What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-03-14 compared with 2024-03-14 · 306 added, 314 removed, 1670 unchanged (27% of the section changed)

23 unchanged sentences

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,

accurately and fairly reflect the transactions and dispositions of the assets of the company;

only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

1 unchanged sentence

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 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.

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 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.

As described in Note 1 and Note 3 to the consolidated financial statements, the allowance for credit losses on loans at December 31, 2024, was $30.7 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 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.

We identified the forecasted economic conditions and qualitative internal and external risk factors used in the allowance for credit losses on loans as a critical audit matter.

The principal considerations for our determination of these components 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.

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 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 on Loans, including controls over qualitative internal and external risk factors and the forecasted economic conditions utilized.

Auditing management’s judgements regarding the 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.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

Our audit procedures related to the allowance for credit losses on loans included the following, among others:

• 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 the forecasted economic conditions and qualitative internal and external risk factors 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.

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

/s/ Moss Adams LLP

12 unchanged sentences

Based on this assessment, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2024.

The Company's independent registered public accounting firm, Moss Adams LLP, has issued an attestation report on our internal control over financial reporting, which appears on the previous page.

The Company's independent registered public accounting firm, Moss Adams LLP, has issued an integrated audit opinion on our internal control over financial reporting, which appears on the previous page.

/s/ Timothy D.

Myers, President and Chief Executive Officer

/s/ Tani Girton

Tani Girton, EVP and Chief Financial Officer

/s/ Dave Bonaccorso

Dave Bonaccorso, EVP and Chief Financial Officer

BANK OF MARIN BANCORP

17 unchanged sentences

Core deposit intangible, net 2,792 3,766

Other real estate owned — 455

Interest receivable and other assets 72,269 74,946

40 unchanged sentences

Interest on borrowings and other obligations 241 11,562 91

Interest on subordinated debenture — — 1,361

Total interest expense 46,613 36,733 2,549

2 unchanged sentences

Reversal of credit losses on unfunded loan commitments ( 233 ) ( 342 ) ( 318 )

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

Net interest income after provision for (reversal of) for credit losses

89,343 100,528 127,873

Non-interest income

1 unchanged sentence

Service charges on deposit accounts 2,164 2,083 2,007

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

Earnings on bank-owned life insurance, net 1,714 1,802 1,229

Debit card interchange fees, net 1,701 1,831 2,051

Dividends on Federal Home Loan Bank stock 1,478 1,265 1,056

Merchant interchange fees, net 324 496 549

Losses on sale of investment securities, net of gains

Net losses on sale of investment securities

( 32,541 ) ( 5,893 ) ( 63 )

4 unchanged sentences

Occupancy and equipment 8,242 8,306 7,823

Data processing 4,057 4,649 5,139

Professional services 5,129 3,598 3,299

Data processing 4,222 4,057 4,649

Deposit network fees 3,526 2,783 258

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

Federal Deposit Insurance Corporation insurance 1,863 1,878 1,179

Information technology 1,686 1,569 2,197

Amortization of core deposit intangible 1,350 1,489 1,135

Depreciation and amortization 1,466 2,098 1,840

Directors' expense 1,213 1,212 1,107

Amortization of core deposit intangible 975 1,350 1,489

Charitable contributions 677 717 709

2 unchanged sentences

Total non-interest expense 81,818 79,481 75,269

Income before provision for income taxes 26,036 63,509 44,886

(Loss) income before provision for income taxes ( 13,835 ) 26,036 63,509

Provision for income taxes ( 5,426 ) 6,141 16,923

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

Net income per common share:

Net (loss) income $ ( 8,409 ) $ 19,895 $ 46,586

Net (loss) income per common share:

Basic $ ( 0.52 ) $ 1.24 $ 2.93

4 unchanged sentences

Comprehensive income (loss):

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

Net (loss) income $ ( 8,409 ) $ 19,895 $ 46,586

Other comprehensive income (loss):

Change in net unrealized gains or losses on available-for-sale securities ( 2,848 ) 20,358 ( 88,620 )

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 ) — —

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

32,541 8,700 63

Reclassification adjustment for gains or losses for fair value hedges

1,359 ( 1,359 ) —

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

3 unchanged sentences

Other comprehensive income (loss), net of tax 22,938 20,740 ( 71,722 )

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

Total comprehensive income (loss)

$ 14,529 $ 40,635 $ ( 25,136 )

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

23 unchanged sentences

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 )

2 unchanged sentences

Net income — — 19,895 — 19,895

Other comprehensive loss, net of tax — — — ( 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

8 unchanged sentences

— — ( 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

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

Net income — — 19,895 — 19,895

— — ( 8,409 ) — ( 8,409 )

Other comprehensive income, net of tax — — — 22,938 22,938

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

Stock issued under employee stock purchase plan 2,184 38 — — 38

8 unchanged sentences

Stock issued in payment of director fees 27,287 513 — — 513

Stock repurchased, including commissions ( 220,000 ) ( 4,253 ) — — ( 4,253 )

Balance at December 31, 2024

17 unchanged sentences

(Accretion of discounts) amortization of premiums on acquired loans, net ( 236 ) ( 573 ) 153

Accretion of discount on subordinated debenture — — 1,347

Net change in deferred loan origination costs/fees 120 ( 836 ) ( 2,716 )

Write-down of other real estate owned — 40 345

Losses on sale of investment securities, net of gains

Net losses on sale of investment securities

32,541 5,893 63

Depreciation and amortization 1,466 2,098 1,840

Earnings on bank-owned life insurance policies ( 1,714 ) ( 1,802 ) ( 1,229 )

Net changes in:

Net changes in interest receivable and other assets ( 6,695 ) ( 4,149 ) 2,228

3 unchanged sentences

Cash Flows from Investing Activities:

Proceeds from sale of premises and equipment 21 — —

Purchase of held-to-maturity securities — — ( 319,937 )

