What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-08 compared with 2025-05-12 · 330 added, 149 removed, 332 unchanged (59% of the section changed)

29 unchanged sentences

Executive Summary

Net income for the first quarter of 2025 was $4.9 million, compared to net income of $6.0 million for the fourth quarter of 2024.

Diluted earnings per share was $0.30 for the first quarter of 2025, compared to diluted earnings per share of $0.38 for the preceding quarter and $0.18 for the same quarter a year ago.

Net loss for the second quarter of 2025 was $8.5 million, compared to net income of $4.9 million for the prior quarter.

Diluted loss per share was $0.53 for the second quarter of 2025, compared to diluted earnings per share of $0.30 for the prior quarter.

The loss was attributable to securities repositioning which is more fully described below.

Net income and diluted earnings per share for the second quarter excluding the loss on sale of securities was $4.7 million and $0.29, respectively, all other factors unchanged and with adjustments made based on the Company's blended statutory tax rate of 29.56%.

If the adjustments were made using the Company's second quarter 2025 effective tax rate of 23.78%, net income and diluted earnings per share for the second quarter of 2025 excluding the loss on sale of securities was $5.7 million and $0.36, respectively, all other factors unchanged.

Net loss for the six months ended June 30, 2025 was $3.7 million, compared to a loss of $19.0 million for the same period of 2024, and diluted loss per share was $0.23 and $1.18 for the first six months of 2025 and 2024, respectively.

Net income and diluted earnings per share for the six months ending June 30 excluding the loss on sale of securities during both periods was $9.5 million and $0.59 in 2025 and $3.9 million and $0.24 in 2024, respectively, all other factors unchanged.

Comparable (non-GAAP) Excluding Loss on Sale of Securities

Three months ended Six months ended

(in thousands, except per share amounts;

June 30, 2025 March 31, 2025 June 30, 2025 June 30, 2024

Pre-tax, pre-provision net (loss) income

Pre-tax, pre-provision net (loss) income (GAAP) $ (11,199) $ 6,556 $ (4,643) $ (24,903)

Comparable pre-tax, pre-provision net income (non-GAAP) 7,537 6,556 14,093 7,639

Net (loss) income

Net (loss) income (GAAP)

(8,536) 4,876 (3,660) (18,980)

Comparable net income (non-GAAP) 4,662 4,876 9,538 3,942

Diluted (loss) earnings per share

Diluted (loss) earnings per share (GAAP)

(0.53) 0.30 (0.23) (1.18)

Comparable diluted earnings per share (non-GAAP) 0.29 0.30 0.59 0.24

See complete Reconciliation of GAAP and Non-GAAP Financial Measures below

Related tax benefit calculated using blended statutory rate of 29.56%

The following are highlights of our operating and financial performance for the periods presented.

Additional performance details can be found in the pages that follow.

• The tax-equivalent net interest margin increased to 2.86% in the first quarter of 2025 from 2.80% in the prior quarter, reflecting reductions in deposit interest rates.

The tax-equivalent net interest margin was 2.50% for the same period in the prior year.

The 36 basis point increase year over year was due to securities repositioning, the pay off of borrowings and the reduction of deposit costs.

• Total deposits increased by $82.0 million to $3.302 billion as of March 31, 2025, compared to $3.220 billion as of December 31, 2024 however, some seasonal outflow is expected in early second quarter.

Non-interest bearing deposits made up 43.2% of total deposits as of March 31, 2025, compared to 43.5% as of December 31, 2024.

• The average cost of total deposits decreased 7 basis points to 1.29% in the first quarter of 2025.

The average cost of interest bearing deposits decreased 17 basis points to 2.27% in the first quarter of 2025.

This reflected strategic deposit interest rate pricing adjustments with limited rate related outflows, as well as deposit growth.

• Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $1.917 billion, or 58% of total deposits and 203% of estimated uninsured and/or uncollateralized deposits as of March 31, 2025.

• Loan balances of $2.074 billion decreased $9.7 million from $2.083 billion at December 31, 2024.

Additions to the loan portfolio in the first quarter of 2025 reflected loan fundings of $47.4 million and payoffs of $25.5 million.

Loan amortization from scheduled repayments totaled $20.5 million and net utilization of credit lines decreased by $9.5 million during the first quarter of 2025.

• There was a $75 thousand provision for credit losses on loans in the first three months of 2025, and no provision in the previous quarter, bringing the allowance for credit losses to 1.44% of total loans as of March 31, 2025, compared to 1.47% as of December 31, 2024.

• Non-accrual loans decreased to $32.9 million, or 1.59% of total loans at March 31, 2025, compared to $33.9 million, or 1.63% at December 31, 2024.

The reduction in non-accrual balances included a $2.1 million non-owner occupied real estate loan sale that included a charge-off of $809 thousand.

Approximately 57% of non-accrual loans were paying as agreed and 90% were real estate secured as of March 31, 2025.

• Return on average assets ("ROA") was 0.53% for the first quarter of 2025, compared to 0.63% for the fourth quarter of 2024, and return on average equity ("ROE") was 4.52% for the first quarter of 2025, compared to 5.48% for the prior quarter.

• The efficiency ratio for the first quarter of 2025 was 76.44%, compared to 65.53% for the prior quarter.

The increase was primarily due to increased salary and benefit expense and contributions expense during the quarter.

• Capital was above well-capitalized regulatory thresholds with Bancorp's and the Bank's total risk-based capital ratios of 16.69% and 16.45%, respectively, as of March 31, 2025.

The capital plan and point-in-time capital stress tests indicate that Bank of Marin and Bancorp capital ratios will remain above regulatory well-capitalized and internal policy minimums throughout a five-year forecast horizon and across stress scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth or decline, loan credit quality deterioration, and potential share repurchases.

• Bancorp's tangible common equity to tangible assets ("TCE ratio") was 9.82% as of March 31, 2025, and the Bank's TCE ratio was 9.66%.

While we do not intend to sell our held-to-maturity securities, the Bancorp's TCE ratio, net of after-tax unrealized losses on held-to-maturity securities as if the losses were realized 1 , was 8.08% as of March 31, 2025, compared to 7.85% as of December 31, 2024.

• The Board of Directors approved a cash dividend of $0.25 per share on April 24, 2025, which represents the 80 th consecutive quarterly dividend paid by Bancorp.

The dividend is payable on May 15, 2025, to shareholders of record at the close of business on May 8, 2025.

Additional performance details can be found on the pages that follow.

• As previously announced, the Bank sold a book value of $185.8 million of available-for-sale securities ("AFS") securities resulting in a loss on sale of $18.7 million.

Redeployment of the proceeds is expected to provide a 13 basis point increase in annualized net interest margin and $0.20 of estimated earnings per share accretion over the next four quarters, assuming a 5.0% average yield on reinvestment.

The securities repositioning is expected to have an approximate four-year earn back.

The sale is part of a continued strategy to improve future earnings and increase return on equity.

Excluding the loss on security sales, net income and diluted earnings per share for the second quarter would have been $4.7 million and $0.29, respectively, all other factors unchanged.

See Reconciliation of GAAP and Non-GAAP Financial Measures below.

