What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-06 compared with 2026-05-08 · 227 added, 182 removed, 415 unchanged (50% of the section changed)

29 unchanged sentences

Executive Summary

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.

Net income for the second quarter of 2026 was $9.2 million, compared to net income of $8.5 million for the prior quarter.

Diluted earnings per share was $0.58 for the second quarter of 2026, compared to $0.53 for the prior quarter.

Net income for the six months ended June 30, 2026 was $17.8 million, compared to a net loss of $3.7 million for the same period in the prior year.

Diluted earnings per share for the six months ended June 30, 2026 was $1.11, compared to diluted loss per share of $0.23 for the same period in the prior year.

On a non-GAAP basis, excluding the losses on sale of securities of $13.2 million net of taxes, diluted earnings per share was $0.60 for the same period in the prior year.

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

Three months ended

Three months ended Six months ended

(in thousands, except per share amounts;

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

June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025

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

Pre-tax, pre-provision net income (loss) (GAAP) $ 12,353 $ 11,597 $ 23,950 $ (4,643)

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

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

12,353 11,597 23,950 14,093

7 unchanged sentences

0.58 0.53 1.11 0.60

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

1 Non-GAAP ratios exclude the loss on sale of securities, and all other factors unchanged.

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

2 unchanged sentences

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

• 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.

• The tax-equivalent net interest margin increased to 3.38% in the second quarter of 2026 from 3.24% in the prior quarter, an improvement of 14 basis points.

The increase is mostly explained by an eight basis point increase in loan yields, a seven basis point decrease in the cost of deposits, and the use of one-way sales of deposits, which improved the mix of average earnings assets, contributing to the decrease in the quarterly cost of deposits.

The tax-equivalent net interest margin for the six months ended June 30, 2026 improved 51 basis points over the same period of the prior year due to the favorable impact of the securities repositioned in the second and fourth quarters of 2025, which resulted in higher yielding assets during the six months ended June 30, 2026 as well as higher average loan balances and yields.

Also contributing to the improvement was the decrease in cost of deposits of seven basis points.

• The average cost of interest bearing deposits decreased from 2.10% to 2.04% and the average cost of total deposits decreased from 1.35% to 1.28% in the second quarter of 2026 compared to the prior quarter primarily due to targeted rate cuts.

The average cost of interest bearing deposits decreased from 2.26% to 2.07% and the average cost of total deposits decreased from 1.39% to 1.32% for the first six months of 2025 compared to 2026.

Non-interest bearing deposits continued to make up a strong portion of total deposits at 36.7% as of June 30, 2026 and December 31, 2025.

• Total deposits were $3.370 billion as of June 30, 2026, compared to $3.416 billion as of December 31, 2025, a decrease of $45.6 million.

The decrease was primarily attributable to a small number of relationships and reflected seasonal customer activity and investment decisions, rather than broader changes in deposit trends.

In addition, seasonal tax-related outflows contributed to the second quarter decrease.

• Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $2.177 billion, or 65% of total deposits and 214% of estimated uninsured and/or uncollateralized deposits as of June 30, 2026.

• Loans totaled $2.101 billion as of June 30, 2026, a decrease of $19.9 million from December 31, 2025.

The decrease was primarily due to the completion of a planned exit of $19.0 million in special mention loans related to one relationship, significantly reducing our exposure to the wine industry.

Loan fundings during the second quarter of 2026 were $62.8 million compared to $60.8 million in the prior quarter, and $50.6 million for the second quarter of 2025.

Loan fundings during the six months ended June 30, 2026 were $123.6 million compared to $98.0 million in the same period of the prior year.

• During the quarter, we continued working to improve credit quality.

Non-accrual loans continued to decline to 0.40% of total loans at June 30, 2026 from 0.41% at March 31, 2026 and 1.27% at December 31, 2025.

The ratio of classified to total loans ended the second quarter at 0.95%, compared to 0.85% at March 31, 2026 and 1.51% at December 31, 2025.

• The Bank recorded a reversal of the provision for credit losses on loans of $320 thousand in the six months ended June 30, 2026, compared to a provision for credit losses on loans of $75 thousand in the six months ended June 30, 2025.

