Bank of Marin Bancorp 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of the financial condition and results of operations, which is unaudited, should be read in conjunction with the related unaudited consolidated interim financial statements in this Form 10-Q and with the audited consolidated financial statements and accompanying notes included in our 2024 Annual Report on Form 10-K. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances. Forward-Looking Statements The discussion of financial results in this Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "1933 Act") and Section 21E of the Securities Exchange Act of 1934, as amended, (the "1934 Act"). Those sections of the 1933 Act and 1934 Act provide a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their financial performance so long as they provide meaningful, cautionary statements identifying important factors that could cause actual results to differ significantly from projected results. Our forward-looking statements include descriptions of plans or objectives of management for future operations, products or services, and forecasts of revenues, earnings or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "intend," "estimate" or words of similar meaning, or future or conditional verbs preceded by "will," "would," "should," "could" or "may." Forward-looking statements are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact Bancorp's earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions and the economic uncertainty in the United States and abroad, including economic or other disruptions to financial markets caused by the Trump administration's approach to tariffs and trade, acts of terrorism, war or other conflicts, impacts from inflation, supply chain disruptions, changes in interest rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate, deposit flows, real estate values, and expected future cash flows on loans and securities; the impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; natural disasters (such as wildfires and earthquakes in our area); adverse weather conditions; interruptions of utility service in our markets for sustained periods; and other economic, competitive, governmental, regulatory and technological factors (including external fraud and cybersecurity threats) affecting our operations, pricing, products and services; and successful integration of acquisitions. Important factors that could cause results or performance to differ materially from those expressed in our prior forward-looking statements are detailed in ITEM 1A, Risk Factors section of our 2024 Form 10-K as filed with the SEC, and ITEM 1A Risk Factors herein. Forward-looking statements speak only as of the date they are made. Bancorp undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. Critical Accounting Estimates Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation and uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. We consider accounting estimates to be critical to our financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain, (ii) management could have applied different assumptions during the reported period, and (iii) changes in the accounting estimate are reasonably likely to occur in the future and could have a material impact on our financial statements. Our critical estimates include: Allowance for Credit Losses on Loans and Unfunded Commitments, Fair Value Measurements, and Goodwill. Refer to Critical Accounting Estimates in Item 7 of our 2024 Form 10-K for more information. Page-32 Executive Summary 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 Nine months ended (in thousands, except per share amounts; unaudited) September 30, 2025 June 30, 2025 September 30, 2025 September 30, 2024 Pre-tax, pre-provision net (loss) income 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 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 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 on the pages that follow. • 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 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 . Page-33 • 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. 