Bank of Marin Bancorp

Previous wording

Forward-looking statements are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact Bancorp's earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions and the economic uncertainty in the United States and abroad, including economic or other disruptions to financial markets caused by the Trump administration's approach to tariffs and trade, acts of terrorism, war or other conflicts, impacts from inflation, supply chain disruptions, changes in interest rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate, deposit flows, real estate values, and expected future cash flows on loans and securities; the impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; natural disasters (such as wildfires and earthquakes in our area); adverse weather conditions; interruptions of utility service in our markets for sustained periods; and other economic, competitive, governmental, regulatory and technological factors (including external fraud and cybersecurity threats) affecting our operations, pricing, products and services; and successful integration of acquisitions.

Current wording

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, acts of terrorism, war or other conflicts, impacts from inflation, supply chain disruptions, changes in interest rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate, deposit flows, real estate values, and expected future cash flows on loans and securities; the impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; natural disasters (such as wildfires and earthquakes in our area); adverse weather conditions; interruptions of utility service in our markets for sustained periods; and other economic, competitive, governmental, regulatory and technological factors (including external fraud and cybersecurity threats) affecting our operations, pricing, products and services; and successful integration of acquisitions.

Previous wording

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation and uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. We consider accounting estimates to be critical to our financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain, (ii) management could have applied different assumptions during the reported period, and (iii) changes in the accounting estimate are reasonably likely to occur in the future and could have a material impact on our financial statements. Our critical estimates include: Allowance for Credit Losses on Loans and Unfunded Commitments, Fair Value Measurements, and Goodwill. Refer to Critical Accounting Estimates in Item 7 of our 2024 Form 10-K for more information.

Current wording

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation and uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. We consider accounting estimates to be critical to our financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain, (ii) management could have applied different assumptions during the reported period, and (iii) changes in the accounting estimate are reasonably likely to occur in the future and could have a material impact on our financial statements. Our critical estimates include: Allowance for Credit Losses on Loans and Unfunded Commitments, and Fair Value Measurements. Refer to Critical Accounting Estimates in Item 7 of our 2025 Form 10-K for more information.

Previous wording

•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.

Current wording

•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.

Previous wording

•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.

Current wording

•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.

Previous wording

•The following table summarizes GAAP and non-GAAP results for return on average assets ("ROA"), return on average equity ("ROE") and the efficiency ratio for comparable periods. All GAAP ratios were significantly impacted by the securities sales discussed above. Non-GAAP ratios exclude the loss on security sales, with all other factors unchanged. See Reconciliation of GAAP and Non-GAAP Financial Measures below.

Current wording

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

Previous wording

•Capital was above well-capitalized regulatory thresholds with Bancorp's and the Bank's total risk-based capital ratios of 16.13% and 15.11%, respectively, as of September 30, 2025. Our capital plan and point-in-time capital stress tests indicate that Bank of Marin and Bancorp capital ratios will remain above regulatory well-capitalized and internal policy minimums throughout a five-year forecast horizon and across stress scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth or decline, loan credit quality deterioration, and potential share repurchases.

Current wording

•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.

Previous wording

•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.

Current wording

•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%.

Previous wording

•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.

Current wording

•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.

Previous wording

The following table presents the effects of changes in average balances (volume) or changes in average rates on tax-equivalent net interest income for the periods indicated. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates. Rate variances are equal to the increase or decrease in rates multiplied by prior period average balances. Mix variances are attributable to the change in yields or rates multiplied by the change in average balances, including one day more in the three months ended September 30, 2025, compared to the three months ended June 30, 2025, and one day less in the first nine months of 2025, compared to the first nine months of 2024.

Current wording

The following table presents the effects of changes in average balances (volume) or changes in average rates on tax-equivalent net interest income for the periods indicated. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates. Rate variances are equal to the increase or decrease in rates multiplied by prior period average balances. Mix variances are attributable to the change in yields or rates multiplied by the change in average balances, including two days less in the three months ended March 31, 2026, compared to the three months ended December 31, 2025.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

The FOMC lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024. In the first half of 2025, the FOMC left rates unchanged. The FOMC lowered the target by 25 basis points on September 17, 2025, to a range of 4.00% to 4.25%, and again on October 29, 2025 by 25 basis points to a range of 3.75% to 4.00%. Management and the Board are continuously monitoring and analyzing the impact of market rates on the Company's financial condition and results of operations to enhance performance, safety and soundness and returns to shareholders. See ITEM 3. Quantitative and Qualitative Disclosure about Market Risk for further information.

Current wording

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. See ITEM 3. Quantitative and Qualitative Disclosure about Market Risk for further information.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

We file a consolidated return in the U.S. federal tax jurisdiction and a combined return in the state of California tax jurisdiction. There were no ongoing federal or state income tax examinations at the time of the issuance of this report. As of September 30, 2025, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits.

Current wording

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. 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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 millionand $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.

Previous wording

Of the total investment in obligations of state and political subdivisions, the largest concentrations outside of California are in Texas (37.5%), Washington (9.9%) and Wisconsin (15.5%). Our investment in obligations issued by municipal issuers in Texas are either guaranteed by the AAA rated Texas Permanent School Fund ("PSF") or backed by revenue sources from essential services (such as utilities and transportation).

Current wording

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).

Previous wording

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.

Current wording

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.

Previous wording

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,

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements as set forth in the following tables can trigger certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and the Bank’s prompt corrective action classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.

Current wording

We are subject to various regulatory capital requirements administered by the federal banking agencies. 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. The capital amounts and the Bank’s prompt corrective action classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors.

