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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.04pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.13pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.05pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
weakness+6
failure+3
fail+3
errors+3
weaknesses+2
Positive rising
effective+6
able+4
enhance+2
greater+1
successfully+1
Risk Factors (Item 1A)
7,396 words
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
We have identified a material weakness in our internal control over financial reporting. Such material weakness could affect our results of operations and financial condition. In the future, we may identify additional material or otherwise to maintain an system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material in our financial statements or cause us to to meet our period reporting obligations.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+8
restatement+5
misstatements+4
restated+3
restructuring+2
Positive rising
strengthen+3
efficiency+2
benefit+2
favorable+2
effective+1
MD&A (Item 7)
14,442 words
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of financial condition as of December 31, 2025 and 2024 and results of operations for each of the years in the three-year period ended December 31, 2025 should be read in conjunction with our consolidated financial statements and related notes thereto, included in Part II ITEM 8 of this report.
The Company restated its Consolidated Statements of Condition and revised its Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2024 and 2023, and the quarters ended September 30, 2025, June 30, 2025, March 31, 2025, September 30, 2024, June 30, 2024, and March 31, 2024, (the “Affected Periods”) for misstatements between the balance sheet and income statement that were determined, in the aggregate, to be material to previously issued financial statements. Generally, the restatements and revisions related to the misclassification of certain deposits and expenses related thereto as non-interest bearing deposits and non-interest expense when they should have been classified as interest bearing deposits and interest expense. See “Note 19, Restatement of Prior Period Financial Statements (Quarterly Information Unaudited)” in Item 8 of this Form 10-K, for additional information related to the and revision, including descriptions of the and the impacts on our consolidated financial statements. All affected tables and narrative disclosures herein from the Affected Periods have likewise been .
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, evaluating the effectiveness of our internal controls and disclosing any changes or material weaknesses identified through such evaluation. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
In February 2026, we determined that certain reciprocal network deposits were misclassified as non-interest bearing deposits when they should have been classified as interest bearing deposits. Additionally, certain expense related thereto was classified as non-interest operating expense when it should have been included in interest expense. As a result, we determined that there were material errors in the financial statements that required a restatement of our financial statements for the years ended December 31, 2023 and 2024 and for the quarterly periods ended March 31, June 30, and September 30, 2024 and 2025. Those restatements are included in this Annual Report on Form 10-K. In addition, management determined that a material weakness existed, and, as a result, that our internal control over financial reporting was not effective as of December 31, 2025 due to control design and implementation deficiencies with respect to the classification of certain reciprocal network deposits.
In response to the identified material weakness noted above, management has begun a remediation plan to enhance its internal control over financial reporting to:
• Enhance risk assessment procedures over deposit networks to identify whether additional control activities are needed to conform to our accounting policies;
• Increase involvement of technical accounting resources for complex areas at initial onboarding and for periodic review; and
• Require formal documentation of technical conclusion and evidence of supervisory oversight for third party networks.
While the enhanced procedures are expected to be effective mitigants, some elements of our remediation plan are not yet complete. Management believes the remediation plan, once fully implemented, will eliminate the identified material weakness, but no assurance can be given that the remediation plan will be fully effective until it is implemented in its entirety.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement
required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. If we are not able to comply with the requirements of the Sarbanes-Oxley Act or if we are unable to maintain effective internal control over financial reporting, we may not be able to produce timely and accurate financial statements or guarantee that information required to be disclosed by us in the reports that we file with the SEC, is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Any failure of our internal control over financial reporting or disclosure controls and procedures could cause our investors to lose confidence in our publicly reported information, lead to litigation by holders of our securities, cause the market price of our stock to decline, expose us to sanctions or investigations by the SEC or other regulatory authorities, or impact our results of operations.
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 improvedprofitability 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:
• unexpectedproblems 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 continued consolidation of many financial institutions and more changes in legislation, regulation and technology. National and regional banks much larger than our size have entered our market through acquisitions and they may be able to benefit from economies of scale through their wider branch networks, more prominent national advertising campaigns, lower cost of borrowing, capital market access and sophisticated technology infrastructures. Further, intense competition for creditworthy borrowers could lead to pressure for loan rate concessions and affect our ability to generate profitable loans.
Going forward, we may see continued competition in the industry as competitors seek to expand market share in our core markets. Further, our customers may withdraw deposits to pursue alternative investment opportunities. Technology and other changes have made it more convenient for bank customers to transfer funds into alternative investments or other deposit platforms such as online banks and non-bank service providers. Efforts and initiatives we may undertake to retain and increase deposits, including deposit pricing, can increase our costs. While we have a relatively low cost of deposits, 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 and may impact our financial results in future periods. 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 31% of uninsured and/or uncollateralized deposits as of December 31, 2025. 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 $2.148 billion, or 63% of total deposits, and 209% of estimated uninsured and/or uncollateralized deposits as of December 31, 2025. Excluding zero balance accounts, 62% of deposit balances were held in business accounts with average balances of $141 thousand per account, with the remaining 38% in consumer accounts with average balances of $40 thousand per account as of December 31, 2025.
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 could lead to deposit outflows from our Bank. 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, our financial condition and results of operations could be negatively affected. In addition, adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources, constraining our financial flexibility, and ability to originate loans, invest in securities, and distribute dividends to our shareholders. In addition, such a lack of liquidity could result in the sale of securities in an unrealized loss position. 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 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 meet Bancorp's debt service requirements, pay cash dividends to Bancorp's common shareholders, repurchase shares, and cover
operational expenses of the holding company. In addition to the Bank dividends, the Bancorp received proceeds from the issuance of subordinated notes in 2025. Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to Bancorp. In the event that the Bank is unable to pay dividends to Bancorp, Bancorp may not be able to pay dividends to its shareholders. As a result, it could have an adverse effect on Bancorp's stock price and investment value.
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, 2025, we had goodwill totaling $72.8 million and a core deposit intangible asset totaling $1.9 million from business acquisitions. A si gnificant 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.
If we are not able to successfully keep pace with technological changes in the industry, our business could be hurt.
The financial services industry is constantly undergoing technological change, with the frequent introduction of new technology-driven products and services including new payment solutions and the use of agentic artificial intelligence (“AI”). The effective use of technology increases efficiency and enables financial institutions to better serve clients and reduce costs, including mitigating fraud risks. Our future success depends, in part, upon our ability to respond to the needs of our clients by using technology to provide desired products and services and create additional operating efficiencies. Some of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients. Failure to keep pace with technological change in the financial services industry could have a material adverse impact on our business and, in turn, on our financial condition and results of operations.
We are subject to risks associated with the adoption of new technologies such as AI.
The Company or its third-party vendors, clients or counterparties may develop or incorporate AI technology, including agentic AI, in certain business processes, services or products. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, and includes regulation targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment and other laws applicable to the use of AI. These evolving laws and regulations could require changes in the Company’s or third parties’ implementation of AI technology and increase the Company’s compliance costs and risk of non-compliance. The Company’s deployment of artificial intelligence at this time is generally limited to internally focused, assistive productivity tools such as Microsoft Copilot. The Company continues to evaluate additional AI capabilities, including agentic AI, in limited capacities, and the associated risks, including potential errors or inaccuracies in work product, data privacy and confidentiality, intellectual property considerations, potential bias, and cybersecurity.
