2023 ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
For the transition period from __________________ to __________________
Commission File Number 001-33572
Bank of Marin Bancorp
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
California
20-8859754
504 Redwood Blvd.
Suite 100
Novato
CA
(Address of principal executive office)
94947
(Zip Code)
Registrant’s telephone number, including area code: (415) 763-4520
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Title of each class
Common Stock, No Par Value
Trading symbol
BMRC
Name of each exchange on which registered
The Nasdaq Stock Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
No ☒
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller
reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Non-accelerated filer
☐
Emerging growth company ☐
Accelerated filer
☒
Smaller reporting company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to
§240.10D-1(b).
☐
Indicate by check mark if the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒
As of June 30, 2023, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate
market value of the voting common equity held by non-affiliates, based upon the closing price per share of the registrant's
common stock as reported by the Nasdaq, was approximately $269 million. For the purpose of this response, directors and
certain officers of the Registrant are considered affiliates at that date.
As of February 29, 2024, there were 16,193,342 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2024 are incorporated
by reference into Part III.
PART I
TABLE OF CONTENTS
BUSINESS
Forward-Looking Statements
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1C. CYBERSECURITY
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
ITEM 6.
ITEM 7.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
[RESERVED]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
Critical Accounting Estimates
RESULTS OF OPERATIONS
Financial Highlights
Executive Summary
Net Interest Income
Provision for Credit Losses
Non-Interest Income
Non-Interest Expense
Provision for Income Taxes
FINANCIAL CONDITION
Investment Securities
Loans
Allowance for Credit Losses
Other Assets
Deposits
Borrowings
Deferred Compensation Obligations
Capital Adequacy
Liquidity and Capital Resources
Non-GAAP Financial Measures
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Management's Report on Internal Control over Financial Reporting
Consolidated Statements of Condition
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
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Note 2: Investment Securities
Note 3: Loans and Allowance for Credit Losses
Note 4: Bank Premises and Equipment
Note 5: Bank Owned Life Insurance
Note 6: Deposits
Note 7: Borrowings
Note 8: Stockholders' Equity and Stock Plans
Note 9: Fair Value of Assets and Liabilities
Note 10: Benefit Plans
Note 11: Income Taxes
Note 12: Commitments and Contingencies
Note 13: Concentrations of Credit Risk
Note 14: Derivative Financial Instruments and Hedging Activities
Note 15: Regulatory Matters
Note 16: Financial Instruments with Off-Balance Sheet Risk
Note 17: Condensed Bank of Marin Bancorp Parent Only Financial Statements
Note 18: Merger
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
SIGNATURES
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
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Forward-Looking Statements
PART I
This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, (the "1933 Act") and Section 21E of the Securities Exchange Act of 1934, as
amended, (the "1934 Act"). Those sections of the 1933 Act and 1934 Act provide a "safe harbor" for forward-looking
statements to encourage companies to provide prospective information about their financial performance so long as
they provide meaningful, cautionary statements identifying important factors that could cause actual results to differ
significantly from projected results.
Our forward-looking statements include descriptions of plans or objectives of management for future operations,
products or services, and forecasts of revenues, earnings or other measures of economic performance. Forward-
looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They
often include the words "believe," "expect," "intend," "estimate" or words of similar meaning, or future or conditional
verbs preceded by "will," "would," "should," "could" or "may."
Forward-looking statements are based on management's current expectations regarding economic, legislative, and
regulatory issues that may impact Bancorp's earnings in future periods. Factors that could cause future results to
vary materially from current management expectations include, but are not limited to, general economic conditions
and the economic uncertainty in the United States and abroad, including economic or other disruptions to financial
markets caused by acts of terrorism, war or other conflicts such as the war between Russia and Ukraine and more
recently the war between Israel and Hamas, impacts from inflation, supply chain disruptions, changes in interest
rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate,
deposit flows, real estate values, and expected future cash flows on loans and securities; the impact of adverse
developments at other banks, including bank failures, that impact general sentiment regarding the stability and
liquidity of banks; costs or effects of acquisitions; competition; changes in accounting principles, policies or
guidelines; changes in legislation or regulation; natural disasters (such as wildfires and earthquakes in our area);
adverse weather conditions; interruptions of utility service in our markets for sustained periods; and other economic,
competitive, governmental, regulatory and technological factors (including external fraud and cybersecurity threats)
affecting our operations, pricing, products and services; and successful integration of acquisitions.
Important factors that could cause results or performance to differ materially from those expressed in our prior
forward-looking statements are detailed in ITEM 1A, Risk Factors section of this report. Forward-looking statements
speak only as of the date they are made. Bancorp undertakes no obligation to release publicly the result of any
revisions to these forward-looking statements that may be made to reflect events or circumstances that occur after
the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.
ITEM 1.
BUSINESS
Bank of Marin (the “Bank”) was incorporated in August 1989, received its charter from the California Superintendent
of Banks (now the Department of Financial Protection and Innovation or "DFPI") and commenced operations in
January 1990. The Bank is an insured bank by the Federal Deposit Insurance Corporation (“FDIC”). Bank of Marin
Bancorp ("Bancorp") was formed in 2007 and the Bank became its sole subsidiary when each share of Bank
common stock was exchanged for one share of Bancorp common stock. Bancorp is listed on the Nasdaq Stock
Market under the symbol BMRC. Upon formation of the holding company, Bancorp became subject to regulation
under the Bank Holding Company Act of 1956, as amended, and reporting and examination requirements by the
Board of Governors of the Federal Reserve System ("Federal Reserve"). Bancorp files periodic reports and proxy
statements with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended.
References in this report to “Bancorp” or the "Company" mean Bank of Marin Bancorp, parent holding company for
the Bank. References to “we,” “our,” “us” mean the holding company and the Bank that are consolidated for
financial reporting purposes.
Virtually all of our business is conducted through Bancorp's subsidiary, Bank of Marin, which is headquartered in
Novato, California. In addition to our headquarters and a regional office in the Greater Sacramento region, we
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operate 27 retail branches and 8 commercial banking offices across 10 counties - Alameda, Amador, Contra Costa,
Marin, Napa, Placer, Sacramento, San Francisco, San Mateo and Sonoma - with a strong emphasis on supporting
local communities. Our customer base is comprised of business, not-for-profit, and personal banking relationships
within our Northern California footprint. Our business banking focus is on small to medium-sized businesses, not-
for-profit organizations, and commercial real estate investors.
We offer a suite of business and personal financial products and services designed to meet the needs of our
customers. Our lending categories include commercial real estate loans, commercial and industrial loans (including
small business loans), construction financing, consumer loans, and home equity lines of credit. Through third-party
vendors, we offer merchant and payroll services, a commercial equipment leasing program and credit cards. Other
products and services include payment solutions (e.g., mobile deposit and Zelle®) and a wide array of treasury
management services.
We offer a variety of personal and business checking and savings accounts, and a number of time deposit
alternatives, including time certificates of deposit, Individual Retirement Accounts (“IRAs”), Health Savings Accounts
("HSA"), Certificate of Deposit Account Registry Service® ("CDARS"), Insured Cash Sweep® ("ICS"), and Demand
Deposit MarketplaceSM ("DDM Sweep") accounts. CDARS, ICS and DDM Sweep accounts are networks through
which we offer full FDIC insurance coverage in excess of the regulatory maximum by placing deposits in multiple
banks participating in the networks. We also offer deposit options including mobile deposit, remote deposit capture,
Automated Clearing House (“ACH”) services, wire transfers, and image lockbox services.
Automated teller machines (“ATMs”) are available at most branch locations. Our ATMs are linked to PLUS, CIRRUS
and NYCE, as well as MoneyPass® - a network of nation-wide, surcharge-free ATMs. We also offer our depositors
24-hour access to their accounts by telephone and through digital banking services available to personal and
business account holders.
We offer wealth management and trust services, which include customized investment portfolio management, trust
administration, estate settlement and custody services.
We make international banking services available to our customers indirectly through other financial institutions with
whom we have correspondent banking relationships.
We hold no patents, licenses (other than licenses required by the appropriate banking regulatory agencies),
franchises or concessions. The Bank has registered the service marks "The Spirit of Marin," the words “Bank of
Marin,” the Bank of Marin logo, and the Bank of Marin tagline, “Committed to your business and our community”
with the United States Patent & Trademark Office. In addition, Bancorp has registered the service marks for the
words “Bank of Marin Bancorp” and for the Bank of Marin Bancorp logo with the United States Patent & Trademark
Office. All service marks registered by Bancorp or the Bank are registered on the United States Patent & Trademark
Office Principal Register.
Market Area
Our primary market area encompasses Alameda, Amador, Contra Costa, Marin, Napa, Placer, Sacramento, San
Francisco, San Mateo and Sonoma counties. Our customer base is primarily made up of business, not-for-profit
and personal banking relationships within these market areas. As of December 31, 2023, the majority of our
deposits were in Marin, Sacramento and southern Sonoma counties, and approximately 59% of our deposits were
from businesses and 41% from consumers.
Competition
The banking business in California generally, and in our market area specifically, is highly competitive with respect
to attracting both loan and deposit relationships. The increasingly competitive environment is affected by changes
in regulation, interest rates, technology and product delivery systems, and consolidation among financial service
providers. The banking industry is seeing strong competition for high quality loans, with larger banks expanding
activities to attract businesses that are traditionally community bank customers. In all of our 10 counties, we have
significant competition from nationwide banks with much larger branch networks and greater financial resources, as
well as credit unions and other local and regional banks. Nationwide banks have the competitive advantages of
developing data analytics and artificial intelligence tools and other technological platforms. Large commercial banks
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also have substantially greater lending limits and the ability to offer certain services, which are not offered directly by
us. Other competitors for depositors' funds are money market mutual funds and non-bank financial institutions such
as brokerage firms and insurance companies.
We differentiate ourselves from the numerous, and often larger, financial institutions in our primary market area with
a business model built on relationship banking, exemplary service, disciplined fundamentals, local decision making
and commitment to the communities we serve. The Bank's experienced professionals deliver innovative and
custom financing, with a deep local market knowledge and a personal understanding of each customer's unique
needs.
Human Capital Resources
As of December 31, 2023, we employed 329 full-time equivalent staff. The actual number of employees, including
part-time employees, at year-end 2023 included eight executive officers, 153 other corporate officers and 176 staff.
None of our employees are presently represented by a union or covered by a collective bargaining agreement.
We offer a competitive total compensation package including a comprehensive benefits program to our employees
designed to attract, retain and motivate employees, as well as to align with our performance, including employee
ownership through our Employee Stock Ownership Plan. We regularly compare compensation and benefits with
peer companies and market data, making adjustments as needed to ensure compensation stays competitive. We
are continually investing in our workforce through employee development, education and training.
We strive to attract, develop, retain and plan for succession of key talent and executives to achieve our strategic
objectives. We pride ourselves on creating an open, diverse, and transparent culture that celebrates collaboration
and recognizes employees at all levels. We believe that the wide array of perspectives that result from such
diversity promotes Legendary Service and business success. We continue to learn and grow, and our current
initiatives reflect our ongoing efforts around a more diverse, inclusive and equitable workplace.
In order to develop a workforce that aligns with our corporate values, we regularly sponsor local community events
so that our employees can better integrate themselves in and support our communities. We believe that our
employees’ well-being and personal and professional development is fostered by our outreach to the communities
we serve. Our employees’ desire for active community involvement enables us to sponsor a number of local
community events and initiatives, including funding and volunteering for youth mentorship and financial literacy
programs to enhance educational opportunities and sponsoring local chambers of commerce and economic
development corporations to foster economic vitality.
We recognize that employees who are engaged and committed to their work and workplace contribute meaningfully
to our success. On a regular basis, we solicit employee feedback through a confidential, company-wide survey on
culture, management, career opportunities, compensation, and benefits. The results of this survey are reviewed
and used to update employee programs, initiatives, and communications. We believe that our employee relations
are good. We have been recognized as one of the “Best Places to Work” by the North Bay Business Journal.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both federal and state law. The following
discussion summarizes certain significant laws, rules and regulations affecting Bancorp and the Bank.
Bank Holding Company Regulation
Upon formation of the bank holding company on July 1, 2007, we became subject to regulation under the Bank
Holding Company Act of 1956, as amended (“BHCA”) which subjects Bancorp to Federal Reserve reporting and
examination requirements. Under the Federal Reserve law and regulations, a bank holding company is required to
serve as a source of financial and managerial strength to its subsidiary banks. Under this requirement, Bancorp is
expected to commit resources to support the Bank, including at times when Bancorp may not be in a financial
position to provide such resources, and it may not be in Bancorp's, or Bancorp's shareholders’ or creditors’, best
interests to do so. In addition, any capital loans Bancorp makes to the Bank are subordinate in right of payment to
depositors and to certain other indebtedness of the Bank. The BHCA regulates the activities of holding companies
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including acquisitions, mergers and consolidations and, together with the Gramm-Leach Bliley Act of 1999, the
scope of allowable banking activities. Bancorp is also a bank holding company within the meaning of the California
Financial Code. As such, Bancorp and its subsidiaries are subject to examination by, and may be required to file
reports with, the DFPI.
Bank Regulation
Banking regulations are primarily intended to protect consumers, depositors' funds, federal deposit insurance funds
and the banking system as a whole. These regulations affect our lending practices, consumer protections, capital
structure, investment practices and dividend policy.
As a state chartered bank, we are subject to regulation, supervision and examination by the DFPI. We are also
subject to regulation, supervision and periodic examination by the FDIC. If, as a result of an examination of the
Bank, the FDIC or the DFPI should determine that the financial condition, capital resources, asset quality, earnings
prospects, management, liquidity, or other aspects of our operations are unsatisfactory, or that we have violated any
law or regulation, various remedies are available to those regulators including issuing a “cease and desist” order,
monetary penalties, restitution, restricting our growth or removing officers and directors.
The Bank addresses the many state and federal regulations it is subject to through a comprehensive compliance
program.
Safety and Soundness Standards (Risk Management)
The federal banking agencies have adopted guidelines that establish operational and managerial standards to
promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for
internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and earnings.
During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk
management processes and strong internal controls when evaluating the activities of the financial institutions they
supervise. Properly managing risks has been identified as critical to the conduct of safe and sound banking
activities and has become even more important as new technologies, product innovation, and the size and speed of
financial transactions have changed the nature of banking markets. The agencies have identified a spectrum of
risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal, and
reputational. In particular, recent regulatory pronouncements have focused on operational risk, which arises from
the potential that inadequate information systems, operational problems, breaches in internal controls, fraud, or
unforeseen catastrophes will result in unexpected losses. New products and services, third-party risk management
and cybersecurity are critical sources of operational risk that financial institutions are expected to address in the
current environment. The Board of Directors and various sub-committees oversee Bancorp's consolidated
enterprise risk management program that ensures the adequacy of policies, procedures, tolerance levels, risk
measurement systems, monitoring processes, management information systems and internal controls.
Dividends and Stock Repurchases
Bancorp's ability to pay dividends to its shareholders may be affected by both general corporate law considerations
and the policies of the Federal Reserve applicable to bank holding companies. As a California corporation, Bancorp
is subject to the limitations of California law, which allows a corporation to distribute cash or property to
shareholders, including a dividend or repurchase or redemption of shares, if the corporation meets certain tests
based on its performance and financial condition. Bancorp's primary source of cash is dividends received from the
Bank. Prior to any distribution from the Bank to Bancorp, we ensure that the dividend computations comply with the
provisions of the California Financial Code and regulations set forth by the DFPI and the FDIC. In August 2022, the
Inflation Reduction Act of 2022 was enacted, which among other things, imposed a one percent excise tax on
publicly traded U.S. corporations for the fair market value of stock repurchased after December 31, 2022. With
certain exceptions, the value of stock repurchased is net of stock issued in the year, including those issued pursuant
to share-based compensation programs. Refer to Note 8 to the Consolidated Financial Statements, under the
heading “Dividends” in ITEM 8 of this report for more information.
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FDIC Insurance Assessments
The FDIC insures our customers' deposits to the maximum amount permitted by law, which is currently $250,000
per depositor, based on the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”).
FDIC insurance coverage is funded by the FDIC's assessment on insured depository institutions like us and FDIC's
annual base assessment rates are currently between 2.5 and 42 basis points on the depository institution's quarterly
average consolidated total assets minus average tangible equity. Base assessment rates for banks vary depending
on whether a depository institution is small or large and highly complex per FDIC's definition. In deriving the base
assessment rate, the FDIC applies financial ratios, scorecards, and other financial measures to determine a bank's
ability to withstand financial stress.
In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate
schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023. The increased
assessment is expected to improve the likelihood that the deposit insurance fund ("DIF") reserve ratio would reach
the statutory minimum of 1.35% by the statutory deadline prescribed under the FDIC's amended restoration plan.
The FDIC has indicated that the new assessment rate schedules will remain in effect until the DIF reserve ratio
meets or exceeds 2 percent.
Community Reinvestment Act
Congress enacted the Community Reinvestment Act (“CRA”) in 1977 to encourage financial institutions to meet the
credit needs of the communities in which they are located. All banks and thrifts have a continuing and affirmative
obligation, consistent with safe and sound operations, to help meet the credit needs of their entire communities,
including low and moderate income neighborhoods. Regulatory agencies rate each bank's performance in
assessing and meeting these credit needs. The Bank is committed to serving the credit needs of the communities
in which we do business, and it is our policy to respond to all creditworthy segments of our market. As part of its
CRA commitment, the Bank maintains strong philanthropic ties to the community. We invest in affordable housing
projects that help economically disadvantaged individuals and residents of low- and moderate-income census
tracts, in each case consistent with our long-established prudent underwriting practices. We also donate to, invest
in and volunteer with organizations that serve the communities in which we do business, especially low- and
moderate-income individuals. These organizations offer educational and health programs to economically
disadvantaged students and families, community development services and affordable housing programs. We offer
CRA reportable small business, small farm and community development loans within our assessment areas. The
CRA requires a depository institution's primary federal regulator, in connection with its examination of the institution,
to assess the institution's record in meeting CRA requirements. The regulatory agency's assessment of the
institution's record is made available to the public. This record is taken into consideration when the institution
establishes a new branch that accepts deposits, relocates an office, applies to merge or consolidate, or expands
into other activities. The FDIC assigned a “Satisfactory” rating to Bank of Marin's CRA performance examination
based on their most recent examination completed in January 2021, which was performed under the large bank
requirements.
In October 2023, the federal banking agencies issued a final rule to strengthen and modernize regulations
implementing the CRA. The final rule, among other things, seeks to (i) expand access to credit, investment, and
basic banking services in low- and moderate-income communities, (ii) adapt to changes in the banking industry,
including internet and mobile banking, (iii) provide greater clarity, consistency, and transparency, (iv) tailor CRA
evaluations and data collection to bank size and type, and (v) maintain a unified approach among the bank
regulatory agencies. We will continue to evaluate the impact of any changes to the regulations implementing the
CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at
this time.
Anti-Money-Laundering Regulations
A series of banking laws and regulations beginning with the Bank Secrecy Act in 1970 requires banks to prevent,
detect, and report illicit or illegal financial activities to the federal government to prevent money laundering,
international drug trafficking, and terrorism. Under the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, financial institutions are subject to prohibitions
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against specified financial transactions and account relationships, requirements regarding the Customer
Identification Program, as well as enhanced due diligence and “know your customer” standards in their dealings
with high risk customers, foreign financial institutions, and foreign individuals and entities. In 2016, Customer Due
Diligence Rules under the Bank Secrecy Act clarified and strengthened customer due diligence requirements.
These rules contained explicit customer due diligence requirements, which included a new requirement to identify
and verify the identity of beneficial owners of legal entity customers. In 2020, the Anti-Money Laundering Act
("AMLA 2020") became law. Among its many provisions, AMLA 2020 provides for: 1) expanded whistleblower
rewards and protections; 2) the establishment of a beneficial ownership registration database that will be
implemented by the Financial Crimes Enforcement Network ("FinCEN"); and 3) new Bank Secrecy Act violations
and enhanced penalties for repeat and egregious violators.
Privacy, Data Protection, and Cybersecurity
The Gramm-Leach Bliley Act (“GLBA”) of 1999 imposes requirements on financial institutions with respect to
consumer privacy and the disclosure of non-public personal information about individuals who apply for or obtain a
financial product to be used for personal, family or household purposes. The GLBA generally prohibits disclosure of
consumer information to most nonaffiliated third parties unless the consumer has been given the opportunity to
object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy
policies to consumers and the conditions under which an institution may disclose non-public information about a
consumer to a nonaffiliated third party. The GLBA also directs federal regulators, including the FDIC, to prescribe
standards for the security of consumer information. We are subject to such standards, as well as standards for
notifying consumers in the event of a security breach. We must disclose our privacy policy to consumers and permit
consumers to "opt out" of having non-public customer information disclosed to third parties. We are required to
have an information security program to safeguard the confidentiality and security of customer information and to
ensure proper disposal of information that is no longer needed. We notify our customers when unauthorized
disclosure involves sensitive customer information that may be misused. Effective January 2020, the California
Consumer Privacy Act (“CCPA”) added required notice about personal information we collect, use, share, and
disclose for business purposes. The CCPA provides California residents rights regarding their personal information
specifically related to exercising access, data portability and deletion rights. There are also California breach
notification and disclosure requirements.
In November 2021, the federal banking agencies issued a final rule requiring banking organizations that experience
a computer-security incident to notify their primary Federal regulator of the occurrence of an event that rises to the
level of a “notification incident.” Generally, a notification incident occurs when a banking organization has suffered a
computer-security incident that has a reasonable likelihood of materially disrupting or degrading the banking
organization or its operations. The rule requires an affected banking organization to notify its primary Federal
regulator as soon as possible and no later than 36 hours after the banking organization has determined that a
notification incident has occurred. The rule also requires bank service providers to notify each affected banking
organization if that bank service provider experiences a computer-security incident that has caused, or is
reasonably likely to cause, a material service disruption or degradation for four or more hours. The rule became
effective on April 1, 2022, with a compliance date of May 1, 2022.
In July 2023, the Securities and Exchange Commission ("SEC") adopted final rules that, among other things,
require disclosures of material cybersecurity incidents, along with cybersecurity risk management, strategy and
governance. The new rules require timely reporting of incidents determined to be material, and annual disclosure of
the processes for assessing, identifying and managing material risks from cybersecurity threats including a
description of board of directors' oversight and management's role in assessing and managing material risks from
cybersecurity threats. The disclosures are required beginning with annual reports for fiscal years ending on or after
December 15, 2023.
Consumer Protection Regulations
Our lending activities are subject to a variety of statutes and regulations designed to protect consumers, including
the CRA, Home Mortgage Disclosure Act, Fair Credit Reporting Act, Fair Lending, Fair Debt Collection Practices
Act, Flood Disaster Protection Act, eSign Act, Equal Credit Opportunity Act, the Fair Housing Act, Truth-in-Lending
Act ("TILA"), the Real Estate Settlement Procedures Act ("RESPA"), Protecting Tenants at Foreclosure, and the
Secure and Fair Enforcement for Mortgage Licensing Act ("SAFE"). Our deposit operations are also subject to laws
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and regulations that protect consumer rights including Expedited Funds Availability, Truth in Savings Act ("TISA"),
and Electronic Funds Transfers. Other regulatory requirements include the Unfair, Deceptive or Abusive Acts and
Practices ("UDAAP"), Dodd-Frank Act, Right to Financial Privacy, Telephone Consumer Protection Act and Privacy
of Consumer Financial Information. Additional rules govern check writing ability on certain interest earning accounts
and prescribe procedures for complying with administrative subpoenas of financial records.
Restriction on Transactions between Bank's Affiliates
Transactions between Bancorp and the Bank are quantitatively and qualitatively restricted under Sections 23A and
23B of the Federal Reserve Act and Federal Reserve Regulation W. Section 23A places restrictions on the Bank's
“covered transactions” with Bancorp, including loans and other extensions of credit, investments in the securities of,
and purchases of assets from Bancorp. Section 23B requires that certain transactions, including all covered
transactions, be on market terms and conditions. Federal Reserve Regulation W combines statutory restrictions on
transactions between the Bank and Bancorp with Federal Reserve interpretations in an effort to simplify compliance
with Sections 23A and 23B.
Capital Requirements
The Federal Deposit Insurance Act, as amended (“FDIA”), requires federal banking agencies to take prompt
corrective action (“PCA”) with respect to depository institutions that do not meet minimum capital requirements. The
FDIA includes the following five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized,” and “critically undercapitalized.” A depository institution’s capital tier will depend
upon how its capital levels compare with various relevant capital measures and certain other factors, as established
by regulation. Bancorp's ratios exceed the required minimum ratios for capital adequacy purposes and the Bank
meets the definition for "well capitalized." Undercapitalized depository institutions may be subject to significant
restrictions. Banks that are categorized as "critically undercapitalized" are subject to dividend and other restrictions.
Effective January 1, 2020, the federal banking agencies' jointly-issued final rule on the community bank leverage
ratio ("CBLR") provides for an optional, simplified measure of capital adequacy for qualifying community banking
organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection
Act (the "Economic Growth Act"). Qualifying community banking organizations are defined as having less than $10
billion in total consolidated assets that meet risk-based qualifying criteria, a CBLR of greater than 9 percent, off-
balance sheet exposure of 25 percent or less of total consolidated assets, trading assets and liabilities of 5 percent
or less of total consolidated assets, and cannot be an advanced approaches institution. Such a community banking
organization would not be subject to other risk-based and leverage capital requirements (including the Basel III and
Basel IV requirements) and would be considered to have met the "well capitalized" ratio requirements. The CBLR is
determined by dividing a financial institution’s tangible equity capital by its average total consolidated assets. The
rule further describes what is included in tangible equity capital and average total consolidated assets. Qualifying
banks may opt in and out of the CBLR framework at any time. While we are a qualifying community banking
organization, we have not opted into the CBLR framework at this time. See below, for further discussion of the
Economic Growth Act.
The Dodd-Frank Wall Street Reform and Consumer Protection Act and the Economic Growth, Regulatory Relief,
and Consumer Protection Act
The Dodd-Frank Act, a landmark financial reform bill comprised of voluminous new rules and restrictions on bank
operations, included provisions aimed at preventing a repeat of the 2008 financial crisis and a new process for
winding down failing, systemically important institutions in a manner as close to a controlled bankruptcy as possible.
Among other things, the Dodd-Frank Act established new government oversight responsibilities, enhanced capital
adequacy requirements for certain institutions, established consumer protection laws and regulations, and placed
limitations on certain banking activities.
In an attempt to reduce the regulatory burden on U.S. companies, including financial institutions, in May 2018, the
Presidential Administration signed the Economic Growth Act, which repealed or modified certain provisions of the
Dodd-Frank Act and eased regulations on all but the largest banks. The Economic Growth Act’s highlights included
improving consumer access to mortgage credit, added certain protections for consumers, included veterans and
active duty military personnel, expanded credit freezes and created an identity theft protection database.
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Notice and Approval Requirements Related to Control
Banking laws impose notice, approval and ongoing regulatory requirements on any shareholder or other party that
seeks to acquire direct or indirect "control" of an FDIC-insured depository institution. These laws include the BHCA
and the Change in Bank Control Act. Among other things, these laws require regulatory filings by a shareholder or
other party that seeks to acquire direct or indirect "control" of an FDIC-insured depository institution or bank holding
company. The determination whether an investor "controls" a depository institution is based on all of the facts and
circumstances surrounding the investment. As a general matter, a party is deemed to control a depository institution
or other company if the party owns or controls 25% or more of any class of voting stock. Subject to rebuttal, a party
may be presumed to control a depository institution or other company if the investor owns or controls 10% or more
of any class of voting stock. Ownership by family members, affiliated parties, or parties acting in concert, is typically
aggregated for these purposes. If a party's ownership of the Company were to exceed certain thresholds, the
investor could be deemed to "control" the Company for regulatory purposes. This could subject the investor to
regulatory filings or other regulatory consequences.
In addition, except under limited circumstances, bank holding companies are prohibited from acquiring, without prior
approval: 1) control of any other bank or bank holding company or all or substantially all the assets thereof; or 2)
more than 5% of the voting shares of a bank or bank holding company that is not already a subsidiary.
Incentive Compensation
The Dodd-Frank Act required federal bank regulators and the SEC to establish joint regulations or guidelines
prohibiting incentive-based payment arrangements that encourage inappropriate risks by providing an executive
officer, employee, director or principal stockholder with excessive compensation, fees, or benefits or that could lead
to material financial loss to the entity. These regulations apply to institutions having at least $1 billion in total assets.
In addition, regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of
incentive-based compensation arrangements. The agencies have not finalized regulations proposed in April 2016.
If adopted, the proposed regulations could place limits on the manner in which we structure our executive
compensation.
The Federal Reserve reviews, as part of the regular, risk-focused examination process, the incentive compensation
arrangements of banking organizations. The Federal Reserve tailors its reviews for each organization based on the
scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements.
The findings of the supervisory initiatives are included in reports of examination. Deficiencies, if any, are
incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make
acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its
incentive compensation arrangements, or related risk management control or governance processes, pose a risk to
the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct
the deficiencies.
In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including
the Nasdaq, to implement listing standards that require public companies to adopt policies mandating the recovery
or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the
three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including
to correct an error that would result in a material misstatement if the error was either corrected or left uncorrected in
the current period. The final rule required us to adopt a clawback policy within 60 days after such listing standard
became effective and file the policy as an exhibit in our Annual Report on Form 10-K. Please see exhibit 97.1 for a
copy of our policy.
Available Information
On our Internet website, www.bankofmarin.com, we post the following filings as soon as reasonably practical after
they are filed with or furnished to the Securities and Exchange Commission: Annual Report to Shareholders, Form
10-K, Proxy Statement for the Annual Meeting of Shareholders, quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities and Exchange Act of 1934. All such materials on our website are available free of charge. This website
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address is for information only and is not intended to be an active link, or to incorporate any website information into
this document. In addition, copies of our filings are available by requesting them in writing or by phone from:
Corporate Secretary
Bank of Marin Bancorp
504 Redwood Boulevard, Suite 100
Novato, CA 94947
415-763-4523
These materials are also available at the SEC’s internet website (https://www.sec.gov).
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ITEM 1A. RISK FACTORS
We assume and manage a certain degree of risk in order to conduct our business. The material risks and
uncertainties that management believes may affect our business are listed below and in ITEM 7A, Quantitative and
Qualitative Disclosure about Market Risk. The list is not exhaustive; additional risks and uncertainties that
management is not aware of, focused on, or currently deems immaterial may also impair business operations. If
any of the following risks, or risks that have not been identified, actually occur, our financial condition, results of
operations, and stock trading price could be materially and adversely affected. We manage these risks by
promoting sound corporate governance practices, which include but are not limited to, establishing policies and
internal controls, and implementing internal review processes. Before making an investment decision, investors
should carefully consider the risks, together with all of the other information included or incorporated by reference in
this Annual Report on Form 10-K and our other filings with the SEC. This report is qualified in its entirety by these
risk factors.
Strategic, Financial, and Reputational Risks
Growth Strategy or Potential Mergers and Acquisitions May Produce Unfavorable Outcomes
We seek to expand our franchise safely and consistently. A successful growth strategy requires us to manage
multiple aspects of the business simultaneously, such as following adequate loan underwriting standards, balancing
loan and deposit growth without compressing our net interest margin, managing interest rate risk, maintaining
sufficient capital, and recruiting, training and retaining qualified professionals. Our strategic plan also includes
merger and acquisition opportunities that either enhance our market presence or have potential for improved
profitability through financial management, economies of scale or expanded services. We may incur significant
acquisition related expenses either during the due diligence phase of acquisition targets or during integration of the
acquirees. These expenses have and may continue to negatively impact our earnings prior to realizing the benefits
of acquisitions. We may also be exposed to difficulties in combining the operations of acquired institutions into our
own operations, which may prevent us from achieving the expected benefits from our acquisition activities. Our
earnings, financial condition and prospects after the merger may affect our stock price and will depend in part on
our ability to integrate the operations and management of the acquired institution while continuing to implement
other aspects of our business plan. Inherent uncertainties exist in integrating the operations of an acquired
institution and there is no assurance that we will be able to do so successfully. Among the issues that we could face
are:
•
unexpected problems with operations, personnel, technology or credit;
•
•
•
•
•
loss of customers and employees of the acquiree;
difficulty in working with the acquiree's employees and customers;
the assimilation and integration of the acquiree's operations, culture and personnel;
instituting and maintaining uniform standards, controls, procedures and policies; and
litigation risk or obligations not discovered during due diligence.
Undiscovered factors as a result of an acquisition could bring liabilities against us, our management and the
management of the institutions we acquire. These factors could contribute to our not achieving the expected
benefits from our acquisitions within desired time frames, if at all. Further, although we generally anticipate cost
savings from acquisitions, we may not be able to fully realize those savings. Any cost savings may be offset by
losses in revenues or other charges to earnings.
Competition with Other Financial Institutions to Attract and Retain Banking Customers
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
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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.
Based on our current strong liquidity position, our adjustment to deposit pricing has lagged the market in a rising
interest rate environment. 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.
Financial Challenges at Other Banking Institutions Could Lead to Depositor Concerns That Spread Within
the Banking Industry Causing Disruptive Deposit Outflows and Other Destabilizing Results That Could
Adversely Affect Our Liquidity, Business, Financial Condition and Results of Operations
In the first and second quarters of 2023, certain specialized banking institutions with elevated concentrations of
uninsured deposits experienced large deposit outflows, resulting in the institutions being placed into FDIC
receiverships. In addition, media and market coverage of the Bay Area economy and local financial institutions,
have generated significant market volatility among publicly traded bank holding companies and, in particular,
regional and community banks like the Company. These market developments have negatively impacted customer
confidence in the safety and soundness of regional and community banks. As a result, customers may choose to
maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all
of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital
and results of operations.
We maintain a well-diversified deposit base, with an estimated 28% of uninsured and/or uncollateralized deposits as
of December 31, 2023. Such uninsured deposits were fully covered by the Bank's available funding sources,
including unrestricted cash, unencumbered available-for-sale securities, and a total available borrowing capacity of
$1.967 billion, or 60% of total deposits, and 213% of estimated uninsured and/or uncollateralized deposits as of
December 31, 2023. Excluding zero balance accounts, 59% of deposit balances were held in business accounts
with average balances of $120 thousand per account, with the remaining 41% in consumer accounts with average
balances of $41 thousand per account as of December 31, 2023.
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 may
continue to increase if 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. 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. All of these factors could have a material adverse impact
on our asset growth, liquidity, business, financial condition, and results of operations.
We May Not Be Able to Attract and Retain Key Employees
Our success depends in large part on our ability to attract qualified personnel and to retain key employees, as well
as the prompt replacement of retiring executives. The loss of key personnel and/or our inability to secure qualified
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candidates to replace retiring executives could have an unfavorable effect on our business due to the required skills
and knowledge of our market and years of industry experience.
Bancorp Relies on Dividends from the Bank to Pay Cash Dividends to its Shareholders as Well as to Meet
Other Financial Obligations
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 pay cash dividends to
Bancorp's common shareholders, repurchase shares, and cover operational expenses of the holding company.
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.
Federal law would prohibit capital distributions from the Bank, with limited exceptions, if the Bank were categorized
as "undercapitalized" under applicable Federal Reserve or FDIC regulations. In addition, as a California bank, Bank
of Marin is subject to state law restrictions on the payment of dividends. For further information on the distribution
limit from the Bank to Bancorp, see the section captioned “Bank Regulation” in ITEM 1 above and “Dividends” in
Note 8 to the Consolidated Financial Statements in ITEM 8 of this report.
The Value of Goodwill and Other Intangible Assets May Decline in the Future
As of December 31, 2023, we had goodwill totaling $72.8 million and a core deposit intangible asset totaling $3.8
million from business acquisitions. A significant decline in expected future cash flows, a significant adverse change
in the business climate, or a significant and sustained decline in the price of our common stock could necessitate
taking charges in the future related to the impairment of goodwill or other intangible assets. If we were to conclude
that a future write-down of goodwill or other intangible assets is necessary, we would record the appropriate charge,
which could have a material adverse effect on our business, financial condition and results of operations.
Market, Interest Rate, and Liquidity Risks
A Lack of Liquidity could Adversely Affect our Operations, Financial Condition and Results of Operations
Liquidity is essential to our business and our ability to fund our operations, effectively manage the repayment and
maturity schedules of our loans and investment securities, distribute dividends to our shareholders, and fulfill our
debt obligations or deposit withdrawal demands. Our most important source of funding consists of deposits, which
is affected by external factors outside the Bank's control as well as customers' perceptions, business operations,
and investment goals. If customers move money out of bank deposits and into other investments, then we would
lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net
income. Based on experience, we believe that our deposit accounts are relatively stable sources of funds.
Other primary sources of funds consist of cash flows from operations, investment maturities and sales, loan
repayments, and proceeds from the issuance and sale of any equity and debt securities to investors. Additional
liquidity is provided by our ability to borrow from the Federal Reserve Bank of San Francisco, Federal Home Loan
Bank and other financial institutions, as well as our ability to raise brokered deposits. Our access to funding
sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be
impaired by factors that affect us directly or the bank or non-bank financial services industries or the economy in
general, such as disruptions in the financial markets or negative views and expectations about the prospects for the
bank or non-bank financial services industries.
Earnings are Significantly Influenced by General Business and Economic Conditions
Our success depends, to a certain extent, on local, national and global economic and political conditions. Unlike
larger national or other regional banks that are more geographically diversified, we provide banking and financial
services to customers primarily in Northern California with particular focus on the local markets in the San Francisco
Bay and Greater Sacramento regions. The local economic conditions in these areas have a significant impact on
the demand for our products and services as well as the ability of our customers to repay loans, the value of the
15
collateral securing loans and the stability of our deposits as our primary funding source. Economic pressure on
consumers and uncertainty regarding the economy and local business climate may result in changes in consumer
and business spending, borrowing and saving habits, which may affect the demand for loans and other products
and services we offer. Further, loan defaults that adversely affect our earnings correlate highly with deteriorating
economic conditions (such as the California unemployment rate and California gross domestic product), which
impact our borrowers' creditworthiness. In addition, health epidemics or pandemics (or expectations about them),
international trade disputes, inflation risks, oil price volatility, the level of U.S. debt and global economic conditions
could destabilize financial markets in which we operate. Lastly, actions of the Federal Open Market Committee
("FOMC") of the Federal Reserve could cause financial market volatility, which will affect the pricing of our loan and
deposit products.