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 Nine months ended (in thousands, except per share amounts; unaudited) September 30, 2025 June 30, 2025 September 30, 2025 September 30, 2024 Return on average assets Return on average assets (GAAP) 0.78 % (0.92) % 0.14 % (0.51) % Comparable return on average assets (non-GAAP) 0.78 % 0.50 % 0.61 % 0.30 % Return on average equity Return on average equity (GAAP) 6.79 % (7.80) % 1.18 % (4.43) % Comparable return on average equity (non-GAAP) 6.79 % 4.26 % 5.20 % 2.61 % Efficiency ratio Efficiency ratio (GAAP) 68.94 % 208.81 % 92.81 % 140.08 % 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 Related tax benefit calculated using blended statutory rate of 29.56% • 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. Page-34 • 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 9.72% 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. Page-35 RESULTS OF OPERATIONS Highlights of the financial results are presented in the following tables: 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: Net interest income $ 28,193 $ 25,912 $ 79,051 $ 69,430 Provision for credit losses on loans — — 75 5,550 Reversal of credit losses on unfunded loan commitments — — — (233) Non-interest income 2,745 (15,621) (10,002) (24,113) Non-interest expense 21,328 21,490 64,082 63,480 Net (loss) income 7,526 (8,536) 3,866 (14,410) Net (loss) income per common share: Basic $ 0.47 $ (0.53) $ 0.24 $ (0.90) Diluted $ 0.47 $ (0.53) $ 0.24 $ (0.90) Performance and other financial ratios: Return on average assets 0.78 % (0.92) % 0.14 % (0.51) % Return on average equity 6.79 % (7.80) % 1.18 % (4.43) % Tax-equivalent net interest margin 3.08 % 2.93 % 2.96 % 2.57 % Cost of deposits 1.29 % 1.28 % 1.28 % 1.43 % Cost of funds 1.29 % 1.28 % 1.28 % 1.43 % Efficiency ratio 68.94 % 208.81 % 92.81 % 140.08 % Net charge-offs $ 1 $ 52 $ 878 $ 47 Cash dividend payout ratio on common stock 1 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) September 30, 2025 December 31, 2024 Selected financial condition data: Total assets $ 3,869,021 $ 3,701,335 Investment securities 1,355,356 1,266,733 Loans, net of allowance for credit losses on loans 2,060,501 2,052,600 Deposits 3,382,576 3,220,015 Borrowings and other obligations 57 154 Stockholders' equity 443,818 435,407 Book value per share 27.58 27.06 Tangible book value per share 1 22.92 22.37 Asset quality ratios: Allowance for credit losses on loans to total loans 1.43 % 1.47 % Allowance for credit losses on loans to non-accrual loans 0.95x 0.90x Non-accrual loans to total loans 1.51 % 1.63 % Classified loans (graded substandard and doubtful) as a percentage of total loans 2.36 % 2.17 % Capital ratios: Equity to total assets ratio 11.47 % 11.76 % Tangible common equity to tangible assets 9.72 % 9.93 % Total capital (to risk-weighted assets) 16.13 % 16.54 % Tier 1 capital (to risk-weighted assets) 14.93 % 15.32 % Tier 1 capital (to average assets) 10.12 % 10.46 % Common equity Tier 1 capital (to risk weighted assets) 14.93 % 15.32 % 1 Tangible book value per share is a non-GAAP financial measure used by Bancorp, as well as investors and analysts, in assessing Bancorp’s use of equity. Refer to the reconciliation of common equity to tangible common equity and resulting calculation of tangible book value per share in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures. Page-36 Net Interest Income Net interest income is the interest earned on loans, investments and other interest-earning assets minus the interest expense incurred on deposits and other interest-bearing liabilities. Net interest income is impacted by changes in general market interest rates and by changes in the composition of interest-earning assets and interest-bearing liabilities. Interest rate changes can create fluctuations in the net interest income and/or margin due to an imbalance in the timing of repricing and maturity of assets and liabilities. We manage interest rate risk exposure with the goal of minimizing the impact of interest rate volatility on net interest income. For more information, refer to Item 3. Quantitative and Qualitative Disclosure about Market Risk in this Form 10-Q. Net interest margin is expressed as net interest income divided by average interest-earning assets. Net interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate incurred on total interest-bearing liabilities. Both of these measures are reported on a taxable-equivalent basis. Net interest margin is the higher of the two because it reflects interest income earned on assets funded with non-interest-bearing sources of funds, which include demand deposits and stockholders’ equity. Average Statements of Condition and Analysis of Net Interest Income The following table compares interest income, average interest-earning assets, interest expense, and average interest-bearing liabilities for the periods presented. 