Our deferred compensation obligations under these plans totaled $ 6.6 million and $ 7.1 million at December 31, 2023 and 2022, respectively, and are included in interest payable and other liabilities.

401(k) Defined Contribution Plan

Our 401(k) Defined Contribution Plan, which includes a Roth 401(k) option (the “401(k) Plan”), is available to all regular employees at least eighteen years of age who complete ninety days of service, and enter the plan during one of the four open enrollment dates (January 1, April 1, July 1, and October 1) of each year.

Our 401(k) Defined Contribution Plan (“401(k) Plan”) is available to all regular employees at least eighteen years of age who complete ninety days of service, and participate in the plan beginning on the first day of the calendar quarter that immediately follows the date the participant meets the age and service requirements.

Under the 401(k) Plan, employees can defer between 1 % and 50 % of their eligible compensation, up to the maximum amount allowed by the Internal Revenue Code.

The Bank provides employer-match of 70 % of each participant's contribution, with a maximum of $ 5 thousand of matching contribution per participant per year.

Employer matching contributions to the 401(k) Plan vest at a rate of 20 % per year over five years , per plan provisions.

Employer contributions totaled $ 949 thousand, $ 991 thousand and $ 929 thousand for the years ended December 31, 2022, 2021 and 2020, respectively, and are recorded as part of salaries and benefits expense.

The Bank provides an employer-match of 70 % of each participant's contribution, with a maximum of $ 5 thousand per participant per year.

Employer matching contributions to the 401(k) Plan vest at a rate of 20 % per year over five years .

Employer contributions totaled $ 871 thousand, $ 949 thousand and $ 991 thousand for the years ended December 31, 2023, 2022 and 2021, respectively, and are recorded in salaries and employee benefits expense.

Employee Stock Ownership Plan

Our Employee Stock Ownership Plan (the “Plan”) is also available to all employees under the same eligibility criteria of the 401(k) Plan;

Our Employee Stock Ownership Plan (“ESOP”) is available to all employees under the same eligibility criteria as the 401(k) Plan;

however, employee contributions are not permitted.

The Board of Directors determines a specific portion of the Bank's profits to be contributed to the employee stock ownership each year either in common stock or in cash for the purchase of Bancorp stock to be allocated to all eligible employees based on a percentage of their salaries, regardless of whether an employee is participating in the 401(k) plan or not.

For all participants, employer contributions vest over a five-year service period, per plan provisions.

After five years of service, all employer contributions vest immediately.

Bancorp issued shares of common stock, contributed them to the ESOP and recognized expenses of $ 1.6 million in 2022 and $ 1.3 million in 2021 and 2020, based on the quoted market price on the date of contribution.

The Board of Directors determines a specific portion of the Bank's profits to be contributed to the ESOP each year either in common stock or in cash for the purchase of Bancorp stock to be allocated to all eligible employees based on a percentage of their salaries, regardless of whether an employee participates in the 401(k) Plan.

For all participants, employer contributions vest over a five-year service period.

After five years of service, all future employer contributions vest immediately.

Bancorp issued shares of common stock and contributed them to the ESOP totaling $ 1.3 million in 2023, $ 1.2 million in 2022 and $ 1.3 million in 2021, based on the quoted market price on the date of contribution.

Cash dividends paid on Bancorp stock held by the ESOP are used to purchase additional shares in the open market.

shares of Bancorp stock held by the ESOP are included in the calculations of basic and diluted earnings per share.

The employer contributions to the ESOP are included in salaries and benefits expense.

Salary Continuation Plan

A Salary Continuation Plan was established for a select group of executive management, who, upon retirement, will receive twenty-five percent of their estimated salary at retirement as salary continuation benefit payments that are fixed and will be made between five to fifteen years , depending on the executives' service period at the Bank.

Each participant will need to participate in this plan for five years before vesting begins.

After five years , the participant will vest ratably in the benefit over the remaining period until age 65 .

As part of previous acquisitions, we assumed the salary continuation agreements for former executive officers and directors.

All shares of Bancorp stock held by the ESOP are included in the calculations of basic and diluted earnings per share.

The Company's contributions to the ESOP are included in salaries and benefits expense.