• The tax-equivalent net interest margin increased to 2.93% in the second quarter of 2025 from 2.86% in the prior quarter, largely due to the effects of new loan production at higher rates.

The tax-equivalent net interest margin for the six months ended June 30, 2025, improved 39 basis points over the same period of the prior year due to the favorable impact of the securities repositioned in the second quarter of 2024, which resulted in higher yielding assets during the first six months of 2025.

• Total deposits were $3.245 billion as of June 30, 2025, compared to $3.220 billion as of December 31, 2024, an increase of $25.0 million.

The primary recipient of the deposit growth was money market accounts while non-interest bearing accounts experienced outflows due to business operating expenses, asset purchases, distributions, payroll and taxes.

We continue to manage targeted deposit interest rate reductions that are aligned with customer relationship pricing policies and expected Federal Reserve interest rate reductions.

• The average cost of total deposits and of interest-bearing deposits decreased by 1 and 3 basis points, respectively, to 1.28% and 2.24%, in the second quarter of 2025, compared to the prior quarter.

Non-interest-bearing deposits continued to make up a significant portion of total deposits at 42.5% as of June 30, 2025, compared to 43.5% on December 31, 2024.

• Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $1.863 billion, or 57% of total deposits and 200% of estimated uninsured and/or uncollateralized deposits as of June 30, 2025.

• Loans totaled $2.074 billion as of June 30, 2025, a net decrease of $9.6 million from December 31, 2024.

Loan originations during the six months ended June 30, 2025 were $132.8 million ($98.0 million funded) including $99.7 million ($85.3 million funded) in commercial loans, which are comprised of commercial and industrial and commercial real estate loans.

Originations increased to $69.2 million ($50.6 million funded) in the second quarter compared to $63.6 million ($47.4 million funded) in the first quarter of 2025.

Loan originations were $119.9 million ($76.5 million funded) for the first six months of 2024.

Payoffs were $62.0 million in the six months ending June 30, 2025, compared to $53.0 million for the same period in 2024.

This included payoffs of $36.5 million and $25.5 million in the second and first quarters of 2025, respectively.

• There was no provision for credit losses on loans in the second quarter of 2025, compared to a $75 thousand provision in the prior quarter.

The allowance for credit losses was 1.44% of total loans on June 30, 2025, compared to 1.47% as of December 31, 2024.

• Non-accrual loans decreased to $32.5 million, or 1.57% of total loans on June 30, 2025, compared to $33.9 million, or 1.63% on December 31, 2024.

Of the total non-accrual loans as of June 30, 2025, approximately 60% were paying as agreed and 89% were real estate secured.

• The following table summarizes GAAP and non-GAAP results for return on average assets ("ROA"), return on average equity ("ROE") and the efficiency ratio for comparable periods.

All GAAP ratios were significantly impacted by the securities sales discussed above.

Non-GAAP ratios exclude the loss on security sales, with all other factors unchanged.

See Reconciliation of GAAP and Non-GAAP Financial Measures below.

Performance and other financial ratios:

Comparable (non-GAAP) Excluding Loss on Sale of Securities

Three months ended Six months ended

(in thousands, except per share amounts;

June 30, 2025 March 31, 2025 June 30, 2025 June 30, 2024

Return on average assets

Return on average assets (GAAP) (0.92) % 0.53 % (0.20) % (1.01) %

Comparable return on average assets (non-GAAP) 0.50 % 0.53 % 0.52 % 0.21 %

Return on average equity

Return on average equity (GAAP) (7.80) % 4.52 % (1.68) % (8.79) %

Comparable return on average equity (non-GAAP) 4.26 % 4.52 % 4.39 % 1.83 %

Efficiency ratio

Efficiency ratio (GAAP) 208.81 % 76.44 % 112.18 % 237.13 %

Comparable efficiency ratio (non-GAAP) 74.03 % 76.44 % 75.21 % 84.93 %

Non-GAAP ratios exclude the loss on security sales, and all other factors unchanged..See complete Reconciliation of GAAP and Non-GAAP Financial Measures below

Related tax benefit calculated using blended statutory rate of 29.56%

• ROA was (0.92)% (non-GAAP 0.50%), ROE was (7.80)% (non-GAAP 4.26%), and the efficiency ratio was 208.81% (non-GAAP 74.03%) for the second quarter of 2025.

• ROA was (0.20)% (non-GAAP 0.52%), ROE was (1.68)% (non-GAAP 4.39%) and the efficiency ratio was 112.18% (non-GAAP 75.21%) for the six months ended June 30, 2025.

• Capital was above well-capitalized regulatory thresholds with Bancorp's and the Bank's total risk-based capital ratios of 16.25% and 15.00%, respectively, as of June 30, 2025.

Our capital plan and point-in-time capital stress tests indicate that Bank of Marin and Bancorp capital ratios will remain above regulatory well-capitalized and internal policy minimums throughout a five-year forecast horizon and across stress scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth or decline, loan credit quality deterioration, and potential share repurchases.

• Bancorp's tangible common equity to tangible assets ("TCE ratio") was 9.95% as of June 30, 2025, and the Bank's TCE ratio was 9.09%.

While we do not intend to sell our held-to-maturity securities, the Bancorp's TCE ratio, net of after-tax unrealized losses on held-to-maturity securities as if the losses were realized 1 , was 8.26% as of June 30, 2025, compared to 7.85% as of December 31, 2024.

• Bancorp repurchased 100,000 in shares for $2.2 million during the second quarter of 2025, contributing to an increase in the book value per share to $27.21 at June 30, 2025 compared to $27.13 at March 31, 2025 and the tangible book value per share to $22.55 at June 30, 2025 compared to $22.48 at March 31, 2025.

• The Board of Directors approved a cash dividend of $0.25 per share on July 24, 2025, which represents the 81 st consecutive quarterly dividend paid by Bancorp.

The dividend is payable on August 14, 2025, to shareholders of record at the close of business on August 7, 2025.

1 Refer to the discussion and reconciliation of this non-GAAP financial measure in the section below entitled S tatement Regarding Use of Non-GAAP Financial Measures.

1 unchanged sentence

Highlights of the financial results are presented in the following tables:

Three months ended

(dollars in thousands, except per share data) March 31, 2025 December 31, 2024 March 31, 2024

Three months ended Six months ended

(dollars in thousands, except per share data) June 30, 2025 March 31, 2025 June 30, 2025 June 30, 2024

Selected operating data:

1 unchanged sentence

Provision for credit losses on loans

— 75 75 5,550

Non-interest income (15,621) 2,874 (12,747) (27,001)

Non-interest expense 21,490 21,264 42,754 43,063

Net income 4,876 6,001 2,922

Net income per common share:

Net (loss) income

(8,536) 4,876 (3,660) (18,980)

Net (loss) income per common share:

Basic $ (0.53) $ 0.31 $ (0.23) $ (1.18)

10 unchanged sentences

Cash dividend payout ratio on common stock 1

80.65 % 65.79 % 138.89 %

NM 80.65 % NM NM

1 Calculated as dividends on common shares divided by basic net income (loss) per common share.

(dollars in thousands, except per share data) March 31, 2025 December 31, 2024

(dollars in thousands, except per share data) June 30, 2025 December 31, 2024

Selected financial condition data:

36 unchanged sentences

The tables also present net interest income, net interest margin and net interest rate spread for each period reported.