Interest Rate Risk is Inherent in Our Business
Our earnings are largely dependent upon our net interest income, which is the difference between interest income
earned on interest-earning assets, such as loans and securities, and interest expense paid on interest-bearing
liabilities, such as deposits and borrowed funds. Interest rates are sensitive to many factors outside of our control,
including general economic conditions and the policies of various governmental and regulatory agencies and, in
particular, the FOMC, which regulates the supply of money and credit in the United States. Changes in monetary
policy, including changes in interest rates, can influence not only the interest we receive on loans and securities and
interest we pay on deposits and borrowings, but can also affect (i) our ability to originate loans and obtain deposits,
(ii) the duration of our securities and loan portfolios, and (iii) the fair value of our financial assets and liabilities. In
fact, the FOMC’s aggressive interest rate increases, discussed more fully below, negatively affected each of these
areas of our business recently. Our portfolio of loans and securities will generally decline in value if market interest
rates increase, and increase in value if market interest rates decline. Decreases in the market value of investment
securities available for sale negatively impact the Bank's tangible equity through accumulated other comprehensive
losses. In addition, our loans and callable mortgage-backed securities are also subject to prepayment risk when
interest rates fall, and the borrowers' credit risk may increase in rising rate or recessionary environments. Factors
such as inflation, productivity, oil prices, unemployment rates, and global demand play a role in the FOMC's
consideration of future rate adjustments.
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. As a result of seven rate adjustments during 2022, the federal funds
target rate increased to a range of 4.25% to 4.50% at year-end 2022 and our net interest margin increased
gradually over the course of the year. In 2023, on each of February 1st, March 22nd, May 3rd, and July 26th the
FOMC increased the target rate by 25 basis points to a range of 5.25% to 5.50%. Rising interest rates and first
quarter 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.
Additional rate increases are not widely anticipated in 2024, as Federal Reserve policymakers continue to monitor
inflation and economic developments.
See the Net Interest Income section of Management's Discussion and Analysis of Financial Condition and Results
of Operations in ITEM 7 and Quantitative and Qualitative Disclosures about Market Risk in ITEM 7A of this report for
further discussion related to interest rate sensitivity and our management of interest rate risk.
Rising Interest Rates Have Decreased 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
16
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 did so for strategic purposes in the third and fourth quarters
of 2023 as a source of liquidity and 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.
Activities of Our Large Borrowers and Depositors May Cause Unexpected Volatilities in Our Loan and
Deposit Balances, as well as Net Interest Margin
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 8% of total deposit balances at both December 31, 2023 and 2022. 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. 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.
Unexpected Early Termination of Interest Rate Swap Agreements May Affect Earnings
We have entered into interest-rate swap agreements, primarily as an asset/liability risk management tool, in order to
mitigate the interest rate risk that causes fluctuations in the fair value of specified long-term fixed-rate loans and
securities or firm commitments to originate long-term fixed rate loans. In the event of default by the borrowers on
our hedged loans, we may have to terminate these designated interest-rate swap agreements early, resulting in
market value losses that could negatively affect our earnings.
The Trading Volume of Bancorp's Common Stock May Be Less than That of Other, Larger Financial
Services Companies
Our common stock is listed on the Nasdaq Capital 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.
Credit Risks
We are Subject to Significant Credit Risk and Loan Losses May Exceed Our Allowance for Credit Losses in
the Future
The operation of our business requires us to manage credit risk. As a lender, we are exposed to the risk that our
borrowers will be unable to repay their loans according to their terms, and that the collateral securing repayment of
their loans, if any, may not be sufficient to ensure repayment. In addition, there are risks inherent in making any
loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper
loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing
with individual borrowers. In order to successfully manage credit risk, we must, among other things, maintain
disciplined and prudent underwriting standards and ensure that our bankers follow those standards. The weakening
of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or
diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt
policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our
loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we
17
significantly increase our allowance for credit losses on loans, each of which could adversely affect our net income.
As a result, any inability to successfully manage credit risk could have a material adverse effect on our business,
financial condition or results of operations.
We maintain allowances for credit losses on loans and unfunded loan commitments that represent management's
best estimate of expected credit losses over the contractual lives of our loans under the current expected credit loss
method. The level of the allowance reflects management's continuous evaluation of specific credit risks, loan loss
experience, current loan portfolio quality and present and forecasted economic, political and regulatory conditions.
The determination of the appropriate level of the allowances inherently involves a high degree of subjectivity and
requires us to make significant estimates of current credit risks and trends and future economic forecasts, all of
which may undergo material changes. Inaccurate assumptions in appraisals or an inappropriate choice of the
valuation techniques may lead to an inadequate level of specific reserve or charge-offs.
The Small to Medium-sized Businesses that we Lend to may have Fewer Resources to Weather Adverse
Economic and Other Developments, which may Impair a Borrower's Ability to Repay a Loan
We focus our business development and marketing strategy primarily on small to medium-sized businesses. Small
to medium-sized businesses frequently have smaller market shares than their competition, may be more vulnerable
to economic downturns, often need substantial additional capital to expand or compete and may experience
substantial volatility in operating results, any of which may impair a borrower's ability to repay a loan. In addition,
the success of a small and medium-sized business often depends on the management talents and efforts of one or
two people or a small group of people, and the death, disability or resignation of one or more of these people could
adversely affect the business and its ability to repay its loan. If general economic conditions negatively affect the
California markets in which we operate and small to medium-sized businesses are adversely affected or our
borrowers are otherwise affected by adverse business developments, our business, financial condition and results
of operations may be negatively affected.
Negative Conditions Affecting Real Estate May Harm Our Business and Our Commercial Real Estate
Concentration May Heighten Such Risk
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, 2023, approximately 90% of our loans
had real estate as a primary or secondary component of collateral, which were comprised of 75% commercial real
estate and 25% residential real estate. Real estate valuations are influenced by demand, and demand is driven by
economic factors such as employment rates and interest rates.
Loans secured by CRE include those secured by office buildings, owner-user office/warehouses, mixed-use
commercial, retail properties and multi-family residential real estate. There can be no assurance that properties
securing our loans will generate sufficient cash flows to allow borrowers to make full and timely loan payments to
us. We do not lend on high-rise office towers in San Francisco and the Bay Area generally, but we do take office
and other commercial properties as collateral in our CRE lending. For a discussion of our CRE lending, including
detail on the types of properties in our real estate secured lending and geographic distribution of such loans, please
see the discussion titled “FINANCIAL CONDITION – Loans” herein.
Rising CRE lending concentrations may expose institutions to unanticipated earnings and capital volatility in the
event of adverse changes in the CRE market. Concentration risk exists when financial institutions deploy too many
assets to any one industry or segment. Concentration stemming from commercial real estate is one area of
regulatory concern. The CRE Concentration Guidance provides supervisory criteria, including the following
numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate
loan concentrations that may warrant greater supervisory scrutiny: (i) total commercial real estate loans exceeding
300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development
loans exceeding 100% of capital. The CRE Concentration Guidance does not limit banks’ levels of commercial real
estate lending activities, but rather guides institutions in developing risk management practices and levels of capital
that are commensurate with the level and nature of their commercial real estate concentrations. As of
December 31, 2023 and 2022, using regulatory definitions in the CRE Concentration Guidance, our CRE loans
represented 300% and 307%, respectively, of our total risk-based capital. We manage our CRE concentrations and
18
discuss them as necessary with the banking regulatory agencies and believe that our underwriting policies,
management information systems, independent credit administration process, and monitoring of real estate loan
concentrations are currently sufficient to address the CRE Concentration Guidance.
Accounting Estimates and Risk Management Processes Rely on Analytical and Forecasting Models
The processes we use to estimate expected credit losses on loans and investment securities, and to measure the
fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates
and other market measures on our financial condition and results of operations, depends upon the use of analytical
and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market
volatility or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be
inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for
interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses
upon changes in market interest rates or other market factors. If the models we use for determining our expected
credit losses on loans and investment securities are inadequate, the allowance for credit losses may not be
sufficient to support future charge-offs. If the models we use to measure the fair value of financial instruments are
inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect
what we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or
forecasting models could have a material adverse effect on our business, financial condition and results of
operations.
Investment Securities May Lose Value due to Credit Quality of the Issuers
We invest in significant portions of debt securities issued by government-sponsored enterprises ("GSE"), such as
Federal Home Loan Bank ("FHLB"), Federal National Mortgage Association (“FNMA”), and Federal Home Loan
Mortgage Corporation ("FHLMC"). We also hold mortgage-backed securities (“MBS”) issued by FNMA and FHLMC,
both of which have been under U.S. government conservatorship since 2008. While we consider FNMA and
FHLMC securities to have low credit risk as they carry the explicit backing of the U.S. government due to the
conservatorship, they are not direct obligations of the U.S. government. The fair value of our securities issued or
guaranteed by these two GSE entities may be negatively impacted if the U.S. government ceases to provide
support to the conservatorship. GSE debt is sponsored but not guaranteed by the federal government and carries
implicit backing, whereas government agencies such as Government National Mortgage Association ("GNMA") are
divisions of the government whose securities are backed by the full faith and credit of the U.S. government.
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 16th year of U.S. government
conservatorship 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.
While we generally seek to minimize our exposure by strategically diversifying our credit exposure to obligations of
issuers in various geographic locations throughout California and the U.S., investing in investment-grade securities,
and actively monitoring the creditworthiness of the issuers and/or credit guarantee providers, there is no guarantee
that the issuers will remain financially sound or continue their payments on these debentures.
Operational and Other Risks
Risks Associated with Cybersecurity Could Negatively Affect Our Earnings and Reputation
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), 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
19
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.
The Financial Services Industry is Undergoing Rapid Technological Changes and, As a Result, We Have a
Continuing Need to Stay Current with Those Changes to Compete Effectively and Increase Our Efficiencies.
We May Not Have the Resources to Implement New Technology to Stay Current with These Changes
The financial services industry is undergoing technological changes with frequent introductions of new technology-
driven products and services. In addition to providing better client service, the effective use of technology increases
efficiency and reduces operational costs. Our future success will depend in part on our ability to use technology to
provide products and services that will satisfy client demands securely and cost-effectively. In connection with
implementing new technology enhancements and/or products, we may experience operational challenges (e.g.,
human error, system error, incompatibility), which could result in us not fully realizing the anticipated benefits from
such new technology or require us to incur significant costs to remedy any such challenges in a timely manner.
Climate change and related legislative and regulatory initiatives may materially affect the Company’s
business and results of operations.
Concerns over the long-term impacts of climate change have led to governmental efforts around the world to
mitigate those impacts. As a result, political and social attention to the issue of climate change has increased. The
U.S. government, state legislatures and federal and state regulatory agencies are likely to continue to propose and
advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. These
initiatives and increasing supervisory expectations may require the Company to expend significant capital and incur
compliance, operating, maintenance and remediation costs. In addition, given the lack of empirical data on the
credit and other financial risks posed by climate change, it is impossible to predict how climate change may impact
our financial condition and operations. As a banking organization, the physical effects of climate change may
present certain unique risks. For example, our primary market is located in both earthquake and wildfire-prone
zones in Northern California, which is also subject to other weather or disasters, such as severe rainstorms, drought
or flood. These events have interrupted our business operations unexpectedly at times (e.g., PG&E power shutoffs
in the North Bay and Sacramento Region). Climate-related physical changes and hazards could also pose credit
risks for us. For example, our borrowers may have collateral properties or operations located in areas at risk of
wildfires, or coastal areas at risk to rising sea levels and erosion, or subject to the risk of drought in California. The
properties pledged as collateral on our loan portfolio could also be damaged by tsunamis, landslides, floods,
earthquakes or wildfires and thereby the recoverability of loans could be impaired. A number of factors can affect
credit losses, including the extent of damage to the collateral, the extent of damage not covered by insurance, the
extent to which unemployment and other economic conditions caused by the natural disaster adversely affect the
ability of borrowers to repay their loans, and the cost of collection and foreclosure to us. Additionally, there could be
increased insurance premiums and deductibles, or a decrease in the availability of coverage, due to severe
weather-related losses. The ultimate outcome on our business of a natural disaster, whether or not caused by
climate change, is difficult to predict but could have a material adverse effect on financial condition, results of
operations or profitability.
We Rely on Third-Party Vendors for Important Aspects of Our Operation
We depend on the accuracy and completeness of information and systems provided by certain key vendors,
including but not limited to data processing, payroll processing, technology support, investment safekeeping and
accounting. For example, we outsource core processing to Fidelity Information Services ("FIS") and wire
processing to Finastra, which are leading financial services solution providers that allow us access to competitive
technology offerings without having to invest in their development. Our ability to operate, as well as our financial
condition and results of operations, could be negatively affected in the event of an interruption of an information
20
system, an undetected error, a cyber-breach, or in the event of a natural disaster whereby certain vendors are
unable to maintain business continuity.
Regulatory and Compliance Risks
Banks and Bank Holding Companies are Subject to Extensive Government Regulation and Supervision
Bancorp and the Bank are subject to extensive federal and state governmental supervision, regulation and control.
Holding company regulations affect the range of activities in which Bancorp is engaged. Banking regulations affect
the Bank's lending practices, capital structure, investment practices, dividend policy, and compliance costs among
other things. Compliance risk is the current and prospective risk to earnings or capital arising from violations of, or
non-conformance with, laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical
standards set forth by regulators. Compliance risk also arises in situations where the laws or rules governing
certain bank products or activities of our clients may be ambiguous or untested. This risk exposes Bancorp and the
Bank to potential fines, civil money penalties, payment of damages and the voiding of contracts. Compliance risk
can lead to diminished reputation, reduced franchise value, limited business opportunities, reduced expansion
potential and an inability to enforce contracts. The Bank manages these risks through its extensive compliance
plan, policies and procedures. For further information on supervision and regulation, see the section captioned
“SUPERVISION AND REGULATION” in ITEM 1 of this report.
Any Regulatory Examination Scrutiny or New Regulatory Requirements Arising From the Recent Events in
the Banking Industry Could Increase the Company’s Expenses and Affect the Company’s Operations
The Company anticipates increased regulatory scrutiny – in the course of routine examinations and otherwise – and
new regulations directed towards banks of similar size to the Bank, designed to address the recent negative
developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce
its profitability.
21
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 1C. CYBERSECURITY
Cybersecurity Risk Management, Strategy, and Governance
The Company recognizes that the security of our banking operations is critical to protecting our customers and
maintaining our reputation. The cybersecurity landscape is constantly evolving. To mitigate these risks, the
Company deploys a comprehensive and resilient information security program that consists of a layered security
model using industry leading hardware, software, and services to protect customers' and the Bank’s data and to
ensure the confidentiality, integrity, and availability of our information systems. This information security program is
a critical component of our overall enterprise risk management program.
The Company leverages the following guidelines and frameworks to continue to refine and maintain the information
security program: FFIEC Information Security IT Examination Handbook, FFIEC Business Continuity Planning
Handbook, FFIEC Cybersecurity Assessment Tool, Center for Internet Security Critical Security Controls, National
Institute of Standards and Technology (NIST) Cybersecurity Framework.
Key components of the information security program include:
•
•
•
•
•
•
A risk assessment process that identifies and prioritizes material cybersecurity risks; refines and evaluates
the effectiveness of controls to mitigate the risks; and reports results to executive management and the
Board of Directors.
A third-party Managed Detection and Response (“MDR”) service, which monitors the security of our
network, infrastructure and computer systems 24x7, 365 days a year.
An incident response plan that outlines the steps the Bank will take to respond to a cybersecurity incident,
which is tested on a periodic basis.
Annual recurring cybersecurity controls testing program, which includes independent third-party penetration
testing, cybersecurity procedures and system testing, and third-party independent network traffic
monitoring.
A training and awareness program that educates and tests employees on how to avoid and identify
cybersecurity risks.
A Cyber Security Insurance Policy that covers insurance, incident response, incident mitigation, and legal
support.
The Company engages reputable third-party assessors to conduct various independent risk assessments on a
regular basis, including but not limited to maturity assessments and various other tests. Following a defense-in-
depth strategy, the Company leverages both in-house resources and third-party service providers to implement and
maintain processes and controls to manage the identified risks.
Our vendor management program is designed to ensure that our vendors meet our cybersecurity requirements and
manage our third-party risks. This includes conducting periodic risk assessments of critical vendors, requiring
vendors to implement appropriate cybersecurity controls, and monitoring vendor compliance with our cybersecurity
requirements.
Security controls are employed on all media where information is stored, the systems that process it, and
infrastructure components that facilitate its transmission to ensure the confidentiality, integrity, and availability of
Bank’s and customers' information. These controls include, but are not limited to, access control, data encryption,
data loss prevention, incident response, security monitoring, third party risk management, and vulnerability
management.
The Company's cybersecurity risk management program and strategy are regularly reviewed and updated to ensure
that they are aligned with the Bank's business objectives and are designed to address evolving cybersecurity
threats and satisfy regulatory requirements and industry standards.
22
The Company’s Board of Directors is charged with overseeing the establishment and execution of the Company’s
risk management framework and monitoring adherence to related policies required by applicable statutes,
regulations and principles of safety and soundness. Consistent with this responsibility, the Board has primary
oversight of cybersecurity risk and cybersecurity risk management and receives reporting from management about
material risks from cybersecurity threats. All members of the Board of Directors receive regular updates on
cybersecurity risks and incidents from the Information Security Officer (“ISO”) and Chief Information Officer (“CIO”)
and annual security awareness training. The Information Security department consists of cybersecurity
professionals who assess, identify, and manage cybersecurity risks and are responsible for implementing and
maintaining the Company’s cybersecurity risk management program.
ITEM 2. PROPERTIES
We lease our corporate headquarters building in Novato, California, which houses loan production, operations,
Wealth Management and Trust Services and administration. We lease branch and office facilities within our primary
market areas in the cities of Corte Madera, San Rafael, Novato, Sausalito, Mill Valley, Greenbrae, Petaluma, Santa
Rosa, Healdsburg, Sonoma, Napa, San Francisco, Alameda, Oakland, Walnut Creek, San Mateo, Gold River,
Jackson, Roseville, and Sacramento. For additional information on properties, refer to Note 4, Bank Premises and
Equipment, and Note 12, Commitments and Contingencies, in ITEM 8 of this report.
ITEM 3. LEGAL PROCEEDINGS
For information on litigation matters, see Note 12, Commitments and Contingencies, in ITEM 8 of this report.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Bancorp's common stock trades on the Nasdaq Capital Market under the symbol BMRC. At February 29, 2024,
16,193,342 shares of Bancorp's common stock, no par value, were outstanding and held by approximately 7,860
holders of record and beneficial owners.
Five-Year Stock Price Performance Graph
The following graph, compiled by S&P Global Market Intelligence of New York, New York, shows a comparison of
cumulative total shareholder return on our common stock during the five fiscal years ended December 31, 2023
compared to the Russell 2000 Stock index and the S&P Regional Banks Select Industry Index. The comparison
assumes the investment of $100 in our common stock on December 31, 2018 and the reinvestment of all dividends.
The graph represents past performance and does not indicate future performance. In addition, total return
performance results vary depending on the length of the performance period.
Bank of Marin Bancorp (BMRC)
Russell 2000 Index
S&P Regional Banks Select Industry Index 1
Source: S&P Global Market Intelligence
2018
100.00
100.00
100.00
2019
111.31
125.53
127.64
2020
87.16
150.58
118.58
2021
96.97
172.90
165.90
2022
88.13
137.56
141.42
2023
62.13
160.85
130.91
1 The index comprises stocks in the S&P Total Market Index that are classified in the Global Industry Classification Standard regional banks sub-industry.
24
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes information as of December 31, 2023, with respect to equity compensation plans.
Equity compensation plans approved by shareholders
283,578 $
33.46
Shares to be issued
upon exercise of
outstanding options1
Weighted average
exercise price of
outstanding options
Shares remaining
available for future
issuance 2
999,843
1 Represents shares of common stock issuable upon exercise of outstanding options under the Bank of Marin Bancorp 2017 Equity Plan and 2007 Equity Plan.
2 Represents remaining shares of common stock available for future grants under the 2017 Equity Plan and the 2020 Director Stock Plan, excluding 283,578 shares
to be issued upon exercise of outstanding options and 372,923 shares available to be issued under the Employee Stock Purchase Plan.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In January 2022, the last activity under the share repurchase program approved in 2021, Bancorp repurchased
23,275 shares at an average price of $37.64 per share for a total cost of $877 thousand. Cumulative repurchases
totaled 618,991 shares at an average price of $36.04 per share. A total of $34.7 million remained available to
repurchase under the program that expired on July 31, 2023.
On July 21, 2023, the Board of Directors approved the adoption of Bancorp's new share repurchase program, which
replaced the one expiring on July 31, 2023, for up to $25.0 million and expiring on July 31, 2025. There were no
repurchases under this program in 2023.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of financial condition as of December 31, 2023 and 2022 and results of operations for each
of the years in the three-year period ended December 31, 2023 should be read in conjunction with our consolidated
financial statements and related notes thereto, included in Part II ITEM 8 of this report.
Forward-Looking Statements
The disclosures set forth in this item are qualified by important factors detailed in Part I captioned Forward-Looking
Statements and ITEM 1A captioned Risk Factors of this report and other cautionary statements set forth elsewhere
in the report.
Critical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with generally accepted accounting
principles that involve a significant level of estimation and uncertainty and have had or are reasonably likely to have
a material impact on our financial condition and results of operations. We consider accounting estimates to be
critical to our financial results if (i) the accounting estimate requires management to make assumptions about
matters that are highly uncertain, (ii) management could have applied different assumptions during the reported
period, and (iii) changes in the accounting estimate are reasonably likely to occur in the future and could have a
material impact on our financial statements. Management has determined the following accounting estimates and
related policies to be critical.
Allowance for Credit Losses on Loans and Unfunded Commitments
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 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.
25
Credit loss experience among the Bank and peer groups provides the basis for the estimation of expected credit
losses.
The allowance for credit losses ("ACL") model utilizes a discounted cash flow ("DCF") method to measure the
expected credit losses on loans collectively evaluated that are sub-segmented by loan pools with similar credit risk
characteristics, which generally correspond to federal regulatory reporting codes. In addition, the DCF method
incorporates assumptions for probability of default ("PD"), loss given default ("LGD"), and prepayments and
curtailments over the contractual terms of the loans. Under the DCF method, the ACL reflects the difference
between the amortized cost basis and the present value of the expected cash flows using the loan's effective rate.
Management considers whether adjustments to the quantitative portion of the ACL are needed for differences in
segment-specific risk characteristics or to reflect the extent to which it expects current conditions and reasonable
and supportable forecasts of economic conditions to differ from the conditions that existed during the historical
period included in the development of PD and LGD.
Our allowance model is particularly sensitive to forecasted and seasonally-adjusted actual California unemployment
rates, which increased to 5.1% at December 31, 2023, from 4.1% at December 31, 2022. 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. We performed a sensitivity analysis as of December 31,
2023, and estimated that a 100 basis point change (e.g., 4.5% to 5.5%) in the forecasted unemployment rates over
the next four quarters would result in about a 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.
While we believe we use the best information available to determine the allowance for credit losses, our results of
operations could be significantly affected if circumstances differ substantially from the assumptions used in
determining the allowance. For information regarding critical estimates related to our allowance for credit losses
methodology, the provision for credit losses, and risks to asset quality and lending activity, see ITEM 1A - Risk
Factors, the Allowance for Credit Losses section in ITEM 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations,
Fair Value Measurements
We use fair value measurements to record certain financial instruments and to determine fair value disclosures.
Available-for-sale securities and interest rate swap agreements are financial instruments recorded at fair value on a
recurring basis. Additionally, we record at fair value other financial assets on a nonrecurring basis, such as
collateral dependent loans and other real estate owned. These nonrecurring fair value adjustments typically involve
write-downs of, or specific reserves against, individual assets. We group our assets and liabilities that are
measured at fair value into three levels within the fair value hierarchy, based on the markets in which the assets and
liabilities are traded and the reliability of the assumptions used to determine fair value. The classification of assets
and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used in the
measurement are observable or unobservable. Observable inputs reflect market-driven or market-based information
obtained from independent sources, while unobservable inputs reflect our estimates about market data. The degree
of management judgment involved in determining the fair value of a financial instrument is dependent upon the
availability of quoted market prices or observable market data. For financial instruments that trade actively and have
quoted market prices or observable market data, there is minimal subjectivity involved in measuring fair value.
When observable market prices and data are not fully available, management judgment is necessary to estimate
fair value. In addition, changes in market conditions may reduce the availability of quoted prices or observable data.
Therefore, when market data is not available, we use valuation techniques that require more management judgment
to estimate the appropriate fair value measurement. Fair value is discussed further in Note 1 - Summary of
Significant Accounting Policies, and Note 9 - Fair Value of Assets and Liabilities in ITEM 8 - Financial Statements
and Supplementary Data of this Form 10-K.
26
Goodwill
Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of
the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over
the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is tested
annually for impairment, or more often if conditions change and indicate a possible impairment. Significant
judgment is used in the assessment of goodwill, both in a qualitative assessment and a quantitative assessment.
Assessments of goodwill often require the use of fair value estimates, which are dependent upon various factors,
including estimates concerning the Company’s long-term growth prospects and comparability to industry data.
Uncertainty and imprecision in estimates can affect the estimated fair value of the reporting unit in a goodwill
assessment. Additionally, various events or circumstances could have a negative effect on the estimated fair value
of a reporting unit, such as declines in business performance, increases in credit losses, and deterioration in
economic or market conditions, which may result in a material impairment charge to earnings in future periods.
In 2023, the Company assessed goodwill for impairment by performing a quantitative assessment, which
encompassed an income approach and a market approach. The income approach considered such factors as the
estimated future cash flows of our reporting unit based on internal long-term forecasts, assumptions concerning
potential synergies and other economic benefits, and a discount rate used to present value such cash flows to
determine the fair value. The market approach utilized observable market data from comparable public companies,
including price-to-tangible book value ratios, to estimate the Company’s fair value. The market approach also
incorporated a control premium to represent the Company’s expectation of a hypothetical acquisition. Management
used judgment in the selection of comparable companies and included those with similar business activities, and
related operating environments. In addition, the selection and weighting of the various fair value techniques may
result in higher or lower estimates of fair value. Judgment is applied in determining the weightings between the
income approach and the market approach in determining fair value. The results of this assessment indicated the
value of goodwill was not impaired as of our annual impairment testing date of November 30, 2023, and there were
no changes to our assessment through December 31, 2023.
27
RESULTS OF OPERATIONS
Financial Highlights
The following are highlights of our financial condition and results of operations. The data was derived from the audited
consolidated financial statements of Bank of Marin Bancorp.
At December 31,
2023
2022
$ 3,803,903
$ 1,477,226
$ 2,048,548
$ 3,290,075
$
26,298
$ 439,062
27.17
$
$ 4,147,464
$ 1,774,303
$ 2,069,563
$ 3,573,348
$ 112,439
$ 412,092
25.71
$
1.21 %
3.15x
0.39 %
1.56 %
11.54 %
9.73 %
16.89 %
15.91 %
10.46 %
15.91 %
63.03 %
27
329
1.10 %
9.45x
0.12 %
1.34 %
9.94 %
8.21 %
15.90 %
15.02 %
9.60 %
15.02 %
58.56 %
31
313
For the Years Ended December 31,
2023
2022
2021
$ 102,761
2,575
(342)
4,989
79,481
19,895
$ 127,492
(63)
(318)
10,905
75,269
46,586
$ 104,951
(1,449)
(992)
10,132
72,638
33,228
$
$
1.24
1.24
$
$
2.93
2.92
$
$
2.32
2.30
0.49 %
4.69 %
2.63 %
0.74 %
73.76 %
386
0.02 %
80.65 %
1.00
$
$
1.08 %
11.16 %
3.11 %
0.06 %
54.39 %
(23) $
NM
33.45 %
0.98
$
0.94 %
8.43 %
3.17 %
0.07 %
63.12 %
(93)
NM
40.52 %
0.94
$
$
(dollars in thousands, except per share data)
Selected financial condition data:
Total assets
Investment securities
Loans, net of allowance for credit losses on loans
Deposits
Borrowings and other obligations
Stockholders' equity
Book value per share
Asset quality ratios:
Allowance for credit losses to total loans
Allowance for credit losses to non-accrual loans
Non-accrual loans to total loans
Classified loans (graded substandard and doubtful) as a percentage of total loans
Capital ratios:
Equity to total assets
Tangible common equity to tangible assets
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to average assets)
Common equity Tier 1 capital (to risk-weighted assets)
Other data:
Loan-to-deposit ratio
Number of branches
Full-time equivalent employees
(dollars in thousands, except per share data)
Selected operating data:
Net interest income
Provision for (reversal of) credit losses on loans
Reversal of credit losses on unfunded loan commitments
Non-interest income
Non-interest expense
Net income
Net income per common share:
Basic
Diluted
Performance and other financial ratios:
Return on average assets
Return on average equity
Tax-equivalent net interest margin
Cost of deposits
Efficiency ratio
Net charge-offs (recoveries)
Net charge-offs (recoveries) to average loans
Cash dividend payout ratio on common stock 1
Cash dividends per common share
1 Calculated as cash dividends per common share divided by basic net income per common share.
NM - Not meaningful.
28
Executive Summary
Annual earnings were $19.9 million in 2023, compared to $46.6 million in 2022. Diluted earnings were $1.24 per
share in 2023, compared to $2.92 per share in 2022. Results for 2023 were significantly impacted by industry
disruptions and the aftermath of a few regional bank failures in the first half of the year, causing some deposit run-
off and a shift to higher cost funding sources, coupled with the FOMC's monetary policy resulting in rapid interest
rate increases impacting both our funding costs and lending activity. However, we took several actions to reposition
our balance sheet and improve our net interest margin, and, although there can be no assurance given, believe we
laid the foundation for improved earnings in 2024, as discussed below.
The following are highlights of operating and financial performance for the year ended December 31, 2023:
• Over the course of 2023, balance sheet restructuring activities included the sale of $214.5 million in lower
yielding available-for-sale securities, offsetting some losses with a gain from the sale of our remaining
investment in Visa Inc. Class B restricted common stock, for a net pretax loss of $5.9 million. At the time,
the sales proceeds were largely directed toward new loan originations and repayment of borrowings, which
is expected to accelerate the improvement of the net interest margin over the coming quarters through
higher interest earned on cash and loans and lower borrowing costs. In addition, the Bank entered into
various interest rate swap agreements with notional values totaling $101.8 million to hedge balance sheet
interest rate sensitivity and protect certain of our fixed-rate available-for-sale securities against changes in
fair value related to changes in the benchmark interest rate. These interest rate swaps were accretive to
net interest income in 2023.
•
Loan balances of $2.074 billion as of December 31, 2023, were down slightly from $2.093 billion as of
December 31, 2022. Loan originations were $144.1 million in 2023, compared to $240.2 million in 2022.
Excluding paycheck protection loans ("PPP loans"), payoffs were $107.1 million in 2023, compared to
$258.5 million in 2022. PPP loan payoffs during 2023 and 2022 were $2.7 million and $107.7 million,
respectively. In addition, loan amortization from scheduled repayments, partially offset by the net utilization
of lines of credit, reduced loans by $53.1 million in 2023.
• Our loan portfolio continues to perform well, with classified loans at 1.56% of total loans as of December 31,
2023, compared to 1.34% as of December 31, 2022. Non-owner-occupied commercial real estate loans
made up $23.7 million, or 73%, of total classified loans as of December 31, 2023. Non-accrual loans were
0.39% and 0.12% of total loans as of December 31, 2023 and 2022, respectively. The Bank continues to
proactively identify and manage credit risk within the loan portfolio.
•
•
A $2.6 million provision for credit losses on loans in 2023 brought the allowance for credit losses to 1.21%
of total loans, compared to 1.10% as of December 31, 2022. The increase was due primarily to
adjustments to qualitative risk factors and specific allowances on loans with unique credit risk
characteristics not indicative of pooled loans, as discussed below. This compares to a $63 thousand
provision reversal in 2022.
Total deposits decreased by $283.3 million to $3.290 billion as of December 31, 2023, from $3.573 billion as
of December 31, 2022. As discussed further below, the decline was primarily due to a combination of
outflows related to planned business activities, some balance declines associated with loan relationships
exited during the year, and a number of customers moving cash into alternative investments to capture
higher returns, a portion of which was directed to our own wealth management group. In addition, we had
some deposit run-off as a result of regional bank failures and industry disruptions in the first half of the year.
Non-interest bearing deposits continue to remain strong compared to our peers and made up 43.8% of total
deposits as of December 31, 2023, compared to 51.5% as of December 31, 2022. 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 28% of total deposits as of December 31, 2023.
29
•
•
•
•
Total borrowings decreased by $86.0 million to $26.0 million, compared to $112.0 million at December 31,
2022, as part of the strategic balance sheet restructuring in 2023. Net available funding sources of
$2.0 billion provided 213% coverage of uninsured deposits as of December 31, 2023.
The tax-equivalent net interest margin was 2.63% for 2023, compared to 3.11% for 2022. The decrease
was primarily attributed to higher deposit and borrowing costs, partially offset by higher yields on loans and
investment securities.
All capital ratios were above well-capitalized regulatory requirements. Bancorp's total risk-based capital
ratio was 16.89% as of December 31, 2023, compared to 15.90% as of December 31, 2022. Tangible
common equity to tangible assets ("TCE ratio") increased to 9.73% as of December 31, 2023, from 8.21%
as of December 31, 2022. While we do not intend to sell our held-to-maturity securities, the TCE ratio, net
of after-tax unrealized losses on held-to-maturity securities as if the losses were realized, was 7.80% as of
December 31, 2023, compared to 6.15% as of December 31, 2022 (refer to the discussion and
reconciliation of this non-GAAP financial measure in the section below entitled Statement Regarding Use of
Non-GAAP Financial Measures).
The Board of Directors declared a cash dividend of $0.25 per share on January 25, 2024, which was the
75th consecutive quarterly dividend paid by Bancorp. The dividend was paid on February 15, 2024 to
shareholders of record at the close of business on February 8, 2024.
30
Net Interest Income
Net interest income is the interest earned on loans, investments and other interest-earning assets minus interest
expense incurred on deposits and other interest-bearing liabilities. Net interest income is impacted by changes in
general market interest rates and by changes in the composition of interest-earning assets and interest-bearing
liabilities. Interest rate changes can create fluctuations in net interest income and/or margin due to an imbalance in
the timing of repricing or maturity of assets and liabilities. We manage interest rate risk exposure with the goal of
minimizing the impact of interest rate volatility on net interest income.
Net interest margin is expressed as net interest income divided by average interest-earning assets. Net interest
rate spread is the difference between the average rate earned on total interest-earning assets and the average rate
incurred on total interest-bearing liabilities. Both of these measures are reported on a taxable-equivalent basis. Net
interest margin is the higher of the two because it reflects interest income earned on assets funded with non-
interest-bearing sources of funds, which include demand deposits and stockholders’ equity.
The following table compares interest income, average interest-earning assets, interest expense, and average
interest-bearing liabilities for the periods presented. The table also presents net interest income, net interest margin
and net interest rate spread for the years indicated.
Average Statements of Condition and Analysis of Net Interest Income
Year ended
Year ended
Year ended
December 31, 2023
Interest
Income/
Expense
Average
Balance
Yield/
Rate
December 31, 2022
Interest
Income/
Expense
Average
Balance
Yield/
Rate
December 31, 2021
Interest
Income/
Expense
Average
Balance
Yield/
Rate
$ 42,864 $
2,329
5.36 % $ 120,395 $
1,407
1.15 % $ 287,626 $
399
1,753,708
39,100
2.23 % 1,796,628
35,534
1.98 % 866,790
16,999
2,099,719
99,018
4.65 % 2,175,259
94,614
4.29 % 2,155,982
92,376
3,896,291 140,447
3.56 % 4,092,282 131,555
3.17 % 3,310,398 109,774
0.14 %
1.96 %
4.23 %
3.27 %
53,534
7,400
151,295
$ 4,304,511
61,299
5,964
159,502
$ 3,537,163
(dollars in thousands; unaudited)
Assets
Interest-earning deposits with banks 1
Investment securities 2, 3
Loans 1, 3, 4, 7
Total interest-earning assets 1
Cash and non-interest-bearing due from
banks
Bank premises and equipment, net
37,868
8,348
Interest receivable and other assets, net
135,200
Total assets
$ 4,077,707
Liabilities and Stockholders' Equity
Interest-bearing transaction accounts
$ 240,524 $
1,036
0.43 % $ 294,682 $
281,611
867
0.31 % 341,710
421
125
0.14 % $ 217,924 $
0.04 % 268,397
172
94
Savings accounts
Money market accounts
Time accounts, including CDARS
Borrowings and other obligations 1, 6
Subordinated debenture 1, 5
1,013,620
18,553
1.83 % 1,065,104
1,589
0.15 % 864,625
1,520
191,056
4,715
2.47 % 140,547
323
0.23 % 115,393
221,623
11,562
5.15 %
2,295
—
—
— %
—
91
—
3.90 %
— %
892
534
246
9
1,361
251.54 %
0.08 %
0.04 %
0.18 %
0.21 %
1.08 %
Total interest-bearing liabilities
1,948,434
36,733
1.89 % 1,844,338
2,549
0.14 % 1,467,765
3,402
0.23 %
Demand accounts
Interest payable and other liabilities
Stockholders' equity
Total liabilities & stockholders' equity
Tax-equivalent net interest income/margin 1
Reported net interest income/margin 1
Tax-equivalent net interest rate spread
1,656,047
49,442
423,784
$ 4,077,707
1,993,373
49,456
417,344
$ 4,304,511
1,628,289
46,746
394,363
$ 3,537,163
$ 103,714
$ 102,761
2.63 %
2.60 %
1.67 %
$ 129,006
$ 127,492
3.11 %
3.07 %
3.03 %
$ 106,372
$ 104,951
3.17 %
3.13 %
3.04 %
1 Interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms, where applicable.
2 Yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value, as changes in fair value are reflected as a
component of stockholders' equity. Investment security interest is earned on 30/360 day basis monthly.
3 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the federal statutory rate of 21%.
4 Average balances on loans outstanding include non-performing loans. The amortized portion of net loan origination fees is included in interest income on loans,
representing an adjustment to the yield.
5 2021 interest on the subordinated debenture included $1.3 million in accelerated discount accretion from the early redemption of our last subordinated debenture
on March 15, 2021.
6 Average balances and rate consider $13.9 million in FHLB borrowings acquired from AMRB that were redeemed on August 25, 2021.
7 Net loan origination (costs) fees included in interest income totaled $(1.3) million, $1.1 million, and $7.0 million in 2023, 2022, and 2021, respectively.
