What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-08 compared with 2025-11-07 · 223 added, 293 removed, 374 unchanged (58% of the section changed)

9 unchanged sentences

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;

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, 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;

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Our critical estimates include:

Allowance for Credit Losses on Loans and Unfunded Commitments, Fair Value Measurements, and Goodwill.

Allowance for Credit Losses on Loans and Unfunded Commitments, and Fair Value Measurements.

Refer to Critical Accounting Estimates in Item 7 of our 2025 Form 10-K for more information.

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%.

Net income for the first quarter of 2026 was $8.5 million, compared to net income of $4.9 million for the same quarter in the prior year, and a quarterly loss of $39.5 million in the prior quarter.

On a non-GAAP basis, excluding the losses on sale of securities of $69.5 million net of taxes, net income was $9.4 million for the prior quarter.

Diluted earnings per share was $0.53 for the first quarter of 2026, compared to diluted earnings per share of $0.30 for the same quarter in the prior year.

Diluted loss per share was $(2.49) for the prior quarter and on a non-GAAP basis, excluding the losses on sale of securities of $69.5 million net of taxes, diluted earnings per share was $0.59 for the prior quarter.

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

Three months ended Nine months ended

Three months ended

(in thousands, except per share amounts;

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

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

March 31, 2026 December 31, 2025 March 31, 2025

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

Pre-tax, pre-provision net income (loss) (GAAP) $ 11,597 $ (56,890) $ 6,556

Comparable pre-tax, net income (non-GAAP) 1

11,597 12,576 6,556

Net income (loss)

1 unchanged sentence

Comparable net income (non-GAAP) 1

8,510 9,391 4,876

Diluted earnings (loss) per share

1 unchanged sentence

Comparable diluted earnings per share (non-GAAP) 1

0.53 0.59 0.30

1 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

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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 .

• 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 tax-equivalent net interest margin increased to 3.24% in the first quarter of 2026 from 3.18% in the prior quarter, an improvement of 6 basis points.

The increase was largely due to the effects of the securities repositioning in the fourth quarter of 2025, which provided a 21 basis point increase in annualized net interest margin for the first quarter over the prior quarter.

The tax-equivalent net interest margin for the three months ended March 31, 2026 improved 47 basis points over the same period of the prior year due to the increase in deposits at a decreased average cost, higher average loan balances and rates, and the favorable impact of the securities repositioned in the second and fourth quarters of 2025, which resulted in higher yielding assets during the three months ended March 31, 2026.

• Despite a reduction in the average cost of interest bearing deposits from 2.16% to 2.10% in the first quarter of 2026 compared to the prior quarter, the average cost of total deposits remained flat at 1.35% due to a reduction in non-interest bearing deposits.

Non-interest bearing deposits continued to make up a strong portion of total deposits at 35.9% as of March 31, 2026, compared to 36.7% as of December 31, 2025.

• Total deposits were $3.428 billion as of March 31, 2026, compared to $3.416 billion as of December 31, 2025, an increase of $12.6 million, due largely to inflows from existing customers as well as new relationships to the Bank in the first quarter.

This growth excludes the additional $27.3 million in one-way sell deposits that were held off-balance sheet at March 31, 2026.

• Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $2.185 billion, or 64% of total deposits and 221% of estimated uninsured and/or uncollateralized deposits as of March 31, 2026.

• Loans totaled $2.116 billion as of March 31, 2026, a decrease of $5.1 million from December 31, 2025.

Loan fundings during first quarter of 2026 were $60.8 million compared to $47.4 million in the first quarter of 2025.

• During the quarter, we worked diligently to improve our credit quality.

We sold our longest tenured classified and non-accrual loans totaling $16.3 million, which were downgraded to substandard in 2021, and moved to non-accrual in 2024.

At that time, we took specific reserves of $7.3 million based on property valuations.

The note sales proceeds validated our reserve assumptions, with the charge-offs equaling the specific amounts reserved.