The allowance for credit losses was 1.07%, 1.08% and 1.42% of total loans at June 30, 2026, March 31, 2026 and December 31, 2025, respectively.

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 in the fourth quarter of 2025.

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

All 2025 GAAP ratios were significantly impacted by the securities sales in the second and fourth quarters of 2025.

Non-GAAP ratios exclude the loss on sale of securities, with all other factors unchanged.

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

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

Three months ended

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

Three months ended Six months ended

(unaudited) June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025

Return on average assets

10 unchanged sentences

63.62 % 66.03 % 64.82 % 74.42 %

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

1 Non-GAAP ratios exclude the loss on sale of securities, 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%

• 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 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.

• Return on average assets ("ROA") and return on average equity ("ROE") for the second quarter was 0.96%, and 9.38%, respectively, and increased on a GAAP basis from the prior quarter primarily due to increased GAAP net income.

ROA and ROE for the six months ended June 30, 2026 was 0.91%, and 9.03%, respectively, and increased on a GAAP basis from the same period in the prior year primarily due to increased GAAP net income and the losses on securities sales in the second quarter of 2025, that are reflected in the prior year ROA and ROE.

The efficiency ratio on a GAAP basis improved to 63.62% for the second quarter compared to 66.03% for the prior quarter, and was 64.82% for the six months ended June 30, 2026 compared to 112.77% for the same period in the prior year.

• ROA and ROE for the six months ended June 30, 2026 was 0.91%, and 9.03%, respectively, and increased on a non-GAAP basis from the same period in the prior year primarily due to increased non-GAAP net income.

The efficiency ratio on a non-GAAP basis, was 64.82% for the six months ended June 30, 2026 and was 74.42% for the same period in the prior year.

All GAAP and non-GAAP ratios improved year over year due to the improved investment securities performance post-restructuring, increased loan yields and reduced deposit costs, combined with continued prudent expense management.

• Capital was above well-capitalized regulatory thresholds with Bancorp's and the Bank's total risk-based capital ratios of 15.58% and 14.61%, respectively, as of June 30, 2026.

Our capital plan and point-in-time capital stress tests indicate that Bank of Marin and Bancorp capital ratios should 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 8.52% as of June 30, 2026, and the Bank's TCE ratio was 9.03%.

Bancorp's TCE ratio, net of after-tax unrealized losses on held-to-maturity securities as if the losses were realized 1 , was 8.26% as of June 30, 2025.

• The Board of Directors declared a cash dividend of $0.25 per share on July 23, 2026, which represents the 85 th consecutive quarterly dividend paid by Bancorp.

The dividend is payable on August 13, 2026, to shareholders of record at the close of business on August 6, 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.

1 unchanged sentence

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

Three months ended

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

Three months ended Six months ended

(dollars in thousands, except per share data) June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025

Selected operating data:

Net interest income $ 30,781 $ 30,302 $ 61,083 $ 49,100

Provision for credit losses on loans

(Reversal of) provision for credit losses on loans (320) — (320) 75

Provision of credit losses on unfunded loan commitments — — — —

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

Non-interest income (loss) 3,169 3,834 7,003 (12,747)

Non-interest expense 21,597 22,539 44,136 40,996

Net (loss) income

8,510 (39,541) 4,876

Net income (loss) 9,246 8,510 17,756 (3,660)

Net (loss) income per common share:

14 unchanged sentences

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

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

(dollars in thousands, except per share data) June 30, 2026 December 31, 2025

Selected financial condition data:

5 unchanged sentences

Borrowings and other obligations

Subordinated notes, net 43,905 43,857

Subordinated notes, net of issuance costs 43,955 43,857

Stockholders' equity 396,684 394,654

29 unchanged sentences

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

Three months ended Three months ended Three months ended

March 31, 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

Three months ended Three months ended

June 30, 2026 March 31, 2026

Interest Interest

Average Income/ Yield/ Average Income/ Yield/

(dollars in thousands) Balance Expense Rate Balance Expense Rate

Interest-earning deposits with banks 1

28 unchanged sentences

Tax-equivalent net interest rate spread 2.49 % 2.37 %

Six months ended Six months ended

June 30, 2026 June 30, 2025

Interest Interest

Average Income/ Yield/ Average Income/ Yield/

(in thousands) Balance Expense Rate Balance Expense Rate

Interest-earning deposits with banks 1

$ 221,059 $ 4,038 3.63 % $ 172,136 $ 3,799 4.39 %

Investment securities 2, 3

1,352,077 27,370 4.05 % 1,269,850 16,821 2.65 %

Loans 1, 3, 4, 5

2,114,008 54,028 5.08 % 2,073,423 51,254 4.92 %

Total interest-earning assets 1

3,687,144 85,436 4.61 % 3,515,409 71,874 4.07 %

Cash and non-interest-bearing due from banks 32,664 37,608

Bank premises and equipment, net 7,986 7,046

Interest receivable and other assets, net 191,518 172,894

Total assets $ 3,919,312 $ 3,732,957

Liabilities and Stockholders' Equity

Interest-bearing transaction accounts $ 413,673 $ 3,501 1.71 % $ 339,058 $ 2,452 1.46 %

Savings accounts 232,186 1,212 1.05 % 224,798 1,120 1.00 %

Money market accounts 1,359,115 15,495 2.30 % 1,210,326 15,504 2.58 %

Time accounts including CDARS 178,709 2,207 2.49 % 223,057 3,349 3.03 %

Borrowings and other obligations 1

661 12 3.61 % 111 2 3.08 %

Subordinated notes, net 43,898 1,625 7.40 % — — — %

Total interest-bearing liabilities 2,228,242 24,052 2.18 % 1,997,350 22,427 2.26 %

Demand accounts 1,246,304 1,252,711

Interest payable and other liabilities 48,101 44,709

Stockholders' equity 396,665 438,187

Total liabilities & stockholders' equity $ 3,919,312 $ 3,732,957

Tax-equivalent net interest income/margin 1

$ 61,384 3.31 % $ 49,447 2.80 %

Reported net interest income/margin 1

$ 61,083 3.29 % $ 49,100 2.78 %

Tax-equivalent net interest rate spread 2.43 % 1.81 %

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

4 unchanged sentences

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

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

5 Net loan origination costs in interest income totaled $427 thousand and $398 thousand for the three months ended June 30, 2026 and March 31, 2026 and totaled $825 thousand and $764 thousand for the six months ended June 30, 2026 and 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 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

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 June 30, 2026, compared to the three months ended March 31, 2026.

Three months ended June 30, 2026 compared to three months ended

March 31, 2026

Six months ended June 30, 2026 compared to six months ended

June 30, 2025

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

14 unchanged sentences

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

First Quarter of 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.

Second Quarter of 2026 compared to the First Quarter of 2026

Net interest income totaled $30.8 million for the second quarter of 2026, a $479 thousand increase from the prior quarter.

This was driven by an eight basis point increase in the average loan yield, combined with a seven basis point decrease in the cost of deposits in the quarter.

The tax-equivalent net interest margin was 3.38% for the second quarter of 2026, compared to 3.24% for the prior quarter.

The increase is mostly explained by the increase in average loan yields and the decrease in cost of deposits noted above, and the use of one-way sales of deposits, which improved the mix of average earning assets.

The spot rate of deposits at March 31, 2026 of 1.31% dropped to 1.28% at June 30, 2026.

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

Net interest income totaled $61.1 million for the six months ended June 30, 2026, compared to $49.1 million for the same period in the prior year.

The $12.0 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.

The tax-equivalent net interest margin was 3.31% for the six months ended June 30, 2026, compared to 2.80% for the same period in the prior year.

The increase of 51 basis points was primarily attributed to the investment securities restructuring performed in both 2024 and 2025 contributing 53 basis points and lower deposit costs and the mix of deposits contributing six basis points, and higher average loan balances and yields.

These were partially offset by the impact of the subordinated debt, detracting nine basis points.

The spot rate of deposits at June 30, 2025 of 1.29% dropped to 1.28% at June 30, 2026.