31
Analysis of Changes in Net Interest Income
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.
(in thousands, unaudited)
Interest-earning deposits with banks
Investment securities 1
Loans 1
2023 compared to 2022
2022 compared to 2021
Volume Yield/Rate
Mix
Total
Volume Yield/Rate
Mix
Total
$
(906) $
5,135 $
(3,307) $
922 $
(233) $
2,961 $
(1,720) $
1,008
(849)
4,523
(3,286)
7,966
(108)
(276)
3,566
18,233
146
156
18,535
4,404
826
1,401
11
2,238
Total interest-earning assets
(5,041)
17,624
(3,691)
8,892
18,826
4,508
(1,553)
21,781
Interest-bearing transaction accounts
Savings accounts
Money market accounts
Time accounts, including CDARS
Borrowings and other obligations
Subordinated debenture
(77)
(22)
848
926
(156)
(162)
615
742
61
26
139
5
(77)
17,906
(865)
16,964
352
(229)
116
3,146
1,130
4,392
8,697
29
2,745
11,471
—
—
—
54
16
—
19
25
(1,361)
Total interest-bearing liabilities
8,637
22,855
2,692
34,184
509
(1,402)
49
—
(54)
4
41
—
40
249
31
69
77
82
(1,361)
(853)
Tax-equivalent net interest income
$ (13,678) $
(5,231) $
(6,383) $ (25,292) $ 18,317 $
5,910 $
(1,593) $ 22,634
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%.
2023 Compared to 2022
Net interest income totaled $102.8 million in 2023, compared to $127.5 million in 2022. The $24.7 million decrease
from the prior year was primarily due to higher funding costs of $34.2 million, partially offset by higher average
yields on earning assets.
The tax-equivalent net interest margin was 2.63% for 2023, compared to 3.11% for 2022. The decrease was
primarily attributed to higher deposit and borrowing costs, partially offset by higher yields on loans and investment
securities. Average interest-bearing deposit balances decreased by $115.2 million, while the average rate
increased by 133 basis points, decreasing the margin by 58 basis points. Average borrowings and other obligations
increased by $219.3 million, while the average cost increased by 125 basis points, decreasing the net interest
margin by 29 basis points. Average loan balances decreased by $75.5 million, while the average yield increased by
36 basis points, increasing the margin by 23 basis points. Average investment securities decreased $42.9 million,
while their average yield increased 25 basis points, improving the margin by 14 basis points.
2022 Compared to 2021
Net interest income totaled $127.5 million in 2022, compared to $105.0 million in 2021. The $22.5 million increase
from the prior year was primarily due to higher balances in the investment and commercial real estate loan
portfolios, which added $18.4 million and $6.1 million, respectively, to net interest income. Additionally, 2022
incorporated a full year of net interest income from the acquired earning assets of AMRB, compared to five months
in 2021. Average interest-bearing liabilities increased $376.6 million, while the average cost dropped nine basis
points, largely due to the extinguishment of subordinated debt that generated $1.4 million of interest expense in
2021.
The tax-equivalent net interest margin decreased six basis points to 3.11% in 2022, from 3.17% in 2021, as the
proportion of average investment securities to average total interest-earning assets grew from 26% in 2021 to 44%
in 2022, and fee income from PPP loans declined.
Market Interest Rates
Market interest rates are, in part, based on the target federal funds interest rate (the interest rate banks charge each
other for short-term borrowings) implemented by the Federal Reserve Open Market Committee ("FOMC").
32
In response to the evolving risks to economic activity caused by the COVID-19 pandemic, the FOMC made two
emergency federal funds rate cuts totaling 150 basis points in March 2020. The federal funds rate range remained
between 0.0% and 0.25% through the beginning of 2022, putting downward pressure on our asset yields and net
interest margin. Beginning in March 2022, the FOMC began successive increases to the federal funds rate due to
evolving inflation risks, international political unrest, and oil and other supply chain disruptions. As a result of seven
rate adjustments during 2022, the federal funds target rate range increased to between 4.25% and 4.50% at year-
end 2022 and our net interest margin increased gradually over the course of the year. In 2023, on each of
February 1st, March 22nd, May 3rd, and July 26th, the FOMC increased the target rate by 25 basis points to a range of
5.25% to 5.50%. Rising interest rates and first quarter disruptions in the banking industry resulted in rapid
increases in the cost of funds through rising deposit costs and increased borrowings, putting pressure on the net
interest margin. Additional rate increases are not widely anticipated in 2024, as Federal Reserve policymakers
continue to monitor inflation and economic developments throughout the year. See ITEM 7A. Quantitative and
Qualitative Disclosure about Market Risk for further information.
Provision for Credit Losses on Loans
Management assesses the adequacy of the allowance for credit losses on loans quarterly based on several factors,
including growth or contraction of the loan portfolio, past events, current conditions, and reasonable and
supportable forecasts to estimate expected losses over the contractual terms of our loans. The allowance for credit
losses on loans is increased by provisions charged to expense and loss recoveries and decreased by loans
charged off.
The following table shows the activity for the periods presented.
(dollars in thousands)
Years ended December 31,
2023
2022
2021
Provision for (reversal of) credit losses on loans
$
2,575 $
(63) $
(1,449)
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. The allowance for individually
evaluated loans increased for a small number of loans that exhibited credit risk characteristics over time that were
not indicative of pooled loans in the CECL calculation, including collateral valuation issues caused by persistently
higher than average vacancy rates and estimated credit losses from other adjustments to discounted expected cash
flows or estimated loss rates. Other elements of the provision included a $406 thousand loss on the note sale of an
owner-occupied agricultural commercial real estate loan to an unrelated third party that was charged to the
allowance concurrent with the sale and a slight increase in Moody's Analytics' Baseline Forecast of California's
unemployment rate, partially offset by the impact of a $45.0 million overall decrease in loans.
The provision reversal in 2022 was largely due to a $55.4 million decrease in applicable loan balances (excludes
the $107.7 million decrease in PPP loans for which there was no allowance) and improvements in Moody's
Analytics' Baseline Forecast of California unemployment rates since December 31, 2021, which decreased the
quantitative "modeled" allowance for credit losses. These decreases were partially offset by adjustments to
qualitative risk factors to account for the ongoing deterioration in the economic outlook that management believed
was not captured in the quantitative portion of the allowance calculation.
The provision reversal in 2021 was primarily due to continued improvements in Moody's Analytics' Baseline
Forecast of California unemployment rates at the time, and adjustments to qualitative risk factors due to a decline in
the volume of loans downgraded to substandard classification, fewer delinquencies, and the elimination of an
allowance related to a commercial real estate loan that had been individually analyzed for potential credit losses in
the previous periods and paid off in 2021. These reversals were partially offset by an increase in the allowance for
credit losses related to qualitative risk factor adjustments for recent changes in executive leadership and senior
lending positions, and integration of loans from the merger with AMRB.
33
Non-interest Income
The table below details the components of non-interest income.
(dollars in thousands; unaudited)
Years ended December 31,
2023
2022
2021
2023 compared to 2022
2022 compared to 2021
Amount
Increase
(Decrease)
Percent
Increase
(Decrease)
Amount
Increase
(Decrease)
Percent
Increase
(Decrease)
Wealth management and trust services
$
2,145 $
2,227 $
2,222 $
Service charges on deposit accounts
Debit card interchange fees, net
Earnings on bank-owned life insurance, net
Dividends on Federal Home Loan Bank stock
Merchant interchange fees, net
Losses on sale of investment securities, net
2,083
1,831
1,802
1,265
496
(5,893)
2,007
2,051
1,229
1,056
549
(63)
1,593
1,812
2,194
760
422
(16)
(82)
76
(3.7) % $
3.8 %
(220)
(10.7) %
573
209
(53)
46.6 %
19.8 %
(9.7) %
5
414
239
0.2 %
26.0 %
13.2 %
(965)
(44.0) %
296
127
38.9 %
30.1 %
(5,830)
9,254.0 %
(47)
293.8 %
Other income
Total non-interest income
1,260
1,849
1,145
(589)
(31.9) %
$
4,989 $ 10,905 $ 10,132 $
(5,916)
(54.3) % $
704
773
61.5 %
7.6 %
2023 Compared to 2022
Non-interest income totaled $5.0 million in 2023, a $5.9 million decrease from $10.9 million in 2022. The decrease
in 2023 was primarily due to the $5.9 million net loss on the sale of investment securities mentioned above.
Excluding this loss, non-interest income decreased by $86 thousand, which included a $504 thousand decline in
deposit network fees earned when deposit balances were brought back on the balance sheet, and a $220 thousand
decrease in debit card interchange income. Decreases were partially offset by $573 thousand higher benefit
payments from and earnings on bank-owned life insurance, and $209 thousand from increases in dividends on
Federal Home Loan Bank stock.
2022 Compared to 2021
Non-interest income totaled $10.9 million in 2022, a $773 thousand increase from $10.1 million in 2021. The
increase was primarily due to higher fees on deposit balances held in off-balance sheet deposit networks,
contributing $504 thousand in additional income, $414 thousand more service charges on deposit accounts, a $366
thousand increase in debit card and merchant interchange fees, $296 thousand higher FHLB dividends, and a
combination of smaller increases. Increases were partially offset by a $965 thousand reduction in bank-owned life
insurance, as the prior year included $1.1 million in benefits collected on insurance policies. Additionally, 2022
incorporated a full year of non-interest income from the AMRB acquisition, compared to five months in 2021.
34
Non-interest Expense
The table below details the components of non-interest expense.
Years ended December 31,
2023
2022
2021
2023 compared to 2022
2022 compared to 2021
Amount
Increase
(Decrease)
Percent
Increase
(Decrease)
Amount
Increase
(Decrease)
Percent
Increase
(Decrease)
$ 43,448 $ 42,046 $ 41,939 $
1,402
7,297
5,139
4,974
483
(592)
299
3.3 % $
6.2 %
107
526
(12.7) %
(490)
9.1 %
(1,675)
8,306
4,057
3,598
2,783
2,098
1,878
1,569
1,350
1,212
717
48
1,244
7,173
8,417
7,823
4,649
3,299
258
1,840
1,179
2,197
1,489
1,107
709
359
1,070
7,244
8,314
26
2,525
978.7 %
1,740
889
1,550
1,135
957
587
5
908
5,492
6,400
258
699
(628)
(139)
105
8
14.0 %
59.3 %
(28.6) %
(9.3) %
9.5 %
1.1 %
(311)
(86.6) %
174
(71)
103
16.3 %
(1.0) %
1.2 %
232
100
290
647
354
150
122
354
162
1,752
1,914
2,631
$ 79,481 $ 75,269 $ 72,638 $
4,212
5.6 % $
0.3 %
7.2 %
(9.5) %
(33.7) %
892.3 %
5.7 %
32.6 %
41.7 %
31.2 %
15.7 %
20.8 %
NM
17.8 %
31.9 %
29.9 %
3.6 %
(dollars in thousands; unaudited)
Salaries and employee benefits
Occupancy and equipment
Data processing
Professional services
Deposit network fees
Depreciation and amortization
Federal Deposit Insurance Corporation insurance
Information technology
Amortization of core deposit intangible
Directors' expense
Charitable contributions
Other real estate owned
Other non-interest expense:
Advertising
Other expense
Total other non-interest expense
Total non-interest expense
NM - not meaningful
2023 Compared to 2022
Non-interest expenses increased $4.2 million to $79.5 million in 2023 from $75.3 million in 2022. Significant
fluctuations were as follows:
•
•
•
Deposit network fees increased by $2.5 million as customers sought additional FDIC insurance protection
through reciprocal deposit networks.
Salaries and employee benefits increased by $1.4 million primarily due to the filling of open positions and
the hiring of several key employees and officers, an increase in SERP-related expenses largely due to new
and retired participant adjustments lowering costs for 2022, an increase in deferred officer compensation
expense from increased participation and interest rates, higher insurance costs, and lower deferred loan
origination costs. Increases to salaries and employee benefits were partially offset by a decrease in profit
sharing expense mainly from accrual adjustments and because some contributions in 2023 were made from
forfeitures rather than paid in cash, a decrease in accrued incentive bonuses, and a decrease in stock-
based compensation from changes in award structure and estimated performance award payout estimates.
FDIC insurance costs increased by $699 thousand due to an increase in the FDIC statutory assessment
rate to strengthen the Deposit Insurance Fund.
• Occupancy and equipment and depreciation and amortization expenses rose by $483 thousand and $258
thousand, respectively, mainly from the acceleration of lease-related costs for branch closures in the first
quarter of 2023 and higher maintenance costs.
•
•
Professional services expenses increased by $299 thousand, mainly from consulting fees associated with
core systems contract negotiations, systems transformation projects, and internal and external audit costs.
Information technology and data processing expenses decreased by $628 thousand and $592 thousand,
respectively, due to our core system contract renegotiation for the current period and because the prior year
included data processing expenses largely eliminated after the systems conversion associated with the
American River Bankshares merger.
35
• Other real estate owned expenses decreased by $311 thousand due to the write-down in 2022 of the
property that was then sold in the third quarter of 2023.
2022 Compared to 2021
Non-interest expenses increased $2.6 million to $75.3 million in 2022 from $72.6 million in 2021. Significant
fluctuations were as follows:
•
•
Information technology expenses increased by $647 thousand due to investments in software and
equipment during 2022.
Total occupancy expenses, including depreciation and amortization, increased $626 thousand resulting
primarily from merger growth and $212 thousand in accelerated costs related to planned branch closures.
• Other increases in 2022 included core deposit intangible amortization and FDIC insurance, largely
attributable to the 2021 AMRB acquisition, a $345 thousand valuation adjustment in other real estate owned
expense, and a $490 thousand increase in employment recruiting costs included in other expense.
•
•
•
Salaries and employee benefits expense remained relatively flat year-over-year. In 2022, increases in
staffing and profit sharing expenses, a reduction in deferred loan origination costs, and a combination of
smaller items were largely offset by a decrease in supplemental executive retirement plan expense from an
adjustment to the discount rate, and a decline in merger-related expenses, as shown in Note 18, Merger, in
ITEM 8 of this report.
Professional services expense decreased by $1.7 million from the prior year, primarily due to higher
merger-related costs and additional consulting expenses associated with PPP loan forgiveness application
processing in 2021, partially offset by higher audit and accounting fees in 2022.
Data processing expenses decreased by $490 thousand primarily due to merger-related expenses in 2021,
partially offset by an increase in processing costs in 2022 associated with higher volumes for the larger
bank.
Provision for Income Taxes
Income tax provisions reflect accruals for taxes at the applicable rates for federal income tax and California
franchise tax based upon reported pre-tax income. Provisions also reflect permanent differences between income
for tax and financial reporting purposes (such as earnings on tax exempt loans and municipal securities, bank-
owned life insurance ("BOLI"), low-income housing tax credits, and stock-based compensation from the exercise of
stock options, disqualifying dispositions of incentive stock options and vesting of restricted stock awards).
The provision for income taxes totaled $6.1 million at an effective tax rate of 23.6% in 2023, compared to $16.9
million at an effective tax rate of 26.6% in 2022 and $11.7 million at an effective tax rate of 26.0% in 2021. The
decrease in the provision for income taxes in 2023, as compared to 2022, reflected lower pre-tax income. The 300
basis point decrease in the effective tax rate in 2023, as compared to 2022, was primarily due to a larger
proportional effect of permanent tax differences on lower pretax income and higher tax-exempt BOLI income. This
decrease 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. The 60 basis point increase in the effective tax rate in 2022 as
compared to 2021 was primarily due to lower BOLI income and the smaller proportion of tax-exempt loan and
investment securities interest income to pre-tax income in 2022, partially offset by the non-deductible merger
expenses and executive compensation in 2021.
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 December 31, 2023 and 2022, neither the Bank nor Bancorp had accruals for interest or penalties
related to unrecognized tax benefits.
36
FINANCIAL CONDITION
Investment Securities
We maintain an investment securities portfolio to provide liquidity and generate earnings on funds that have not
been loaned to customers. Management determines the maturities and types of securities to be purchased based
on liquidity and interest rate risk position, and the desire to attain a reasonable investment yield balanced with risk
exposure. The tables below show the composition of the debt securities portfolio by weighted average life at
December 31, 2023 and 2022. Weighted average life takes into account the issuer's right to call or prepay
obligations, with or without call or prepayment penalties. The weighted average life of the investment portfolio at
December 31, 2023 and 2022 was approximately 6.6 and 6.8 years, respectively. The effective duration of the
investment portfolio was 5.2 and 5.0 at December 31, 2023 and 2022, respectively.
December 31, 2023
Within 1 Year
1-5 Years
5-10 Years
After 10 Years
Total
(dollars in thousands;
unaudited)
Amortized
Cost1
Average
Yield2
Amortized
Cost1
Average
Yield2
Amortized
Cost1
Average
Yield2
Amortized
Cost1
Average
Yield2
Amortized
Cost1
Fair Value
Average
Yield2
Held-to-maturity:
MBS/CMOs issued by U.S.
government agencies
$
—
— % $ 139,418
3.41 % $ 462,010
2.23 % $ 83,757
2.1 % $ 685,185 $ 605,934
2.45 %
SBA-backed securities
— —
1,853 3.17
— —
— —
1,853
1,763 3.17
Debentures of government-
sponsored agencies
Obligations of state and
political subdivisions - tax-
exempt3
Obligations of state and
political subdivisions -
taxable
Corporate bonds
Total held-to-maturity
Available-for-sale:
MBS/CMOs issued by U.S.
government agencies
—
—
29,994
4.38
83,345
1.83
32,787
1.85
146,126
124,132
2.36
— —
3,070 3.77
2,392 3.65
26,220 2.74
31,682
29,820 2.91
—
—
— —
—
—
12,473
1.99
17,879
2.36
30,352
24,377
2.21
30,000 3.63
— —
— —
30,000
28,804 3.63
—
—
204,335
3.59
560,220
2.17
160,643
2.19
925,198
814,830
2.48
677 1.93
261,575 2.05
116,365 2.24
13,720 3.05
392,337
352,472 2.14
SBA-backed securities
—
—
21,126
2.45
—
—
—
—
21,126
19,471
2.45
Debentures of government
sponsored agencies
U.S. Treasury securities
Obligations of state and
political subdivisions - tax-
exempt3
Obligations of state and
political subdivisions -
taxable
— —
—
—
64,929 1.22
8,970 1.36
11,923
1.00
—
—
— —
—
—
73,899
66,862 1.23
11,923
10,623
1.00
— —
5,142 1.59
14,602 2.04
69,382 2.68
89,126
80,720 2.51
100
3.14
3,005
1.31
8,956
1.74
1,015
1.98
13,076
11,162
1.67
Corporate bonds
— —
11,992 1.19
—
—
—
— —
—
—
— —
—
—
11,992
10,718 1.19
—
—
—
Asset-backed securities
Total available-for-sale
Total
$
—
777
777
2.08
379,692
1.86
148,893
2.13
84,117
2.73
613,479
552,028
2.04
2.08 % $ 584,027
2.46 % $ 709,113
2.16 % $ 244,760
2.37 % $ 1,538,677 $ 1,366,858
2.31 %
37
Held-to-maturity:
MBS/CMOs issued by U.S.
government agencies
SBA-backed securities
Debentures of government-
sponsored agencies
Obligations of state and
political subdivisions - tax-
exempt3
Obligations of state and
political subdivisions -
taxable
Corporate bonds
Available-for-sale:
MBS/CMOs issued by U.S.
government agencies
SBA-backed securities
Debentures of government
sponsored agencies
U.S. Treasury securities
Obligations of state and
political subdivisions - tax-
exempt3
Obligations of state and
political subdivisions -
taxable
Corporate bonds
Asset-backed securities
December 31, 2022
Within 1 Year
1-5 Years
5-10 Years
After 10 Years
Total
(dollars in thousands;
unaudited)
Amortized
Cost1
Average
Yield2
Amortized
Cost1
Average
Yield2
Amortized
Cost1
Average
Yield2
Amortized
Cost1
Average
Yield2
Amortized
Cost1
Fair Value
Average
Yield2
$
463
0.63 % $ 152,817
3.36 % $ 419,822
2.20 % $ 158,410
2.28 % $ 731,512 $ 643,437
2.46 %
—
—
—
—
2,372
3.17
—
—
—
—
2,372
2,239
3.17
24,993
4.26
47,017
2.06
73,813
1.91
145,823
119,356
2.36
—
—
—
—
5,515
3.72
26,600
2.74
32,115
28,846
2.90
Total held-to-maturity
463
0.63
210,182
—
—
—
—
—
30,000
—
3.63
3.50
4,708
1.84
25,677
2.28
—
—
—
—
30,385
30,000
22,913
28,448
477,062
2.20
284,500
2.22
972,207
845,239
2.21
3.63
2.49
2,305
65
2.02
1.01
317,528
47,166
2.13
2.66
198,809
—
2.43
—
9,823
493
2.55
5.03
528,465
47,724
475,505
44,355
2.25
2.68
—
—
—
—
140,145
1.29
—
—
6,977
11,904
1.35
1.00
1,992
1.39
149,114
135,106
—
—
11,904
10,269
1.29
1.00
—
—
9,711
2.09
11,721
2.86
81,922
2.67
103,354
91,138
2.64
Total available-for-sale
2,570
2.09
547,358
1.89
247,429
200
3.16
—
—
—
—
1,808
31,000
—
1.65
1.03
—
10,475
5,990
1,553
1.67
1.23
5.04
2.30
1,018
1.98
—
—
—
—
13,501
36,990
1,553
10,985
33,276
1,462
95,248
2.64
892,605
802,096
1.71
1.05
5.04
2.09
Total
$
3,033
1.87 % $ 757,540
2.34 % $ 724,491
2.24 % $ 379,748
2.33 % $ 1,864,812 $ 1,647,335
2.30 %
1 Book value reflects cost, adjusted for accumulated amortization and accretion.
2 Weighted average calculation is based on amortized cost of securities.
3 Yields on tax-exempt municipal bonds are presented on a taxable equivalent basis, using a federal tax rate of 21%.
The amortized cost of our investment securities portfolio decreased by $326.1 million, or 17.5%, in 2023. In 2023,
we sold $214.5 million in available-for-sale securities with an average yield of 2.35%, as part of a balance sheet
restructuring, including $75.2 million in debentures of government sponsored agencies, $69.6 million in agency
collateralized mortgage obligations ("CMOs"), $25.0 million in corporate bonds, $15.4 million in SBA-backed
securities, $14.6 million in agency mortgage-backed securities ("MBSs"), $13.2 million in obligations of state and
political subdivisions, and $1.4 million in asset-backed securities. Offset by a $2.8 million pre-tax gain from the sale
of our remaining holdings of Visa Inc. Class B restricted common stock, these sales of available-for-sale securities
generated a net pre-tax loss of $5.9 million.
In 2022, we transferred $357.5 million of available-for-sale securities to held-to-maturity. Refer to Note 2,
Investment Securities, to the Consolidated Financial Statements in ITEM 8 of this report for further information.
We consider agency debentures and CMOs issued by U.S. government sponsored entities to have low credit risk as
they carry the credit support of the U.S. federal government. The debentures, CMOs and MBS issued by U.S.
government sponsored agencies, SBA-backed securities and U.S. Treasury securities made up 86.6% of the
portfolio as of December 31, 2023, compared to 86.7% at December 31, 2022. See the discussion in the section
captioned “Securities May Lose Value Due to Credit Quality of the Issuers” in ITEM 1A Risk Factors above.
38
At December 31, 2023 and 2022, distribution of our investment in obligations of state and political subdivisions was
as follows:
(dollars in thousands; unaudited)
Within California:
General obligation bonds
Revenue bonds
Tax allocation bonds
Total within California
Outside California:
General obligation bonds
Revenue bonds
Total outside California
December 31, 2023
December 31, 2022
Amortized
Cost
Fair Value
Percent of
State and
Municipal
Securities
Amortized
Cost
Fair Value
Percent of
State and
Municipal
Securities
$
24,191 $
20,009
14.7 % $
25,806 $
20,768
14.4 %
3,507
2,917
2.1
3,719
—
2,987
—
27,698
22,926
16.8
29,525
23,755
108,846
27,692
98,139
25,014
136,538
123,153
66.3
16.9
83.2
121,908
106,375
27,922
23,752
149,830
130,127
2.1
—
16.5
68.0
15.5
83.5
Total obligations of state and political subdivisions $
164,236 $
146,079
100.0 % $
179,355 $
153,882
100.0 %
Percent of investment portfolio
10.7%
10.7%
9.6%
9.3%
The portion of the portfolio outside the state of California is distributed among twelve states. Of the total investment
in obligations of state and political subdivisions, the largest concentrations outside California are in Texas (37.1%),
Washington (15.4%), and Wisconsin (9.0%). Our investments in obligations issued by municipal issuers in Texas
are either guaranteed by the AAA-rated Texas Permanent School Fund ("PSF"), rated AAA without enhancement, or
backed by revenue sources from essential services (such as utilities and transportation).
Investments in states, municipalities and political subdivisions are subject to an initial pre-purchase credit
assessment and ongoing monitoring. Key considerations include:
The soundness of a municipality’s budgetary position and the stability of its tax revenues
Debt profile and level of unfunded liabilities, diversity of revenue sources, taxing authority of the issuer
Local demographics and economics including unemployment data, the largest local taxpayers and
employers, income indices, and home values
For revenue bonds, the source and strength of revenue for municipal authorities, including obligors' financial
condition and reserve levels, annual debt service and debt coverage ratio, and credit enhancement (such as
insurers' strength)
Credit ratings by major credit rating agencies
•
•
•
•
•
Loans
Loans Outstanding by Class and Percent of Total
(in thousands; unaudited)
Commercial and industrial
Real estate
Commercial owner-occupied
Commercial non-owner occupied
Construction
Home equity
Other residential
Installment and other consumer
Total loans, at amortized cost
Allowance for credit losses on loans
Total loans, net of allowance for credit losses
December 31, 2023
December 31, 2022
Amortized Cost
$
153,750
Percent of
Total
Amortized Cost
7.4 % $
173,547
Percent of
Total
8.3 %
333,181
1,219,385
99,164
82,087
118,508
67,645
16.1
58.8
4.8
4.0
5.7
3.2
354,877
1,191,889
114,373
88,748
112,123
56,989
17.0
56.9
5.5
4.2
5.4
2.7
2,073,720
100.0 %
2,092,546
100.0 %
(25,172)
$
2,048,548
(22,983)
$
2,069,563
39
Loans decreased by $18.8 million in 2023, or 1%, to $2.074 billion as of December 31, 2023, from $2.093 billion as
of December 31, 2022. Loan originations were $144.1 million in 2023, compared to $240.2 million in 2022. Non-
PPP payoffs were $107.3 million in 2023, compared to $258.5 million in 2022. PPP loan payoffs during 2023 and
2022 were $2.5 million and $107.7 million, respectively. The majority of the payoffs were a result of asset sales,
cash payoffs, project completions, and purposeful relationship exits, all of which showcased the Bank's focus on
credit quality and proactive engagement with customers. It should be noted that only a minimal amount was
refinanced. In addition, $53.1 million of loan amortization from scheduled repayments, net of credit line utilization,
contributed to the decline in loan balances for 2023. The originations and payoffs noted above, combined with
utilization on lines of credit and amortization on existing loans, resulted in a net decrease for this period.
Non-PPP payoffs as a percentage of beginning-of-year loan balances were 5.1% in 2023 and 11.5% in 2022.
Approximately 90%, of total loans were secured by real estate as of both December 31, 2023 and 2022. For
additional information on loan concentration risk, see ITEM 1A, Risk Factors.
The following table summarizes our commercial real estate loan concentrations by the county in which the property
was located as of December 31, 2023 and 2022.
Commercial Real Estate Loans Outstanding by County
(dollars in thousands; unaudited)
December 31, 2023
December 31, 2022
County
Marin
Sonoma
San Francisco
Napa
Alameda
Sacramento
Contra Costa
Placer
Solano
San Mateo
Santa Clara
San Joaquin
El Dorado
Other
Total
$
Amount
317,862
256,516
186,803
178,685
156,934
125,483
72,580
40,733
39,247
35,420
24,086
15,261
11,257
91,699
Percent of
Commercial Real
Estate Loans
20.5 % $
16.5
12.0
11.5
10.1
8.1
4.7
2.6
2.5
2.3
1.6
1.0
0.7
5.9
$
1,552,566
100.0 % $
Amount
339,805
245,883
173,511
186,477
163,381
120,146
67,356
28,928
32,235
37,681
21,091
15,585
12,822
101,865
1,546,766
Percent of
Commercial Real
Estate Loans
22.0 %
15.9
11.2
12.1
10.6
7.8
4.4
1.9
2.1
2.4
1.4
1.0
0.8
6.4
100.0 %
Commercial real estate loans increased by $5.8 million in 2023, compared to a $34.6 million decrease in 2022. The
increase in 2023 was comprised of the $27.5 million increase within the non-owner occupied loan portfolio, partially
offset by the $21.7 million decrease within the owner-occupied loan portfolio. The decrease in 2022 was primarily
due to cash paydowns as part of ongoing deleveraging, refinancing, and asset sales. Of the commercial real estate
loans as of December 31, 2023, 79% were non-owner occupied and 21% were owner-occupied. Almost the entire
commercial real estate loan portfolio is comprised of term loans for which the primary source of repayment is either
the cash flow from leasing activities of the real estate collateral or the operating cash flow of the owner occupant.
With the heightened market concern about non-owner-occupied commercial real estate, and in particular the office
sector, we are providing the following additional information: We continue to maintain diversity among property
types and within our geographic footprint. In particular, our office commercial real estate portfolio in the City of San
Francisco represents just 3% of our total loan portfolio and 6% of our total non-owner-occupied commercial real
estate portfolio. As of the last measurement period, the weighted average loan-to-value and weighted average
debt-service coverage ratios for the entire non-owner-occupied office portfolio were 59% and 1.60x, respectively.
For the thirteen non-owner-occupied office loans in the City of San Francisco, the weighted average loan-to-value
and debt-service coverage ratios were 67% and 1.00x, respectively. As of December 31, 2023, we conducted a
review of the refinance risk in our non-owner-occupied commercial real estate portfolio and evaluated 70 loans with
commitments of $1.0 million or more, totaling $184.1 million, that mature or reprice in 2024 and 2025. As a result of
our assessment, we determined that the refinance risk on these loans is manageable, with weighted average debt
40
service coverage ratios ranging from 1.52 to 1.69 times for maturities and from 1.20 to 1.59 times for repricings
based on current market interest rates. As such, we believe the non-owner-occupied commercial real estate
portfolio is well-positioned to absorb a higher rate environment at the loans' repricing or maturity dates.
The following table shows an analysis of construction loans by type and county as of December 31, 2023 and 2022.
Construction Loans Outstanding by Type and County
(dollars in thousands; unaudited)
December 31, 2023
December 31, 2022
Loan Type
Apartments and multifamily
Commercial real estate
1-4 Single family residential
Land - unimproved
Total
(dollars in thousands; unaudited)
County
San Francisco
Alameda
Solano
San Mateo
Marin
Other
Total
$
$
$
Percent of
Construction
Loans
45.8 % $
26.3
26.9
1.0
Percent of
Construction
Loans
52.7 %
29.5
16.8
1.0
Amount
60,347
33,746
19,171
1,109
100.0 % $
114,373
100.0 %
Amount
45,390
26,042
26,666
1,066
99,164
December 31, 2023
December 31, 2022
Percent of
Construction
Loans
43.7 % $
33.1
11.5
4.9
4.6
2.2
Amount
43,341
32,808
11,372
4,851
4,542
2,250
$
99,164
100.0 % $
Percent of
Construction
Loans
39.6 %
17.6
16.5
3.9
6.8
15.6
100.0 %
Amount
45,271
20,163
18,873
4,409
7,784
17,873
114,373
Construction loans decreased by $15.2 million in 2023, compared to a decrease of $5.5 million in 2022. The
decrease in 2023 was primarily due to $22.2 million in payoffs and $16.9 million in conversions to commercial real
estate financing. These decreases were partially offset by $24.5 million in advances on existing construction loans.
The decrease in 2022 was primarily due to $46.6 million in payoffs and $3.6 million in conversions to commercial
real estate financing. These decreases were partially offset by $37.5 million advanced on existing construction
loans and $7.2 million in new financing. Undisbursed construction loan commitments at December 31, 2023 and
2022 were $13.9 million and $43.2 million, respectively.
The following table presents the amortized costs and maturity distribution of our loans by portfolio class as of
December 31, 2023 based on their contractual maturity dates. Maturities do not include scheduled payments or
potential prepayments.
Loan Maturity Distribution
(in thousands; unaudited)
Commercial and industrial
Real estate
Commercial owner-occupied
Commercial non-owner occupied
Construction 1
Home equity
Other residential
Installment and other consumer loans
Due within 1
year
Due after 1
through 5 years
Due after 5 through
15 years
Due after 15
years
Total
$
68,410 $
36,326 $
46,095 $
2,919 $
153,750
12,224
65,360
69,652
3,818
1,283
1,078
92,743
437,117
—
20,856
128
9,393
221,009
699,118
29,512
56,086
1,684
56,984
7,205
17,790
—
1,327
115,413
190
333,181
1,219,385
99,164
82,087
118,508
67,645
Total
$
221,825 $
596,563 $
1,110,488 $
144,844 $
2,073,720
1 Construction loans that mature after 5 years are structured to convert to permanent financing after the initial construction period.
41
The following table shows the mix of variable-rate loans and fixed-rate loans due after one year by portfolio class as
of December 31, 2023. The large majority of variable-rate loans are tied to independent indices, such as the Prime
Rate or a Treasury Constant Maturity Rate. Most loans with original terms of more than five years have provisions
for the fixed rates to reset, or convert to variable rates, after three, five or seven years. These loans are included in
the variable-rate balances below.
Loan Interest Rate Sensitivity - Due After One Year
(in thousands; unaudited)
Commercial and industrial
Real estate
Commercial owner-occupied
Commercial non-owner occupied
Construction
Home equity
Other residential
Installment and other consumer loans
Total
Allowance for Credit Losses on Loans
$
Fixed
72,591 $
Variable
12,749 $
183,633
727,415
29,512
640
1,327
51,380
137,324
426,610
—
77,629
115,898
15,187
Total
85,340
320,957
1,154,025
29,512
78,269
117,225
66,567
$
1,066,498 $
785,397 $
1,851,895
The allowance for credit losses on loans is calculated in accordance with ASC 326 based on management's best
estimate of current expected credit losses over the loans' contractual terms, adjusted for estimated prepayments
where applicable. The contractual terms exclude anticipated extensions, renewals and modifications. Relevant
available information includes historical credit loss experience, current conditions and reasonable and supportable
forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses,
adjustments to historical loss information may be made for differences in current portfolio-specific risk
characteristics, environmental conditions or other relevant factors. All specifically identifiable and quantifiable
losses are charged off against the allowance. The ultimate adequacy of the allowance depends on a variety of
complex factors, some of which may be beyond management's control, such as volatility in the real estate market,
changes in interest rates and economic and political environments. Based on the current conditions of the loan
portfolio and reasonable and supportable forecasts, management believes that the $25.2 million allowance for credit
losses at December 31, 2023 was adequate to absorb expected credit losses in our loan portfolio. For additional
information on our allowance for credit losses methodology, refer to Notes 1 and 3 to the Consolidated Financial
Statements in ITEM 8 of this report.
The ratio of the allowance for credit losses to total loans was 1.21% at December 31, 2023 and 1.10% at
December 31, 2022.
The $2.2 million increase in the allowance for credit losses on loans in 2023 was largely due 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, loan and collateral concentration risk, heightened portfolio
management in light of current economic conditions, and continued negative trends in adversely graded loans and/
or collateral values. The allowance for individually evaluated loans increased for a small number of loans that
exhibited credit risk characteristics over time that were not indicative of pooled loans in the CECL calculation. Other
elements of the increased allowance included a $406 thousand loss on the note sale of a loan that was charged to
the allowance concurrent with the sale, contributing to the $386 thousand in net charge-offs and the impact of a
slight increase in Moody's Analytics' Baseline Forecast of California's unemployment rate, partially offset by the
effect of a $45.0 million overall decrease in loans. For further information, refer to the Provision for Credit Losses
section above, and Notes 1 and 3 to the Consolidated Financial Statements in ITEM 8 of this report.
The following table presents the allowance for credit losses on loans by loan portfolio class in accordance with the
methodology described in Note 1 to the Consolidated Financial Statements in ITEM 8 of this report, as well as the
percentage of total loans in each of the same loan portfolio classes as of December 31, 2023 and 2022.
42
Allocation of the Allowance for Credit Losses
Commercial
and
industrial
Commercial
real estate,
owner-
occupied
Commercial
real estate,
non-owner
occupied
Construction
Home
equity
Other
residential
Installment
and other
consumer Unallocated
Total
(dollars in thousands; unaudited)
December 31, 2023
Modeled expected credit losses
$
Qualitative adjustments
Specific allocations
897
622
193
$ 1,270
$ 7,380
$
185
$ 482
$ 619
$ 634
$
— $ 11,467
1,205
1
6,327
1,226
1,647
70
—
—
33
1
342
—
2,038 12,284
—
1,421
Total
$ 1,712
$ 2,476
$ 14,933
$ 1,832
$ 552
$ 653
$ 976
$
2,038 $ 25,172
Loans as a percent of total loans
7.4 %
16.1 %
58.8 %
4.8 %
4.0 %
5.7 %
3.2 %
N/A
100.0 %
December 31, 2022
Modeled expected credit losses
$ 1,079
$ 1,497
$ 7,937
$
453
$ 504
$ 571
$ 610
$
— $ 12,651
Qualitative adjustments
Specific allocations
706
9
990
—
4,739
—
1,484
54
24
—
—
—
258
—
2,068 10,323
—
9
Total
$ 1,794
$ 2,487
$ 12,676
$ 1,937
$ 558
$ 595
$ 868
$
2,068 $ 22,983
Loans as a percent of total loans
8.3 %
17.0 %
56.9 %
5.5 %
4.2 %
5.4 %
2.7 %
N/A
100.0 %
The table below shows the activity in the allowance for credit losses for each of the three years presented below.
Allowance for Credit Losses on Loans Rollforward
(dollars in thousands; unaudited)
Beginning balance
Provision for (reversal of) credit losses
Initial allowance for PCD loans
Loans charged-off:
Commercial and industrial
Real estate:
Commercial real estate, owner-occupied
Installment and other consumer
Total loans charged-off
Loans recovered:
Commercial and industrial
Real estate:
Construction
Home equity
Installment and other consumer
Total loans recovered
Net loans (charged-off) recovered
Ending balance
Total loans, at amortized cost
Average total loans outstanding during year
Ratio of allowance for credit losses to total loans at end of year
Net charge-offs (recoveries) to average loans
NM - Not meaningful.