Supplemental Executive Retirement Plans

Supplemental executive retirement plans ("SERPs") have been established for a select group of executive management who, upon retirement, will receive 25 % of their estimated salary as salary continuation benefit payments that are fixed between five to fifteen years , depending on the executives' service period.

Each participant is required to participate in the plan for five years before vesting begins.

After five years , the participant vests ratably in the benefit over the remaining service period until age 65 .

As part of previous acquisitions, we assumed SERPs for certain former executive officers and directors.

These plans are unfunded and nonqualified for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974.

At December 31, 2022 and 2021, respectively, our total liability under the salary continuation plans was $ 4.7 million and $ 5.3 million recorded in interest payable and other liabilities.

At December 31, 2023 and 2022, respectively, our total liability under the SERPs was $ 4.5 million and $ 4.7 million recorded in interest payable and other liabilities.

The current and deferred components of the income tax provision for each of the three years ended December 31 are as follows:

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Total current tax provision 6,057 17,357 11,442

Deferred tax (benefit) provision

Deferred tax provision (benefit)

Federal 319 ( 441 ) 274

State ( 235 ) 7 ( 58 )

Total deferred tax (benefit) provision ( 434 ) 216 ( 1,658 )

Total deferred tax provision (benefit)

84 ( 434 ) 216

Total income tax provision $ 6,141 $ 16,923 $ 11,658

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Net unrealized losses on securities available-for-sale $ 20,993 $ 29,458

Operating and finance lease liabilities 8,002 7,642

Allowance for credit losses on loans and unfunded loan commitments 7,775 7,229

Operating and finance lease liabilities 6,860 8,002

Deferred compensation and salary continuation plans 3,289 3,481

Accrued but unpaid expenses 1,709 1,751

State franchise tax 1,396 930

Net operating loss carryforwards 1,136 1,239

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Stock-based compensation 632 697

State franchise tax 593 1,396

Depreciation and disposals on premises and equipment 179 236

Other 194 144

Total gross deferred tax assets 43,935 54,588

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Operating and finance lease right-of-use assets ( 6,092 ) ( 7,465 )

Core deposit intangible assets ( 1,512 ) ( 1,953 )

Deferred loan origination costs and fees ( 1,435 ) ( 1,476 )

Net unrealized gains on securities available-for-sale — ( 745 )

Core deposit intangible assets ( 1,113 ) ( 1,512 )

Other ( 226 ) ( 279 )

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If not fully utilized, the California NOLs will begin to expire in 2031.

Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are expected to be deductible, management believes it is more likely than not we will realize the benefit of the remaining deferred tax assets.

Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are expected to be deductible, management believes it is more likely than not that we will realize the benefit of the remaining deferred tax assets.

Accordingly, no valuation allowance has been established as of December 31, 2023 or 2022.

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Low income housing and qualified zone academy bond tax credits ( 0.6 ) % ( 0.2 ) % ( 0.4 ) %

Stock-based compensation and excess tax benefits — % ( 0.1 ) % ( 0.2 ) %

Stock-based compensation and excess tax deficiencies (benefits) 0.2 % — % ( 0.1 ) %

Other ( 0.3 ) % ( 0.2 ) % ( 0.4 ) %

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federal tax jurisdiction and a combined return in the State of California tax jurisdiction.

There were no ongoing federal or state income tax examinations at the issuance of this report.

There were no ongoing federal or state income tax examinations at the time of the issuance of this report.

We are no longer subject to examinations by tax authorities for years before 2020 for federal income tax and before 2019 for California.

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

We lease certain equipment under finance leases with initial terms of 3 years to 5 years.

We lease certain equipment under finance leases with initial terms of 3 to 5 years.

The equipment finance leases do not contain renewal options, bargain purchase options, or residual value guarantees.

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Total lease cost $ 5,647 $ 5,486 $ 4,921

1 Included in occupancy and equipment expense in the consolidated statements of comprehensive (loss) income.

2 Included in depreciation and amortization in the consolidated statements of comprehensive (loss) income.

3 Included in interest on borrowings and other obligations in the consolidated statements of comprehensive (loss) income.

1 Included in occupancy and equipment expense in the consolidated statements of comprehensive income (loss).

2 Included in depreciation and amortization in the consolidated statements of comprehensive income (loss).

3 Included in interest on borrowings and other obligations in the consolidated statements of comprehensive income (loss).