Three months ended Three months ended Three months ended

March 31, 2025 December 31, 2024 March 31, 2024

Interest Interest Interest

Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/

(dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate

Three months ended Three months ended

June 30, 2025 March 31, 2025

Interest Interest

Average Income/ Yield/ Average Income/ Yield/

(dollars in thousands) Balance Expense Rate Balance Expense Rate

Interest-earning deposits with banks 1

27 unchanged sentences

Tax-equivalent net interest rate spread 1.86 % 1.77 %

Six months ended Six months ended

June 30, 2025 June 30, 2024

Interest Interest

Average Income/ Yield/ Average Income/ Yield/

(in thousands) Balance Expense Rate Balance Expense Rate

Interest-earning deposits with banks 1

$ 172,136 $ 3,799 4.39 % $ 45,613 $ 1,245 5.40 %

Investment securities 2, 3

1,269,850 16,821 2.65 % 1,480,462 17,247 2.33 %

Loans 1, 3, 4, 5

2,073,423 51,254 4.92 % 2,063,351 50,346 4.83 %

Total interest-earning assets 1

3,515,409 71,874 4.07 % 3,589,426 68,838 3.79 %

Cash and non-interest-bearing due from banks 37,608 36,275

Bank premises and equipment, net 7,046 7,564

Interest receivable and other assets, net 172,894 147,949

Total assets $ 3,732,957 $ 3,781,214

Liabilities and Stockholders' Equity

Interest-bearing transaction accounts $ 189,182 $ 694 0.74 % $ 206,268 $ 535 0.52 %

Savings accounts 224,798 1,120 1.00 % 228,559 882 0.78 %

Money market accounts 1,210,327 15,504 2.58 % 1,152,492 17,090 2.98 %

Time accounts including CDARS 223,057 3,349 3.03 % 262,598 4,571 3.50 %

Borrowings and other obligations 1

110 2 3.08 % 9,116 239 5.18 %

Total interest-bearing liabilities 1,847,474 20,669 2.26 % 1,859,033 23,317 2.52 %

Demand accounts 1,402,587 1,440,114

Interest payable and other liabilities 44,709 47,735

Stockholders' equity 438,187 434,332

Total liabilities & stockholders' equity $ 3,732,957 $ 3,781,214

Tax-equivalent net interest income/margin 1

$ 51,205 2.90 % $ 45,521 2.51 %

Reported net interest income/margin 1

$ 50,858 2.88 % $ 45,161 2.49 %

Tax-equivalent net interest rate spread 1.81 % 1.27 %

1 Interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms, where applicable.

4 unchanged sentences

The amortized portion of net loan origination fees is included in interest income on loans, representing an adjustment to the yield.

5 Net loan origination costs in interest income totaled $364 thousand, $341 thousand, and $375 thousand for the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, respectively.

5 Net loan origination costs in interest income totaled $399 thousand and $364 thousand for the three months ended June 30, 2025 and March 31, 2025, and totaled $764 thousand and $811 thousand for the six months ended June 30, 2025 and 2024, respectively.

The following table presents the effects of changes in average balances (volume) or changes in average rates on tax-equivalent net interest income for the periods indicated.

1 unchanged sentence

Rate variances are equal to the increase or decrease in rates multiplied by prior period average balances.

Mix variances are attributable to the change in yields or rates multiplied by the change in average balances, including two days less in the three months ended March 31, 2025, compared to the three months ended December 31, 2024, and one day less in the first three months of 2025, compared to the first three months of 2024.

Three months ended March 31, 2025 compared to three months ended

December 31, 2024

Three months ended March 31, 2025 compared to three months ended

Mix variances are attributable to the change in yields or rates multiplied by the change in average balances, including two days less in the three months ended June 30, 2025, compared to the three months ended March 31, 2025, and one day less in the first three months of 2025, compared to the first three months of 2024.

Three months ended June 30, 2025 compared to three months ended

March 31, 2025

Six months ended June 30, 2025 compared to six months ended

June 30, 2024

(in thousands) Volume Yield/Rate Mix Total Volume Yield/Rate Mix Total

13 unchanged sentences

1 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the federal statutory rate of 21%.

First Quarter of 2025 compared to the Fourth Quarter of 2024

Net interest income totaled $24.9 million for the first quarter of 2025, a $284 thousand decrease from the prior quarter related to the decrease of $36.3 million in average earning assets including an $8.0 million decrease in average loan balances over the quarter, reducing interest income by $1.2 million.

This was significantly offset by the reduction of interest expense of $1.0 million despite average interest-bearing deposit growth of $7.2 million over the quarter.

Average money market balances increased by 2.20% and average time deposits decreased by 11.31% while the average cost of those deposits decreased by 17 and 31 basis points, respectively, due to relationship-focused rate management, contributing to the reduced costs.

The tax-equivalent net interest margin was 2.86% for the first quarter of 2025, compared to 2.80% for the prior quarter.

Lower cost of funds, as referenced above, contributed 7 basis points, while lower average interest-earning deposit balances with banks and the December fed funds rate cut of 25 basis points, reducing the earning power on those deposits, reduced margin by 5 basis points.

Minor changes in the loan and investment mix contributed to the margin by 2 basis points each, resulting in the 6 basis point margin expansion.

First Quarter of 2025 compared to the First Quarter of 2024

Net interest income totaled $24.9 million for the three months ended March 31, 2025, compared to $22.7 million for the same period in the prior year.

Second Quarter of 2025 compared to the First Quarter of 2025

Net interest income totaled $25.9 million for the second quarter of 2025, a $966 thousand increase from the prior quarter.

This was driven by an increase of $9.6 million in average earning assets including a $676 thousand increase in loan interest income due to the continued replenishment of the loan portfolio at higher rates.

The tax-equivalent net interest margin was 2.93% for the second quarter of 2025, compared to 2.86% for the prior quarter.

Loan originations at higher rates contributed to 4 basis points growth in the second quarter.

Higher average interest-earning deposit balances with banks increased the margin by 2 basis points and the repositioning of securities already added 1 basis point to the margin.

First Six Months of 2025 compared to the First Six Months of 2024

Net interest income totaled $50.9 million for the six months ended June 30, 2025, compared to $45.2 million for the same period in the prior year.

The $5.7 million increase from the prior year was primarily due to higher average earning asset yields and lower cost of deposits.

The tax-equivalent net interest margin was 2.86% for the three months ended March 31, 2025, compared to 2.50% for the same period in the prior year.

The increase of 36 basis points was primarily attributed to higher interest-earning deposit balances with banks and higher yields on investment securities resulting from the sale of lower yielding investment securities, which contributed 16 basis points.

In addition, higher average loan balances and yields and lower deposit costs provided a positive impact of 14 and 7 basis points, respectively.

The tax-equivalent net interest margin was 2.90% for the six months ended June 30, 2025, compared to 2.51% for the same period in the prior year.

The increase of 39 basis points was primarily attributed to higher interest-earning deposit balances with banks, higher average loan balances and yields, and lower deposit costs which provided a positive impact of 15, 13 and 10 basis points, respectively.