$
2023
22,983
2,575
—
2022
$ 23,023
(63)
—
2021
$ 22,874
(1,449)
1,505
(11)
(406)
(24)
(441)
29
(9)
—
(23)
(32)
22
—
—
(5)
(5)
14
25
—
1
55
(386)
$
25,172
$ 2,073,720
$ 2,099,719
33
—
—
55
23
$ 22,983
$ 2,092,546
$ 2,175,259
34
50
—
98
93
$ 23,023
$ 2,255,645
$ 2,155,982
1.21 %
0.02 %
1.10 %
NM
1.02 %
NM
43
The following table shows non-performing assets as of December 31, 2023 and 2022.
Non-Performing Assets
(dollars in thousands; unaudited)
Non-accrual loans:
Commercial and industrial
Real estate:
Commercial, owner-occupied
Commercial, non-owner occupied
Home equity
Installment and other consumer
Total non-accrual loans
Other real estate owned
Total non-performing assets
Criticized and classified loans:
Special mention
Substandard
Doubtful
Allowance for credit losses to non-accrual loans
Non-accrual loans to total loans
Non-performing assets to total assets
Non-Accrual Loans
December 31, 2023 December 31, 2022
$
4,008
$
—
$
$
$
$
$
$
434
3,081
469
—
7,992
—
7,992
135,171
32,324
—
3.15x
0.39 %
0.21 %
$
$
$
$
$
$
1,563
—
778
91
2,432
455
2,887
60,207
28,010
99
9.45x
0.12 %
0.07 %
Non-accrual loans increased by $5.6 million in 2023, primarily due to $7.6 million in loans designated as non-
accrual in 2023 comprised mostly of commercial and industrial and non-owner occupied commercial real estate
loans. These increases were partially offset by the payoff of two owner-occupied commercial real estate loans
totaling $1.3 million and four home equity loans totaling $421 thousand, the upgrade of a $223 thousand home
equity loan and a $91 thousand personal loan to accrual status, as a result of improved financial condition and
performance, and $83 thousand in paydowns. Over 66% of the non-accrual loans as of December 31, 2023 were
well-secured by either commercial or residential real estate.
Non-accrual loans decreased by $5.9 million in 2022, primarily due to the payoff of two owner-occupied commercial
real estate loans totaling $7.1 million and paydowns and the upgrade of a $695 thousand loan to accrual status as a
result of improved financial condition and performance, partially offset by $2.0 million in loans designated as non-
accrual in 2022. Over 96% of the non-accrual loans as of December 31, 2022 were well-secured by either
commercial or residential real estate.
Criticized and Classified Loans
Loans designated as special mention, which are not considered adversely classified, increased by $75.0 million in
2023, primarily due to downgrades from the watch category to special mention. The majority of the downgrades
from watch to special mention were not necessarily due to worsening conditions or deterioration in the borrowers'
financial condition but to a lack of meaningful improvement over the most recent quarters. Of the $92.5 million in
downgrades to special mention in 2023, $83.2 million (or 90%) were collateralized by real estate. These increases
were partially offset by $7.7 million in paydowns and payoffs, $6.0 million in downgrades from special mention to
substandard, and $3.8 million in upgrades to a pass risk rating.
Loans designated as special mention decreased by $13.1 million in 2022, primarily due to $30.2 million in upgrades
to a pass risk rating, $7.7 million in paydowns and payoffs, and $3.6 million in downgrades from special mention to
substandard. These decreases were partially offset by $27.8 million in downgrades from pass to special mention
and $695 thousand in upgrades from substandard to special mention during 2022. Of the $27.8 million in
downgrades to special mention, $22.5 million (or 81%) was well-secured by commercial real estate, and the
remaining $5.3 million commercial loans had strong support.
Loans classified as substandard increased by $4.2 million in 2023, primarily due to downgrades from special
mention totaling $6.0 million and from pass totaling $3.7 million, partially offset by $4.5 million in paydowns and
44
payoffs and $939 thousand in upgrades to pass. Of the downgraded loans, $7.0 million (or 72%) was secured by
commercial real estate, and the remaining $2.7 million was to commercial borrowers.
Loans classified as substandard decreased by $8.1 million in 2022, primarily due to $16.1 million in paydowns and
payoffs and $871 thousand in upgrades to special mention or pass, partially offset by downgrades totaling $8.8
million. Of the downgraded loans, $4.7 million (or 53%) was secured by commercial real estate, and $3.6 million (or
41%) was to commercial borrowers. In addition, of the $16.1 million in paydowns and payoffs, $2.7 million was from
loans downgraded in 2022.
Refer to Note 3 to the Consolidated Financial Statements in ITEM 8 of this report for an allocation of criticized and
classified loans by loan portfolio class.
Other Assets
BOLI totaled $68.1 million as of December 31, 2023, compared to $67.1 million at December 31, 2022. The $1.0
million increase was primarily due to earnings from the BOLI policies.
Interest receivable and other assets totaled $74.9 million and $79.8 million at December 31, 2023 and 2022,
respectively. The $4.9 million decrease was primarily due to an $8.8 million decrease in net deferred tax assets, as
discussed below.
Net deferred tax assets totaled $35.1 million and $43.9 million at December 31, 2023 and 2022, respectively.
Deferred tax assets consist primarily of tax benefits expected to be realized in future periods related to temporary
differences such as allowances for credit losses and unfunded loan commitments, net operating loss carryforwards,
and deferred compensation and salary continuation obligations. The $8.8 million decrease in 2023 was primarily
due to an $8.5 million decrease in deferred tax assets related to changes in unrealized losses on available-for-sale
investment securities and an $803 thousand decrease in deferred tax assets related to state franchise tax. These
decreases in net deferred tax assets were partially offset by a $399 thousand decrease in deferred tax liabilities
related to core deposit intangibles. Management believes deferred tax assets will be realizable due to our
expectation that earnings will continue to be at a level adequate to realize such tax benefits. Therefore, no
valuation allowance was established as of December 31, 2023 or 2022. For additional information, refer to Note 11
to the Consolidated Financial Statements in ITEM 8 of this report.
We held $16.7 million of FHLB stock recorded at cost in other assets at both December 31, 2023 and 2022. We
received $1.3 million, $1.0 million and $760 thousand in cash dividends in 2023, 2022 and 2021, respectively. For
additional information, refer to Note 2 to the Consolidated Financial Statements in ITEM 8 of this report.
Deposits
Deposits decreased by $283.3 million, to $3.290 billion at December 31, 2023, compared to $3.573 billion at
December 31, 2022. Non-interest bearing deposits declined to 43.8% of total deposits at December 31, 2023,
compared to 51.5% at December 31, 2022.
While we saw a decline in deposits overall in 2023, deposits were up $39.5 million since the events that led to the
failure of a few regional banks at the end of the first quarter of 2023, and we continue to execute our business
model without the utilization of brokered deposits. In addition to the deposit run-off we experienced as a result of
these bank failures, general market disruptions, and the FOMC's monetary policy of rapid interest rate increases,
much of the decline, particularly in the fourth quarter, was due to a combination of outflows related to planned
business activities. Additionally, some balance declines were associated with loan relationships exited during the
year, and we saw some customers move cash into alternative investments to capture higher returns, a portion of
which was directed to our own wealth management group. Given the nature of our customer base, our customers'
daily operating balances can fluctuate significantly, which is a primary reason we maintain high levels of on-balance
sheet and contingent liquidity.
Although we experienced growth and movement in both money market accounts and time deposits, all activity was
a result of relationship pricing, the current rate environment, and customer behaviors, as opposed to offering CD
specials or making blanket rate adjustments. We continued our disciplined and focused approach to relationship
management and customer outreach, adding over 5,000 new accounts in 2023.
45
As of December 31, 2023, 59% of deposit balances were held in business accounts, with average balances of $120
thousand per account. The remaining 41% were consumer accounts, with average balances of $41 thousand per
account. The largest depositor represented 1.7% of total deposits, and the combined four largest depositors
represented 4.6% of total deposits.
Balances in the reciprocal deposit network program increased by $250.0 million during 2023 to $424.0 million as of
December 31, 2023. Costs associated with network deposits are recorded as non-interest expense and totaled
$2.8 million, $258 thousand, and $26 thousand for the years ended December 31, 2023, 2022 and 2021,
respectively.
Estimated uninsured and/or uncollateralized deposits decreased to 28% of total deposits as of December 31, 2023,
compared to 39% as of December 31, 2022, due primarily to our customers' increased usage of the reciprocal
deposit network program, as noted above.
Our liquidity policies require that compensating cash balances be held against concentrations over a certain level.
See ITEM 1A, Risk Factors, for a discussion of potential risks associated with concentrations and volatility due to
the activity of our large deposit customers.
Distribution of Average Deposits
The table below shows the relative composition of our average deposits for 2023 and 2022. For average rates paid
on deposits, refer to the Average Statements of Condition and Analysis of Net Interest Income table in ITEM 7-
Management's Discussion and Analysis of Financial Condition and Results of Operations.
(in thousands; unaudited)
Non-interest bearing
Interest-bearing transaction
Savings
Money market 1
Time deposits, including CDARS
Total average deposits
For the year ended December 31,
2023
Average
Amount
Percent of
Total
2022
Average
Amount
$
1,656,047
49.0 % $
1,993,373
240,524
281,611
1,013,620
191,056
7.1
8.3
30.0
5.6
294,682
341,710
1,065,104
140,547
Percent of
Total
52.0 %
7.7
8.9
27.8
3.6
$
3,382,858
100.0 % $
3,835,416
100.0 %
1 Money market balances include Insured Cash Sweep® ("ICS") in both 2023 and 2022. Demand Deposit Marketplace SM ("DDM") and ICS balances are discussed in
Note 6 to the Consolidated Financial Statements in ITEM 8 of this report.
Maturities of Uninsured Time Deposits
The following table shows time deposits by account that are in excess of $250,000 by time remaining to maturity at
December 31, 2023.
(in thousands; unaudited)
Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months
Total
Borrowings
December 31, 2023
Total
Uninsured Portion
$
$
30,998 $
46,089
23,500
5,033
105,620 $
20,998
26,339
11,000
2,283
60,620
As of December 31, 2023 and 2022, our borrowing capacity with the Federal Home Loan Bank ("FHLB") under
secured lines of credit totaled $1.009 billion and $711.6 million, respectively. The increase in our borrowing capacity
at the FHLB resulted from pledging certain held-to-maturity securities to the Securities-Backed Credit Program in
February 2023. Our borrowing capacity with the Federal Reserve Bank of San Francisco ("FRBSF") under a
secured line of credit and the Bank Term Funding Program ("BTFP"), which was new in 2023, totaled $334.2 million
and $58.7 million as of December 31, 2023 and 2022, respectively. In addition, as of December 31, 2023 and 2022
46
we had $135.0 million and $150.0 million, respectively, in unsecured lines of credit with correspondent banks to
cover short-term borrowing needs.
As of December 31, 2023, the Bank had $26.0 million outstanding in short-term borrowings under the BTFP facility
at an average rate of 4.83%, compared to $112.0 million in FHLB overnight borrowings as of December 31, 2022 at
a rate of 4.65%. Other correspondent bank lines of credit were not utilized as of December 31, 2023 or 2022.
For additional information, see Note 7, Borrowings and Other Obligations, in ITEM 8 of this report.
Deferred Compensation Obligations
We maintain a non-qualified, unfunded deferred compensation plan for certain key management personnel. Under
this plan, participating employees may defer compensation, which will entitle them to receive certain payments for
up to, but not exceeding, fifteen years commencing upon retirement, death, disability or termination of employment.
A similar Deferred Director Fee Plan entitles participating members of the Board of Directors to receive payments as
elected by the participant upon separation from service, death, disability or termination of service. At December 31,
2023 and 2022, our aggregate payment obligations under both plans totaled $6.6 million and $7.1 million,
respectively, and was recorded in interest payable and other liabilities in the consolidated statements of condition.
We have entered into supplemental executive retirement plans ("SERPs") with a select group of executive officers,
providing for certain retirement benefits at age 65 and reduced benefits upon early retirement. The annual amount
of benefits in either pre-retirement scenario is based on a vesting schedule unique to each executive. The SERP
also provides for lump sum benefits in the event of a change in control followed by the termination of the executive.
Payments under the SERPs are expected to be funded by income from bank-owned life insurance policies. On
December 31, 2023 and 2022, our liabilities under the SERPs totaled $4.5 million and $4.7 million, respectively, and
were recorded in interest payable and other liabilities in the consolidated statements of condition. The SERPs are
unfunded and non-qualified for tax purposes and subject to Title I of the Employee Retirement Income Security Act
of 1974.
Decreases in both the deferred compensation plans and SERP liabilities in 2023 mainly resulted from increases in
benefit payments to retired employees. In addition, we increased the discount rate on the SERP payments to reflect
market conditions, which reduced the present value of the SERP obligation.
For additional information, see Note 10 to the Consolidated Financial Statements in ITEM 8 of this report.
Capital Adequacy
As discussed in Note 15 to the Consolidated Financial Statements in ITEM 8 of this report, the Bank's capital ratios
were above regulatory guidelines to be considered "well capitalized" and Bancorp's ratios exceeded the required
minimum ratios for capital adequacy purposes. For further discussion of bank capital requirements, refer to the
SUPERVISION AND REGULATION section in ITEM 1 of this report.
Bancorp's total risk-based capital ratio increased to 16.89% at December 31, 2023, from 15.90% at December 31,
2022. Bancorp's tangible common equity to tangible assets ("TCE ratio") increased to 9.73% at December 31,
2023, from 8.21% at December 31, 2022, primarily due to a decrease in unrealized losses on available-for-sale
securities and a decrease in tangible assets. Bancorp's TCE ratio, net of after-tax unrealized losses on held-to-
maturity securities as if the losses were realized, was 7.80% as of December 31, 2023, compared to 6.15% (refer to
the discussion and reconciliation of this non-GAAP financial measure in the section below entitled Statement
Regarding Use of Non-GAAP Financial Measures). The Bank's total risk-based capital ratio increased to 16.62% at
December 31, 2023, from 15.73% at December 31, 2022, primarily from net income and a decrease in risk-
weighted assets, partially offset by $20.0 million in dividends to Bancorp to be used for cash dividends to
shareholders and operating costs.
Bancorp's share repurchase program and activity are discussed in detail in ITEM 5 and in Note 8 to the
Consolidated Financial Statements in ITEM 8 of this report. We expect to maintain strong capital levels and do not
expect that we will be required to raise additional capital in 2024. Our anticipated sources of capital in 2024 include
future earnings and shares issued under the stock-based compensation program.
47
Liquidity and Capital Resources
The goal of liquidity management is to provide adequate funds to meet loan demand and 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 discussed in
Note 7 to the Consolidated Financial Statement in ITEM 8 of this report. Our Asset Liability Management
Committee ("ALCO"), which is comprised of independent 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, as discussed in Note 6 to the Consolidated Financial Statement in ITEM 8 of this report.
Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and
available borrowing capacity, totaled $1.967 billion, or 60% of total deposits, and 213% of estimated uninsured and/
or uncollateralized deposits as of December 31, 2023. The Federal Reserve's BTFP facility offers borrowing
capacity based on the par value of securities pledged, making it less sensitive to changes in market rates.
The following table details the components of our contingent liquidity sources as of December 31, 2023.
(in thousands)
Internal Sources
Unrestricted cash 1
Unencumbered securities at market value
External Sources
FHLB line of credit
FRB line of credit and BTFP facility
Lines of credit at correspondent banks
Total Liquidity
Total Available
Amount Used
Net Availability
$
13,536
501,672
N/A
N/A
$
13,536
501,672
1,009,044 $
334,192
135,000
—
1,009,044
(26,000)
—
308,192
135,000
$
1,993,444 $
(26,000) $
1,967,444
1 Excludes cash items in transit as of December 31, 2023.
Note: Brokered deposits available through third-party networks are not included above.
We obtain funds from the repayment and maturity of loans, deposit inflows, investment security maturities, sales
and paydowns, federal funds purchases, FHLB advances, other borrowings, and cash flow from operations. Our
primary uses of funds are the origination of loans, the purchase of investment securities, withdrawals of deposits,
maturity of certificates of deposit, repayment of borrowings, dividends to common stockholders, and operating
expenses.
Customer deposits are a significant component of our daily liquidity position. The attraction and retention of
deposits depends on the variety and effectiveness of our customer account products, service and convenience,
rates paid to customers, and our financial strength. The cash cycles and unique business activities of some of our
large commercial depositors may cause short-term fluctuations in their deposit balances held with us.
Our cash and cash equivalents decreased by $15.0 million to $30.5 million at December 31, 2023, from $45.4
million at December 31, 2022. Significant uses of liquidity during 2023 were $283.3 million in withdrawals of
deposits, $86.0 million in repayments of short-term borrowings, and $16.1 million in cash dividends paid on common
stock to our shareholders.
The most significant sources of liquidity during 2023 were proceeds from principal paydowns, maturities and sales
of investment securities totaling $315.1 million, and proceeds from loans collected net of originations totaling
$16.9 million. In addition, $35.7 million in net cash was provided by operating activities. Refer to the Consolidated
Statement of Cash Flows in this Form 10-K 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 are adequate to support our operational needs.
48
Unfunded credit commitments, as discussed in Note 16 to the Consolidated Financial Statements in ITEM 8 of this
report, totaled $505.2 million at December 31, 2023. We expect to fund these commitments to the extent utilized
primarily through the repayment of existing loans, principal paydowns of investment securities, and liquid assets.
Over the next twelve months, $233.7 million of time deposits will mature. We expect to replace these funds with
new deposits or excess liquidity. We believe our emphasis on local deposits, combined with our immediately
available funding sources, provides a very stable base for our liquidity needs.
We had outstanding borrowings under our credit facilities of $26.0 million and $112.0 million as of December 31,
2023 and 2022, respectively, as discussed in Note 7 to the Consolidated Financial Statements in ITEM 8 of this
report.
Because Bancorp is a holding company and does not conduct regular banking operations, its primary sources of
liquidity are dividends from the Bank. Under the California Financial Code, payment of a dividend from the Bank to
Bancorp without advance regulatory approval is restricted to the lesser of the Bank’s retained earnings or the
amount of the Bank’s net profits from the previous three fiscal years less the amount of dividends paid during that
period. The primary uses of funds for Bancorp are shareholder dividends, ordinary operating expenses and stock
repurchases. Bancorp held $7.2 million in cash as of December 31, 2023. Management anticipates that there will
be sufficient earnings at the Bank to provide dividends to Bancorp to meet its funding requirements for the
foreseeable future.
Statement Regarding Use of Non-GAAP Financial Measures
Financial results for 2022 and 2021 were impacted by costs associated with our 2021 acquisition of American River
Bankshares, for which non-GAAP financial measures are not repeated in this report. For additional information
regarding the impact of non-GAAP adjustments for 2022 and 2021 performance measures, refer to Form 10-K filed
with the Securities and Exchange Commission ("SEC") on March 15, 2023.
Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial
measures. Management believes that, given recent industry turmoil, 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. Because there are limits to the usefulness of this 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 SEC, and not to rely on any single financial measure. A reconciliation of the non-GAAP
TCE ratio is presented below.
Reconciliation of GAAP and Non-GAAP Financial Measures
(in thousands, unaudited)
Tangible Common Equity - Bancorp
Total stockholders' equity
Goodwill and core deposit intangible
Total TCE
Unrealized losses on HTM securities, net of tax 1
TCE, net of unrealized losses on HTM securities (non-GAAP)
Total assets
Goodwill and core deposit intangible
Total tangible assets
Unrealized losses on HTM securities, net of tax 1
Total tangible assets, net of unrealized losses on HTM securities (non-GAAP)
Bancorp TCE ratio
Bancorp TCE ratio, net of unrealized losses on HTM securities (non-GAAP)
December 31, 2023 December 31, 2022
$
$
$
439,062
(76,520)
362,542
(77,739)
284,803
3,803,903
(76,520)
3,727,383
(77,739)
$
3,649,644
412,092
(77,870)
334,222
(89,432)
244,790
4,147,464
(77,870)
4,069,594
(89,432)
3,980,162
9.73 %
7.80 %
8.21 %
6.15 %
a
b
c
d
a / c
b / d
1 Net unrealized losses on held-to-maturity securities as of December 31, 2023 and 2022 of $110.4 million and $127.0 million, respectively, as shown in Note 2, net of
an estimated $32.6 million and $37.5 million, respectively, in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56%.
49
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is defined as the risk of loss arising from an adverse change in the market value (or prices) of financial
instruments. A significant component of market risk is interest rate risk, which is inherent in our lending, investment,
borrowing, and deposit gathering activities. The Bank manages interest rate sensitivity to minimize the exposure of
our net interest margin, earnings, and capital to changes in interest rates. Interest rate changes can create
fluctuations in the net interest margin due to an imbalance in the timing of repricing, or maturity of assets or
liabilities. Interest rate changes can also affect the market value of our financial instruments, such as available-for-
sale securities and the related unrealized gains or losses, which affect our equity value.
To mitigate interest rate risk, the structure of our assets and liabilities is managed with the objective of correlating
the effects of interest rate changes on loans and investments with those of deposits and borrowings. The Asset/
Liability Management Policy sets limits on the acceptable amount of change to net interest income and the
economic value of equity in different interest rate environments.
From time to time, we enter into interest rate swap contracts to mitigate the changes in the fair value of selected
investment securities and specified long-term fixed-rate loans and firm commitments to enter into long-term fixed-
rate loans caused by changes in interest rates. Refer to Note 14 to the Consolidated Financial Statements in
ITEM 8 of this report.
ALCO and the Board of Directors review our exposure to interest rate risk at least quarterly. We use simulation
models to measure interest rate risk and to evaluate strategies to improve profitability in the context of policy
guidelines. A simplified statement of condition is prepared on a quarterly basis as a starting point, using instrument
level data of our actual loans, investments, borrowings and deposits as inputs. If potential changes to net equity
value and net interest income resulting from hypothetical interest rate changes are not within the limits established
by the Board of Directors, management may adjust the asset and liability mix to bring the risk position within
approved limits or take other actions. Governing policies are subject to review by regulators and are updated to
incorporate their observations and adapt to changes in idiosyncratic and systemic risks. As of December 31, 2023,
interest rate risk was within the policy guidelines established by ALCO and the Board. One set of interest rates
modeled and evaluated against flat interest rates and a static balance sheet is a series of immediate parallel shifts
in the yield curve. Our most recent analysis of our interest rate sensitivity is provided in the following table as an
example rather than an expectation of likely interest rate movements.
Immediate Changes in Interest Rates (in basis points)
up 400
up 300
up 200
up 100
down 100
down 200
down 300
down 400
Estimated Change in
Net Interest Income in
Year 1, as Percent of
Net Interest Income
Estimated Change in
Net Interest Income in
Year 2, as Percent of
Net Interest Income
(10.8) %
(7.9) %
(5.1) %
(2.3) %
0.6 %
2.5 %
4.4 %
7.0 %
0.7 %
0.7 %
0.7 %
0.6 %
(0.9) %
0.9 %
2.6 %
4.6 %
Interest rate sensitivity is a function of the repricing characteristics of our assets and liabilities. The Bank runs a
combination of scenarios and sensitivities in its attempt to capture the range of interest rate risk including the
simulations mentioned above. As with any simulation model or other method of measuring interest rate risk,
limitations are inherent in the process and dependent on assumptions. For example, lower deposit growth than
modeled may cause the Bank to increase its borrowing position, thereby increasing its liability sensitivity.
Additionally, assets and liabilities may react differently to changes in market interest rates in terms of both timing
and responsiveness to market rate movements. Important deposit modeling assumptions include the speed of
deposit run-off and the amount by which interest-bearing deposit rates increase or decrease when market interest
rates change, otherwise known as the deposit beta. The above tables reflect deposit betas of up to 68%, averaging
40%, to rates paid on non-maturity interest-bearing deposits in rising rate scenarios and deposit betas of up to 60%,
averaging 34%, to rates paid on non-maturity interest-bearing deposits in falling rate scenarios. The actual rates
50
and timing of prepayments on loans and investment securities could vary significantly from the assumptions applied
in the various scenarios. Lastly, uneven changes in different tenors of U.S. Treasury rates that result in changes to
the shape of the yield curve could produce different results from those presented in the table. Accordingly, the
results presented should not be relied upon as indicative of actual results in the event of changing market interest
rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Bank of Marin Bancorp
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of condition of Bank of Marin Bancorp and Subsidiary
(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income
(loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2023, and the related notes (collectively referred to as the “consolidated financial statements”). We also have
audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of
its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity
with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023,
based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
51
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that (1)
relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the
accounts or disclosures to which they relate.
Allowance for Credit Losses on Loans
As discussed in Notes 1 and 3 to the consolidated financial statements, the Allowance for Credit Losses on Loans at
December 31, 2023, was $25.2 million on a total loan portfolio of $2.1 billion. The allowance for credit losses
provides an estimate of lifetime expected losses in the loan portfolio. The measurement of expected credit losses is
based on relevant available information, from internal and external sources, relating to past events, current
conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.
We identified the Allowance for Credit Losses on Loans as a critical audit matter. The principal considerations for
our determination of the Allowance for Credit Losses on Loans as a critical audit matter are subjectivity of the
estimation and application of forecasted economic conditions and qualitative internal and external risk factors used
in the calculation of the Allowance for Credit Losses on Loans. The economic forecast component of the Allowance
for Credit Losses on Loans is used to compare the conditions that existed during the historical period to current
conditions and future expectations. The qualitative internal and external risk factors are used to adjust for
differences in segment-specific risk characteristics or conditions that differ from those that existed during the
historical period for which the probability of default and loss given default factors were developed. Auditing
management’s judgements regarding forecasted economic conditions and qualitative internal and external risk
factors applied to the Allowance for Credit Losses on Loans involved a high degree of subjectivity.
The primary procedures we performed to address this critical audit matter included:
•
•
Testing the design, implementation, and operating effectiveness of controls related to management’s
calculation of the Allowance for Credit Losses on Loans, including controls over qualitative internal and
external risk factors and the forecasted economic conditions utilized.
Testing the appropriateness of the methodology used in the calculation of the Allowance for Credit Losses
on Loans, as well as testing completeness and accuracy of the data used in the calculation, application of
the forecasted economic conditions, and qualitative internal and external risk factors determined by
management and used in the calculation, and verifying calculations in the Allowance for Credit Losses on
Loans.
52
• Obtaining management’s analysis and supporting documentation related to the forecasted economic
conditions, and testing whether the forecasts used in the calculation of the Allowance for Credit Losses on
Loans are reasonable and supportable based on the analysis provided by management.
• Obtaining management’s analysis of internal and external qualitative factors, and evaluating the
reasonableness of the assumptions used in determining the qualitative factor adjustments.
Goodwill Impairment Assessment
As described in Note 1 to the consolidated financial statements, the Company’s goodwill balance was $72.8 million
at December 31, 2023, which is allocated to the Company’s sole reporting unit. Goodwill is evaluated for
impairment, at a minimum, on an annual basis. To test for goodwill impairment, the Company may apply a
qualitative analysis of conditions in order to determine whether it is more likely than not that the carrying value is
impaired. If the qualitative analysis is bypassed or in the event the qualitative analysis suggests that the carrying
value of goodwill may be impaired, the Company uses several quantitative valuation methodologies in evaluating
goodwill for impairment.
We identified the quantitative goodwill impairment evaluation performed as of the annual impairment testing date as
a critical audit matter. The Company bypassed the qualitative analysis and the quantitative goodwill impairment
assessment is considered a significant accounting estimate for which our audit procedures to evaluate
management's judgments involved subjectivity and increased audit effort, including use of an internal valuation
specialist.
The primary procedures we performed to address this critical audit matter included:
•
•
•
Testing the design, implementation, and operating effectiveness of the management review control related
to the management’s quantitative goodwill impairment test, including the reporting unit determination and
the determination of the fair value of the reporting unit.
Testing the Company’s financial projections utilized in the discounted cash flow methodology for
reasonableness, including the terminal period growth rate.
Utilizing an internal valuation specialist to assist in performing the following:
◦
◦
Evaluating the methodologies and weighting of methodologies utilized by management.
Testing key inputs used by management to determine the fair value of the reporting unit, including:
▪
▪
▪
▪
Independently assessing the appropriateness of selected peers in the publicly traded
guideline market approach.
Independently assessing the appropriateness of selected acquisitions in the guideline
transactions market approach.
Independently obtaining data to verify key ratios and market value indicators for selected
acquisitions.
Independently assessing the appropriateness of cost savings and equity cost of capital
assumptions utilized in the discounted cash flow methodology.
/s/ Moss Adams LLP
Portland, Oregon
March 14, 2024
We have served as the Company’s auditor since 2004.
53
March 14, 2024
Management's Report on Internal Control over Financial Reporting
Management of Bank of Marin Bancorp and subsidiary, (the "Company") is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles
("GAAP"). The Company's internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company's assets; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and
expenditures are being made only in accordance with authorizations of management and board of directors; and (3)
provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition,
use, or disposition of the Company's assets that could have a material effect on the financial statements.
Management conducted an assessment of the effectiveness of internal control over financial reporting as of
December 31, 2023, utilizing the framework established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment,
management has concluded that the Company maintained effective internal control over financial reporting as of
December 31, 2023.
The Company's independent registered public accounting firm, Moss Adams LLP, has issued an attestation report
on our internal control over financial reporting, which appears on the previous page.
/s/ Timothy D. Myers
Timothy D. Myers, President and Chief Executive Officer
/s/ Tani Girton
Tani Girton, EVP and Chief Financial Officer
54
BANK OF MARIN BANCORP
CONSOLIDATED STATEMENTS OF CONDITION
As of December 31, 2023 and 2022
(in thousands, except share data)
Assets
Cash, cash equivalents and restricted cash
Investment securities:
2023
2022
$
30,453 $
45,424
Held-to-maturity, at amortized cost (net of zero allowance for credit losses at December 31, 2023 and
2022)
Available-for-sale, at fair value (net of zero allowance for credit losses at December 31, 2023 and 2022)
925,198
552,028
1,477,226
2,073,720
972,207
802,096
1,774,303
2,092,546
(25,172)
(22,983)
2,048,548
2,069,563
72,754
68,102
20,316
7,792
3,766
—
74,946
72,754
67,066
24,821
8,134
5,116
455
79,828
$
3,803,903 $
4,147,464
$
1,441,987 $
1,839,114
225,040
233,298
1,138,433
251,317
287,651
338,163
989,390
119,030
3,290,075
3,573,348
26,298
22,906
25,562
112,439
26,639
22,946
3,364,841
3,735,372
—
—
217,498
274,570
(53,006)
439,062
215,057
270,781
(73,746)
412,092
$
3,803,903 $
4,147,464
Total investment securities
Loans, at amortized cost
Allowance for credit losses on loans
Loans, net of allowance for credit losses on loans
Goodwill
Bank-owned life insurance
Operating lease right-of-use assets
Bank premises and equipment, net
Core deposit intangible, net
Other real estate owned
Interest receivable and other assets
Total assets
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing
Interest bearing:
Transaction accounts
Savings accounts
Money market accounts
Time accounts
Total deposits
Borrowings and other obligations
Operating lease liabilities
Interest payable and other liabilities
Total liabilities
Commitments and contingent liabilities (Note 12)
Stockholders' Equity
Preferred stock, no par value,
Authorized - 5,000,000 shares, none issued
Common stock, no par value,
Authorized - 30,000,000 shares;
Issued and outstanding - 16,158,413 and 16,029,138 at December 31, 2023 and 2022, respectively
Retained earnings
Accumulated other comprehensive loss, net of tax
Total stockholders' equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
55
BANK OF MARIN BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended December 31, 2023, 2022 and 2021
(in thousands, except per share amounts)
Interest income
Interest and fees on loans
Interest on investment securities
Interest on federal funds sold and due from banks
Total interest income
Interest expense
Interest on interest-bearing transaction accounts
Interest on savings accounts
Interest on money market accounts
Interest on time accounts
Interest on borrowings and other obligations
Interest on subordinated debenture
Total interest expense
Net interest income
Provision for (reversal of) credit losses on loans
Reversal of credit losses on unfunded loan commitments
Net interest income after (reversal of) provision for credit losses
Non-interest income
Wealth management and trust services
Service charges on deposit accounts
Debit card interchange fees, net
Earnings on bank-owned life insurance, net
Dividends on Federal Home Loan Bank stock
Merchant interchange fees, net
Losses on sale of investment securities, net of gains
Other income
Total non-interest income
Non-interest expense
Salaries and employee benefits
Occupancy and equipment
Data processing
Professional services
Deposit network fees
Depreciation and amortization
Federal Deposit Insurance Corporation insurance
Information technology
Amortization of core deposit intangible
Directors' expense
Charitable contributions
Other real estate owned
Other expense
Total non-interest expense
Income before provision for income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares:
Basic
Diluted
Comprehensive income (loss):
Net income
Other comprehensive income (loss):
Change in net unrealized gains or losses on available-for-sale securities
Reclassification adjustment for realized losses on available-for-sale securities in net income
Reclassification adjustment for gains or losses on fair value hedges
Net unrealized losses on securities transferred from available-for-sale to held-to-maturity
Amortization of net unrealized losses on securities transferred from available-for-sale to held-
to-maturity
Other comprehensive income (loss), before tax
Deferred tax expense (benefit)
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
56
2023
2022
2021
$
98,505 $
38,660
2,329
139,494
93,868 $
34,766
1,407
130,041
91,612
16,342
399
108,353
172
94
1,520
246
9
1,361
3,402
104,951
(1,449)
(992)
107,392
2,222
1,593
1,812
2,194
760
422
(16)
1,145
10,132
41,939
7,297
5,139
4,974
26
1,740
889
1,550
1,135
957
587
5
6,400
72,638
44,886
11,658
33,228
1,036
867
18,553
4,715
11,562
—
36,733
102,761
2,575
(342)
100,528
2,145
2,083
1,831
1,802
1,265
496
(5,893)
1,260
4,989
43,448
8,306
4,057
3,598
2,783
2,098
1,878
1,569
1,350
1,212
717
48
8,417
79,481
421
125
1,589
323
91
—
2,549
127,492
(63)
(318)
127,873
2,227
2,007
2,051
1,229
1,056
549
(63)
1,849
10,905
42,046
7,823
4,649
3,299
258
1,840
1,179
2,197
1,489
1,107
709
359
8,314
75,269
26,036
6,141
19,895 $
63,509
16,923
46,586 $
$
$
$
1.24 $
1.24 $
2.93 $
2.92 $
2.32
2.30
16,012
16,026
15,921
15,969
14,340
14,422
$
19,895 $
46,586 $
33,228
20,358
8,700
(1,359)
—
1,743
29,442
8,702
(88,620)
63
—
(14,847)
1,580
(101,824)
(30,102)
20,740
40,635 $
(71,722)
(25,136) $
$
(21,281)
16
—
—
493
(20,772)
(6,147)
(14,625)
18,603
BANK OF MARIN BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 2023, 2022 and 2021
Accumulated
Other
Comprehensive
Income (Loss),
Net of Taxes
Total
12,601 $ 358,253
33,228
(14,625)
—
(14,625)
463
—
90
—
1,330
—
—
—
(166)
—
—
—
491
—
481
—
(13,107)
—
34
—
—
217
— 124,401
(40,722)
—
(2,024) $ 450,368
46,586
(71,722)
—
(71,722)
—
—
—
—
—
—
—
—
—
—
—
—
821
62
1,233
—
(40)
—
251
712
(15,673)
16
355
(877)
(73,746) $ 412,092
19,895
20,740
—
20,740
—
—
—
—
—
—
—
—
—
—
230
46
1,315
—
(70)
—
181
341
(16,106)
398
(53,006) $ 439,062
(in thousands, except share data)
Balance at December 31, 2020
Net income
Other comprehensive loss, net of tax
Stock options exercised, net of shares surrendered for cashless
exercises and tax withholdings
Stock issued under employee stock purchase plan
Stock issued under employee stock ownership plan
Restricted stock granted
Restricted stock surrendered for tax withholdings upon vesting
Restricted stock forfeited / cancelled
Stock-based compensation - stock options
Stock-based compensation - restricted stock
Cash dividends paid on common stock ($0.94 per share)
Stock purchased by directors under director stock plan
Stock issued in payment of director fees
Stock issued to American River Bankshares shareholders
Stock repurchased, including commissions
Balance at December 31, 2021
Net income
Other comprehensive loss, net of tax
Stock options exercised, net of shares surrendered for cashless
exercises and tax withholdings
Stock issued under employee stock purchase plan
Stock issued under employee stock ownership plan
Restricted stock granted
Restricted stock surrendered for tax withholdings upon vesting
Restricted stock forfeited / cancelled
Stock-based compensation - stock options
Stock-based compensation - restricted stock
Cash dividends paid on common stock ($0.98 per share)
Stock purchased by directors under director stock plan
Stock issued in payment of director fees
Stock repurchased, including commissions
Balance at December 31, 2022
Net income
Other comprehensive income, net of tax
Stock options exercised, net of shares surrendered for cashless
exercises and tax withholdings
Stock issued under employee stock purchase plan
Stock issued under employee stock ownership plan
Restricted stock granted
Restricted stock surrendered for tax withholdings upon vesting
Restricted stock forfeited / cancelled
Stock-based compensation - stock options
Stock-based compensation - restricted stock
Cash dividends paid on common stock ($1.00 per share)
Stock issued in payment of director fees
Balance at December 31, 2023
Common Stock
Shares
Amount
Retained
Earnings
13,500,453 $ 125,905 $ 219,747 $
—
—
—
—
33,228
—
36,338
2,648
36,075
30,742
(4,211)
(3,848)
—
—
—
1,034
6,443
463
90
1,330
—
(166)
—
491
481
—
34
217
3,441,235 124,401
(40,722)
(1,117,666)
—
—
—
—
—
—
—
—
(13,107)
—
—
—
—
15,929,243 $ 212,524 $ 239,868 $
—
—
—
—
46,586
—
40,674
2,025
38,000
46,672
(1,169)
(13,692)
—
—
—
515
10,145
(23,275)
821
62
1,233
—
(40)
—
251
712
—
16
355
(877)
—
—
—
—
—
—
—
—
(15,673)
—
—
—
16,029,138 $ 215,057 $ 270,781 $
—
—
—
—
19,895
—
11,530
2,527
58,400
61,978
(2,498)
(21,024)
—
—
—
18,362
230
46
1,315
—
(70)
—
181
341
—
398
—
—
—
—
—
—
—
—
(16,106)
—
16,158,413 $ 217,498 $ 274,570 $
The accompanying notes are an integral part of these consolidated financial statements.