Previous wording

Management reviews capital ratios on a regular basis and produces a five-year capital plan semi-annually to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs. Stress tests are performed on capital ratios and include scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth and potential share repurchases. For all periods presented, the Bank’s ratios exceed the regulatory definition of “well capitalized” under the regulatory framework for prompt corrective action and Bancorp’s ratios exceed the required minimum ratios to be considered a well-capitalized bank holding company. In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action as of September 30, 2025. There are no conditions or events since that notification that management believes have changed the Bank’s categories and we expect the Bank to remain well capitalized for prompt corrective action purposes.

Current wording

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, 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 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.

Previous wording

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.

Current wording

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.

Previous wording

The goal of liquidity management is to provide adequate funds to meet loan demand and to fund operating activities and deposit withdrawals. We accomplish this goal by maintaining an appropriate level of liquid assets and formal lines of credit with the FHLB, FRBSF and correspondent banks that enable us to borrow funds as seen in the table below and discussed in Note 6 to the Consolidated Financial Statements in ITEM 1 of this report. Our Asset Liability Management Committee ("ALCO"), which is comprised of Bank directors and the Bank's Chief Executive Officer, is responsible for approving and monitoring our liquidity targets and strategies. The Bank has long-established minimum liquidity requirements that are regularly monitored using metrics and tools similar to those used by larger banks, such as the liquidity coverage ratio, and multi-scenario, long-horizon stress tests. Our contingency funding plan provides for early detection of potential liquidity issues in the market or the Bank and institutes prompt responses that may prevent or alleviate a liquidity crisis. Management monitors liquidity daily and regularly adjusts our position based on current and future liquidity needs. We also have relationships with third-party deposit networks and can adjust the placement of our deposits via reciprocal or one-way sales as part of our cash management strategy.

Current wording

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, 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. The Bank has long-established minimum liquidity requirements that are regularly monitored using metrics and tools similar to those used by larger banks, such as the liquidity coverage ratio, and multi-scenario, long-horizon stress tests. Our contingency funding plan provides for early detection of potential liquidity issues in the market or the Bank and institutes prompt responses that may prevent or alleviate a liquidity crisis. Management monitors liquidity daily and regularly adjusts our position based on current and future liquidity needs. We also have relationships with third-party deposit networks and can adjust the placement of our deposits via reciprocal or one-way sales as part of our cash management strategy.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Significant uses of liquidity during the nine months ended September 30, 2025 were $421.8 million in investment securities purchased, $167.0 million in loan fundings, and $12.1 million in cash dividends paid on common stock to our shareholders and $3.3 million in common stock repurchases. Refer to the Consolidated Statement of Cash Flows in this Form 10-Q for additional information on our sources and uses of liquidity. Management anticipates that our current strong liquidity position, as detailed in this report, and contingent funding sources outlined in the table above are adequate to support our operational needs.

Current wording

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.

Previous wording

Unfunded credit commitments, as discussed in Note 8 to the Consolidated Financial Statements in this Form 10-Q, totaled $443.9 million at September 30, 2025. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, principal paydowns of investment securities, and liquid assets.

Current wording

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.

Previous wording

Over the next twelve months, $207.6 million of time deposits will mature. We expect that a high percentage of these funds will remain with the Bank either through renewals or shifts to other deposit products. Any outflows can be absorbed by the Bank's excess liquidity. We believe our emphasis on local deposits, combined with our immediately available funding sources, provides a very stable base for our liquidity needs.

Current wording

Over the next twelve months, $172.8 million of time deposits will mature. We expect that a high percentage of these funds will remain with the Bank either through renewals or shifts to other deposit products. Any outflows can be absorbed by the Bank's excess liquidity. We believe our emphasis on local deposits, combined with our immediately available funding sources, provides a very stable base for our liquidity needs.

Previous wording

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.

Current wording

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.

Previous wording

Because Bancorp is a holding company and does not conduct regular banking operations, its primary sources of liquidity are dividends from the Bank. Under the California Financial Code, payment of a dividend from the Bank to Bancorp without advance regulatory approval is restricted to the lesser of the Bank’s retained earnings or the amount of the Bank’s net profits from the previous three fiscal years less the amount of dividends paid during that period. Dividends in excess of that amount may be paid with prior approval of the Department of Financial Protection and Innovation ("DFPI"). On May 30, 2025, the Bank received approval from the State of California - DFPI for a dividend of $32.0 million which was paid to Bancorp on May 30, 2025. The primary uses of funds for

Current wording

Page-42 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"). 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.

Previous wording

Bancorp are shareholder dividends, share repurchases and ordinary operating expenses. Bancorp held $25.7 million in cash at September 30, 2025.

Current wording

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.

Previous wording

Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that, given industry turmoil that largely began in the first quarter of 2023, the presentation of Bancorp's non-GAAP TCE ratio reflecting the after tax impact of unrealized losses on held-to-maturity securities provides useful supplemental information to investors because it reflects the level of capital remaining after a hypothetical liquidation of the entire securities portfolio. In addition, management believes that providing selected financial measures excluding the loss on sale of securities discussed above is useful to investors as the strategic short-term loss taken for long-term profitability makes the operational performance difficult to compare to other periods. Because there are limits to the usefulness of this or any other non-GAAP measure to investors, Bancorp encourages readers to consider its annual and quarterly consolidated financial statements and notes related thereto in their entirety, as filed with the Securities and Exchange Commission, and not to rely on any single financial measure. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below.

Current wording

Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that providing selected financial measures excluding the loss on sale of securities discussed above is useful to investors as the strategic short-term loss taken for long-term profitability makes the operational performance difficult to compare to other periods. Because there are limits to the usefulness of this or any other non-GAAP measure to investors, Bancorp encourages readers to consider its annual and quarterly consolidated financial statements and notes related thereto in their entirety, as filed with the Securities and Exchange Commission, and not to rely on any single financial measure. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below.