Market Interest Rates

3 unchanged sentences

The federal funds rate range remained between 0.0% and 0.25% through the beginning of 2022, putting downward pressure on our asset yields and net interest margin.

The FOMC began increasing rates in March 2022, totaling seven rate increases in 2022 and four additional rate increases in 2023, ended the year of 2023 at a federal funds target rate range between 5.25% and 5.50%.

The FOMC began increasing rates in March 2022, totaling seven rate increases in 2022 and four additional rate increases in 2023, and ended the year of 2023 at a federal funds target rate range between 5.25% and 5.50%.

Rising interest rates resulted in rapid increases in the cost of funds through rising deposit costs and increased average borrowings, putting pressure on our net interest margin.

Because market interest rates remained high for longer than many market participants anticipated, during the second quarter of 2024, we sold securities with relatively low yields and redeployed the proceeds to pay off borrowings, invest in higher yielding loans and securities, and position the balance sheet for future acquisitions of similar assets.

Primarily due to declining inflation, the Federal Reserve lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024.

In the first quarter of 2025, the FOMC left rates unchanged in the January 29th and March 19th meetings due to projected slower economic growth and higher inflation by year-end.

Because market interest rates remained

high for longer than many market participants anticipated, during 2023, 2024 and 2025, we sold available-for-sale securities with relatively low yields and redeployed the proceeds to pay off borrowings, invest in higher yielding loans and securities, and position the balance sheet for future acquisitions of similar assets.

The FOMC lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024.

In the first half of 2025, the FOMC left rates unchanged due to continued economic uncertainty, relatively sound economic indicators and elevated inflation pressures, partly driven by trade policy uncertainties such as tariffs.

Management and the Board are continuously monitoring and analyzing the impact of market rates on the Company's financial condition and results of operations to enhance performance, safety and soundness and returns to shareholders.

4 unchanged sentences

The following table shows the activity for the periods presented.

Three months ended

(dollars in thousands) March 31, 2025 December 31, 2024 March 31, 2024

Three months ended Six months ended

(dollars in thousands) June 30, 2025 March 31, 2025 June 30, 2025 June 30, 2024

Provision for credit losses on loans $ — $ 75 $ 75 $ 5,550

We recorded a $75 thousand provision for credit losses on loans in the first quarter of 2025.

Modest deterioration in economic forecast, effects from the noted charge-offs, and the pooled and individual total loan balance declines this quarter contributed to the provision.

We recorded no provision for credit losses on loans in the fourth quarter of 2024.

We recorded a provision totaling $350 thousand for the three months ended March 31, 2024.

This was primarily due to increases in qualitative risk factors to account for continued uncertainty about inflation and recession risks, and from continued negative trends in adversely graded loans and/or collateral values on our non-owner occupied commercial real estate office and multi-family real estate portfolios.

We recorded no provision for credit losses on loans in the second quarter of 2025.

This compares to a $75 thousand provision in the prior quarter.

We recorded a $75 thousand provision for credit losses on loans in the six months ended June 30, 2025.

Modest deterioration in the economic forecast, the effects from charge-offs in the first quarter of 2025, and the pooled and individual total loan balance declines in the first quarter of 2025, contributed to the provision.

We recorded a provision totaling $5.6 million for the six months ending June 30, 2024.

This was primarily due to an increase to the individual reserve of $5.2 million for one non-owner occupied commercial real estate loan totaling $16.7 million placed on non-accrual during the second quarter of 2024.

The remainder of the provision recorded in the six months ended June 30, 2024 was due to adjustments to certain qualitative risk factors to account for continued negative trends in adversely graded loans for our non-owner occupied commercial real estate and commercial and industrial portfolios, as well as adjustments to the discounted cash flow modeling assumptions to reflect revised estimated default timing and increased California unemployment forecasts.

This was partially offset by the impact of a decrease in our pooled loans and changes in our loan mix.

For more information, refer to Note 5, Loans and Allowance for Credit Losses on Loans, to the consolidated financial statements in this Form 10-Q.

Non-interest Income

The following table details the components of non-interest income.

Three months ended Quarter over quarter Year over year

(dollars in thousands) March 31, 2025 December 31, 2024 March 31, 2024 Amount Change Percent Change Amount Change Percent Change

Non-interest (Loss) Income

The following table details the components of non-interest income (loss).

Three months ended

(dollars in thousands) June 30, 2025 March 31, 2025 Amount Change Percent Change

Earnings on bank-owned life insurance, net $ 667 $ 544 $ 123 22.6 %

Wealth management and trust services 612 563 49 8.7 %

Service charges on deposit accounts 550 548 2 0.4 %

Debit card interchange fees, net 410 396 14 3.5 %

Dividends on Federal Home Loan Bank stock 362 375 (13) (3.5) %

Merchant interchange fees, net 90 96 (6) (6.3) %

Losses on sale of investment securities

(18,736) — (18,736) NM

Other income 424 352 72 20.5 %

Total non-interest (loss) income

$ (15,621) $ 2,874 $ (18,495) (643.5) %

Six months ended

(dollars in thousands) June 30, 2025 June 30, 2024 Amount Change Percent Change

Earnings on bank-owned life insurance, net $ 1,211 $ 856 $ 355 41.5 %

Wealth management and trust services

1,175 1,138 37 3.3 %

Service charges on deposit accounts 1,098 1,070 28 2.6 %

Debit card interchange fees, net 806 852 (46) (5.4) %

1 unchanged sentence

Merchant interchange fees, net 186 177 9 5.1 %

Gains (losses) on sale of investment securities

— — — — NM — NM

Losses on sale of investment securities

(18,736) (32,542) 13,806 (42.4) %

Other income 776 705 71 10.1 %

Total non-interest income $ 2,874 $ 2,753 $ 2,754 $ 121 4.4 % $ 120 4.4 %

First Quarter of 2025 Compared to the Fourth Quarter of 2024

Non-interest income was $2.9 million for the first quarter of 2025, compared to income of $2.8 million for the prior quarter.

The increase from the prior quarter was primarily attributable to bank owned life insurance dividend income and a $71 thousand life insurance death benefit.

First Quarter of 2025 Compared to the First Quarter of 2024

Non-interest income was $2.9 million for the first quarter of 2025, compared to income of $2.8 million for the same period of the prior year.

The $120 thousand increase from the prior year period was primarily attributed to bank owned life insurance dividend income and other life insurance income.

Total non-interest (loss) income

$ (12,747) $ (27,001) $ 14,254 (52.8) %

NM - not meaningful

Second Quarter of 2025 Compared to the First Quarter of 2025

Non-interest loss was $15.6 million for the second quarter of 2025, compared to income of $2.9 million for the prior quarter.

The decrease of $18.5 million from the prior quarter was primarily attributable to securities repositioning during the second quarter of 2025.

We sold available-for-sale securities ("AFS") securities with a book value of $185.8 million, resulting in a pre-tax loss of $18.7 million, as part of our strategy to improve future earnings and increase return on equity.

This was partially offset by an increase in gains on proceeds from bank owned life insurance death benefits of $123 thousand.

Excluding the loss on sales, non-interest income was $3.1 million for the second quarter of 2025, all other factors unchanged, an increase of $241 thousand from the prior quarter.