57
BANK OF MARIN BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2023, 2022 and 2021
(in thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2023
2022
2021
$
19,895 $
46,586 $
33,228
Provision for (reversal of) credit losses on loans
Reversal of credit losses on unfunded loan commitments
Noncash contribution expense to employee stock ownership plan
Noncash director compensation expense
Stock-based compensation expense
Amortization of core deposit intangible
Amortization of investment security premiums, net of accretion of discounts
(Accretion of discounts) amortization of premiums on acquired loans, net
Accretion of discount on subordinated debenture
Net change in deferred loan origination costs/fees
Write-down of other real estate owned
Losses on sale of investment securities, net of gains
Depreciation and amortization
Earnings on bank-owned life insurance policies
Net changes in interest receivable and other assets
Net changes in interest payable and other liabilities
Total adjustments
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchase of held-to-maturity securities
Purchase of available-for-sale securities
Proceeds from sale of available-for-sale securities
Proceeds from paydowns/maturities of held-to-maturity securities
Proceeds from paydowns/maturities of available-for-sale securities
Proceeds from sale of Visa Inc. Class B restricted common stock
Decrease in loans receivable, net
Proceeds from sale of loan
Purchase of bank-owned life insurance policies
Proceeds from bank-owned life insurance policies
Purchase of premises and equipment
Proceeds from sale of other real estate owned
Cash and cash equivalents acquired from American River Bankshares
Cash paid for low income housing tax credit investment
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Net (decrease) increase in deposits
(Repayment of) proceeds from short-term borrowings, net
Repayment of finance lease obligations
Repayment of subordinated debenture including execution costs
Proceeds from stock options exercised
Restricted stock surrendered for tax withholdings upon vesting
Cash dividends paid on common stock
Stock repurchased, including commissions
Proceeds from stock issued under employee and director stock purchase plans
Net cash (used in) provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure of cash flow information:
Interest paid on deposits and borrowings
Income taxes paid, net of refunds
Supplemental disclosure of noncash investing and financing activities:
Change in net unrealized gains or losses on available-for-sale securities
Securities transferred from available-for-sale to held-to-maturity, at fair value
Amortization of net unrealized loss on available-for-sale securities transferred to held-to-
maturity
Transfer of loan to loans held-for-sale
Repurchase of stock not yet settled
Acquisition: Fair value of assets acquired, excluding cash and cash equivalents
Fair value of liabilities assumed
2,575
(342)
1,315
398
522
1,350
6,897
(573)
—
(836)
40
5,893
2,098
(1,802)
(4,149)
2,378
15,764
35,659
—
—
205,795
47,170
59,316
2,807
16,945
3,263
—
766
(1,749)
420
—
(42)
334,691
(283,273)
(86,000)
(148)
—
230
(70)
(16,106)
—
46
(385,321)
(14,971)
45,424
30,453 $
(63)
(318)
1,233
355
963
1,489
9,056
153
—
(2,716)
345
63
1,840
(1,229)
2,228
(4,708)
8,691
55,277
(319,937)
(243,459)
10,664
47,098
130,178
—
164,019
—
(4,714)
350
(2,266)
—
—
(30)
(218,097)
(235,202)
112,000
(131)
—
821
(40)
(15,673)
(1,250)
78
(139,397)
(302,217)
347,641
45,424 $
(1,449)
(992)
1,330
217
972
1,135
5,799
(571)
1,347
(3,155)
—
16
1,740
(2,194)
5,554
2,276
12,025
45,253
(305,329)
(620,236)
6,632
71,682
110,059
—
256,856
—
(1,943)
2,478
(1,044)
—
140,577
(398)
(340,666)
514,279
(13,885)
(86)
(4,126)
463
(166)
(13,107)
(40,762)
124
442,734
147,321
200,320
347,641
34,038 $
8,428 $
2,560 $
13,730 $
2,105
12,350
20,358 $
— $
1,743 $
(88,620) $
357,482 $
1,580 $
(21,281)
—
493
$
$
$
$
$
$
$
$
$
$
$
3,263 $
— $
— $
— $
330 $
— $
— $
— $
— $
— $
—
373
757,844
816,558
1,930
Restricted cash 1
1Restricted cash includes reserve requirements held with the Federal Reserve Bank of San Francisco and other cash pledged. In response to the COVID-19
pandemic, the Federal Reserve reduced the reserve requirement ratios to zero percent effective March 26, 2020.
The accompanying notes are an integral part of these consolidated financial statements.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Nature of Operations: Bank of Marin Bancorp ("Bancorp"), headquartered in Novato, California, conducts
business primarily through its wholly-owned subsidiary, Bank of Marin (the "Bank"), a California state-chartered
commercial bank that provides a wide range of financial services through 27 retail branches and 8 commercial
banking offices across 10 counties, including Alameda, Amador, Contra Costa, Marin, Napa, Placer, Sacramento,
San Francisco, San Mateo and Sonoma. Our customer base is made up of business, not-for-profit and personal
banking relationships from the communities within our Northern California footprint.
Basis of Presentation: The consolidated financial statements include the accounts of Bancorp, a bank holding
company, and its wholly-owned bank subsidiary, Bank of Marin, a California state-chartered commercial bank.
References to “we,” “our,” “us” mean Bancorp and the Bank that are consolidated for financial reporting purposes.
Our accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP"), general
practice, and regulatory guidance within the banking industry. A summary of our significant policies follows. All
material intercompany transactions have been eliminated. We monitor financial performance and evaluate the
revenue streams of the various products, services, locations, and operations on a company-wide basis.
Accordingly, all of the community banking and wealth management and trust services are considered by
management to be aggregated into one reportable operating segment, community banking. We evaluated
subsequent events through the date of filing with the Securities and Exchange Commission (“SEC”) and determined
there were no subsequent events that required additional recognition or disclosure.
Accounting Changes and Reclassifications: Certain items in prior financial statements have been reclassified to
conform to the current presentation, including the reclassification of the provision for credit losses on unfunded
commitments in the second quarter of 2021 from non-interest expense to a separate line item under the provision
for credit losses on loans in the consolidated statements of comprehensive income (loss).
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Significant accounting estimates reflected in the consolidated financial statements include the allowance
for credit losses, fair value measurements, and goodwill impairment assessment, as discussed in the Notes herein.
Cash, Cash Equivalents and Restricted Cash: This includes cash, due from banks, federal funds sold and other
short-term investments with maturities of less than three months at the time of purchase. Restricted cash includes
balances not immediately available for business operations such as Federal Reserve Bank of San Francisco
reserve requirements and cash pledged for interest rate swap contracts and local agency deposits.
Investment Securities: Investment securities are classified as "held-to-maturity," "trading securities" or "available-
for-sale." Investments classified as held-to-maturity are those that we have the ability and intent to hold until
maturity and are reported at cost, adjusted for the amortization or accretion of premiums or discounts. Investments
held for resale in anticipation of short-term market movements are classified as trading securities and are reported
at fair value, with unrealized gains and losses included in earnings. Investments that are neither held-to-maturity
nor trading are classified as available-for-sale and are reported at fair value. Unrealized gains and losses for
available-for-sale securities, net of related taxes, are reported as a separate component of comprehensive income
(loss) and included in stockholders' equity until realized. For discussion of our methodology in determining fair
value, see Note 9, Fair Value of Assets and Liabilities.
Purchase premiums and discounts on investment securities are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method. For certain callable debt securities purchased
at a premium, we amortize the premium to the earliest call date.
Dividend and interest income are recognized when earned. Realized gains and losses on the sale of securities are
included in non-interest income. The specific identification method is used to calculate realized gains and losses on
sales of securities.
Securities transferred from the available-for-sale category to the held-to-maturity category are recorded at fair value
59
at the date of transfer. Unrealized holding gains or losses on the dates of the transfer of securities from available-
for-sale to held-to-maturity are included in the balance of accumulated other comprehensive income (loss), net of
tax, in the consolidated balance sheets. These unrealized holding gains or losses on the dates of transfer are
amortized over the remaining life of the securities as yield adjustments in a manner consistent with the amortization
or accretion of the original purchase premium or discount on the associated security.
Non-marketable equity securities include stock held for membership and regulatory purposes, such as Federal
Home Loan Bank ("FHLB") stock and other non-marketable equity securities. These securities are accounted for at
cost, evaluated for impairment as of each reporting period, and included in interest receivable and other assets on
the consolidated statements of condition. During 2023, the Bank sold its remaining investment in Visa Inc. Class B
restricted common stock, as discussed in Note 2 - Investment securities. As of December 31, 2023 and 2022 our
investment in FHLB stock was carried at cost, as there was no impairment or changes resulting from observable
price changes in orderly transactions for the identical or a similar investment of the same issuer. Both cash and
stock dividends from the FHLB are reported as non-interest income.
Allowance for Credit Losses on Investment Securities: The allowance for credit losses on held-to-maturity
securities is a contra-asset valuation account determined in accordance with ASC 326, which is deducted from the
securities' amortized cost basis at the balance sheet date as a result of management's assessment of the net
amount expected to be collected. The allowance is measured on a pooled basis for securities with similar risk
characteristics using historical credit loss information, adjusted for current conditions and reasonable and
supportable forecasts. Securities that are determined to be uncollectible are written off against the allowance.
For available-for-sale securities in an unrealized loss position ("impaired security"), we assess whether 1) we intend
to sell the security, or, 2) it is more likely than not that we will be required to sell the security before recovery of its
amortized cost basis. Under either of these conditions, the security's amortized cost is written down to fair value
through a charge to previously recognized allowances or earnings, as applicable. For impaired securities that do
not meet these conditions, we assess whether the decline in fair value was due to credit loss or other factors. This
assessment considers, among other things: 1) the extent to which the fair value is less than amortized cost, 2) the
financial condition and near-term prospects of the issuer, 3) any changes to the rating of the security by a rating
agency, and 4) our intent and ability to retain the investment for a period of time sufficient to allow for any
anticipated recovery in fair value. If the present value of cash flows expected to be collected is less than the
amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss
component. Any impairment due to non-credit-related factors that has not been recorded through an allowance for
credit losses is recognized in other comprehensive income (loss). The discount rate used in determining the
present value of the expected cash flows is based on the effective interest rate implicit in the security at the date of
purchase.
Accrued interest receivable is excluded from the amortized costs and fair values of both held-to-maturity and
available-for-sale securities and included in interest receivable and other assets on the consolidated statements of
condition. Investment securities are placed on non-accrual status when principal or interest is contractually past
due more than ninety days, or management does not expect full payment of principal and interest. We do not
record an allowance for credit losses for accrued interest on investment securities, as the amounts are written-off
when the investment is placed on non-accrual status. There were no non-accrual investment securities in any of
the years presented in the consolidated financial statements.
Originated Loans: Loans are reported at amortized cost, which is the principal amount outstanding net of deferred
fees (costs), purchase premiums (discounts) and net charge-offs (recoveries). Amortized cost excludes accrued
interest, which is reflected in interest receivable and other assets in the consolidated statements of condition. We
do not measure an allowance for credit losses on accrued interest receivable balances because these balances are
written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status as
discussed below. Interest income is accrued daily using the simple interest method. Fees collected upon loan
origination and certain direct costs of originating loans are deferred and recognized over the contractual lives of the
related loans as yield adjustments using the interest method or straight-line method, as applicable. Upon
prepayment or other disposition of the underlying loans before their contractual maturities, any associated unearned
fees or unamortized costs are recognized.
60
Acquired Loans: ASC 326 modified the accounting for purchased loans and requires that an allowance for credit
losses be established at the date of acquisition. However, for purchased financial assets with a more-than-
insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the
initial allowance for credit losses is added to the purchase price rather than reported as a provision for credit losses.
Subsequent changes in the allowance for credit losses on PCD assets are recognized through the provision for
credit losses.
Past-Due and Non-Accrual Loan Policy: A loan is considered past due when a payment has not been received
by the contractual due date. Loans are placed on non-accrual status when management believes that there is
substantial doubt as to the collection of principal or interest, generally when they become contractually past due by
90 days or more with respect to principal or interest, except for loans that are well-secured and in the process of
collection. When loans are placed on non-accrual status, any accrued but uncollected interest is reversed from
current-period interest income and the amortization of deferred loan origination fees and costs is suspended.
Interest payments received on nonaccrual loans are either applied against principal or reported as interest income,
according to management’s judgment as to the ultimate collectability of principal. We may return non-accrual loans
to accrual status when one of the following occurs:
•
The borrower has resumed paying the full amount of the principal and interest and we are satisfied with the
borrower's financial position. In order to meet this test, we must have received repayment of all past due
principal and interest, unless the amounts contractually due are reasonably assured of repayment within a
reasonable period of time, and there has been a sustained period of repayment performance (generally, six
consecutive monthly payments), according to the original or modified contractual terms.
•
The loan has become well secured and is in the process of collection.
Loan Charge-Off Policy: For all loan types excluding overdraft accounts, we generally make a charge-off
determination at or before 90 days past due. A collateral-dependent loan is partially charged down to the fair value
of collateral securing it if: (1) it is deemed uncollectable, or (2) it has been classified as a loss by either our internal
loan review process or external examiners. A non-collateral-dependent loan is partially charged down to its net
realizable value under the same circumstances. Overdraft accounts are generally charged off when they exceed 60
days past due.
Collateral Dependent Loans: A loan is collateral dependent when the borrower is experiencing financial difficulty
and repayment is expected to be provided substantially through the sale or operation of the collateral. For collateral
dependent loans, including those for which management determines foreclosure is probable, each loan is
individually evaluated and the allowance for credit losses is based on the fair value of the collateral, adjusted for
estimated selling costs when repayment is expected from the sale of the collateral, less the loan's amortized cost.
In determining the fair value, management considers such information as the appraised value of the collateral,
observed and potential future changes in collateral value, and historical loss experience for loans that were secured
by similar collateral. Generally, with problem credits that are collateral dependent, we obtain appraisals of the
collateral at least annually. We may obtain appraisals more frequently if we believe the collateral value is subject to
market volatility, if a specific event has affected the collateral, or if we believe foreclosure is imminent.
Allowance for Credit Losses on Loans ("ACL"): The ACL 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.
Amortized cost does not include accrued interest, which management elected to exclude from the estimate of
expected credit losses (refer to the Past-Due and Non-Accrual Loan Policy section above). Management estimates
the allowance quarterly using relevant available information, from internal and external sources, relating to past
events, current conditions, and reasonable and supportable forecasts. Credit loss experience provides the basis for
the estimation of expected credit losses.
The ACL model utilizes a discounted cash flow ("DCF") method to measure the expected credit losses on loans
collectively evaluated that are sub-segmented by loan pools with similar credit risk characteristics, which are
generally comprised of federal regulatory reporting codes (i.e., Call codes). Pooled segments include the following:
•
Loans secured by real estate:
- 1-4 family residential construction loans
- Other construction loans and all land development and other land loans
61
- Secured by farmland (including residential and other improvements)
- Revolving, open-end loans secured by 1-4 family residential properties and extended under lines
of credit
- Closed-end loans secured by 1-4 family residential properties, secured by first liens
- Closed-end loans secured by 1-4 family residential properties, secured by junior liens
- Secured by multifamily (5 or more) residential properties
- Commercial real estate loans secured by owner-occupied non-farm nonresidential properties
- Commercial real estate loans secured by other non-farm nonresidential properties
Loans to finance agricultural production and other loans to farmers
Commercial and industrial loans
Loans to individuals for household, family and other personal expenditures (i.e., consumer loans)
•
•
•
• Municipal entities
•
• Other loans (overdraft credit lines)
Non-profit organizations
The DCF method incorporates assumptions for probability of default ("PD"), loss given default ("LGD"), and
prepayments and curtailments over the contractual terms of the loans. Under the DCF method, the ACL reflects the
difference between the amortized cost basis and the present value of the expected cash flows using the loan's
effective rate. We elected to report the change in present values from one reporting period to the next due to the
passage of time and changes in the estimate of future expected cash flows through the provision for credit losses,
rather than though interest income.
In determining the PD for each pooled segment, the Bank utilized regression analyses to identify certain economic
drivers that were considered highly correlated to historical Bank or peer loan default experience. As a result,
management chose the California unemployment rate as the primary economic forecast driver for all segments,
except for municipal loans. In addition, the annual percentage change in the California gross domestic product was
used in the commercial and industrial loan segment. For municipal loans, the ACL model utilized a constant default
rate obtained from a nationally recognized default rate study, which is updated annually. A third party provides LGD
estimates for each segment based on a banking industry Frye-Jacobs Risk Index approach. The ACL model
incorporates a one-year reasonable and supportable forecast of economic factors, updated quarterly, which is
based on Moody's Analytics' Baseline Forecast. For periods beyond the forecast horizon, the economic factors
revert to historical averages on a straight-line basis over a one-year period.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments and
curtailments, when appropriate. The pooled loans' contractual loan terms exclude assumptions about extensions,
renewals, and modifications.
Loans that do not share the same risk characteristics as pooled loans are evaluated individually for credit loss and
generally include all non-accrual loans, collateral dependent loans, and certain modified loans and loans graded
substandard or worse, as determined by management.
Management considers whether adjustments to the quantitative portion of the ACL are needed for differences in
segment-specific risk characteristics or to reflect the extent to which it expects current conditions and reasonable
and supportable forecasts of economic conditions to differ from the conditions that existed during the historical
period included in the development of PD and LGD. Qualitative internal and external risk factors include, but are
not limited to, the following:
•
•
•
•
•
•
•
•
Changes in the nature and volume of the loan portfolio
Changes in the volume and severity of past due loans, the volume of non-accruals loans, and the volume
and severity of adversely classified or graded loans
The existence and effect of individual loan and loan segment concentrations
Changes in lending policies and procedures, including changes in underwriting standards and collection,
charge-off, and recovery practices not considered elsewhere
Changes in the experience, ability, and depth of lending management and other relevant staff
Changes in the quality of our systematic loan review processes
Changes in economic and business conditions, and developments that affect the collectability of the
portfolio
Changes in the value of underlying collateral, where applicable
62
•
•
•
The effect of other external factors such as legal and regulatory requirements on the level of estimated
credit losses in the portfolio
The effect of acquisitions of other loan portfolios on our infrastructure, including risk associated with
entering new geographic areas as a result of such acquisitions
The presence of specialized lending segments in the portfolio
There were no material changes to the ACL methodology during 2023. However, assumptions that mainly
influenced management's current estimate of the expected credit losses were primarily 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. Other elements of the estimated current expected credit losses included increased
allowances for individually analyzed loans exhibiting unique credit risk characteristics and a slight increase in
Moody's Analytics' Baseline Forecast of California's unemployment rate, partially offset by the impact of an overall
decrease in loans. While we believe we use the best information available to determine the allowance for credit
losses, our results of operations could be significantly affected if circumstances differ substantially from the
assumptions used in determining the allowance. Our ACL model is sensitive to changes in unemployment rate
forecasts and certain other assumptions that could result in material fluctuations in the allowance for credit losses
and adversely affect our financial condition and results of operations.
As discussed in the Other Recently Adopted Accounting Standards section below, as of January 1 2023, we
adopted ASU No. 2022-02 under which the concept of troubled debt restructured loans and its impact on the ACL
calculation was eliminated in favor of the disclosure of certain loan modifications made to borrowers experiencing
financial difficulty. Such modified loans are now subject to the Bank's standard ACL process, as outlined above.
For further information regarding the allowance for loan losses, see Note 3, Loans and Allowance for Loan Losses.
Allowance for Credit Losses on Unfunded Loan Commitments: We make commitments to extend credit to
meet the financing needs of our customers in the form of loans or standby letters of credit. We are exposed to
credit losses over a loan's contractual period in the event that a decline in credit quality of the borrower leads to
nonperformance. We record an allowance for losses on unfunded loan commitments at the balance sheet date
based on estimates of probability that these commitments will be drawn upon according to historical utilization
experience of different types of commitments and expected loss severity and loss rates determined for pooled
funded loans. The allowance for credit losses on unfunded commitments is a liability account included in interest
payable and other liabilities on the consolidated statements of condition. Adjustments to the allowance for unfunded
commitments are included in non-interest expense as a provision for (or reversal of) the allowance for unfunded
commitments.
Transfers of Financial Assets: We have entered into certain loan participation agreements with other
organizations. We account for these transfers of financial assets as sales when control over the transferred
financial assets has been surrendered. Control over transferred assets is deemed to be surrendered when 1) the
assets and liabilities have been isolated from us, 2) the transferee has the right to pledge or exchange the assets
(or beneficial interests) it received, free of conditions that constrain it from taking advantage of that right, beyond a
trivial benefit and 3) we do not maintain effective control over the transferred financial assets or third-party beneficial
interests related to those transferred assets. Transfers of a portion of a loan must meet the criteria of a participating
interest. If it does not meet the criteria of a participating interest, the transfer must be accounted for as a secured
borrowing. In order to meet the criteria for a participating interest, all cash flows from the loan must be divided
proportionately, the rights of each loan holder must have the same priority, and the loan holders must have no
recourse to the transferor other than standard representations and warranties and no loan holder has the right to
pledge or exchange the entire loan. We recognized no gains or losses on the sale of these participation interests in
2023, 2022 and 2021.
Premises and Equipment: Land is carried at cost and not depreciated. Bank-owned buildings, leasehold
improvements, furniture, fixtures, software and equipment and are stated at cost, less accumulated depreciation,
and depreciated/amortized on a straight-line basis. Furniture and fixtures are depreciated over eight years and
63
equipment is generally depreciated over three to twenty years. Bank-owned buildings are depreciated over twenty-
five to thirty years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the
terms of the leases. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation
or amortization are removed from the accounts and any resulting gain or loss is recognized in income for the period.
The cost of maintenance and repairs is charged to expense as incurred.
Leases: We lease certain premises under long-term non-cancelable operating leases, most of which include
escalation clauses and one or more options to extend the lease term, and some of which contain lease termination
clauses. Only those renewal and termination options that management determines are reasonably certain of
exercising are included in the calculation of the lease liability. In addition, we lease certain equipment under finance
leases. The equipment finance lease terms do not contain renewal options, bargain purchase options or residual
value guarantees. We did not have any significant short-term leases during the reported periods.
Lease right-of-use assets represent the right to use the underlying asset while lease liabilities represent the present
value of future lease obligations. We elected not to separate non-lease components from lease components and to
exclude short-term leases (i.e., lease term of 12 months or less at the commencement date) from right-of-use
assets and lease liabilities for all lease classifications. When calculating the lease liability, because most lease
contracts do not contain an implicit interest rate, we discount lease payments over a lease's expected term based
on the collateralized Federal Home Loan Bank borrowing rate that was commensurate with lease terms and
minimum payments at the lease commencement date. Right-of-use assets for operating leases are amortized over
the lease term by amounts that represent the difference between periodic straight-line lease expense and periodic
interest accretion on the related liability to make lease payments, whereas finance leases are amortized on a
straight-line basis over the term of the lease. Expense recognition for operating leases is recorded on a straight-line
basis while expense recognition for finance leases represents the sum of periodic amortization of the associated
right-of-use asset and the interest accretion on the lease liability. Refer to Note 12, Commitments and
Contingencies, for further information.
Business Combinations: Business combinations are accounted for under the acquisition method of accounting in
accordance with ASC 805, Business Combinations. A business is defined as a set of activities and assets that is
both self-sustaining and managed to provide a return to investors and generally has three elements: inputs,
processes and outputs. Under the acquisition method, the acquiring entity in a business combination recognizes the
acquired assets and assumed liabilities at their estimated fair values as of the date of acquisition. Any excess of the
purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as
goodwill. To the extent the fair value of net assets acquired, including other identifiable assets, exceed the
purchase price, a bargain purchase gain is recognized. Assets acquired and liabilities assumed from a business
combination are recognized at fair value. Results of operations of an acquired business are included in the
consolidated statements of operations from the date of acquisition. Business acquisition-related costs, including
conversion and restructuring charges, are expensed as incurred. If substantially all of an acquisition is made up of
one asset or several similar assets, or without a substantive process that together contributes to the ability to create
outputs, the acquisition is accounted for as an asset acquisition and acquisition costs will be capitalized as part of
the assets acquired, rather than expensed in a business combinations.
Goodwill and Other Intangible Assets: Goodwill arises from the acquisition method of accounting for business
combinations and represents the excess of the fair value of the consideration transferred, plus the fair value of any
noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of
the acquisition date. Goodwill is deemed to have an indefinite life, is not subject to amortization, and as such is
tested for impairment at least annually or more frequently if events and circumstances lead management to believe
the value of goodwill may be impaired. Goodwill is the only intangible asset with an indefinite life recorded in the
Company’s consolidated statements of financial condition. Impairment testing is performed at the reporting unit
level. Management considered the Company to be its sole reporting unit for the year ended December 31, 2023.
Management’s assessment of goodwill impairment is performed in accordance with ASC 350-20, Intangibles -
Goodwill and Other - Goodwill and encompasses a two-step process. First, the Company has the option to perform
a qualitative assessment to evaluate relevant events or circumstances to determine whether it is more likely than
not the fair value of the Company is less than its carrying amount, including goodwill. The factors considered in the
qualitative assessment typically include macroeconomic conditions, industry and market conditions and the overall
financial performance of the Company, among other factors. If the Company determines that it is more likely than
64
not the fair value of the Company may be less than its carrying amounts, then it proceeds to the quantitative
impairment test, whereby it calculates the fair value of the Company. Under GAAP, in its performance of impairment
testing, management has the unconditional option to proceed directly to the quantitative impairment test, bypassing
the qualitative assessment. If the carrying amount of the Company exceeds its fair value, the amount by which the
carrying amount exceeds fair value, up to the carrying value of goodwill, is recorded through earnings as an
impairment charge recorded in non-interest expense. If the results of the qualitative assessment indicate that it is
not more likely than not that an impairment has occurred, or if the quantitative impairment test results in a fair value
of the Company that is greater than the carrying amount, then no impairment charge is recorded.
The Company performs its annual goodwill impairment test as of November 30th each year. Due to the market
volatility experienced in the banking sector during 2023, the Company elected to bypass a qualitative assessment of
goodwill and proceed directly to a quantitative assessment, the results of which indicated that goodwill totaling
$72.8 million was not impaired as of December 31, 2023, and there were no changes to our assessment through
December 31, 2023. In addition, the Company recorded no goodwill impairment for the years ended December 31,
2022, and 2021.
Core deposit intangibles ("CDI") arising from the acquisition of other financial institutions are considered to have
definite useful lives and are amortized on an accelerated method over their estimated useful life of ten years. At
December 31, 2023, the future estimated amortization expense for the CDI arising from our past acquisitions was
as follows:
(in thousands)
2024
2025
2026
2027
2028
Thereafter
Total
Core deposit intangible amortization
$
975 $
875 $
773 $
634 $
242 $
267 $
3,766
The CDI represents the estimated future benefit of deposits related to an acquisition and is recorded separately
from the related deposits and evaluated at least annually or when events and circumstances change. We recorded
no impairment adjustments for the CDI in 2023, 2022 and 2021.
Other Real Estate Owned ("OREO"): OREO is comprised of property acquired through a business combination,
foreclosure, in substance repossession or acceptance of deeds-in-lieu of foreclosure when the related loan
receivable is de-recognized. OREO is recorded at fair value of the collateral less estimated costs to sell,
establishing a new cost basis, and subsequently accounted for at the lower of cost or fair value less estimated costs
to sell. Any shortfall of collateral value from the recorded investment of the related loan is recognized as loss at the
time of foreclosure and is charged against the allowance for loan losses. Fair value of collateral is generally based
on an independent appraisal of the property. Revenues and expenses associated with OREO, and subsequent
adjustments to the fair value of the property and to the estimated costs of disposal, are realized and reported as a
component of non-interest income and expense when incurred. We recorded a $40 thousand and $345 thousand
valuation adjustment to OREO in 2023 and 2022, respectively. In July 2023, the Bank completed the sale of its only
OREO property.
Bank Owned Life Insurance ("BOLI"): The Bank owns life insurance policies on certain key current and former
officers. BOLI is recorded in interest receivable and other assets on the consolidated statements of condition at the
amount that can be realized under the insurance contract at period-end, which is the cash surrender value adjusted
for other charges or amounts due that are probable at settlement.
Investments in Low Income Housing Tax Credit Funds: We have invested in limited partnerships that were
formed to develop and operate affordable housing projects for low or moderate-income tenants throughout
California. Our ownership percentage in each limited partnership ranges from 1.0% to 3.5%. We account for the
investments in qualified affordable housing tax credit funds using the proportional amortization method, where the
initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received. Low
income housing tax credits and other tax benefits received, net of the amortization of the investment is recognized
as part of income tax benefit. Each of the partnerships must meet the regulatory minimum requirements for
affordable housing for a minimum 15-year compliance period to fully utilize the tax credits. If the partnerships cease
to qualify during the compliance period, the credit may be denied for any period in which the project is not in
compliance and a portion of the credit previously taken is subject to recapture with interest. We record an
impairment charge if the value of the future tax credits and other tax benefits is less than the carrying value of the
investments.
65
Employee Stock Ownership Plan (“ESOP”): We recognize compensation cost for ESOP contributions when
funds become committed for the purchase of Bancorp's common shares into the ESOP in the year in which the
employees render service entitling them to the contribution. If we contribute stock, the compensation cost is the fair
value of the shares when they are committed to be released (i.e., when the number of shares becomes known and
formally approved). In 2023, 2022 and 2021, Bancorp only made stock contributions to the ESOP.
Income Taxes: Income taxes reported in the consolidated financial statements are computed based on an asset
and liability approach. We recognize the amount of taxes payable or refundable for the current year and we record
deferred tax assets and liabilities for future tax consequences attributable to differences between the financial
statement carrying amount of existing assets and liabilities and their respective tax bases using enacted tax rates in
effect for the year in which the temporary differences are expected to reverse. We record net deferred tax assets to
the extent it is more likely than not that they will be realized. In evaluating our ability to recover the deferred tax
assets and the need to establish a valuation allowance against the deferred tax assets, management considers all
available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future
taxable income, and tax planning strategies. In projecting future taxable income, management develops
assumptions including the amount of future state and federal pretax operating income, the reversal of temporary
differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require
significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates
being used to manage the underlying business. Bancorp files consolidated federal and combined state income tax
returns.
We recognize the financial statement effect of a tax position when it is more likely than not, based on the technical
merits and all available evidence, that the position will be sustained upon examination, including the resolution
through protests, appeals or litigation processes. For tax positions that meet the more likely than not threshold, we
measure and record the largest amount of tax benefit that is greater than fifty percent likely of being realized upon
ultimate settlement with the taxing authority. The remainder of the benefits associated with tax positions taken is
recorded as unrecognized tax benefits, along with any related interest and penalties. Interest and penalties related
to unrecognized tax benefits are recorded in tax expense.
In deciding whether or not our tax positions taken meet the more likely than not recognition threshold, we must
make judgments and interpretations about the application of inherently complex state and federal tax laws. To the
extent tax authorities disagree with tax positions taken by us, our effective tax rates could be materially affected in
the period of settlement with the taxing authorities. Revision of our estimate of accrued income taxes also may
result from our own income tax planning, which may affect effective tax rates and results of operations for any
reporting period.
We present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss ("NOL")
carryforward, or similar tax loss or tax credit carryforward, rather than as a liability, when (1) the uncertain tax
position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) we
intend to and are able to use the deferred tax asset for that purpose. Otherwise, the unrecognized tax benefit is
presented as a liability instead of being netted with deferred tax assets.
Earnings per share (“EPS”): EPS is based upon the weighted average number of common shares outstanding
during each year. The following table shows: 1) weighted average basic shares, 2) potentially dilutive weighted
average common shares related to stock options and unvested restricted stock awards, and 3) weighted average
diluted shares. Basic EPS are calculated by dividing net income by the weighted average number of common
shares outstanding during each annual period, excluding unvested restricted stock awards. Diluted EPS are
calculated using the weighted average number of potentially dilutive common shares. The number of potentially
dilutive common shares included in year-to-date diluted EPS is a year-to-date weighted average of potentially
dilutive common shares included in each quarterly diluted EPS computation. In computing diluted EPS, we exclude
anti-dilutive shares such as options whose exercise prices exceed the current common stock price, as they would
not reduce EPS under the treasury stock method. We have two forms of outstanding common stock: common
stock and unvested restricted stock awards. Holders of unvested restricted stock awards receive non-forfeitable
dividends at the same rate as common shareholders and they both share equally in undistributed earnings. Under
the two-class method, the difference in EPS is nominal for these participating securities.
66
(in thousands, except per share data)
Weighted average basic common shares outstanding
Potentially dilutive common shares related to:
Stock options
Unvested restricted stock awards
Weighted average diluted common shares outstanding
Net income
Basic EPS
Diluted EPS
Weighted average anti-dilutive common shares not included in the calculation of diluted EPS
2023
2022
2021
16,012
15,921
14,340
3
11
31
17
62
20
16,026
15,969
14,422
$ 19,895 $ 46,586 $ 33,228
$
$
1.24 $
1.24 $
364
2.93 $
2.92 $
211
2.32
2.30
97
Share-Based Compensation: All share-based payments, including stock options and restricted stock, are
recognized as stock-based compensation expense in the consolidated statements of comprehensive income (loss)
based on the grant-date fair value of the award with a corresponding increase in common stock. The grant-date fair
value of the award is amortized on a straight-line basis over the requisite service period, which is generally the
vesting period. The stock-based compensation expense excludes stock grants to directors as compensation for
their services, which are recognized as director expenses separately based on the grant-date value of the stock.
We account for forfeitures as they occur. See Note 8, Stockholders' Equity and Stock Option Plans, for further
discussion.
We determine the fair value of stock options at the grant date using a Black-Scholes pricing model that takes into
account the stock price at the grant date, exercise price, expected life of the option, volatility of the underlying stock,
expected dividend yield and risk-free interest rate over the expected life of the option. The expected term of options
granted is derived from historical data on employee exercises and post-vesting employment termination behavior.
The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect
at the time of the grant. Expected volatility is based on the historical volatility of the common stock over the most
recent period that is generally commensurate with the expected life of the options. The Black-Scholes option
valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based
award and stock price volatility. The assumptions used represent management's best estimates based on historical
information, but these estimates involve inherent uncertainties and the application of management's judgment. As a
result, if other assumptions had been used, the recorded stock-based compensation expense could have been
materially different from that recorded in the consolidated financial statements. The fair value of restricted stock is
based on the stock price on the grant date.
We record excess tax benefits resulting from the exercise of non-qualified stock options, the disqualifying
disposition of incentive stock options and vesting of restricted stock awards as tax benefits in the consolidated
statements of comprehensive income (loss) with a corresponding decrease to current taxes payable. In addition,
we reflect excess tax benefits as an operating activity in the consolidated statements of cash flows.
Cash paid for tax withholdings when shares are surrendered in a cashless stock option exchange is classified as a
financing activity in the consolidated statements of cash flows.
Derivative Financial Instruments and Hedging Activities - Fair Value Hedges: All of our interest rate swap
contracts are designated and qualified as fair value hedges. The terms of our loan interest rate swap contracts are
closely aligned to the terms of the designated fixed-rate loans. The hedging relationships are tested for
effectiveness on a quarterly basis using a qualitative approach. The qualitative analysis includes verification that
there are no changes to the derivative's or hedged item's key terms and conditions and no adverse developments
regarding risk of counterparty default, and validation that we continue to have fair value hedge designation. Our
rate swaps on available-for-sale securities were designated as partial term fair value hedges and structured such
that the changes in fair value of the interest rate swaps are expected to be perfectly effective in offsetting the
changes in the fair value of the hedged items attributable to changes in the swap rate. Because the hedges met the
criteria for using the shortcut method, there is no need to periodically reassess effectiveness during the term of the
hedges.
The interest rate swaps are carried on the consolidated statements of condition at their fair value in other assets
(when the fair value is positive) or in other liabilities (when the fair value is negative). For fair value designated
67
hedges, the gain or loss on the hedging instruments, as well as the offsetting loss or gain on the hedged items, are
recognized in current earnings as fair values change.
For derivative instruments executed with the same counterparty under a master netting arrangement, we do not
offset fair value amounts of interest rate swaps in liability positions with the ones in asset positions.
From time to time, we make firm commitments to enter into long-term fixed-rate loans with borrowers backed by
yield maintenance agreements and simultaneously enter into forward interest rate swap agreements with
correspondent banks to mitigate the change in fair value of the yield maintenance agreement. Prior to loan funding,
yield maintenance agreements with net settlement features that meet the definition of a derivative are considered as
non-designated hedges and are carried on the consolidated statements of condition at their fair value in other
assets (when the fair value is positive) or in other liabilities (when the fair value is negative). The offsetting changes
in the fair value of the forward swap and the yield maintenance agreement are recorded in interest income. When
the fixed-rate loans are originated, the forward swaps are designated to offset the change in fair value in the loans.
Subsequent to the point of the swap designations, the fair value of the related yield maintenance agreements at the
designation date that was recorded in other assets is amortized using the effective yield method over the life of the
respective designated loans.
For further detail, refer to Note 14, Derivative Financial Instruments and Hedging Activities.
Revenue Recognition: We utilize the following five-step model for non-financial instrument related revenue that is
in scope for ASC 606, Revenue from Contracts with Customers: 1) identify the contract, 2) identify the performance
obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance
obligations in the contract, and, 5) recognize revenue when (or as) the entity satisfies the performance obligation.
Our main revenue streams in scope for ASC 606 include:
• Wealth management and trust services ("WMTS") fees - WMTS services include, but are not limited to:
customized investment advisory and management; administrative services such as bill pay and tax
reporting; trust administration, estate settlement, custody and fiduciary services. Performance obligations
for investment advisory and management services are generally satisfied over time. Revenue is recognized
monthly according to a tiered fee schedule based on the client's month-end market value of assets under
our management. WMTS does not earn revenue based on performance or incentives. Costs associated
with WMTS revenue-generating activities, such as payments to sub-advisors, are recorded separately as
part of professional service expenses when incurred.
•
•
Deposit account service charges - Service charges on deposit accounts consist of monthly maintenance
fees, business account analysis fees, business online banking fees, check order charges, and other deposit
account-related fees. Performance obligations for monthly maintenance fees and account analysis fees are
satisfied, and the related revenue recognized, when we complete our performance obligation each month.
