Bank of Marin Bancorp 10-Q

ITEM 1. Financial Statements BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF CONDITION (in thousands, except share data; unaudited) March 31, 2025 December 31, 2024 Assets Cash, cash equivalents and restricted cash $ 259,924 $ 137,304 Investment securities: Held-to-maturity, at amortized cost (net of zero allowance for credit losses at March 31, 2025 and December 31, 2024) 834,640 879,199 Available-for-sale, at fair value (net of zero allowance for credit losses at March 31, 2025 and December 31, 2024) 406,009 387,534 Total investment securities 1,240,649 1,266,733 Loans, at amortized cost 2,073,548 2,083,256 Allowance for credit losses on loans ( 29,906 ) ( 30,656 ) Loans, net of allowance for credit losses on loans 2,043,642 2,052,600 Goodwill 72,754 72,754 Bank-owned life insurance 71,066 71,026 Operating lease right-of-use assets 19,076 19,025 Bank premises and equipment, net 6,824 6,832 Core deposit intangible, net 2,565 2,792 Interest receivable and other assets 67,743 72,269 Total assets $ 3,784,243 $ 3,701,335 Liabilities and Stockholders' Equity Liabilities Deposits: Non-interest bearing $ 1,426,446 $ 1,399,900 Interest bearing: Transaction accounts 184,322 198,301 Savings accounts 228,038 225,691 Money market accounts 1,246,739 1,153,746 Time accounts 216,426 242,377 Total deposits 3,301,971 3,220,015 Borrowings and other obligations 116 154 Operating lease liabilities 21,497 21,509 Interest payable and other liabilities 21,093 24,250 Total liabilities 3,344,677 3,265,928 Commitments and contingent liabilities (Note 8) Stockholders' Equity Preferred stock, no par value, Authorized - 5,000,000 shares, none issued — — Common stock, no par value, Authorized - 30,000,000 shares; issued and outstanding - 16,202,869 and 16,089,454 at March 31, 2025 and December 31, 2024, respectively 216,263 215,511 Retained earnings 250,815 249,964 Accumulated other comprehensive loss, net of taxes ( 27,512 ) ( 30,068 ) Total stockholders' equity 439,566 435,407 Total liabilities and stockholders' equity $ 3,784,243 $ 3,701,335 The accompanying notes are an integral part of these consolidated financial statements (unaudited). Page-3 BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three months ended (in thousands, except per share amounts; unaudited) March 31, 2025 December 31, 2024 March 31, 2024 Interest income Interest and fees on loans $ 25,183 $ 25,872 $ 25,020 Interest on investment securities 8,261 8,377 8,805 Interest on federal funds sold and due from banks 1,795 2,227 321 Total interest income 35,239 36,476 34,146 Interest expense Interest on interest-bearing transaction accounts 343 327 261 Interest on savings accounts 533 556 371 Interest on money market accounts 7,626 8,110 8,449 Interest on time accounts 1,790 2,252 2,280 Interest on borrowings and other obligations 1 1 91 Total interest expense 10,293 11,246 11,452 Net interest income 24,946 25,230 22,694 Provision for credit losses on loans 75 — 350 Net interest income after provision for credit losses 24,871 25,230 22,344 Non-interest income Wealth management and trust services 563 576 553 Service charges on deposit accounts 548 551 529 Earnings on bank-owned life insurance, net 544 432 435 Debit card interchange fees, net 396 426 408 Dividends on Federal Home Loan Bank stock 375 370 377 Merchant interchange fees, net 96 80 167 Other income 352 318 285 Total non-interest income 2,874 2,753 2,754 Non-interest expense Salaries and related benefits 12,050 9,413 12,084 Occupancy and equipment 2,106 2,127 1,969 Professional services 937 1,129 1,078 Data processing 1,136 1,096 1,070 Deposit network fees 932 838 845 Federal Deposit Insurance Corporation insurance 388 420 435 Information technology 413 432 402 Depreciation and amortization 322 341 388 Directors' expense 304 297 317 Amortization of core deposit intangible 227 237 251 Charitable contributions 403 30 12 Other expense 2,046 1,978 2,318 Total non-interest expense 21,264 18,338 21,169 Income before provision for income taxes 6,481 9,645 3,929 Provision for income taxes 1,605 3,644 1,007 Net income $ 4,876 $ 6,001 $ 2,922 Net income per common share Basic $ 0.31 $ 0.38 $ 0.18 Diluted $ 0.30 $ 0.38 $ 0.18 Weighted average shares: Basic 15,977 15,941 16,081 Diluted 16,002 15,967 16,092 Comprehensive income: Net income $ 4,876 $ 6,001 $ 2,922 Other comprehensive (loss) income: Change in net unrealized gains or losses on available-for-sale securities 3,289 ( 6,880 ) ( 4,568 ) Reclassification adjustment for gains or losses on fair value hedges — 1,444 1,217 Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity 340 355 361 Other comprehensive income (loss), before tax 3,629 ( 5,081 ) ( 2,990 ) Deferred tax expense (benefit) 1,073 ( 1,501 ) ( 884 ) Other comprehensive income (loss), net of tax 2,556 ( 3,580 ) ( 2,106 ) Total comprehensive income $ 7,432 $ 2,421 $ 816 The accompanying notes are an integral part of these consolidated financial statements (unaudited). Page-4 BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the three months ended March 31, 2025 and 2024 (in thousands, except share data; unaudited) Common Stock Retained Earnings Accumulated Other Comprehensive Loss, Net of Taxes Total Shares Amount Three months ended March 31, 2025 Balance at January 1, 2025 16,089,454 $ 215,511 $ 249,964 $ ( 30,068 ) $ 435,407 Net income — — 4,876 — 4,876 Other comprehensive income, net of tax — — — 2,556 2,556 Stock issued under employee stock purchase plan 402 8 — — 8 Stock issued under employee stock ownership plan 17,000 417 — — 417 Restricted stock granted 90,205 — — — — Restricted stock surrendered for tax withholdings upon vesting ( 3,957 ) ( 96 ) — — ( 96 ) Restricted stock forfeited / cancelled ( 1,070 ) — — — — Stock-based compensation - stock options — 5 — — 5 Stock-based compensation - restricted stock — 163 — — 163 Cash dividends paid on common stock ($ 0.25 per share) — — ( 4,025 ) — ( 4,025 ) Stock issued in payment of director fees 10,835 255 — — 255 Balance at March 31, 2025 16,202,869 $ 216,263 $ 250,815 $ ( 27,512 ) $ 439,566 Three months ended March 31, 2024 Balance at January 1, 2024 16,158,413 $ 217,498 $ 274,570 $ ( 53,006 ) $ 439,062 Net income — — 2,922 — 2,922 Other comprehensive loss, net of tax — — — ( 2,106 ) ( 2,106 ) Stock issued under employee stock purchase plan 621 10 — — 10 Stock issued under employee stock ownership plan 24,600 425 — — 425 Restricted stock granted 106,964 — — — — Restricted stock surrendered for tax withholdings upon vesting ( 3,338 ) ( 55 ) — — ( 55 ) Restricted stock forfeited / cancelled ( 13,284 ) — — — — Stock-based compensation - stock options — 17 — — 17 Stock-based compensation - restricted stock — 188 — — 188 Cash dividends paid on common stock ($ 0.25 per share) — — ( 4,042 ) — ( 4,042 ) Stock issued in payment of director fees 11,810 259 — — 259 Balance at March 31, 2024 16,285,786 $ 218,342 $ 273,450 $ ( 55,112 ) $ 436,680 The accompanying notes are an integral part of these consolidated financial statements (unaudited). Page-5 BANK OF MARIN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2025 and 2024 (in thousands; unaudited) 2025 2024 Cash Flows from Operating Activities: Net income $ 4,876 $ 2,922 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses on loans 75 350 Noncash contribution expense to employee stock ownership plan 417 425 Noncash director compensation expense 255 259 Stock-based compensation expense 168 205 Amortization of core deposit intangible 227 251 Amortization of investment security premiums, net of accretion of discounts 277 1,277 Accretion of discounts on acquired loans, net 45 ( 98 ) Net change in deferred loan origination costs/fees ( 9 ) 34 Depreciation and amortization 322 388 Loss on disposal of premises and equipment — 19 Earnings on bank-owned life insurance policies ( 544 ) ( 435 ) Net changes in: Net changes in interest receivable and other assets 2,050 1,082 Net changes in interest payable and other liabilities ( 3,223 ) ( 2,353 ) Total adjustments 60 1,404 Net cash provided by operating activities 4,936 4,326 Cash Flows from Investing Activities: Purchase of available-for-sale securities ( 33,561 ) — Proceeds from paydowns/maturities of held-to-maturity securities 44,681 10,252 Proceeds from paydowns/maturities of available-for-sale securities 18,316 10,057 Proceeds from sale of loan 1,295 — Decrease in loans receivable, net 8,958 18,690 Purchase of bank-owned life insurance policies — ( 1,210 ) Proceeds from bank-owned life insurance policies 504 — Purchase of premises and equipment ( 314 ) ( 161 ) Cash paid for low income housing tax credit investment — ( 1 ) Net cash provided by investing activities 39,879 37,627 Cash Flows from Financing Activities: Net increase (decrease) in deposits 81,956 ( 5,973 ) Repayment of short-term borrowings, net — ( 26,000 ) Repayment of finance lease obligations ( 38 ) ( 38 ) Restricted stock surrendered for tax withholdings upon vesting ( 96 ) ( 55 ) Cash dividends paid on common stock ( 4,025 ) ( 4,042 ) Proceeds from stock issued under employee and director stock purchase plans 8 10 Net cash used in financing activities 77,805 ( 36,098 ) Net increase in cash, cash equivalents and restricted cash 122,620 5,855 Cash, cash equivalents and restricted cash at beginning of period 137,304 30,453 Cash, cash equivalents and restricted cash at end of period $ 259,924 $ 36,308 Supplemental disclosure of cash flow information: Interest paid on deposits and borrowings $ 10,806 $ 11,087 Supplemental disclosure of noncash investing and financing activities: Change in net unrealized gains or losses on available-for-sale securities $ 3,289 $ ( 4,568 ) Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity $ 340 $ 361 The accompanying notes are an integral part of these consolidated financial statements (unaudited). Page-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1: Basis of Presentation The consolidated financial statements include the accounts of Bancorp, a bank holding company, and its wholly-owned bank subsidiary, Bank of Marin, a California state-chartered commercial bank. References to “we,” “our,” “us” mean Bancorp and the Bank that are consolidated for financial reporting purposes. The accompanying unaudited consolidated interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to those rules and regulations. Although we believe that the disclosures are adequate and the information presented is not misleading, we suggest that these interim financial statements be read in conjunction with the annual financial statements and the notes thereto included in our 2024 Annual Report on Form 10-K. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, which are necessary for a fair presentation of the consolidated financial position, the results of operations, changes in comprehensive income (loss), changes in stockholders’ equity, and cash flows for the periods presented. All material intercompany transactions have been eliminated. The results of these interim periods may not be indicative of the results for the full year or for any other period. 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 Cash flows. 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. Page-7 Segment revenue, profit or loss, significant segment expenses and other segment items Three months ended (in thousands) March 31, 2025 December 31, 2024 March 31, 2024 Community banking segment: Interest income $ 35,239 $ 36,476 $ 34,146 Non-interest income 2,311 2,177 2,201 Reconciliation of income All other income 1 563 576 553 Total consolidated income 38,113 39,229 36,900 Less: 2 Total interest expense 10,293 11,246 11,452 Provision for credit losses on loans 75 — 350 Provision for credit losses on unfunded loan commitments — — — Non-interest expense Salaries and related benefits 11,838 9,235 11,838 Occupancy and equipment 2,106 2,127 1,968 Data processing 1,079 1,030 1,070 Deposit network fees 932 838 798 Information technology 413 432 402 Charitable contributions 403 30 12 Federal Deposit Insurance Corporation insurance 388 420 435 Professional services 784 968 951 Depreciation and amortization 322 341 388 Directors' expense 304 297 317 Amortization of core deposit intangible 227 237 251 Other real estate owned — — — Other expense 2,036 1,965 2,303 Segment income 6,913 10,063 4,365 Reconciliation of segment income All other loss 1 432 418 436 Income before income taxes $ 6,481 $ 9,645 $ 3,929 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 $ 432 thousand, $ 418 thousand, and $ 436 thousand, for the periods presented above, respectively 2 The significant expense categories and amounts align with the segment-level information that is regularly provided to the chief operating decision maker. Earnings Per Share: The following table shows: 1) weighted average basic shares, 2) potentially dilutive weighted average common shares related to stock options and unvested restricted stock awards, and 3) weighted average diluted shares. Basic earnings (loss) per share (“EPS”) are calculated by dividing net income by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock awards. Diluted EPS are calculated using the weighted average number of potentially dilutive common shares. The number of potentially dilutive common shares included in the quarterly diluted EPS is computed using the average market prices during the three months included in the reporting period under the treasury stock method. The number of potentially dilutive common shares included in year-to-date diluted EPS is a year-to-date weighted average of potentially dilutive common shares included in each quarterly diluted EPS computation. In computing diluted EPS, we exclude anti-dilutive shares such as options whose exercise prices exceed the current common stock price, as they would not reduce EPS under the treasury stock method. We have two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of unvested restricted stock awards receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings. Under the two-class method, the difference in EPS is nominal for these participating securities. Page-8 Three months ended (in thousands, except per share data) March 31, 2025 March 31, 2024 Weighted average basic common shares outstanding 15,977 16,081 Potentially dilutive common shares related to: Stock options — — Unvested restricted stock awards 25 11 Weighted average diluted common shares outstanding 16,002 16,092 Net income (loss) $ 4,876 $ 2,922 Basic earnings (loss) per common share $ 0.31 $ 0.18 Diluted earnings (loss) per common share $ 0.30 $ 0.18 Weighted average anti-dilutive common shares not included in the calculation of diluted EPS 274 340 . Note 2: Recently Adopted and Issued Accounting Standards Accounting Standards Adopted in 2025 We have not adopted any new accounting standards in the first quarter of 2025. Accounting Standards Not Yet Adopted In December 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments require disaggregated information about the effective tax rate reconciliation and additional disclosures on reconciling items and taxes paid that meet a quantitative threshold. The amendments are effective for annual reporting periods beginning after December 15, 2024, and may be adopted either prospectively or retrospectively. Early adoption is permitted. The Company expects this ASU to only impact its disclosure requirements (i.e.2025 Form 10-K) and does not expect the adoption of this ASU to have a material impact on its business operations or Consolidated Statements of Financial Conditio n. In November 2024, the FASB issued ASU No. 2024-03, 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. The Company is currently evaluating the impact of the amendments on its financial statement disclosures, and does not expect the adoption to have a material impact on its business operations or Consolidated Statements of Financial Condition. Note 3: Fair Value of Assets and Liabilities Fair Value Hierarchy and Fair Value Measurement We group our assets and liabilities that are measured at fair value into three levels within the fair value hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are: Level 1: Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data. Level 3: Valuations are based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Values are determined using pricing models and discounted cash flow models and may include significant management judgment and estimation. Page-9 Transfers between levels of the fair value hierarchy are recognized through our monthly and/or quarterly valuation process in the reporting period during which the event or circumstances that caused the transfer occurred. No such transfers occurred in the years presented. The following table summarizes our assets and liabilities that were required to be recorded at fair value on a recurring basis. (in thousands) Description of Financial Instruments Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Measurement Categories: Changes in Fair Value Recorded In 1 March 31, 2025 Securities available-for-sale: Commercial mortgage-backed securities, mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies $ 298,405 $ — $ 298,405 $ — OCI SBA-backed securities $ 279 $ — $ 279 $ — OCI Debentures of government sponsored agencies $ 7,453 $ — $ 7,453 $ — OCI U.S. Treasury securities $ 11,026 $ 11,026 $ — $ — OCI Obligations of state and political subdivisions $ 83,150 $ — $ 83,150 $ — OCI Corporate bonds $ 5,696 $ — $ 5,696 $ — OCI Derivative financial assets (interest rate contracts) $ 227 $ — $ 227 $ — NI December 31, 2024 Securities available-for-sale: Commercial mortgage-backed 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 Debentures of government sponsored agencies $ 7,210 $ — $ 7,210 $ — OCI U.S. Treasury securities $ 10,815 $ 10,815 $ — $ — OCI Obligations of state and political subdivisions $ 83,714 $ — $ 83,714 $ — OCI Corporate bonds $ 5,649 $ — $ 5,649 $ — OCI Derivative financial assets (interest rate contracts) $ 333 $ — $ 333 $ — NI 1 Other comprehensive income ("OCI") or net income ("NI"). Available-for-sale securities are recorded at fair value on a recurring basis. When available, quoted market prices (Level 1) are used to determine the fair value of available-for-sale securities. Level 1 securities include U.S. 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). Level 2 securities include obligations of state and political subdivisions, U.S. agencies or government-sponsored agencies' debt securities, mortgage-backed securities, government agency-issued securities, and corporate bonds. As of March 31, 2025 and December 31, 2024, there were no Level 3 securities. Held-to-maturity securities may be subject to an allowance for credit losses as a result of our evaluation of expected losses due to credit quality factors. We did not record any credit loss expense on held-to-maturity securities during either the three months ended March 31, 2025 or March 31, 2024. 