See the non-GAAP disclosure below.

First Six Months of 2025 Compared to the First Six Months of 2024

Non-interest loss was $12.7 million for the six months ended June 30, 2025, compared to a loss of $27.0 million for the same period of the prior year.

The $14.3 million reduction in losses from the prior year period was primarily attributed to a reduction of $13.8 million in pre-tax losses on the sale of AFS securities and an increase in bank owned life insurance death benefit proceeds of $355 thousand.

We sold AFS securities with a book value of $185.8 million, resulting in a pre-tax loss of $18.7 million, in the first six months of 2025, and sold AFS securities with a book value of $293.0 million, resulting in a pre-tax loss of $32.5 million, in the first six months of 2024.

Excluding the loss on AFS sales, non-interest income was $6.0 million and $5.5 million for the first six months of 2025 and 2024, respectively, all other factors unchanged.

See the non-GAAP disclosure below.

Non-interest Expense

The following table details the components of non-interest expense.

Three months ended Year over year

(dollars in thousands) March 31, 2025 December 31, 2024 March 31, 2024 Amount Change Percent Change Amount Change Percent Change

Three months ended

(dollars in thousands) June 30, 2025 March 31, 2025 Amount Change Percent Change

Salaries and related benefits $ 12,045 $ 12,050 $ (5) — %

Occupancy and equipment 2,226 2,106 120 5.7 %

Deposit network fees 1,054 932 122 13.1 %

Data processing 1,041 1,136 (95) (8.4) %

Professional services 908 937 (29) (3.1) %

Deposit network fees 932 838 845 94 11.2 % 87 10.3 %

Information technology 563 413 150 36.3 %

Federal Deposit Insurance Corporation insurance 421 388 33 8.5 %

Depreciation and amortization 320 322 (2) (0.6) %

Directors' expense 279 304 (25) (8.2) %

Amortization of core deposit intangible 220 227 (7) (3.1) %

Charitable contributions 116 403 (287) (71.2) %

Other non-interest expense

Advertising 269 226 43 19.0 %

Other expense 2,028 1,820 208 11.4 %

Total other non-interest expense 2,297 2,046 251 12.3 %

Total non-interest expense $ 21,490 $ 21,264 $ 226 1.1 %

Six months ended

(dollars in thousands) June 30, 2025 June 30, 2024 Amount Change Percent Change

Salaries and related benefits $ 24,095 $ 24,448 $ (353) (1.4) %

Occupancy and equipment 4,332 4,018 314 7.8 %

Data processing 2,177 2,075 102 4.9 %

Deposit network fees 1,986 1,761 225 12.8 %

Professional services 1,845 2,121 (276) (13.0) %

Information technology 976 850 126 14.8 %

Federal Deposit Insurance Corporation insurance 809 861 (52) (6.0) %

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Directors' expense 583 623 (40) (6.4) %

Charitable contributions 519 617 (98) (15.9) %

Amortization of core deposit intangible 447 497 (50) (10.1) %

Other real estate owned — — — NM

Other non-interest expense

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Total non-interest expense $ 42,754 $ 43,063 $ (309) (0.7) %

First Quarter of 2025 Compared to the Fourth Quarter of 2024

Non-interest expense totaled $21.3 million for the first quarter of 2025, compared to $18.3 million for the prior quarter, an increase of $2.9 million.

Salaries and related benefits increased $2.6 million, due to various factors, both in prior and current quarter.

Last quarter, incentive, stock-based compensation and profit sharing accrual

adjustments reduced expenses.

In the first quarter of 2025, there was an increase to the 401(k) contribution matching associated with the usual reset, lower deferred loan origination costs, bonus accruals based on budget, stock-based compensation grants and increased salary costs due to new talent acquisition.

NM - Not Meaningful

Second Quarter of 2025 Compared to the First Quarter of 2025

Non-interest expense totaled $21.5 million for the second quarter of 2025, compared to $21.3 million for the prior quarter, an increase of $226 thousand.

This was primarily due to an increase in information technology expense of $150 thousand, an increase of $122 thousand in deposit network fees, and a net increase of $208 thousand in all other expenses.

This was offset by a decrease of $287 thousand in charitable contributions in the second quarter of 2025.

In order to better serve the timing needs of our non-profit communities, the bulk of our charitable contributions were pulled forward into the first quarter from the second quarter.

In the first quarter, we incurred $403 thousand of contributions expense which compares to $30 thousand in the fourth quarter of 2024 and $12 thousand in the first quarter of 2024.

First Quarter of 2025 Compared to the First Quarter of 2024

Non-interest expense totaled $21.3 million for the three months ended March 31, 2025 , compared to $21.2 million for the same period of 2024 , an increase of $95 thousand.

This was primarily due to an increase of $391 thousand in charitable contributions and an increase of $137 thousand in occupancy expenses, offset by a decrease in professional services expense of $141 thousand and a net decrease of $292 thousand in all other expenses.

First Six Months of 2025 Compared to the First Six Months of 2024

Non-interest expense totaled $42.8 million for the six months ending June 30, 2025 , compared to $43.1 million for the same period of 2024 , a decrease of $309 thousand.

This was primarily due to a decrease of $353 thousand in

salaries and benefits, a decrease of $276 thousand in professional services, partially offset by an increase in occupancy and equipment expense of $314 thousand.

Provision for Income Taxes

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Provisions also reflect permanent differences between income for tax and financial reporting purposes (such as earnings on tax exempt loans and municipal securities, bank-owned life insurance ("BOLI"), low-income housing tax credits, and stock-based compensation from the exercise of stock options, disqualifying dispositions of incentive stock options and vesting of restricted stock awards).

The income tax provision for the first quarter of 2025 totaled $1.6 million at an effective tax rate of 24.8%, compared to a provision of $3.6 million at an effective tax rate of 37.8% in the prior quarter.

The decrease in the provision for income taxes in the first quarter of 2025 reflected lower pre-tax income as compared to the prior quarter.

The decrease in the effective tax rate in the first quarter of 2025 was primarily due to the treatment of certain permanent tax differences while in a loss position for the 2024 tax year.

The income tax benefit for the second quarter of 2025 totaled $2.7 million at an effective tax rate of 23.8%, compared to a provision of $1.6 million at an effective tax rate of 24.8% in the prior quarter.

The decrease in the provision for income taxes in the second quarter of 2025 reflected lower pre-tax income as compared to the prior quarter.

The decrease in the effective tax rate in the second quarter of 2025 was primarily due to the treatment of certain permanent tax differences while in a loss position for the second quarter.

The income tax benefit for the first half of 2025 totaled $1.1 million at an effective tax rate of 22.4%, compared to an income tax benefit of $11.5 million at an effective tax rate of 37.7% for the first half of 2024.

The decrease in the effective tax rate in the first half of 2025, as compared to the same period a year ago, was primarily due to the lower pre-tax loss on investment securities sale of $18.7 million in 2025, compared to $32.5 million in 2024.

On June 27, 2025, Senate Bill 132 (“SB 132”) was passed and signed into law by Governor Newsom.

Effective for taxable years beginning on or after January 1, 2025, SB 132 amends California Rev.

Code (“CRTC”) to require financial institutions to apportion income using the single sales factor formula.