Performance obligations related to transaction-based services (such as check orders) are satisfied, and the
related revenue recognized, at a point in time typically when the transaction is completed, except for
business accounts subject to analysis where the transaction-based fees are part of the monthly account
analysis fees.
Debit card interchange fees - We issue debit cards to our consumer and small business customers that
allow them to purchase goods and services from merchants in person, online, or via mobile devices using
funds held in their demand deposit accounts held with us. Debit cards issued to our customers are part of
global electronic payment networks (such as Visa) who pass a portion of the merchant interchange fees to
debit card-issuing member banks like us when our customers make purchases through their networks.
Performance obligations for debit card services are satisfied and revenue is recognized daily as the
payment networks process transactions. Because we act in an agent capacity, we recognize network costs
on a net basis with interchange fees in non-interest income.
Advertising Costs: Advertising costs are expensed as incurred. For the years ended December 31, 2023, 2022,
and 2021, advertising costs totaled $1.2 million, $1.1 million, and $908 thousand, respectively.
Comprehensive Income (Loss): Comprehensive income (loss) primarily includes net income, changes in the
unrealized gains or losses on available-for-sale investment securities, reclassification adjustment for gains or losses
68
on fair value hedges, reclassification adjustment for realized (gains) losses on available-for-sale securities in net
income, and amortization of net unrealized gains or losses on securities transferred from available-for-sale to held-
to-maturity, net of related taxes, reported on the consolidated statements of comprehensive income (loss) and as
components of stockholders' equity.
Fair Value Measurements: We use fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. We base our fair values on the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
(i.e., exit price notion) reflecting factors such as a liquidity premium. Securities available-for-sale and derivatives
are recorded at fair value on a recurring basis. Equity investments that do not have readily determinable fair values
are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in
orderly transactions for the identical or a similar investment of the same issuer. FHLB stock was carried at cost as
of December 31, 2023, as there was no impairment or changes resulting from observable price changes in orderly
transactions for an identical or similar investment of the same issuer. Additionally, from time to time, we may be
required to record certain assets and liabilities at fair value on a non-recurring basis, such as purchased loans and
acquired deposits recorded at acquisition date, certain collateral dependent loans, other real estate owned and
securities held-to-maturity that are other-than-temporarily impaired. These non-recurring fair value adjustments
typically involve write-downs of individual assets due to application of lower-of-cost or market accounting.
When we develop our fair value measurement process, we maximize the use of observable inputs. Whenever there
is no readily available market data, we use our best estimates and assumptions in determining fair value, but these
estimates involve inherent uncertainties and the application of management's judgment. As a result, if other
assumptions had been used, our recorded earnings or disclosures could have been materially different from those
reflected in these consolidated financial statements.
Other Recently Adopted Accounting Standards
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled
Debt Restructurings and Vintage Disclosures. The amendment eliminated the recognition measurement guidance
for troubled debt restructured ("TDR") loans and instead enhanced disclosure requirements for certain loan
modifications when a borrower is experiencing financial difficulty. In addition, the amendment required that an entity
include in its vintage disclosures the current period gross loan charge-offs by year of origination. We early adopted
the current period charge-off disclosures in the first quarter of 2022. We adopted the loan modification provisions as
of January 1, 2023 using a modified retrospective method. The cumulative-effect adjustment to retained earnings
was considered immaterial. Refer to Note 5, Loans and Allowance for Credit Losses on Loans, for additional
information.
In March 2022, the FASB issued ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging -
Portfolio Layer Method. Among other things, the ASU renamed the "last-of-layer" method to the "portfolio layer"
method and made fair value hedging more accessible for hedge accounting of interest rate risk for portfolios and
financial assets. For example, the guidance permits an entity to apply the same portfolio hedging method to both
prepayable and non-prepayable financial assets, thereby providing for consistency between accounting for similar
hedges. We adopted the amendments on January 1, 2023, which had no effect on our existing hedge accounting,
disclosures, financial condition or results of operations.
In March 2020, the FASB issued Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform
(Topic 848). The amendments in this ASU are elective and provide optional guidance for a limited period of time to
ease the potential burden of accounting for, or recognizing the effects of reference rate reform. The amendments in
this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and
other transactions that reference LIBOR or another reference rate expected to be discontinued because of
reference rate reform. Topic 848 was further amended in January 2021 with ASU No. 2021-01, which provided
additional guidance on certain optional expedients and scope of derivative instruments, and in December 2022 with
ASU 2022-06, which extended the sunset date of Topic 848 to December 31, 2024 given the UK Financial Conduct
Authority ("FCA") March 2021 announcement that the intended cessation date of certain tenors of USD LIBOR
would be June 30, 2023. An entity may elect the amendments in these updates at an interim period with adoption
methods varying based on transaction type. As of December 31, 2023, we had three interest rate swap contracts
with notional values totaling $8.6 million that were indexed to LIBOR, which transitioned to the Secured Overnight
69
Financing Rate ("SOFR") effective July 1, 2023. The transition to SOFR did not have a material impact to either our
financial condition or results of operations.
Accounting Standards Not Yet Effective
In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions. The amendment reduces diversity in practice by
clarifying that a separate contractual restriction on the sale of an equity security is not considered part of the unit of
account of the equity security and, therefore, is not considered in measuring fair value. In addition, this ASU
provided amended examples to illustrate that a restriction that is a characteristic of the equity security, which market
participants would take into account when pricing them, would be considered in measuring fair value. This ASU also
introduces new disclosure requirements. The amendments are effective prospectively for years beginning after
December 15, 2023. Early adoption is permitted for both interim and annual financial statements. As discussed in
Note 2, Investment Securities, in July 2023 we sold our remaining shares of Visa Inc. Class B restricted common
stock. As a result of the sale, this update will not impact our financial condition, results of operations or disclosures.
In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements. For
public companies, the amendment requires entities to amortize leasehold improvements associated with common
control lease arrangements over the useful life of the improvements to the common control group, as opposed to
the shorter of the remaining lease term and the useful life of the improvements for all other operating leases. The
amendments are effective for years beginning after December 15, 2023, and may be adopted either prospectively
or retrospectively. Early adoption is permitted for both interim and annual financial statements. We currently do not
have common control lease arrangements, and therefore do not anticipate that the amendments will impact our
financial condition and results of operations.
In March 2023, the FASB issued ASU No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323):
Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. Under current
GAAP, an entity can only elect to apply the proportional amortization method to investments in low-income housing
tax credit ("LIHTC") structures. The proportional amortization method results in the cost of the investment being
amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the
investment and the income tax credits being presented net in the consolidated statements of income as a
component of income tax expense (benefit). The amendments will allow entities to elect to account for all other
equity investments made primarily for the purpose of receiving income tax credits to using the proportional
amortization method, regardless of the tax credit program through which the investment earns income tax credits,
when certain conditions are met. The amendments are effective for fiscal years beginning after December 15,
2023, and may be adopted either on a modified retrospective basis or retrospectively. Other than investments in
LIHTC funds, as disclosed in Note 4, Investment Securities, we currently have no other equity investments made
primarily for the purpose of receiving income tax credits, and therefore do not anticipate that the amendments will
impact our financial condition and results of operations.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to
Reportable Segment Disclosures. The amendments are intended to improve reportable segment disclosure
requirements, primarily through enhanced disclosures about significant segment expenses, enhanced interim
disclosure requirements, clarifying circumstances in which an entity can disclose multiple segment measures of
profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and
requiring other disclosures. The amendments are effective for annual reporting periods beginning after
December 15, 2023 (i.e., 2024 Form 10-K) and interim periods within fiscal years beginning after December 31,
2024, and shall be applied retrospectively to all prior periods presented in the financial statements. Early adoption
is permitted. We currently have only one reportable segment and are evaluating the impact of the amendments on
our financial statement disclosures upon adoption.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax
Disclosures. The amendments require disaggregated information about the effective tax rate reconciliation and
additional disclosures on reconciling items and taxes paid that meet a quantitative threshold. The amendments are
effective for annual reporting periods beginning after December 15, 2024, and may be adopted either prospectively
or retrospectively. Early adoption is permitted. We are currently evaluating the impact of the amendments on our
financial statement disclosures upon adoption.
70
Note 2: Investment Securities
Our investment securities portfolio consists of U.S. Treasury securities, obligations of state and political
subdivisions, U.S. federal government agencies, such as the Government National Mortgage Association ("GNMA")
and Small Business Administration ("SBA"), and U.S. government-sponsored enterprises ("GSEs"), such as the
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
Farm Credit Banks Funding Corporation and FHLB, and U.S. Corporations. We also invest in residential and
commercial mortgage-backed securities ("MBS"/"CMBS") and collateralized mortgage obligations ("CMOs") issued
or guaranteed by the GSEs, as reflected in the following table.
A summary of the amortized cost, fair value and allowance for credit losses related to securities held-to-maturity as
of December 31, 2023 and December 31, 2022 is presented below.
Held-to-maturity:
(in thousands)
December 31, 2023
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and
GNMA
CMOs issued by FHLMC
CMOs issued by FNMA
CMOs issued by GNMA
SBA-backed securities
Debentures of government-sponsored agencies
Obligations of state and political subdivisions
Corporate bonds
Total held-to-maturity
December 31, 2022
Securities of U.S. government-sponsored enterprises:
MBS pass-through securities issued by FHLMC, FNMA and
GNMA
CMOs issued by FHLMC
CMOs issued by FNMA
CMOs issued by GNMA
SBA-backed securities
Debentures of government-sponsored agencies
Obligations of state and political subdivisions
Corporate bonds
Total held-to-maturity
Amortized
Cost 1
Allowance
for Credit
Losses
Net
Carrying
Amount
Gross Unrealized
Gains
(Losses)
Fair Value
$ 306,261 $
— $ 306,261 $
— $
(44,396) $ 261,865
226,416
101,502
51,006
1,853
146,126
62,034
30,000
—
—
—
—
—
—
—
226,416
101,502
51,006
1,853
146,126
62,034
30,000
28
(24,869)
201,575
—
—
—
—
47
—
(4,779)
(5,235)
(90)
96,723
45,771
1,763
(21,994)
124,132
(7,884)
(1,196)
54,197
28,804
$ 925,198 $
— $ 925,198 $
75 $ (110,443) $ 814,830
$ 331,281 $
— $ 331,281 $
— $
(50,147) $ 281,134
235,971
111,904
52,356
2,372
145,823
62,500
30,000
—
—
—
—
—
—
—
235,971
111,904
52,356
2,372
145,823
62,500
30,000
59
—
11
—
—
—
—
(29,503) $ 206,527
(5,419)
(3,076)
(133)
106,485
49,291
2,239
(26,467)
119,356
(10,741)
(1,552)
51,759
28,448
$ 972,207 $
— $ 972,207 $
70 $ (127,038) $ 845,239
1 Amortized cost and fair values exclude accrued interest receivable of $3.6 million and $3.7 million at December 31, 2023 and 2022, respectively, which is included
in interest receivable and other assets in the consolidated statements of condition.
Management measures expected credit losses on held-to-maturity securities collectively by major security type, with
each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for
current conditions and reasonable and supportable forecasts. With regard to MBSs and CMOs issued or
guaranteed by the GSEs, and SBA-backed securities, we expect to receive all the contractual principal and interest
on these securities, as such securities are backed by the full faith and credit of and/or guaranteed by the U.S.
government. Accordingly, no allowance for credit losses has been recorded for these securities. With regard to
securities issued by states and political subdivisions and corporate bonds, management considers: (i) issuer and/or
guarantor credit ratings, (ii) historical probability of default and loss given default rates for given bond ratings and
remaining maturity, (iii) whether issuers continue to make timely principal and interest payments under the
contractual terms of the securities, (iv) internal credit review of the financial information, and (v) whether or not such
securities have credit enhancements such as guarantees, contain a defeasance clause, or are pre-refunded by the
issuers. Based on the comprehensive analysis, no credit losses are expected.
The following table summarizes the amortized cost of our portfolio of held-to-maturity securities issued by states
and political subdivisions and corporate bonds by Moody's and/or Standard & Poor's bond ratings as of
December 31, 2023 and 2022.
71
(in thousands)
Aaa / AAA
Aa2 / AA
A2 / A
Total
Obligations of state and political subdivisions
Corporate bonds
December 31, 2023
December 31, 2022
December 31, 2023
December 31, 2022
$
$
42,577 $
19,457
—
62,034 $
42,986 $
19,514
—
62,500 $
— $
—
30,000
30,000 $
—
—
30,000
30,000
A summary of the amortized cost, fair value and allowance for credit losses related to securities available-for-sale as
of December 31, 2023 and 2022 is presented below.
Available-for-sale:
(in thousands)
December 31, 2023
Securities of U.S. government-sponsored enterprises:
Amortized
Cost 1
Gross Unrealized
Gains
(Losses)
Allowance
for Credit
Losses
Fair Value
MBS pass-through securities issued by FHLMC, FNMA and GNMA
$
81,937 $
2 $
(9,516) $
CMOs issued by FHLMC
CMOs issued by FNMA
CMOs issued by GNMA
SBA-backed securities
Debentures of government- sponsored agencies
U.S. Treasury securities
Obligations of state and political subdivisions
Corporate bonds
Asset-backed securities
Total available-for-sale
December 31, 2022
Securities of U.S. government-sponsored enterprises:
266,407
23,987
20,006
21,126
73,899
11,923
102,202
11,992
—
—
—
—
—
—
—
1
—
—
(24,758)
(2,715)
(2,878)
(1,655)
(7,037)
(1,300)
(10,321)
(1,274)
—
— $
—
72,423
241,649
—
—
—
—
—
—
—
—
21,272
17,128
19,471
66,862
10,623
91,882
10,718
—
$ 613,479 $
3 $
(61,454) $
— $ 552,028
MBS pass-through securities issued by FHLMC, FNMA and GNMA
$ 109,736 $
3 $
CMOs issued by FHLMC
CMOs issued by FNMA
CMOs issued by GNMA
SBA-backed securities
Debentures of government- sponsored agencies
U.S. Treasury securities
Obligations of state and political subdivisions
Corporate bonds
Asset-backed securities
347,437
36,172
35,120
47,724
149,114
11,904
116,855
36,990
1,553
—
—
—
2
—
—
29
—
—
(12,133) $
(33,682)
(3,852)
(3,296)
(3,371)
(14,008)
(1,635)
(14,761)
(3,714)
(91)
— $
—
97,606
313,755
—
—
—
—
—
—
—
—
32,320
31,824
44,355
135,106
10,269
102,123
33,276
1,462
Total available-for-sale
— $ 802,096
1 Amortized cost and fair value exclude accrued interest receivable of $2.3 million and $3.2 million at December 31, 2023 and 2022, respectively, which is included
in interest receivable and other assets in the consolidated statements of condition.
$ 892,605 $
(90,543) $
34 $
As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain
securities issued by government-sponsored agencies. In March 2022, we transferred $357.5 million of these
securities from available-for-sale to held-to-maturity at fair value. We intend and have the ability to hold these
securities to maturity. The net unrealized pre-tax loss of $14.8 million that remained and the related accumulated
other comprehensive loss are accreted to interest income over the remaining lives of the securities. Because these
entries offset each other, there is no impact on net income.
The amortized cost and fair value of investment debt securities by contractual maturity at December 31, 2023 and
2022 are shown below. Expected maturities may differ from contractual maturities if the issuers of the securities
have the right to call or prepay obligations with or without call or prepayment penalties.
72
(in thousands)
Within one year
December 31, 2023
December 31, 2022
Held-to-Maturity
Available-for-Sale
Held-to-Maturity
Available-for-Sale
Amortized
Cost
Fair Value
Amortized
Cost
Amortized
Fair Value
Cost Fair Value
Amortized
Cost
Fair Value
$
— $
— $
101 $
100 $
450 $
446 $
1,254 $
1,239
After one but within five years
87,887
84,541
226,669
208,444
87,418
83,663
335,813
307,843
After five years through ten years
304,976 261,654
95,552
85,447 262,072 222,280
185,997
166,273
After ten years
Total
532,335 468,635
291,157
258,037 622,267 538,850
369,541
326,741
$ 925,198 $ 814,830 $
613,479 $ 552,028 $ 972,207 $ 845,239 $
892,605 $
802,096
Sales of investment securities and gross gains and losses for the years ended December 31, 2023, 2022 and 2021
are shown in the following table.
(in thousands)
Available-for-sale:
Sales proceeds
Gross realized gains
Gross realized losses
Sale of equity securities: 1
Sales proceeds
Gross realized gain
2023
2022
2021
$
$
$
$
$
205,795 $
5 $
(8,705) $
2,807 $
2,807 $
10,664 $
17 $
(80) $
— $
— $
6,632
1
(17)
—
—
1 Refer to VISA Inc. Class B Common Stock section below for more information.
The reported values of pledged investment securities are shown in the following table.
(in thousands)
Pledged to the State of California:
December 31, 2023 December 31, 2022
Secure public deposits in compliance with the Local Agency Security Program
$
287,436 $
231,307
Collateral for trust deposits
Collateral for Wealth Management and Trust Services checking account
Total investment securities pledged to the State of California
Bankruptcy trustee deposits pledged with Federal Reserve Bank
Pledged to FHLB Securities-Backed Credit Program
Pledged to the Federal Reserve "BTFP"
Total pledged investment securities
666
562
288,664
1,151
383,484
265,660
669
564
232,540
1,686
—
—
$
938,959 $
234,226
73
There were 313 and 407 securities in unrealized loss positions at December 31, 2023 and 2022, respectively.
Those securities are summarized and classified according to the duration of the loss period in the tables below.
December 31, 2023
< 12 continuous months
≥ 12 continuous months
Total securities
in a loss position
(in thousands)
Held-to-maturity:
MBS pass-through securities issued by
FHLMC, FNMA and GNMA
CMOs issued by FHLMC
CMOs issued by FNMA
CMOs issued by GNMA
SBA-backed securities
Debentures of government-sponsored
agencies
Obligations of state and political
subdivisions
Corporate bonds
Total held-to-maturity
Available-for-sale:
Fair value
Unrealized
loss
Fair value
Unrealized
loss
Fair value
Unrealized
loss
$
— $
— $
261,865 $
(44,396) $
261,865 $
8,662
42,474
10,988
—
—
—
—
(21)
(411)
(244)
—
—
—
—
188,657
(24,848)
197,319
54,249
34,783
1,763
(4,368)
(4,991)
(90)
96,723
45,771
1,763
(44,396)
(24,869)
(4,779)
(5,235)
(90)
124,132
(21,994)
124,132
(21,994)
44,437
28,804
(7,884)
(1,196)
44,437
28,804
(7,884)
(1,196)
$
62,124 $
(676) $
738,690 $
(109,767) $
800,814 $
(110,443)
MBS pass-through securities issued by
FHLMC, FNMA and GNMA
$
CMOs issued by FHLMC
CMOs issued by FNMA
CMOs issued by GNMA
SBA-backed securities
Debentures of government-sponsored
agencies
U.S. Treasury securities
Obligations of state and political
subdivisions
Corporate bonds
Asset-backed securities
Total available-for-sale
Total securities at a loss position
— $
1,235
— $
72,146 $
(9,516) $
72,146 $
(7)
240,414
(24,751)
241,649
—
—
—
—
—
666
—
—
—
—
—
—
—
(1)
—
—
21,272
17,128
19,471
66,862
10,623
90,655
10,718
—
(2,715)
(2,878)
(1,655)
(7,037)
(1,300)
(10,320)
(1,274)
—
21,272
17,128
19,471
66,862
10,623
91,321
10,718
—
(9,516)
(24,758)
(2,715)
(2,878)
(1,655)
(7,037)
(1,300)
(10,321)
(1,274)
—
$
$
1,901 $
64,025 $
(8) $
549,289 $
(61,446) $
551,190 $
(61,454)
(684) $ 1,287,979 $
(171,213) $ 1,352,004 $
(171,897)
74
December 31, 2022
< 12 continuous months
> 12 continuous months
Total securities
in a loss position
(in thousands)
Held-to-maturity:
MBS pass-through securities issued by
FHLMC, FNMA and GNMA
CMOs issued by FHLMC
CMOs issued by FNMA
CMOs issued by GNMA
SBA-backed securities
Debentures of government-sponsored
agencies
Obligations of state and political
subdivisions
Corporate bonds
Total held-to-maturity
Available-for-sale:
MBS pass-through securities issued by
FHLMC, FNMA and GNMA
CMOs issued by FHLMC
CMOs issued by GNMA
CMOs issued by FNMA
SBA-backed securities
Debentures of government- sponsored
agencies
U.S. Treasury securities
Obligations of state and political
subdivisions
Corporate bonds
Asset-backed securities
Total available-for-sale
Total
Fair value
Unrealized
loss
Fair value
Unrealized
loss
Fair value
Unrealized
loss
$
62,627 $
(5,960) $
218,507 $
(44,187) $
281,134 $
78,144
106,485
27,570
2,239
(5,874)
(5,419)
(1,676)
(133)
113,796
(23,629)
—
—
10,331
(1,400)
—
—
191,940
106,485
37,901
2,239
(50,147)
(29,503)
(5,419)
(3,076)
(133)
38,645
(2,530)
80,711
(23,937)
119,356
(26,467)
15,155
28,448
(589)
(1,552)
36,603
(10,152)
—
—
51,758
28,448
(10,741)
(1,552)
$
359,313 $
(23,733) $
459,948 $
(103,305) $
819,261 $
(127,038)
$
44,630 $
(4,501) $
52,235 $
(7,632) $
96,865 $
169,760
(15,144)
143,995
(18,538)
313,755
4,790
8,214
(235)
(374)
37,845
(3,228)
27,529
23,612
6,133
(3,617)
(2,922)
(143)
32,319
31,826
43,978
(12,133)
(33,682)
(3,852)
(3,296)
(3,371)
19,054
—
(946)
—
116,052
10,269
(13,062)
(1,635)
135,106
10,269
(14,008)
(1,635)
70,402
(9,459)
—
—
—
—
28,711
33,276
1,462
(5,302)
(3,714)
(91)
99,113
33,276
1,462
(14,761)
(3,714)
(91)
$
$
354,695 $
(33,887) $
443,274 $
(56,656) $
797,969 $
(90,543)
714,008 $
(57,620) $
903,222 $
(159,961) $ 1,617,230 $
(217,581)
As of December 31, 2023, the investment portfolio included 306 investment securities that had been in a continuous
loss position for twelve months or more and 7 investment securities that had been in a loss position for less than
twelve months.
Securities issued by government-sponsored agencies, such as FNMA and FHLMC, usually have implicit credit
support from the U.S. federal government. However, since 2008, FNMA and FHLMC have been under government
conservatorship and, therefore, contractual cash flows for these investments carry explicit guarantees by the U.S.
federal government while FNMA and FHLMC remain under conservatorship. Securities issued by the SBA and
GNMA have explicit credit guarantees by the U.S. federal government, which protects us from credit losses on the
contractual cash flows of the securities.
Our investments in obligations of state and political subdivision bonds are deemed creditworthy after our
comprehensive analysis of the issuers' latest financial information, credit ratings by major credit agencies, and/or
credit enhancements.
No allowances for credit losses have been recognized on available-for-sale securities in an unrealized loss position,
as management does not believe any of the securities are impaired due to reasons of credit quality at either
December 31, 2023 or 2022. In addition, for any available-for-sale securities in an unrealized loss position at
December 31, 2023 and 2022, the Bank assessed whether it intended to sell the securities, or if it was more likely
than not that it would be required to sell the securities before recovery of its amortized cost basis, which would
require a write-down to fair value through net income. Because the Bank did not intend to sell those securities that
were in an unrealized loss position, and it was not more-likely-than-not that the Bank would be required to sell the
securities before recovery of their amortized cost bases, the Bank determined that no write-down was necessary as
of the reporting date.
75
On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling
$101.8 million to hedge balance sheet interest rate sensitivity and protect selected securities in its available-for-sale
portfolio against changes in fair value related to changes in the benchmark interest rate. For additional details, refer
to Note 14, Derivative Financial Instruments and Hedging Activities.
Non-Marketable Securities Included in Other Assets
FHLB Capital Stock
As a member of the FHLB, we are required to maintain a minimum investment in FHLB capital stock as determined
by the Board of Directors of the FHLB. The minimum investment requirements can increase in the event we
increase our total asset size or borrowings with the FHLB. Shares cannot be purchased or sold except between the
FHLB and its members at the $100 per share par value. We held $16.7 million of FHLB stock included in other
assets on the consolidated statements of condition at both December 31, 2023 and 2022. The carrying amounts of
these investments are reasonable estimates of fair value because the securities are restricted to member banks and
do not have a readily determinable market value. Based on our analysis of FHLB’s financial condition and certain
qualitative factors, we determined that the FHLB stock was not impaired at December 31, 2023 or 2022. On
February 21, 2024, FHLB announced a cash dividend for the fourth quarter of 2023 at an annualized dividend rate
of 8.75% to be distributed in mid-March 2024. Cash dividends paid on FHLB capital stock are recorded as non-
interest income.
Visa Inc. Class B Common Stock
As a member bank of Visa U.S.A., we held 10,439 shares of Visa Inc. Class B common stock as of December 31,
2022. These shares had a carrying value of zero because they lacked a readily determinable fair value due to the
restriction from resale to non-member banks of Visa U.S.A. until their conversion into Class A (voting) shares upon
the termination of Visa Inc.'s Covered Litigation, and uncertainty about the conversion rate to Class A shares. On
July 13, 2023, the Bank sold the entirety of its remaining investment in Visa Inc. Class B restricted common stock
for a $2.8 million gain.
For further information, refer to Note 12, Commitments and Contingencies.
Low Income Housing Tax Credits
We invest in low-income housing tax credit funds as a limited partner, which totaled $2.0 million and $2.5 million
recorded in other assets as of December 31, 2023 and 2022, respectively. In 2023, we recognized $600 thousand
of low income housing tax credits and other tax benefits, offset by $503 thousand of amortization expense for low-
income housing tax credit investments, as a component of income tax expense. As of December 31, 2023, our
unfunded commitments for these low-income housing tax credit funds totaled $344 thousand. We did not recognize
any impairment losses on these low-income housing tax credit investments during 2023 or 2022, as the value of the
future tax benefits exceeds the carrying value of the investments.
76
Note 3: Loans and Allowance for Credit Losses on Loans
The following table presents the amortized cost of loans by portfolio class as of December 31, 2023 and 2022.
(in thousands)
Commercial and industrial
Real estate:
Commercial owner-occupied
Commercial non-owner occupied
Construction
Home equity
Other residential
Installment and other consumer loans
Total loans, at amortized cost 1
Allowance for credit losses on loans
Total loans, net of allowance for credit losses on loans
December 31,
2023
2022
$
153,750 $
173,547
333,181
354,877
1,219,385
1,191,889
99,164
82,087
118,508
67,645
114,373
88,748
112,123
56,989
2,073,720
2,092,546
(25,172)
(22,983)
$
2,048,548 $
2,069,563
1 Amortized cost includes net deferred loan origination costs of $2.7 million and $1.8 million at December 31, 2023 and 2022, respectively. Amounts are also net of
unrecognized purchase discounts of $2.0 million and $2.6 million at December 31, 2023 and 2022, respectively. Amortized cost excludes accrued interest, which
totaled $6.6 million and $6.1 million at December 31, 2023 and 2022, respectively, and is included in interest receivable and other assets in the consolidated
statements of condition.
Lending Risks
Concentrations of Credit: Virtually all of our loans are from customers located in Northern California.
Approximately 90% of total loans were secured by real estate at both December 31, 2023 and 2022. At
December 31, 2023 and 2022, 75% and 74%, respectively, of our loans were for commercial real estate, the
majority of which were secured by real estate located in Marin, Sonoma, San Francisco, Napa, Alameda,
Sacramento, and Contra Costa counties (California).
Commercial and Industrial Loans: Commercial loans are generally made to established small and mid-sized
businesses to provide financing for their growth and working capital needs, equipment purchases and
acquisitions. Management examines historical, current, and projected cash flows to determine the ability of the
borrower to repay obligations as agreed. Commercial loans are made based primarily on the identified cash flows
of the borrower and secondarily on the underlying collateral and guarantor support. The cash flows of borrowers,
however, may not occur as expected, and the collateral securing these loans may fluctuate in value. Most
commercial and industrial loans are secured by the assets being financed, such as accounts receivable and
inventory, and typically include personal guarantees. We target stable businesses with guarantors who provide
additional sources of repayment and have proven to be resilient in periods of economic stress. A weakened
economy, and the resultant decreased consumer and/or business spending, may have an effect on the credit quality
of commercial loans.
Commercial Real Estate Loans: Commercial real estate loans, which include income producing investment
properties and owner-occupied real estate used for business purposes, are subject to underwriting standards and
processes similar to those for commercial loans discussed above. We underwrite these loans to be repaid from
cash flow from either the business or investment property and supported by real property collateral. Underwriting
standards for commercial real estate loans include, but are not limited to, debt coverage and loan-to-value ratios.
Furthermore, a large majority of our loans are guaranteed by the owners of the properties. Conditions in the real
estate markets or a downturn in the general economy may adversely affect our commercial real estate loans. In the
event of a vacancy, we expect guarantors to carry the loans until they find a replacement tenant. The owner's
substantial equity investment provides a strong economic incentive to continue to support their commercial real
estate projects. As such, we have generally experienced a relatively low level of losses and delinquencies in this
portfolio.
Construction Loans: Construction loans are generally made to developers and builders to finance construction,
renovation and occasionally land acquisitions in anticipation of near-term development. Construction loans include
interest reserves that are used for the payment of interest during the development and marketing periods and are
capitalized as part of the loan balance. When a construction loan is placed on nonaccrual status before the
77
depletion of the interest reserve, we apply the interest funded by the interest reserve against the loan's principal
balance. These loans are underwritten after an evaluation of the borrower's financial strength, reputation, prior track
record, and independent appraisals. We monitor all construction projects to determine whether they are on
schedule, completed as planned and in accordance with the approved construction budgets. Significant events can
affect the construction industry, including: the inherent volatility of real estate markets and vulnerability to delays due
to weather, change orders, inability to obtain construction permits, labor or material shortages, and price changes.
Estimates of construction costs and value associated with the completed project may be inaccurate. Repayment of
construction loans is largely dependent on the ultimate success of the project.
Consumer Loans: Consumer loans primarily consist of home equity lines of credit, other residential loans, floating
homes, and indirect luxury auto loans, along with a small number of installment loans. Our other residential loans
include tenancy-in-common fractional interest loans ("TIC") located almost entirely in San Francisco County. We
originate consumer loans utilizing credit score information, debt-to-income ratio, and loan-to-value ratio analysis.
Diversification among consumer loan types, coupled with relatively small loan amounts that are spread across many
individual borrowers, mitigates risk. We do not originate sub-prime residential mortgage loans, nor is it our practice
to underwrite loans commonly referred to as "Alt-A mortgages," the characteristics of which are reduced
documentation, borrowers with low FICO scores, or collateral with high loan-to-value ratios.
Credit Quality Indicators
We use a risk rating system to evaluate asset quality, and to identify and monitor credit risk in individual loans, and
in the loan portfolio. Our definitions of “Special Mention” risk graded loans, or worse, are consistent with those used
by the Federal Deposit Insurance Corporation ("FDIC"). Our internally assigned grades are as follows:
Pass and Watch: Loans to borrowers of acceptable or better credit quality. Borrowers in this category demonstrate
fundamentally sound financial positions, repayment capacity, credit history, and management expertise. Loans in
this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt-
service-coverage ratios. These borrowers are capable of sustaining normal economic, market or operational
setbacks without significant financial consequences. Negative external industry factors are generally not
present. The loan may be secured, unsecured, or supported by non-real estate collateral for which the value is
more difficult to determine and/or whose marketability is more uncertain. This category also includes “Watch” loans,
where the primary source of repayment has been delayed. The “Watch” risk rating is intended to be a transitional
grade, with either an upgrade or downgrade within a reasonable period.
Special Mention: Potential weaknesses that deserve close attention. If left uncorrected, those potential
weaknesses may result in deterioration of the payment prospects for the asset. Special Mention assets do not
present sufficient risk to warrant adverse classification.
Substandard: Inadequately protected by either the current sound worth and paying capacity of the obligor or the
collateral pledged, if any. A Substandard asset has well-defined weaknesses that jeopardize the liquidation of the
debt. Substandard assets are characterized by the distinct possibility that we will sustain some loss if such
weaknesses or deficiencies are not corrected. Well-defined weaknesses include adverse trends or developments in
the borrower’s financial condition, managerial weaknesses, and/or significant collateral deficiencies.
Doubtful: Critical weaknesses that make collection or liquidation in full improbable. There may be specific pending
events that work to strengthen the asset; however, the amount or timing of the loss may not be determinable.
Pending events generally occur within one year of the asset being classified as Doubtful. Examples include:
merger, acquisition, or liquidation; capital injection; guarantee; perfecting liens on additional collateral; and
refinancing. Such loans are placed on non-accrual status and are usually collateral-dependent.
We regularly review our credits for the accuracy of risk grades whenever we receive new information and at each
quarterly and year-end reporting period. Borrowers are generally required to submit financial information at regular
intervals. Typically, commercial borrowers with lines of credit are required to submit financial information with
reporting intervals ranging from monthly to annually depending on credit size, risk and complexity. In addition,
investor commercial real estate borrowers with loans exceeding a certain dollar threshold are usually required to
submit rent rolls or property income statements annually. We monitor construction loans monthly. We review home
78
equity and other consumer loans based on delinquency. We also review loans graded “Watch” or worse, regardless
of loan type, no less than quarterly.
The following tables present the loan portfolio by loan portfolio class, origination/renewal year and internal risk rating
as of December 31, 2023 and 2022. The current year vintage table reflects gross charge-offs by portfolio class and
year of origination. Generally, existing term loans that were re-underwritten are reflected in the table in the year of
renewal. Lines of credit that have a conversion feature at the time of origination, such as construction to perm
loans, are presented by year of origination.
(in thousands)
December 31, 2023
Commercial and industrial:
Pass and Watch
Special Mention
Substandard
Total commercial and industrial
Gross current period charge-offs
$
$
Commercial real estate, owner-occupied:
Term Loans - Amortized Cost by Origination Year
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost
Total
$
25,615 $
9,187 $
2,970 $
3,718 $
15,128 $
21,004 $
62,486 $
140,108
—
—
—
—
—
—
—
—
334
—
9,300
1,311
2,697
—
9,634
4,008
25,615 $
9,187 $
2,970 $
3,718 $
16,773 $
23,701 $
71,786 $
153,750
— $
— $
— $
(4) $
(3) $
(3) $
(1) $
(11)
Pass and Watch
Special Mention
Substandard
Total commercial real estate, owner-occupied
Gross current period charge-offs
Commercial real estate, non-owner
occupied:
$
$
$
13,128 $
41,808 $
49,887 $
37,708 $
40,994 $
114,018 $
56 $
297,599
1,431
—
4,498
2,231
15,636
—
820
—
286
—
8,902
1,778
—
—
31,573
4,009
14,559 $
48,537 $
65,523 $
38,528 $
41,280 $
124,698 $
56 $
333,181
— $
— $
— $
— $
(406) $
— $
— $
(406)
Pass and Watch
Special Mention
Substandard
$
76,718 $
172,028 $
196,340 $
150,831 $
139,860 $
368,675 $
9,832 $ 1,114,284
—
878
2,790
272
9,498
2,204
11,776
15,708
41,602
—
—
20,373
—
—
81,374
23,727
Total commercial real estate, non-owner
occupied
$
77,596 $
175,090 $
208,042 $
162,607 $
155,568 $
430,650 $
9,832 $ 1,219,385
Construction:
Pass and Watch
Special Mention
Total construction
Home equity:
Pass and Watch
Substandard
Total home equity
Other residential:
Pass and Watch
Total other residential
Installment and other consumer:
Pass and Watch
Total installment and other consumer
Gross current period charge-offs
Total loans:
Pass and Watch
Total Special Mention
Total Substandard
Totals
Total gross current period charge-offs
$
$
$
$
$
$
$
$
$
$
$
$
$
13,138 $
24,403 $
19,521 $
29,512 $
12,590
—
—
—
$
25,728 $
24,403 $
19,521 $
29,512 $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
86,574
—
12,590
— $
99,164
734 $
80,773 $
81,507
369
211
580
1,103 $
80,984 $
82,087
17,861 $
20,114 $
13,390 $
25,637 $
20,935 $
20,571 $
— $
118,508
17,861 $
20,114 $
13,390 $
25,637 $
20,935 $
20,571 $
— $
118,508
22,038 $
14,528 $
10,632 $
4,687 $
5,300 $
9,399 $
1,061 $
67,645
22,038 $
14,528 $
10,632 $
4,687 $
5,300 $
9,399 $
1,061 $
67,645
(7) $
(6) $
(1) $
(4) $
— $
(1) $
(5) $
(24)
168,498 $
282,068 $
292,740 $
252,093 $
222,217 $
534,401 $
154,208 $ 1,906,225
14,021 $
7,288 $
25,134 $
12,596 $
16,328 $
50,504 $
9,300 $
135,171
878 $
2,503 $
2,204 $
— $
1,311 $
25,217 $
211 $
32,324
183,397 $
291,859 $
320,078 $
264,689 $
239,856 $
610,122 $
163,719 $ 2,073,720
(7) $
(6) $
(1) $
(8) $
(409) $
(4) $
(6) $
(441)
79
(in thousands)
December 31, 2022
Commercial and industrial:
Pass and Watch
Special Mention
Substandard
Term Loans - Amortized Cost by Origination Year
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost
Total
$
15,349 $
6,679 $
7,603 $
19,982 $
5,362 $
24,954 $
84,655 $
164,584
275
—
—
—
—
2,272
3,836
1,252
—
—
—
625
402
301
6,785
2,178
Total commercial and industrial
$
15,624 $
6,679 $
8,855 $
22,254 $
9,198 $
25,579 $
85,358 $
173,547
Commercial real estate, owner-occupied:
Pass and Watch
Special Mention
Substandard
Doubtful
$
54,188 $
52,080 $
40,369 $
44,798 $
29,856 $
104,377 $
— $
325,668
—
—
—
16,199
—
—
—
—
99
304
5,255
1,160
—
—
—
4,493
1,699
—
—
—
—
26,251
2,859
99
Total commercial real estate, owner-occupied
$
54,188 $
68,279 $
40,468 $
46,262 $
35,111 $
110,569 $
— $
354,877
Commercial real estate, non-owner
occupied:
Pass and Watch
Special Mention
Substandard
Total commercial real estate, non-owner
occupied
Construction:
Pass and Watch
Total construction
Home equity:
Pass and Watch
Substandard
Total home equity
Other residential:
Pass and Watch
Total other residential
Installment and other consumer:
Pass and Watch
Substandard
$
177,822 $
211,228 $
155,278 $
160,670 $
129,166 $
308,509 $
57 $ 1,142,730
—
—
1,172
2,264
12,097
3,934
—
—
678
—
9,290
19,724
—
—
27,171
21,988
$
177,822 $
214,664 $
167,375 $
164,604 $
129,844 $
337,523 $
57 $ 1,191,889
$
$
$
$
$
$
49,262 $
19,393 $
28,861 $
7,745 $
9,112 $
49,262 $
19,393 $
28,861 $
7,745 $
9,112 $
— $
— $
— $
114,373
— $
114,373
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
883 $
86,971 $
87,854
480
414
894
1,363 $
87,385 $
88,748
21,154 $
14,547 $
29,018 $
21,890 $
11,064 $
14,450 $
— $
112,123
21,154 $
14,547 $
29,018 $
21,890 $
11,064 $
14,450 $
— $
112,123
$
20,054 $
13,022 $
5,727 $
6,492 $
4,181 $
6,478 $
944 $
56,898
—
—
—
—
—
91
—
91
Total installment and other consumer
$
20,054 $
13,022 $
5,727 $
6,492 $
4,181 $
6,569 $
944 $
56,989
Total loans:
Pass and Watch
Total Special Mention
Total Substandard
Total Doubtful
Totals
$
$
$
$
$
337,829 $
316,949 $
266,856 $
261,577 $
188,741 $
459,651 $
172,627 $ 2,004,230
275 $
17,371 $
12,097 $
6,510 $
9,769 $
13,783 $
402 $
60,207
— $
— $
2,264 $
1,252 $
1,160 $
— $
99 $
— $
— $
— $
22,619 $
715 $
28,010
— $
— $
99
338,104 $
336,584 $
280,304 $
269,247 $
198,510 $
496,053 $
173,744 $ 2,092,546
80
The following table shows the amortized cost of loans by portfolio class, payment aging and non-accrual status as
of December 31, 2023 and 2022.
Loan Aging Analysis by Portfolio Class
(in thousands)
December 31, 2023
30-59 days past due
60-89 days past due
90 days or more past due 1
Total past due
Current
Total loans 1
Non-accrual loans 2
Non-accrual loans with no allowance
December 31, 2022
30-59 days past due
60-89 days past due
90 days or more past due 1
Total past due
Current
Total loans 1
Non-accrual loans 2
Non-accrual loans with no allowance
Commercial
and industrial
$
2,991 $
69
1,311
4,371
149,379
Commercial
real estate,
owner-
occupied
Commercial
real estate,
non-owner
occupied Construction Home equity
Other
residential
Installment
and other
consumer
Total
— $
618 $
—
149
767
2,204
—
2,204
332,414 1,217,181
— $
—
—
—
99,164
43 $
—
—
43
83 $
—
—
83
82,044 118,425
195 $
1
—
196
3,930
2,274
1,460
7,664
67,449 2,066,056
$ 153,750 $ 333,181 $ 1,219,385 $ 99,164 $ 82,087 $ 118,508 $ 67,645 $ 2,073,720
$
$
$
4,008 $
1,311 $
434 $
434 $
3,081 $
877 $
— $
— $
469 $
469 $
— $
— $
— $
— $
7,992
3,091
3 $
—
264
267
173,280
— $
—
—
—
— $
—
—
—
354,877 1,191,889 114,373
— $
—
—
—
319 $
244
414
977
93 $
—
—
93
87,771 112,030
5 $
—
—
5
420
244
678
1,342
56,984 2,091,204
$ 173,547 $ 354,877 $ 1,191,889 $ 114,373 $ 88,748 $ 112,123 $ 56,989 $ 2,092,546
$
$
— $
— $
1,563 $
1,563 $
— $
— $
— $
— $
778 $
778 $
— $
— $
91 $
91 $
2,432
2,432
1 There were no non-performing loans past due more than ninety days and accruing interest at December 31, 2023 and 2022.
2 None of the non-accrual loans as of December 31, 2023 or 2022 were earning interest on a cash basis. We recognized no interest income on non-accrual loans in
2023, 2022 or 2021. Accrued interest of $206 thousand and $48 thousand was reversed from interest income for the loans that were placed on non-accrual status in
2023 and 2022, respectively. No interest income was reversed for the single loan that was placed on non-accrual status in 2021.
Collateral Dependent Loans
The following table presents the amortized cost basis of individually analyzed collateral-dependent loans, which
were all on non-accrual status, by portfolio class and collateral type as of December 31, 2023 and 2022.
(in thousands)
December 31, 2023
Commercial and industrial
Commercial real estate, owner-occupied
Commercial real estate, non-owner occupied
Home equity
Total
December 31, 2022
Commercial real estate, owner-occupied
Home equity
Installment and other consumer
Total
Amortized Cost by Collateral Type
Commercial
Real Estate
Residential
Real Estate
Other
Total1
Allowance for
Credit Losses
$
1,311 $
434
3,081
—
4,826 $
1,563 $
—
—
$
$
$
1,563 $
— $
—
—
469
469 $
— $
778
—
778 $
— $
1,311 $
—
—
—
434
3,081
469
— $
5,295 $
— $
—
91
91 $
1,563 $
778
91
2,432 $
—
—
408
—
408
—
—
—
—
1There were no collateral-dependent residential real estate mortgage loans in process of foreclosure or in substance repossessed at December 31, 2023 and 2022.
The weighted average loan-to-value of collateral-dependent loans was approximately 70% and 42% at December 31, 2023 and 2022, respectively.
81
Loan Modifications to Borrowers Experiencing Financial Difficulty
We adopted ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings
and Vintage Disclosures on January 1, 2023, as described in the Other Recently Adopted Accounting Standards
section of Note 1 - Summary of Significant Accounting Policies. The amendments eliminated the accounting
guidance for troubled debt restructurings and enhanced disclosures related to certain types of loan modifications for
borrowers experiencing financial difficulty, including principal forgiveness, interest rate reductions, other-than-
insignificant payment delays, and/or term extensions, which are intended to minimize the economic loss and avoid
foreclosure or repossession of collateral.
The following table summarizes the amortized cost of loans as of December 31, 2023 modified for borrowers
experiencing financial difficulty during the year ended December 31, 2023 by portfolio class and type of modification
granted.
(in thousands)
December 31, 2023
Commercial real estate, owner-occupied
Commercial real estate, non-owner occupied
Total
Term
Extension
Percent of
Portfolio Class
Total
$
$
1,431
878
2,309
0.4 %
0.1 %
As of December 31, 2023, there were no unfunded loan commitments for loans that were modified during the year
ended December 31, 2023.
The following table summarizes the financial effect of loan modifications presented in the table above during the
year ended December 31, 2023 by portfolio class.
(in thousands)
Year ended December 31, 2023
Commercial real estate, owner-occupied
Commercial real estate, non-owner occupied
Weighted-Average
Term Extension
(in years)
2.3
0.5
The loan modifications did not significantly impact the determination of the allowance for credit losses on loans
during the year ended December 31, 2023.
The Bank closely monitors the performance of the modified loans to understand the effectiveness of its modification
efforts. The following table summarizes the amortized cost and payment status of loans as of December 31, 2023
that were modified during the year ended December 31, 2023 by portfolio class.
(in thousands)
December 31, 2023
Current
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
More Past
Due
Total
Non-Accrual
Commercial real estate, owner-occupied
Commercial real estate, non-owner occupied
Total
$
$
1,431 $
878
2,309 $
— $
—
— $
— $
—
— $
— $
—
— $
1,431 $
878
2,309 $
—
878
878
There were no loans to borrowers experiencing financial difficulty that were modified within the previous twelve
months that had subsequently defaulted (i.e., fully or partially charged-off or became 90 days or more past due).
82
Allocation of the Allowance for Credit Losses on Loans
The following table presents the details of the allowance for credit losses on loans segregated by loan portfolio class
as of December 31, 2023 and 2022.
Allocation of the Allowance for Credit Losses on Loans
Commercial
and
industrial
Commercial
real estate,
owner-
occupied
Commercial
real estate,
non-owner
occupied
Construction
Home
equity
Other
residential
Installment
and other
consumer Unallocated
Total
(in thousands)
December 31, 2023
Modeled expected credit losses
$
897 $
1,270 $
7,380 $
185 $
482 $
619 $
634 $
— $ 11,467
Qualitative adjustments
Specific allocations
622
193
1,205
1
6,327
1,226
1,647
—
70
—
33
1
342
2,038
12,284
—
—
1,421
Total
$
1,712 $
2,476 $ 14,933 $
1,832 $
552 $
653 $
976 $
2,038 $ 25,172
December 31, 2022
Modeled expected credit losses
$
1,079 $
1,497 $
7,937 $
453 $
504 $
571 $
610 $
— $ 12,651
Qualitative adjustments
Specific allocations
706
9
990
—
4,739
1,484
—
—
54
—
24
—
258
2,068
10,323
—
—
9
Total
$
1,794 $
2,487 $ 12,676 $
1,937 $
558 $
595 $
868 $
2,068 $ 22,983
Allowance for Credit Losses on Loans Rollforward
The following table discloses activity in the allowance for credit losses for the periods presented.
(in thousands)
Year ended December 31, 2023
Beginning balance
(Reversal) provision
(Charge-offs)
Recoveries
Ending balance
Year ended December 31, 2022
Beginning balance
Provision (reversal)
(Charge-offs)
Recoveries
Ending balance
Year ended December 31, 2021
Beginning balance
(Reversal) provision
Initial allowance for PCD loans 1
(Charge-offs)
Recoveries
Ending balance
Allowance for Credit Losses on Loans Rollforward
Commercial
and
industrial
Commercial
real estate,
owner-
occupied
Commercial
real estate,
non-owner
occupied Construction
Home
equity
Other
residential
Installment
and other
consumer Unallocated
Total
$
1,794 $
2,487 $ 12,676 $
1,937 $ 558 $
595 $
868 $
2,068 $ 22,983
(100)
(11)
29
395
(406)
—
2,257
(130)
—
—
—
25
(6)
—
—
58
—
—
131
(24)
1
(30)
2,575
—
—
(441)
55
$
1,712 $
2,476 $ 14,933 $
1,832 $ 552 $
653 $
976 $
2,038 $ 25,172
$
1,709 $
2,776 $ 12,739 $
1,653 $ 595 $
644 $
621 $
2,286 23,023
72
(9)
22
(289)
—
—
(63)
—
—
251
(37)
(49)
—
33
—
—
—
—
270
(23)
—
(218)
—
—
(63)
(32)
55
$
1,794 $
2,487 $ 12,676 $
1,937 $ 558 $
595 $
868 $
2,068 $ 22,983
$
2,530 $
2,778 $ 12,682 $
1,557 $ 738 $
998 $
291 $
1,300 $ 22,874
(1,240)
405
—
14
(561)
559
—
—
(476)
533
—
—
62
(193)
(360)
333
986
(1,449)
—
—
34
—
—
50
6
—
—
2
(5)
—
—
—
—
1,505
(5)
98
$
1,709 $
2,776 $ 12,739 $
1,653 $ 595 $
644 $
621 $
2,286 $ 23,023
1 The initial allowance for purchased credit impaired ("PCD") loans relates to the AMRB merger discussed in Note 18, Merger.
Pledged Loans
Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying
loans with unpaid principal balances of $1.288 billion and $1.298 billion at December 31, 2023 and 2022,
respectively. In addition, we pledged eligible TIC loans, which totaled $110.4 million and $105.0 million at
December 31, 2023 and 2022, respectively, to secure our borrowing capacity with the Federal Reserve Bank
("FRB"). For additional information, see Note 7, Borrowings.
83
Related Party Loans
The Bank has, and expects to have in the future, banking transactions in the ordinary course of its business with
directors, officers, principal shareholders and their businesses or associates. These transactions, including loans,
are granted on substantially the same terms, including interest rates and collateral on loans, as those prevailing at
the same time for comparable transactions with persons not related to us. Likewise, these transactions do not
involve more than the normal risk of collectability or present other unfavorable features.
The following table shows changes in net loans to related parties for each of the three years ended December 31,
2023, 2022 and 2021.
(in thousands)
Balance at beginning of year
Additions
Assumed in the AMRB acquisition
Repayments
Reclassified due to a change in borrower status
Balance at end of year
$
2023
6,445 $
—
—
(613)
—
$
5,832 $
2022
7,942 $
1,525
—
(364)
(2,658)
6,445 $
2021
6,423
—
4,037
(2,518)
—
7,942
Undisbursed commitments to related parties totaled $212 thousand and $562 thousand as of December 31, 2023
and 2022, respectively.
Note 4: Bank Premises and Equipment
A summary of bank premises and equipment follows:
(in thousands)
Leasehold improvements
Furniture and equipment
Buildings
Land
Finance lease right-of-use assets 1
Subtotal
Accumulated depreciation and amortization
Bank premises and equipment, net
1 See Note 12, Commitments and Contingencies, for more information.
December 31,
2023
16,578 $
11,336
1,248
1,170
608
30,940
(23,148)
7,792 $
2022
16,115
12,762
1,217
1,170
616
31,880
(23,746)
8,134
$
$
The amount of depreciation and amortization totaled $2.1 million, $1.8 million, and $1.7 million for the years ended
December 31, 2023, 2022 and 2021, respectively.
Note 5: Bank Owned Life Insurance
We own life insurance policies on the lives of certain current and former officers designated by the Board of
Directors to fund our employee benefit programs. Death benefits, including gross amounts under split dollar
agreements, were estimated to be $131.8 million as of December 31, 2023. Generally, under split dollar
agreements, the benefits to the employees' beneficiaries are limited to each employee's active service period. The
investments in BOLI policies are reported at their cash surrender value, net of surrender charges, of $68.1 million
and $67.1 million at December 31, 2023 and 2022, respectively. The cash surrender value includes both the
original premiums paid for the life insurance policies and the accumulated accretion of policy income since the
inception of the policies, net of mortality costs and other fees. Earnings on BOLI totaled $1.8 million, $1.2 million
and $2.2 million in 2023, 2022 and 2021, respectively. These earnings included death benefit proceeds in excess of
the cash surrender values of the BOLI policies of $313 thousand in 2023, $86 thousand in 2022 and $1.1 million in
2021. We regularly monitor the financial information and credit ratings of our insurance carriers to ensure that they
are creditworthy and comply with our policy.
84
Note 6: Deposits
A stratification of time deposits is presented in the following table:
(in thousands)
Time deposits of less than or equal to $250 thousand
Time deposits of more than $250 thousand
Total time deposits
December 31,
2023
145,697 $
105,620
251,317 $
2022
74,421
44,609
119,030
$
$
Interest on time deposits was $4.7 million, $323 thousand and $246 thousand in 2023, 2022 and 2021, respectively.
Scheduled maturities of time deposits at December 31, 2023 are as follows:
(in thousands)
2024
2025
2026
2027
2028
Thereafter
Total
Scheduled time deposit maturities
$ 233,726 $
6,760 $
5,510 $
2,705 $
2,616 $
— $ 251,317
As of December 31, 2023, $287.4 million in securities were pledged as collateral for our local agency deposits.
Our deposit portfolio includes deposits offered through the Promontory Interfinancial Network that are comprised of
Certificate of Deposit Account Registry Service® ("CDARS") balances included in time deposits and Insured Cash
Sweep® ("ICS") balances included in money market deposits. In addition, we offer deposits through Reich & Tang
Deposit Networks, LLC, comprised of Demand Deposit MarketplaceSM ("DDM") balances. Through these two
networks we are able to offer our customers access to FDIC-insured deposit products in aggregate amounts
exceeding current insurance limits. When we place funds through CDARS, ICS and DDM, on behalf of a customer,
we have the option of receiving matching deposits through the network's reciprocal deposit program, or placing
deposits "one-way" for which we receive no matching deposits. We consider reciprocal deposits to be in-market
deposits, as distinguished from traditional out-of-market brokered deposits. The following table shows the
composition of our network deposits at December 31, 2023 and 2022.
(in thousands)
CDARS
ICS
DDM
Total network deposits
$
$
December 31, 2023
Reciprocal 1
46,162 $
245,577
132,276
424,015 $
One-Way 1
2,164 $
—
—
2,164 $
1 Reciprocal deposits are on-balance-sheet while one-way deposits are off-balance-sheet.
December 31, 2022
Reciprocal 1
11,031 $
100,749
62,219
173,999 $
One-Way 1
2,162
—
—
2,162
The aggregate amount of deposit overdrafts that have been reclassified as loan balances was $320 thousand and
$247 thousand at December 31, 2023 and 2022, respectively.
The Bank accepts deposits from shareholders, members of the board of directors, and employees in the normal
course of business, and the terms are comparable to those with non-affiliated parties. The total deposits from board
directors and their businesses, and executive officers were $23.6 million and $11.2 million at December 31, 2023
and 2022, respectively.
Note 7: Borrowings and Other Obligations
Federal Home Loan Bank: The Bank had lines of credit with the FHLB totaling $1.009 billion and $711.6 million as
of December 31, 2023 and 2022, respectively, based on the eligible collateral of certain loans and investment
securities.
Federal Funds Lines of Credit: The Bank had unsecured lines of credit with correspondent banks for overnight
borrowings totaling $135.0 million and $150.0 million as of December 31, 2023 and 2022, respectively. In general,
interest rates on these lines approximate the federal funds target rate.
85
—
642
—
—
250
— %
1.18 %
— %
— %
0.71 %
Federal Reserve Bank: The Bank had a line of credit with the FRBSF secured by certain residential loans totaling
$64.0 million and $58.7 million as of December 31, 2023 and 2022, respectively. In addition, under the Federal
Reserve’s Bank Term Funding Program ("BTFP") facility, the Bank could borrow an additional $270.2 million based
on the par values of pledged investment securities as of December 31, 2023.
Other Obligations: Finance lease liabilities totaling $298 thousand and $439 thousand at December 31, 2023 and
2022, respectively, are included in borrowings and other obligations in the Consolidated Statements of Condition.
Refer to Note 12, Commitments and Contingencies, for additional information.
The carrying values, average balances and average rates on borrowings and other obligations as of and for the
years ended December 31, 2023, 2022 and 2021 are summarized in the following table.
(dollars in thousands)
Carrying
Value
Average
Balance
Average
Rate
Carrying
Value
Average
Balance
Average
Rate
Carrying
Value
Average
Balance
Average
Rate
2023
2022
2021
FHLB short-term borrowings
$
— $ 164,299
5.10 % $ 112,000 $ 1,921
4.48 % $
— $
—
—
—
—
— %
— %
—
—
—
—
— %
— %
—
—
FHLB fixed-rate advances
Federal funds lines of credit
FRBSF short-term borrowings under
the BTFP
Other obligations (finance leases)
298
364
1.88 % $
439 $
26,000 56,959
5.30 %
—
—
374
— %
0.65 %
—
419
Total borrowings and other
obligations
$ 26,298 $ 221,623
5.15 % $ 112,439 $ 2,295
3.90 % $
419 $
892
1.08 %
Subordinated Debenture: As part of an acquisition, Bancorp assumed a subordinated debenture with a contractual
balance of $4.1 million due to NorCal Community Bancorp Trust II (the "Trust"), established for the sole purpose of
issuing trust preferred securities. On March 15, 2021, Bancorp redeemed in full the $2.8 million (book value)
subordinated debenture due to the Trust, which had a 251.5% effective rate in 2021, and included accelerated
accretion of the $1.3 million remaining purchase discount due to the early redemption.
Note 8: Stockholders' Equity and Stock Plans
Share-Based Awards
The 2020 Director Stock Plan (the "Plan") provides for the payment of director fees in common shares of Bancorp's
common stock not to exceed 250,000 shares and a way for directors to purchase shares at fair market value.
During 2023, 2022 and 2021 we issued 18,362, 10,145 and 6,443 shares of common stock, respectively, for director
payments. As of December 31, 2023, 209,642 shares were available for future director fees and purchases.
The 2017 Employee Stock Purchase Plan ("ESPP") gives our employees an opportunity to purchase Bancorp's
common shares through payroll deductions of between one and fifteen percent of their pay. Shares are purchased
quarterly at a five percent discount from the closing market price on the last day of the quarter. As of December 31,
2023, 372,923 shares were available for future purchases under the ESPP.
Under the 2017 Equity Plan, the Compensation Committee of the Board of Directors has the discretion to
determine, among other things, which employees, advisors and non-employee directors will receive share-based
awards, the number and timing of awards, the vesting schedule for each award, and the type of award to be
granted. As of December 31, 2023, there were 790,201 shares available for future grants to employees, advisors
and non-employee directors. Options are issued at an exercise price equal to the fair value of the stock at the date
of grant. Options granted to officers and employees generally vest by one-third on each anniversary of the grant for
three years and expire ten years from the grant date. Options granted to non-employee directors vest immediately
and expire ten years from the grant date. Stock options and restricted stock may be net settled in a cashless
exercise by a reduction in the number of shares otherwise deliverable upon exercise or vesting in satisfaction of the
exercise payment and/or applicable tax withholding requirements. Shares withheld under net settlement
arrangements are available for future grants. The table below depicts the total number of shares, amount, and
weighted average price withheld for cashless exercises in each of the respective years.
86
Number of shares withheld
Total amount withheld (in thousands)
Weighted-average price
December 31,
2023
December 31,
2022
December 31,
2021
$
$
3,132
86 $
27.57 $
11,505
393 $
34.13 $
27,929
1,085
38.85
Performance-based stock awards (restricted stock) are issued to a selected group of employees under the 2017
Equity Plan. Stock award vesting is contingent upon the achievement of pre-established long-term performance
goals set by the Compensation Committee of the Board of Directors. Performance is measured over a three-year
period and cliff vested. These performance-based stock awards were granted at a maximum opportunity level, and
based on the achievement of the pre-established goals, the actual payouts can range from 0% to 200% of the target
award. For performance-based stock awards, an estimate is made of the number of shares expected to vest based
on the probability that the performance criteria will be met to determine the amount of compensation expense to be
recognized. The estimate is re-evaluated quarterly, and total compensation expense is adjusted for any change in
the current period.
A summary of stock option activity for the years ended December 31, 2023, 2022, and 2021 is presented in the
following table. The intrinsic value of options outstanding and exercisable is calculated as the number of in-the-
money options times the difference between the market price of our stock and the exercise prices of the in-the-
money options as of each year-end period presented.
Options outstanding at December 31, 2020
371,584 $
29.92 $
2,262
Number of
Shares
Weighted
Average
Exercise Price
Aggregate
Intrinsic Value
(in thousands)
Weighted
Average Grant-
Date Fair
Value
Granted
Cancelled, expired or forfeited
Exercised
Options outstanding at December 31, 2021
Exercisable (vested) at December 31, 2021
Options outstanding at December 31, 2021
Granted
Cancelled, expired or forfeited
Exercised
Options outstanding at December 31, 2022
Exercisable (vested) at December 31, 2022
Options outstanding at December 31, 2022
Granted
Cancelled, expired or forfeited
Exercised
Options outstanding at December 31, 2023
Exercisable (vested) at December 31, 2023
55,861
(2,008)
(60,056)
365,381
315,744
365,381
39,094
(23,760)
(51,010)
329,705
287,228
329,705
10,040
(23,804)
(12,164)
303,777
283,578
36.39
42.50
23.01
31.97
30.85
31.97
34.16
37.48
23.01
33.22
32.81
33.22
32.54
35.06
20.25
33.22
33.46
885
2,326
2,264
2,326
617
813
813
813
88
1
1
8.84
8.49
8.49
Weighted
Average
Remaining
Contractual
Term
(in years)
5.12
5.57
5.15
5.57
5.59
5.15
5.59
4.86
4.65
A summary of the options outstanding and exercisable by price range as of December 31, 2023 is presented in the
following table:
Range of Exercise Prices
Stock Options Outstanding as of
December 31, 2023
Stock Options
Outstanding
Remaining
Contractual Life (in
years)
Weighted
Average
Exercise Price
Stock Options Exercisable as of
December 31, 2023
Stock Options
Exercisable
Weighted
Average
Exercise Price
$10.00 - $20.00
$20.01 - $30.00
$30.01 - $40.00
$40.01 - $50.00
402
73,080
171,457
58,838
303,777
3.1 $
1.5
6.0
5.6
19.96
24.64
34.48
42.13
402 $
73,080
151,258
58,838
283,578
19.96
24.64
34.39
42.13
87
The following table summarizes non-vested restricted stock awards and changes during the years ended
December 31, 2023, 2022, and 2021.
Non-vested awards at December 31, 2020
Granted
Vested
Cancelled or forfeited
Non-vested awards at December 31, 2021
Granted
Vested
Cancelled or forfeited
Non-vested awards at December 31, 2022
Granted
Vested
Cancelled or forfeited
Non-vested awards at December 31, 2023
Weighted
Average
Grant-Date
Fair Value
39.50
38.00
36.81
33.96
40.25
34.03
41.49
41.80
36.28
27.10
36.24
36.86
30.88
Number of
Shares
61,328 $
30,742
(26,392)
(3,848)
61,830
46,672
(12,444)
(13,692)
82,366
61,978
(15,768)
(21,024)
107,552
We determine the fair value of stock options at the grant date using the Black-Scholes pricing model that takes into
account the stock price at the grant date, exercise price, and the following assumptions (weighted-average shown).
Risk-free interest rate
Expected dividend yield on common stock
Expected life in years
Expected price volatility
Years ended December 31,
2023
3.94 %
3.07 %
5.0
34.68 %
2022
1.86 %
2.85 %
6.0
33.44 %
2021
0.98 %
2.57 %
6.1
33.12 %
The fair value of stock options as of the grant date is recorded as stock-based compensation expense in the
consolidated statements of comprehensive income (loss) over the requisite service period, which is generally the
vesting period, with a corresponding increase in common stock. Stock-based compensation also includes
compensation expense related to the issuance of restricted stock awards. The grant-date fair value of the restricted
stock awards, which equals the grant date price, is recorded as compensation expense over the requisite service
period with a corresponding increase in common stock as the shares vest. Stock options and restricted stock
awards issued include a retirement eligibility clause whereby the requisite service period is satisfied at the
retirement eligibility date. For those awards, we accelerate the recording of stock-based compensation when the
award holder is eligible to retire. However, retirement eligibility does not affect the vesting of restricted stock or the
exercisability of the stock options, which are based on the scheduled vesting period. Total compensation expense
for stock options and restricted stock awards was $522 thousand, $962 thousand, and $972 thousand during 2023,
2022, and 2021, respectively, and the total recognized deferred tax benefits related thereto were $146 thousand,
$257 thousand, and $213 thousand, respectively.
As of December 31, 2023, there was $1.3 million of total unrecognized compensation expense related to non-
vested stock options and restricted stock awards, which is expected to be recognized over a weighted-average
period of approximately 2.2 years. The total grant-date fair value of stock options vested during the years ended
December 31, 2023, 2022, and 2021 was $255 thousand, $356 thousand, and $514 thousand, respectively. The
total grant-date fair value of restricted stock awards vested during 2023, 2022, and 2021 was $428 thousand, $431
thousand, and $1.0 million, respectively.
We record excess tax benefits (deficiencies) resulting from the exercise of non-qualified stock options, the
disqualifying disposition of incentive stock options and vesting of restricted stock awards as income tax benefits
(expense) in the consolidated statements of comprehensive income (loss), with a corresponding decrease
(increase) to current taxes payable. In 2023, 2022, and 2021 we recognized $2 thousand, $3 thousand, and
$87 thousand, respectively, in excess tax benefits recorded as a reduction to income tax expense related to these
88
types of transactions. The tax benefits realized from disqualifying dispositions of incentive stock options were
recognized in tax expense to the extent of the book compensation cost recorded.
Dividends
Presented below is a summary of cash dividends paid in 2023, 2022 and 2021 to common shareholders, recorded
as a reduction from retained earnings. On January 25, 2024, the Board of Directors declared a $0.25 per share
cash dividend, paid on February 15, 2024 to the shareholders of record at the close of business on February 8,
2024.
(in thousands except per share data)
Cash dividends to common stockholders
Cash dividends per common share
Years ended December 31,
2023
16,106 $
1.00 $
2022
15,673 $
0.98 $
2021
13,107
0.94
$
$
Holders of unvested restricted stock awards are entitled to dividends at the same per-share ratio as holders of
common stock. Tax benefits for dividends paid on unvested restricted stock awards are recorded as tax benefits in
the consolidated statements of comprehensive income (loss) with a corresponding decrease to current taxes
payable. Dividends on forfeited awards are included in stock-based compensation expense.
Under the California Corporations Code, payment of dividends by Bancorp to its shareholders is restricted to the
amount of retained earnings immediately prior to the distribution or the amount of assets that exceeds the total
liabilities immediately after the distribution. As of December 31, 2023, Bancorp's retained earnings and total assets
that exceeded total liabilities were $274.6 million and $439.1 million, respectively.
Under the California Financial Code, payment of dividends by the Bank to Bancorp is restricted to the lesser of
retained earnings or the amount of undistributed net profits of the Bank from the three most recent fiscal years.
Under this restriction, approximately $6.1 million of the Bank's retained earnings balance was available for payment
of dividends to Bancorp as of December 31, 2023. Bancorp held $7.2 million in cash as of December 31, 2023.
Share Repurchase Program
On July 16, 2021, Bancorp Board of Directors approved a share repurchase program under which Bancorp could
repurchase up to $25.0 million of its outstanding common stock through July 31, 2023. On October 22, 2021,
Bancorp's Board of Directors approved an amendment to the share repurchase program, which increased the total
authorization from $25.0 million to $57.0 million and left the expiration date unchanged. The last activity under the
program was in the first quarter of 2022 when Bancorp repurchased 23,275 shares totaling $877 thousand.
On July 21, 2023, the Board of Directors approved the adoption of Bancorp's new share repurchase program, which
replaced the existing program that expired on July 31, 2023, for up to $25.0 million and expires on July 31, 2025.
There were no repurchases under this program in 2023.
Under the share repurchase program, Bancorp may purchase shares of its common stock through various means,
such as open market transactions, including block purchases, and privately negotiated transactions. The number of
shares repurchased and the timing, manner, price and amount of any repurchases will be determined at Bancorp's
discretion. Factors include, but are not limited to, stock price, trading volume and general market conditions, along
with Bancorp’s general business conditions. The program may be suspended or discontinued at any time and does
not obligate Bancorp to acquire any specific number of shares of its common stock.
As part of the share repurchase program, Bancorp entered into a trading plan adopted in accordance with Rule
10b5-1 of the Securities Exchange Act of 1934, as amended. The 10b5-1 trading plan permits common stock to be
repurchased at times that might otherwise be prohibited under insider trading laws or self-imposed trading
restrictions. The 10b5-1 trading plan is administered by an independent broker and is subject to price, market
volume and timing restrictions.
89
Note 9: Fair Value of Assets and Liabilities
Fair Value Hierarchy and Fair Value Measurement
We group our assets and liabilities that are measured at fair value into three levels within the fair value hierarchy,
based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to
determine fair value. These levels are:
Level 1: Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical
or similar instruments in markets that are not active and model-based valuations for which all significant
assumptions are observable or can be corroborated by observable market data.
Level 3: Valuations are based on unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. Values are determined using pricing models and discounted
cash flow models and may include significant management judgment and estimation.
Transfers between levels of the fair value hierarchy are recognized through our monthly and/or quarterly valuation
process in the reporting period during which the event or circumstances that caused the transfer occurred. No such
transfers occurred in the years presented.
The following table summarizes our assets and liabilities that were required to be recorded at fair value on a
recurring basis.
(in thousands)
Description of Financial Instruments
December 31, 2023
Securities available for sale:
Mortgage-backed securities and collateralized mortgage
obligations issued by U.S. government-sponsored
agencies
SBA-backed securities
Debentures of government sponsored agencies
U.S. Treasury securities
Obligations of state and political subdivisions
Corporate bonds
Derivative financial assets (interest rate contracts)
Derivative financial liabilities (interest rate contracts)
December 31, 2022
Securities available for sale:
Mortgage-backed securities and collateralized mortgage
obligations issued by U.S. government-sponsored
agencies
SBA-backed securities
Debentures of government sponsored agencies
U.S. Treasury securities
Obligations of state and political subdivisions
Corporate bonds
Asset-backed securities
Derivative financial assets (interest rate contracts)
1Other comprehensive income (loss) ("OCI") or net income ("NI").
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Carrying
Value
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Measurement
Categories:
Changes in
Fair Value
Recorded In1
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
352,472 $
19,471 $
66,862 $
10,623 $
91,882 $
10,718 $
287 $
1,361 $
475,505 $
44,355 $
135,106 $
10,269 $
102,123 $
33,276 $
1,462 $
602 $
— $
— $
— $
10,623 $
— $
— $
— $
— $
— $
— $
— $
10,269 $
— $
— $
— $
— $
352,472 $
19,471 $
66,862 $
— $
91,882 $
10,718 $
287 $
1,361 $
475,505 $
44,355 $
135,106 $
— $
102,123 $
33,276 $
1,462 $
602 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
OCI
OCI
OCI
OCI
OCI
OCI
NI
NI
OCI
OCI
OCI
OCI
OCI
OCI
OCI
NI
Available-for-sale securities are recorded at fair value on a recurring basis. When available, quoted market prices
(Level 1) are used to determine the fair value of available-for-sale securities. Level 1 securities include U.S.
90
Treasury securities. If quoted market prices are not available, we obtain pricing information from a reputable third-
party service provider, who may utilize valuation techniques that use current market-based or independently
sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves,
prepayment speeds, probability of default, loss severity and credit spreads (Level 2). Level 2 securities include
asset-backed securities, obligations of state and political subdivisions, U.S. agencies or government-sponsored
agencies' debt securities, mortgage-backed securities, government agency-issued securities, and corporate bonds.
As of December 31, 2023 and 2022, there were no Level 3 securities.
Held-to-maturity securities may be subject to an allowance for credit losses as a result of our evaluation of expected
losses due to credit quality factors. We did not record any credit loss expense on held-to-maturity securities during
2023 or 2022. The fair value of held-to-maturity securities is determined using the same techniques discussed
above for available-for-sale securities.
On a recurring basis, derivative financial instruments are recorded at fair value, which is based on the income
approach using observable Level 2 market inputs, reflecting market expectations of future interest rates as of the
measurement date. Standard valuation techniques are used to calculate the present value of the future expected
cash flows assuming an orderly transaction. Valuation adjustments may be made to reflect both our own credit risk
and the counterparties’ credit risk in determining the fair value of the derivatives. These unobservable inputs are not
considered significant inputs to the fair value measurement overall. Level 2 inputs for the valuations are limited to
observable market prices for Secured Overnight Financing Rate ("SOFR") and Overnight Index Swap ("OIS") rates
(for the very short term), quoted prices for SOFR futures contracts, observable market prices for SOFR and OIS
swap rates, and one-month and three-month SOFR basis spreads at commonly quoted intervals. Mid-market
pricing of the inputs is used as a practical expedient in fair value measurements. We project spot rates at reset
days specified by each swap contract to determine future cash flows, then discount to present value using OIS
curves as of the measurement date. When the value of any collateral placed with counterparties is less than the
interest rate derivative liability, a credit valuation adjustment ("CVA") is applied to reflect the credit risk we pose to
counterparties. We have used the spread between the Standard & Poor's BBB rated U.S. Bank Composite rate and
SOFR for the closest maturity term corresponding to the duration of the swaps to derive the CVA. Because there is
little to no counterparty risk, we did not incorporate credit adjustments from our assessment of the counterparty
credit risk in determining fair value. For further discussion on our methodology for valuing our derivative financial
instruments, refer to Note 9, Derivative Financial Instruments and Hedging Activities.
Certain financial assets may be measured at fair value on a non-recurring basis. These assets are subject to fair
value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of
individual assets, such as individually analyzed loans that are collateral dependent and other real estate owned
("OREO").
OREO is classified as Level 3 and represents collateral acquired through foreclosure and is initially recorded at fair
value as established by a current appraisal of the collateral. Subsequent to foreclosure, OREO is carried at the
lower of cost or fair value, less estimated costs to sell. On July 12, 2023, the Bank completed the sale of its only
OREO property.
The following table presents the carrying value of assets measured at fair value on a non-recurring basis and that
were held in the consolidated statements of condition at each respective period end, by level within the fair value
hierarchy as of December 31, 2023 and 2022.
(in thousands)
December 31, 2023
Other real estate owned
December 31, 2022
Other real estate owned
Carrying Value
$
$
— $
455 $
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
— $
— $
— $
—
455
91
Disclosures about Fair Value of Financial Instruments
The table below is a summary of fair value estimates for financial instruments as of December 31, 2023 and 2022,
excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).
The carrying amounts in the following table are recorded in the consolidated statements of condition under the
indicated captions. Further, we have not disclosed the fair value of financial instruments specifically excluded from
disclosure requirements such as bank-owned life insurance policies ("BOLI"), lease obligations and non-maturity
deposit liabilities. Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco stock at cost
as of December 31, 2023 and 2022, and Visa Inc. Class B common stock with no carrying value as of
December 31, 2022, which was sold entirely in July of 2023. There were no impairments or changes resulting from
observable price changes in orderly transactions for the identical or similar investments of the same issuer as of
December 31, 2023 and 2022. See further discussion on values within Note 2, Investment Securities, above.
(in thousands)
Financial assets (recorded at amortized cost)
December 31, 2023
December 31, 2022
Carrying
Amounts
Fair Value
Fair Value
Hierarchy
Carrying
Amounts
Fair Value
Fair Value
Hierarchy
Cash and cash equivalents
Investment securities held-to-maturity
$
30,453 $
925,198
30,453
814,830
Level 1 $
45,424 $
45,424
Level 2
972,207
845,239
Loans, net of allowance for credit losses
2,048,548
1,939,702
Level 3
2,069,563
1,993,866
Interest receivable
12,752
12,752
Level 2
13,069
13,069
Level 1
Level 2
Level 3
Level 2
Financial liabilities (recorded at amortized cost)
Time deposits
251,317
252,824
Level 2
119,030
118,333
Level 2
Federal Home Loan Bank overnight borrowings
FRBSF short-term borrowings under the BTFP
Interest payable
—
26,000
2,752
—
Level 1
112,000
112,000
Level 1
25,998
2,752
Level 2
Level 2
—
75
—
75
Level 2
Level 2
The fair value of loans is based on exit price techniques and obtained from an independent third-party that uses its
proprietary valuation model and methodology and may differ from the actual price from a prospective buyer. The
discounted cash flow valuation approach reflects key inputs and assumptions that are unobservable, such as loan
probability of default, loss given default, prepayment speed, and market discount rates.
