BMRC 10-K & 10-Q changes, risk factors and insider trading

We are facing significant competition for customers from other banks and financial institutions located in the markets that we serve. We compete with commercial banks, savings institutions, credit unions, non-bank financial services companies, including financial technology firms, and other financial institutions operating within or near our service areas. Some of our non-bank competitors and peer-to-peer lenders may not be subject to the same extensive regulations as we are, giving them greater flexibility in competing for business. We anticipate intense competition will continue for the coming year due to the market disruptions in banking in 2023, the continued consolidation of many financial institutions and more changes in legislation, regulation and technology. National and regional banks much larger than our size have entered our market through acquisitions and they may be able to benefit from economies of scale through their wider branch networks, more prominent national advertising campaigns, lower cost of borrowing, capital market access and sophisticated technology infrastructures. Further, intense competition for creditworthy borrowers could lead to pressure for loan rate concessions and affect our ability to generate profitable loans.

Going forward, we may see continued competition in the industry as competitors seek to expand market share in our core markets. Further, our customers may withdraw deposits to pursue alternative investment opportunities. Technology and other changes have made it more convenient for bank customers to transfer funds into alternative investments or other deposit platforms such as online virtual banks and non-bank service providers. Efforts and initiatives we may undertake to retain and increase deposits, including deposit pricing, can increase our costs. BasedWhile onwe our current strong liquidity position, our adjustment to deposit pricing has lagged the market inhave a risingrelatively interestlow ratecost environment.of Ifdeposits, if our customers move money into higher yielding deposits or alternative investments, we may lose a relatively inexpensive source of funds, thus increasing our funding costs through more expensive wholesale funding sources, such as FHLB borrowings.

Although we maintain strong liquidity for the normal operations of the Bank, model various stress scenarios, and maintain significant contingent liquidity sources, general depositor concerns given the recent high profile bank closures could lead to deposit outflows from our Bank. Our funding costs increased significantly in 2023 and could increase again ifIf our deposits decline and we replace them with more expensive sources of funding, such as FHLB and FRB borrowings, and/or brokered deposits, if customers shift their deposits into higher cost products, or if we raise interest rates to avoid losing deposits.deposits, our financial condition and results of operations could be negatively affected. In addition, adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources, constraining our financial flexibility, and ability to originate loans, invest in securities, and distribute dividends to our shareholders. In addition, such a lack of liquidity could result in the sale of securities in an unrealized loss position and/or alter our ability to hold our held-to-maturity securities to their maturity dates.position. All of these factors could have a material adverse impact on our asset growth, liquidity, business, financial condition, and results of operations.

Bancorp is a separate legal entity from its subsidiary, the Bank. Bancorp receives substantially its entire cash stream from the Bank in the form of dividends, which is Bancorp's principal source of funds to meet Bancorp's debt service requirements, pay cash dividends to Bancorp's common shareholders, repurchase shares, and cover operational expenses of the holding company. In addition to the Bank dividends, the Bancorp received proceeds from the issuance of subordinated notes in 2025. Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to Bancorp. In the event that the Bank is unable to pay dividends to Bancorp, Bancorp may not be able to pay dividends to its shareholders. As a result, it could have an adverse effect on Bancorp's stock price and investment value.

The federal funds rate range remained between 0.0% to 0.25% from March 2020 through the beginning of 2022, putting downward pressure on our asset yields and net interest margin. Beginning in March 2022, the FOMC began successive increases to the federal funds rate due to the evolving inflation risks, complicated by international political unrest and supply chain disruptions. The FOMC began increasing rates in March 2022, totaling seven rate increases in 2022 and four additional rate increases in 2023, and ended the year of 2023 at a federal funds target rate range between 5.25% and 5.50%. Rising interest rates and first quarter 2023 disruptions in the banking industry resulted in rapid increases in the cost of funds through rising deposit costs and increased borrowings, putting pressure on net interest margin starting in the second quarter of 2023. PrimarilyThe due to declining inflation, the Federal ReserveFOMC 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. 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%.