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 September 30, 2025 June 30, 2025 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (dollars in thousands) Balance Expense Rate Balance Expense Rate Assets Interest-earning deposits with banks 1 $ 266,559 $ 2,969 4.36 % $ 180,730 $ 2,004 4.39 % Investment securities 2, 3 1,261,275 9,898 3.14 % 1,266,317 8,495 2.68 % Loans 1, 3, 4, 5 2,071,049 26,361 4.98 % 2,073,110 25,965 4.95 % Total interest-earning assets 1 3,598,883 39,228 4.27 % 3,520,157 36,464 4.10 % Cash and non-interest-bearing due from banks 34,856 37,721 Bank premises and equipment, net 7,599 7,259 Interest receivable and other assets, net 187,538 172,657 Total assets $ 3,828,876 $ 3,737,794 Liabilities and Stockholders' Equity Interest-bearing transaction accounts $ 189,371 $ 328 0.69 % $ 187,297 $ 351 0.75 % Savings accounts 221,781 600 1.07 % 222,524 587 1.06 % Money market accounts 1,294,479 8,376 2.57 % 1,227,506 7,878 2.57 % Time accounts including CDARS 220,242 1,571 2.83 % 218,150 1,559 2.87 % Borrowings and other obligations 1 62 1 4.08 % 91 1 3.39 % Total interest-bearing liabilities 1,925,935 10,876 2.24 % 1,855,568 10,376 2.24 % Demand accounts 1,419,872 1,398,570 Interest payable and other liabilities 43,119 44,469 Stockholders' equity 439,950 439,187 Total liabilities & stockholders' equity $ 3,828,876 $ 3,737,794 Tax-equivalent net interest income/margin 1 $ 28,352 3.08 % $ 26,088 2.93 % Reported net interest income/margin 1 $ 28,192 3.07 % $ 25,912 2.91 % Tax-equivalent net interest rate spread 2.02 % 1.86 % Page-37 Nine months ended Nine months ended September 30, 2025 September 30, 2024 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (in thousands) Balance Expense Rate Balance Expense Rate Assets Interest-earning deposits with banks 1 $ 203,956 $ 6,768 4.38 % $ 110,337 $ 4,487 5.34 % Investment securities 2, 3 1,266,960 26,720 2.81 % 1,388,825 24,907 2.39 % Loans 1, 3, 4, 5 2,072,623 77,614 4.94 % 2,072,684 75,934 4.81 % Total interest-earning assets 1 3,543,539 111,102 4.13 % 3,571,846 105,328 3.87 % Cash and non-interest-bearing due from banks 36,680 36,669 Bank premises and equipment, net 7,232 7,436 Interest receivable and other assets, net 177,830 159,369 Total assets $ 3,765,281 $ 3,775,320 Liabilities and Stockholders' Equity Interest-bearing transaction accounts $ 189,246 $ 1,022 0.72 % $ 196,752 $ 874 0.59 % Savings accounts 223,781 1,720 1.03 % 228,096 1,447 0.85 % Money market accounts 1,238,686 23,880 2.58 % 1,150,911 25,804 2.99 % Time accounts including CDARS 222,108 4,920 2.96 % 264,290 7,002 3.54 % Borrowings and other obligations 1 94 3 3.30 % 6,125 240 5.15 % Total interest-bearing liabilities 1,873,915 31,545 2.25 % 1,846,174 35,367 2.56 % Demand accounts 1,408,412 1,446,795 Interest payable and other liabilities 44,173 47,578 Stockholders' equity 438,781 434,773 Total liabilities & stockholders' equity $ 3,765,281 $ 3,775,320 Tax-equivalent net interest income/margin 1 $ 79,557 2.96 % $ 69,961 2.57 % Reported net interest income/margin 1 $ 79,051 2.94 % $ 69,430 2.55 % Tax-equivalent net interest rate spread 1.88 % 1.31 % 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. 2 Yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value, as changes in fair value are reflected as a component of stockholders' equity. Investment security interest is earned on 30/360 day basis monthly. 3 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the Federal statutory rate of 21 percent. 4 Average balances on loans outstanding include non-performing loans. 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 $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. Page-38 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. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates. 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 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 Interest-earning deposits with banks $ 951 $ (12) $ 26 $ 965 $ 3,807 $ (812) $ (714) $ 2,281 Investment securities 1 (34) 1,443 (6) 1,403 (2,186) 4,383 (384) 1,813 Loans 1 (25) 135 286 396 (2) 1,967 (285) 1,680 Total interest-earning assets 892 1,566 306 2,764 1,619 5,538 (1,383) 5,774 Interest-bearing transaction accounts 4 (29) 2 (23) (33) 192 (11) 148 Savings accounts (2) 9 6 13 (28) 313 (12) 273 Money market accounts 430 (23) 91 498 1,968 (3,534) (358) (1,924) Time accounts, including CDARS 15 (21) 18 12 (1,117) (1,124) 159 (2,082) Borrowings and other obligations — — — — (236) (109) 108 (237) Total interest-bearing liabilities 447 (64) 117 500 554 (4,262) (114) (3,822) Changes in tax-equivalent net interest income $ 445 $ 1,630 $ 189 $ 2,264 $ 1,065 $ 9,800 $ (1,269) $ 9,596 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%. 