What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-07 compared with 2025-08-08 · 201 added, 196 removed, 466 unchanged (46% of the section changed)

29 unchanged sentences

Executive Summary

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.

Net income for the third quarter of 2025 was $7.5 million, compared to a net loss of $8.5 million for the prior quarter.

Diluted earnings per share was $0.47 for the third quarter of 2025, compared to diluted loss per share of $0.53 for the prior quarter.

Net income for the nine months ended September 30, 2025 was $3.9 million, compared to a loss of $14.4 million for the same period of 2024, and diluted income per share was $0.24 and diluted loss was $0.90 for the nine months ended September 30, 2025 and 2024, respectively.

Net income and diluted earnings per share for the nine months ended September 30, excluding the loss on sale of securities during both periods was $17.1 million and $1.07 in 2025 and $8.5 million and $0.53 in 2024, respectively, all other factors unchanged and with adjustments made based on the Company's blended statutory tax rate of 29.56%.

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

Three months ended Six months ended

Three months ended Nine months ended

(in thousands, except per share amounts;

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

September 30, 2025 June 30, 2025 September 30, 2025 September 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)

Pre-tax, pre-provision net income (loss) (GAAP) $ 9,610 $ (11,199) $ 4,967 $ (18,163)

Comparable pre-tax, net income (non-GAAP) 9,610 7,537 23,703 14,378

Net income (loss)

Net income (loss) (GAAP) 7,526 (8,536) 3,866 (14,410)

Comparable net income (non-GAAP) 7,526 4,662 17,064 8,511

Diluted (loss) earnings per share

Diluted (loss) earnings per share (GAAP)

(0.53) 0.30 (0.23) (1.18)

Diluted earnings (loss) per share

Diluted earnings (loss) per share (GAAP) 0.47 (0.53) 0.24 (0.90)

Comparable diluted earnings per share (non-GAAP) 0.47 0.29 1.07 0.53

3 unchanged sentences

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.

• The tax-equivalent net interest margin increased to 3.08% in the third quarter of 2025 from 2.93% in the prior quarter.

The repositioning of securities added 13 basis points to the margin and the higher average interest-earning deposit balances at the Federal Reserve Bank increased the margin by 10 basis points, partially offset by lower average loan balances during the third quarter and the slight increase in cost of deposits.

The tax-equivalent net interest margin for the nine months ended September 30, 2025, improved 39 basis points over the same period of the prior year due the increase in deposits at a decreased average cost, higher average loan rates, and the favorable impact of the securities repositioned in the second quarter of 2025, which resulted in higher yielding assets during the nine months ended September 30, 2025 .

• Total deposits were $3.383 billion as of September 30, 2025, compared to $3.220 billion as of December 31, 2024, an increase of $162.6 million.

The primary recipient of the deposit growth was money market accounts which increased by $144.0 million during the nine months ended September 30, 2025.

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 average cost of total deposits increased by one basis point to 1.29% in the third quarter of 2025, compared to the prior quarter.

The average cost of interest-bearing deposits was 2.24%, in the third quarter of 2025, consistent with the prior quarter.

The average cost of total deposits was 1.28% for the first nine months of 2025, compared to 1.43% in 2024, an improvement of 15 basis points, primarily due to internal deposit rate reductions in anticipation to and in response to Federal Reserve interest rate reductions.

Non-interest-bearing deposits continued to make up a significant portion of total deposits at 43.1% as of September 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 $2.026 billion , or 60% of total deposits and 202% of estimated uninsured and/or uncollateralized deposits as of September 30, 2025 .

• Loans totaled $2.090 billion as of September 30, 2025, a net increase of $7.1 million from December 31, 2024.

Loan originations during the nine months ended September 30, 2025 were $232.5 million ($167.0 million funded) including $182.3 million ($149.7 million funded) in commercial loans, which are comprised of commercial and industrial, commercial real estate, and construction loans.

Originations increased to $100.0 million ($69.0 million funded) in the third quarter compared to $69.2 million ($50.6 million funded) in the second quarter of 2025.

Additions to the loan portfolio in the first nine months of 2024 totaled $199.3 million which consisted of loan originations of $199.3 million ($140.4 million funded) including the purchase of a residential real estate loan pool totaling $35.7 million.

Payoffs were $95.9 million in the nine months ending September 30, 2025, compared to $83.9 million for the same period in 2024.

• There was no provision for credit losses on loans in the third quarter or second quarter of 2025.