Market Interest Rates

3 unchanged sentences

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.

During the second and fourth quarters of 2025, the Bank 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.

4 unchanged sentences

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

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 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.

Three months ended Six months ended

(dollars in thousands) June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025

(Reversal of) provision for credit losses on loans $ (320) $ — $ (320) $ 75

We recorded a reversal of the provision for credit losses on loans of $320 thousand in the second quarter of 2026, driven by lower loan balances and improved credit quality in the non-owner occupied commercial real estate portfolio.

This compared to no provision in the prior quarter.

Non-accrual loans declined during the quarter to $8.5 million, or 0.40% of the loan portfolio, at June 30, 2026, compared to $8.6 million or 0.41% at March 31, 2026, and $26.9 million, or 1.27%, at December 31, 2025.

We recorded a reversal of the provision for credit losses on loans of $320 thousand in the six months ended June 30, 2026, and recorded a provision for credit losses on loans of $75 thousand in the six months ended June 30, 2025.

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) 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 %

(dollars in thousands) June 30, 2026 March 31, 2026 Amount Change Percent Change

Service charges on deposit accounts $ 563 $ 563 $ — — %

Wealth management and trust services 543 596 (53) (8.9) %

Earnings on bank-owned life insurance, net 442 487 (45) (9.2) %

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

Debit card interchange fees, net 397 362 35 9.7 %

Dividends on Federal Home Loan Bank stock 199 855 (656) (76.7) %

Merchant interchange fees, net 142 118 24 20.3 %

Losses on sale of investment securities

— (69,466) 69,466 (100.0) %

Earnings on bank-owned life insurance death benefits 59 479 (420) (87.7) %

Other income 824 374 450 120.3 %

1 unchanged sentence

$ 3,169 $ 3,834 $ (665) (17.3) %

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 %

Six months ended

(dollars in thousands) June 30, 2026 June 30, 2025 Amount Change Percent Change

Service charges on deposit accounts $ 1,126 $ 1,098 $ 28 2.6 %

Wealth management and trust services

1,139 1,175 (36) (3.1) %

Service charges on deposit accounts 563 548 15 2.7 %

Earnings on bank-owned life insurance, net 929 905 24 2.7 %

Earnings on bank-owned life insurance death benefits 479 68 411 NM

Debit card interchange fees, net 759 806 (47) (5.8) %

Dividends on Federal Home Loan Bank stock 1,054 737 317 43.0 %

Merchant interchange fees, net 260 186 74 39.8 %

Earnings on bank-owned life insurance death benefits 538 306 232 75.8 %

Losses on sale of investment securities

— (18,736) 18,736 NM

Other income 1,198 776 422 54.4 %

2 unchanged sentences

NM - not meaningful

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.

Second Quarter of 2026 Compared to the First Quarter of 2026

Non-interest income was $3.2 million for the second quarter of 2026, compared to $3.8 million for the prior quarter.

The decrease of $665 thousand from the prior quarter was primarily attributable to a decrease in dividend income on FHLB stock of $656 thousand which included the $479 thousand special dividend received in the first quarter.

There was also bank owned life insurance death benefits of $479 thousand received in the first quarter, compared to $59 thousand in the second quarter.

These were partially offset by the increase in fee income within other income of $377 thousand due to one-way sales of deposits in the quarter.

First Six Months of 2026 Compared to the First Six Months of 2025

Non-interest income was $7.0 million for the first six months ended June 30, 2026, compared to a loss of $12.7 million for the same period of the prior year.

The prior year included $18.7 million in pre-tax losses on the sale of investment securities.

Excluding those losses, non-interest income increased $1.0 million primarily due to an increase of $317 thousand earned in dividends including a special dividend on Federal Home Loan Bank stock received, an increase of $232 thousand earned on bank-owned life insurance death benefits, and increased fees on one-way sales of deposits of $395 thousand included in other income in 2026.