While other workouts were offset by new downgrades, the impact of the note sales on credit quality metrics was substantial:

Non-accrual loans declined from 1.27% of assets to 0.41%, and the ratio of classified to total loans decreased from 1.51% to 0.85%.

Notably, following the note sales virtually all remaining non-accrual balances are comprised of one non-owner occupied commercial real estate loan that has no loss expectations based on underlying valuation and cash flow.

• There was no provision for credit losses on loans in the first quarter of 2026 compared to a provision of $300 thousand in the prior quarter.

The allowance for credit losses was 1.08% and 1.42% of total loans at March 31, 2026 and December 31, 2025, respectively due to the $7.2 million of charge‑offs taken against the specific reserves on the two loans sold, noted above.

The charge-offs were fully offset by specific reserves already in place.

All other factors considered, no provision was recorded for the period.

Performance and other financial ratios:

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.

All GAAP ratios were significantly impacted by the securities sales in the fourth quarter of 2025.

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;

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

Three months ended

(unaudited) March 31, 2026 December 31, 2025 March 31, 2025

Return on average assets

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Comparable return on average assets (non-GAAP) 1

0.87 % 0.95 % 0.53 %

Return on average equity

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Comparable return on average equity (non-GAAP) 1

8.67 % 8.74 % 4.52 %

Efficiency ratio

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Comparable efficiency ratio (non-GAAP )1

66.03 % 61.42 % 75.72 %

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

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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.

• 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.

• Return on average assets ("ROA") and return on average equity ("ROE") was 0.87%, and 8.67%, respectively, and increased on a GAAP basis from the prior quarter primarily due to increased net income.

ROA and ROE on a non-GAAP basis both decreased slightly from the prior quarter mainly due to decreased non-GAAP income quarter over quarter.

The efficiency ratio on a non-GAAP basis, from the prior quarter slightly worsened from last quarter due to increased non-interest expense, mainly within salaries and related benefits and due to the annual charitable contributions in the first quarter of 2026.

• Capital was above well-capitalized regulatory thresholds with Bancorp's and the Bank's total risk-based capital ratios of 15.26% and 14.09%, respectively, as of March 31, 2026.

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.

• Bancorp's tangible common equity to tangible assets ("TCE ratio") was 8.33% as of March 31, 2026, and the Bank's TCE ratio was 8.70%.

• The Board of Directors approved a cash dividend of $0.25 per share on April 23, 2026, which represents the 84 th consecutive quarterly dividend paid by Bancorp.

The dividend is payable on May 14, 2026, to shareholders of record at the close of business on May 7, 2026.

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.

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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

Three months ended

(dollars in thousands, except per share data) March 31, 2026 December 31, 2025 March 31, 2025

Selected operating data:

1 unchanged sentence

Provision for credit losses on loans

Reversal of credit losses on unfunded loan commitments

Provision of credit losses on unfunded loan commitments — 185 —

Non-interest income 3,834 (66,648) 2,874

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Return on average equity 8.67 % (36.79) % 4.52 %

Return on tangible common equity 10.67 % (44.62) % 5.47 %

Tax-equivalent net interest margin 3.24 % 3.18 % 2.77 %

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Cash dividend payout ratio on common stock 1

53.19 % NM 312.50 % NM

47.17 % NM 80.65 %

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

(dollars in thousands, except per share data) March 31, 2026 December 31, 2025

Selected financial condition data:

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Borrowings and other obligations

Subordinated notes, net 43,905 43,857

Stockholders' equity 394,492 394,654

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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

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 %

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

Three months ended Three months ended Three months ended

March 31, 2026 December 31, 2025 March 31, 2025

Interest Interest Interest

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

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

Interest-earning deposits with banks 1

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683 6 3.66 % 726 6 3.62 % 130 1 2.86 %

Subordinated notes, net 43,873 808 7.36 % 20,588 368 7.16 % — — — %

Total interest-bearing liabilities 2,297,209 12,493 2.21 % 2,168,007 12,051 2.21 % 1,985,456 11,111 2.27 %

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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.