The allowance for credit losses was 1.43% of total loans on September 30, 2025, compared to 1.47% as of December 31, 2024.

• Non-accrual loans decreased to $31.5 million, or 1.51% of total loans on September 30, 2025, compared to $33.9 million, or 1.63% on December 31, 2024.

Of the total non-accrual loans as of September 30, 2025, approximately 61% were paying as agreed and 88% 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.

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

Three months ended Six months ended

Three months ended Nine months ended

(in thousands, except per share amounts;

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

September 30, 2025 June 30, 2025 September 30, 2025 September 30, 2024

Return on average assets

7 unchanged sentences

Comparable efficiency ratio (non-GAAP) 68.94 % 74.03 % 73.00 % 81.53 %

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

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.

• ROA was 0.78%, ROE was 6.79%, and the efficiency ratio was 68.94% for the third quarter of 2025.

The third quarter of 2025 does not require non-GAAP adjustments.

ROA and ROE increased on a GAAP and non-GAAP basis in the third quarter from the prior quarter, as shown above, primarily due to the increased net income in the third quarter.

The efficiency ratio improved from the prior quarter, as well, also primarily due to the increased net interest income.

• ROA was 0.14% (non-GAAP 0.61%), ROE was 1.18% (non-GAAP 5.20%) and the efficiency ratio was 92.81% (non-GAAP 73.00%) for the nine months ended September 30, 2025.

ROA and ROE increased on a GAAP and non-GAAP basis for the nine months ended September 30, 2025 from the prior year period, as shown above, primarily due to the increased net income during the period.

The efficiency ratio improved from the prior year period, as well, also primarily due to the increased net interest income.

• Capital was above well-capitalized regulatory thresholds with Bancorp's and the Bank's total risk-based capital ratios of 16.13% and 15.11%, respectively, as of September 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.

• Bancorp's tangible common equity to tangible assets ("TCE ratio") was 9.72% as of September 30, 2025, and the Bank's TCE ratio was 9.04%.

In a hypothetical sale of 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 , would be 8.24% as of September 30, 2025, compared to 7.85% as of December 31, 2024.

• Bancorp repurchased 50,000 in shares for $1.1 million during the third quarter of 2025, at an average price of $22.33 per share, which was below tangible book value, contributing to an increase in the book value per share to $27.58 at September 30, 2025 compared to $27.21 at June 30, 2025 and the tangible book value per share to $22.92 at September 30, 2025 compared to $22.55 at June 30, 2025.

• The Board of Directors approved a cash dividend of $0.25 per share on October 23, 2025, which represents the 82 nd consecutive quarterly dividend paid by Bancorp.

The dividend is payable on November 13, 2025, to shareholders of record at the close of business on November 6, 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 Six months ended

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

Three months ended Nine months ended

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

Selected operating data:

1 unchanged sentence

Provision for credit losses on loans

— 75 75 5,550

Reversal of credit losses on unfunded loan commitments

Non-interest income 2,745 (15,621) (10,002) (24,113)

15 unchanged sentences

Cash dividend payout ratio on common stock 1

NM 80.65 % NM NM

53.19 % NM 312.50 % NM

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

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

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

Selected financial condition data:

37 unchanged sentences

Three months ended Three months ended

June 30, 2025 March 31, 2025

September 30, 2025 June 30, 2025

Interest Interest

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Tax-equivalent net interest rate spread 2.02 % 1.86 %

Six months ended Six months ended

June 30, 2025 June 30, 2024

Nine months ended Nine months ended

September 30, 2025 September 30, 2024

Interest Interest

36 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 $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.

5 Net loan origination costs in interest income totaled $439 thousand and $399 thousand for the three months ended September 30, 2025 and June 30, 2025, and totaled $1.2 million and $1.2 million for the nine months ended September 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 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

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

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

June 30, 2025

Nine months ended September 30, 2025 compared to nine months ended

September 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%.

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 2.90% 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.

Third Quarter of 2025 compared to the Second Quarter of 2025

Net interest income totaled $28.2 million for the third quarter of 2025, a $2.3 million increase from the prior quarter.

This was driven by an increase of $78.7 million in average earning assets and the reinvestment of securities sold in the second quarter at higher rates.

The tax-equivalent net interest margin was 3.08% for the third quarter of 2025, compared to 2.93% for the prior quarter.

The repositioning of securities in the second quarter continued to improve the margin in the third quarter adding 13 basis points to the margin.