Prior to this change, these businesses were required by CRTC Sec.

25128(b) to use an evenly weighted three-factor apportionment formula contemplating a payroll factor, property factor, and sales factor.

The company does not expect this bill to have a material impact on the company’s tax expense as of June 30, 2025

On July 4, 2025, the President of the United States signed and enacted the “One Big Beautiful Bill Act” into law.

Except for certain provisions, the Tax Act is effective for tax years beginning on or after January 1, 2025.

The tax and spending legislation permanently extends key business tax breaks originally enacted under the 2017 Tax Cuts and Jobs Act.

The Company is currently evaluating the impact the bill will have on income tax expense.

We file a consolidated return in the U.S.

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There were no ongoing federal or state income tax examinations at the time of the issuance of this report.

As of March 31, 2025, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits.

As of June 30, 2025, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits.

FINANCIAL CONDITION SUMMARY

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were $259.9 million at March 31, 2025, an increase of $122.6 million compared to $137.3 million at December 31, 2024, driven by growth in deposits totaling $82.0 million and proceeds from paydowns and maturities of investment securities of $63.0 million offset by purchases of investment securities of $33.6 million.

Total cash, cash equivalents and restricted cash were $228.9 million at June 30, 2025, an increase of $91.6 million compared to $137.3 million at December 31, 2024, driven by proceeds from the sale of available for sale securities of $167.0 million, proceeds from paydowns and maturities of investment securities of $140.1 million, growth in deposits totaling $25.0 million, and a decrease of $9.1 million in loans receivable, offset by purchases of investment securities of $252.7 million.

Investment Securities

The investment securities portfolio totaled $1.241 billion at March 31, 2025, a decrease of $26.1 million from $1.267 billion at December 31, 2024.

The decrease was primarily the result of principal repayments and maturities totaling $63.0 million, offset by $33.6 million available-for-sale securities purchases and a $3.3 million improvement in unrealized losses on available for sale securities.

The investment securities portfolio totaled $1.215 billion at June 30, 2025, a decrease of $51.4 million from $1.267 billion at December 31, 2024.

The decrease was primarily the result of the sale of available for sale securities with a book value of $185.8 million and principal repayments and maturities totaling $140.1 million, partially offset by a $21.5 million improvement in unrealized losses on available for sale securities and $252.7 million available-for-sale securities purchases.

Both the available-for-sale and held-to-maturity portfolios are eligible for pledging to FHLB or the Federal Reserve as collateral for borrowings.

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Both portfolios generate cash flows monthly from interest, principal amortization and payoffs, which supports the Bank's liquidity.

Those cash flows totaled $72.8 million in the first three months of 2025.

Those cash flows totaled $158.2 million in the first six months of 2025.

See Note 4, Investment Securities, for additional information.

The following table summarizes our investment in obligations of state and political subdivisions at March 31, 2025 and December 31, 2024.

March 31, 2025 December 31, 2024

The following table summarizes our investment in obligations of state and political subdivisions at June 30, 2025 and December 31, 2024.

June 30, 2025 December 31, 2024

(dollars in thousands) Amortized Cost Fair Value % of Total State and Political Subdivisions Amortized Cost Fair Value % of Total State and Political Subdivisions

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Loans and Credit Quality

Loans totaled $2.074 billion as of March 31, 2025, compared to $2.083 billion as of December 31, 2024.

The decrease in the first three months of 2025 totaled $9.7 million, compared to an $18.8 million decrease during the three months ended March 31, 2024.

Loan originations for the first quarter were $63.6 million ($47.4 million funded) including $50.2 million ($43.2 million funded) in commercial loans, which includes commercial and industrial, commercial real estate and construction.

Funded commercial loans were more than five times those funded in the first quarter of prior year.

The fourth quarter of 2024 included originations of $69.4 million ($47.1 million funded) and the first quarter of the prior year included total originations of $25.3 million ($12.4 million funded).

Payoffs were $25.5 million in the three months ended March 31, 2025, compared to $36.7 million for the fourth quarter of 2024.

In addition, amortization from scheduled payments totaled $20.5 million and net utilization of credit lines decreased by $9.5 million during the first quarter of 2025.

Non-accrual loans totaled $32.9 million, or 1.59% of the loan portfolio, at March 31, 2025, compared to $33.9 million, or 1.63% at December 31, 2024.

The $1.0 million decrease in non-accrual balances reflected a $2.1 million non-owner occupied real estate loan sale that incurred a charge-off of $809 thousand, net paydowns of $370 thousand, one payoff of $100 thousand and two charged off loans totaling $16 thousand, partially offset by the addition of four loans totaling $1.7 million.

Of the total non-accrual loans as of March 31, 2025, approximately 57% were paying as agreed, 90% were real estate secured, and all are being closely monitored for payments or payoff.

Loans totaled $2.074 billion as of June 30, 2025, compared to $2.083 billion as of December 31, 2024.

The decrease in the six months ended June 30, 2025 totaled $9.6 million, compared to an increase of $8.7 million in the six months ended June 30, 2024.

Loan originations for the six months ended June 30, 2025 were $132.8 million ($98.0 million funded) including $99.7 million ($85.3 million funded) in commercial loans, which includes commercial and industrial, commercial real estate and construction, compared to $119.9 million ($76.5 million funded) for the six months ended June 30, 2024.

Originations increased to $69.2 million ($50.6 million funded) in the second quarter compared to $63.6 million ($47.4 million funded) in the first quarter of 2025.

Payoffs were $62.0 million in the six months ended June 30, 2025, compared to $53.0 million for the same period in 2024.

This included payoffs of $36.5 million and $25.5 million in the second and first quarters of 2025, respectively.

In addition, amortization from scheduled payments totaled $39.1 million and net utilization of credit lines decreased by $6.5 million during the six months ended June 30, 2025, compared to amortization from scheduled payments totaled $40.0 million and net utilization of credit lines increased by $27.9 million during the six months ended June 30, 2024.

Non-accrual loans totaled $32.5 million, or 1.57% of the loan portfolio, at June 30, 2025, compared to $33.9 million, or 1.63% at December 31, 2024.

The $1.4 million decrease in non-accrual balances reflected a $2.1 million non-owner occupied real estate loan sale that incurred a charge-off of $809 thousand, net paydowns of $726 thousand, payoffs of $661 thousand and charged off loans totaling $66 thousand, partially offset by the addition of nine loans totaling $2.7 million.

Of the total non-accrual loans as of June 30, 2025, approximately 60% were paying as agreed, 89% were real estate secured, and all are being closely monitored for payments or payoff.

Bank of Marin has continued its conservative underwriting practices, and in light of current market conditions, our portfolio management and credit teams are exercising heightened vigilance for potential credit quality weakening.

Classified loans increased to $57.4 million as of March 31, 2025, compared to $45.1 million as of December 31, 2024.

The $12.3 million increase was largely due to downgrades of one $7.1 million commercial relationship and two non-owner occupied real estate relationships totaling $7.2 million, partially offset by the sale of a $2.1 million non-owner occupied real estate loan.

Loans designated special mention, which are not considered adversely classified, decreased by $20.0 million to $88.9 million as of March 31, 2025, from $108.9 million as of December 31, 2024.