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 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 in recent years. 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. The FOMC began increasing rates in March 2022, totaling seven rate increases in 2022 and four additional rate increases in 2023, and ended the year of 2023 at a federal funds target rate range between 5.25% and 5.50%. Rising interest rates and first quarter 2023 disruptions in the banking
industry resulted in rapid increases in the cost of funds through rising deposit costs and increased borrowings, putting pressure on net interest margin starting in the second quarter of 2023. The FOMC lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024. The FOMC resumed decreasing rates in September 2025, and made a total of three rate decreases in 2025 ending the year at a range of 3.50% to 3.75%.
See the Net Interest Income section of Management's Discussion and Analysis of Financial Condition and Results of O perations 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.
An Increase in Interest Rates Could Decrease the Value of the Company’s Available-for-Sale Securities Portfolio, and the Company Would Realize Losses if It Were Required to Sell Such Securities to Meet Liquidity Needs
Because of inflationary pressures and the resulting rapid increases in the federal funds target rate since March 2022, the market value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the held-to-maturity portion of U.S. banks’ securities portfolios and unrealized losses on available-for-sale securities reflected in the Company’s accumulated other comprehensive income (loss). We maintain an investment securities portfolio to provide liquidity and to generate earnings on funds that have not been loaned to customers while managing our liquidity and interest rate position, seeking a reasonable yield balanced with risk exposure. While it is neither our intention to sell securities at a net loss in the normal course of business, nor were we required to, we strategically sold securities in the third and fourth quarters of 2023, the second quarter of 2024, and the second and fourth quarters of 2025, to reposition the balance sheet to bolster net interest margin. If the Company were to sell additional securities in an unrealized loss position, it may incur losses that could impair the Company’s capital, financial condition, and results of operations and may require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability and potentially causing shareholder dilution.
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 12% and 9% of total deposit balances at December 31, 2025 and 2024, respectively. The business models and cash cycles of some of our large commercial depositors may also cause short-term volatility in their deposit balances held with us. As our customers' businesses grow, the dollar value of their daily activities may also grow leading to larger fluctuations in daily balances. While we manage our liquidity with consideration given to deposit concentration and volatility, any long-term decline in deposit funding would adversely affect our liquidity. For additional information on our management of deposit volatility, refer to the Liquidity section of ITEM 7, Management's Discussion and Analysis, of this report.
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 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 Global Select Market exchange. Our trading volume is less than that of nationwide or larger regional financial institutions. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence of willing buyers and sellers of common stock at any given
time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the low trading volume of our common stock, significant trades of our stock in a given time period, or the expectations of these trades, could cause volatility in the stock price.
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 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, 2025, approximately 90% of our loans had real estate as a primary or secondary component of collateral, which were comprised of 72% commercial real estate, 27% residential real estate and 1% land. Real estate valuations are influenced by demand, and demand is driven by economic factors such as employment rates and interest rates.
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, 2025 and 2024, using regulatory definitions in the CRE Concentration Guidance, our CRE loans repr esented 350% and 311%, respectively, of our total risk-based capital. We manage our CRE concentrations and 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 unexpectedlosses 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 18th year of U.S. government conservatorship in 2025 via the Federal Housing Finance Agency ("FHFA"). While proposals to end the conservatorship have considered solutions such as an initial public offering, at the date of this report, its future and ultimate impact on the financial markets and our investments in GSEs are uncertain.
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 AI, cyber threats such as social engineering, ransomware, and phishing are more sophisticated and prevalent now than ever before. These incidents include intentional and unintentional events that may present threats designed to disrupt operations, corrupt data, release sensitive information, or cause denial-of-service attacks. A cybersecurity breach of systems operated by the Bank, merchants, vendors, customers, or externally publicized breaches of other financial institutions may significantly harm our reputation, result in a loss of customer business, subject us to regulatory scrutiny, or expose us to civil litigation and financial liability. While we have systems and procedures designed to prevent security breaches, we cannot be certain that advances in cyberthreats, criminal capabilities, network break-ins, or inappropriate access will not compromise or breach the technology protecting our networks or proprietary client information. If a material security breach were to occur, the Bank has policies and procedures in place to ensure timely disclosure. For additional information on cybersecurity management and governance, refer to ITEM-1C, Cybersecurity, in this report.
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 disasteradversely 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 system, an undetectederror, 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 affec t 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.
Significant changes or developments in U.S. laws or policies, and the reactions of the national and global economy to such changes, may have a material adverse effect on our business.
There are uncertainties around the legal and regulatory approach that will be taken under the Trump administration, and we cannot predict the likelihood, nature or extent of changes in law or government regulations that may arise from future legislation or administrative or executive action, either in the United States or abroad.
The current administration’s rapidly evolving policy pronouncements and executive orders create an unpredictable regulatory landscape. This unpredictability can result in sudden changes to the legal and regulatory framework governing our operations, making it challenging to plan and execute our business strategies effectively. Additionally, the potential for abrupt policy shifts may cause fluctuations in market conditions, impacting our investment portfolio, lending activities, and overall financial performance. The general uncertainty associated with the administration’s policy approach may also lead to increased market volatility and disruptions that could affect the availability and cost of capital, the valuation of our assets, the stability of our funding sources, and the financial health and operations of our borrowers. In turn, this may impact our ability to meet regulatory capital requirements, manage liquidity, and maintain profitability.
The administration’s efforts to roll back financial regulations, which may include those established under the Bank Secrecy Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and others could lead to changes in the regulatory environment in which we operate. While deregulation may reduce compliance costs and regulatory burdens, it may also increase competition and risk-taking in the financial services sector, potentially leading to greater market volatility and financial instability. We cannot, however, accurately predict the full effects of recent or
future legislation or the various other governmental, regulatory, monetary, and fiscal initiatives which have been and may be enacted on the financial markets, the Company, and the Bank.
We continue to monitor regulatory developments and adjust our strategies accordingly. However, the inherent unpredictability of the current regulatory environment poses a risk to our business that could have material adverse effects on our financial condition and results of operations.
Any Regulatory Examination Scrutiny or New Regulatory Requirements Applicable to the Banking Industry Could Increase the Company’s Expenses and Affect the Company’s Operations
The Company could be subject to 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.
restatement
misstatements
corrected
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 credit losses on unfunded loan commitments is based on estimates of the probability that these commitments will be drawn upon according to historical utilization experience, expected lossseverity, and loss rates as determined for pooled funded loans. The allowance for credit losses on unfunded commitments is a liability account included in interest payable and other liabilities. Management estimates these allowances quarterly using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Credit loss experience among the Bank and peer groups provides the basis for the estimation of expected credit losses.
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 was 5.5% at December 31, 2025 and December 31, 2024. The ACL model incorporates a one-year forecast. For period s beyond the forecast horizon, the economic factors revert to historical averages on a straight-line basis over a one-year period through the remaining lives of the loans. We performed a sensitivity analysis as of December 31, 2025, and estimated that a 100 basis point change (e.g., 5.5% to 6.5%) 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. T his 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, b ecause 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, and Note 3 - Loans and Allowance for Credit Losses on Loans in ITEM 8 - Financial Statements and Supplementary Data of this Form 10-K.