Higher average interest-earning deposit balances with the Federal Reserve Bank increased the margin by 10 basis points.

The average balance of loans during the quarter decreased from prior quarter, contributing negatively to the linked quarter margin variance, reducing it by 6 basis points in the third quarter.

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

Net interest income totaled $79.1 million for the nine months ended September 30, 2025, compared to $69.4 million for the same period in the prior year.

The $9.6 million increase from the prior year was primarily due to higher yields in reinvested securities and loans, the increase in the average balance of interest-bearing cash at the Federal Reserve, and the lower cost of deposits in 2025.

The tax-equivalent net interest margin was 2.96% for the nine months ended September 30, 2025, compared to 2.57% for the same period in the prior year.

The increase of 39 basis points was primarily attributed to lower deposit costs, higher loan yields, higher interest-earning deposit balances with the Federal Reserve, and the investment securities restructuring performed in both 2024 and 2025.

These provided a positive impact of 12, 10, 8 and 8 basis points, respectively.

Market Interest Rates

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In response to the evolving risks to economic activity caused by the COVID-19 pandemic, the FOMC made two emergency federal funds rate cuts totaling 150 basis points in March 2020.

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 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, 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 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.

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.

This is a strategy that we continue to evaluate for the future.

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.

In the first half of 2025, the FOMC left rates unchanged.

The FOMC lowered the target by 25 basis points on September 17, 2025, to a range of 4.00% to 4.25%, and again on October 29, 2025 by 25 basis points to a range of 3.75% to 4.00%.

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.

3 unchanged sentences

The allowance for credit losses on loans is increased by provisions charged to expense and loss recoveries and decreased by loans charged off.

The following table shows the activity for the periods presented.

Three months ended Six months ended

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

The following table shows provisions charged to expense during the periods presented.

Three months ended Nine months ended

(dollars in thousands) September 30, 2025 June 30, 2025 September 30, 2025 September 30, 2024

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

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.

We recorded no provision for credit losses on loans in the third quarter nor in the prior quarter of 2025.

The third quarter included updates to the discounted cash flow modeling assumptions to reflect an updated peer group that includes Bank of Marin, which is used to calculate loan loss rates and allowances in the model and by revised risk factor assumptions, which had the effect of lowering the provision.

This was offset by a marginal deterioration in estimated statewide unemployment and GDP forecasts, resulting in no adjustment.

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

We recorded a provision totaling $5.6 million for the nine months ending September 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.

The remainder of the provision recorded in the nine months ended September 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 (Loss) Income

Non-interest Income (Loss)

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 %

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

Wealth management and trust services 564 612 (48) (7.8) %

Service charges on deposit accounts 547 550 (3) (0.5) %

Earnings on bank-owned life insurance, net 434 $ 429 $ 5 1.2 %

Debit card interchange fees, net 405 410 (5) (1.2) %

1 unchanged sentence

Merchant interchange fees, net 87 90 (3) (3.3) %

Earnings on bank-owned life insurance death benefits — 238 (238) (100.0) %

Losses on sale of investment securities

(18,736) — (18,736) NM

— (18,736) 18,736 (100.0) %

Other income 342 424 (82) (19.3) %

1 unchanged sentence

$ 2,745 $ (15,621) $ 18,366 (117.6) %

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 %

Nine months ended

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

Wealth management and trust services

1 unchanged sentence

Service charges on deposit accounts 1,645 1,613 32 2.0 %

Earnings on bank-owned life insurance, net $ 1,339 $ 1,282 $ 57 4.4 %

Debit card interchange fees, net 1,211 1,275 (64) (5.0) %

Dividends on Federal Home Loan Bank stock 1,103 1,108 (5) (0.5) %

Earnings on bank-owned life insurance death benefits 306 — 306 NM

Merchant interchange fees, net 273 244 29 11.9 %

5 unchanged sentences

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.

Third Quarter of 2025 Compared to the Second Quarter of 2025

Non-interest income was $2.7 million for the third quarter of 2025, compared to the loss of $15.6 million for the prior quarter.

The increase of $18.4 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.

Excluding the loss on securities sales, non-interest income was $3.1 million for prior quarter, all other factors unchanged.

The adjusted decrease of $370 thousand in the third quarter was primarily attributed to the $238 thousand death benefit received on bank owned life insurance in the second quarter, not repeated in the third 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.

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

Non-interest loss was $10.0 million for the nine months ended September 30, 2025, compared to a loss of $24.1 million for the same period of the prior year.