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 Market interest rates are, in part, based on the target federal funds interest rate (the interest rate banks charge each other for short-term borrowings) implemented by the Federal Reserve Open Market Committee ("FOMC"). 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 Page-39 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. 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. 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. See ITEM 3. Quantitative and Qualitative Disclosure about Market Risk for further information. Provision for Credit Losses on Loans Management assesses the adequacy of the allowance for credit losses on loans quarterly based on several factors including growth of the loan portfolio, past events, current conditions, and reasonable and supportable forecasts to estimate expected losses over the contractual terms of our loans. 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 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 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. 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 that was recorded in the first quarter. 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 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. Page-40 Non-interest Income (Loss) The following table details the components of non-interest income (loss). Three months ended (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) % Dividends on Federal Home Loan Bank stock 366 362 4 1.1 % 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 (100.0) % Other income 342 424 (82) (19.3) % Total non-interest (loss) income $ 2,745 $ (15,621) $ 18,366 (117.6) % Nine months ended (dollars in thousands) September 30, 2025 September 30, 2024 Amount Change Percent Change Wealth management and trust services 1,739 1,844 (105) (5.7) % 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 % Losses on sale of investment securities (18,736) (32,541) 13,805 (42.4) % Other income 1,118 1,062 56 5.3 % Total non-interest (loss) income $ (10,002) $ (24,113) $ 14,111 (58.5) % NM - not meaningful 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. 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 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. Page-41 Non-interest Expense The following table details the components of non-interest expense. Three months ended (dollars in thousands) September 30, 2025 June 30, 2025 Amount Change Percent Change Salaries and related benefits $ 12,004 $ 12,045 $ (41) (0.3) % Occupancy and equipment 2,079 2,226 (147) (6.6) % Deposit network fees 1,158 1,054 104 9.9 % Data processing 1,116 1,041 75 7.2 % Professional services 1,115 908 207 22.8 % Information technology 538 563 (25) (4.4) % Federal Deposit Insurance Corporation insurance 459 421 38 9.0 % Depreciation and amortization 291 320 (29) (9.1) % Directors' expense 249 279 (30) (10.8) % Amortization of core deposit intangible 217 220 (3) (1.4) % Charitable contributions 56 116 (60) (51.7) % Other non-interest expense Advertising 299 269 30 11.2 % Other expense 1,747 2,028 (281) (13.9) % Total other non-interest expense 2,046 2,297 (251) (10.9) % Total non-interest expense $ 21,328 $ 21,490 $ (162) (0.8) % 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 % Occupancy and equipment 6,411 6,115 296 4.8 % Data processing 3,293 3,126 167 5.3 % Deposit network fees 3,144 2,688 456 17.0 % Professional services 2,960 4,000 (1,040) (26.0) % Information technology 1,514 1,254 260 20.7 % Federal Deposit Insurance Corporation insurance 1,268 1,443 (175) (12.1) % Depreciation and amortization 933 1,125 (192) (17.1) % Directors' expense 832 916 (84) (9.2) % Amortization of core deposit intangible 664 738 (74) (10.0) % Charitable contributions 575 647 (72) (11.1) % Other non-interest expense Advertising 794 799 (5) (0.6) % Other expense 5,595 5,359 236 4.4 % Total other non-interest expense 6,389 6,158 231 3.8 % Total non-interest expense $ 64,082 $ 63,480 $ 602 0.9 % NM - Not Meaningful 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 Page-42 General Act/putative class action lawsuit and approximately $277 thousand more in loan operating system implementation fees in 2024. Provision for Income Taxes Income tax provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income. 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 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 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. 