The fair value of fixed-rate time deposits is estimated by discounting future contractual cash flows using discount
rates that reflect the current observable market rates offered for time deposits of similar remaining maturities.
The value of off-balance-sheet financial instruments is estimated based on the fee income associated with the
commitments, which, in the absence of credit exposure, is considered to approximate their settlement value. The
fair value of commitment fees was not material as of December 31, 2023 and 2022.
Note 10: Benefit Plans
Deferred Compensation Plans
We established the Bank of Marin Executive Deferred Compensation Plan, which allows certain key management
personnel designated by the Board of Directors of the Bank to defer up to 80% of their salary and 100% of their
annual bonus. In addition, we assumed deferred compensation plans for certain members of management and
non-employee directors as part of an acquisition in 2021. In 2021, we established a similar Deferred Director Fee
Plan, which allows members of the Board of Directors to defer the cash portion of their director compensation.
Amounts deferred earn interest equal to the prime rate, as published in the Wall Street Journal, on the first business
day of each year, which was 7.50% on January 1, 2023, and 3.25% on January 1, 2022. Benefit payments will
generally commence upon separation from service at or after normal retirement age, as elected by the participant.
Our deferred compensation obligations under these plans totaled $6.6 million and $7.1 million at December 31,
2023 and 2022, respectively, and are included in interest payable and other liabilities.
92
401(k) Defined Contribution Plan
Our 401(k) Defined Contribution Plan (“401(k) Plan”) is available to all regular employees at least eighteen years of
age who complete ninety days of service, and participate in the plan beginning on the first day of the calendar
quarter that immediately follows the date the participant meets the age and service requirements. Under the 401(k)
Plan, employees can defer between 1% and 50% of their eligible compensation, up to the maximum amount
allowed by the Internal Revenue Code. The Bank provides an employer-match of 70% of each participant's
contribution, with a maximum of $5 thousand per participant per year. Employer matching contributions to the
401(k) Plan vest at a rate of 20% per year over five years. Employer contributions totaled $871 thousand, $949
thousand and $991 thousand for the years ended December 31, 2023, 2022 and 2021, respectively, and are
recorded in salaries and employee benefits expense.
Employee Stock Ownership Plan
Our Employee Stock Ownership Plan (“ESOP”) is available to all employees under the same eligibility criteria as the
401(k) Plan; however, employee contributions are not permitted. The Board of Directors determines a specific
portion of the Bank's profits to be contributed to the ESOP each year either in common stock or in cash for the
purchase of Bancorp stock to be allocated to all eligible employees based on a percentage of their salaries,
regardless of whether an employee participates in the 401(k) Plan. For all participants, employer contributions vest
over a five-year service period. After five years of service, all future employer contributions vest immediately.
Bancorp issued shares of common stock and contributed them to the ESOP totaling $1.3 million in 2023,
$1.2 million in 2022 and $1.3 million in 2021, based on the quoted market price on the date of contribution. Cash
dividends paid on Bancorp stock held by the ESOP are used to purchase additional shares in the open market. All
shares of Bancorp stock held by the ESOP are included in the calculations of basic and diluted earnings per share.
The Company's contributions to the ESOP are included in salaries and benefits expense.
Supplemental Executive Retirement Plans
Supplemental executive retirement plans ("SERPs") have been established for a select group of executive
management who, upon retirement, will receive 25% of their estimated salary as salary continuation benefit
payments that are fixed between five to fifteen years, depending on the executives' service period. Each participant
is required to participate in the plan for five years before vesting begins. After five years, the participant vests
ratably in the benefit over the remaining service period until age 65. As part of previous acquisitions, we assumed
SERPs for certain former executive officers and directors. These plans are unfunded and nonqualified for tax
purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974.
At December 31, 2023 and 2022, respectively, our total liability under the SERPs was $4.5 million and $4.7 million
recorded in interest payable and other liabilities.
Note 11: Income Taxes
The current and deferred components of the income tax provision for each of the three years ended December 31
are as follows:
(in thousands)
Current tax provision
Federal
State
Total current tax provision
Deferred tax provision (benefit)
Federal
State
Total deferred tax provision (benefit)
Total income tax provision
$
2023
2022
2021
3,234 $
2,823
6,057
319
(235)
84
10,670 $
6,687
17,357
6,627
4,815
11,442
(441)
7
(434)
274
(58)
216
$
6,141 $
16,923 $
11,658
93
The following table shows the tax effect of our cumulative temporary differences as of December 31:
(in thousands)
Deferred tax assets:
Net unrealized losses on securities available-for-sale
Allowance for credit losses on loans and unfunded loan commitments
Operating and finance lease liabilities
Deferred compensation and salary continuation plans
Accrued but unpaid expenses
Net operating loss carryforwards
Fair value adjustment on acquired loans
Stock-based compensation
State franchise tax
Depreciation and disposals on premises and equipment
Other
Total gross deferred tax assets
Deferred tax liabilities:
Operating and finance lease right-of-use assets
Deferred loan origination costs and fees
Core deposit intangible assets
Other
Total gross deferred tax liabilities
Net deferred tax assets
2023
2022
$
20,993 $
29,458
7,775
6,860
3,289
1,709
1,136
695
632
593
179
74
7,229
8,002
3,481
1,751
1,239
905
697
1,396
236
194
43,935
54,588
(6,092)
(1,435)
(1,113)
(226)
(8,866)
$
35,069 $
(7,465)
(1,476)
(1,512)
(279)
(10,732)
43,856
As of December 31, 2023, California net operating loss carryforwards ("NOLs") of $13.3 million corresponded to the
total $1.1 million deferred tax asset above. If not fully utilized, the California NOLs will begin to expire in 2031.
Based upon the level of historical taxable income and projections for future taxable income over the periods during
which the deferred tax assets are expected to be deductible, management believes it is more likely than not that we
will realize the benefit of the remaining deferred tax assets. Accordingly, no valuation allowance has been
established as of December 31, 2023 or 2022.
The effective tax rate for 2023, 2022 and 2021 differs from the current federal statutory income tax rate as follows:
Federal statutory income tax rate
Increase (decrease) due to:
California franchise tax, net of federal tax benefit
Tax exempt interest on municipal securities and loans
Tax exempt earnings on bank owned life insurance
Non-deductible acquisition related expenses
Non-deductible executive compensation
Low income housing and qualified zone academy bond tax credits
Stock-based compensation and excess tax deficiencies (benefits)
Other
Effective Tax Rate
2023
21.0 %
7.9 %
(3.1) %
(1.5) %
— %
— %
(0.6) %
0.2 %
(0.3) %
23.6 %
2022
21.0 %
8.3 %
(1.9) %
(0.4) %
— %
— %
(0.2) %
— %
(0.2) %
26.6 %
2021
21.0 %
8.4 %
(2.5) %
(1.0) %
0.6 %
0.4 %
(0.4) %
(0.1) %
(0.4) %
26.0 %
Bancorp and the Bank have entered into a tax allocation agreement, which provides that income taxes shall be
allocated between the parties on a separate entity basis. The intent of this agreement is that each member of the
consolidated group will incur no greater tax liability than it would have incurred on a stand-alone basis.
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. We are no longer subject to examinations by tax authorities for years before 2020 for federal income tax and
before 2019 for California. At December 31, 2023 and 2022, there were no unrecognized tax benefits, and neither
the Bank nor Bancorp had accruals for interest and penalties related to unrecognized tax benefits.
94
Note 12: Commitments and Contingencies
Leases
We lease premises under long-term non-cancelable operating leases with remaining terms of approximately 4
months to 18 years, 5 months, most of which include escalation clauses and one or more options to extend the
lease term, and some of which contain lease termination clauses. Lease terms may include certain renewal options
that were considered reasonably certain to be exercised.
We lease certain equipment under finance leases with initial terms of 3 to 5 years. The equipment finance leases
do not contain renewal options, bargain purchase options, or residual value guarantees.
The following table shows the balances of operating and finance lease right-of-use assets and lease liabilities as of
December 31, 2023 and 2022.
(in thousands)
Operating leases:
Operating lease right-of-use assets
Operating lease liabilities
Finance leases:
Finance lease right-of-use assets
Accumulated amortization
Finance lease right-of-use assets, net1
Finance lease liabilities2
December 31, 2023
December 31, 2022
$
$
$
20,316 $
22,906
608
(319)
289 $
298 $
24,821
26,639
616
(187)
429
439
1 Included in premises and equipment in the consolidated statements of condition.
2 Included in borrowings and other obligations in the consolidated statements of condition.
The following table shows supplemental disclosures of noncash investing and financing activities for the years
ended December 31, 2023, 2022 and 2021.
(in thousands)
Right-of-use assets obtained in exchange for operating lease liabilities
Right-of-use assets obtained in exchange for finance lease liabilities
2023
2022
2021
437 $
6,116 $
2,376
7 $
151 $
444
$
$
The following table shows components of operating and finance lease cost for the years ended December 31, 2023,
2022 and 2021.
(in thousands)
Operating lease cost1
Variable lease cost
Total operating lease cost
Finance lease cost:
Amortization of right-of-use assets2
Interest on finance lease liabilities3
Total finance lease cost
$
$
$
$
Total lease cost
1 Included in occupancy and equipment expense in the consolidated statements of comprehensive income (loss).
2 Included in depreciation and amortization in the consolidated statements of comprehensive income (loss).
3 Included in interest on borrowings and other obligations in the consolidated statements of comprehensive income (loss).
$
2023
5,493 $
—
5,493 $
2022
5,356 $
—
5,356 $
147 $
127 $
7
3
154 $
130 $
2021
4,823
—
4,823
96
2
98
5,647 $
5,486 $
4,921
The following table shows the future minimum lease payments, weighted average remaining lease terms, and
weighted average discount rates under operating and finance lease arrangements as of December 31, 2023. Total
minimum lease payments do not include future minimum payment obligations of approximately $2.0 million,
excluding renewal options, for an operating lease agreement related to an existing retail branch that commenced
subsequent to December 31, 2023. The discount rates used to calculate the present value of lease liabilities were
based on the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum
payments on the lease commencement date.
95
(in thousands)
Year
2024
2025
2026
2027
2028
Thereafter
Total minimum lease payments
Amounts representing interest (present value discount)
December 31, 2023
Operating
Leases
Finance
Leases
$
4,753
$
4,112
3,373
3,096
2,710
7,308
25,352
(2,446)
155
108
38
5
—
—
306
(8)
Present value of net minimum lease payments (lease liability)
$ 22,906
$
298
Weighted average remaining term (in years)
Weighted average discount rate
Litigation Matters
7.3
2.40 %
2.2
2.07 %
Bancorp may be subject to legal actions that arise from time to time in the normal course of business. Bancorp's
management is not aware of any pending legal proceedings to which either it or the Bank may be a party or has
recently been a party that will have a material adverse effect on the financial condition or results of operations of
Bancorp or the Bank.
The Bank is responsible for a proportionate share of certain litigation indemnifications provided to Visa U.S.A.
("Visa") by its member banks in connection with Visa's lawsuits related to anti-trust charges and interchange fees
("Covered Litigation"). We sold our remaining shares on July 13, 2023, however, our proportionate share of the
litigation indemnification liability does not change or transfer upon the sale of our Class B Visa shares to member
banks or, per the terms of the sale, to the recent purchaser of our shares. Visa established an escrow account for
the Covered Litigation that it periodically funds, which is expected to cover the settlement payment obligations.
Litigation is ongoing, and until the court approval process is complete, there is no assurance that Visa will resolve
the claims as contemplated by the amended class settlement agreement, and additional lawsuits may arise from
individual merchants who opted out of the class settlement. However, until the escrow account is fully depleted and
the conversion rate of Class B to Class A common stock is reduced to zero, no future cash settlement payments are
required by the member banks, such as us, on the Covered Litigation. Therefore, we are not required to record any
contingent liabilities for the indemnification related to the Covered Litigation, as we consider the probability of losses
to be remote.
Note 13: Concentrations of Credit Risk
Concentration of credit risk is associated with a lack of diversification, such as having substantial investments in a
few individual issuers, thereby potentially exposing us to adverse economic, political, regulatory, geographic,
industrial or credit developments. Financial instruments that potentially subject us to concentrations of credit risk
consist primarily of cash and cash equivalents, investment securities and loans.
At times, our cash in correspondent bank accounts may exceed FDIC insured limits. We place cash and cash
equivalents with the Federal Reserve Bank and other high credit quality financial institutions, periodically monitor
their credit worthiness and limit the amount of credit exposure to any one institution according to regulations.
Concentrations of credit risk with respect to investment securities primarily related to the U.S. government and
GSEs, which accounted for $1.272 billion, or 86% of our total investment portfolio at December 31, 2023 and
$1.535 billion, or 87% at December 31, 2022. The decrease was mainly due to the sale of $167.4 million and
$106.1 million in paydowns of this security type in 2023. The largest security not issued by the U.S. government or a
GSE accounted for approximately 1% of our total investment portfolio at both December 31, 2023 and 2022.
We also manage our credit exposure related to our loan portfolio to avoid the risk of undue concentration of credits
in a particular industry or geographic location by reducing significant exposure to highly leveraged transactions or to
96
any individual customer or counterparty, and by obtaining collateral, as appropriate. With the heightened market
concern about non-owner-occupied commercial real estate, and in particular the office sector, we continue to
maintain diversity among property types and within our geographic footprint. In particular, our office commercial real
estate portfolio in the City of San Francisco represented 3% of our total loan portfolio and 6% of our total non-
owner-occupied commercial real estate portfolio as of December 31, 2023.
No single borrower relationship accounted for more than 3% of outstanding loan balances at December 31, 2023 or
2022. The largest loan concentration is real estate, which accounted for 90% of our loan portfolio at both
December 31, 2023 and 2022.
Note 14: Derivative Financial Instruments and Hedging Activities
The Bank is exposed to certain risks from both its business operations and changes in economic conditions. As
part of our asset/liability and interest rate risk management strategy, we may enter into interest rate derivative
contracts to modify repricing characteristics of certain of our interest-earning assets and interest-bearing liabilities.
The Bank generally designates interest rate hedging agreements utilized in the management of interest rate risk as
either fair value hedges or cash flow hedges.
Our credit exposure, if any, on interest rate swap asset positions is limited to the fair value (net of any collateral
pledged to us) and interest payments of all swaps by each counterparty. Conversely, when an interest rate swap is
in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an
amount determined by the agreements. Collateral levels are monitored and adjusted on a regular basis for changes
in interest rate swap values.
On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling
$101.8 million split evenly between terms of 2.5 and 3.0 years to hedge balance sheet interest rate sensitivity and
protect certain of our fixed rate available-for-sale securities against changes in fair value related to changes in the
benchmark interest rate. The interest rate swaps involve the receipt of floating rate interest from a counterparty in
exchange for us making fixed-rate interest payments over the lives of the agreements, without the exchange of the
underlying notional values. The transactions were designated as partial term fair value hedges and structured such
that the changes in the fair value of the interest rate swaps are expected to be perfectly effective in offsetting the
changes in the fair value of the hedged items attributable to changes in the SOFR OIS swap rate, the designated
benchmark interest rate. Because the hedges met the criteria for using the shortcut method, there is no need to
periodically reassess effectiveness during the term of the hedges. For fair value designated hedges, the gains or
losses on the hedging instruments as well as the offsetting gains or losses on the hedged items, are recognized in
current earnings as their fair values change.
In addition, we had three interest rate swap agreements on certain loans with our customers, which are scheduled
to mature at various dates ranging from June 2031 to July 2032. In December 2023, one interest rate swap,
scheduled to mature in October 2037, was terminated as the hedged loan was paid off. The loan interest rate swaps
were designated as fair value hedges and allowed us to offer long-term fixed-rate loans to customers without
assuming the interest rate risk of a long-term asset. Converting our fixed-rate interest payments to floating-rate
interest payments, generally benchmarked to the one-month U.S. dollar SOFR index, protects us against changes
in the fair value of our loans associated with fluctuating interest rates. The notional amounts of the interest rate
contracts are equal to the notional amounts of the hedged loans.
Information on our derivatives follows:
(in thousands)
Available-for-sale securities:
Interest rate swaps - notional amount
Interest rate swaps - fair value1
Loans receivable:
Interest rate contracts - notional amount
Interest rate contracts - fair value1
Asset derivatives
Liability derivatives
December 31, 2023 December 31, 2022
December 31, 2023 December 31, 2022
$
$
$
$
— $
— $
6,441 $
287 $
—
—
12,046
602
$
$
$
$
101,770 $
1,359 $
2,157 $
2 $
—
—
—
—
1 Refer to Note 9, Fair Value of Assets and Liabilities, for valuation methodology.
97
The following table presents the carrying amount and associated cumulative basis adjustment related to the
application of fair value hedge accounting that is included in the carrying amount of hedged assets as of
December 31, 2023 and 2022.
Carrying Amounts of Hedged Assets
Cumulative Amounts of Fair Value Hedging
Adjustments Included in the Carrying Amounts
of the Hedged Assets
(in thousands)
Available-for-sale securities 1
Loans receivable 2
December 31, 2023
December 31, 2022
December 31, 2023
December 31, 2022
$
$
107,181 $
8,183 $
— $
11,319 $
(1,359) $
(367) $
—
(726)
1 Carrying value equals the amortized cost basis of the securities underlying the hedge relationship, which is the book value net of the fair value hedge adjustment.
Amortized cost excludes accrued interest totaling $222 thousand as of December 31, 2023.
2 Carrying value equals the amortized cost basis of the loans underlying the hedge relationship, which is the loan balance net of deferred loan origination fees and
cost and the fair value hedge adjustment. Amortized cost excludes accrued interest, which was not material.
The following table presents the pretax net gains (losses) recognized in interest income related to our fair value
hedges for the years presented.
(in thousands)
Interest on investment securities 1
Decrease in fair value of interest rate swaps hedging available-for-sale securities
Hedged interest earned (paid)
Increase in carrying value included in the hedged available-for-sale securities
Net gain recognized in interest income on investment securities
Interest and fees on loans 1
(Decrease) increase in fair value of interest rate swaps hedging loans receivable
Hedged interest earned (paid)
Increase (decrease) in carrying value included in the hedged loans
Decrease in value of yield maintenance agreement
Net gain (loss) recognized in interest income on loans
Years ended December 31,
2023
2022
2021
$
$
$
$
(1,359) $
367
1,359
367 $
(317) $
268
359
(9)
301 $
— $
—
—
— $
1,687 $
(143)
(1,666)
(10)
(132) $
—
—
—
—
827
(369)
(814)
(11)
(367)
1 Represents the income line item in the statements of comprehensive income (loss) in which the effects of fair value hedges are recorded.
Our derivative transactions with the counterparty are under an International Swaps and Derivative Association
(“ISDA”) master agreement that includes “right of set-off” provisions. “Right of set-off” provisions are legally
enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net
basis. We do not offset such financial instruments for financial reporting purposes. Information on financial
instruments that are eligible for offset in the consolidated statements of condition follows:
Offsetting of Financial Assets and Derivative Assets
Gross Amounts
of Recognized
Assets 1
Gross Amounts
Offset in the
Statements of
Condition
Net Amounts
of Assets Presented
in the Statements
of Condition 1
Gross Amounts Not Offset in the
Statements of Condition
Financial
Instruments
Cash Collateral
Received
Net Amount
$
$
$
$
287 $
287 $
602 $
602 $
— $
— $
— $
— $
287 $
287 $
602 $
602 $
— $
— $
— $
— $
— $
— $
— $
— $
287
287
602
602
(in thousands)
December 31, 2023
Counterparty
Total
December 31, 2022
Counterparty
Total
98
Offsetting of Financial Liabilities and Derivative Liabilities
Gross Amounts
of Recognized
Liabilities 1
Gross Amounts
Offset in the
Statements of
Condition
Net Amounts of
Liabilities Presented
in the Statements of
Condition 1
Gross Amounts Not Offset in the
Statements of Condition
Financial
Instruments
Cash Collateral
Pledged
Net Amount
$
$
$
$
1,361 $
1,361 $
— $
— $
— $
— $
— $
— $
1,361 $
1,361 $
— $
— $
(287)
(287) $
—
— $
(330) $
(330) $
— $
— $
744
744
—
—
(in thousands)
December 31, 2023
Counterparty
Total
December 31, 2022
Counterparty
Total
1 Amounts exclude accrued interest on swaps.
Note 15: Regulatory Matters
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 initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our
consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets,
liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital
amounts and the Bank’s prompt corrective action classification are also subject to qualitative judgments by the
regulators about components of capital, risk weightings and other factors.
Management reviews capital ratios on a regular basis and produces a five-year capital plan semi-annually to ensure
that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future
needs. Stress tests are performed on capital ratios and include scenarios such as additional unrealized losses on
the investment portfolio, additional deposit growth, 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 December 31, 2023. 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 Bancorp’s and Bank's capital adequacy ratios as of December 31, 2023 and 2022 are presented in the
following tables.
Ratio
10.00 %
8.00 %
5.00 %
6.50 %
Bancorp Capital Ratios
(dollars in thousands)
December 31, 2023
Total Capital (to risk-weighted assets)
Tier 1 Capital (to risk-weighted assets)
Actual
Adequately Capitalized
Threshold 1
Threshold to be a Well
Capitalized Bank Holding
Company
Amount
Ratio
$ 440,842
$ 415,224
16.89 % $
15.91 % $
Amount
274,002
221,811
Ratio
10.50 % $
8.50 % $
Amount
260,954
208,763
Tier 1 Leverage Capital (to average assets)
$ 415,224
10.46 % $
158,771
4.00 % $
198,464
Common Equity Tier 1 (to risk-weighted assets)
$ 415,224
15.91 % $
182,668
7.00 % $
169,620
December 31, 2022
Total Capital (to risk-weighted assets)
$ 431,667
15.90 % $
285,079
10.50 % $
271,504
10.00 %
Tier 1 Capital (to risk-weighted assets)
$ 407,912
15.02 % $
230,778
8.50 % $
217,203
Tier 1 Leverage Capital (to average assets)
$ 407,912
9.60 % $
169,948
4.00 % $
212,435
Common Equity Tier 1 (to risk-weighted assets)
$ 407,912
15.02 % $
190,053
7.00 % $
176,478
8.00 %
5.00 %
6.50 %
99
Bank Capital Ratios
(dollars in thousands)
December 31, 2023
Actual
Adequately Capitalized
Threshold 1
Threshold to be Well
Capitalized under Prompt
Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital (to risk-weighted assets)
$ 433,598
16.62 % $
273,986
10.50 % $
260,939
10.00 %
Tier 1 Capital (to risk-weighted assets)
$ 407,981
15.64 % $
221,798
8.50 % $
208,751
Tier 1 Leverage Capital (to average assets)
$ 407,981
10.28 % $
158,767
4.00 % $
198,459
Common Equity Tier 1 (to risk-weighted assets)
$ 407,981
15.64 % $
182,657
7.00 % $
169,610
8.00 %
5.00 %
6.50 %
December 31, 2022
Total Capital (to risk-weighted assets)
$ 427,108
15.73 % $
285,052
10.50 % $
271,478
10.00 %
Tier 1 Capital (to risk-weighted assets)
$ 403,352
14.86 % $
230,757
8.50 % $
217,183
Tier 1 Leverage Capital (to average assets)
$ 403,352
9.49 % $
169,940
4.00 % $
212,425
Common Equity Tier 1 (to risk-weighted assets)
$ 403,352
14.86 % $
190,035
7.00 % $
176,461
8.00 %
5.00 %
6.50 %
1 Except for Tier 1 Leverage Capital, the adequately capitalized thresholds reflect the regulatory minimum plus a 2.5% capital conservation buffer as required under
the Basel III Capital Standards in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.
Note 16: Financial Instruments with Off-Balance Sheet Risk
We make commitments to extend credit in the normal course of business to meet the financing needs of our
customers. These financial instruments include commitments to extend credit in the form of loans or through
standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Because various commitments will expire without being fully
drawn, the total commitment amount does not necessarily represent future cash requirements.
Our credit loss exposure is equal to the contractual amount of the commitment in the event of nonperformance by
the borrower. We use the same credit underwriting criteria for all credit exposure. The amount of collateral
obtained, if deemed necessary by us, is based on management's credit evaluation of the borrower. Collateral types
pledged may include accounts receivable, inventory, other personal property and real property.
The contractual amount of unfunded loan commitments and standby letters of credit not reflected in the
consolidated statements of condition are as follows:
(in thousands)
Commercial lines of credit
Revolving home equity lines
Undisbursed construction loans
Personal and other lines of credit
Standby letters of credit
Total unfunded loan commitments and standby letters of credit
December 31, 2023
December 31, 2022
$
$
259,989 $
218,935
13,943
9,136
3,147
505,150 $
292,204
218,907
43,179
10,842
1,738
566,870
As of December 31, 2023, approximately 38% of the commitments expire in 2024, 51% expire between 2025 and
2031 and 11% expire thereafter.
We record an allowance for credit losses on unfunded loan commitments at the balance sheet date based on
estimates of the probability that these commitments will be drawn upon according to historical utilization experience
of the different types of commitments and expected loss rates determined for pooled funded loans. The allowance
for credit losses on unfunded commitments totaled $1.1 million and $1.5 million as of December 31, 2023 and 2022,
respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.
We recorded reversals of the provision for credit losses on unfunded commitments totaling $342 thousand,
$318 thousand and $992 thousand in 2023, 2022, and 2021, respectively. The reversals in 2023 and 2022 were
due primarily to decreases in total unfunded loan commitments. The reversal in 2021 was largely due to ongoing
improvements in the underlying economic forecasts under the CECL accounting method at the time.
100
Note 17: Condensed Bank of Marin Bancorp Parent Only Financial Statements
Presented below is financial information for Bank of Marin Bancorp, parent holding company only.
CONDENSED UNCONSOLIDATED STATEMENTS OF CONDITION
December 31, 2023 and 2022
(in thousands)
Assets
Cash and due from Bank of Marin
Investment in bank subsidiary
Other assets
Total assets
Liabilities and Stockholders' Equity
Accrued expenses payable
Other liabilities
Total liabilities
Stockholders' equity
Total liabilities and stockholders' equity
2023
2022
$
$
$
$
7,189 $
431,819
156
439,164 $
102 $
—
102
439,062
439,164 $
4,493
407,532
255
412,280
188
—
188
412,092
412,280
CONDENSED UNCONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2023, 2022 and 2021
(in thousands)
Income
Dividends from bank subsidiary
Miscellaneous income
Total income
Expense
Interest expense
Non-interest expense
Total expense
Income before income taxes and equity in undistributed net income of subsidiary
Income tax benefit
Income before equity in undistributed net income of subsidiary
Earnings of bank subsidiary greater (less) than dividends received from bank subsidiary
Net income
2023
2022
2021
$ 20,000 $ 16,200 $ 64,000
—
—
—
20,000
16,200
64,000
—
1,705
1,705
—
1,793
1,793
1,361
4,025
5,386
18,295
14,407
58,614
504
530
1,235
18,799
14,937
59,849
1,096
31,649
(26,621)
$ 19,895 $ 46,586 $ 33,228
101
CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2023, 2022 and 2021
(in thousands)
Cash Flows from Operating Activities:
Net income
2023
2022
2021
$ 19,895 $ 46,586 $ 33,228
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Earnings of bank subsidiary (greater) less than dividends received from bank subsidiary
(1,096)
(31,649)
26,621
Accretion of discount on subordinated debenture
Noncash director compensation expense
Net changes in:
Other assets
Other liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities:
Capital contribution to bank subsidiary
Net cash used in investing activities
Cash Flows from Financing Activities:
Repayment of subordinated debenture including execution costs
Restricted stock surrendered for tax withholdings upon vesting
Cash dividends paid on common stock
Stock repurchased, including commissions
Proceeds from stock options exercised and stock issued under employee and director stock purchase
plans
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental schedule of noncash investing and financing activities:
Stock issued in payment of director fees
Repurchase of stock not yet settled
Stock issued to ESOP
Note 18: Merger
—
60
99
(86)
—
36
1,347
35
(12)
(1,655)
(129)
(88)
18,872
14,832
59,488
(276)
(276)
(899)
(899)
(619)
(619)
—
(70)
—
(40)
(4,126)
(166)
(16,106)
(15,673)
(13,107)
—
(1,250)
(40,762)
276
899
587
(15,900)
(16,064)
(57,574)
2,696
(2,131)
4,493
6,624
$
7,189 $
4,493 $
1,295
5,329
6,624
$
$
$
398 $
— $
355 $
— $
217
373
1,315 $
1,233 $
1,330
Bancorp completed its merger and acquired all assets and assumed all liabilities of AMRB on August 6, 2021. The
merger expanded Bank of Marin's presence throughout the Greater Sacramento, Amador and Sonoma County
Regions where AMRB had ten branches. The merger added $898.4 million in total assets, including $297.8 million
in investment securities and $419.4 million in loans, and $816.6 million in total liabilities, including $790.0 million in
deposits, to Bank of Marin as of the merger date. Bancorp accounted for the merger as a business combination
under the acquisition method of accounting. The assets acquired and liabilities assumed, both tangible and
intangible, were recorded at their fair values as of the merger date in accordance with ASC 805, Business
Combinations.
AMRB's shareholders received 0.575 shares of Bancorp's common stock for each share of AMRB common stock
outstanding immediately prior to the Merger resulting in the issuance of 3,441,235 shares of Bancorp common
stock. In addition, merger consideration included cash paid for outstanding stock options and cash paid in lieu of
fractional shares, as summarized in the following table.
(in thousands)
Merger
Consideration
Value of common stock consideration paid to shareholders (0.575 fixed exchange ratio, stock price $36.15)
$
124,401
Cash consideration for stock options
Cash paid in lieu of fractional shares
Total merger consideration
63
13
$
124,477
102
We recorded $42.6 million in goodwill, which represented the excess of the total merger consideration paid of
$124.5 million over the fair value of the net assets acquired of $81.9 million. Goodwill mainly reflects the expected
value created through the combined operations of AMRB and Bancorp and is evaluated for impairment annually.
Merger-related and conversion costs are recognized as incurred and continue until all systems have been converted
and operational functions are fully integrated. Bancorp's pretax merger-related costs reflected in the consolidated
statements of comprehensive income (loss) are summarized in the following table.
(in thousands)
Personnel and severance
Professional services
Data processing
Other expense
Total merger-related and conversion costs
Years ended December 31,
2023
2022
2021
$
$
— $
—
—
—
— $
393 $
67
77
321
858 $
3,005
1,976
1,127
350
6,458
End of 2023 Audited Consolidated Financial Statements
103
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
(A)
Evaluation of Disclosure Controls and Procedures
Bank of Marin Bancorp and its subsidiary (the "Company") conducted an evaluation under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (the “Act”)) as of the end
of the period covered by this report. The term disclosure controls and procedures means controls and other
procedures that are designed to ensure that information we are required to disclose in the reports that we
file or submit under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported,
within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information we are required to disclose
in the reports that we file or submit under the Act is accumulated and communicated to our management,
including our principal executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.
(B)
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial
reporting (as defined in Rules 13a-15(f) promulgated under the 1934 Act). The internal control process has
been designed under our supervision to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company's financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America. Management
conducted an assessment of the effectiveness of internal control over financial reporting as of
December 31, 2023, utilizing the framework established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on
this assessment, management has concluded that the Company maintained effective internal control over
financial reporting as of December 31, 2023.
There are inherent limitations to the effectiveness of any system of internal control over financial reporting.
These limitations include the possibility of human error, the circumvention or overriding of the system and
reasonable resource constraints. Because of its inherent limitations, our internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Management's report on internal control over financial reporting is set forth in ITEM 8 and is incorporated
herein by reference.
(C)
Audit Report of the Registered Public Accounting Firm
The Company's independent registered public accounting firm, Moss Adams LLP, has audited the
effectiveness of internal control over financial reporting as of December 31, 2023 as stated in their audit
report, which is included in ITEM 8 and incorporated herein by reference.
(D)
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2023, there were no significant changes that materially affected, or
are reasonably likely to affect, our internal control over financial reporting identified in connection with the
evaluation mentioned in (B) above. The term internal control over financial reporting, as defined by Rule
104
15d-15(f) of the Act, is a process designed by, or under the supervision of, the issuer's principal executive
and principal financial officers, or persons performing similar functions, and effected by the issuer's board of
directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with U.S.
generally accepted accounting principles.
ITEM 9B.
OTHER INFORMATION
Not applicable.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required to be reported under ITEM 10 is incorporated by reference to our Proxy Statement for the 2024
Annual Meeting of Shareholders. Bancorp and the Bank have adopted a Code of Ethics that applies to all staff,
including the Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer. A copy of the Code of
Ethical Conduct, which is also included on our website, will be provided to any person, without charge, upon written
request to the Corporate Secretary, Bank of Marin Bancorp, 504 Redwood Boulevard, Suite 100, Novato, CA 94947.
During 2023, there were no changes in the procedures for the election or nomination of directors.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our Proxy Statement for the 2024 Annual
Meeting of Shareholders.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to ITEM 5 above, Note 8 to our audited
consolidated financial statements and to our Proxy Statement for the 2024 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to our Proxy Statement for the 2024 Annual
Meeting of Shareholders.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company’s independent registered public accounting firm is Moss Adams LLP, Issuing Office: Portland, OR,
PCAOB ID: 659.
The information required by this Item is incorporated by reference to our Proxy Statement for the 2024 Annual
Meeting of Shareholders.
105
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(A)
Documents Filed as Part of this Report:
1.
Financial Statements
The financial statements and supplementary data listed below are filed as part of this report under
ITEM 8, captioned Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm for the years ended December 31, 2023,
2022 and 2021
Management's Report on Internal Control over Financial Reporting
Consolidated Statements of Condition as of December 31, 2023 and 2022
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31,
2023, 2022 and 2021
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31,
2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
All financial statement schedules have been omitted, as they are inapplicable or the required
information is included in the financial statements or notes thereto.
(B)
Exhibits Filed:
The following exhibits are filed as part of this report or hereby incorporated by references to filings
previously made with the SEC.
106
Exhibit
Number
2.01
3.01
3.02
4.01
10.01
10.02
10.03
10.04
10.05
10.06
10.07
10.08
10.09
10.10
10.11
10.12
10.13
10.14
14.01
23.01
31.01
31.02
32.01
97.1
Exhibit Description
Agreement to Merge and Plan of Reorganization, dated
April 16, 2021 by and among Bank of Marin Bancorp
and American River Bankshares
Articles of Incorporation, as amended
Bylaws, as amended
Description of Capital Stock
Employee Stock Ownership Plan
2017 Employee Stock Purchase Plan
2017 Equity Plan, as amended
2020 Director Stock Plan
Form of Indemnification Agreement for Directors and
Executive Officers, dated August 9, 2007
2010 Annual Individual Incentive Compensation Plan,
revised 2019
Salary Continuation Agreement for executive officer Tani
Girton, Chief Financial Officer, dated October 18, 2013
2007 Form of Change in Control Agreement
Director Deferred Fee Plan, dated December 17, 2020
Employment Agreement with Timothy Myers, dated
September 23, 2021
Salary Continuation Agreement, as amended for
executive officer Timothy Myers, Chief Executive Officer,
dated January 1, 2022
Salary Continuation Agreement for executive officer
Nicolette Sloan, Head of Commercial Banking, dated
January 1, 2022
Salary Continuation Agreement for executive officer
Misako Stewart, Chief Credit Officer, dated January 1,
2022
Salary Continuation Agreement for executive officer
Brandi Campbell, Head of Retail Banking, dated July 1,
2022
Code of Ethical Conduct, dated October 20, 2023
Consent of Moss Adams LLP
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. §1350 as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002
Incentive Compensation Recovery Policy, dated October
2, 2023
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
Document
Incorporated by Reference
Form
8-K
File No.
001-33572
Exhibit
2.1
Filing Date
April 19, 2021
Herewith
S-4
S-4
10-K
S-8
S-8
S-8
S-8
10-Q
333-257025
333-257025
001-33572
333-218274
333-221219
333-227840
333-239555
001-33572
3.01
3.02
4.01
4.1
4.1
4.1
4.1
10.06
June 11, 2021
June 11, 2021
March 16, 2023
May 26, 2017
October 30, 2017
October 15, 2018
June 30, 2020
November 7, 2007
10-K
001-33572
10.07
March 15, 2021
8-K
001-33572
10.2
November 4, 2014
8-K
10-K
8-K
001-33572
001-33572
001-33572
10.1
10.13
10.1
8-K
001-33572
10.1
October 31, 2007
March 15, 2021
September 24,
2021
December 21, 2022
8-K
001-33572
10.2
December 21, 2022
8-K
001-33572
10.3
December 21, 2022
8-K
001-33572
10.4
December 21, 2022
Filed
Filed
Filed
Filed
Filed
Filed
Filed
Filed
Filed
Filed
Filed
Filed
Copies of any exhibit to our Annual Report on Form 10-K listed in the index above will be furnished to shareholders as of the record date without
charge upon written request by such shareholder addressed as follows: Corporate Secretary, Bank of Marin Bancorp, 504 Redwood Boulevard,
Suite 100, Novato, CA 94947.
ITEM 16.
None.
Form 10-K Summary
107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 14, 2024
Date
Bank of Marin Bancorp (registrant)
/s/ Tani Girton
Tani Girton
Executive Vice President & Chief Financial Officer
(Principal Financial Officer)
108
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
Dated: March 14, 2024
/s/ Timothy D. Myers
Timothy D. Myers
President & Chief Executive Officer, Director
(Principal Executive Officer)
/s/ Tani Girton
Tani Girton
Executive Vice President & Chief Financial Officer
(Principal Financial Officer)
/s/ David A. Merck
David A. Merck
First Vice President & Controller
(Principal Accounting Officer)
Members of Bank of Marin Bancorp's Board of Directors
/s/ William H. McDevitt, Jr.
William H. McDevitt, Jr.
Chairman of the Board
/s/ Nicolas C. Anderson
Nicolas C. Anderson
/s/ Russell A. Colombo
Russell A. Colombo
/s/ Charles D. Fite
Charles D. Fite
/s/ Cigdem Gencer
Cigdem Gencer
/s/ James C. Hale
James C. Hale
/s/ Robert Heller
Robert Heller
/s/ Kevin R. Kennedy
Kevin R. Kennedy
/s/ Sanjiv S. Sanghvi
Sanjiv S. Sanghvi
/s/ Joel Sklar
Joel Sklar, M.D.
/s/ Brian M. Sobel
Brian M. Sobel
/s/ Secil Tabli Watson
Secil Tabli Watson
109
www.bankofmarin.com
002CSNE81E