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 December 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.

Total minimum lease payments do not include future minimum payment obligations of approximately $ 2.0 million, excluding renewal options, for an operating lease agreement related to an existing retail branch that commenced subsequent to December 31, 2023.

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

(in thousands) December 31, 2023

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2026 3,373 38

2026 3,129 36

Thereafter 7,308 —

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Litigation Matters

Bancorp may be party to legal actions that arise from time to time in the normal course of business.

Bancorp may be subject to legal actions that arise from time to time in the normal course of business.

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

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("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 had reached a $ 4.0 billion interchange multidistrict litigation class settlement agreement with plaintiffs representing a class of U.S.

For the fiscal year ended September 30, 2022 and fiscal quarter ended December 31, 2022, Visa deposited an additional $ 600 million and $ 350 million, respectively, into the litigation escrow account to address claims of certain merchants who opted out of the Amended Settlement Agreement for a balance of $ 1.7 billion as of December 31, 2022.

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 2, 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.

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Therefore, we are not required to record any contingent liabilities for the indemnification related to the Covered Litigation, as we consider the probability of losses to be remote.

For further information, including a discussion of a reduction to our holdings of Class B Visa shares, refer to Note 2, Investment Securities.

Concentrations of Credit Risk

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Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investment securities and loans.

Our cash in correspondent bank accounts, at times, may exceed FDIC insured limits.

At times, our cash in correspondent bank accounts may exceed FDIC insured limits.

We place cash and cash equivalents with the Federal Reserve Bank and other high credit quality financial institutions, periodically monitor their credit worthiness and limit the amount of credit exposure to any one institution according to regulations.

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government and GSEs, which accounted for $ 1.272 billion, or 86 % of our total investment portfolio at December 31, 2023 and $ 1.535 billion, or 87 % at December 31, 2022.

The increase is from the deployment of excess liquidity throughout 2022 into securities with purchases of $ 516.6 million of this security type.

The decrease was mainly due to the sale of $ 167.4 million and $ 106.1 million in paydowns of this security type in 2023.

The largest security not issued by the U.S.

Government or a GSE accounted for approximately 1 % of our total investment portfolio at December 31, 2022, and 2 % at December 31, 2021.

We also manage our credit exposure related to our loan portfolio to avoid the risk of undue concentration of credits in a particular industry by reducing significant exposure to highly leveraged transactions or to any individual customer or counterparty, and by obtaining collateral, as appropriate.

government or a GSE accounted for approximately 1 % of our total investment portfolio at both December 31, 2023 and 2022.

We also manage our credit exposure related to our loan portfolio to avoid the risk of undue concentration of credits in a particular industry or geographic location by reducing significant exposure to highly leveraged transactions or to

any individual customer or counterparty, and by obtaining collateral, as appropriate.

With the heightened market concern about non-owner-occupied commercial real estate, and in particular the office sector, we continue to maintain diversity among property types and within our geographic footprint.

In particular, our office commercial real estate portfolio in the City of San Francisco represented 3 % of our total loan portfolio and 6 % of our total non-owner-occupied commercial real estate portfolio as of December 31, 2023.

No single borrower relationship accounted for more than 3 % of outstanding loan balances at December 31, 2023 or 2022.

The largest loan concentration is real estate, which accounted for 89 % and 84 % of our loan portfolio at December 31, 2022 and 2021, respectively.

The increase in the percentage in real estate from 2021 to 2022 was primarily due to a $ 107.7 million reduction in unsecured loans guaranteed by the SBA under the PPP, which are included in commercial and industrial loans.

The largest loan concentration is real estate, which accounted for 90 % of our loan portfolio at both December 31, 2023 and 2022.

Derivative Financial Instruments and Hedging Activities

We entered into interest rate swap agreements, primarily as an asset/liability management strategy, in order to mitigate the changes in the fair value of specified long-term fixed-rate loans (or firm commitments to enter into long-term fixed-rate loans) caused by changes in interest rates.

These hedges allow us to offer long-term fixed rate loans to customers without assuming the interest rate risk of a long-term asset.

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

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

The Bank is exposed to certain risks from both its business operations and changes in economic conditions.

As part of our asset/liability and interest rate risk management strategy, we may enter into interest rate derivative contracts to modify repricing characteristics of certain of our interest-earning assets and interest-bearing liabilities.