5 Net loan origination costs in interest income totaled $398 thousand, $452 thousand, and $364 thousand for the three months ended March 31, 2026, December 31, 2025, and March 31, 2025, 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 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

Mix variances are attributable to the change in yields or rates multiplied by the change in average balances, including two days less in the three months ended March 31, 2026, compared to the three months ended December 31, 2025.

Three months ended March 31, 2026 compared to three months ended

December 31, 2025

Three months ended March 31, 2026 compared to three months ended

March 31, 2025

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

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— — — — 4 — 1 5

Subordinated notes 416 11 13 440 — — 808 808

Total interest-bearing liabilities 894 (235) (217) 442 1,280 (760) 863 1,383

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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.

First Quarter of 2026 compared to the Fourth Quarter of 2025

Net interest income totaled $30.3 million for the first quarter of 2026, a $521 thousand increase from the prior quarter.

This was driven by an increase of $63.4 million in average earning assets including a $42.5 million increase in average investment securities, combined with a 45 basis point increase in average yield on investment securities, resulting in a $1.9 million increase in investment securities in terest income.

The tax-equivalent net interest margin was 3.24% for the first quarter of 2026, compared to 3.18% for the prior quarter.

The repositioning of securities added 21 basis points to the margin during the first quarter.

This was partially offset by lower average interest-earning deposit balances at the Federal Reserve Bank and lower rates due to Federal Reserve rate cuts of 25 basis points in both October and December of 2025, that decreased the margin by 4 basis points, lower average loan yields during the quarter impacted by an interest recovery in the fourth quarter of $667 thousand and by approximately $195 million in loans tied to prime or SOFR whose rates declined quarter over quarter that decreased the margin by 5 basis points, and average subordinated note costs for the full quarter that decreased the margin by 5 basis points.

First Three Months of 2026 compared to the First Three Months of 2025

Net interest income totaled $30.3 million for the three months ended March 31, 2026, compared to $24.1 million for the same period in the prior year.

The $6.2 million increase from the prior year was primarily due to higher yields in reinvested securities and loans.

The tax-equivalent net interest margin was 3.24% for the three months ended March 31, 2026, compared to 2.77% for the same period in the prior year.

The increase of 47 basis points was primarily attributed to the investment securities restructuring performed in both 2024 and 2025, higher loan yields and balances, lower deposit costs, and higher interest-earning deposit balances with the Federal Reserve.

Market Interest Rates

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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

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%.

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

Following a pause of approximately nine months, the FOMC resumed decreasing rates in September 2025, and made a total of three rate decreases in 2025 ending the year at a range of 3.50% to 3.75%

During the second and fourth quarters of 2025, we sold additional securities with relatively low yields and redeployed the proceeds to further reposition our balance sheet, by investing in higher yielding securities.

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.

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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

Three months ended

(dollars in thousands) March 31, 2026 December 31, 2025 March 31, 2025

Provision for credit losses on loans $ — $ 300 $ 75

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.

We recorded no provision for credit losses on loans in the first quarter of 2026.

Non-accrual loans declined significantly during the quarter to $8.6 million, or 0.41% of the loan portfolio, at March 31, 2026, compared to $26.9 million, or 1.27%, at December 31, 2025 driven primarily by the resolution through sale of two non-owner occupied commercial real estate loans totaling $16.3 million in the first quarter of 2026.

We recorded a $300 thousand provision for credit losses on loans in the three months ending December 31, 2025, due primarily to loan growth and modest deterioration in the economic forecast.

We recorded a $75 thousand provision for credit losses on loans in the three months ended March 31, 2025.

Modest deterioration in the economic forecast and 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.

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.