RisingAn Increase in Interest Rates HaveCould DecreasedDecrease the Value of the Company’s Held-To-Maturity and Available-for-Sale Securities Portfolio, and the Company Would Realize Losses if It Were Required to Sell Such Securities to Meet Liquidity Needs

Because of inflationary pressures and the resulting rapid increases in the federal funds target rate since March 2022, the market value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the held-to-maturity portion of U.S. banks’ securities portfolios and unrealized losses on available-for-sale securities reflected in the Company’s accumulated other comprehensive income (loss). We maintain an investment securities portfolio to provide liquidity and to generate earnings on funds that have not been loaned to customers while managing our liquidity and interest rate position, seeking a reasonable yield balanced with risk exposure. While it is neither our intention to sell securities at a net loss in the normal course of business, nor were we required to, we strategically sold securities in the third and fourth quarters of 2023 and2023, the second quarter of 2024, and the second and fourth quarters of 2025, to reposition the balance sheet to bolster net interest margin. If the Company were to sell additional securities in an unrealized loss position, it may incur losses that could impair the Company’s capital, financial condition, and results of operations and may require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability and potentially causing shareholder dilution.

Loans originated at higher interest rates may be paid off and replaced by new loans with lower interest rates, causing downward pressure on our net interest margin. In addition, our top ten depositor relationships accounted for approximately 9%12% and 8%9% of total deposit balances at December 31, 20242025 and 2023,2024, respectively. The business models and cash cycles of some of our large commercial depositors may also cause short-term volatility in their deposit balances held with us. As our customers' businesses grow, the dollar value of their daily activities may also grow leading to larger fluctuations in daily balances. AnyWhile we manage our liquidity with consideration given to deposit concentration and volatility, any long-term decline in deposit funding would adversely affect our liquidity. For additional information on our management of deposit volatility, refer to the Liquidity section of ITEM 7, Management's Discussion and Analysis, of this report.

Our common stock is listed on the Nasdaq CapitalGlobal Select Market exchange. Our trading volume is less than that of nationwide or larger regional financial institutions. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence of willing buyers and sellers of common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the low trading volume of our common stock, significant trades of our stock in a given time period, or the expectations of these trades, could cause volatility in the stock price.

Concentration of our lending activities in the California real estate sector could negatively affect our results of operations if adverse changes in our lending area occur. As of December 31, 2024,2025, approximately 90% of our loans had real estate as a primary or secondary component of collateral, which were comprised of 72% commercial real estateestate, and 28%27% residential real estate.estate and 1% land. Real estate valuations are influenced by demand, and demand is driven by economic factors such as employment rates and interest rates.

Although Congress has taken steps to improve regulation and consumer protection related to the housing finance system (e.g., the Dodd-Frank Act), FNMA and FHLMC have entered their 17th18th year of U.S. government conservatorship in 2025 via the Federal Housing Finance Agency ("FHFA"). While proposals to end the conservatorship have considered solutions such as an initial public offering, at the date of this report, its future and ultimate impact on the financial markets and our investments in GSEs are uncertain.

Our business requires the secure management of sensitive client and bank information. We work diligently to implement layered security measures that intend to make our communications and information systems resilient and safe to conduct business. With the advent of artificial intelligence (AI),AI, cyber threats such as social engineering, ransomware, and phishing are more sophisticated and prevalent now than ever before. These incidents include intentional and unintentional events that may present threats designed to disrupt operations, corrupt data, release sensitive information, or cause denial-of-service attacks. A cybersecurity breach of systems operated by the Bank, merchants, vendors, customers, or externally publicized breaches of other financial institutions may significantly harm our reputation, result in a loss of customer business, subject us to regulatory scrutiny, or expose us to civil litigation and financial liability. While we have systems and procedures designed to prevent security breaches, we cannot be certain that advances in cyberthreats, criminal capabilities, network break-ins, or inappropriate access will not compromise or breach the technology protecting our networks or proprietary client information. If a material security breach were to occur, the Bank has policies and procedures in place to ensure timely disclosure. For additional information on cybersecurity management and governance, refer to ITEM-1C, Cybersecurity, in this report.