The Bank generally designates interest rate hedging agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges.

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

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

As of December 31, 2022, 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.

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

The interest rate swaps involve the receipt of floating rate interest from a counterparty in exchange for us making fixed-rate interest payments over the lives of the agreements, without the exchange of the underlying notional values.

The transactions were designated as partial term fair value hedges and structured such that the changes in the fair value of the interest rate swaps are expected to be perfectly effective in offsetting the changes in the fair value of the hedged items attributable to changes in the SOFR OIS swap rate, the designated benchmark interest rate.

Because the hedges met the criteria for using the shortcut method, there is no need to periodically reassess effectiveness during the term of the hedges.

For fair value designated hedges, the gains or losses on the hedging instruments as well as the offsetting gains or losses on the hedged items, are recognized in current earnings as their fair values change.

In addition, we had three interest rate swap agreements on certain loans with our customers, which are scheduled to mature at various dates ranging from June 2031 to July 2032.

In December 2023, one interest rate swap, scheduled to mature in October 2037, was terminated as the hedged loan was paid off.

The loan interest rate swaps were designated as fair value hedges and allowed us to offer long-term fixed-rate loans to customers without assuming the interest rate risk of a long-term asset.

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

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

The notional amounts of the interest rate contracts are equal to the notional amounts of the hedged loans.

Our interest rate swap payments are settled monthly with counterparties.

Accrued interest receivable on the swaps totaled $ 5 thousand at December 31, 2022, and accrued interest payable on the swaps totaled $ 11 thousand at December 31, 2021.

Information on our derivatives follows:

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

Fair value hedges:

Available-for-sale securities:

Interest rate swaps - notional amount $ — $ — $ 101,770 $ —

Interest rate swaps - fair value 1

$ — $ — $ 1,359 $ —

Loans receivable:

Interest rate contracts - notional amount $ 6,441 $ 12,046 $ 2,157 $ —

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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 December 31, 2023 and 2022.

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

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

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

Loans $ 11,319 $ 13,976 $ ( 726 ) $ 939

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

Available-for-sale securities 1

$ 107,181 $ — $ ( 1,359 ) $ —

Loans receivable 2

$ 8,183 $ 11,319 $ ( 367 ) $ ( 726 )

1 Carrying value equals the amortized cost basis of the securities underlying the hedge relationship, which is the book value net of the fair value hedge adjustment.

Amortized cost excludes accrued interest totaling $ 222 thousand as of December 31, 2023.

2 Carrying value equals the amortized cost basis of the loans underlying the hedge relationship, which is the loan balance net of deferred loan origination fees and cost and the fair value hedge adjustment.

Amortized cost excludes accrued interest, which was not material.

The following table presents the pretax net gains (losses) recognized in interest income related to our fair value hedges for the years presented.

Years ended December 31,

(in thousands) 2023 2022 2021

Interest on investment securities 1

Decrease in fair value of interest rate swaps hedging available-for-sale securities $ ( 1,359 ) $ — $ —

Hedged interest earned (paid) 367 — —

Increase in carrying value included in the hedged available-for-sale securities 1,359 — —

Net gain recognized in interest income on investment securities $ 367 $ — $ —

Interest and fees on loans 1

$ 93,868 $ 91,612 $ 84,674

Increase (decrease) in value of designated interest rate swaps due to LIBOR interest rate movements $ 1,687 $ 827 $ ( 734 )

Payment on interest rate swaps ( 143 ) ( 369 ) ( 360 )

(Decrease) increase in value of hedged loans ( 1,666 ) ( 814 ) 809

(Decrease) increase in fair value of interest rate swaps hedging loans receivable $ ( 317 ) $ 1,687 $ 827

Hedged interest earned (paid) 268 ( 143 ) ( 369 )

Increase (decrease) in carrying value included in the hedged loans 359 ( 1,666 ) ( 814 )

Decrease in value of yield maintenance agreement ( 9 ) ( 10 ) ( 11 )

Net losses on fair value hedging derivatives recognized in interest income $ ( 132 ) $ ( 367 ) $ ( 297 )

1 Represents the income line item in the statements of comprehensive (loss) income in which the effects of fair value hedges are recorded.