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. Standard valuation techniques are used to calculate the present value of the future expected cash flows assuming an orderly transaction. Valuation adjustments may be made to reflect both our own credit risk and the counterparties’ credit risk in determining the fair value of the derivatives. These unobservable inputs are not considered significant inputs to the fair value measurement overall. Level 2 inputs for the valuations are limited to observable market prices for Secured Overnight Financing Rate ("SOFR") and Overnight Index Swap ("OIS") rates (for the very short term), quoted prices for SOFR futures contracts, observable market prices for SOFR and OIS swap rates, and one-month and three-month SOFR basis spreads at commonly quoted intervals. Mid-market pricing of the inputs is used as a practical expedient in the fair value measurements. We project spot rates at reset Page-10 days specified by each swap contract to determine future cash flows, then discount to present value using OIS curves as of the measurement date. When the value of any collateral placed with counterparties is less than the interest rate derivative liability, a credit valuation adjustment ("CVA") is applied to reflect the credit risk we pose to counterparties. We have used the spread between the Standard & Poor's BBB rated U.S. Bank Composite rate and SOFR for the closest maturity term corresponding to the duration of the swaps to derive the CVA. Because there is little to no counterparty risk, we did not incorporate credit adjustments from our assessment of the counterparty credit risk in determining fair value. For further discussion on our methodology for valuing our derivative financial instruments, refer to Note 9, Derivative Financial Instruments and Hedging Activities. Certain financial assets may be measured at fair value on a non-recurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as individually analyzed loans that are collateral dependent and other real estate owned ("OREO"). (in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Disclosures about Fair Value of Financial Instruments The table below is a summary of fair value estimates for financial instruments as of March 31, 2025 and December 31, 2024, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note). The carrying amounts in the following table are recorded in the consolidated statements of condition under the indicated captions. Further, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements such as bank-owned life insurance policies ("BOLI"), lease obligations and non-maturity deposit liabilities. Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco stock at cost as of March 31, 2025 and December 31, 2024. There were no impairments or changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer as of March 31, 2025 or December 31, 2024. See further discussion on values within Note 4, Investment Securities. March 31, 2025 December 31, 2024 (in thousands) Carrying Amounts Fair Value Fair Value Hierarchy Carrying Amounts Fair Value Fair Value Hierarchy Financial assets (recorded at amortized cost) Cash and cash equivalents $ 259,924 $ 259,924 Level 1 $ 137,304 $ 137,304 Level 1 Investment securities held-to-maturity 834,640 734,824 Level 2 879,199 763,535 Level 2 Loans, net of allowance for credit losses 2,043,642 1,962,812 Level 3 2,052,600 1,965,429 Level 3 Interest receivable 10,566 10,566 Level 2 11,934 11,934 Level 2 Financial liabilities (recorded at amortized cost) Time deposits 216,426 216,860 Level 2 242,377 243,773 Level 2 Interest payable 2,507 2,507 Level 2 3,019 3,019 Level 2 The fair value of loans is based on exit price techniques and obtained from an independent third-party that uses its proprietary valuation model and methodology and may differ from the actual price from a prospective buyer. The discounted cash flow valuation approach reflects key inputs and assumptions that are unobservable, such as loan probability of default, loss given default, prepayment speed, and market discount rates. The fair value of fixed-rate time deposits is estimated by discounting future contractual cash flows using discount rates that reflect the current observable market rates offered for time deposits of similar remaining maturities. The value of off-balance-sheet financial instruments is estimated based on the fee income associated with the commitments, which in the absence of credit exposure, is considered to approximate their settlement value. The fair value of commitment fees was not material as of March 31, 2025 or December 31, 2024. Note 4: Investment Securities Our investment securities portfolio consists of U.S. Treasury securities, obligations of state and political subdivisions, U.S. 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. 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. Page-11 A summary of the amortized cost, fair value and allowance for credit losses related to securities held-to-maturity as of March 31, 2025 and December 31, 2024 is presented below. Held-to-maturity: Amortized Cost 1 Allowance for Credit Losses Net Carrying Amount Gross Unrealized Fair Value (in thousands) Gains (Losses) March 31, 2025 Securities of U.S. government-sponsored enterprises: CMBS issued by FHLMC, FNMA and GNMA $ 241,035 $ — $ 241,035 $ — $ ( 30,022 ) $ 211,013 CMOs issued by FHLMC, FNMA and GNMA 205,424 — 205,424 63 ( 14,704 ) 190,783 MBS pass-through securities issued by FHLMC, FNMA and GNMA 188,853 — 188,853 — ( 27,396 ) 161,457 SBA-backed securities 1,382 — 1,382 — ( 45 ) 1,337 Debentures of government-sponsored agencies 121,506 — 121,506 — ( 19,476 ) 102,030 Obligations of state and political subdivisions 61,440 — 61,440 — ( 7,740 ) 53,700 Corporate bonds 15,000 — 15,000 — ( 496 ) 14,504 Total held-to-maturity $ 834,640 $ — $ 834,640 $ 63 $ ( 99,879 ) $ 734,824 December 31, 2024 Securities of U.S. 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 SBA-backed securities 1,513 — 1,513 — ( 61 ) 1,452 Debentures of government-sponsored agencies 141,431 — 141,431 — ( 22,694 ) 118,737 Obligations of state and political subdivisions 61,560 — 61,560 — ( 8,341 ) 53,219 Corporate bonds 30,000 — 30,000 — ( 685 ) 29,315 Total held-to-maturity $ 879,199 $ — $ 879,199 $ — $ ( 115,664 ) $ 763,535 1 Amortized cost and fair values exclude accrued interest receivable of $ 2.2 million and $ 3.4 million at March 31, 2025 and December 31, 2024, respectively, which is included in interest receivable and other assets in the consolidated statements of condition. Management measures expected credit losses on held-to-maturity securities collectively by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. With regard to MBS, CMBS and CMOs issued or guaranteed by the GSEs, and SBA-backed securities, we expect to receive all the contractual principal and interest on these securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to securities issued by states and political subdivisions and corporate bonds, management considers: (i) issuer and/or guarantor credit ratings, (ii) historical probability of default and loss given default rates for given bond ratings and remaining maturity, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal credit review of the financial information, and (v) whether or not such securities have credit enhancements such as guarantees, contain a defeasance clause, or are pre-refunded by the issuers. Based on the comprehensive anal ysis, no cred it losses are expected. The following table summarizes the amortized cost of our portfolio of held-to-maturity securities issued by states and political subdivisions and corporate bonds by Moody's and/or Standard & Poor's bond ratings as of March 31, 2025 and December 31, 2024. Obligations of state and political subdivisions Corporate bonds (in thousands) March 31, 2025 December 31, 2024 March 31, 2025 December 31, 2024 Aaa / AAA $ 42,056 $ 42,161 $ — $ — Aa1 / AA+ 19,384 19,399 — — A2 / A — — 15,000 30,000 Total $ 61,440 $ 61,560 $ 15,000 $ 30,000 A summary of the amortized cost, fair value and allowance for credit losses related to securities available-for-sale as of March 31, 2025 and December 31, 2024 is presented below. Page-12 Available-for-sale: Amortized Cost 1 Gross Unrealized Allowance for Credit Losses Fair Value (in thousands) Gains (Losses) March 31, 2025 Securities of U.S. government-sponsored enterprises: CMBS issued by FHLMC, FNMA and GNMA $ 231,202 $ 266 $ ( 3,959 ) $ — $ 227,509 CMOs issued by FHLMC, FNMA and GNMA 50,573 76 ( 5,163 ) — 45,486 MBS pass-through securities issued by FHLMC, FNMA and GNMA 29,559 2 ( 4,151 ) — 25,410 SBA-backed securities 295 — ( 16 ) — 279 Debentures of government- sponsored agencies 8,971 — ( 1,518 ) — 7,453 U.S. Treasury securities 12,019 — ( 993 ) — 11,026 Obligations of state and political subdivisions 95,860 — ( 12,710 ) — 83,150 Corporate bonds 6,000 — ( 304 ) — 5,696 Total available-for-sale $ 434,479 $ 344 $ ( 28,814 ) $ — $ 406,009 December 31, 2024 Securities of U.S. 