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.
RESULTS OF OPERATIONS
Overview
This discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this Form 10-K. As noted above, the Company restated its financial statements for the Affected Periods for misstatements between the balance sheet and income statement that were determined, in the aggregate, to be material to previously issued financial statements. Generally, the restatements related to the misclassification of certain deposits and expenses related thereto as non-interest bearing deposits and non-interest expense when they should have been classified as interest bearing deposits and interest expense. See below and “Note 19, Restatement of Prior Period Financial Statements (Quarterly Information Unaudited)” in Item 8 of this Form 10-K, for additional information related to the restatement, including descriptions of the misstatements and the impacts on our consolidated financial statements. All affected tables and narrative disclosure herein from the Affected Periods has likewise been corrected.
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,
(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
Subordinated notes, net
Stockholders' equity
Book value per share
Tangible 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
For the Years Ended December 31,
(dollars in thousands, except per share data)
Selected operating data:
Net interest income
Provision for credit losses on loans
Provision for (reversal of) credit losses on unfunded loan commitments
Non-interest income
Non-interest expense
Net (loss) income
Net (loss) 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
Cost of funds
Efficiency ratio
Net charge-offs
Net charge-offs 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.
Restatement and Revision of Prior Period Financial Statements and Financial Highlights
See below for the restated and revised prior period financial statements and affected financial highlights referred to above and in Form 8-K filed February 17, 2026.
Summary of Reclassifications and Impacts
($ in thousands)
Non-interest-Bearing Deposits - end of period
As reported
As Adjusted
Change
Interest-Bearing Deposits - end of period
As reported
As Adjusted
Change
Non-interest-Bearing Deposits as a percentage of Total Deposits - end of period
As reported
As Adjusted
Change
Non-interest-Bearing Deposits - average
As reported
As Adjusted
Change
Interest-Bearing Deposits - average
As reported
As Adjusted
Change
Interest Expense
As reported
As Adjusted
Change
Net Interest Income
As reported
As Adjusted
Change
Non-interest Expense
As reported
As Adjusted
Change
Net Interest Margin, reported
As reported
As Adjusted
Change
Net Interest Margin, tax-equivalent
As reported
As Adjusted
Change
Cost of Deposits
As reported
As Adjusted
Change
Cost of Interest-Bearing Deposits
As reported
As Adjusted
Change
Efficiency Ratio, GAAP
As reported
As Adjusted
Change
Efficiency Ratio, non-GAAP excluding losses on securities sales
As reported
As Adjusted
Change
Executive Summary
Our annual loss was $35.7 million in 2025, compared to an annual loss of $8.4 million in 2024. Diluted loss was $2.24 per share in 2025, compared to a diluted loss of $0.52 per share in 2024.
Results for 2025 were significantly impacted by our strategic balance sheet repositioning which included the sale of available-for-sale ("AFS") securities with a book value of $185.8 million, resulting in a pre-tax loss of $18.7 million in the second quarter of 2025, the sale of AFS securities of $593.2 million in low yielding investment securities at a $69.5 million pre-tax loss in the fourth quarter of 2025, the purchase and origination of higher yielding loans and securities and the replenishment of our capital ratios through the issuance of $45.0 million of subordinated debt. We continue to proactively identify and manage credit risk within the loan portfolio, reflected in the percentage of non-accrual loans which decreased from the prior year, and improvements in credit quality trends during the fourth quarter. We believe the strength of our balance sheet, higher level of loan origination productivity that we are seeing from our banking teams, and positive trends in our net interest margin and operating leverage are key factors that should help mitigate any unforeseen credit quality deterioration that may arise and drive further improvement in our financial performance in the year ahead.
The following are highlights of operating and financial performance for the year ended December 31, 2025:
• Loans increased $37.6 million during the year ended December 31, 2025, to $2.121 billion, compared to $2.083 billion at December 31, 2024. The growth was spread across multiple geographic regions in Northern California and primarily within the commercial and commercial real estate sectors. Loan originations funded totaled $273.5 million for the year ended December 31, 2025, compared to $152.6 million for the prior year.
• Classified loans made up 1.51% of total loans as of December 31, 2025, compared to 2.17% as of December 31, 2024. The Bank continues to proactively identify and manage credit risk within the loan portfolio. Classified loans decreased by $13.0 million to $32.1 million as of December 31, 2025, compared to $45.1 million as of December 31, 2024. The decrease was largely due to upgrades of $6.9 million and payoffs and paydowns of $7.0 million during 2025. This was partially offset by downgrades to classified loans totaling approximately $942 thousand in 2025.
• Non-accrual loans totaled $26.9 million, or 1.27% of the loan portfolio, compared to $33.9 million, or 1.63%, as of December 31, 2025 and 2024, respectively. The decrease of $7.0 million in 2025 was primarily due to payoffs of $4.4 million, the sale of one $2.1 million commercial real estate loan which resulted in an $809 thousand charge-off, and paydowns of $1.6 million in addition to upgrades of approximately $700 thousand. Of the total non-accrual loans as of December 31, 2025, approximately 68% were paying as agreed, 97% were real estate secured, and all are being closely managed and monitored.
• We recorded a $375 thousand provision for credit losses on loans in 2025 primarily due to loan growth and a modest deterioration in the economic forecast, compared to a $5.6 million provision for credit losses on loans in 2024, including a $6.6 million specific reserve taken on a commercial real estate loan as a result of declining collateral values, partially offset by other factors. The allowance for credit losses as of December 31, 2025 was 1.42% of total loans, compared to 1.47% as of December 31, 2024 .
• Total deposits increased by $195.5 million to $3.416 billion as of December 31, 2025, from $3.220 billion as of December 31, 2024. Non-interest bearing deposits c ontinue to remain strong and made up 36.7% of total deposits as of December 31, 2025, compared to 39.6% as of December 31, 2024. We believe we are appropriately competitive in regard to deposit pricin g, given our relationship banking model, which differentiates Bank of Marin through exceptional service. Estimated uninsured and/or uncollateralized deposits comprised 31% of total deposits as of December 31, 2025.
• At December 31, 2025, the Bank had no outstanding short-term borrowings compared to $26.0 million at December 31, 2024, as a result of our strategic balance sheet restructuring in 2025 and 2024. Total available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and total available borrowing capacity, were $2.148 billion, or 63% of total deposits and 209% of estimated uninsured and/or uncollateralized deposits as of December 31, 2025.
• During the fourth quarter of 2025, we issued Fixed-to-Floating Subordinated Notes of $45.0 million with a final maturity date of December 1, 2035, to certain investors in a private placement to strengthen capital ratios as part of our fourth quarter 2025 balance sheet repositioning. The interest rate of the Bank’s subordinated notes is 6.75%, payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2026. After December 1, 2030, the interest rate will be variable and equal Three-Month Term SOFR plus 335 basis points, resetting quarterly.
• The tax-equivalent net interest margin was 2.94% for 2025, compared to 2.55% for 2024. The increase of 39 basis points was primarily attributable to the favorable impacts of the investment securities restructuring performed in 2025 and 2024, lower deposit costs and higher average deposit balances year over year, higher loan yields and loan balances, and higher interest-earning deposit balances with the Federal Reserve.