6 unchanged sentences

Decrease in loans receivable, net 26,150 16,945 164,019

Purchased Loans

( 35,874 ) — —

Proceeds from sale of loan — 3,263 —

3 unchanged sentences

Proceeds from sale of other real estate owned — 420 —

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

Cash paid for low income housing tax credit investment ( 5 ) ( 42 ) ( 30 )

1 unchanged sentence

Cash Flows from Financing Activities:

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

Decrease in deposits

( 70,060 ) ( 283,273 ) ( 235,202 )

(Repayment of) proceeds from short-term borrowings, net ( 26,000 ) ( 86,000 ) 112,000

Repayment of finance lease obligations ( 152 ) ( 148 ) ( 131 )

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

Proceeds from stock options exercised — 230 821

14 unchanged sentences

Change in net unrealized gains or losses on available-for-sale securities $ ( 2,848 ) $ 20,358 $ ( 88,620 )

Purchase of available-for-sale security on account and unsettled $ — $ — $ —

Cumulative effect of change in accounting principle ASU 2016-13 $ — $ — $ —

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

2 unchanged sentences

$ — $ 3,263 $ —

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

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

Fair value of liabilities assumed $ — $ — $ 816,558

Restricted cash 1

6 unchanged sentences

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.

6 unchanged sentences

All material intercompany transactions have been eliminated.

We monitor financial performance and evaluate the revenue streams of the various products, services, locations, and operations on a company-wide basis.

Accordingly, all of the community banking and wealth m anagement and trust services are considered by management to be aggregated into one reportable operating segment, community banking.

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.

Segment Reporting:

Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer, who reviews our financial information on a consolidated basis for purposes of evaluating financial performance and allocating resources.

We have one operating and reportable segment, community banking, and our other operating segment, wealth management services, does not meet the quantitative threshold for separate reporting.

Our CODM reviews consolidated net income before provision for income taxes as our primary measure of profitability alongside significant expense information consistent with the expense captions presented in our Consolidated Statements of Comprehensive Income (Loss).

These metrics are used by our CODM to monitor actual results and to benchmark to our peers.

Segment assets are equal to consolidated total assets in our Consolidated Statements of Condition and all segment non-cash items are equal to those disclosed in our Consolidated Statements of Cashflows.

We derive materially all of our income from activities within the United States, and materially all of our long lived assets are physically located within the United States.

No single customer or client relationship accounts for ten percent or more of our income.

Segment revenue, profit or loss, significant segment expenses and other segment items

December 31, 2024 December 31, 2023 December 31, 2022

(in thousands)

Community banking segment:

Interest income

$ 141,273 $ 139,494 $ 130,041

Non-interest income

( 23,780 ) 2,844 8,678

Reconciliation of income

All other income 1

2,420 2,145 2,227

Total consolidated income

119,913 144,483 140,946

Total interest expense 46,613 36,733 2,549

Provision for (reversal of) credit losses on loans

5,550 2,575 ( 63 )

Reversal of credit losses on unfunded loan commitments ( 233 ) ( 342 ) ( 318 )

Non-interest expense

Salaries and employee benefits 43,794 42,671 41,235

Occupancy and equipment 8,240 8,304 7,819

Professional services 4,562 3,086 2,688

Data processing 4,032 3,879 4,480

Deposit network fees 3,526 2,783 258

Federal Deposit Insurance Corporation insurance 1,863 1,878 1,179

Information technology 1,686 1,569 2,197

Depreciation and amortization 1,465 2,097 1,839

Directors' expense 1,213 1,212 1,107

Amortization of core deposit intangible 975 1,350 1,489

Charitable contributions 677 717 709

Other real estate owned — 48 359

Other expense 8,068 8,357 8,255

Segment (loss) income

( 12,118 ) 27,566 65,164

Reconciliation of segment (loss) income

All other loss 1

( 1,717 ) ( 1,530 ) ( 1,655 )

Loss before income taxes

$ ( 13,835 ) $ 26,036 $ 63,509

1 Other income and loss from segment below the quantitative thresholds are attributable to one operating segment of the Bank, the Wealth Management and Trust Services, which does not meet the quantitative thresholds for presenting reportable segments.

Expenses of Wealth Management and Trust Services are comprised of salary and employee benefits, professional services, data processing, occupancy and equipment and other expenses totaling $ 1.7 million.

2 The significant expense categories and amounts align with the segment-level information that is regularly provided to the chief operating decision maker.

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).

There have been no items in prior financial statements that have been reclassified to conform to the current presentation.

Use of Estimates:

9 unchanged sentences

Investments held for resale in anticipation of short-term market movements are classified as trading securities and are reported at fair value, with unrealized gains and losses included in earnings.

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

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 income (loss) and included in stockholders' equity until realized.

5 unchanged sentences

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.

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.

20 unchanged sentences

Investment securities are placed on non-accrual status when principal or interest is contractually past due more than ninety days, or management does not expect full payment of principal and interest.

We do not record an allowance for credit losses for accrued interest on investment securities, as the amounts are written-off when the investment is placed on non-accrual status.

We do not record an allowance for credit losses for accrued interest on investment securities, as the amounts are written-off

when the investment is placed on non-accrual status.

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

85 unchanged sentences

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.

Under ASU No.

2022-02 certain loan modifications made to borrowers experiencing financial difficulty 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.

8 unchanged sentences

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

Control over transferred assets is deemed to be surrendered when 1) the assets and liabilities have been isolated from us, 2) the transferee has the right to pledge or exchange the assets (or beneficial interests) it received, free of conditions that constrain it from taking advantage of that right, beyond a trivial benefit and 3) we do not maintain effective control over the transferred financial assets or third-party beneficial interests related to those transferred assets.