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 SBA-backed securities 331 — ( 23 ) — 308 Debentures of government- sponsored agencies 8,971 — ( 1,761 ) — 7,210 U.S. Treasury securities 12,020 — ( 1,205 ) 10,815 Obligations of state and political subdivisions 96,178 — ( 12,464 ) — 83,714 Corporate bonds 6,000 — ( 351 ) — 5,649 Total available-for-sale $ 419,292 $ 184 $ ( 31,942 ) $ — $ 387,534 1 Amortized cost and fair value exclude accrued interest receivable of $ 1.8 million and $ 1.7 million at March 31, 2025 and December 31, 2024, respectively, which is included in interest receivable and other assets in the consolidated statements of condition. The amortized cost a nd fair value of investment debt securities by contractual maturity at March 31, 2025 and December 31, 2024 are shown below. Expected maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties. March 31, 2025 December 31, 2024 Held-to-Maturity Available-for-Sale Held-to-Maturity Available-for-Sale (in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Within one year $ 6,396 $ 6,319 $ 97,597 $ 97,432 $ 36,476 $ 36,380 $ 99,431 $ 99,258 After one but within five years 132,305 123,708 108,875 105,917 118,590 110,857 106,986 103,058 After five years through ten years 210,571 180,823 83,968 77,239 229,040 191,328 75,429 67,940 After ten years 485,368 423,974 144,039 125,421 495,093 424,970 137,446 117,278 Total $ 834,640 $ 734,824 $ 434,479 $ 406,009 $ 879,199 $ 763,535 $ 419,292 $ 387,534 There were no sales of investment securities in the first quarter of 2025 or 2024. Three months ended Three months ended The reported values of pledged investment securities are shown in the following table. (in thousands) March 31, 2025 December 31, 2024 Pledged to the State of California: Secure public deposits in compliance with the Local Agency Security Program $ 300,703 $ 288,385 Collateral for trust deposits 923 1,284 Collateral for Wealth Management and Trust Services checking account 1,304 895 Total investment securities pledged to the State of California 302,930 290,564 Bankruptcy trustee deposits pledged with Federal Reserve Bank 522 651 Pledged to FHLB Securities-Backed Credit Program 280,652 284,148 Pledged to the Federal Reserve Discount Window 327,455 365,759 Total pledged investment securities $ 911,559 $ 941,122 Page-13 There were 259 and 269 securities in unrealized loss positions at March 31, 2025 and December 31, 2024, respectively. Those securities are summarized and classified according to the duration of the loss period in the tables below: March 31, 2025 < 12 continuous months ≥ 12 continuous months Total securities in a loss position (in thousands) Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Held-to-maturity: CMBS issued by FHLMC, FNMA and GNMA $ — $ — $ 211,013 $ ( 30,022 ) $ 211,013 $ ( 30,022 ) CMOs issued by FHLMC, FNMA and GNMA 7,849 ( 1,156 ) 172,218 ( 13,548 ) 180,067 ( 14,704 ) MBS pass-through securities issued by FHLMC, FNMA and GNMA 3,380 ( 84 ) 158,077 ( 27,312 ) 161,457 ( 27,396 ) SBA-backed securities — — 1,337 ( 45 ) 1,337 ( 45 ) Debentures of government-sponsored agencies — — 102,030 ( 19,476 ) 102,030 ( 19,476 ) Obligations of state and political subdivisions 5,515 ( 75 ) 48,185 ( 7,665 ) 53,700 ( 7,740 ) Corporate bonds — — 14,504 ( 496 ) 14,504 ( 496 ) Total held-to-maturity 16,744 ( 1,315 ) 707,364 ( 98,564 ) 724,108 ( 99,879 ) Available-for-sale: CMBS issued by FHLMC, FNMA and GNMA 106,015 ( 235 ) 52,028 ( 3,724 ) 158,043 ( 3,959 ) CMOs issued by FHLMC, FNMA and GNMA — — 33,697 ( 5,163 ) 33,697 ( 5,163 ) MBS pass-through securities issued by FHLMC, FNMA and GNMA 4 — 25,243 ( 4,151 ) 25,247 ( 4,151 ) SBA-backed securities — — 279 ( 16 ) 279 ( 16 ) Debentures of government- sponsored agencies — — 7,453 ( 1,518 ) 7,453 ( 1,518 ) U.S. Treasury securities — — 11,026 ( 993 ) 11,026 ( 993 ) Obligations of state and political subdivisions — — 83,150 ( 12,710 ) 83,150 ( 12,710 ) Corporate bonds — — 5,696 ( 304 ) 5,696 ( 304 ) Total available-for-sale 106,019 ( 235 ) 218,572 ( 28,579 ) 324,591 ( 28,814 ) Total securities at loss position $ 122,763 $ ( 1,550 ) $ 925,936 $ ( 127,143 ) $ 1,048,699 $ ( 128,693 ) Page-14 December 31, 2024 < 12 continuous months ≥ 12 continuous months Total securities in a loss position (in thousands) Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Held-to-maturity: 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 ) SBA-backed securities — — 1,452 ( 61 ) 1,452 ( 61 ) Debentures of government- sponsored agencies — — 118,737 ( 22,694 ) 118,737 ( 22,694 ) Obligations of state and political subdivisions 5,558 ( 44 ) 47,661 ( 8,297 ) 53,219 ( 8,341 ) Corporate Bonds — — 29,315 ( 685 ) 29,315 ( 685 ) Total held-to-maturity 27,496 ( 1,817 ) 736,039 ( 113,847 ) 763,535 ( 115,664 ) 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 ) SBA-backed securities — — 309 ( 23 ) 309 ( 23 ) Debentures of government- sponsored agencies — — 7,210 ( 1,761 ) 7,210 ( 1,761 ) U.S. Treasury securities — — 10,815 ( 1,205 ) 10,815 ( 1,205 ) Obligations of state and political subdivisions — — 83,714 ( 12,464 ) 83,714 ( 12,464 ) Corporate Bonds — — 5,649 ( 351 ) 5,649 ( 351 ) Total available-for-sale 129,409 ( 343 ) 225,006 ( 31,599 ) 354,415 ( 31,942 ) Total securities at loss position $ 156,905 $ ( 2,160 ) $ 961,045 $ ( 145,446 ) $ 1,117,950 $ ( 147,606 ) As of March 31, 2025, the investment portfolio included 241 investment securities that had been in a continuous loss position for twelve months or more and 18 investment securities that had been in a loss position for less than twelve months. Securities issued by government-sponsored agencies, such as FNMA and FHLMC, usually have implicit credit support from the U.S. federal government. However, since 2008, FNMA and FHLMC have been under government conservatorship and, therefore, contractual cash flows for these investments carry explicit guarantees by the U.S. federal government while FNMA and FHLMC remain under conservatorship. Securities issued by the SBA and GNMA have explicit credit guarantees by the U.S. federal government, which protects us from credit losses on the contractual cash flows of the securities. Our 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 credit risk factors at either March 31, 2025 or December 31, 2024. In addition, for any available-for-sale securities in an unrealized loss position at March 31, 2025 and December 31, 2024, the Bank assessed whether it intended to sell the securities, or if it was more likely than not that it would be required to sell the securities before recovery of its amortized cost basis, which would require a write-down to fair value through net income. Because the Bank did not intend to sell those securities that were in an unrealized loss position, and it was not more-likely-than-not that the Bank would be required to sell the securities before recovery of their amortized cost bases, the Bank determined that no write-down was necessary as of the reporting date. On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling $ 101.8 million to hedge balance sheet interest rate sensitivity and protect selected securities in its available-for-sale Page-15 portfolio against changes in fair value related to changes in the benchmark interest rate. In the fourth quarter of 2024, the Bank terminated these contracts resulting in an immaterial loss that will be amortized over the life of the hedged securities. For additional details, refer to Note 9, Derivative Financial Instruments and Hedging Activities. Non-Marketable Securities Included in Other Assets FHLB Capital Stock As a member of the FHLB, we are required to maintain a minimum investment in FHLB capital stock as determined by the Board of Directors of the FHLB. The minimum investment requirements can increase in the event we increase our total asset size or borrowings with the FHLB. Shares cannot be purchased or sold except between the FHLB and its members at the $ 100 per share par value. We held $ 16.7 million of FHLB stock included in other assets on the consolidated statements of condition at both March 31, 2025 and December 31, 2024. The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks, and they do not have a readily determinable market value. Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock w as not im paired at March 31, 2025 and December 31, 2024. On April 25, 2025, FHLB announced a cash dividend for the first quarter of 2025 at an annualized dividend rate of 8.75 % to be distributed in mid-May 2025. Cash dividends paid on FHLB capital stock are recorded as non-interest income. Note 5: Loans and Allowance for Credit Losses on Loans The following table presents the amortized cost of loans by portfolio class as of March 31, 2025 and December 31, 2024. (in thousands) March 31, 2025 December 31, 2024 Commercial and industrial $ 147,291 $ 152,263 Real estate: Commercial owner-occupied 319,112 321,962 Commercial non-owner occupied 1,292,281 1,273,596 Construction 25,745 36,970 Home equity 89,240 88,325 Other residential 133,960 143,207 Installment and other consumer loans 65,919 66,933 Total loans, at amortized cost 1 2,073,548 2,083,256 Allowance for credit losses on loans ( 29,906 ) ( 30,656 ) Total loans, net of allowance for credit losses on loans $ 2,043,642 $ 2,052,600 1 Amortized cost includes net deferred loan origination costs of $ 2.5 million and $ 2.5 million at March 31, 2025 and December 31, 2024, respectively. Amounts are also net of unrecognized purchase discounts of $ 1.2 million and $ 1.1 million at March 31, 2025 and December 31, 2024, respectively. Amortized cost excludes accrued interest, which totaled $ 6.6 million and $ 6.8 million at March 31, 2025 and December 31, 2024, respectively, and is included in interest receivable and other assets in the consolidated statements of condition. Lending Risks Commercial and Industrial Loans - Commercial loans are generally made to established small and mid-sized businesses to provide financing for their growth and working capital needs, equipment purchases and acquisitions. Management examines