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 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. federal tax jurisdiction and a combined return in the state of California tax jurisdiction. There were no ongoing federal or state income tax examinations at the time of the issuance of this report. As of September 30, 2025, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits. Page-43 FINANCIAL CONDITION SUMMARY Cash, Cash Equivalents and Restricted Cash 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 $1.355 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. The portfolios are comprised of high credit quality investments with average effective durations of 2.43 on available-for-sale securities and 5.18 on held-to-maturity securities. Both portfolios generate cash flows monthly from interest, principal amortization and payoffs, which supports the Bank's liquidity. 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 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 Within California: General obligation bonds $ 17,782 $ 14,861 18.7 % $ 22,913 $ 18,749 14.5 % Revenue bonds — — — 2,060 1,658 1.3 Total within California 17,782 14,861 18.7 24,973 20,407 15.8 Outside California: General obligation bonds 60,204 53,353 63.4 108,037 94,748 68.5 Revenue bonds 16,990 14,711 17.9 24,728 21,778 15.7 Total outside California 77,194 68,064 81.3 132,765 116,526 84.2 Total obligations of state and political subdivisions $ 94,976 $ 82,925 100.0 % $ 157,738 $ 136,933 100.0 % Percent of investment portfolio 7.0 % 6.5 % 12.2 % 11.9 % Of the total investment in obligations of state and political subdivisions, the largest concentrations outside of California are in Texas (37.5%), Washington (9.9%) and Wisconsin (15.5%). Our investment in obligations issued by municipal issuers in Texas are either guaranteed by the AAA rated Texas Permanent School Fund ("PSF") or backed by revenue sources from essential services (such as utilities and transportation). Investments in states, municipalities and political subdivisions are subject to an initial pre-purchase credit assessment and ongoing monitoring. Key considerations include: • The soundness of a municipality’s budgetary position and stability of its tax revenues • Debt profile and level of unfunded liabilities, diversity of revenue sources, taxing authority of the issuer • Local demographics/economics including unemployment data, largest taxpayers and local employers, income indices and home values Page-44 • For revenue bonds, the source and strength of revenue for municipal authorities including the obligor’s financial condition and reserve levels, annual debt service and debt coverage ratio, and credit enhancement (such as insurer’s strength and collateral in escrow accounts) • Credit ratings by major credit rating agencies Loans and Credit Quality 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 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. 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 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, Page-45 2024. 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 $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 We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements as set forth in the following tables can trigger certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and the Bank’s prompt corrective action classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. Management reviews capital ratios on a regular basis and produces a five-year capital plan semi-annually to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs. Stress tests are performed on capital ratios and include scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth and potential share repurchases. For all periods presented, the Bank’s ratios exceed the regulatory definition of “well capitalized” under the regulatory framework for prompt corrective action and Bancorp’s ratios exceed the required minimum ratios to be considered a well-capitalized bank holding company. 