Any Regulatory Examination Scrutiny or New Regulatory Requirements ArisingApplicable From the Recent Events into the Banking Industry Could Increase the Company’s Expenses and Affect the Company’s Operations

The allowance for credit losses on loans is a valuation account that is deducted from the amortized cost basis at the balance sheet date to present the net amount of loans expected to be collected. The allowance for credit losses on unfunded loan commitments is based on estimates of the probability that these commitments will be drawn upon according to historical utilization experience, expected loss severity, and loss rates as determined for pooled funded loans. The allowance for credit losses on unfunded commitments is a liability account included in interest payable and other liabilities. Management estimates these allowances quarterly using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Credit loss experience among the Bank and peer groups provides the basis for the estimation of expected credit losses.

Our allowance model is particularly sensitive to forecasted and seasonally-adjusted actual California unemployment rates, which increased towas 5.5% at December 31, 2024,2025 from 5.1% atand December 31, 2023.2024. The ACL model incorporates a one-year forecast. For periods beyond the forecast horizon, the economic factors revert to historical averages on a straight-line basis over a one-year period through the remaining lives of the loans. We performed a sensitivity analysis as of December 31, 2024,2025, and estimated that a 100 basis point change (e.g., 4.5%5.5% to 5.5%6.5%) in the forecasted unemployment rates over the next four quarters would result in about a 6%5% change to our allowance for credit losses on loans. This impact does not consider changes to other assumptions for either the quantitative factors, such as probability of default, loss given default, loan mix or cash flows, prepayment/curtailment rates, and individually analyzed loans, or qualitative factors as discussed in Note 1 - Summary of Significant Accounting Policies. Additionally, because current economic conditions and forecasts can change, as future events are inherently difficult to predict, the estimated credit losses on loans and unfunded commitments could change significantly.

Results for 20242025 were significantly impacted by our strategic balance sheet repositioning which included the sale of $325.2available-for-sale ("AFS") securities with a book value of $185.8 million, resulting in a pre-tax loss of $18.7 million in the second quarter of 2025, the sale of AFS securities of $593.2 million in low yielding investment securities at a $32.5$69.5 million pre-tax loss,loss in the payofffourth quarter of high cost borrowings and2025, the purchase and origination of higher yielding loans and securities.securities Inand addition,the wereplenishment took actions to reduce operating expenses in 2024 which positively impactedof our resultscapital laterratios inthrough the year. Though the percentageissuance of non-accrual$45.0 loansmillion increasedof fromsubordinated thedebt. prior year, weWe continue to proactively identify and manage credit risk within the loan portfolioportfolio, reflected in the percentage of non-accrual loans which decreased from the prior year, and there were some improvements in credit quality trends during the fourth quarter. We believe the strength of our balance sheet, higher level of loan origination productivity that we are seeing from our banking teams, and positive trends in our net interest margin and operating leverage are key factors that should help mitigate any unforeseen credit quality deterioration that may arise and drive further improvement in our financial performance in the year ahead.

•Loans increased $9.5$37.6 million during the year ended December 31, 2024,2025, to $2.083$2.121 billion, compared to $2.074$2.083 billion at December 31, 2023.2024. ExcludingThe agrowth $35.7was millionspread loanacross poolmultiple purchasegeographic ofregions residentialin Northern California and primarily within the commercial and commercial real estate loans,sectors. loanLoan originations funded totaled $152.6$273.5 million for the year ended December 31, 2024,2025, compared to $144.1$152.6 million for the prior year.

•Classified loans made up 2.17%1.51% of total loans as of December 31, 2024,2025, compared to 1.56%2.17% as of December 31, 2023.2024. The Bank continues to proactively identify and manage credit risk within the loan portfolio. Classified loans decreased by $13.0 million to $32.1 million as of December 31, 2025, compared to $45.1 million as of December 31, 2024. The decrease was largely due to upgrades of $6.9 million and payoffs and paydowns of $7.0 million during 2025. This was partially offset by downgrades to classified loans totaling approximately $942 thousand in 2025.