• All capital ratios were above well-capitalized regulatory requirements. Bancorp's total risk-based capital ratio was 15.25% as of December 31, 2025, compared to 16.54% as of December 31, 2024. Tangible common equity to tangible assets ("TCE ratio") decreased to 8.35% as of December 31, 2025, from 9.93% as of December 31, 2024.
• The Board of Directors declared a cash dividend of $0.25 per share on January 22, 2026, which was the 83 rd consecutive quarterly dividend paid by Bancorp. The dividend was paid on February 12, 2026 to shareholders of record at the close of business on February 5, 2026.
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, 2025
December 31, 2024
December 31, 2023
Interest
Interest
Interest
Average
Income/
Yield/
Average
Income/
Yield/
Average
Income/
Yield/
(dollars in thousands; unaudited)
Balance
Expense
Rate
Balance
Expense
Rate
Balance
Expense
Rate
Assets
Interest-earning deposits with banks 1
Investment securities 2, 3
Loans 1, 3, 4, 5
Total interest-earning assets 1
Cash and non-interest-bearing due from banks
Bank premises and equipment, net
Interest receivable and other assets, net
Total assets
Liabilities and Stockholders' Equity
Interest-bearing transaction accounts
Savings accounts
Money market accounts
Time accounts, including CDARS
Borrowings and other obligations 1
Subordinated notes
Total interest-bearing liabilities
Demand accounts
Interest payable and other liabilities
Stockholders' equity
Total liabilities & stockholders' equity
Tax-equivalent net interest income/margin 1,3
Reported net interest income/margin 1
Tax-equivalent net interest rate spread
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 Net loan origination (costs) fees included in interest income totaled $(1.7) million, $(1.6) million, and $(1.3) million in 2025, 2024, and 2023, respectively.
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.
2025 compared to 2024
2024 compared to 2023
(in thousands, unaudited)
Volume
Yield/Rate
Mix
Total
Volume
Yield/Rate
Mix
Total
Interest-earning deposits with banks
Investment securities 1
Loans 1
Total interest-earning assets
Interest-bearing transaction accounts
Savings accounts
Money market accounts
Time accounts, including CDARS
Borrowings and other obligations
Subordinated notes
Total interest-bearing liabilities
Tax-equivalent net interest income
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%.
2025 Compared to 2024
Net interest income totaled $106.0 million in 2025, compared to $91.6 million in 2024. The $14.4 million increase from the prior year was primarily due to higher average yields on investment securities and loans and higher average earning asset balances on interest-bearing deposits with banks during the year contributing an increase in interest income of $11.2 million. In addition, interest-bearing deposit costs decreased by 27 basis points on an increased average balance contributing a reduction of $3.4 million in interest expense on deposits.
The tax-equivalent net interest margin was 2.94% for 2025, compared to 2.55% in 2024. The increase of 39 basis points was primarily attributable to the favorable impacts of the investment securities restructuring performed in 2025 and 2024, lower deposit costs, higher average deposit balances year over year, higher loan yields, and higher interest-earning deposit balances with the Federal Reserve.
2024 Compared to 2023
Net interest income totaled $91.6 million in 2024, compared to $100.4 million in 2023. The $8.8 million decrease from the prior year was primarily due to higher deposit costs of $21.9 million, partially offset by the reduction of $11.3 million in borrowing costs.
The tax-equivalent net interest margin was 2.55% for 2024, compared to 2.56% for 2023. Higher yields on loans increased the margin while higher deposit costs resulted in a reduction in the margin. In addition, the year's balance sheet restructuring activities affected the borrowings, interest-bearing cash and investments factors.
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").
Primarily due to declining inflation, the Federal Reserve lowered the target for the federal funds rate by 100 basis points, to a range of 4.25% to 4.50% in the later months of 2024. At the January 2025 meeting, the FOMC left rates unchanged and signaled slower than originally anticipated rate cuts are in 2025. Due to a significant easing of inflationary pressures, the FOMC began decreasing rates in September 2025, and made a total of three rate decreases in 2025 ending the year at a range of 3.50% to 3.75%.
During the second and fourth quarters of 2025, we sold additional securities with relatively low yields and redeployed the proceeds to further reposition our balance sheet, by investing in higher yielding securities. Management and the Board are continuously monitoring and analyzing the impact of market rates on the Company's financial condition and results of operations to enhance performance, safety and soundness and returns to shareholders. See ITEM 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.
Years ended December 31,
(dollars in thousands)
Provision for (reversal of) credit losses on loans
The provision in 2025 was due primarily to the $37.6 million net increase in loans during the year including the $92.7 million increase in non-owner occupied commercial real estate loans, partially offset by the $32.6 million decrease in other residential real estate loans. In addition to this pooled loan growth, the peer group used in our loss driver analysis was updated in 2025, and the fourth quarter of 2025 showed a modest deterioration in Moody's economic forecast over the next four quarters. Partially offsetting these increases were qualitative risk factor improvements in areas including staff experience and graded/delinquent/non-accrual loans and specific reserve adjustments.
The provision in 2024 was due primarily to increases in qualitative risk factors to account for continued uncertainty about inflation and recession risks, and from continued negative trends in adversely graded loans and/or collateral values on our non-owner occupied commercial real estate office and multi-family real estate portfolios including $5.2 million taken in the second quarter due to a $6.6 million increased individual reserve for one non-owner occupied commercial real estate loan totaling $16.7 million that, although current, had experienced a deterioration in the collateral value and, therefore, a material increase in the loan-to-value
The provision in 2023 was due primarily to adjustments to qualitative risk factors from continued uncertainty about inflation and recession risks, the potential impact of rapidly increasing interest rates and other external factors on both our non-owner-occupied commercial real estate and construction portfolios, loan and collateral concentration risks in our construction and commercial real estate portfolios, heightened portfolio management in light of current economic conditions, and continued negative trends in adversely graded loans and/or collateral values for our non-owner occupied commercial real estate office and multi-family real estate portfolios.
Non-interest Income
The table below details the components of non-interest income.
2025 compared to 2024
2024 compared to 2023
Years ended December 31,
Amount Increase (Decrease)
Percent Increase (Decrease)
Amount Increase (Decrease)
Percent Increase (Decrease)
(dollars in thousands; unaudited)
Wealth management and trust services
Service charges on deposit accounts
Earnings on bank-owned life insurance, net
Debit card interchange fees, net
Dividends on Federal Home Loan Bank stock
Merchant interchange fees, net
Earnings on bank-owned life insurance death benefits
Losses on sale of investment securities, net
Other income
Total non-interest income
2025 Compared to 2024
Non-interest income showed a loss of $76.7 million for 2025, a $55.3 million decrease from a loss of $21.4 million for 2024. The decrease in 2025 was primarily due to the $88.2 million net loss on the sales of available-for-sale investment securities in the second and fourth quarters related to our balance sheet restructuring. Excluding losses on sale of securities in both years, non-interest income increased by $371 thousand, which included $306 thousand death benefit on bank-owned life insurance in 2025, partially offset by a $108 thousand year-over-year decrease in wealth management and trust services income due to decreased assets.