Non-interest Expense

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Three months ended

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

(dollars in thousands) June 30, 2026 March 31, 2026 Amount Change Percent Change

Salaries and related benefits $ 12,609 $ 13,394 $ (785) (5.9) %

11 unchanged sentences

Total non-interest expense $ 21,597 $ 22,539 $ (942) (4.2) %

Three months ended

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

Six months ended

(dollars in thousands) June 30, 2026 June 30, 2025 Amount Change Percent Change

Salaries and related benefits $ 26,003 $ 24,095 $ 1,908 7.9 %

11 unchanged sentences

Total non-interest expense $ 44,136 $ 40,996 $ 3,140 7.7 %

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.

Second Quarter of 2026 Compared to the First Quarter of 2026

Non-interest expense totaled $21.6 million for the second quarter of 2026, compared to $22.5 million for the prior quarter, a decrease of $942 thousand.

This was primarily due to a decrease of $785 thousand in salaries and related benefits.

Expenses decreased due to incentive bonus accruals, 401(k) contribution matching, profit sharing accruals, and stock-based compensation grants that occurred in the first quarter and were not repeated in the second quarter.

There were also decreases of $247 thousand in charitable contributions because the majority of annual giving occurs in the first quarter, and $175 thousand in FDIC insurance.

This was partially offset by an increase of $278 thousand in professional services expense in the second quarter of 2026 mostly related to audit, operations, compliance, information security and accounting fees.

First Six Months of 2026 Compared to the First Six Months of 2025

Non-interest expense totaled $44.1 million for the first six months ending June 30, 2026, compared to $41.0 million for the same period of 2025, an increase of $3.1 million.

This was primarily due to an increase of $1.9 million in salaries and benefits.

Expenses increased due to a higher full-time employee count and annual salary increases.

There were also increases of $619 thousand in professional services expense and $476 thousand in FDIC insurance in the first six months of 2026.

Provision for Income Taxes

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

The income tax provision for the first quarter of 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.

The income tax provision for the second quarter of 2026 totaled $3.4 million at an effective tax rate of 27.0%, compared to a provision of $3.1 million at an effective tax rate of 26.6% in the prior quarter.

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

The increase in the effective tax rate in the second quarter of 2026 was primarily driven by the treatment of certain permanent tax differences, which had a greater proportional effect given the lower pre‑tax income in the prior quarter.

The income tax provision for the first six months of 2026 totaled $6.5 million at an effective tax rate of 26.8%, compared to an income tax benefit of $1.1 million at an effective tax rate of 22.4% for the first six months of 2025.

The increase in the provision for incomes taxes and effective tax rate in the first six months of 2026, as compared to the same period a year ago, was primarily due to an increase of $29.0 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 March 31, 2026.

This law does not have a material impact on the company’s tax expense as of June 30, 2026.

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

2 unchanged sentences

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 March 31, 2026.

This law did not have a material impact on the company's tax expense as of June 30, 2026.

We file a consolidated return in the U.S.

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

federal tax jurisdiction and combined returns in the states of California and New Jersey due to interest on purchased auto loans registered in New Jersey.

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

As of March 31, 2026, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits.

As of June 30, 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 $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.

Total cash, cash equivalents and restricted cash were $279.6 million at June 30, 2026, an increase of $54.3 million compared to $225.3 million at December 31, 2025, driven by proceeds from paydowns and maturities of investment securities of $137.9 million, loan payoffs and paydowns of $101.8 million, and $40.4 million in amortization of principal, partially offset by $123.6 million in loan fundings, purchases of investment securities of $65.2 million, $45.6 million from net decrease of deposits, and dividends of $8.1 million to shareholders.

Investment Securities

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 investment securities portfolio totaled $1.243 billion at June 30, 2026, a decrease of $85.0 million from $1.328 billion at December 31, 2025.

The decrease was primarily due to principal repayments and calls/maturities totaling $137.9 million, 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 2.91.

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.

Those cash flows totaled $92.1 million and $73.4 million in the second quarter of 2026 and the first quarter of 2026, 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

The following table summarizes our investment in obligations of state and political subdivisions at June 30, 2026 and December 31, 2025.

June 30, 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

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Loans and Credit Quality

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

Loans totaled $2.101 billion as of June 30, 2026, compared to $2.121 billion as of December 31, 2025 with a decrease of $19.9 million.