Control over transferred assets is deemed to be surrendered when 1) the

assets and liabilities have been isolated from us, 2) the transferee has the right to pledge or exchange the assets (or beneficial interests) it received, free of conditions that constrain it from taking advantage of that right, beyond a trivial benefit and 3) we do not maintain effective control over the transferred financial assets or third-party beneficial interests related to those transferred assets.

Transfers of a portion of a loan must meet the criteria of a participating interest.

5 unchanged sentences

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 .

28 unchanged sentences

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.

Impairment testing is performed at the reporting unit level, which management considered to be the Community Banking Segment at December 31, 2024.

Management considered the Company to be its sole reportable unit for the year ended December 31, 2024.

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 to evaluate each reporting unit.

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.

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.

2 unchanged sentences

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.

The results indicated that goodwill was not impaired as of December 31, 2024, and there were no changes to our assessment through December 31, 2024.

In addition, the Company recorded no goodwill impairment for the year ended December 31, 2023 or 2022.

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 .

10 unchanged sentences

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

We recorded a $ 40 thousand and $ 345 thousand valuation adjustment to OREO in 2023 and 2022, respectively, and no adjustment in 2024.

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

1 unchanged sentence

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.

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.

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 %.

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

We account for the investments in qualified affordable housing tax credit funds using the proportional amortization method, where the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received.

72 unchanged sentences

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).

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 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.

26 unchanged sentences

Advertising costs are expensed as incurred.

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

For the years ended December 31, 2024, 2023, and 2022, advertising costs totaled $ 1.1 million, $ 1.2 million, and $ 1.1 million, 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.

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:

10 unchanged sentences

Other Recently Adopted Accounting Standards

In March 2022, the FASB issued ASU No.

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

Troubled Debt Restructurings and Vintage Disclosures .

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

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

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

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

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

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

In March 2022, the FASB issued ASU No.

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

Fair Value Hedging - Portfolio Layer Method .

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

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

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

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

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

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

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

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

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

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

As of 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.

In June 2022, the FASB issued Accounting Standards Update ("ASU") No.

2022-03, Fair Value Measurement (Topic 820):

2 unchanged sentences

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.

The amendments are effective prospectively for years beginning after December 15, 2023.

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

This ASU also introduced new disclosure requirements.

The amendments were effective prospectively for years beginning after December 15, 2023.

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.

We adopted ASU 2022-03 in the first quarter of 2024, which as a result of the previously mentioned sale had no impact our financial condition, results of operations or disclosures.

In March 2023, the FASB issued ASU No.

1 unchanged sentence

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.

the shorter of the remaining lease term and the useful life of the improvements for all other operating leases.

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

We adopted ASU 2023-01 on a prospective basis in the first quarter of 2024, which had no impact on our financial condition or results of operations as we did not have common control lease arrangements at the time of adoption and we have not since entered into any such arrangements.

In March 2023, the FASB issued ASU No.

4 unchanged sentences

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.

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

Other than investments in LIHTC funds, as disclosed in Note 2, Investment Securities, we currently have no other equity investments made primarily for the purpose of receiving income tax credits, and therefore the adoption of this ASU had no impact on our financial condition, results of operations, or disclosures.

In November 2023, the FASB issued ASU No.

2 unchanged sentences

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.

The amendments were effective for annual reporting periods beginning after December 15, 2023 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.

We adopted ASU 2023-07 in the fourth quarter of 2024 with this Form 10-K, and the required expanded disclosures have been made above within this Note 1, Summary of Significant Accounting Policies, under the section titled Segment Reporting.

Adoption had no impact on our financial condition or results of operations.

Accounting Standards Not Yet Effective

In December 2023, the FASB issued ASU No.

5 unchanged sentences

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

In November 2024, the FASB issued ASU No.

2024-03 (updated in January 2025 to ASU No.

2025-01), Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

The amendments are intended to improve income statement expense disclosure requirements, primarily through enhanced disclosures about certain costs and expenses included in income statement expense captions.

The amendments are effective for annual reporting periods beginning after December 15, 2026 (i.e., 2027 Form 10-K) and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

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

Investment Securities

2 unchanged sentences

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.

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.

and foreign 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.

7 unchanged sentences

government-sponsored enterprises:

CMBS issued by FHLMC, FNMA and GNMA

$ 242,559 $ — $ 242,559 $ — $ ( 34,449 ) $ 208,110

CMOs issued by FHLMC, FNMA and GNMA

209,748 — 209,748 — ( 18,492 ) 191,256

MBS pass-through securities issued by FHLMC, FNMA and GNMA 192,388 — 192,388 — ( 30,942 ) 161,446

CMOs issued by FHLMC 226,416 — 226,416 28 ( 24,869 ) 201,575

CMOs issued by FNMA 101,502 — 101,502 — ( 4,779 ) 96,723

CMOs issued by GNMA 51,006 — 51,006 — ( 5,235 ) 45,771

SBA-backed securities 1,513 — 1,513 — ( 61 ) 1,452

6 unchanged sentences

government-sponsored enterprises:

CMBS issued by FHLMC, FNMA and GNMA

$ 247,441 $ — $ 247,441 $ — $ ( 35,071 ) $ 212,370

CMOs issued by FHLMC, FNMA and GNMA

228,761 — 228,761 28 ( 16,882 ) 211,907

MBS pass-through securities issued by FHLMC, FNMA and GNMA 208,983 — 208,983 — ( 27,326 ) 181,657

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

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

SBA-backed securities 1,853 — 1,853 — ( 90 ) 1,763

14 unchanged sentences

Aaa / AAA $ 42,161 $ 42,577 $ — $ —

Aa2 / AA 19,457 19,514 — —

19,399 19,457 — —

A2 / A — — 30,000 30,000

8 unchanged sentences

government-sponsored enterprises:

CMBS issued by FHLMC, FNMA and GNMA

$ 222,862 $ 154 $ ( 4,977 ) $ — $ 218,039

CMOs issued by FHLMC, FNMA and GNMA

42,432 28 ( 6,321 ) — 36,139

MBS pass-through securities issued by FHLMC, FNMA and GNMA 30,498 2 ( 4,840 ) — 25,660

CMOs issued by FHLMC 266,407 — ( 24,758 ) — 241,649

CMOs issued by FNMA 23,987 — ( 2,715 ) — 21,272

CMOs issued by GNMA 20,006 — ( 2,878 ) — 17,128

SBA-backed securities 331 — ( 23 ) — 308

3 unchanged sentences

Corporate bonds 6,000 — ( 351 ) — 5,649

Asset-backed securities — — — — —

Total available-for-sale $ 419,292 $ 184 $ ( 31,942 ) $ — $ 387,534

2 unchanged sentences

government-sponsored enterprises:

CMBS issued by FHLMC, FNMA and GNMA

$ 160,968 $ — $ ( 13,279 ) $ — $ 147,689

CMOs issued by FHLMC, FNMA and GNMA

153,689 — ( 17,420 ) — 136,269

MBS pass-through securities issued by FHLMC, FNMA and GNMA 77,680 2 ( 9,168 ) — 68,514

CMOs issued by FHLMC 347,437 — ( 33,682 ) — 313,755

CMOs issued by FNMA 36,172 — ( 3,852 ) — 32,320

CMOs issued by GNMA 35,120 — ( 3,296 ) — 31,824

SBA-backed securities 21,126 — ( 1,655 ) — 19,471

3 unchanged sentences

Corporate bonds 11,992 — ( 1,274 ) — 10,718

Asset-backed securities 1,553 — ( 91 ) — 1,462

Total available-for-sale $ 613,479 $ 3 $ ( 61,454 ) $ — $ 552,028

26 unchanged sentences

Class B Common Stock section below for more information.

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

The reported values of pledged investment securities are shown in the following table (which includes both encumbered and unencumbered securities).

(in thousands) December 31, 2024 December 31, 2023

6 unchanged sentences

Pledged to FHLB Securities-Backed Credit Program 284,148 383,484

Pledged to the Federal Reserve Discount Window

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

6 unchanged sentences

Held-to-maturity:

CMBS issued by FHLMC, FNMA and GNMA

$ — $ — $ 208,110 $ ( 34,449 ) $ 208,110 $ ( 34,449 )

CMOs issued by FHLMC, FNMA and GNMA

18,451 ( 1,623 ) 172,805 ( 16,869 ) 191,256 ( 18,492 )

MBS pass-through securities issued by FHLMC, FNMA and GNMA 3,487 ( 150 ) 157,959 ( 30,792 ) 161,446 ( 30,942 )

CMOs issued by FHLMC 8,662 ( 21 ) 188,657 ( 24,848 ) 197,319 ( 24,869 )

CMOs issued by FNMA 42,474 ( 411 ) 54,249 ( 4,368 ) 96,723 ( 4,779 )

CMOs issued by GNMA 10,988 ( 244 ) 34,783 ( 4,991 ) 45,771 ( 5,235 )

SBA-backed securities — — 1,452 ( 61 ) 1,452 ( 61 )

4 unchanged sentences

Available-for-sale:

CMBS issued by FHLMC, FNMA and GNMA

$ 129,402 $ ( 343 ) $ 58,065 $ ( 4,634 ) $ 187,467 $ ( 4,977 )

CMOs issued by FHLMC, FNMA and GNMA

— — 33,749 ( 6,321 ) 33,749 ( 6,321 )

MBS pass-through securities issued by FHLMC, FNMA and GNMA 7 — 25,495 ( 4,840 ) 25,502 ( 4,840 )

CMOs issued by FHLMC 1,235 ( 7 ) 240,414 ( 24,751 ) 241,649 ( 24,758 )

CMOs issued by FNMA — — 21,272 ( 2,715 ) 21,272 ( 2,715 )

CMOs issued by GNMA — — 17,128 ( 2,878 ) 17,128 ( 2,878 )

SBA-backed securities — — 309 ( 23 ) 309 ( 23 )

3 unchanged sentences

Corporate bonds — — 5,649 ( 351 ) 5,649 ( 351 )

Asset-backed securities — — — — — —

Total available-for-sale $ 129,409 $ ( 343 ) $ 225,006 $ ( 31,599 ) $ 354,415 $ ( 31,942 )

4 unchanged sentences

Held-to-maturity:

CMBS issued by FHLMC, FNMA and GNMA

$ 10,988 $ ( 244 ) $ 201,383 $ ( 34,826 ) $ 212,371 $ ( 35,070 )

CMOs issued by FHLMC, FNMA and GNMA

51,136 ( 432 ) 156,515 ( 16,451 ) 207,651 ( 16,883 )

MBS pass-through securities issued by FHLMC, FNMA and GNMA — — 181,656 ( 27,326 ) 181,656 ( 27,326 )

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

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 — — 1,763 ( 90 ) 1,763 ( 90 )

4 unchanged sentences

Available-for-sale:

CMBS issued by FHLMC, FNMA and GNMA

$ 1,235 $ ( 7 ) $ 146,454 $ ( 13,272 ) $ 147,689 $ ( 13,279 )

CMOs issued by FHLMC, FNMA and GNMA

— — 136,269 ( 17,420 ) 136,269 ( 17,420 )

MBS pass-through securities issued by FHLMC, FNMA and GNMA — — 68,237 ( 9,168 ) 68,237 ( 9,168 )

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

CMOs issued by GNMA 4,790 ( 235 ) 27,529 ( 3,617 ) 32,319 ( 3,852 )

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

SBA-backed securities — — 19,471 ( 1,655 ) 19,471 ( 1,655 )

14 unchanged sentences

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.

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 either December 31, 2023 or 2022.