2024 Compared to 2023
Non-interest income showed a loss of $21.4 million for 2024, a $26.3 million decrease from income of $5.0 million for 2023. The decrease in 2024 was primarily due to the $32.5 million net loss on the sale of available-for-sale investment securities in 2024 related to our balance sheet restructuring. Excluding losses on sale of securities in both years, non-interest income increased by $300 thousand, which included a $275 thousand year-over-year increase in wealth management and trust services income due to increased assets and an increase of $226 thousand in net earnings on bank-owned life insurance due to increased rates. These were partially offset by the reduction of $314 thousand in bank-owned life insurance death benefits recorded in 2023 and not repeated in 2024.
Non-interest Expense
The table below details the components of non-interest expense.
2025 compared to 2024
2024 compared to 2023
Years ended December 31,
Amount Increase (Decrease)
Percent Increase (Decrease)
Amount Increase (Decrease)
Percent Increase (Decrease)
(dollars in thousands; unaudited)
Salaries and employee benefits
Occupancy and equipment
Data processing
Professional services
Information technology
Federal Deposit Insurance Corporation insurance
Depreciation and amortization
Directors' expense
Amortization of core deposit intangible
Charitable contributions
Deposit network fees
Other real estate owned
Other non-interest expense:
Advertising
Other expense
Total other non-interest expense
Total non-interest expense
2025 Compared to 2024
Non-interest expenses increased $2.6 million to $81.3 million in 2025 from $78.7 million in 2024. Salaries and employee benefits increased by $2.8 million primarily due to an increase in annual incentives due to performance and increased employee insurance and profit share expenses. These were partially offset by an increase in deferred loan costs. Partially offsetting increases were the decrease of $828 thousand in p rofessional services expenses, mainly from the legal resolution of a Private Attorneys General Act / putative class action lawsuit of $615 thousand and $354 thousand in the new loan operating system platform and implementation costs in the prior year.
2024 Compared to 2023
Non-interest expenses increased $1.7 million to $78.7 million in 2024 from $77.1 million in 2023 . Significant fluctuations were as follows:
• Professional services expenses increased by $1.5 million , mainly from the legal resolution of a Private Attorneys General Act / putative class action lawsuit of $615 thousand and $354 thousand in the new loan operating system platform and implementation costs.
• Salaries and employee benefits increased by $1.2 million primarily due to severance and salaries paid in relation to the reduction in force in the second quarter, the filling of open positions and the hiring of several key employees and officers, 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, a decrease in accrued incentive bonuses, and a decrease in stock-based compensation from changes in award structure and estimated performance award payouts.
• Depreciation and amortization expenses decreased by $632 thousand, mainly from the acceleration of lease-related costs for four branch closures in 2023.
• Amortization of the core deposit intangible decreased by $375 thousand as the Bank of Alameda amortization completed in 2023.
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 benefit from income taxes totaled $16.8 million at an effective tax rate of 32.0% in 2025, compared to the benefit from income taxes of $5.4 million at an effective tax rate of 39.2% in 2024 and a provision of $6.1 million at an effective tax rate of 23.6% in 2023. The increase in the benefit from income taxes in 2025 reflected the impact of the net loss before taxes in the year of $52.5 million compared to net loss before taxes of $13.8 million in 2024. The 7.2% decrease in the effective tax rate in 2025, as compared to 2024, was due to the treatment of certain permanent differences while in a larger loss position, such as in 2025. The 15.60% increase from 2023 to 2024 was primarily due to a larger proportional effect of permanent tax differences on lower pretax income and higher tax-exempt BOLI income. This increase 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 2023.
We file a consolidated return in the U.S. federal tax jurisdiction and a combined return in the State of California and the State of New Jersey due to interest on purchased auto loans registered in New Jersey. There were no ongoing federal or state income tax examinations at the time of the issuance of this report. As of December 31, 2025 and 2024, neither the Bank nor Bancorp had accruals for interest or penalties related to unrecognized tax benefits.
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, 2025 and 2024. 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, 2025 and 2024 was approximately 4.2 and 5.9 years, respectively. The effective duration of the investment portfolio was 2.8 and 4.6 at December 31, 2025 and 2024, respectively.
In the fourth quarter of 2025, the Bank completed a balance sheet repositioning and reclassified its HTM portfolio into AFS resulting in no HTM securities at December 31, 2025.
December 31, 2025
Within 1 Year
1-5 Years
5-10 Years
After 10 Years
Total
(dollars in thousands; unaudited)
AmortizedCost 1
Average Yield 2
AmortizedCost 1
Average Yield 2
AmortizedCost 1
Average Yield 2
AmortizedCost 1
Average Yield 2
Amortized Cost 1
Fair Value
Average Yield 2
Available-for-sale:
CMBS/MBS/CMOs issued by U.S. government agencies
Debentures of government sponsored agencies
Obligations of state and political subdivisions - tax-exempt 3
Obligations of state and political subdivisions - taxable
Total available-for-sale
December 31, 2024
Within 1 Year
1-5 Years
5-10 Years
After 10 Years
Total
(dollars in thousands; unaudited)
AmortizedCost 1
Average Yield 2
AmortizedCost 1
Average Yield 2
AmortizedCost 1
Average Yield 2
AmortizedCost 1
Average Yield 2
Amortized Cost 1
Fair Value
Average Yield 2
Held-to-maturity:
CMBS/MBS/CMOs issued by U.S. government agencies
SBA-backed securities
Debentures of government-sponsored agencies
Obligations of state and political subdivisions - tax-exempt 3
Obligations of state and political subdivisions - taxable
Corporate bonds
Total held-to-maturity
Available-for-sale:
CMBS/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-exempt 3
Obligations of state and political subdivisions - taxable
Corporate bonds
Total available-for-sale
Total
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 increased by $55.5 million, or 4.3%, in 2025. In 2025, we sold $778.9 million in available-for-sale securities with an average yield of 1.99%, as part of a balance sheet restructuring, including $279.8 million in agency collateralized mortgage obligations ("CMOs"), $270.8 million in agency mortgage-backed securities ("MBSs"), $98.1 million in debentures of government sponsored agencies, $95.7 million in obligations of state and political subdivisions, $21.0 million in corporate bonds, $12.0 million in U.S. Treasury securities and $1.5 million in SBA-backed securities. The sales of available-for-sale securities generated a net pre-tax loss of $88.2 million. Sales proceeds were deployed into securities with a higher yield and lower effective duration than the securities sold.
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, CMBSs, CMOs and MBS issued by U.S. government sponsored agencies made up 95.5% of the portfolio as of December 31, 2025, compared to 85.1% at December 31, 2024. See the discussion in the section captioned “Securities May Lose Value Due to Credit Quality of the Issuers” in ITEM 1A Risk Factors above.