The $14.1 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.

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 nine 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 nine months of 2024.

Excluding the loss on AFS securities sales, non-interest income was $8.7 million and $8.4 million for the first nine months of 2025 and 2024, respectively, all other factors unchanged, which was largely due to an increase of $306 thousand earned on bank-owned life insurance death benefits in 2025.

See the non-GAAP disclosure below.

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Three months ended

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

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

Salaries and related benefits $ 12,004 $ 12,045 $ (41) (0.3) %

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Total non-interest expense $ 21,328 $ 21,490 $ (162) (0.8) %

Six months ended

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

Nine months ended

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

Salaries and related benefits $ 36,099 $ 35,270 $ 829 2.4 %

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Directors' expense 832 916 (84) (9.2) %

Charitable contributions 519 617 (98) (15.9) %

Amortization of core deposit intangible 664 738 (74) (10.0) %

Other real estate owned — — — NM

Charitable contributions 575 647 (72) (11.1) %

Other non-interest expense

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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.

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.

Third Quarter of 2025 Compared to the Second Quarter of 2025

Non-interest expense totaled $21.3 million for the third quarter of 2025, compared to $21.5 million for the prior quarter, a decrease of $162 thousand.

This was primarily due to a decrease of $281 thousand in all other expenses and of $147 thousand in occupancy and equipment expenses.

This was partially offset by an increase of $207 thousand in professional services and of $104 thousand in deposit network fees in the third quarter of 2025.

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

Non-interest expense totaled $64.1 million for the nine months ending September 30, 2025 , compared to $63.5 million for the same period of 2024 , an increase of $602 thousand.

This was primarily due to an increase of $829 thousand in salaries and benefits, an increase of $456 thousand in deposit network fees and an increase in occupancy and equipment expense of $296 thousand, partially offset by a decrease of $1.0 million in professional services, which included the $615 thousand accrual for a non-recurring legal resolution of a Private Attorneys

General Act/putative class action lawsuit and approximately $277 thousand more in loan operating system implementation fees in 2024.

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 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.

The income tax provision for the third quarter of 2025 totaled $2.1 million at an effective tax rate of 21.7%, compared to a benefit of $2.7 million at an effective tax rate of 23.8% in the prior quarter.

The increase in the provision for income taxes in the third quarter of 2025 reflected higher pre-tax income as compared to the prior quarter.

The decrease in the effective tax rate in the third 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 provision for the first nine months of 2025 totaled $1.0 million at an effective tax rate of 21.0%, compared to an income tax benefit of $9.1 million at an effective tax rate of 38.6% for the first nine months of 2024.

The decrease in the provision for incomes taxes and effective tax rate in the first nine months 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.

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

This law does not have a material impact on the company’s tax expense as of September 30, 2025.

On July 4, 2025, the Trump Administration signed and enacted the One Big Beautiful Bill Act ("the Act") into law.

Except for certain provisions, the 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.

The company evaluated the impact of the Act on income tax expense, deferred tax assets and liabilities, and related valuation allowances.

This law did not have a material impact on the company's tax expense as of September 30, 2025.

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

As of September 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 $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.

Total cash, cash equivalents and restricted cash were $219.3 million at September 30, 2025, an increase of $82.0 million compared to $137.3 million at December 31, 2024, driven by proceeds from paydowns and maturities of investment securities of $171.9 million, proceeds from the sale of available for sale securities of $167.0 million, and growth in deposits totaling $162.6 million, partially offset by purchases of investment securities of $421.8 million and an increase of $7.9 million in loans receivable.

Investment 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.

The investment securities portfolio totaled $1.355 billion at September 30, 2025, an increase of $88.6 million from $1.267 billion at December 31, 2024.

The increase was primarily due to $421.8 million available-for-sale securities in purchases and a $24.1 million decrease in unrealized losses on AFS securities, $18.7 million of which resulting from the securities sales, partially offset by the sale of AFS securities with a book value of $185.8 million and principal repayments and maturities totaling $171.9 million.

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 $158.2 million in the first six months of 2025.

Those cash flows totaled $200.5 million in the first nine 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 June 30, 2025 and December 31, 2024.

June 30, 2025 December 31, 2024

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

September 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 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 $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.

Loans totaled $2.090 billion as of September 30, 2025, compared to $2.083 billion as of December 31, 2024.

The increase in the nine months ended September 30, 2025 totaled $7.1 million, compared to an increase of $16.4 million in the nine months ended September 30, 2024.