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 credit risk factors at either December 31, 2024 or 2023.

In addition, for any available-for-sale securities in an unrealized loss position at December 31, 2024 and 2023, the Bank assessed whether it intended to sell the securities, or if it was more likely than not that it would be required to sell the securities before recovery of its amortized cost basis, which would require a write-down to fair value through net income.

1 unchanged sentence

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.

On November 4, 2024, the Bank terminated these contracts resulting in an adjustment to book value that will be amortized over the life of the hedged securities.

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

43 unchanged sentences

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).

Approximately 89 % and 90 % of total loans were secured by real estate at December 31, 2024 and 2023, respectively.

At December 31, 2024 and 2023, 77 % and 75 %, respectively, of our total loans were commercial real estate, the majority of which were secured by real estate located in Marin, Sonoma, San Francisco, Alameda, Napa, Sacramento, and Contra Costa counties (California).

Commercial and Industrial Loans:

7 unchanged sentences

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.

8 unchanged sentences

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.

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

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

46 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.

16 unchanged sentences

Total commercial real estate, owner-occupied $ 14,638 $ 13,764 $ 45,491 $ 63,406 $ 41,964 $ 142,530 $ 169 $ 321,962

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

Commercial real estate, non-owner occupied:

16 unchanged sentences

Pass and Watch $ 17,525 $ 15,429 $ 10,841 $ 7,798 $ 2,788 $ 10,901 $ 1,429 $ 66,711

Substandard — — — 207 — 15 — 222

Total installment and other consumer $ 17,525 $ 15,429 $ 10,841 $ 8,005 $ 2,788 $ 10,916 $ 1,429 $ 66,933

16 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

7 unchanged sentences

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

2 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

30 unchanged sentences

We recognized no interest income on non-accrual loans in 2024, 2023, or 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.

Accrued interest of $ 530 thousand, $ 206 thousand, and $ 48 thousand was reversed from interest income for the loans that were placed on non-accrual status in 2024, 2023, and 2022, respectively.

Collateral Dependent Loans

9 unchanged sentences

Home equity — 752 — 752 —

Installment and other consumer — 222 222 15

Total $ 30,114 $ 752 $ 222 $ 31,088 $ 8,000

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

2 unchanged sentences

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.

The following table summarizes the amortized cost of loans as of December 31, 2024 and 2023 modified for borrowers experiencing financial difficulty during the years ended December 31, 2024 and 2023, respectively, by portfolio class and type of modification granted.

(in thousands) Term Extension

Total Modifications

Percent of Portfolio Class Total

December 31, 2024

Commercial real estate, owner-occupied

Home equity $ 188 $ 188 0.2 %

December 31, 2023

Commercial owner-occupied $ 1,431 $ 1,431 0.4 %

Commercial non-owner occupied 878 878 0.1 %

$ 2,309 $ 2,309

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.

As of December 31, 2024 and 2023, there were no unfunded loan commitments for loans that were modified during the periods presented.

The following table summarizes the financial effect of loan modifications presented in the table above during the years ended December 31, 2024 and 2023 by portfolio class.

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

Year ended December 31, 2024

Commercial real estate, owner-occupied

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.

Home equity 6.6

Year ended December 31, 2023

Commercial owner-occupied 2.3

Commercial non-owner occupied 0.5

The loan modifications did not significantly impact the determination of the allowance for credit losses on loans during the years ended December 31, 2024 and 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.

The following table summarizes the amortized cost and payment status of loans as of December 31, 2024 and 2023 that were modified during the years ended December 31, 2024 and 2023, respectively, by portfolio class.

(in thousands) Current

1 unchanged sentence

December 31, 2024

Commercial real estate, owner-occupied

$ 1,431 $ — $ — $ — $ 1,431 $ —

Commercial real estate, non-owner occupied

Home equity $ 188 $ — $ — $ — $ 188 $ 113

$ 188 $ — $ — $ — $ 188 $ 113

December 31, 2023

Commercial owner-occupied $ 1,431 $ — $ — $ — $ 1,431 $ —

Commercial non-owner occupied 878 — — — 878 878

$ 2,309 $ — $ — $ — $ 2,309 $ 878

14 unchanged sentences

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

The $ 5.5 million increase in the allowance for credit losses on loans in 2024 was largely due to the specific allowance increase of $ 6.7 million.

This was mainly due to the increased reserve of $ 5.2 million for one non-owner occupied commercial real estate loan totaling $ 16.7 million that, although current, had experienced a deterioration in the collateral value and, therefore, a material increase in the loan-to-value.

Allowance for Credit Losses on Loans Rollforward

11 unchanged sentences

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 )

3 unchanged sentences

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

(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

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

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

1 unchanged sentence

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

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 $ 1.351 billion and $ 1.288 billion at December 31, 2024 and 2023, respectively.

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").

In addition, we pledged eligible TIC loans, which totaled $ 110.0 million and $ 110.4 million at

December 31, 2024 and 2023, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

For additional information, see Note 7, Borrowings.

7 unchanged sentences

Additions 1,425 — 1,525

Assumed in the AMRB acquisition — — 4,037

Repayments ( 3,125 ) ( 613 ) ( 364 )

21 unchanged sentences

Earnings on BOLI totaled $ 1.7 million, $ 1.8 million and $ 1.2 million in 2024, 2023 and 2022, 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.

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

There were no death benefit proceeds in 2024.

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

4 unchanged sentences

Total time deposits $ 242,377 $ 251,317

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

Interest on time deposits was $ 9.3 million, $ 4.7 million and $ 323 thousand in 2024, 2023 and 2022, respectively.

Scheduled maturities of time deposits at December 31, 2024 are as follows:

2 unchanged sentences

As of December 31, 2024, $ 288.4 million in securities were pledged as collateral for our local agency deposits.