•Non-accrual loans totaled $33.9$26.9 million, or 1.63%1.27% of the loan portfolio, compared to $8.0$33.9 million, or 0.39%,1.63%, as of December 31, 20242025 and 2023,2024, respectivelyrespectively. The decrease of $7.0 million in 2025 was primarily due to threepayoffs relationshipsof designated$4.4 asmillion, non-accrualthe sale of one $2.1 million commercial real estate loan which resulted in thean second$809 thousand charge-off, and third quarterspaydowns of 2024.$1.6 million in addition to upgrades of approximately $700 thousand. Of the total non-accrual loans as of December 31, 2024,2025, approximately 56%68% were paying as agreed, 91%97% were real estate secured, and all are being closely managed and monitored.

•AWe recorded a $375 thousand provision for credit losses on loans in 2025 primarily due to loan growth and a modest deterioration in the economic forecast, compared to a $5.6 million provision for credit losses on loans in 20242024, including a $5.2$6.6 million specific reserve taken on a commercial real estate loan as a result of declining collateral valuesvalues, broughtpartially theoffset by other factors. The allowance for credit losses toas 1.47%of December 31, 2025 was 1.42% of total loans, compared to 1.21%1.47% as of December 31, 2023.2024.

•Total deposits decreasedincreased by $70.1$195.5 million to $3.416 billion as of December 31, 2025, from $3.220 billion as of December 31, 2024, from $3.290 billion as of December 31, 2023.2024. Non-interest bearing deposits continue to remain strong compared to our peers and made up 43.5%36.7% of total deposits as of December 31, 2024,2025, compared to 43.8%39.6% as of December 31, 2023.2024. We believe we are appropriately competitive in regard to deposit pricing, given our relationship banking model, which differentiates Bank of Marin through exceptional service. Estimated uninsured and/or uncollateralized deposits comprised 29%31% of total deposits as of December 31, 2024.2025.

•At December 31, 2024,2025, the Bank had no outstanding short-term borrowings compared to $26.0 million at December 31, 2023,2024, as a result of our strategic balance sheet restructuring in 20232025 and 2024. Total available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and total available borrowing capacity, were $1.849$2.148 billion, or 57%63% of total deposits and 197%209% of estimated uninsured and/or uncollateralized deposits as of December 31, 2024.2025.

•The Board of Directors declared a cash dividend of $0.25 per share on January 23,22, 2025,2026, which was the 79th83rd consecutive quarterly dividend paid by Bancorp. The dividend was paid on February 13,12, 20252026 to shareholders of record at the close of business on February 6,5, 2025.2026.

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 years 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 year ended 2024.balances.

The tax-equivalent net interest margin was 2.63%2.55% for 2024, consistentcompared withto 2.56% for 2023. Higher yields on loans increased the margin by 31 basis points, while higher deposit costs resulted in a 64 basis points reduction in the margin. In addition, the year's balance sheet restructuring activities affected the borrowings, interest-bearing cash and investments factors with impacts of 27, 13 and (7) basis points, respectively.factors.

Primarily due to declining inflation, the Federal Reserve lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024. At the January 2025 meeting, the FOMC left rates unchanged and signaled slower than originally anticipated rate cuts are likely in 2025. ManagementDue to a significant easing of inflationary pressures, the FOMC began decreasing rates in September 2025, and themade Boarda aretotal continuouslyof monitoringthree andrate analyzingdecreases in 2025 ending the impactyear at a range of market rates on the Company's financial condition and results of operations3.50% to enhance performance, safety and soundness and returns to shareholders. See ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk for further information.3.75%.

The provision in 2024 was due primarily to increases in qualitative risk factors to account for continued uncertainty about inflation and recession risks, and from continued negative trends in adversely graded loans and/or collateral values on our non-owner occupied commercial real estate office and multi-family real estate portfolios including $5.2 million taken in the second quarter due to a $6.6 million increased individual reserve for one non-owner occupied commercial real estate loan totaling $16.7 million that, although current, had experienced a deterioration in the collateral value and, therefore, a material increase in the loan-to-value The provision in 2023 was due primarily to adjustments to qualitative risk factors from continued uncertainty about inflation and recession risks, the potential impact of rapidly increasing interest rates and other external factors on both our non-owner-occupied commercial real estate and construction portfolios, loan and collateral concentration risks in our construction and commercial real estate portfolios, heightened portfolio management in light of current economic conditions, and continued negative trends in adversely graded loans and/or collateral values for our non-owner occupied commercial real estate office and multi-family real estate portfolios.