2 unchanged sentences

Three months ended

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

(dollars in thousands) March 31, 2026 December 31, 2025 Amount Change Percent Change

Dividends on Federal Home Loan Bank stock $ 855 $ 372 $ 483 129.8 %

Wealth management and trust services 596 573 23 4.0 %

1 unchanged sentence

Earnings on bank-owned life insurance, net 487 440 47 10.7 %

Earnings on bank-owned life insurance death benefits 479 — 479 NM

Debit card interchange fees, net 362 401 (39) (9.7) %

Dividends on Federal Home Loan Bank stock 366 362 4 1.1 %

Merchant interchange fees, net 118 104 14 13.5 %

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

Losses on sale of investment securities

3 unchanged sentences

$ 3,834 $ (66,648) $ 70,482 (105.8) %

Nine months ended

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

Three months ended

(dollars in thousands) March 31, 2026 March 31, 2025 Amount Change Percent Change

Dividends on Federal Home Loan Bank stock $ 855 $ 375 $ 480 128.0 %

Wealth management and trust services

2 unchanged sentences

Earnings on bank-owned life insurance, net 487 476 11 2.3 %

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 479 68 411 NM

Debit card interchange fees, net 362 396 (34) (8.6) %

Merchant interchange fees, net 118 96 22 22.9 %

Losses on sale of investment securities

(18,736) (32,541) 13,805 (42.4) %

Other income 374 352 22 6.3 %

2 unchanged sentences

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.

First Quarter of 2026 Compared to the Fourth Quarter of 2025

Non-interest income was $3.8 million for the first quarter of 2026, compared to the loss of $66.6 million for the prior quarter.

The increase of $70.5 million from the prior quarter was primarily attributable to securities repositioning during the fourth quarter of 2025.

We sold available-for-sale securities ("AFS") with a book value of $593.2 million, resulting in a pre-tax loss of $69.5 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 $2.8 million for the prior quarter, all other factors unchanged.

The adjusted increase of $1 million in the first quarter was primarily attributed to the increase of $483 thousand earned in dividends including a special dividend on Federal Home Loan Bank stock received and the $479 thousand death benefit received on bank owned life insurance in the first quarter.

See the non-GAAP disclosure below.

First Quarter of 2026 Compared to the First Quarter of 2025

Non-interest income was $3.8 million for the first three months ended March 31, 2026, compared to $2.9 million for the same period of the prior year.

The $1.0 million increase from the prior year period was primarily attributed to the increase of $480 thousand earned in dividends including a special dividend on Federal Home Loan Bank stock received and an increase of $411 thousand earned on bank-owned life insurance death benefits in 2026.

Non-interest Expense

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Three months ended

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

(dollars in thousands) March 31, 2026 December 31, 2025 Amount Change Percent Change

Salaries and related benefits $ 13,394 $ 11,359 $ 2,035 17.9 %

Occupancy and equipment 2,099 2,098 1 — %

Deposit network fees 1,158 1,054 104 9.9 %

Data processing 1,228 1,033 195 18.9 %

Professional services 1,093 1,341 (248) (18.5) %

Information technology 538 563 (25) (4.4) %

Federal Deposit Insurance Corporation insurance 730 539 191 35.4 %

Depreciation and amortization 291 320 (29) (9.1) %

Information technology 515 532 (17) (3.2) %

Charitable contributions 437 82 355 432.9 %

Directors' expense 285 283 2 0.7 %

Depreciation and amortization 263 331 (68) (20.5) %

Amortization of core deposit intangible 200 211 (11) (5.2) %

Charitable contributions 56 116 (60) (51.7) %

Other non-interest expense

Advertising 299 269 30 11.2 %

Deposit network fees 149 127 22 17.3 %

Other expense 2,146 2,087 59 2.8 %

Total other non-interest expense 2,046 2,297 (251) (10.9) %

Total non-interest expense $ 22,539 $ 20,023 $ 2,516 12.6 %

Nine months ended

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

Three months ended

(dollars in thousands) March 31, 2026 March 31, 2025 Amount Change Percent Change