Our deposit portfolio includes deposits offered through the Promontory Interfinancial Network that are comprised of Certificate of Deposit Account Registry Service ® ("CDARS") balances included in time deposits and Insured Cash Sweep ® ("ICS") balances included in money market deposits.

In addition, we offer deposits through Reich & Tang Deposit Networks, LLC, comprised of Demand Deposit Marketplace SM ("DDM") balances.

Through these two networks we are able to offer our customers access to FDIC-insured deposit products in aggregate amounts exceeding current insurance limits.

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 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.

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

CDARS $ 46,162 $ 2,164 $ 11,031 $ 2,162

ICS 245,577 — 100,749 —

DDM 132,276 — 62,219 —

Total network deposits $ 424,015 $ 2,164 $ 173,999 $ 2,162

1 Reciprocal deposits are on-balance-sheet while one-way deposits are off-balance-sheet.

The aggregate amount of deposit overdrafts that have been reclassified as loan balances was $ 393 thousand and $ 320 thousand at December 31, 2024 and 2023, respectively.

3 unchanged sentences

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.

The Bank had lines of credit with the FHLB totaling $ 948.1 million and $ 1.009 billion as of December 31, 2024 and 2023, respectively , based on the eligible collateral of certain loans and investment securities.

Federal Funds Lines of Credit:

2 unchanged sentences

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.

The Bank had a line of credit through the Discount Window at the Federal Reserve Bank of San Francisco ("FRBSF") totaling $ 358.0 million as of December 31, 2024, secured by investment securities and residential loans.

As of December 31, 2023, the Bank had a line of credit through the Discount Window totaling $ 64.0 million, secured by residential loans, and a $ 270.2 million line under the Federal Reserve's temporary Bank Term Funding Program ("BTFP") based on the par values of pledged investment securities.

When the BTFP program ended on March 11, 2024, the investment securities were reallocated to our borrowing facility through the Discount Window.

Other Obligations:

2 unchanged sentences

The carrying values, average balances and average rates on borrowings and other obligations as of and for the years ended December 31, 2024, 2023 and 2022 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

2 unchanged sentences

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

FRBSF advances - Discount Window

— 2,680 5.42 % — — — % — — — %

FRBSF short-term borrowings under the BTFP — 1,607 5.00 % 26,000 56,959 5.30 % — — — %

1 unchanged sentence

Total borrowings and other obligations $ 154 $ 4,628 5.13 % $ 26,298 $ 221,623 5.15 % $ 112,439 $ 2,295 3.90 %

Subordinated Debenture:

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.

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.

Stockholders' Equity and Stock Plans

48 unchanged sentences

303,777 33.22 1 4.86

Granted 10,040 32.54 8.49

Cancelled, expired or forfeited ( 25,594 ) 29.81

Exercised ( 12,164 ) 20.25 88

Options outstanding at December 31, 2024

15 unchanged sentences

57,508 4.6 42.12

278,183 273,242

The following table summarizes non-vested restricted stock awards and changes during the years ended December 31, 2024, 2023, and 2022.

10 unchanged sentences

Non-vested awards at December 31, 2023

107,552 30.88

Granted 106,964 16.61

4 unchanged sentences

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).

There were no options granted in the year 2024.

Years ended December 31,

2024 2023 2022

Risk-free interest rate 3.94 % 1.86 % 0.98 %

Expected dividend yield on common stock 3.07 % 2.85 % 2.57 %

Expected life in years 5.0 6.0 6.1

Expected price volatility 34.68 % 33.44 % 33.12 %

Risk-free interest rate N/A 3.94 % 1.86 %

Expected dividend yield on common stock N/A 3.07 % 2.85 %

Expected life in years N/A

Expected price volatility N/A 34.68 % 33.44 %

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.

5 unchanged sentences

Total compensation expense for stock options and restricted stock awards was $ 622 thousand, $ 522 thousand, and $ 962 thousand during 2024, 2023, and 2022, respectively, and the total recognized deferred tax benefits related thereto were $ 206 thousand, $ 146 thousand, and $ 257 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.

As of December 31, 2024, there was $ 800 thousand 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, 2024, 2023, and 2022 was $ 100 thousand, $ 255 thousand, and $ 356 thousand, respectively.

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.

The total grant-date fair value of restricted stock awards vested during the years ended December 31, 2024, 2023, and 2022 was $ 355 thousand, $ 428 thousand, and $ 431 thousand, 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.

In 2023 and 2022 we recognized $ 2 thousand and $ 3 thousand, respectively, in excess tax benefits recorded as a reduction to income tax expense related to these types of transactions while in 2024 we recognized none .

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.

Presented below is a summary of cash dividends paid in the years ended December 31, 2024, 2023, and 2022 to common shareholders, recorded as a reduction from retained earnings.

On January 23, 2025, the Board of Directors declared a $ 0.25 per share cash dividend, paid on February 13, 2025 to the shareholders of record at the close of business on February 6, 2025.

8 unchanged sentences

As of December 31, 2024, Bancorp's retained earnings and total assets that exceeded total liabilities were $ 250.0 million and $ 435.4 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.

Under the California Financial Code, payment of dividends by the Bank to Bancorp generally 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 $ 717 thousand of the Bank's retained earnings balance was available for payment of dividends to Bancorp as of December 31, 2024.

Dividends in excess of that amount may be paid with prior approval of the DFPI.

Bancorp held $ 10.3 million in cash as of December 31, 2024.

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 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.

In 2022, Bancorp repurchased 23,275 shares totaling $ 877 thousand in the share repurchase plan approved by the Bancorp's Board of Directors on July 16, 2021, amended October 22, 2021.

Under this new program, Bancorp repurchased 220,000 shares totaling $ 4.3 million at an average price of $ 19.21 per share in the year ended December 31, 2024, and made no repurchases under this program in the year ended December 31, 2023.

Bancorp will continue to assess opportunities to utilize the program.