Our derivative transactions with counterparties are under International Swaps and Derivative Association (“ISDA”) master agreements that include “right of set-off” provisions.

Net gain (loss) recognized in interest income on loans $ 301 $ ( 132 ) $ ( 367 )

1 Represents the income line item in the statements of comprehensive income (loss) in which the effects of fair value hedges are recorded.

Our derivative transactions with the counterparty are under an International Swaps and Derivative Association (“ISDA”) master agreement that includes “right of set-off” provisions.

“Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis.

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of Recognized Statements of in the Statements Financial Cash Collateral

(in thousands) Assets Condition of Condition Instruments Received Net Amount

(in thousands) Assets 1

Condition of Condition 1

Instruments Received Net Amount

December 31, 2023

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

Total $ 287 $ — $ 287 $ — $ — $ 287

December 31, 2022

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

Total $ 602 $ — $ 602 $ — $ — $ 602

Offsetting of Financial Liabilities and Derivative Liabilities

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

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

December 31, 2022

Counterparty $ — $ — $ — $ — — $ —

Total $ — $ — $ — $ — $ — $ —

1 Amounts exclude accrued interest on swaps.

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We are subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements as set forth in the following tables can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated

financial statements.

Failure to meet the minimum capital requirements as set forth in the following tables can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

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Management reviews capital ratios on a regular basis and produces a five-year capital plan semi-annually to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs.

Stress tests are performed on capital ratios and include scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth, loan credit quality deterioration, and potential share repurchases.

For all periods presented, the Bank’s ratios exceed the regulatory definition of “well-capitalized” under the regulatory framework for prompt corrective action and Bancorp’s ratios exceed the required minimum ratios to be considered a well-capitalized bank holding company.

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The Bancorp’s and Bank's capital adequacy ratios as of December 31, 2023 and 2022 are presented in the following tables.

Capital Ratios for Bancorp

Bancorp Capital Ratios

(dollars in thousands)

Actual Ratio Adequately Capitalized Threshold Ratio to be a Well Capitalized Bank Holding Company

Actual Adequately Capitalized Threshold 1

Threshold to be a Well Capitalized Bank Holding Company

December 31, 2023 Amount Ratio Amount Ratio Amount Ratio

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Tier 1 Capital (to risk-weighted assets) $ 415,224 15.91 % $ 221,811 8.50 % $ 208,763 8.00 %

Tier 1 Capital (to average assets) $ 407,912 9.60 % ≥ $ 169,948 ≥ 4.00 % ≥ $ 212,435 ≥ 5.00 %

Tier 1 Leverage Capital (to average assets) $ 415,224 10.46 % $ 158,771 4.00 % $ 198,464 5.00 %

Common Equity Tier 1 (to risk-weighted assets) $ 415,224 15.91 % $ 182,668 7.00 % $ 169,620 6.50 %

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Tier 1 Capital (to risk-weighted assets) $ 407,912 15.02 % $ 230,778 8.50 % $ 217,203 8.00 %

Tier 1 Capital (to average assets) $ 373,286 8.85 % ≥ $ 168,750 ≥ 4.00 % ≥ $ 210,937 ≥ 5.00 %

Tier 1 Leverage Capital (to average assets) $ 407,912 9.60 % $ 169,948 4.00 % $ 212,435 5.00 %

Common Equity Tier 1 (to risk-weighted assets) $ 407,912 15.02 % $ 190,053 7.00 % $ 176,478 6.50 %

Capital Ratios for the Bank (dollars in thousands)

Actual Ratio Adequately Capitalized Threshold Ratio to be Well Capitalized under Prompt Corrective Action Provisions

Bank Capital Ratios

(dollars in thousands)

Actual Adequately Capitalized Threshold 1

Threshold to be Well Capitalized under Prompt Corrective Action Provisions

December 31, 2023 Amount Ratio Amount Ratio Amount Ratio

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Tier 1 Capital (to risk-weighted assets) $ 407,981 15.64 % $ 221,798 8.50 % $ 208,751 8.00 %

Tier 1 Capital (to average assets) $ 403,352 9.49 % ≥ $ 169,940 ≥ 4.00 % ≥ $ 212,425 ≥ 5.00 %

Tier 1 Leverage Capital (to average assets) $ 407,981 10.28 % $ 158,767 4.00 % $ 198,459 5.00 %