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 16.13% 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 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. Page-46 Bancorp Capital Ratios (dollars in thousands) Actual Adequately Capitalized Threshold 1 Threshold to be a Well Capitalized Bank Holding Company 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 % Tier 1 Capital (to risk-weighted assets) $ 380,748 14.93 % $ 216,710 8.50 % $ 203,963 8.00 % Tier 1 Leverage Capital (to average assets) $ 380,748 10.12 % $ 150,562 4.00 % $ 188,203 5.00 % Common Equity Tier 1 (to risk-weighted assets) $ 380,748 14.93 % $ 178,467 7.00 % $ 165,720 6.50 % December 31, 2024 Total Capital (to risk-weighted assets) $ 420,606 16.54 % $ 266,991 10.50 % $ 254,277 10.00 % Tier 1 Capital (to risk-weighted assets) $ 389,448 15.32 % $ 216,136 8.50 % $ 203,422 8.00 % Tier 1 Leverage Capital (to average assets) $ 389,448 10.46 % $ 148,899 4.00 % $ 186,123 5.00 % Common Equity Tier 1 (to risk-weighted assets) $ 389,448 15.32 % $ 177,994 7.00 % $ 165,280 6.50 % Bank Capital Ratios (dollars in thousands) Actual Adequately Capitalized Threshold 1 Threshold to be Well Capitalized under Prompt Corrective Action Provisions 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 % Tier 1 Capital (to risk-weighted assets) $ 354,795 13.92 % $ 216,680 8.50 % $ 203,934 8.00 % Tier 1 Leverage Capital (to average assets) $ 354,795 9.43 % $ 150,548 4.00 % $ 188,185 5.00 % Common Equity Tier 1 (to risk-weighted assets) $ 354,795 13.92 % $ 178,442 7.00 % $ 165,696 6.50 % December 31, 2024 Total Capital (to risk-weighted assets) $ 410,186 16.13 % $ 266,955 10.50 % $ 254,243 10.00 % Tier 1 Capital (to risk-weighted assets) $ 379,028 14.91 % $ 216,107 8.50 % $ 203,395 8.00 % Tier 1 Leverage Capital (to average assets) $ 379,028 10.18 % $ 148,887 4.00 % $ 186,108 5.00 % Common Equity Tier 1 (to risk-weighted assets) $ 379,028 14.91 % $ 177,970 7.00 % $ 165,258 6.50 % 1 Except for Tier 1 Leverage Capital, the adequately capitalized thresholds reflect the regulatory minimum plus a 2.5% capital conservation buffer as required under the Basel III Capital Standards in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. Liquidity and Capital Resources The goal of liquidity management is to provide adequate funds to meet loan demand and to fund operating activities and deposit withdrawals. We accomplish this goal by maintaining an appropriate level of liquid assets and formal lines of credit with the FHLB, FRBSF and correspondent banks that enable us to borrow funds as seen in the table below and discussed in Note 6 to the Consolidated Financial Statements in ITEM 1 of this report. Our Asset Liability Management Committee ("ALCO"), which is comprised of Bank directors and the Bank's Chief Executive Officer, is responsible for approving and monitoring our liquidity targets and strategies. The Bank has long-established minimum liquidity requirements that are regularly monitored using metrics and tools similar to those used by larger banks, such as the liquidity coverage ratio, and multi-scenario, long-horizon stress tests. Our c on tingency funding plan provides for early detection of potential liquidity issues in the market or the Bank and institutes prompt responses that may prevent or alleviate a liquidity crisis. Management monitors liquidity daily and regularly adjusts our position based on current and future liquidity needs. 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 $2.026 billion or 60% of total deposits and 202% of estimated uninsured and/or uncollateralized deposits as of September 30, 2025. Page-47 The following table details the components of our contingent liquidity sources as of September 30, 2025. (in thousands) Total Available Amount Used Net Availability Internal Sources Unrestricted cash 1 $ 201,402 N/A $ 201,402 Unencumbered securities at market value 442,187 N/A 442,187 External Sources FHLB line of credit 931,417 $ — 931,417 FRB line of credit 326,296 — 326,296 Lines of credit at correspondent banks 125,000 — 125,000 Total Liquidity $ 2,026,302 $ — $ 2,026,302 1 Excludes cash items in transit. Note: 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. Although available as a liquidity source, we have not chosen to utilize brokered deposits. Our primary uses of funds are the origination of loans, the purchase of investment securities and loans, withdrawals of deposits, maturities of certificates of deposit, repayment of borrowings, dividends to common stockholders, share repurchases and operating expenses. 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 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 $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 $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. Over the next twelve months, $207.6 million of time deposits will mature. We expect that a high percentage of these funds will remain with the Bank either through renewals or shifts to other deposit products. Any outflows can be absorbed by the Bank's excess liquidity. 