See the rollforward of loan balances below.

Three months ended Six months ended

(in millions;

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

unaudited) June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025

Gross loans beginning balance $ 2,115.7 $ 2,120.9 $ 2,120.9 $ 2,083.3

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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.

For the six months ending June 30, 2026, loans originated were $178.9 million ($123.6 million funded) compared to $132.8 million ($98.0 million funded) in the same period of the prior year.

The second quarter of 2026 originations exceeded both prior quarter and prior year's second quarter.

Payoffs in the six months ended June 30, 2026 were $101.8 million, compared to $59.9 million in the prior year including a significant increase in the second quarter of 2026 mostly related to planned exits and customer asset sales.

In addition, net utilization of credit lines increased to $15.1 million during the six months ended June 30, 2026, compared to the net decrease in utilization of credit lines of $6.6 million in the prior year.

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

Non-accrual loans declined by $18.4 million during that time to $8.5 million, or 0.40% of total loans, compared to $26.9 million, or 1.27%, at December 31, 2025.

The reduction was driven primarily by the sale of two non-owner occupied commercial real estate loans totaling $16.3 million in the first quarter of 2026 with continued payoffs in the second quarter.

Classified loans declined by $12.2 million during the first six months of 2026 to $19.9 million 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 $2.6 million.

These positive trends were partially offset by downgrades totaling $8.0 million into the classified category, $2.2 million of which occurred in the second quarter.

The Bank remains 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 $2.0 million at June 30, 2026, down from $2.8 million at December 31, 2025.

Loans designated as special mention, which are not considered adversely classified, decreased to $100.9 million at June 30, 2026 compared to $118.0 million at December 31, 2025 .

The $17.1 million net decrease reflects $22.5 million in payoffs, $12.0 million in upgrades, $5.7 million in downgrades out of the category and $2.0 million in contractual amortization and payoffs, partially offset by $24.6 million that migrated into special mention.

Net charge-offs totaled $7.3 million in the first six months of 2026 compared to $877 thousand in the prior year during the same time period.

Approximately $7.2 million of the charge‑offs were related to the two non-accrual loans that were sold in the first quarter of 2026.

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

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Liabilities - Deposits and Borrowings

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.

During the first six months of 2026, total liabilities decreased by $50.1 million to $3.460 billion.

Deposits totaled $3.370 billion at June 30, 2026, a decrease of $45.6 million, compared to $3.416 billion at December 31, 2025.

The majority of the decrease in deposits was due to a decrease of $179.8 million in interest bearing transaction accounts, $47.5 million in time accounts and $17.1 million in non-interest bearing deposits, partially offset by an increase of $205.5 million in money market deposits.

The decrease was primarily attributable to a small number of relationships and reflected seasonal customer activity and investment policy decisions, rather than broader changes in deposit trends.

In addition, seasonal tax-related outflows contributed to the second quarter decrease.

Interest bearing transaction accounts decreased while money market accounts increased primarily as a result of the transfer of approximately $170 million in reciprocal deposits during the second quarter.

As of June 30, 2026, total one-way sales decreased to zero although the Bank strategically sold an average of $94.7 million during the second quarter which enhanced non-interest income and net interest margin.

Non-interest bearing deposits continued to make up a strong 36.7% of total deposits at June 30, 2026, consistent with December 31, 2025.

The Bank had no outstanding short-term borrowings at June 30, 2026 and December 31, 2025.

Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and total available borrowing capacity was $2.177 billion, or 65% of total deposits and 214% of estimated uninsured and/or uncollateralized deposits as of June 30, 2026.

Capital Adequacy

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

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

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

The total risk-based capital ratio for Bancorp was 15.58% at June 30, 2026, compared to 15.25% at December 31, 2025.

The total risk-based capital ratio for the Bank was 14.61% at June 30, 2026, compared to 13.90% at December 31, 2025.

The Bancorp’s and Bank’s capital adequacy ratios as of June 30, 2026 and December 31, 2025 are presented in the following tables.