At December 31, 2025 and 2024, distribution of our investment in obligations of state and political subdivisions was as follows:
December 31, 2025
December 31, 2024
(dollars in thousands; unaudited)
Amortized Cost
Fair Value
Percent of
State and Municipal Securities
Amortized Cost
Fair Value
Percent of
State and Municipal Securities
Within California:
General obligation bonds
Revenue bonds
Total within California
Outside California:
General obligation bonds
Revenue bonds
Total outside California
Total obligations of state and political subdivisions
Percent of investment portfolio
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 (44.3%), Wisconsin (24.1%) and Virginia (6.7%). 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
December 31, 2025
December 31, 2024
(in thousands; unaudited)
Amortized Cost
Percent of Total
Amortized Cost
Percent of Total
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
Loans increased by $37.6 million in 2025, or 1.8%, to $2.121 billion as of December 31, 2025, from $2.083 billion as of December 31, 2024 and was primarily due to a $92.7 million increase in commercial non-owner occupied real estate loans, offset by a decrease of $32.6 million in residential real estate loans and a decrease of $21.9 million in
construction loans. Organic loan originations were $273.5 million in 2025, compared to $152.6 million in 2024. There were loan purchases of approximately $250 thousand in 2025 compared to $35.7 million in 2024. Payoffs were $145.7 million in 2025, compared to $120.6 million in 2024. The majority of the payoffs were a result of asset sales and cash payoffs. In addition, $90.2 million of loan amortization from scheduled repayments, net of credit line utilization, contributed to the change in loan balances for 2025.
Approximately 90% and 89% of total loans were secured by real estate as of December 31, 2025 and 2024, respectively. For additional inf ormation 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, 2025 and 2024.
Commercial Real Estate Loans Outstanding by County
(dollars in thousands; unaudited)
December 31, 2025
December 31, 2024
County
Amount
Percent of Commercial Real Estate Loans
County
Amount
Percent of Commercial Real Estate Loans
Marin
Marin
Sonoma
Sonoma
Alameda
San Francisco
San Francisco
Alameda
Sacramento
Napa
Napa
Sacramento
Contra Costa
Contra Costa
Solano
Solano
San Mateo
Placer
Placer
San Mateo
Santa Clara
Santa Clara
San Joaquin
San Joaquin
Orange
El Dorado
Other
Other
Total
Total
Commercial real estate loans increased by $80.9 million in 2025 to $1.676 billion from $1.596 billion at December 31, 2024. The increase in 2025 was comprised of the $92.7 million increase within the non-owner occupied loan portfolio, partially offset by the $11.7 million decrease within the owner-occupied loan portfolio. Of the commercial real estate loans as of December 31, 2025, 81% were non-owner occupied and 19% 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.
Non-owner and Owner Occupied Real Estate Loans by Type
(unaudited)
Percent of Non-owner Occupied Commercial Real Estate Loans
Percent of Owner-Occupied Commercial Real Estate Loans
County
December 31, 2025
December 31, 2024
December 31, 2025
December 31, 2024
Office
Retail
Multi-family
Warehouse & industrial
Mixed use
School
Wine
Church
Gas/auto
Health club
Other
Total
Commercial Real Estate Loans by Type and County
Non-owner occupied
Owner-occupied
(unaudited)
Retail
Warehouse & industrial
Multi-family
Office
Office
County
Dec 31, 2025
Dec 31, 2024
Dec 31, 2025
Dec 31
Dec 31, 2025
Dec 31,
Dec 31, 2025
Dec 31,
Dec 31, 2025
Dec 31,
Sacramento
Marin
Napa
Sonoma
Alameda
San Francisco
Other bay area
Other
Total
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 4% of our total non-owner-occupied commercial real estate portfolio.
The following table shows an analysis of construction loans by type and county as of December 31, 2025 and 2024.
Construction Loans Outstanding by Type and County
(dollars in thousands; unaudited)
December 31, 2025
December 31, 2024
Loan Type
Amount
Percent of Construction Loans
Amount
Percent of Construction Loans
Apartments and multifamily
Commercial real estate
1-4 Single family residential
Total
(dollars in thousands; unaudited)
December 31, 2025
December 31, 2024
County
Amount
Percent of Construction Loans
County
Amount
Percent of Construction Loans
San Francisco
San Francisco
Napa
Contra Costa
Marin
Marin
Santa Clara
Napa
Placer
Placer
Total
Total
Construction loans decreased by $21.9 million in 2025 to $15.1 million from $37.0 million at December 31, 2024. The decrease in 2025 was primarily due to payoffs of $28.7 million offset by $6.7 million in advances on existing construction loans.
Undisbursed construction loan commitments at December 31, 2025 and 2024 were $10.5 million and $8.3 million, respectively.
The following table presents the amortized costs and maturity distribution of our loans by portfolio class as of December 31, 2025 based on their contractual maturity dates. Maturities do not include scheduled payments or potential prepayments.
Loan Maturity Distribution
Due within 1 year
Due after 1 through 5 years
Due after 5 through 15 years
Due after 15 years
Total
(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
Total
1 Construction loans that mature after 5 years are structured to convert to permanent financing after the initial construction period.
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, 2025. 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)
Fixed
Variable
Total
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
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 $30.1 million allowance for credit losses at December 31, 2025 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 1.42% at December 31, 2025 and 1.47% at December 31, 2024.
The $567 thousand decrease in the allowance for credit losses on loans in 2025 was largely due to the $942 thousand in net charge-offs, primarily due to a $2.1 million acquired non-owner occupied commercial real estate loan with a partial charge-off in the first quarter of 2025 of $809 thousand that the Bank had previously reserved $449 thousand for as of December 31, 2024. There was an additional decline in the financial condition of the borrower and guarantor and the value of the collateral during the first quarter that led to the Bank proactively selling the note in March rather than pursuing the additional costly steps of liquidating after foreclosure. It had been on non-accrual since late 2023. This decline was partially offset by the $375 thousand provision recorded in 2025.
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 per centage of total loans in each of the same loan portfolio classes as of December 31, 2025 and 2024.
Allocation of the Allowance for Credit Losses
(dollars in thousands; unaudited)
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
December 31, 2025
Modeled expected credit losses
Qualitative adjustments
Specific allocations
Total
Loans as a percent of total loans
December 31, 2024
Modeled expected credit losses
Qualitative adjustments
Specific allocations
Total
Loans as a percent of total loans
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
Loans charged-off:
Commercial and industrial
Real estate:
Commercial real estate, owner-occupied
Commercial, non-owner occupied
Installment and other consumer
Total loans charged-off
Loans recovered:
Commercial and industrial
Real estate:
Commercial, non-owner occupied
Construction
Installment and other consumer
Total loans recovered
Net loans charged-off
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.
The following table shows non-performing assets as of December 31, 2025 and 2024.
Non-Performing Assets
(dollars in thousands; unaudited)
December 31, 2025
December 31, 2024
Non-accrual loans:
Commercial and industrial
Real estate:
Commercial, owner-occupied
Commercial, non-owner occupied
Home equity
Other residential
Installment and other consumer
Total non-accrual loans
Other real estate owned
Repossessed personal properties
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
Non-accrual loans decreased by $7.0 million in 2025, primarily due to $4.4 million in payoffs including a $3.6 million commercial relationship paid off in full in the fourth quarter and a $2.1 million non-owner occupied real estate loan sale in the first quarter.
Non-accrual loans increased by $25.9 million in 2024, primarily due to three relationships designated as non-accrual in the second and third quarters.
Approximately 97% of the non-accrual loans as of December 31, 2025 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 $9.1 million in 2025 with downgrades from the pass or watch category of $49.3 million primarily within commercial real estate and commercial with an average balance of $2.7 million and upgrades from substandard of $6.9 million, partially offset by payoffs and paydowns of $38.7 million and $7.3 million, respectively.
Loans designated as special mention decreased by $26.3 million in 2024, primarily due to net downgrades of $2.6 million from the pass or watch category and downgrades of $25.0 million to substandard. Of the downgrades to special mention, $15.3 million was attributed to one recently completed construction loan that will be marketed for sale or paid down to a conforming debt service level. The remaining balance changes consisted of paydowns, payoffs and upgrades from substandard risk rating.
Loans classified as substandard decreased by $13.0 million in 2025 largely due to upgrades to special mention of $6.9 million mentioned above and payoffs and paydowns of $5.3 million and $1.7 million, respectively. Downgrades from pass or watch of $2.1 million in the year were offset by the $2.1 million loan that was sold.
Loans classified as substandard increased by $12.8 million in 2024, primarily due to downgrades from special mention totaling $25.0 million and from pass totaling $2.7 million, partially offset by $11.9 million in paydowns and payoffs and $2.8 million in upgrades to pass or special mention. Of the downgraded loans, $17.1 million (or 82%)
was secured by commercial real estate, $3.5 million was to commercial borrowers, and the remaining $222 thousand were personal loans.
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 $71.3 million as of December 31, 2025, compared to $71.0 million at December 31, 2024. The $279 thousand increase was primarily due to increased earnings from higher yields on policies in 2025.
Interest receivable and other assets totaled $84.4 million and $72.3 million at December 31, 2025 and 2024, respectively. The $12.1 million increase was primarily due to a $12.3 million increase in net deferred tax assets, as discussed below.
Net deferred tax assets totaled $42.9 million and $30.6 million at December 31, 2025 and 2024, 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 $12.3 million increase in 2025 was primarily due to the $12.8 million increase in net operating loss carryforwards resulting from the Bank's higher pre-tax loss of $52.5 million in 2025 compared to $13.8 million in 2024. Also contributing to the increase were a $4.4 million increase in operating and finance lease liabilities and a $2.8 million increase in the allowance for credit losses on loans and unfunded loan commitments. The increases in net deferred tax assets were partially offset by a $4.9 million decrease in the net unrealized losses on available-for-sale securities. 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, 2025 or 2024. 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, 2025 and 2024. We received $1.5 million, $1.5 million and $1.3 million in cash dividends in 2025, 2024 and 2023, respectively. For additional information, refer to Note 2 to the Consolidated Financial Statements in ITEM 8 of this report.
Deposits
Deposits increased by $195.5 million, to $3.416 billion at December 31, 2025, compared to $3.220 billion at December 31, 2024. Non-interest bearing deposits were 36.7% of total deposits at December 31, 2025, compared to 39.6% at December 31, 2024. We continued our disciplined and focused approach to relationship management and customer outreach, adding over 4,000 new accounts in 2025, 43% of which were new relationships, and 51% were non-interest bearing (excluding new reciprocal accounts).
As of December 31, 2025 , 62% of deposit balances were held in business accounts, with average balances of $141 thousand per account. The remaining 38% were consumer accounts, with average balances of $40 thousand per account. The largest depositor represented 3.8% of total deposits, and the combined four largest depositors represented 7.3% of total deposits.
Balances in reciprocal deposit networks increased by $54.2 million during 2025 to $458.9 million as of December 31, 2025. Costs associated with network deposits fees are recorded as non-interest expense and totaled $476 thousand, $448 thousand, and $374 thousand for the years ended December 31, 2025, 2024 and 2023 , respectively. The interest the bank pays on balances in the deposit networks is recorded in deposit interest expense.
Estimated uninsured and/or uncollateralized deposits totaled 31% of total deposits as of December 31, 2025, compared to 29% as of December 31, 2024 .
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 2025 and 2024. 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.
For the year ended December 31,
(in thousands; unaudited)
Average Amount
Percent of Total
Average Amount
Percent of Total
Non-interest bearing
Interest-bearing transaction
Savings
Money market 1
Time deposits, including CDARS
Total average deposits
1 Money market balances include Insured Cash Sweep ® ("ICS") in both 2025 and 2024.
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, 2025.
December 31, 2025
(in thousands; unaudited)
Total
Uninsured Portion
Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months
Total
Network 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 R&T Deposit Solutions comprised of Demand Deposit Marketplace SM ("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. The following table shows the composition of our network deposits at December 31, 2025 and 2024.
(in thousands)
December 31, 2025
December 31, 2024
Reciprocal 1
One-Way 1
Reciprocal 1
One-Way 1
CDARS
ICS
DDM
Total network deposits
1 Reciprocal deposits are on-balance-sheet while one-way deposits are off-balance-sheet.
Borrowings
As of December 31, 2025 and 2024, our borrowing capacity with the Federal Home Loan Bank ("FHLB") under secured lines of credit totaled $967.2 million and $948.1 million, respectively.
The Bank had a line of credit through the Discount Window at the Federal Reserve Bank of San Francisco ("FRBSF") totaling $344.7 million as of December 31, 2025, secured by investment securities and residential loans. As of December 31, 2024, the Bank had a line of credit through the Discount Window totaling $358.0 million, secured by investment securities and residential loans .
I n addition, as of December 31, 2025 and 2024 we had $140.0 million and $125.0 million, respectively, in unsecured lines of credit with correspondent banks to cover short-term borrowing needs.
As of December 31, 2025 and 2024, the Bank had no outstanding short-term borrowings and our bank lines of credit were not utilized as of December 31, 2025 or 2024.
For additional information, see Note 7, Borrowings and Other Obligations, in ITEM 8 of this report.
Subordinated Notes
During the fourth quarter of 2025, we issued Fixed-to-Floating Subordinated Notes of $45.0 million with a final maturity date of December 1, 2035, to certain investors in a private placement, to strengthen capital ratios as part of our balance sheet repositioning. Subordinated notes outstanding was $43.9 million, net of issuance costs, at December 31, 2025. Bancorp made a capital contribution of $30.0 million to the Bank in the fourth quarter. The subordinated notes qualify as Tier 2 capital for the consolidated Company (Bancorp) for regulatory purposes and the portion that Bancorp contributed to the Bank is treated as Tier 1 capital for the Bank. At December 31, 2025, we were in compliance with all covenants under our long-term debt subordinated notes agreement.
For additional information, see Note 13, Subordinated Notes, 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, 2025 and 2024, our aggregate payment obligations under both plans totaled $5.4 million and $6.0 million, respectively, and was recorded in interest payable and other liabilities in the consolidated statements of condition. Decreases in the deferred compensation plans in 2025 mainly resulted from increases in benefit payments to terminated employees.
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, 2025 and 2024, our liabilities under the SERPs totaled $4.8 million and $4.6 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.
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.
The total risk-based capital ratio for Bancorp was 15.25% at December 31, 2025, compared to 16.54% at December 31, 2024. The reduction is primarily related to losses recognized on securities sales in 2025.
Bancorp's tangible common equity to tangible assets ("TCE ratio") decreased to 8.35% at December 31, 2025, from 9.93% at December 31, 2024, primarily due to increases in unrealized losses attributed to the HTM securities reclassification and the subsequent loss from sales of securities during 2025 . The Bank's total risk-based capital ratio decreased to 13.90% at December 31, 2025, from 16.13% at December 31, 2024 .