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 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. Under the California Financial Code, payment of a dividend from the Bank to Bancorp without advance regulatory approval is restricted to the lesser of the Bank’s retained earnings or the amount of the Bank’s net profits from the previous three fiscal years less the amount of dividends paid during that period. Dividends in excess of that amount may be paid with prior approval of the Department of Financial Protection and Innovation ("DFPI"). 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 Page-48 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 Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that, given industry turmoil that largely began in the first quarter of 2023, the presentation of Bancorp's non-GAAP TCE ratio reflecting the after tax impact of unrealized losses on held-to-maturity securities provides useful supplemental information to investors because it reflects the level of capital remaining after a hypothetical liquidation of the entire securities portfolio. In addition, management believes that providing selected financial measures excluding the loss on sale of securities discussed above is useful to investors as the strategic short-term loss taken for long-term profitability makes the operational performance difficult to compare to other periods. Because there are limits to the usefulness of this or any other non-GAAP measure to investors, Bancorp encourages readers to consider its annual and quarterly consolidated financial statements and notes related thereto in their entirety, as filed with the Securities and Exchange Commission, and not to rely on any single financial measure. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below. Reconciliation of GAAP and Non-GAAP Financial Measures (in thousands, except per share amounts; unaudited) September 30, 2025 December 31, 2024 Tangible Common Equity - Bancorp Total stockholders' equity $ 443,818 $ 435,407 Goodwill and core deposit intangible (74,882) (75,546) Total TCE a 368,936 359,861 Unrealized losses on HTM securities, net of tax 1 (68,192) (89,171) Unrealized losses on HTM securities included in AOCI, net of tax 2 6,952 7,701 TCE, net of unrealized losses on HTM securities (non-GAAP) b $ 307,696 $ 278,391 Total assets $ 3,869,021 $ 3,701,335 Goodwill and core deposit intangible (74,882) (75,546) Total tangible assets c 3,794,139 3,625,789 Unrealized losses on HTM securities, net of tax 1 (68,192) (89,171) Unrealized losses on HTM securities included in AOCI, net of tax 2 6,952 7,701 Total tangible assets, net of unrealized losses on HTM securities (non-GAAP) d $ 3,732,899 $ 3,544,319 Bancorp TCE ratio a / c 9.7 % 9.9 % Bancorp TCE ratio, net of unrealized losses on HTM securities (non-GAAP) b / d 8.2 % 7.9 % Tangible Book Value Per Share Common shares outstanding e 16,095 16,089 Book value per share $ 27.57 $ 27.06 Tangible book value per share a / e $ 22.92 $ 22.37 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. Page-49 (in thousands, except per share amounts; unaudited) 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 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) Adjustments: 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) $ 9,610 $ 7,537 $ 23,703 $ 14,378 Net (loss) income Net income (loss) (GAAP) $ 7,526 $ (8,536) $ 3,866 $ (14,410) Adjustments: Losses (gains) on sale of investment securities from portfolio repositioning — 18,736 18,736 32,541 Related income tax benefit 1 — (5,538) (5,538) (9,620) Adjustments, net of taxes — 13,198 13,198 22,921 Comparable net income (non-GAAP) $ 7,526 $ 4,662 $ 17,064 $ 8,511 Diluted earnings (loss) per share Weighted average diluted shares 15,934 15,989 15,979 16,076 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 Return on average assets Average assets $ 3,828,876 $ 3,737,794 $ 3,765,281 $ 3,775,320 Return on average assets (GAAP) 0.78 % (0.92) % 0.14 % (0.51) % Comparable return on average assets (non-GAAP) 0.78 % 0.50 % 0.61 % 0.30 % Return on average equity Average stockholders' equity $ 439,950 $ 439,187 $ 438,781 $ 434,773 Return on average equity (GAAP) 6.79 % (7.80) % 1.18 % (4.43) % Comparable return on average equity (non-GAAP) 6.79 % 4.26 % 5.20 % 2.61 % Efficiency ratio Non-interest expense $ 21,328 $ 21,490 $ 64,082 $ 63,480 Net interest income $ 28,193 $ 25,912 $ 79,051 $ 69,430 Non-interest income (GAAP) $ 2,745 $ (15,621) $ (10,002) $ (24,113) 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 Efficiency ratio (GAAP) 68.94 % 208.81 % 92.81 % 140.08 % Comparable efficiency ratio (non-GAAP) 68.94 % 74.03 % 73.00 % 81.53 % 1 Related tax benefit calculated using blended statutory rate of 29.56%