historical, current, and projected cash flows to determine the ability of the borrower to repay obligations as agreed. Commercial loans are made based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral and guarantor support. The cash flows of borrowers, however, may not occur as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed, such as accounts receivable and inventory, and typically include personal guarantees. We target stable businesses with guarantors who provide additional sources of repayment and have proven to be resilient in periods of economic stress. A weakened economy, and resultant decreased consumer and/or business spending, may have an effect on the credit quality of commercial loans. Commercial Real Estate Loans - Commercial real estate loans, which include income producing investment properties and owner-occupied real estate used for business purposes, are subject to underwriting standards and Page-16 processes similar to 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. Underwriting standards for commercial real estate loans include, but are not limited to, debt coverage and loan-to-value ratios. Furthermore, a large majority of our loans are guaranteed by the owners of the properties. Conditions in the real estate markets or a downturn in the general economy may adversely affect our commercial real estate loans. In the event of a vacancy, we expect guarantors to carry the loans until they find a replacement tenant. The owner's substantial equity investment provides a strong economic incentive to continue to support the commercial real estate projects. As such, we have generally experienced a relatively low level of loss and delinquencies in this portfolio. Construction Loans - Construction loans are generally made to developers and builders to finance construction, renovation and occasionally land acquisitions in anticipation of near-term development. 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 non-accrual status before the depletion of the interest reserve, we apply the interest funded by the interest reserve against the loan's principal balance. These loans are underwritten after evaluation of the borrower's financial strength, reputation, prior track record, and independent appraisals. We monitor all construction projects to determine whether they are on schedule, completed as planned and in accordance with the approved construction budgets. Significant events can affect the construction industry, including: the inherent volatility of real estate markets and vulnerability to delays due to weather, change orders, inability to obtain construction permits, labor or material shortages, and price changes. Estimates of construction costs and value associated with the completed project may be inaccurate. Repayment of construction loans is largely dependent on the ultimate success of the project. Consumer Loans - Consumer loans primarily consist of home equity lines of credit, other residential loans, floating homes, and indirect luxury auto loans, along with a small number of installment loans. Our other residential loans include tenancy-in-common fractional interest loans ("TIC") located almost entirely in San Francisco County. We originate consumer loans utilizing credit score information, debt-to-income ratio and loan-to-value ratio analysis. Diversification among consumer loan types, coupled with relatively small loan amounts that are spread across many individual borrowers, mitigates risk. We do not originate sub-prime residential mortgage loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages," the characteristics of which are reduced documentation, borrowers with low FICO scores or collateral with high loan-to-value ratios. Credit Quality Indicators We use a risk rating system to evaluate asset quality, and to identify and monitor credit risk in individual loans, and in the loan portfolio. Our definitions of “Special Mention” risk graded loans, or worse, are consistent with those used by the Federal Deposit Insurance Corporation ("FDIC"). Our internally assigned grades are as follows: Pass and Watch - Loans to borrowers of acceptable or better credit quality. Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history and management expertise. Loans in this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt-service-coverage ratios. These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial consequences. Negative external industry factors are generally not present. The loan may be secured, unsecured or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain. This category also includes “Watch” loans, where the primary source of repayment has been delayed. “Watch” is intended to be a transitional grade, with either an upgrade or downgrade within a reasonable period. Special Mention - Potential weaknesses that deserve close attention. If left uncorrected, those potential weaknesses may result in deterioration of the payment prospects for the asset. Special Mention assets do not present sufficient risk to warrant adverse classification. Substandard - Inadequately protected by either the current sound worth and paying capacity of the obligor or the collateral pledged, if any. A Substandard asset has well-defined weaknesses that jeopardize the liquidation of the debt. Substandard assets are characterized by the distinct possibility that we will sustain some loss if such weaknesses or deficiencies are not corrected. Well-defined weaknesses include adverse trends or developments of the borrower’s financial condition, managerial weaknesses and/or significant collateral deficiencies. Page-17 Doubtful - Critical weaknesses that make collection or liquidation in full improbable. There may be specific pending events that work to strengthen the asset; however, the amount or timing of the loss may not be determinable. Pending events generally occur within one year of the asset being classified as Doubtful. Examples include: merger, acquisition, or liquidation; capital injection; guarantee; perfecting liens on additional collateral; and refinancing. Such loans are placed on non-accrual status and usually are collateral-dependent. We regularly review our credits for accuracy of risk grades whenever we receive new information and at each quarterly and year-end reporting period. Borrowers are generally required to submit financial information at regular intervals. Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk and complexity. In addition, investor commercial real estate borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually. We monitor construction loans monthly. We review home equity and other consumer loans based on delinquency. We also review loans graded “Watch” or worse, regardless of loan type, no less than quarterly. The following tables present the loan portfolio by loan portfolio class, origination/renewal year and internal risk rating as of March 31, 2025 and December 31, 2024. The current year vintage table reflects gross charge-offs by loan portfolio class and year of origination. Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal. Lines of credit that have a conversion feature at the time of origination, such as construction to perm loans, are presented by year of origination. (in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost March 31, 2025 2025 2024 2023 2022 2021 Prior Total Commercial and industrial: Pass and Watch $ 2,269 $ 10,117 $ 19,391 $ 7,349 $ 1,204 $ 28,128 $ 68,164 $ 136,622 Special Mention 18 — — — — 191 — 209 Substandard — 528 — 2,793 — — 7,139 10,460 Total commercial and industrial $ 2,287 $ 10,645 $ 19,391 $ 10,142 $ 1,204 $ 28,319 $ 75,303 $ 147,291 Commercial real estate, owner-occupied: Pass and Watch $ 6,657 $ 14,570 $ 13,189 $ 41,394 $ 44,197 $ 168,522 $ 100 $ 288,629 Special Mention — — 375 1,172 18,690 5,383 — 25,620 Substandard — — — 2,079 — 2,784 — 4,863 Total commercial real estate, owner-occupied $ 6,657 $ 14,570 $ 13,564 $ 44,645 $ 62,887 $ 176,689 $ 100 $ 319,112 Commercial real estate, non-owner occupied: Pass and Watch $ 33,132 $ 116,474 $ 64,634 $ 161,874 $ 195,261 $ 615,133 $ 9,089 $ 1,195,597 Special Mention — 18,347 — 2,721 2,086 33,235 — 56,389 Substandard — — 497 — — 39,798 — 40,295 Total commercial real estate, non-owner occupied $ 33,132 $ 134,821 $ 65,131 $ 164,595 $ 197,347 $ 688,166 $ 9,089 $ 1,292,281 Page-18 (in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost March 31, 2025 2025 2024 2023 2022 2021 Prior Total Gross current period charge-offs $ — $ — $ — $ — $ ( 809 ) $ — $ — $ ( 809 ) Construction: Pass and Watch $ 5,189 $ 13,855 $ — $ — $ — $ — $ — $ 19,044 Special Mention 6,701 — — — — — — 6,701 Total construction $ 11,890 $ 13,855 $ — $ — $ — $ — $ — $ 25,745 Home equity: Pass and Watch $ — $ 76 $ 13 $ — $ — $ 952 $ 86,786 $ 87,827 Substandard — — — — — 171 1,242 1,413 Total home equity $ — $ 76 $ 13 $ — $ — $ 1,123 $ 88,028 $ 89,240 Other residential: Pass and Watch $ — $ 29,963 $ 17,025 $ 18,594 $ 12,215 $ 55,957 $ — $ 133,754 Substandard — — — — 206 — — 206 Total other residential $ — $ 29,963 $ 17,025 $ 18,594 $ 12,421 $ 55,957 $ — $ 133,960 Installment and other consumer: Pass and Watch $ 3,423 $ 17,144 $ 13,766 $ 10,202 $ 7,397 $ 12,652 $ 1,137 $ 65,721 Substandard — — — — 198 — — 198 Total installment and other consumer $ 3,423 $ 17,144 $ 13,766 $ 10,202 $ 7,595 $ 12,652 $ 1,137 $ 65,919 Gross current period charge-offs $ — $ — $ — $ — $ — $ ( 15 ) $ ( 1 ) $ ( 16 ) Total loans: Pass and Watch $ 50,670 $ 202,199 $ 128,018 $ 239,413 $ 