Bancorp Capital Ratios

(dollars in thousands)

Actual Adequately Capitalized Threshold 1

Actual Regulatory Minimum Plus Capital Conservation Buffer 1

Threshold to be a Well Capitalized Bank Holding Company

March 31, 2026 Amount Ratio Amount Ratio Amount Ratio

June 30, 2026 Amount Ratio Amount Ratio Amount Ratio

Total Capital (to risk-weighted assets) $ 395,475 15.58 % $ 266,527 10.50 % $ 253,835 10.00 %

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(dollars in thousands)

Actual Adequately Capitalized Threshold 1

Actual Regulatory Minimum Plus Capital Conservation Buffer 1

Threshold to be Well Capitalized under Prompt Corrective Action Provisions

March 31, 2026 Amount Ratio Amount Ratio Amount Ratio

June 30, 2026 Amount Ratio Amount Ratio Amount Ratio

Total Capital (to risk-weighted assets) $ 370,718 14.61 % $ 266,430 10.50 % $ 253,742 10.00 %

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

Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity totaled $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.

Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity totaled $2.177 billion or 65% of total deposits and 214% of estimated uninsured and/or uncollateralized deposits as of June 30, 2026.

The following table details the components of our contingent liquidity sources as of June 30, 2026.

(in thousands) Total Available Amount Used Net Availability

1 unchanged sentence

Unrestricted cash 1

$ 215,829 N/A $ 215,829

Unencumbered securities at market value 527,707 N/A 527,707

$ 256,584 $ — $ 256,584

Unencumbered securities at market value 491,749 — 491,749

External Sources —

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1 Excludes cash items in transit.

Off-balance sheet one-way sell deposits totaling $78.5 million not included above.

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

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

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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 $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.

Our cash and cash equivalents increased $54.3 million in the first six months of 2026.

The most significant sources of liquidity during the first six months of 2026 were $137.9 million from principal paydowns, calls and maturities of investment securities, loan payoffs and paydowns of $101.8 million, $40.4 million in amortization of principal, and $13.3 million in net cash provided by operating activities.

In addition, there were proceeds from loan sales of $9.1 million.

Significant uses of liquidity during the six months ended June 30, 2026 were $123.6 million in loan fundings, $65.2 million in investment securities purchased, $45.6 million from net decrease of deposits, net loan line utilization of $15.1 million and $8.1 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 $450.1 million at March 31, 2026.

Unfunded credit commitments, as discussed in Note 8 to the consolidated financial statements in this Form 10-Q, totaled $450.1 million at June 30, 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 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 had no outstanding short term borrowings under our credit facilities at June 30, 2026, and 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.

At June 30, 2026, the balance of the 2035 Notes included in the Company’s Consolidated Statements of Condition, net of debt issuance cost, was $44.0 million.

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

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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.

Bancorp held $24.6 million in cash at June 30, 2026, which is expected to cover cash needs through the next twelve months.

Statement Regarding use of Non-GAAP Financial Measures

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(in thousands, except per share amounts;

Three months ended

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

Three months ended Six months ended

Pre-tax, pre-provision net income June 30, 2026 March 31, 2026 June 30, 2026 June 30, 2025

Income (loss) before (benefit from) provision for income taxes $ 12,673 $ 11,597 $ 24,270 $ (4,718)

Provision for credit losses on loans — 300 75

(Reversal of) provision for credit losses on loans (320) — (320) 75

Provision for credit losses on unfunded loan commitments — — — —

1 unchanged sentence

12,353 11,597 23,950 (4,643)

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

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

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

5 unchanged sentences

Related income tax benefit 1

— — — (5,538)

Adjustments, net of taxes — — — 13,198

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Comparable return on average equity (non-GAAP) 9.38 % 8.67 % 9.03 % 4.39 %

Return on average tangible common equity

Average goodwill and intangibles $ 74,393 $ 74,591 $ 74,491 $ 75,336

Average tangible common equity 320,935 323,426 322,174 362,851

Return on average tangible common equity (GAAP) 11.56 % 10.67 % 11.11 % (2.03) %

Comparable return on average tangible common equity (non-GAAP) 11.56 % 10.67 % 11.11 % 5.30 %

Efficiency ratio

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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