Non-interest income showed a loss of $21.4 million for 2024, a $26.3 million decrease from income of $5.0 million for 2023. The decrease in 2024 was primarily due to the $32.5 million net loss on the sale of available-for-sale investment securities in the second quarter2024 related to our balance sheet restructuring. Excluding losses on sale of securities in both years, non-interest income increased by $299$300 thousand, which included a $275 thousand year-over-year increase in wealth management and trust services income due to increased assets.assets and an increase of $226 thousand in net earnings on bank-owned life insurance due to increased rates. These were partially offset by the reduction of $314 thousand in bank-owned life insurance death benefits recorded in 2023 and not repeated in 2024.

The benefit forfrom income taxes totaled $16.8 million at an effective tax rate of 32.0% in 2025, compared to the benefit from income taxes of $5.4 million at an effective tax rate of 39.2% in 2024,2024 comparedand to thea provision of $6.1 million at an effective tax rate of 23.6% in 2023 and $16.9 million at an effective tax rate of 26.6% in 2022.2023. The reversalincrease in the provisionbenefit forfrom income taxes in 2024,2025 reflected the impact of the net loss before taxes in the year of $13.8$52.5 million compared to net incomeloss before taxes of $26.0$13.8 million in 2023.2024. The 15.6%7.2% increasedecrease in the effective tax rate in 2024,2025, as compared to 2023,2024, was due to the treatment of certain permanent differences while in a larger loss position, such as in 2024.2025. The 30015.60% basis point decreaseincrease from 20222023 to 20232024 was primarily due to a larger proportional effect of permanent tax differences on lower pretax income and higher tax-exempt BOLI income. This decreaseincrease was partially offset by a reduction in the tax-exempt interest exclusion (due to a larger IRC Section 291(e) interest expense disallowance), compared to 2022.2023.

We file a consolidated return in the U.S. federal tax jurisdiction and a combined return in the stateState of California taxand jurisdiction.the State of 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 December 31, 20242025 and 2023,2024, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits.

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. In evaluating an investment in Bancorp's common stock, Page-46 investors should consider, among other things, the risks previously disclosed in Part I, Item 1A, "Risk Factors" of our 2025 Form 10-K, and the information contained in this quarterly report on Form 10-Q and other reports and registration statements filed with the SEC, which are incorporated herein by reference. There have been no material changes to the risk factors disclosed in our 2025 Form 10-K.

•The tax-equivalent net interest margin increased to 3.24%3.38% in the firstsecond quarter of 2026 from 3.18%3.24% in the prior quarter, an improvement of 614 basis points. The increase wasis largelymostly dueexplained toby thean effects of the securities repositioning in the fourth quarter of 2025, which provided a 21eight basis point increase in annualizedloan netyields, interesta marginseven forbasis point decrease in the firstcost quarterof overdeposits, and the prioruse quarter.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 threesix months ended MarchJune 31,30, 2026 improved 4751 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 threesix months ended MarchJune 31,30, 2026.2026 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.

•Despite a reduction in theThe average cost of interest bearing deposits decreased from 2.16%2.10% to 2.10%2.04% and the average cost of total deposits decreased from 1.35% to 1.28% in the firstsecond quarter of 2026 compared to the prior quarter,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 remaineddecreased flatfrom at 1.35% due1.39% to a1.32% reductionfor inthe non-interestfirst bearingsix deposits.months of 2025 compared to 2026. 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 June 30, 2026 and December 31, 2025.

•Total deposits were $3.428$3.370 billion as of MarchJune 31,30, 2026, compared to $3.416 billion as of December 31, 2025, ana increasedecrease of $12.6$45.6 million,million. dueThe largelydecrease was primarily attributable to inflowsa fromsmall existingnumber customers as well as newof 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 Banksecond inquarter 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.decrease.

•Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $2.185$2.177 billion, or 64%65% of total deposits and 221%214% of estimated uninsured and/or uncollateralized deposits as of MarchJune 31,30, 2026.

•ThereThe wasBank norecorded a reversal of the provision for credit losses on loans of $320 thousand in the firstsix quartermonths ofended 2026June 30, 2026, compared to a provision for credit losses on loans of $300$75 thousand in the priorsix quarter.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 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.respectively.

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 2025 GAAP ratios were significantly impacted by the securities sales in the second and fourth quarterquarters of 2025. Non-GAAP ratios exclude the loss on securitysale sales,of securities, with all other factors unchanged. See Reconciliation of GAAP and Non-GAAP Financial Measures below.

•Return on average assets ("ROA") and return on average equity ("ROE") for the second quarter was 0.87%,0.96%, and 8.67%,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 non-GAAPGAAP basis both decreased slightly from the same period in the prior quarteryear mainlyprimarily due to decreasedincreased non-GAAPGAAP net income and the losses on securities sales in the second quarter overof quarter.2025, that are reflected in the prior year ROA and ROE. The efficiency ratio on a non-GAAPGAAP basis,basis fromimproved to 63.62% for the second quarter compared to 66.03% for the prior quarterquarter, slightlyand worsenedwas from64.82% lastfor quarterthe duesix months ended June 30, 2026 compared to increased112.77% non-interest expense, mainly within salaries and related benefits and due tofor the annualsame charitable contributionsperiod in the firstprior quarter of 2026.year.

•The Board of Directors approveddeclared a cash dividend of $0.25 per share on AprilJuly 23, 2026, which represents the 84th85th consecutive quarterly dividend paid by Bancorp. The dividend is payable on MayAugust 14,13, 2026, to shareholders of record at the close of business on MayAugust 7,6, 2026.

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 twoone daysday lessmore in the three months ended MarchJune 31,30, 2026, compared to the three months ended DecemberMarch 31, 2025.2026.

FirstSecond Quarter of 2026 compared to the FourthFirst Quarter of 20252026 Net interest income totaled $30.3$30.8 million for the firstsecond quarter of 2026, a $521$479 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 45eight basis point increase in the average yieldloan onyield, investmentcombined securities,with resultinga seven basis point decrease in athe $1.9cost millionof increasedeposits in investmentthe securities interest income.quarter.

The tax-equivalent net interest margin was 3.24%3.38% for the threesecond monthsquarter ended March 31,of 2026, compared to 2.77%3.24% for the same period in the prior year.quarter. The increase ofis 47mostly basisexplained points was primarily attributed toby the investment securities restructuring performedincrease in both 2024 and 2025, higheraverage loan yields and balances,the lowerdecrease depositin costs,cost of deposits noted above, and higherthe interest-earninguse depositof balancesone-way withsales of deposits, which improved the Federalmix Reserve.of average earning assets. The spot rate of deposits at March 31, 2026 of 1.31% dropped to 1.28% at June 30, 2026.

Primarily due to declining inflation, the Federal Reserve lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024. Following a pause of approximately nine months, the FOMC resumed decreasing rates in September 2025, and made a total of three rate decreases in 2025 ending the year at a range of 3.50% to 3.75% During the second and fourth quarters of 2025, we sold additional securities with relatively low yields and redeployed the proceeds to further reposition our balance sheet, by investing in higher yielding securities. Management and the Board are continuously monitoring and analyzing the impact of market rates on the Company's financial condition and results of operations to enhance performance, safety and soundness and returns to shareholders. See ITEM 3. Quantitative and Qualitative Disclosure about Market Risk for further information.3.75%.

We recorded noa reversal of the provision for credit losses on loans of $320 thousand in the firstsecond quarter of 2026.2026, 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 significantly during the quarter to $8.6$8.5 million, or 0.41%0.40% of the loan portfolio, at June 30, 2026, compared to $8.6 million or 0.41% at March 31, 2026, compared toand $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 2026.2025.

We recorded a $300reversal thousandof the provision for credit losses on loans inof the$320 three months ending December 31, 2025, due primarily to loan growth and modest deteriorationthousand in the economicsix forecast.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.