Salaries and related benefits $ 13,394 $ 12,050 $ 1,344 11.2 %

1 unchanged sentence

Data processing 1,228 1,136 92 8.1 %

Deposit network fees 3,144 2,688 456 17.0 %

Professional services 1,093 937 156 16.6 %

Information technology 1,514 1,254 260 20.7 %

Federal Deposit Insurance Corporation insurance 730 388 342 88.1 %

Depreciation and amortization 933 1,125 (192) (17.1) %

Information technology 515 413 102 24.7 %

Charitable contributions 437 403 34 8.4 %

Directors' expense 285 304 (19) (6.3) %

Depreciation and amortization 263 322 (59) (18.3) %

Amortization of core deposit intangible 200 227 (27) (11.9) %

Charitable contributions 575 647 (72) (11.1) %

Other non-interest expense

Advertising 794 799 (5) (0.6) %

Deposit network fees 149 114 35 30.7 %

Other expense 2,146 2,046 100 4.9 %

Total other non-interest expense 6,389 6,158 231 3.8 %

Total non-interest expense $ 22,539 $ 20,446 $ 2,093 10.2 %

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

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

First Quarter of 2026 Compared to the Fourth Quarter of 2025

Non-interest expense totaled $22.5 million for the first quarter of 2026, compared to $20.0 million for the prior quarter, an increase of $2.5 million.

This was primarily due to an increase of $2.0 million in salaries and related benefits.

Consistent with annual adjustments and our compensation cycle, expense increases included updated incentive bonus accruals, 401(k) contribution matching, profit sharing accruals, and stock-based compensation grants.

There were increases of $355 thousand in charitable contributions due to annual grants, $195 thousand in data processing, $191 thousand in FDIC insurance, and $59 thousand in other expenses.

This was partially offset by a decrease of $248 thousand in professional services in the first quarter of 2026.

First Quarter of 2026 Compared to the First Quarter of 2025

Non-interest expense totaled $22.5 million for the first three months ending March 31, 2026, compared to $20.4 million for the same period of 2025, an increase of $2.1 million.

This was primarily due to an increase of $1.3 million in salaries and benefits, an increase of $342 thousand in FDIC insurance due to a higher invoice related to the balance sheet repositioning, and $156 thousand in professional services expense in the first three months of 2026.

Provision for Income Taxes

1 unchanged sentence

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.

The income tax provision for the first quarter of 2026 totaled $3.1 million at an effective tax rate of 26.6%, compared to a benefit of $17.8 million at an effective tax rate of 31.1% in the prior quarter.

The increase in the provision for income taxes in the first quarter of 2026 reflected higher pre-tax income as compared to the prior quarter.

The decrease in the effective tax rate in the first quarter of 2026 was primarily due to the treatment of certain permanent tax differences while in a loss position for the prior quarter.

The income tax provision for the first three months of 2026 totaled $3.1 million at an effective tax rate of 26.6%, compared to an income tax provision of $1.6 million at an effective tax rate of 24.8% for the first three months of 2025.

The increase in the provision for incomes taxes and effective tax rate in the first three months of 2026, as compared to the same period a year ago, was primarily due to an increase of $5.1 million in pre-tax income.

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

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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.

This law does not have a material impact on the company’s tax expense as of March 31, 2026.

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

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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.

This law did not have a material impact on the company's tax expense as of March 31, 2026.

We file a consolidated return in the U.S.

federal tax jurisdiction and a combined return in the state of California tax jurisdiction.

federal tax jurisdiction and combined returns in the states of California and New Jersey tax jurisdictions.

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.

As of March 31, 2026, 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 $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.

Total cash, cash equivalents and restricted cash were $236.6 million at March 31, 2026, an increase of $11.3 million compared to $225.3 million at December 31, 2025, driven by proceeds from paydowns and maturities of investment securities of $59.2 million, growth in deposits totaling $12.6 million and proceeds from the sale of loans of $9.1 million, partially offset by purchases of investment securities of $65.2 million and dividends of $4.0 million to shareholders.