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.

22 unchanged sentences

Securities available for sale:

Mortgage-backed securities and collateralized mortgage obligations issued by U.S.

government-sponsored agencies $ 352,472 $ — $ 352,472 $ — OCI

Commercial mortgage-back securities, mortgage-backed securities and collateralized mortgage obligations issued by U.S.

government-sponsored agencies

$ 279,838 $ — $ 279,838 $ — OCI

SBA-backed securities $ 308 $ — $ 308 $ — OCI

4 unchanged sentences

Derivative financial assets (interest rate contracts) $ 333 $ — $ 333 $ — NI

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

December 31, 2023

Securities available for sale:

Mortgage-backed securities and collateralized mortgage obligations issued by U.S.

government-sponsored agencies $ 475,505 $ — $ 475,505 $ — OCI

Commercial mortgage-back securities, mortgage-backed securities and collateralized mortgage obligations issued by U.S.

government-sponsored agencies

$ 352,472 $ — $ 352,472 $ — OCI

SBA-backed securities $ 19,471 $ — $ 19,471 $ — OCI

3 unchanged sentences

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

1 Other comprehensive income (loss) ("OCI") or net income ("NI").

3 unchanged sentences

Treasury securities.

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

If quoted market prices are not available, we obtain pricing information from a reputable third-

party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity and credit spreads (Level 2).

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

3 unchanged sentences

We did not record any credit loss expense on held-to-maturity securities during 2024 or 2023.

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

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.

14 unchanged sentences

Subsequent to foreclosure, OREO is carried at the lower of cost or fair value, less estimated costs to sell.

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.

On July 12, 2023, the Bank completed the sale of its only OREO property for the periods presented.

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

(Level 2) Significant Unobservable Inputs

December 31, 2023

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

December 31, 2022

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

Disclosures about Fair Value of Financial Instruments

15 unchanged sentences

Time deposits 242,377 243,773 Level 2 251,317 252,824 Level 2

Federal Home Loan Bank overnight borrowings

112,000 112,000 Level 1

FRBSF short-term borrowings under the BTFP

23 unchanged sentences

however, employee contributions are not permitted.

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.

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.

13 unchanged sentences

(in thousands) 2024 2023 2022

Current tax provision

Current tax(benefit) provision

Federal $ ( 214 ) $ 3,234 $ 10,670

State ( 60 ) 2,823 6,687

Total current tax provision 6,057 17,357 11,442

Deferred tax provision (benefit)

Total current tax (benefit) provision

( 274 ) 6,057 17,357

Deferred tax (benefit) provision

Federal ( 3,520 ) 319 ( 441 )

State ( 1,632 ) ( 235 ) 7

Total deferred tax provision (benefit)

Total deferred tax (benefit) provision

( 5,152 ) 84 ( 434 )

Total income tax provision $ 6,141 $ 16,923 $ 11,658

Total income tax (benefit) provision

$ ( 5,426 ) $ 6,141 $ 16,923

The following table shows the tax effect of our cumulative temporary differences as of December 31:

5 unchanged sentences

Deferred compensation and salary continuation plans 3,137 3,289

Accrued but unpaid expenses 1,709 1,751

Net operating loss carryforwards 4,353 1,136

Fair value adjustment on acquired loans 695 905

Accrued but unpaid expenses 1,644 1,709

Stock-based compensation 643 632

State franchise tax 593 1,396

Interest received on non-accrual loans 639 44

Fair value adjustment on acquired loans 396 695

Depreciation and disposals on premises and equipment 81 179

State franchise tax — 593

Total gross deferred tax assets 39,517 45,183

3 unchanged sentences

Core deposit intangible assets ( 825 ) ( 1,113 )

Purchase accounting adjustments

( 488 ) ( 1,248 )

Other ( 245 ) ( 226 )

1 unchanged sentence

Net deferred tax assets $ 30,605 $ 35,069

As of December 31, 2023, California net operating loss carryforwards ("NOLs") of $ 13.3 million corresponded to the total $ 1.1 million deferred tax asset above.

As of December 31, 2024, the Bank had net operating loss carryforwards ("NOLs") for federal income tax purposes of $ 12.5 million.

This NOL is carried forward indefinitely but is limited to 80% of taxable income.

In addition, as of December 31, 2024, the Bank had California net operating loss carryforwards of $ 20.3 million.

If not fully utilized, the California NOLs will begin to expire in 2032.

10 unchanged sentences

Non-deductible executive compensation — % — % — %

Low income housing and qualified zone academy bond tax credits ( 0.6 ) % ( 0.2 ) % ( 0.4 ) %

Stock-based compensation and excess tax deficiencies (benefits) 0.2 % — % ( 0.1 ) %

Other 1.0 % ( 0.7 ) % ( 0.4 ) %

10 unchanged sentences

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 to 5 years.

We lease certain equipment under finance leases with initial terms of three years to five years .

The equipment finance leases do not contain renewal options, bargain purchase options, or residual value guarantees.

31 unchanged sentences

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, 2024.

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.

3 unchanged sentences

2026 3,626 40

2026 3,373 38

Thereafter 7,606 —

14 unchanged sentences

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.

In the third quarter of 2024, the Bank recorded a non-recurring accrual for a legal resolution of a Private Attorneys General Act/putative class action lawsuit of $ 615 thousand, pre-tax, involving alleged violations of wage and hour laws for all non-exempt employees covering any and all claims that were or could have been alleged in the operative complaint through the financial period of December 11, 2019 to October 12, 2024.

The Bank shall pay an "all in" Gross Settlement Amount ("GSA") of $ 615 thousand to settle all of the wage and hour class and PAGA claims, and the named Plaintiff's individual claims.

This amount settles all claims that were or could have been asserted based on the facts alleged in the operative complaint, and the as of yet unasserted individual claims by the named plaintiff, and includes attorneys' fees, costs including the cost of administration, and incentive payments.