260,274 $ 881,344 $ 165,276 $ 1,927,194 Total Special Mention $ 6,719 $ 18,347 $ 375 $ 3,893 $ 20,776 $ 38,809 $ — $ 88,919 Total Substandard $ — $ 528 $ 497 $ 4,872 $ 404 $ 42,753 $ 8,381 $ 57,435 Totals $ 57,389 $ 221,074 $ 128,890 $ 248,178 $ 281,454 $ 962,906 $ 173,657 $ 2,073,548 Total gross current period charge-offs $ — $ — $ — $ — $ ( 809 ) $ ( 15 ) $ ( 1 ) $ ( 825 ) (in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost December 31, 2024 2024 2023 2022 2021 2020 Prior Total Commercial and industrial: Pass and Watch $ 9,951 $ 20,282 $ 7,742 $ 1,371 $ 2,650 $ 27,487 $ 71,212 $ 140,695 Special Mention 598 — — — 5 221 7,286 8,110 Substandard — — 2,793 — — — 665 3,458 Total commercial and industrial $ 10,549 $ 20,282 $ 10,535 $ 1,371 $ 2,655 $ 27,708 $ 79,163 $ 152,263 Gross current period charge-offs $ — $ — $ — $ — $ — $ — $ ( 41 ) $ ( 41 ) Commercial real estate, owner-occupied: Pass and Watch $ 14,638 $ 13,386 $ 43,381 $ 44,536 $ 41,160 $ 130,197 $ 169 $ 287,467 Special Mention — 378 — 18,870 804 9,499 — 29,551 Substandard — — 2,110 — — 2,834 — 4,944 Total commercial real estate, owner-occupied $ 14,638 $ 13,764 $ 45,491 $ 63,406 $ 41,964 $ 142,530 $ 169 $ 321,962 Commercial real estate, non-owner occupied: Pass and Watch $ 119,053 $ 64,906 $ 162,804 $ 196,661 $ 179,060 $ 442,574 $ 9,178 $ 1,174,236 Special Mention 18,343 — 2,736 2,097 729 39,888 — 63,793 Substandard — 497 — 2,127 — 32,943 — 35,567 Total commercial real estate, non-owner occupied $ 137,396 $ 65,403 $ 165,540 $ 200,885 $ 179,789 $ 515,405 $ 9,178 $ 1,273,596 Construction: Pass and Watch $ 18,128 $ — $ 11,380 $ — $ — $ — $ — $ 29,508 Special Mention 7,462 — — — — — — 7,462 Total construction $ 25,590 $ — $ 11,380 $ — $ — $ — $ — $ 36,970 Home equity: Pass and Watch $ 94 $ 13 $ — $ — $ — $ 968 $ 86,337 $ 87,412 Substandard — — — — — 174 739 913 Page-19 (in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost December 31, 2024 2024 2023 2022 2021 2020 Prior Total Total home equity $ 94 $ 13 $ — $ — $ — $ 1,142 $ 87,076 $ 88,325 Other residential: Pass and Watch $ 35,390 $ 17,267 $ 19,682 $ 12,989 $ 24,378 $ 33,501 $ — $ 143,207 Total other residential $ 35,390 $ 17,267 $ 19,682 $ 12,989 $ 24,378 $ 33,501 $ — $ 143,207 Installment and other consumer: 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 Gross current period charge-offs $ — $ ( 14 ) $ — $ ( 39 ) $ — $ ( 1 ) $ ( 4 ) $ ( 58 ) Total loans: Pass and Watch $ 214,779 $ 131,283 $ 255,830 $ 263,355 $ 250,036 $ 645,628 $ 168,325 $ 1,929,236 Total Special Mention $ 26,403 $ 378 $ 2,736 $ 20,967 $ 1,538 $ 49,608 $ 7,286 $ 108,916 Total Substandard $ — $ 497 $ 4,903 $ 2,334 $ — $ 35,966 $ 1,404 $ 45,104 Totals $ 241,182 $ 132,158 $ 263,469 $ 286,656 $ 251,574 $ 731,202 $ 177,015 $ 2,083,256 Total gross current period charge-offs $ — $ ( 14 ) $ — $ ( 39 ) $ — $ ( 1 ) $ ( 45 ) $ ( 99 ) Page-20 The following table shows the amortized cost of loans by portfolio class, payment aging and non-accrual status as of March 31, 2025 and December 31, 2024. Loan Aging Analysis by Class (in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, non-owner occupied Construction Home equity Other residential Installment and other consumer Total March 31, 2025 30-59 days past due $ 245 $ 1,552 $ 382 $ — $ — $ 802 $ 204 $ 3,185 60-89 days past due — 285 3,563 — 150 — — 3,998 90 days or more past due 1 2,845 365 8,616 — 925 — — 12,751 Total past due 3,090 2,202 12,561 — 1,075 802 204 19,934 Current 144,201 316,910 1,279,720 25,745 88,165 133,158 65,715 2,053,614 Total loans 1 $ 147,291 $ 319,112 $ 1,292,281 $ 25,745 $ 89,240 $ 133,960 $ 65,919 $ 2,073,548 Non-accrual loans 2 $ 2,845 $ 1,493 $ 26,826 $ — $ 1,353 $ 206 $ 198 $ 32,921 Non-accrual loans with no allowance $ — $ 1,493 $ 1,225 $ — $ 1,353 $ 206 $ 198 $ 4,475 December 31, 2024 30-59 days past due $ 203 $ 208 $ 718 $ — $ 738 $ — $ 415 $ 2,282 60-89 days past due — 559 — — 186 — 7 752 90 days or more past due 1 2,793 113 10,742 — 248 — 8 13,904 Total past due 2,996 880 11,460 — 1,172 — 430 16,938 Current 149,267 321,082 1,262,136 36,970 87,153 143,207 66,503 2,066,318 Total loans 1 $ 152,263 $ 321,962 $ 1,273,596 $ 36,970 $ 88,325 $ 143,207 $ 66,933 $ 2,083,256 Non-accrual loans 2 $ 2,845 $ 1,537 $ 28,525 $ — $ 752 $ — $ 222 $ 33,881 Non-accrual loans with no allowance $ — $ 1,537 $ 497 $ — $ 752 $ — $ 207 $ 2,993 1 There were no non-performing loans over 90 days past due and accruing interest as of March 31, 2025 or December 31, 2024 . 2 None of the non-accrual loans as of March 31, 2025 or December 31, 2024 were earning interest on a cash or accrual basis. We reversed $ 33 thousand in accrued interest income for loans that were placed on non-accrual status during the three months ended March 31, 2025. We reversed accrued interest income of $ 10 thousand for loans that were placed on non-accrual status during the three months ended March 31, 2024. Collateral Dependent Loans The following table presents the amortized cost basis of individually analyzed collateral-dependent loans, which were all on non-accrual status, by portfolio class at March 31, 2025 and December 31, 2024. Amortized Cost by Collateral Type (in thousands) Commercial Real Estate Residential Real Estate Other Total 1 Allowance for Credit Losses March 31, 2025 Commercial real estate, owner-occupied $ 1,493 $ — $ — $ 1,493 $ — Commercial real estate, non-owner occupied 26,826 — — 26,826 7,478 Home equity — 1,353 — 1,353 — Other residential — 206 — 206 — Installment and other consumer — — 198 198 — Total $ 28,319 $ 1,559 $ 198 $ 30,076 $ 7,478 December 31, 2024 Commercial and industrial $ 52 $ — $ — $ 52 $ 52 Commercial real estate, owner-occupied 1,537 — — 1,537 — Commercial real estate, non-owner occupied 28,525 — — 28,525 7,933 Home equity 752 752 Installment and other consumer — — 222 222 15 Total $ 30,114 $ 752 $ 222 $ 31,088 $ 8,000 1 There were no collateral-dependent residential real estate mortgage loans in process of foreclosure or in substance repossessed at March 31, 2025 and December 31, 2024. The weighted average loan-to-value of real estate secured collateral dependent loans was approximately 128 % at March 31, 2025 and 116 % at December 31, 2024. Page-21 Loan Mod ifications to Borrowers Experiencing Financial Difficulty There were no modifications of loans during the three months ended March 31, 2025 requiring disclosure. The following table summarizes the amortized cost of loans as of March 31, 2024 that were modified during the three months ended March 31, 2024 by portfolio class and type of modification granted. (in thousands) Term Extension Total Modifications Percent of Portfolio Class Total Three months ended March 31, 2024 Commercial and industrial $ 2,191 $ 2,191 1.5 % Home Equity 82 82 0.1 % Total $ 2,273 $ 2,273 As of March 31, 2025 and March 31, 2024, there were no unfunded loan commitments for loans that were modified during the period presented. The following table summarizes the financial effect of loan modifications presented in the table above during the three months ended March 31, 2024 by portfolio class. Weighted-Average Term Extension (in years) Three months ended March 31, 2024 Commercial and industrial 0.3 Home Equity 15.0 The loan modifications did not significantly impact the determination of the allowance for credit losses on loans during the three months ended March 31, 2024. 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 March 31, 2024 that were m odified during the three months ended March 31, 2024 by portfolio class. (in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Non-Accrual Three months ended March 31, 2024 Commercial and industrial $ 2,191 $ — $ — $ — $ 2,191 $ 2,191 Home Equity 82 — — — 82 82 Total $ 2,273 $ — $ — $ — $ 2,273 $ 2,273 There were no loans to borrowers experiencing financial difficulty that were modified within the three months ended March 31, 2024 that had subsequently defaulted (i.e., fully or partially charged-off or became 90 days or more past due). Allocation of the Allowance for Credit Losses on Loans The following table presents the details of the allowance for credit losses on loans segregated by loan portfolio class as of March 31, 2025 and December 31, 2024 . Page-22 Allocation of the Allowance for Credit Losses on Loans (in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, non-owner occupied Construction Home equity Other residential Installment and other consumer Unallocated Total March 31, 2025 Modeled expected credit losses $ 792 $ 1,198 $ 7,549 $ 42 $ 636 $ 1,072 $ 621 $ — $ 11,910 Qualitative adjustments 615 1,121 6,734 374 62 2 263 1,246 10,417 Specific allocations 101 — 7,478 — — — — — 7,579 Total $ 1,508 $ 2,319 $ 21,761 $ 416 $ 698 $ 1,074 $ 884 $ 1,246 $ 29,906 December 31, 2024 Modeled expected credit losses $ 759 $ 1,241 $ 7,632 $ 41 $ 620 $ 1,133 $ 625 $ — $ 12,051 Qualitative adjustments 672 1,120 6,528 597 64 8 268 1,255 10,512 Specific allocations 145 — 7,933 — — — 15 — 8,093 Total $ 1,576 $ 2,361 $ 22,093 $ 638 $ 684 $ 1,141 $ 908 $ 1,255 $ 30,656 Allowance for Credit Losses on Loans Rollforward The following table discloses activity in the allowance for credit losses on loans for the periods presented. Allowance for Credit Losses on Loans Rollforward (in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, non-owner occupied Construction Home equity Other residential Installment and other consumer Unallocated Total Three months ended March 31, 2025 Beginning balance $ 1,576 $ 2,361 $ 22,093 $ 638 $ 684 $ 1,141 $ 908 $ 1,255 $ 30,656 (Reversal) Provision ( 68 ) ( 42 ) 477 ( 222 ) 14 ( 67 ) ( 8 ) ( 9 ) 75 (Charge-offs) — — ( 809 ) — — — ( 16 ) — ( 825 ) Recoveries — — — — — — — — — Ending balance $ 1,508 $ 2,319 $ 21,761 $ 416 $ 698 $ 1,074 $ 884 $ 1,246 $ 29,906 Three months ended March 31, 2024 Beginning balance $ 1,712 $ 2,476 $ 14,933 $ 1,832 $ 552 $ 653 $ 976 $ 2,038 $ 25,172 Provision (Reversal) 19 24 771 ( 550 ) 75 39 ( 39 ) 11 350 (Charge-offs) ( 4 ) — — — — — ( 17 ) — ( 21 ) Recoveries — — — — — — — — — Ending balance $ 1,727 $ 2,500 $ 15,704 $ 1,282 $ 627 $ 692 $ 920 $ 2,049 $ 25,501 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 $ 1.377 billion and $ 1.351 billion at March 31, 2025 and December 31, 2024, respectively. In addition, we pledge eligible residential loans, which totaled $ 106.3 million and $ 110.0 million at March 31, 2025 and December 31, 2024, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB"). For additional information, see Note 6, Borrowings. Related Party Loans The Bank has, and expects to have in the future, banking transactions in the ordinary course of its business with directors, officers, principal shareholders and their businesses or associates. These transactions, including loans, are granted on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with persons not related to us. Likewise, these transactions do not involve more than the normal risk of collectability or present other unfavorable features. Related party loans totaled $ 4.1 million as of March 31, 2025 and December 31, 2024. In addition, undisbursed commitments to related parties totaled $ 210 thousand and $ 211 thousand as of March 31, 2025 and December 31, 2024, respectively. Note 6: Borrowings and Other Obligations Page-23 Federal Home Loan Bank: The Bank had lines of credit with the FHLB totaling $ 925.2 million and $ 948.1 million as of March 31, 2025 and December 31, 2024, respectively, based on eligible collateral of certain loans and investment securities. Federal Funds Lines of Credit: The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $ 125.0 million as of both March 31, 2025 and December 31, 2024. In general, interest rates on these lines approximate the federal funds target rate. Federal Reserve Bank: The Bank had a line of credit through the Discount Window at the Federal Reserve Bank of San Francisco ("FRBSF") totaling $ 325.1 million as of March 31, 2025, secured by investment securities and residential loans. As of December 31, 2024, the Bank had a line of credit through the Discount Window totaling $ 358.0 million secured by investment securities and residential loans . Other Obligations: Finance lease liabilities totaling $ 116 thousand and $ 154 thousand as of March 31, 2025 and December 31, 2024, respectively, are included in borrowings and other obligations in the consolidated statements of condition. Refer to Note 8, Commitments and Contingencies, for additional information. The carrying values and weighted average interest rates on borrowings and other obligations as of March 31, 2025 and December 31, 2024 are summarized in the following table. March 31, 2025 December 31, 2024 (dollars in thousands) Carrying Value Weighted Average Rate Carrying Value Weighted Average Rate FHLB short-term borrowings $ — — % $ — — % Federal funds lines of credit — — % — — % FRBSF federal funds purchased — — % — — % FRBSF short-term borrowings under the BTFP — — % — — % Other obligations (finance leases) 116 3.06 % 154 2.70 % Total borrowings and other obligations $ 116 3.06 % $ 154 2.70 % Note 7: Stockholders' Equity Dividends On January 23, 2025, Bancorp approved a $ 0.25 per share cash dividend, paid February 13, 2025 to shareholders of record at the close of business on February 6, 2025. Subsequent to quarter end on April 24, 2025, Bancorp approved a $ 0.25 per share cash dividend, payable on May 15, 2025 to shareholders of record at the close of business on May 8, 2025. Share-Based Payments The fair value of stock options as of the grant date is recorded as stock-based compensation expense in the consolidated statements of comprehensive income over the requisite service period, which is generally the vesting period, with a corresponding increase in common stock. Stock-based compensation also includes compensation expense related to the issuance of restricted stock awards. The grant-date fair value of the restricted stock awards, which equals the grant date price, is recorded as compensation expense over the requisite service period with a corresponding increase in common stock as the shares vest. Stock options and restricted stock awards issued include a retirement eligibility clause whereby the requisite service period is satisfied at the retirement eligibility date. For those awards, we accelerate the recording of stock-based compensation when the award holder is eligible to retire. However, retirement eligibility does not affect the vesting of restricted stock or the exercisability of the stock options, which are based on the scheduled vesting period. Performance-based stock awards (restricted stock) are issued to a selected group of employees. Stock award vesting is contingent upon the achievement of pre-established long-term performance goals set by the Compensation Committee of the Board of Directors. Performance is measured over a three-year period and cliff vested. These performance-based stock awards were granted at a maximum opportunity level, and based on the achievement of the pre-established goals, the actual payouts can range from 0 % to 200 % of the target award. For Page-24 performance-based stock awards, an estimate is made of the number of shares expected to vest based on the probability that the performance criteria will be achieved to determine the amount of compensation expense to be recognized. The estimate is re-evaluated quarterly, and total compensation expense is adjusted for any change in the current period. We record excess tax benefits (deficiencies) resulting from the exercise of non-qualified stock options, the disqualifying disposition of incentive stock options and vesting of restricted stock awards as income tax benefits (expense) in the consolidated statements of comprehensive income with a corresponding decrease (increase) to current taxes payable. The holders of unvested restricted stock awards are entitled to dividends on the same per-share ratio as holders of common stock. Tax benefits for dividends paid on unvested restricted stock awards are recorded as tax benefits in the consolidated statements of comprehensive income with a corresponding decrease to current taxes payable. Dividends on forfeited awards are included in stock-based compensation expense. Stock options and restricted stock may be net settled in a cashless exercise by a reduction in the number of shares otherwise deliverable upon exercise or vesting in satisfaction of the exercise payment and/or applicable tax withholding requirements. Shares withheld under net settlement arrangements are available for future grants. The table below depicts the total number of shares, amount, and weighted average price withheld for cashless exercises for the periods presented. Three months ended March 31, 2025 March 31, 2024 Number of shares withheld 3,957 3,338 Total amount withheld (in thousands) $ 96 $ 55 Weighted-average price $ 24.22 $ 16.62 Share Repurchase Program On July 21, 2023, the Board of Directors approved the adoption of Bancorp's new share repurchase program for up to $ 25.0 million and expiring on July 31, 2025. There were no repurchases in the three months ended March 31, 2025 and 2024. Bancorp will continue to assess opportunities to utilize the program. Note 8: Commitments and Contingent Liabilities Financial Instruments with Off-Balance Sheet Risk We make commitments to extend credit in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because various commitments will expire without being fully drawn, the total commitment amount does not necessarily represent future cash requirements. Our credit loss exposure is equal to the contractual amount of the commitment in the event of nonperformance by the borrower. We use the same credit underwriting criteria for all credit exposure. The amount of collateral obtained, if deemed necessary by us, is based on management's credit evaluation of the borrower. Collateral types pledged may include accounts receivable, inventory, other personal property and real property. Page-25 The contractual amount of unfunded loan commitments and standby letters of credit not reflected in the consolidated statements of condition are as follows: (in thousands) March 31, 2025 December 31, 2024 Commercial lines of credit $ 224,633 $ 233,462 Revolving home equity lines 207,652 208,372 Undisbursed construction loans 7,447 8,294 Personal and other lines of credit 8,591 7,781 Standby letters of credit 2,915 2,777 Total unfunded loan commitments and standby letters of credit $ 451,238 $ 460,686 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 $ 894 thousand at both March 31, 2025 and December 31, 2024, which is included in interest payable and other liabilities in the consolidated statements of condition. There was no provision for credit losses on unfunded loan commitments in the first quarter of 2025 or in the first quarter of prior year. Leases We lease premises under long-term non-cancelable operating leases with remaining terms of 90 days to 17 years, 2 months , most of which include escalation clauses and one or more options to extend the lease term, and some of which contain lease termination clauses. Lease terms may include certain renewal options that were considered reasonably certain to be exercised. 