First Six Months of 2026 Compared to the First Six Months of 2025 Non-interest income was $3.8$7.0 million for the first threesix months ended MarchJune 31,30, 2026, compared to $2.9a 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 increase from the prior year period was primarily attributeddue to thean increase of $480$317 thousand earned in dividends including a special dividend on Federal Home Loan Bank stock received andreceived, an increase of $411$232 thousand earned on bank-owned life insurance death benefitsbenefits, and increased fees on one-way sales of deposits of $395 thousand included in other income in 2026.

FirstSecond Quarter of 2026 Compared to the FourthFirst Quarter of 20252026 Non-interest expense totaled $22.5$21.6 million for the firstsecond quarter of 2026, compared to $20.0$22.5 million for the prior quarter, ana increasedecrease of $2.5$942 million.thousand. This was primarily due to ana increasedecrease of $2.0$785 millionthousand in salaries and related benefits. ConsistentExpenses withdecreased annualdue adjustments and our compensation cycle, expense increases included updatedto incentive bonus accruals, 401(k) contribution matching, profit sharing accruals, and stock-based compensation grants.grants that occurred in the first quarter and were not repeated in the second quarter. There were increasesalso decreases of $355$247 thousand in charitable contributions duebecause tothe majority of annual grants,giving $195 thousandoccurs in datathe processing,first $191quarter, and $175 thousand in FDIC insurance, and $59 thousand in other expenses.insurance. This was partially offset by aan decreaseincrease of $248$278 thousand in professional services expense in the firstsecond quarter of 2026.2026 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 $22.5$44.1 million for the first threesix months ending MarchJune 31,30, 2026, compared to $20.4$41.0 million for the same period of 2025, an increase of $2.1$3.1 million. This was primarily due to an increase of $1.3$1.9 million in salaries and benefits,benefits. anExpenses increase of $342 thousand in FDIC insuranceincreased due to a higher invoicefull-time relatedemployee to the balance sheet repositioning,count and $156annual salary increases. There were also increases of $619 thousand in professional services expense and $476 thousand in FDIC insurance in the first threesix months of 2026.

The income tax provision for the firstsecond 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%, compared to a benefit of $17.8 million at an effective tax rate of 31.1%26.6% in the prior quarter. The increase in the provision for income taxes in the firstsecond quarter of 2026 reflected higher pre-tax income as compared to the prior quarter. The decreaseincrease in the effective tax rate in the firstsecond quarter of 2026 was primarily duedriven toby the treatment of certain permanent tax differencesdifferences, whilewhich inhad a lossgreater positionproportional foreffect given the lower pre‑tax income in the prior quarter.

The income tax provision for the first threesix months of 2026 totaled $3.1$6.5 million at an effective tax rate of 26.6%,26.8%, compared to an income tax provisionbenefit of $1.6$1.1 million at an effective tax rate of 24.8%22.4% for the first threesix months of 2025. The increase in the provision for incomes taxes and effective tax rate in the first threesix months of 2026, as compared to the same period a year ago, was primarily due to an increase of $5.1$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. Effective for taxable years beginning on or after January 1, 2025, SB 132 amends California Revenue & Tax Code (“CRTC”) to require financial institutions to apportion income using the single sales factor formula. Prior to this change, these businesses were required by CRTC Sec. 25128(b) to use an evenly weighted three-factor apportionment formula contemplating a payroll factor, property factor, and sales factor. This law does not have a material impact on the company’s tax expense as of MarchJune 31,30, 2026.

On July 4, 2025, the Trump Administration signed and enacted the One Big Beautiful Bill Act ("the Act") into law. Except for certain provisions, the Act is effective for tax years beginning on or after January 1, 2025. The tax and spending legislation permanently extends key business tax breaks originally enacted under the 2017 Tax Cuts and Jobs Act. The company evaluated the impact of the Act on income tax expense, deferred tax assets and liabilities, and related valuation allowances. This law did not have a material impact on the company's tax expense as of MarchJune 31,30, 2026.

We file a consolidated return in the U.S. federal tax jurisdiction and combined returns in the states of California and New Jersey taxdue jurisdictions.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 MarchJune 31,30, 2026, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits.