Common Equity Tier 1 (to risk-weighted assets) $ 407,981 15.64 % $ 182,657 7.00 % $ 169,610 6.50 %

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Tier 1 Capital (to risk-weighted assets) $ 403,352 14.86 % $ 230,757 8.50 % $ 217,183 8.00 %

Tier 1 Capital (to average assets) $ 367,109 8.70 % ≥ $ 168,724 ≥ 4.00 % ≥ $ 210,905 ≥ 5.00 %

Tier 1 Leverage Capital (to average assets) $ 403,352 9.49 % $ 169,940 4.00 % $ 212,425 5.00 %

Common Equity Tier 1 (to risk-weighted assets) $ 403,352 14.86 % $ 190,035 7.00 % $ 176,461 6.50 %

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

Financial Instruments with Off-Balance Sheet Risk

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We use the same credit underwriting criteria for all credit exposure.

The amount of collateral

obtained, if deemed necessary by us, is based on management's credit evaluation of the borrower.

The amount of collateral obtained, if deemed necessary by us, is based on management's credit evaluation of the borrower.

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

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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 $ 1.5 million and $ 1.8 million as of December 31, 2022 and December 31, 2021, respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.

The $ 318 thousand decrease in the allowance for unfunded commitments in 2022 was largely due to the decrease in the balance of unfunded commitments.

The $ 993 thousand decrease in the allowance for unfunded commitments in 2021 was largely due to ongoing improvements in the underlying economic forecasts under the CECL accounting method at the time.

We adopted the CECL accounting standard on December 31, 2020, (refer to Note 1, Summary of Significant Accounting Policies and Note 3, Loans and Allowance for Credit Losses for additional information).

During the first nine months of 2020, we increased the allowance for credit losses on unfunded loan commitments under the incurred loss method ("previous GAAP") by $ 610 thousand.

Upon adoption of the CECL standard, we increased it by $ 1.1 million, which included approximately $ 550 thousand related to a $ 36.9 million increase in available commitments during the fourth quarter of 2020.

The remaining increase was due to changes in credit loss assumptions between the CECL and incurred loss methods at the time.

The allowance for credit losses on unfunded commitments totaled $ 1.1 million and $ 1.5 million as of December 31, 2023 and 2022, respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.

We recorded reversals of the provision for credit losses on unfunded commitments totaling $ 342 thousand, $ 318 thousand and $ 992 thousand in 2023, 2022, and 2021, respectively.

The reversals in 2023 and 2022 were due primarily to decreases in total unfunded loan commitments.

The reversal in 2021 was largely due to ongoing improvements in the underlying economic forecasts under the CECL accounting method at the time .

Condensed Bank of Marin Bancorp Parent Only Financial Statements

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Income before equity in undistributed net income of subsidiary 18,799 14,937 59,849

14,937 59,849 15,157

Earnings of bank subsidiary greater (less) than dividends received from bank subsidiary 1,096 31,649 ( 26,621 )

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Net cash provided by operating activities 18,872 14,832 59,488

14,832 59,488 15,312

Cash Flows from Investing Activities:

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Net cash used in investing activities ( 276 ) ( 899 ) ( 619 )

( 899 ) ( 619 ) ( 1,464 )

Cash Flows from Financing Activities:

Proceeds from stock options exercised and stock issued under employee and director stock purchase plans 899 587 1,419

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

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Stock repurchased, including commissions — ( 1,250 ) ( 40,762 )

Proceeds from stock options exercised and stock issued under employee and director stock purchase plans 276 899 587

Net cash used in financing activities ( 15,900 ) ( 16,064 ) ( 57,574 )

Net (decrease) increase in cash and cash equivalents ( 2,131 ) 1,295 ( 4,210 )

Net increase (decrease) in cash and cash equivalents 2,696 ( 2,131 ) 1,295

Cash and cash equivalents at beginning of year 4,493 6,624 5,329

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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's shareholders received 0.575 shares of Bancorp's common 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.

AMRB's 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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We recorded $ 42.6 million in goodwill, which represented the excess of the total merger consideration paid of $ 124.5 million over the fair value of the net assets acquired of $ 81.9 million.

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

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

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

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

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

Years ended December 31,

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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-K

Item 8. Financial Statements and Supplementary Data