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

The investment securities portfolio totaled $1.326 billion at March 31, 2026, a decrease of $1.6 million from $1.328 billion at December 31, 2025.

The decrease was primarily due to principal repayments and calls/maturities totaling $54.5 million and $4.7 million, respectively, and an increase of $7.6 million in unrealized losses on available-for-sale ("AFS") securities, partially offset by purchases of AFS securities of $65.2 million.

The portfolio is eligible for pledging to FHLB or the Federal Reserve as collateral for borrowing, and is comprised of high credit quality investments with an average effective duration of 2.90.

The portfolio generates cash flows monthly from interest, principal amortization and payoffs, which supports the Bank's liquidity.

Those cash flows totaled $73.4 million and $84.2 million in the first quarter of 2026 and the fourth quarter of 2025, respectively.

Refer to Note 4, Investment Securities, to the consolidated financial statements in this Form 10-Q.

The following table summarizes our investment in obligations of state and political subdivisions at March 31, 2026 and December 31, 2025.

March 31, 2026 December 31, 2025

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

9 unchanged sentences

Percent of investment portfolio 4.3 % 3.8 % 4.5 % 4.1 %

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%).

Of the total investment in obligations of state and political subdivisions, the largest concentrations outside of California are in Texas (41.4%), Wisconsin (25.3%) and Virginia (7.0%).

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).

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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.

Loans totaled $2.116 billion as of March 31, 2026, compared to $2.121 billion as of December 31, 2025.

The decrease in the three months ended March 31, 2026 totaled $5.1 million, compared to a decrease of $9.7 million in the three months ended March 31, 2025.

Three months ended

(in millions;

unaudited) March 31, 2026 December 31, 2025 March 31, 2025

Gross loans beginning balance $ 2,120.9 $ 2,090.4 $ 2,083.3

60.8 106.5 47.4

New total commitments 1

80.5 141.0 63.6

Purchased — — —

Net increase (decrease) in line of credit utilization 0.6 1.3 (11.2)

Pay-downs and maturities

(30.6) (49.7) (23.4)

Charge-offs (7.3) (0.1) (0.8)

(9.1) — (1.3)

Amortization (19.6) (27.5) (20.5)

Gross loans ending balance $ 2,115.7 $ 2,120.9 $ 2,073.5

1 New total commitments includes both newly funded loans and new unfunded commitments

Loan originations for the three months ended March 31, 2026 were $80.5 million ($60.8 million funded) compared to $141.0 million ($106.5 million funded) in the prior quarter and $63.6 million ($47.4 million funded) in the first quarter of 2025.

Despite the first quarter being a histo rically lower production period, 2026 had the strongest first quarter of originations since 2015.

Payoffs were $30.6 million in the three months ended March 31, 2026, compared to $49.7 million in the prior quarter and $23.4 million for the same period in 2025.

In addition, amortization from scheduled payments totaled $19.6 million and net utilization of credit lines increased by $600 thousand during the three months ended March 31, 2026, compared to amortization from scheduled payments totaling $27.5 million and net increased utilization of credit lines of $1.3 million in the prior quarter, and amortization of $20.5 million and net decreased utilization of $11.2 million, respectively, during the three months ended March 31, 2025.

There were significant improvements to our credit quality in the first quarter of 2026 including non-accrual balances, classified loan balances and past due loan balances.

Non-accrual loans declined by $18.3 million during the quarter to $8.6 million, or 0.41% of total loans, compared to $26.9 million, or 1.27%, at December 31, 2025.

The reduction was driven primarily by the sale of the two non-owner occupied commercial real estate loans totaling $16.3 million.

The remaining $8.6 million of non-accrual loans consists primarily of one $8.2 million non‑owner occupied commercial real estate relationship which continues to exhibit conforming loan‑to‑value and debt service coverage metrics but remains on non-accrual due to an ongoing dispute related to extension terms following its late 2023 maturity.