Total cash, cash equivalents and restricted cash were $236.6$279.6 million at MarchJune 31,30, 2026, an increase of $11.3$54.3 million compared to $225.3 million at December 31, 2025, driven by proceeds from paydowns and maturities of investment securities of $59.2$137.9 million, growthloan payoffs and paydowns of $101.8 million, and $40.4 million in deposits totaling $12.6 million and proceeds from the saleamortization of loans of $9.1 million,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 $4.0$8.1 million to shareholders.

The investment securities portfolio totaled $1.326$1.243 billion at MarchJune 31,30, 2026, a decrease of $1.6$85.0 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$137.9 million, respectively, and an increase of $7.6 million in unrealized losses on available-for-sale ("AFS") securities, partially offset by purchases of AFS securities of $65.2 million.

The portfolio is eligible for pledging to FHLB or the Federal Reserve as collateral for borrowing, and is comprised of high credit quality investments with an average effective duration of 2.90.2.91. The portfolio generates cash flows monthly from interest, principal amortization and payoffs, which supports the Bank's liquidity. Those cash flows totaled $73.4$92.1 million and $84.2$73.4 million in the firstsecond quarter of 2026 and the fourthfirst quarter of 2025,2026, 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 MarchJune 31,30, 2026 and December 31, 2025.

Loans totaled $2.116$2.101 billion as of MarchJune 31,30, 2026, compared to $2.121 billion as of December 31, 2025.2025 The decrease in the three months ended March 31, 2026 totaled $5.1 million, compared towith a decrease of $9.7$19.9 millionmillion. inSee the threerollforward monthsof endedloan Marchbalances 31, 2025.below.

Payoffs were $30.6 million in the threesix months ended MarchJune 31,30, 2026,2026 were $101.8 million, compared to $49.7$59.9 million in the prior year including a significant increase in the second quarter of 2026 mostly related to planned exits and $23.4customer millionasset for the same period in 2025.sales. In addition, amortization from scheduled payments totaled $19.6 million and net utilization of credit lines increased byto $600$15.1 thousandmillion during the threesix months ended MarchJune 31,30, 2026, compared to amortization from scheduled payments totaling $27.5 million andthe net increaseddecrease in utilization of credit lines of $1.3$6.6 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.year.

There were significant improvements to our credit quality in the first quartersix months of 2026 including non-accrual balances, classified loan balances and past due loan balances. Non-accrual loans declined by $18.3$18.4 million during thethat quartertime to $8.6$8.5 million, or 0.41%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 the two non-owner occupied commercial real estate loans totaling $16.3 million.million Thein remainingthe $8.6first millionquarter of non-accrual2026 loanswith consistscontinued primarilypayoffs ofin onethe $8.2second 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.quarter.

Classified loans declined by $14.2$12.2 million during the first quartersix months of 2026 to $17.9$19.9 million, downmillion 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$2.6 million on two additional loans.million. These positive trends were partially offset by the downgrade of two non‑owner occupied commercial real estate loansdowngrades totaling $5.7$8.0 million into the classified category.category, Overall,$2.2 assetmillion qualityof metricswhich improvedoccurred duringin the quarter,second andquarter. weThe remainBank 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 $683$2.0 thousandmillion at MarchJune 31,30, 2026, down from $2.8 million at December 31, 2025.

Loans designated as special mention, which are not considered adversely classified, remaineddecreased relativelyto stable at $119.4$100.9 million at MarchJune 31,30, 2026 compared to $118.0 million at December 31, 2025. The $1.4$17.1 million net increasedecrease reflects $6.0$22.5 million in payoffs, $12.0 million in upgrades, $5.7 million in downgrades out of the category and $2.8$2.0 million in contractual amortization and payoffs, partially offset by five relationships totaling $15.4$24.6 million that migrated into special mention.

Net charge-offs totaled $7.3 million in the first quartersix months of 2026 compared to $64$877 thousand in the prior quarter.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,sold asin previouslythe discussed.first quarter of 2026. These charge‑offs were fully offset by specific reserves that were already in place for the two loans.