The decrease was largely due to $14.2 million in downgrades to substandard risk rating and contractual paydowns and payoffs totaling $6.0 million.

Classified loans increased to $61.1 million as of June 30, 2025, compared to $45.1 million as of December 31, 2024.

The $16.0 million increase was largely due to downgrades of $19.8 million, partially offset by the sale of a $2.1 million non-owner occupied real estate loan and payoffs and paydowns of $1.6 million.

Loans designated special mention, which are not considered adversely classified, decreased by $17.4 million to $91.5 million as of June 30, 2025, from $108.9 million as of December 31, 2024.

The decrease was largely due to $17.1 million in downgrades to substandard risk rating and contractual paydowns and payoffs totaling $9.7 million, offset by downgrades from pass/watch to special mention loans of $9.4 million.

Of the loans designated special mention, 100% were real estate secured.

Net charge-offs for the three months ended March 31, 2025 totaled $825 thousand, including the $809 thousand charge-off of an acquired commercial non-owner occupied real estate loan the Bank had previously reserved $449 thousand for as of December 31, 2024.

There was an additional decline in the financial condition of the borrower and guarantor and the value of the collateral during the first quarter that led to the Bank proactively selling the note in March rather than pursuing the additional costly steps of liquidating after foreclosure.

It had been on non-accrual since late 2023.

This compared to net charge-offs of $19 thousand for the fourth quarter of 2024.

Net charge-offs for the six months ended June 30, 2025 totaled $877 thousand, including the $809 thousand charge-off of an acquired commercial non-owner occupied real estate loan.

This compared to net charge-offs of $47 thousand for the same period of 2024.

For more information, refer to Note 5, Loans and Allowance for Credit Losses on Loans, to the consolidated financial statements in this Form 10-Q.

Liabilities - Deposits and Borrowings

During the first three months of 2025, total liabilities increased by $78.7 million to $3.345 billion.

Deposits totaled $3.302 billion at March 31, 2025, an increase of $82.0 million, compared to $3.220 billion at December 31, 2024.

Non-interest bearing deposits made up 43.2% of total deposits at March 31, 2025 , compared to 43.5% at December 31, 2024 .

Additionally, the Bank's competitive and balanced approach to relationship management and focused outreach supported the addition of approximately 1,000 new accounts during the three months ended March 31, 2025.

We had no outstanding borrowings at March 31, 2025 and December 31, 2024.

During the first six months of 2025, total liabilities increased by $21.7 million to $3.288 billion.

Deposits totaled $3.245 billion at June 30, 2025, an increase of $25.0 million, compared to $3.220 billion at December 31, 2024.

Non-interest bearing deposits made up 42.5% of total deposits at June 30, 2025 , compared to 43.5% at December 31, 2024 .

We had no outstanding borrowings at June 30, 2025 and December 31, 2024.

Although available as a liquidity source, we have not utilized brokered deposits.

Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and total available borrowing capacity was $1.917 billion, or 58% of total deposits and 203% of estimated uninsured and/or uncollateralized deposits as of March 31, 2025.

the reciprocal deposit network program were $435.9 million and $404.7 million at March 31, 2025 and December 31, 2024, respectively.

Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and total available borrowing capacity was $1.863 billion, or 57% of total deposits and 200% of estimated uninsured and/or uncollateralized deposits as of June 30, 2025.

Balances in the reciprocal deposit network program were $425.3 million and $404.7 million at June 30, 2025 and December 31, 2024, respectively.

Capital Adequacy

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For all periods presented, the Bank’s ratios exceed the regulatory definition of “well capitalized” under the regulatory framework for prompt corrective action and Bancorp’s ratios exceed the required minimum ratios to be considered a well-capitalized bank holding company.

In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action as of March 31, 2025.

In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action as of June 30, 2025.

There are no conditions or events since that notification that management believes have changed the Bank’s categories and we expect the Bank to remain well capitalized for prompt corrective action purposes.

The total risk-based capital ratio for Bancorp was 16.69% at March 31, 2025, compared to 16.54% at December 31, 2024.

The total risk-based capital ratio for the Bank was 16.45% at March 31, 2025, compared to 16.13% at December 31, 2024.

Bancorp's tangible common equity to tangible assets ("TCE ratio") was 9.82% at March 31, 2025, compared to 9.93% at December 31, 2024.

The total risk-based capital ratio for Bancorp was 16.25% at June 30, 2025, compared to 16.54% at December 31, 2024.

The decrease was largely due to losses realized on the sale of available-for-sale securities associated with the portfolio repositioning.

The total risk-based capital ratio for the Bank was 15.00% at June 30, 2025, compared to 16.13% at December 31, 2024.

The decrease was mainly due to a dividend of $32.0 million that was paid by the Bank to Bancorp during the second quarter of 2025.

Bancorp's tangible common equity to tangible assets ("TCE ratio") was 9.95% at June 30, 2025, compared to 9.93% at December 31, 2024.

Bancorp's TCE ratio, net of after tax unrealized losses on held-to-maturity securities 1 , was 8.26%, compared to 7.85% at December 31, 2024.

Management believes this non-GAAP measure is important because it reflects the level of capital available to withstand drastic changes in market conditions .

The Bancorp’s and Bank’s capital adequacy ratios as of March 31, 2025 and December 31, 2024 are presented in the following tables.

Management believes this non-GAAP measure is important because it reflects the level of capital remaining after a hypothetical liquidation of the entire securities portfolio.

The Bancorp’s and Bank’s capital adequacy ratios as of June 30, 2025 and December 31, 2024 are presented in the following tables.

Bancorp Capital Ratios

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Threshold to be a Well Capitalized Bank Holding Company

March 31, 2025 Amount Ratio Amount Ratio Amount Ratio

June 30, 2025 Amount Ratio Amount Ratio Amount Ratio

Total Capital (to risk-weighted assets) $ 407,724 16.25 % $ 263,525 10.50 % $ 250,976 10.00 %

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Threshold to be Well Capitalized under Prompt Corrective Action Provisions

March 31, 2025 Amount Ratio Amount Ratio Amount Ratio

June 30, 2025 Amount Ratio Amount Ratio Amount Ratio

Total Capital (to risk-weighted assets) $ 376,299 15.00 % $ 263,470 10.50 % $ 250,924 10.00 %

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We also have relationships with third-party deposit networks and can adjust the placement of our deposits via reciprocal or one-way sales as part of our cash management strategy.

Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity totaled $1.917 billion or 58% of total deposits and 203% of estimated uninsured and/or uncollateralized deposits as of March 31, 2025.

The following table details the components of our contingent liquidity sources as of March 31, 2025.

Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity totaled $1.863 billion or 57% of total deposits and 200% of estimated uninsured and/or uncollateralized deposits as of June 30, 2025.

The following table details the components of our contingent liquidity sources as of June 30, 2025.

(in thousands) Total Available Amount Used Net Availability

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The cash cycles and unique business activities of some of our large commercial depositors may cause short-term fluctuations in their deposit balances held with us.

Our cash and cash equivalents increased $122.6 million in the first three months of 2025.