Loan originations for the nine months ended September 30, 2025 were $232.5 million ($167.0 million funded) including $182.3 million ($149.7 million funded) in commercial loans, which includes commercial and industrial, commercial real estate and construction, compared to $199.3 million ($140.4 million funded) including the purchase of $35.7 million for the nine months ended September 30, 2024.

Loan originations for the third quarter were $100.0 million ($69.0 million funded) including $85.3 million ($65.4 million funded) in commercial loans, an increase from the prior quarter with loan originations of $69.2 million ($50.6 million funded) including $49.1 million ($41.6 million funded) in commercial loans.

Payoffs were $95.9 million in the nine months ended September 30, 2025, compared to $83.9 million for the same period in 2024.

This included payoffs of $33.9 million and $36.5 million in the third and second quarters of 2025, respectively.

In addition, amortization from scheduled payments totaled $59.9 million and net utilization of credit lines decreased by $4.1 million during the nine months ended September 30, 2025, compared to amortization from scheduled payments totaled $67.3 million and net utilization of credit lines increased by $27.2 million during the nine months ended September 30, 2024.

Non-accrual loans totaled $31.5 million, or 1.51% of the loan portfolio, at September 30, 2025, compared to $33.9 million, or 1.63% at December 31, 2024.

The $2.4 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 $1.1 million, payoffs of $847 thousand, removals from non-accrual status of $207 thousand and charged off loans totaling $67 thousand, partially offset by the addition of 11 loans totaling $1.9 million.

Subsequent to quarter end, an additional $3.6 million in non-accrual loans were paid off in full including interest and fees.

Of the total non-accrual loans as of September 30, 2025, approximately 61% were paying as agreed, 88% were real estate secured.

In response to current market conditions, we continue to closely monitor our portfolio for signs of potential weakness to ensure proactive risk management and actively work towards a resolution on our classified loans.

Classified loans increased to $49.4 million as of September 30, 2025, compared to $45.1 million as of December 31, 2024.

The $4.3 million increase was largely due to net downgrades of $10.7 million, partially offset by payoffs and paydowns of $4.3 million and 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 $20.4 million to $88.5 million as of September 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 $27.2 million, offset by downgrades from pass/watch to special mention loans of $14.9 million and upgrades from classified loans of $9.1 million.

Of the loans designated special mention, 99.6% were real estate secured.

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.

Net charge-offs for the nine months ended September 30, 2025 totaled $878 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.

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Liabilities - Deposits and Borrowings

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 .

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 June 30, 2025.

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

During the first nine months of 2025, total liabilities increased by $159.3 million to $3.425 billion.

Deposits totaled $3.383 billion at September 30, 2025, an increase of $162.6 million, compared to $3.220 billion at December 31,

Deposits increased $137.5 million (4.2%) in the third quarter of 2025 primarily due to inflows from existing relationships as well as new relationships.

This was the largest quarterly increase since the acquisition of American River Bank in the third quarter of 2021.

Non-interest bearing deposits made up 43.1% of total deposits at September 30, 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 over 1,000 new accounts during the three months ended September 30, 2025.

We had no outstanding borrowings at September 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 $1.863 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.

Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and total available borrowing capacity was $2.026 billion, or 60% of total deposits and 202% of estimated uninsured and/or uncollateralized deposits as of September 30, 2025.

Balances in the deposit network program were $497.2 million (including one-way sells of $30.4 million) and $404.7 million at September 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 June 30, 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 September 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 16.25% 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.

The total risk-based capital ratio for Bancorp was 16.13% at September 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 securities portfolio repositioning.

The total risk-based capital ratio for the Bank was 15.11% at September 30, 2025, compared to 16.13% at December 31, 2024.

The decrease was mainly due to losses realized on securities sales and 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 9.72% at September 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 8.24%, compared to 7.85% at December 31, 2024.

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.

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

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.

Bancorp Capital Ratios

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Threshold to be a Well Capitalized Bank Holding Company

June 30, 2025 Amount Ratio Amount Ratio Amount Ratio

September 30, 2025 Amount Ratio Amount Ratio Amount Ratio

Total Capital (to risk-weighted assets) $ 411,248 16.13 % $ 267,701 10.50 % $ 254,953 10.00 %

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Common Equity Tier 1 (to risk-weighted assets) $ 389,448 15.32 % $ 177,994 7.00 % $ 165,280 6.50 %

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.