The only amount over and above the GSA which the Bank shall pay is its share of payroll taxes on the amount of the net settlement that is allocated as wages.

There has been no finding of wrongdoing and the Bank denies all claims.

The settlement agreement still requires final court approval and notice requirements;

however, the Bank does not anticipate further costs related to this action.

We are not aware of any other similar wage and hour claims at this time.

Concentrations of Credit Risk

8 unchanged sentences

government or a GSE accounted for approximately 1 % of our total investment portfolio at both December 31, 2024 and 2023.

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 5 % of our total non-owner-occupied commercial real estate portfolio as of December 31, 2024.

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 90 % of our loan portfolio at both December 31, 2023 and 2022.

No single borrower relationship accounted for more than 3.0 % of outstanding loan balances at December 31, 2024 and 2023, respectively.

The largest loan concentration is real estate, which accounted for 89 % and 90 % of our loan portfolio at December 31, 2024 and 2023, respectively.

Derivative Financial Instruments and Hedging Activities

10 unchanged sentences

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.

On November 4, 2024, the Bank terminated these contracts resulting in an adjustment to book value that will be amortized over the life of the hedged securities.

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.

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.

29 unchanged sentences

Interest on investment securities 1

Decrease in fair value of interest rate swaps hedging available-for-sale securities $ ( 1,359 ) $ — $ —

Increase (decrease) in fair value of interest rate swaps hedging available-for-sale securities

$ 1,359 $ ( 1,359 ) $ —

Hedged interest earned (paid) 646 367 —

Increase in carrying value included in the hedged available-for-sale securities 1,359 — —

Decrease (increase) in carrying value included in the hedged available-for-sale securities

( 1,359 ) 1,359 —

Net gain recognized in interest income on investment securities $ 646 $ 367 $ —

Interest and fees on loans 1

(Decrease) increase in fair value of interest rate swaps hedging loans receivable $ ( 317 ) $ 1,687 $ 827

Increase (decrease) increase in fair value of interest rate swaps hedging loans receivable

$ 47 $ ( 317 ) $ 1,687

Hedged interest earned (paid) 201 268 ( 143 )

Increase (decrease) in carrying value included in the hedged loans 359 ( 1,666 ) ( 814 )

Decrease (increase) in carrying value included in the hedged loans

( 30 ) 359 ( 1,666 )

Decrease in value of yield maintenance agreement ( 8 ) ( 9 ) ( 10 )

33 unchanged sentences

We are subject to various regulatory capital requirements administered by the federal banking agencies.

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.

Failure to meet the minimum capital requirements as set forth in the following tables can trigger 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.

55 unchanged sentences

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

The allowance for credit losses on unfunded commitments totaled $ 1.1 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.

The allowance for credit losses on unfunded commitments totaled $ 894 thousand and $ 1.1 million as of December 31, 2024 and 2023, 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 $ 233 thousand , $ 342 thousand and $ 318 thousand in 2024 , 2023, and 2022, respectively.

The reversals in 2024, 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

9 unchanged sentences

Accrued expenses payable $ 141 $ 102

Other liabilities — —

Total liabilities 141 102

5 unchanged sentences

Dividends from bank subsidiary $ 25,000 $ 20,000 $ 16,200

Miscellaneous income — — —

Total income 25,000 20,000 16,200

Interest expense — — 1,361

Non-interest expense 1,814 1,705 1,793

3 unchanged sentences

Income before equity in undistributed net income of subsidiary 23,620 18,799 14,937

Earnings of bank subsidiary greater (less) than dividends received from bank subsidiary 1,096 31,649 ( 26,621 )

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

(Loss) earnings of bank subsidiary greater (less) than dividends received from bank subsidiary

( 32,029 ) 1,096 31,649

Net (loss) income

$ ( 8,409 ) $ 19,895 $ 46,586

CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS

5 unchanged sentences

Earnings of bank subsidiary (greater) less than dividends received from bank subsidiary 32,029 ( 1,096 ) ( 31,649 )

Accretion of discount on subordinated debenture — — 1,347

Noncash director compensation expense 71 60 36

7 unchanged sentences

Cash Flows from Financing Activities:

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

Restricted stock surrendered for tax withholdings upon vesting ( 64 ) ( 70 ) ( 40 )

Cash dividends paid on common stock ( 16,197 ) ( 16,106 ) ( 15,673 )

Stock repurchased, including commissions — ( 1,250 ) ( 40,762 )

Stock repurchased, including commissions and excise tax

( 4,253 ) — ( 1,250 )

Proceeds from stock options exercised and stock issued under employee and director stock purchase plans 38 276 899

5 unchanged sentences

Stock issued in payment of director fees $ 513 $ 398 $ 355

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

Stock issued to ESOP $ 1,149 $ 1,315 $ 1,233

Bancorp completed its merger and acquired all assets and assumed all liabilities of AMRB on August 6, 2021.

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

T he merger added $ 898.4 million in total assets, including $ 297.8 million in investment securities and $ 419.4 million in loans, and $ 816.6 million in total liabilities, including $ 790.0 million in deposits, to Bank of Marin as of the merger date.

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

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

AMRB'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.

(in thousands) Merger Consideration

Value of common stock consideration paid to shareholders ( 0.575 fixed exchange ratio, stock price $ 36.15 )

Cash consideration for stock options 63

Cash paid in lieu of fractional shares 13

Total merger consideration $ 124,477

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 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 income (loss) are summarized in the following table.

Years ended December 31,

(in thousands) 2023 2022 2021

Personnel and severance $ — $ 393 $ 3,005

Professional services — 67 1,976

Data processing — 77 1,127

Other expense — 321 350

Total merger-related and conversion costs $ — $ 858 $ 6,458

End of 2023 Audited Consolidated Financial Statements

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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