Classified loans declined by $14.2 million during the first quarter to $17.9 million, down from $32.1 million at December 31, 2025.

The improvement was driven primarily by the sale of the two non‑owner occupied commercial real estate loans previously discussed, along with payoffs totaling $2.4 million on two additional loans.

These positive trends were partially offset by the downgrade of two non‑owner occupied commercial real estate loans totaling $5.7 million into the classified category.

Overall, asset quality metrics improved during the quarter, and we remain disciplined and proactive in our credit management approach with close monitoring and active resolution efforts across the portfolio.

Accruing loans past due 30 to 89 days totaled $683 thousand at March 31, 2026, down from $2.8 million at December 31, 2025.

Loans designated as special mention, which are not considered adversely classified, remained relatively stable at $119.4 million at March 31, 2026 compared to $118.0 million at December 31, 2025.

The $1.4 million net increase reflects $6.0 million in upgrades, $5.7 million in downgrades out of the category and $2.8 million in contractual amortization and payoffs, partially offset by five relationships totaling $15.4 million that migrated into special mention.

Net charge-offs totaled $7.3 million in the first quarter of 2026 compared to $64 thousand in the prior quarter.

Approximately $7.2 million of the charge‑offs were related to the two non-accrual loans that were sold, as previously discussed.

These charge‑offs were fully offset by specific reserves that were already in place for the two loans.

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,

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.

During the first three months of 2026, total liabilities increased by $9.5 million to $3.520 billion.

Deposits totaled $3.428 billion at March 31, 2026, an increase of $12.6 million, compared to $3.416 billion at December 31, 2025 primarily due to inflows from existing relationships as well as new relationships.

The majority of the increase in deposits was due to an increase of $58.3 million in interest bearing transaction accounts, partially offset by a decrease of $22.2 million in non-interest bearing deposits and a decrease of $25.6 million in time accounts.

This growth excludes the additional $27.3 million in deposits the Bank maintains off balance sheet as one-way sales as of March 31, 2026, whose total increased from $51.2 million to $78.5 million.

The majority of the decrease in non-interest bearing deposits aligns with one anticipated client event while the decrease in time accounts reflects prudent management of the Bank's cost of deposits.

Non-interest bearing deposits continued to make up a strong 35.9% of total deposits at March 31, 2026, compared to 36.7% at December 31, 2025.

The Bank's competitive and balanced approach to relationship management and focused outreach to customers seeking alternative options for banking solutions generated nearly 1,000 new accounts during the first quarter, 42% of which were new relationships.

We had no outstanding borrowings at March 31, 2026 and December 31, 2025.

Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and total available borrowing capacity was $2.185 billion, or 64% of total deposits and 221% of estimated uninsured and/or uncollateralized deposits as of March 31, 2026.

Additionally, as part of our active balance sheet management, the Bank maintained $78.5 million in deposits off-balance sheet with deposit networks at March 31, 2026, compared to $51.2 million at December 31, 2025.

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.

Failure to meet the minimum capital requirements as set forth in the following tables can trigger certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

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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.

Stress tests are performed on capital ratios and include scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth, loan credit quality deterioration, 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.

In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action as of March 31, 2026.

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.

The total risk-based capital ratio for Bancorp was 15.26% at March 31, 2026, compared to 15.25% at December 31, 2025.

The total risk-based capital ratio for the Bank was 14.09% at March 31, 2026, compared to 13.90% at December 31, 2025.

The Bancorp’s and Bank’s capital adequacy ratios as of March 31, 2026 and December 31, 2025 are presented in the following tables.