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. The following table shows the balances of operating and finance lease right-of-use assets and lease liabilities. (in thousands) March 31, 2025 December 31, 2024 Operating leases: Operating lease right-of-use assets $ 19,076 $ 19,025 Operating lease liabilities $ 21,497 $ 21,509 Finance leases: Finance lease right-of-use assets $ 616 $ 616 Accumulated amortization ( 504 ) ( 467 ) Finance lease right-of-use assets, net 1 $ 112 $ 149 Finance lease liabilities 2 $ 116 $ 154 1 Included in premises and equipment in the consolidated statements of condition. 2 Included in borrowings and other obligations in the consolidated statements of condition. The following table shows supplemental disclosures of noncash investing and financing activities for the periods presented. Three months ended (in thousands) March 31, 2025 March 31, 2024 Right-of-use assets obtained in exchange for operating lease liabilities $ 1,090 $ 2,417 Right-of-use assets obtained in exchange for finance lease liabilities $ — $ — Page-26 The following table shows components of operating and finance lease cost. Three months ended (in thousands) March 31, 2025 March 31, 2024 Operating lease cost 1 $ 1,185 $ 1,318 Finance lease cost: Amortization of right-of-use assets 2 $ 37 $ 37 Interest on finance lease liabilities 3 1 1 Total finance lease cost $ 38 $ 38 Total lease cost $ 1,223 $ 1,356 1 Included in occupancy and equipment expense in the consolidated statements of comprehensive income. 2 Included in depreciation and amortization in the consolidated statements of comprehensive income. 3 Included in interest on borrowings and other obligations in the consolidated statements of comprehensive income. The following table shows the future minimum lease payments, weighted average remaining lease terms, and weighted average discount rates under operating and finance lease arrangements as of March 31, 2025. The discount rates used to calculate the present value of lease liabilities were based on the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum payments on the lease commencement date. (in thousands) March 31, 2025 Year Operating Leases Finance Leases 2025 $ 3,679 $ 71 2026 3,843 40 2027 3,556 7 2028 3,141 1 2029 2,489 — Thereafter 7,719 — Total minimum lease payments 24,427 119 Amounts representing interest (present value discount) ( 2,930 ) ( 3 ) Present value of net minimum lease payments (lease liability) $ 21,497 $ 116 Weighted average remaining term (in years) 7.46 1.43 Weighted average discount rate 2.95 % 3.06 % Litigation Matters Bancorp may be party to legal actions that arise from time to time in the normal course of business. Bancorp's management is not aware of any pending legal proceedings to which either it or the Bank may be a party or has recently been a party that will have a material adverse effect on the financial condition or results of operations of Bancorp or the Bank. The Bank is responsible for a proportionate share of certain litigation indemnifications provided to Visa U.S.A. ("Visa") by its member banks in connection with Visa's lawsuits related to anti-trust charges and interchange fees ("Covered Litigation"). We sold our remaining shares on July 13, 2023, however our proportionate share of the litigation indemnification liability does not change or transfer upon the sale of our Class B Visa shares to member banks or, per the terms of the sale, to the recent purchaser of our shares. Visa established an escrow account for the Covered Litigation that it periodically funds, which is expected to cover the settlement payment obligations. Litigation is ongoing and until the court approval process is complete, there is no assurance that Visa will resolve the claims as contemplated by the amended class settlement agreement, and additional lawsuits may arise from individual merchants who opted out of the class settlement. However, until the escrow account is fully depleted and the conversion rate of Class B to Class A common stock is reduced to zero, no future cash settlement payments are required by the member banks, such as us, on the Covered Litigation. 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. Page-27 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 significant costs related to this action. We are not aware of any other similar wage and hour claims at this time. Note 9: Derivative Financial Instruments and Hedging Activities The Bank is exposed to certain risks from both its business operations and changes in economic conditions. As part of our asset/liability and interest rate risk management strategy, we may enter into interest rate derivative contracts to modify repricing characteristics of certain of our interest-earning assets and interest-bearing liabilities. The Bank generally designates interest rate hedging agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Our credit exposure, if any, on interest rate swap asset positions is limited to the fair value (net of any collateral pledged to us) and interest payments of all swaps by each counterparty. Conversely, when an interest rate swap is in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an amount determined by the agreements. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. 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. The loan interest rate swaps were designated as fair value hedges and allowed us to offer long-term fixed-rate loans to customers without assuming the interest rate risk of a long-term asset. Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S. dollar SOFR index, protects us against changes in the fair value of our loans associated with fluctuating interest rates. The notional amounts of the interest rate contracts are equal to the notional amounts of the hedged loans. In the third quarter of 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 certain of our fixed rate available-for-sale securities against changes in fair value related to changes in interest rates by receiving floating rate interest from a counterparty in exchange for us making fixed-rate interest payments. In the fourth quarter of 2024, the Bank terminated these contracts, resulting in an immaterial loss that will be amortized over the life of the hedged securities. Information on our derivatives follows: Asset derivatives Liability derivatives (in thousands) March 31, 2025 December 31, 2024 March 31, 2025 December 31, 2024 Loans receivable: Interest rate contracts - notional amount $ 7,412 $ 7,654 $ — $ — Interest rate contracts - fair value 1 $ 227 $ 333 $ — $ — 1 Refer to Note 3, Fair Value of Assets and Liabilities, for valuation methodology. The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of hedged assets as of March 31, 2025 and December 31, 2024. Page-28 Carrying Amounts of Hedged Assets Cumulative Amounts of Fair Value Hedging Adjustments Included in the Carrying Amounts of the Hedged Assets (in thousands) March 31, 2025 December 31, 2024 March 31, 2025 December 31, 2024 Loans receivable 1 $ 7,085 $ 7,215 $ ( 287 ) $ ( 398 ) 1 Carrying value equals the amortized cost basis of the loans underlying the hedge relationship, which is the loan balance net of deferred loan origination fees and cost and the fair value hedge adjustment. Amortized cost excludes accrued interest, which was not material. The following table presents the pretax net gains recognized in interest income related to our fair value hedges for the years presented. Three months ended (in thousands) March 31, 2025 March 31, 2024 Interest on investment securities 1 Increase in fair value of interest rate swaps hedging available-for-sale securities $ — $ 1,217 Hedged interest earned — 206 Decrease in carrying value included in the hedged available-for-sale securities — ( 1,217 ) Net gain recognized in interest income on investment securities $ — $ 206 Interest and fees on loans 1 Decrease (increase) in fair value of interest rate swaps hedging loans receivable $ ( 106 ) $ 115 Hedged interest earned 30 54 Increase (decrease) in carrying value included in the hedged loans 111 ( 110 ) Decrease in value of yield maintenance agreement ( 2 ) ( 2 ) Net gain recognized in interest income on loans $ 33 $ 57 1 Represents the income line item in the statement of comprehensive income in which the effects of fair value hedges are recorded. Our derivative transactions with the counterparty are under an International Swaps and Derivative Association (“ISDA”) master agreement that includes “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes. Information on financial instruments that are eligible for offset in the consolidated statements of condition follows: Offsetting of Financial Assets and Derivative Assets Gross Amounts Net Amounts of Gross Amounts Not Offset in Gross Amounts Offset in the Assets Presented the Statements of Condition of Recognized Statements of in the Statements Financial Cash Collateral ( in thousands) Assets 1 Condition of Condition 1 Instruments Received Net Amount March 31, 2025 Counterparty $ 227 $ — $ 227 $ — $ — $ 227 Total $ 227 $ — $ 227 $ — $ — $ 227 December 31, 2024 Counterparty $ 333 $ — $ 333 $ — $ — $ 333 Total $ 333 $ — $ 333 $ — $ — $ 333 1 Amounts exclude accrued interest on swaps. For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 2024 Form 10-K filed with the SEC on March 14, 2025. Page-29