The most significant sources of liquidity during the first three months of 2025 were proceeds of $82.0 million from net increase of deposits, $63.0 million from principal paydowns, calls and maturities of investment securities, loan payoffs of $25.5 million, $20.5 million in amortization of principal and a net $9.5 million decrease in utilization of credit lines, in addition to $4.9 million in net cash provided by operating activities.

Significant uses of liquidity during the first three months of 2025 were $47.4 million in loan fundings, $33.6 million in investment securities purchased, and $4.0 million in cash dividends paid on common stock to our shareholders.

Our cash and cash equivalents increased $91.6 million in the first six months of 2025.

The most significant sources of liquidity during the first six months of 2025 were proceeds of $167.0 million from the sale of available for sale investment securities, $140.1 million from principal paydowns, calls and maturities of investment securities, loan payoffs of $62.0 million, $39.1 million in amortization of principal and a net $6.5 million decrease in utilization of credit lines, and $25.0 million from net increase of deposits, in addition to $13.0 million in net cash provided by operating activities.

Significant uses of liquidity during the first six months of 2025 were $252.7 million in investment securities purchased, $98.0 million in loan fundings, and $8.1 million in cash dividends paid on common stock to our shareholders and $2.2 million in common stock repurchases.

Refer to the Consolidated Statement of Cash Flows in this Form 10-Q for additional information on our sources and uses of liquidity.

Management anticipates that our current strong liquidity position, as detailed in this report, and contingent funding sources outlined in the table above are adequate to support our operational needs.

Unfunded credit commitments, as discussed in Note 8 to the Consolidated Financial Statements in this Form 10-Q, totaled $451.2 million at March 31, 2025.

Unfunded credit commitments, as discussed in Note 8 to the Consolidated Financial Statements in this Form 10-Q, totaled $449.4 million at June 30, 2025.

We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, principal paydowns of investment securities, and liquid assets.

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We believe our emphasis on local deposits, combined with our immediately available funding sources, provides a very stable base for our liquidity needs.

We had no outstanding borrowings under our credit facilities at March 31, 2025, nor at December 31, 2024, as discussed in Note 6 to the Consolidated Financial Statements in ITEM 1 of this report.

We had no outstanding borrowings under our credit facilities at June 30, 2025, nor at December 31, 2024, as discussed in Note 6 to the Consolidated Financial Statements in ITEM 1 of this report.

Because Bancorp is a holding company and does not conduct regular banking operations, its primary sources of liquidity are dividends from the Bank.

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Dividends in excess of that amount may be paid with prior approval of the Department of Financial Protection and Innovation ("DFPI").

The Bank received approval from the State of California - DFPI on May 30, 2024, for a dividend of $19.0 million which was paid to Bancorp on June 24, 2024.

On May 30, 2025, the Bank received approval from the State of California - DFPI for a dividend of $32.0 million which was paid to Bancorp on May 30, 2025.

The primary uses of funds for Bancorp are shareholder dividends, share repurchases and ordinary operating expenses.

Bancorp held $5.8 million in cash at March 31, 2025.

Management has requested approval from the DFPI for a dividend to be paid in the second quarter of 2025.

Bancorp held $31.1 million in cash at June 30, 2025.

Statement Regarding use of Non-GAAP Financial Measures

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(in thousands, except per share amounts;

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Tangible Common Equity - Bancorp

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$ 22.55 $ 22.37

1 Unrealized losses on held-to-maturity securities as of March 31, 2025 and December 31, 2024 of $110.4 million and $126.6 million, respectively, including the unrealized losses that resulted from the transfer of securities from AFS to HTM, net of an estimated $32.6 million and $37.4 million, respectively, in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56%.

2 The remaining unrealized losses that resulted from the transfer of securities from AFS to HTM, net of an estimated $3.1 million and $3.2 million, respectively, in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56% are added back as they are already included in AOCI.

1 Unrealized losses on held-to-maturity securities as of June 30, 2025 and December 31, 2024 of $105.9 million and $126.6 million, respectively, including the unrealized losses that resulted from the transfer of securities from AFS to HTM, net of an estimated $31.3 million and $37.4 million, respectively, in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56%.

2 The remaining unrealized losses that resulted from the transfer of securities from AFS to HTM, as of June 30, 2025 and December 31, 2024, net of an estimated $3.0 million and $3.2 million, respectively, in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56% are added back as they are already included in AOCI.

(in thousands, except per share amounts;

Three months ended Six months ended

Pre-tax, pre-provision net (loss) income

June 30, 2025 March 31, 2025 June 30, 2025 June 30, 2024

(Loss) income before (benefit from) provision for income taxes $ (11,199) $ 6,481 $ (4,718) $ (30,453)

Provision for credit losses on loans — 75 75 5,550

Pre-tax, pre-provision net (loss) income (GAAP)

(11,199) 6,556 (4,643) (24,903)

Losses on sale of investment securities from portfolio repositioning 18,736 — 18,736 32,542

Comparable pre-tax, pre-provision net income (non-GAAP)

$ 7,537 $ 6,556 $ 14,093 $ 7,639

Net (loss) income

Net (loss) income (GAAP)

$ (8,536) $ 4,876 $ (3,660) $ (18,980)

Losses on sale of investment securities from portfolio repositioning 18,736 — 18,736 32,542

Related income tax benefit 1

(5,538) — (5,538) (9,620)

Adjustments, net of taxes 13,198 — 13,198 22,922

Comparable net income (non-GAAP) $ 4,662 $ 4,876 $ 9,538 $ 3,942

Diluted (loss) earnings per share

Weighted average diluted shares 15,989 16,002 15,983 16,095

Diluted (loss) earnings per share (GAAP)

$ (0.53) $ 0.30 $ (0.23) $ (1.18)

Comparable diluted earnings per share (non-GAAP) $ 0.29 $ 0.30 $ 0.60 $ 0.24

Return on average assets

Average assets $ 3,737,794 $ 3,728,066 $ 3,732,957 $ 3,781,214

Return on average assets (GAAP) (0.92) % 0.53 % (0.20) % (1.01) %

Comparable return on average assets (non-GAAP) 0.50 % 0.53 % 0.52 % 0.21 %

Return on average equity

Average stockholders' equity $ 439,187 $ 437,176 $ 438,187 $ 434,332

Return on average equity (GAAP) (7.80) % 4.52 % (1.68) % (8.79) %

Comparable return on average equity (non-GAAP) 4.26 % 4.52 % 4.39 % 1.83 %

Efficiency ratio

Non-interest expense $ 21,490 $ 21,264 $ 42,754 $ 43,063

Net interest income $ 25,912 $ 24,946 $ 50,858 $ 45,161

Non-interest income (GAAP) $ (15,621) $ 2,874 $ (12,747) $ (27,001)

Losses on sale of investment securities from portfolio repositioning 18,736 — 18,736 32,542

Non-interest income (non-GAAP) $ 3,115 $ 2,874 $ 5,989 $ 5,541

Efficiency ratio (GAAP) 208.81 % 76.44 % 112.18 % 237.13 %

Comparable efficiency ratio (non-GAAP) 74.03 % 76.44 % 75.21 % 84.93 %

1 Related tax benefit calculated using blended statutory rate of 29.56%

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What changed 10-Q

Item 2. Management’s Discussion and Analysis