Bancorp Capital Ratios

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Threshold to be a Well Capitalized Bank Holding Company

September 30, 2025 Amount Ratio Amount Ratio Amount Ratio

March 31, 2026 Amount Ratio Amount Ratio Amount Ratio

Total Capital (to risk-weighted assets) $ 390,043 15.26 % $ 268,378 10.50 % $ 255,598 10.00 %

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Threshold to be Well Capitalized under Prompt Corrective Action Provisions

September 30, 2025 Amount Ratio Amount Ratio Amount Ratio

March 31, 2026 Amount Ratio Amount Ratio Amount Ratio

Total Capital (to risk-weighted assets) $ 360,224 14.09 % $ 268,442 10.50 % $ 255,659 10.00 %

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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.

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, Borrowings and Other Obligations, to the consolidated financial statements in this Form 10-Q.

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.

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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 $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.

Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity totaled $2.185 billion or 64% of total deposits and 221% of estimated uninsured and/or uncollateralized deposits as of March 31, 2026.

The following table details the components of our contingent liquidity sources as of March 31, 2026.

(in thousands) Total Available Amount Used Net Availability

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1 Excludes cash items in transit.

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

Off-balance sheet one-way sell deposits totaling $78.5 million 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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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.

Our cash and cash equivalents increased $11.3 million in the first three months of 2026.

The most significant sources of liquidity during the first three months of 2026 were $59.2 million from principal paydowns, calls and maturities of investment securities, loan payoffs of $30.6 million, $19.6 million in amortization of principal, and $12.6 million from net increase of deposits, proceeds from loan sales of $9.1 million, in addition to $1.1 million in net cash provided by operating activities.

Significant uses of liquidity during the three months ended March 31, 2026 were $65.2 million in investment securities purchased, $60.8 million in loan fundings, and $4.0 million in cash dividends paid on common stock to our shareholders.

Refer to the Consolidated Statements 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.

Unfunded credit commitments, as discussed in Note 8 to the consolidated financial statements in this Form 10-Q, totaled $450.1 million at March 31, 2026.

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 September 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 March 31, 2026, nor at December 31, 2025, as discussed in Note 6, Borrowings and Other Obligations, to the consolidated financial statements in this Form 10-Q.

We issued Fixed-to-Floating Subordinated Notes of $45.0 million with a final maturity date of December 1, 2035, during 2025, to certain investors in a private placement, to strengthen our capital ratios as part of our balance sheet repositioning, as discussed in Note 9 to the Consolidated Financial Statements.

At March 31, 2026, the balance of the 2035 Notes included in the Company’s Consolidated Statements of Condition net of debt issuance cost, was $43.9 million.

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.

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

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

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

The Bank received approval from the State of California - Department of Financial Protection and Innovation on May 30, 2025, 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, subordinated notes servicing, share repurchases and ordinary operating expenses.

Bancorp held $30.4 million in cash at March 31, 2026, which is expected to cover cash needs through the next twelve months.

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.

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.

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(in thousands, except per share amounts;

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

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

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

16,095 16,089

Book value per share

$ 27.57 $ 27.06

Tangible book value per share

$ 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.

(in thousands, except per share amounts;

Three months ended Nine months ended

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

Three months ended

Pre-tax, pre-provision net income March 31, 2026 December 31, 2025 March 31, 2025

Income (loss) before (benefit from) provision for income taxes $ 11,597 $ (57,375) $ 6,481

Provision for credit losses on loans — 300 75

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

Provision for credit losses on unfunded loan commitments — 185 —

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

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$ 11,597 $ 12,576 $ 6,556

Net (loss) income

Net income (loss)

Net income (loss) (GAAP)

$ 8,510 $ (39,541) $ 4,876

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

Losses on sale of investment securities from portfolio repositioning — 69,466 —

Related income tax benefit 1

— (5,538) (5,538) (9,620)

Adjustments, net of taxes — 48,932 —

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Net interest income $ 30,302 $ 29,781 $ 24,128

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 (loss) (GAAP) $ 3,834 $ (66,648) $ 2,874

Losses on sale of investment securities from portfolio repositioning — 69,466 —

Non-interest income (non-GAAP) $ 3,834 $ 2,818 $ 2,874

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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