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 2026. Our anticipated sources of capital in 2026 include future earnings and shares issued under the stock-based compensation program.
Liquidity and Capital Resources
The goal of liquidity management is to provide adequate funds to meet loan demand and to fund operating activities and deposit withdrawals. We accomplish this goal by maintaining an appropriate level of liquid assets and formal lines of credit with the FHLB, FRBSF and correspondent banks that enable us to borrow funds as seen in the table below and discussed in Note 7 to the Consolidated Financial Statements in ITEM 8 of this report. Our Asset Liability Management Committee ("ALCO"), which is comprised of Bank directors and the Bank's Chief Executive Officer, is responsible for approving and monitoring our liquidity targets and strategies. The Bank has long-established minimum liquidity requirements that are regularly monitored using metrics and tools similar to those used by larger banks, such as the liquidity coverage ratio, and multi-scenario, long-horizon stress tests. Our c on tingency 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 Statements in ITEM 8 of this report.
Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and total available borrowing capacity, totaled $2.148 billion, or 63% of total deposits, and 209% of estimated uninsured and/or uncollateralized deposits as of December 31, 2025.
The following table details the components of our contingent liquidity sources as of December 31, 2025.
(in thousands)
Total Available
Amount Used
Net Availability
Internal Sources
Unrestricted cash 1
Unencumbered securities at market value
External Sources
FHLB line of credit
FRB line of credit
Lines of credit at correspondent banks
Total Liquidity
1 Excludes cash items in transit as of December 31, 2025.
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 securities sales, maturities and paydowns, federal funds purchases, FRBSF and FHLB advances, other borrowings, and cash flow from operations. Although available as a liquidity source, we have not chosen to utilize brokered deposits. Our primary uses of funds are the origination of loans, the purchase of investment securities and loans, withdrawals of deposits, maturities of certificates of deposit, dividends to common stockholders, share repurchases and operating expenses.
Customer deposits are a significant component of our daily liquidity position. The attraction and retention of deposits depend upon 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 increased by $88.0 million to $225.3 million at December 31, 2025, from $137.3 million at December 31, 2024. The most significant sources of liquidity during 2025 were proceeds from sales,
principal paydowns, calls and maturities of investment securities totaling $935.3 million, $195.5 million in increased deposits, loan payoffs of $145.7 million, $87.4 million in amortization of principal, a net $2.8 million decrease in utilization of credit lines, $45.0 million in proceeds from the issuance of subordinated notes and $39.1 million in net cash was provided by operating activities.
Significant uses of liquidity during 2025 were $1.069 billion in investment securities purchased, and $273.5 million in loan fundings. Additionally other uses included $16.1 million in cash dividends paid on common stock to our shareholders, and $3.3 million in common stock repurchases. Refer to the Consolidated Statement of Cash Flows in this Form 10-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.
Unfunded credit commitments, as discussed in Note 17 to the Consolidated Financial Statements in ITEM 8 of this report, totaled $464.7 million at December 31, 2025. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, principal paydowns of investment securities, and liquid assets.
Over the next twelve months, $198.2 million of time deposits will mature. We expect that a high percentage of these funds will remain with the Bank either through renewals or shifts to other deposit products. Any outflows can be absorbed by the Bank's excess liquidity. We believe our emphasis on local deposits, combined with our immediately available funding sources, provides a very stable base for our liquidity needs.
We had no outstanding short term borrowings under our credit facilities as of December 31, 2025, and 2024, as discussed in Note 7 to the Consolidated Financial Statements in ITEM 8 of this report. We issued Fixed-to-Floating Subordinated Notes of $45.0 million with a final maturity date of December 1, 2035, during 2025, to certain investors in a private placement, to strengthen our capital ratios as part of our balance sheet repositioning, as discussed in Note 13 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 Bank received approval from the State of California - Department of Financial Protection and Innovation on May 30, 2025, for a dividend of $32.0 million which was paid to Bancorp on May 30, 2025. The primary uses of funds for Bancorp are shareholder dividends, subordinated notes servicing, share repurchases and ordinary operating expenses. Bancorp held $35.2 million in cash as of December 31, 2025 , which is expected to cover cash needs throughout 2026 .
Statement Regarding Use of Non-GAAP Financial Measures
Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that, given industry turmoil that largely began in the first quarter of 2023, the presentation of Bancorp's non-GAAP TCE ratio reflecting the after tax impact of unrealized losses on held-to-maturity securities provides useful supplemental information to investors because it reflects the level of capital remaining after a hypothetical liquidation of the entire securities portfolio. In addition, management believes that providing selected financial measures excluding the loss on sale of securities discussed above is useful to investors as the strategic short-term loss taken for long-term profitability makes the operational performance difficult to compare to the prior period. Because there are limits to the usefulness of this or any other non-GAAP measure to investors, Bancorp encourages readers to consider its annual and quarterly consolidated financial statements and notes related thereto in their entirety, as filed with the Securities and Exchange Commission, and not to rely on any single financial measure. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below. There were no held-to-maturity securities held at December 31, 2025, resulting in the non-GAAP TCE ratio being equal to the GAAP TCE ratio.
Reconciliation of GAAP and Non-GAAP Financial Measures
(in thousands, unaudited)
December 31, 2025
December 31, 2024
Tangible Common Equity - Bancorp
Total stockholders' equity
Goodwill and core deposit intangible
Total TCE
Unrealized losses on HTM securities, net of tax 1
Unrealized losses on HTM securities included in AOCI, net of tax 2
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
Unrealized losses on HTM securities included in AOCI, net of tax 2
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)
Tangible Book Value Per Share
Common shares outstanding
Book value per share
Tangible book value per share
1 There were no held-to-maturity securities as of December 31, 2025. Unrealized losses on held-to-maturity securities as of December 31, 2024 were $126.6 million including the unrealized losses that resulted from the transfer of securities from AFS to HTM, net of an estimated $37.4 million in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56%. 2 The remaining unrealized losses that resulted from the transfer of securities from AFS to HTM, as of December 31, 2024, net of an estimated $3.2 million, in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56% are added back as they are already included in AOCI.
(in thousands, except per share amounts; unaudited)
Years ended
Net (loss) income
December 31, 2025
December 31, 2024
Net (loss) income (GAAP)
Adjustments:
Losses on sale of investment securities from portfolio repositioning
Related income tax benefit
Adjustments, net of taxes
Comparable net income (non-GAAP)
Diluted (loss) earnings per share
Weighted average basic and diluted shares
Diluted (loss) earnings per share (GAAP)
Comparable basic earnings per share (non-GAAP)
Return on average assets
Average assets
Return on average assets (GAAP)
Comparable return on average assets (non-GAAP)
Return on average equity
Average stockholders' equity
Return on average equity (GAAP)
Comparable return on average equity (non-GAAP)
Return on average tangible common equity
Average goodwill and intangibles
Average tangible common equity
Return on average tangible common equity (GAAP)
Comparable return on average tangible common equity (non-GAAP)
Efficiency ratio
Non-interest expense
Net interest income
Non-interest income (GAAP)
Losses on sale of investment securities from portfolio repositioning