Bank Capital Ratios

2 unchanged sentences

Threshold to be Well Capitalized under Prompt Corrective Action Provisions

June 30, 2025 Amount Ratio Amount Ratio Amount Ratio

September 30, 2025 Amount Ratio Amount Ratio Amount Ratio

Total Capital (to risk-weighted assets) $ 385,295 15.11 % $ 267,663 10.50 % $ 254,917 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 $1.863 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.

Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity totaled $2.026 billion or 60% of total deposits and 202% of estimated uninsured and/or uncollateralized deposits as of September 30, 2025.

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

(in thousands) Total Available Amount Used Net Availability

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1 Excludes cash items in transit.

Brokered deposits available through third party networks are not included above.

One-way and brokered deposits available through third party networks are not included above.

We obtain funds from the repayment and maturity of loans, deposit inflows, investment securities sales, maturities and paydowns, federal funds purchases, FRB and FHLB advances, other borrowings, and cash flow from operations.

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Customer deposits are a significant component of our daily liquidity position.

The attraction and retention of deposits depend upon the variety and effectiveness of our customer account products, service and convenience,

rates paid to customers, and our financial strength.

The attraction and retention of deposits depend upon the variety and effectiveness of our customer account products, service and convenience, rates paid to customers, and our financial strength.

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 $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.

Our cash and cash equivalents increased $82.0 million in the first nine months of 2025.

The most significant sources of liquidity during the first nine months of 2025 were $171.9 million from principal paydowns, calls and maturities of investment securities, proceeds of $167.0 million from the sale of available for sale investment securities, loan payoffs of $95.9 million, $59.9 million in amortization of principal and a net $4.1 million decrease in utilization of credit lines, and $162.6 million from net increase of deposits, in addition to $25.5 million in net cash provided by operating activities.

Significant uses of liquidity during the nine months ended September 30, 2025 were $421.8 million in investment securities purchased, $167.0 million in loan fundings, and $12.1 million in cash dividends paid on common stock to our shareholders and $3.3 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 $449.4 million at June 30, 2025.

Unfunded credit commitments, as discussed in Note 8 to the Consolidated Financial Statements in this Form 10-Q, totaled $443.9 million at September 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 June 30, 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 September 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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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 $31.1 million in cash at June 30, 2025.

The primary uses of funds for

Bancorp are shareholder dividends, share repurchases and ordinary operating expenses.

Bancorp held $25.7 million in cash at September 30, 2025.

Statement Regarding use of Non-GAAP Financial Measures

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(in thousands, except per share amounts;

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

Tangible Common Equity - Bancorp

22 unchanged sentences

$ 22.92 $ 22.37

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.

1 Unrealized losses on held-to-maturity securities as of September 30, 2025 and December 31, 2024 of $96.8 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 $28.6 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, as of September 30, 2025 and December 31, 2024, net of an estimated $2.9 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)

Three months ended Nine months ended

Pre-tax, pre-provision net income September 30, 2025 June 30, 2025 September 30, 2025 September 30, 2024

Income (loss) before (benefit from) provision for income taxes $ 9,610 $ (11,199) $ 4,892 $ (23,480)

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

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

Reversal of credit losses on unfunded loan commitments — — — (233)

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

9,610 (11,199) 4,967 (18,163)

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

Losses (gains) on sale of investment securities from portfolio repositioning — 18,736 18,736 32,541

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

1 unchanged sentence

Net (loss) income

Net (loss) income (GAAP)

Net income (loss) (GAAP)

$ 7,526 $ (8,536) $ 3,866 $ (14,410)

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

Losses (gains) on sale of investment securities from portfolio repositioning — 18,736 18,736 32,541

Related income tax benefit 1

2 unchanged sentences

Comparable net income (non-GAAP) $ 7,526 $ 4,662 $ 17,064 $ 8,511

Diluted (loss) earnings per share

Diluted earnings (loss) per share

Weighted average diluted shares 15,934 15,989 15,979 16,076

Diluted (loss) earnings per share (GAAP)

Diluted earnings (loss) per share (GAAP)

$ 0.47 $ (0.53) $ 0.24 $ (0.90)

12 unchanged sentences

Non-interest income (GAAP) $ 2,745 $ (15,621) $ (10,002) $ (24,113)

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

Losses (gains) on sale of investment securities from portfolio repositioning — 18,736 18,736 32,541

Non-interest income (non-GAAP) $ 2,745 $ 3,115 $ 8,734 $ 8,428

3 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis