10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File Number  001-33572

Bank of Marin Bancorp

(Exact name of Registrant as specified in its charter)

California	20-8859754
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)
504 Redwood Blvd., Suite 100, Novato, CA	94947
(Address of principal executive office)	(Zip Code)

Registrant’s telephone number, including area code:  (415) 763-4520

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x                    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x                   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer   o  Accelerated filer   x  Non-accelerated filer   o  Smaller reporting company   o

Indicate by check mark if the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.

Yes   o     No  x

As of October 31, 2014, there were 5,933,408 shares of common stock outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	Page-3
ITEM 1.	Financial Statements	Page-3
	Consolidated Statements of Condition	Page-3
	Consolidated Statements of Comprehensive Income	Page-4
	Consolidated Statements of Changes in Stockholders' Equity	Page-5
	Consolidated Statements of Cash Flows	Page-6
	Notes to Consolidated Financial Statements	Page-7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page-35
ITEM 3.	Quantitative and Qualitative Disclosure about Market Risk	Page-54
ITEM 4.	Controls and Procedures	Page-54
PART II	OTHER INFORMATION	Page-55
ITEM 1.	Legal Proceedings	Page-55
ITEM 1A.	Risk Factors	Page-55
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page-55
ITEM 3.	Defaults Upon Senior Securities	Page-55
ITEM 4.	Mine Safety Disclosures	Page-55
ITEM 5.	Other Information	Page-55
ITEM 6.	Exhibits	Page-56
SIGNATURES		Page-58

Page-2

PART I       FINANCIAL INFORMATION

ITEM 1.  Financial Statements

BANK OF MARIN BANCORP CONSOLIDATEDSTATEMENTS OFCONDITION

at September 30, 2014 and December 31, 2013

(dollars in thousands, except share data; 2014 unaudited)	September 30, 2014		December 31, 2013
Assets
Cash and due from banks	$	46,424	$	103,773
Investment securities
Held-to-maturity, at amortized cost	118,843		122,495
Available-for-sale, at fair value (amortized cost $210,676 and $245,158 at September 30, 2014 and December 31, 2013, respectively)	211,582		243,998
Total investment securities	330,425		366,493
Loans, net of allowance for loan losses of $15,049 and $14,224 at September 30, 2014 and December 31, 2013, respectively	1,345,936		1,255,098
Bank premises and equipment, net	9,277		9,110
Goodwill	6,436		6,436
Core deposit intangible	3,925		4,503
Interest receivable and other assets	60,234		59,781
Total assets	$	1,802,657	$	1,805,194
Liabilities and Stockholders' Equity
Liabilities
Deposits
Non-interest-bearing	$	717,720	$	648,191
Interest-bearing
Transaction accounts	89,891		137,748
Savings accounts	127,774		118,770
Money market accounts	485,626		520,525
Time accounts	150,613		161,868
Total deposits	1,571,624		1,587,102
Federal Home Loan Bank ("FHLB") borrowing	15,000		15,000
Subordinated debentures	5,131		4,969
Interest payable and other liabilities	15,228		17,236
Total liabilities	1,606,983		1,624,307
Stockholders' Equity
Preferred stock, no par value Authorized - 5,000,000 shares, none issued	—		—
Common stock, no par value Authorized - 15,000,000 shares; Issued and outstanding - 5,930,100 and 5,877,524 at     September 30, 2014 and December 31, 2013, respectively	81,993		80,095
Retained earnings	113,115		101,464
Accumulated other comprehensive income (loss), net	566		(672		)
Total stockholders' equity	195,674		180,887
Total liabilities and stockholders' equity	$	1,802,657	$	1,805,194

The accompanying notes are an integral part of these consolidated financial statements.

Page-3

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three months ended						Nine months ended
(in thousands, except per share amounts; unaudited)	September 30, 2014			September 30, 2013			September 30, 2014		September 30, 2013
Interest income
Interest and fees on loans	$	16,195		$	13,049		$	48,877	$	40,050
Interest on investment securities
Securities of U.S. government agencies	1,126			553			3,551		1,763
Obligations of state and political subdivisions	496			524			1,737		1,599
Corporate debt securities and other	254			311			778		974
Interest due from banks and other	37			34			125		45
Total interest income	18,108			14,471			55,068		44,431
Interest expense
Interest on interest-bearing transaction accounts	25			12			74		35
Interest on savings accounts	12			9			34		25
Interest on money market accounts	126			101			415		295
Interest on time accounts	229			227			695		690
Interest on FHLB and overnight borrowings	79			80			235		243
Interest on subordinated debentures	106			—			316		—
Total interest expense	577			429			1,769		1,288
Net interest income	17,531			14,042			53,299		43,143
Provision for loan losses	—			(480		)	750		390
Net interest income after provision for loan losses	17,531			14,522			52,549		42,753
Non-interest income
Service charges on deposit accounts	552			509			1,636		1,545
Wealth Management and Trust Services	567			532			1,744		1,618
Debit card interchange fees	375			288			1,035		820
Merchant interchange fees	224			196			629		623
Earnings on Bank-owned life insurance	208			179			632		766
Gain on sale of securities	4			(35		)	93		(35		)
Other income	371			284			1,116		666
Total non-interest income	2,301			1,953			6,885		6,003
Non-interest expense
Salaries and related benefits	6,108			5,389			19,270		16,117
Occupancy and equipment	1,381			1,040			4,044		3,165
Depreciation and amortization	383			343			1,202		1,032
Federal Deposit Insurance Corporation insurance	261			244			780		681
Data processing	748			612			2,856		1,857
Professional services	537			775			1,577		2,116
Other expense	1,932			1,704			5,921		5,253
Total non-interest expense	11,350			10,107			35,650		30,221
Income before provision for income taxes	8,482			6,368			23,784		18,535
Provision for income taxes	3,104			2,364			8,705		6,610
Net income	$	5,378		$	4,004		$	15,079	$	11,925
Net income per common share:
Basic	$	0.91		$	0.74		$	2.56	$	2.20
Diluted	$	0.89		$	0.72		$	2.51	$	2.16
Weighted average shares used to compute net income per common share:
Basic	5,903			5,433			5,887		5,414
Diluted	6,014			5,538			5,996		5,511
Dividends declared per common share	$	0.20		$	0.18		$	0.58	$	0.54
Comprehensive income:
Net income	$	5,378		$	4,004		$	15,079	$	11,925
Other comprehensive income (loss)
Change in net unrealized (loss) gain on    available-for-sale securities	(344		)	(621		)	2,047		(2,591		)
Reclassification adjustment for loss on         sale of available-for-sale securities included in         net income	4			35			19		35
Net change in unrealized (loss) gain on              available-for-sale securities, before tax	(340		)	(586		)	2,066		(2,556		)
Deferred tax (benefit) expense	(141		)	(246		)	828		(1,073		)
Other comprehensive (loss) income, net of tax	(199		)	(340		)	1,238		(1,483		)
Comprehensive income	$	5,179		$	3,664		$	16,317	$	10,442

The accompanying notes are an integral part of these consolidated financial statements.

Page-4

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

for the year ended December 31, 2013 and the nine months ended September 30, 2014

(dollars in thousands; 2014 unaudited)	Common Stock				Retained Earnings			Accumulated Other Comprehensive Income, Net of Taxes			Total
	Shares		Amount
Balance at December 31, 2012	5,389,210		$	58,573	$	91,164		$	2,055		$	151,792
Net income	—		—		14,270			—			14,270
Other comprehensive loss	—		—		—			(2,727		)	(2,727		)
Stock options exercised	71,237		2,218		—			—			2,218
Excess tax benefit - stock-based compensation	—		125		—			—			125
Stock issued under employee stock purchase plan	870		34		—			—			34
Restricted stock granted	11,850		—		—			—			—
Restricted stock forfeited / cancelled	(3,998	)	—		—			—			—
Stock-based compensation - stock options	—		175		—			—			175
Stock-based compensation - restricted stock	—		228		—			—			228
Cash dividends paid on common stock	—		—		(3,970		)	—			(3,970		)
Stock purchased by directors under director stock plan	160		6								6
Stock issued in payment of director fees	5,619		222		—			—			222
Stock issued to NorCal Community Bancorp shareholders	402,576		18,514		—			—			18,514
Balance at December 31, 2013	5,877,524		$	80,095	$	101,464		$	(672	)	$	180,887
Net income	—		—		15,079			—			15,079
Other comprehensive income	—		—		—			1,238			1,238
Stock options exercised	40,123		1,146		—			—			1,146
Excess tax benefit - stock-based compensation	—		149		—			—			149
Stock issued under employee stock purchase plan	431		19		—			—			19
Restricted stock granted	8,523		—		—			—			—
Restricted stock forfeited / cancelled	(2,067	)	—		—			—			—
Stock-based compensation - stock options	—		153		—			—			153
Stock-based compensation - restricted stock	—		183		—			—			183
Cash dividends paid on common stock	—		—		(3,428		)	—			(3,428		)
Stock purchased by directors under director stock plan	260		12		—			—			12
Stock issued in payment of director fees	5,306		236		—			—			236
Balance at September 30, 2014	5,930,100		$	81,993	$	113,115		$	566		$	195,674

The accompanying notes are an integral part of these consolidated financial statements.

Page-5

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

for the nine months ended September 30, 2014 and 2013

(dollars in thousands, unaudited)	September 30, 2014			September 30, 2013
Cash Flows from Operating Activities:
Net income	$	15,079		$	11,925
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	750			390
Compensation expense--common stock for director fees	170			166
Stock-based compensation expense	336			309
Excess tax benefits from exercised stock options	(104		)	(86		)
Amortization of core deposit intangible	578			—
Amortization of investment security premiums, net of accretion of discounts	1,982			2,401
Accretion of discount on acquired loans	(3,311		)	(1,137		)
Accretion of discount on subordinated debentures	162			—
Net amortization of deferred loan origination costs/fees	(382		)	(662		)
(Gain) loss on sale of investment securities	(93		)	35
Depreciation and amortization	1,202			1,032
Gain on sale of repossessed assets	—			(43		)
Earnings on bank owned life insurance policies	(632		)	(766		)
Net change in operating assets and liabilities:
Interest receivable	122			408
Interest payable	(44		)	(32		)
Deferred rent and other rent-related expenses	165			50
Other assets	(44		)	(2,276		)
Other liabilities	(1,849		)	2,926
Total adjustments	(992		)	2,715
Net cash provided by operating activities	14,087			14,640
Cash Flows from Investing Activities:
Purchase of available-for-sale securities	(16,353		)	—
Proceeds from sale of available-for-sale securities	2,435			2,220
Proceeds from sale of held-to-maturity securities	2,146			—
Proceeds from paydowns/maturity of held-to-maturity securities	14,738			7,815
Proceeds from paydowns/maturity of available-for-sale securities	33,320			28,963
Loans originated and principal collected, net	(88,028		)	(20,375		)
Purchase of FHLB stock	(492		)	—
Purchase of premises and equipment	(1,369		)	(635		)
Proceeds from sale of repossessed assets	—			270
Cash paid for low income housing tax credit investment	(208		)	—
Net cash (used in) provided by investing activities	(53,811		)	18,258
Cash Flows from Financing Activities:
Net (decrease) increase in deposits	(15,478		)	39,187
Proceeds from stock options exercised	1,146			1,736
Stock issued under employee and director stock purchase plans	—			34
Proceeds from stock issued under employee and director stock purchase plans	31			—
Cash dividends paid on common stock	(3,428		)	(2,932		)
Excess tax benefits from exercised stock options	104			86
Net cash (used in) provided by financing activities	(17,625		)	38,111
Net (decrease) increase in cash and cash equivalents	(57,349		)	71,009
Cash and cash equivalents at beginning of period	103,773			28,349
Cash and cash equivalents at end of period	$	46,424		$	99,358
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,660		$	1,320
Cash paid for income taxes	$	7,165		$	7,889
Supplemental disclosure of non-cash investing and financing activities:
Change in unrealized gain on available-for-sale securities	$	(2,066	)	$	(2,556	)
Securities transferred from available-for-sale to held-to-maturity	$	14,297		$	—
Subscription in low income housing tax credit investment	$	1,000		$	1,000
Stock issued in payment of director fees	$	236		$	222

The accompanying notes are an integral part of these consolidated financial statements.

Page-6

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

Introductory Explanation

References in this report to “Bancorp” mean the Bank of Marin Bancorp as the parent holding company for Bank of Marin, the wholly-owned subsidiary (the “Bank”). References to “we,” “our,” “us” mean Bancorp and the Bank that are consolidated for financial reporting purposes.

Note 1:  Basis of Presentation

The consolidated financial statements include the accounts of Bancorp and its only wholly-owned bank subsidiary, the Bank. All material intercompany transactions have been eliminated. In the opinion of Management, the unaudited interim consolidated financial statements contain all adjustments necessary to present fairly our financial position, results of operations, changes in stockholders' equity and cash flows. All adjustments are of a normal, recurring nature. Management has evaluated subsequent events through the date of filing, and has determined that there are no subsequent events that require recognition or disclosure.

On November 29, 2013, we completed the merger of NorCal Community Bancorp ("NorCal"), parent company of Bank of Alameda, to enhance our market presence (the “Acquisition”). On the date of acquisition, Bancorp assumed ownership of NorCal Community Bancorp Trusts I and II, respectively (the "Trusts"), which were formed for the sole purpose of issuing trust preferred securities. Bancorp is not considered the primary beneficiary of the Trusts (variable interest entities), therefore the Trusts are not consolidated in our consolidated financial statements, but rather the subordinated debentures are shown as a liability on our consolidated statements of condition. Bancorp's investment in the common stock of the Trusts is accounted for under the equity method and is included in interest receivable and other assets on the consolidated statements of condition.

Certain information and footnote disclosures presented in the annual consolidated financial statements are not included in the interim consolidated financial statements. Accordingly, the accompanying unaudited interim consolidated financial statements should be read in conjunction with our 2013 Annual Report on Form 10-K.  The results of operations for the three months and nine months ended September 30, 2014 are not necessarily indicative of the operating results for the full year.

The following table shows: 1) weighted average basic shares, 2) potentially diluted common shares related to stock options, unvested restricted stock and stock warrant, and 3) weighted average diluted shares. Basic earnings per share (“EPS”) are calculated by dividing net income by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock. Diluted EPS are calculated using the weighted average diluted shares. The number of potentially diluted common shares included in quarterly diluted EPS is computed using the average market prices during the three months included in the reporting period under the treasury stock method. The number of potentially diluted common shares included in year-to-date diluted EPS is a year-to-date weighted average of potentially diluted common shares included in each quarterly diluted EPS computation. We have two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings.

Page-7

	Three months ended				Nine months ended
(shares and dollars in thousands; except per share data; unaudited)	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Weighted average basic shares outstanding	5,903		5,433		5,887		5,414
Potentially diluted common shares related to stock options	41		46		42		43
Potentially diluted common shares related to unvested restricted stock	4		4		4		4
Potentially diluted common shares related to the warrant	66		55		63		50
Weighted average diluted shares outstanding	6,014		5,538		5,996		5,511
Net income	$	5,378	$	4,004	$	15,079	$	11,925
Basic EPS	$	0.91	$	0.74	$	2.56	$	2.20
Diluted EPS	$	0.89	$	0.72	$	2.51	$	2.16
Weighted average anti-dilutive shares not included in the calculation of diluted EPS	51		51		48		48

Page-8

Note 2: Recently Issued Accounting Standards

In July 2013, the FASB issued ASU No. 2013-10, Derivatives and Hedging (Topic 815) Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedging Accounting Purposes. The ASU provides for the inclusion of the Fed Funds Effective Swap Rate or also referred to as the Overnight Index Swap Rate ("OIS") as a U.S. benchmark interest rate for hedge accounting purposes, in addition to direct Treasury obligations of the U.S. government ("UST") and London Interbank Offered Rate ("LIBOR"). The ASU is a result of the financial crisis in 2008, as the exposure to and the demand for hedging the Fed Funds rate have increased significantly. ASU 2013-10 is effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. This ASU did not have a significant impact on our financial condition or results of operations.

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The ASU requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss ("NOL") carryforward, or similar tax loss or tax credit carryforward, rather than as a liability, when (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) the entity intends to and is able to use the deferred tax asset for that purpose. Otherwise, the unrecognized tax benefit should be presented as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective prospectively for fiscal years, and interim periods beginning after December 15, 2013 for public entities. We adopted this ASU in the first quarter of 2014 and the adoption did not have an impact on our financial condition or results of operations.

In January 2014, the FASB issued ASU No. 2014-01, Investments - Equity Method and Joint Ventures (Topic 323) Accounting for Investments in Qualified Affordable Housing Projects. This ASU permits entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and the net investment performance is recognized in the income statement as part of income tax expense (benefit). We adopted this ASU in the first quarter of 2014 and elected to account for all low income housing investments using the proportional amortization method instead of cost method. The change in accounting policy did not have a significant impact on our financial condition or results of operations.

In January 2014, the FASB issued ASU No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. Current accounting literature on troubled debt restructurings include guidance on when a creditor obtains one or more collateral assets in satisfaction of all or part of the receivable. The accounting literature indicates that a creditor should reclassify a collateralized mortgage loan such that the loan should be de-recognized and the collateral asset recognized when it is determined that there has been in substance a repossession or foreclosure by the creditor. However, in substance repossession or foreclosure and physical possession are not currently defined and there is diversity about when a creditor should de-recognize the loan receivable and recognize the real estate property. This ASU clarifies when an in substance repossession or foreclosure occurs. ASU 2014-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014 for public entities. We do not expect this ASU to have a significant impact on our financial condition or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective on a retrospective basis for annual reporting periods beginning after December 15, 2016. Since this ASU does not apply to financial instruments, we do not expect this ASU to have a significant impact on our financial condition or results of operations.

In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860) Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. This ASU changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions. The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. This ASU is effective for the first interim or annual period beginning after December 15, 2014. Since we currently do not enter into repurchase agreements, we do not expect this ASU to have a significant impact on our financial condition or results of operations.

Page-9

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU provides guidance for entities that grant their employees share-based payment awards where a performance target that affects vesting could be achieved after the requisite service period. That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target could be achieved and still be eligible to vest in the award if and when the performance target is achieved. This ASU stipulates that compensation expense should be recognized in the period where the performance target becomes probable of being achieved as opposed to the date that the award was granted. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. We do not expect this ASU to have a significant impact on our financial condition or results of operations, as we currently do not grant share-based payment awards where a performance target that affects vesting could be achieved after the requisite service period.

Note 3: Acquisition

On November 29, 2013, we completed the merger of NorCal, parent company of Bank of Alameda, to enhance our market presence. The merger added $173.8 million in loans, $241.0 million in deposits and $53.7 million in investment securities to Bank of Marin as well as four branch offices serving Alameda, Emeryville, and Oakland in California. Effective October 31, 2014, the Emeryville branch was closed after Management determined that our customers and the business community can be easily supported from our Oakland location. The assets acquired and liabilities assumed, both tangible and intangible, were recorded at their fair values as of the acquisition date in accordance with ASC 805, Business Combinations. We have up to a year from the acquisition date to obtain additional information that existed at the acquisition date and affected the identification and measurement of assets acquired and liabilities assumed. As of September 30, 2014, there have been no additional information nor significant changes in the acquisition-date fair value of assets acquired or liabilities assumed. The acquisition was treated as a "reorganization" within the definition of section 368(a) of the Internal Revenue Code and is generally considered tax-free for U.S. federal income tax purposes.

As a result of the Acquisition, we recorded $6.4 million in goodwill, which represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. Goodwill mainly reflects expected value created through the combined operations of Bank of Alameda and Bank of Marin and our expanded footprint in the East Bay. It is evaluated for impairment annually. We determined that the fair value of our traditional community banking activities (provided through our branch network) exceeded its carrying amount. Therefore, no impairment on goodwill has been recorded. The goodwill is not deductible for tax purposes.

Core deposit intangible represents estimated future benefits of acquired deposits and is booked separately from the related deposits. We recorded a core deposit intangible asset of $4.6 million on November 29, 2013, of which $69 thousand was amortized in 2013 and $578 thousand was amortized in the first nine months of 2014. It is amortized on an accelerated basis over an estimated ten-year life. The core deposit intangible asset is evaluated periodically for impairment, and no impairment loss was recognized as of September 30, 2014.

Page-10

Note 4:  Fair Value of Assets and Liabilities

Fair Value Hierarchy and Fair Value Measurement

We group our assets and liabilities that are measured at fair value in three levels within the fair value hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not involve a significant degree of judgment.

Level 2: Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data.

Level 3: Valuations are based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Values are determined using pricing models and discounted cash flow models and include management judgment and estimation which may be significant.

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our monthly and/or quarterly valuation process.

Page-11

The following table summarizes our assets and liabilities that were required to be recorded at fair value on a recurring basis.

(dollars in thousands)   Description of Financial Instruments	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
At September 30, 2014 (unaudited):
Securities available-for-sale:
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	169,903	$	—	$	167,160	$	2,743
Debentures of government-sponsored agencies	$	14,552	$	—	$	14,552	$	—
Privately-issued collateralized mortgage obligations	$	7,843	$	—	$	7,843	$	—
Obligations of state and political subdivisions	$	14,271	$	—	$	14,271	$	—
Corporate bonds	$	5,013	$	—	5,013		$	—
Derivative financial assets (interest rate contracts)	$	313	$	—	$	313	$	—
Derivative financial liabilities (interest rate contracts)	$	1,537	$	—	$	1,537	$	—
At December 31, 2013:
Securities available-for-sale:
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	190,604	$	—	$	190,604	$	—
Debentures of government-sponsored agencies	$	21,312	$	—	$	21,312	$	—
Privately-issued collateralized mortgage obligations	$	10,874	$	—	$	10,874	$	—
Obligations of state and political subdivisions	$	15,771	$	—	$	15,771	$	—
Corporate bonds	$	5,437	$	—	$	5,437	$	—
Derivative financial assets (interest rate contracts)	$	961	$	—	$	961	$	—
Derivative financial liabilities (interest rate contracts)	$	2,519	$	—	$	2,519	$	—

Securities available-for-sale are recorded at fair value on a recurring basis. When available, quoted market prices (Level 1) are used to determine the fair value of securities available-for-sale. If quoted market prices are not available, we obtain pricing information from a reputable third-party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity and credit spreads (Level 2).   Level 2 securities include U.S. agencies or government sponsored agencies' debt securities, mortgage-backed securities, government agency-issued and privately-issued collateralized mortgage obligations. As of September 30, 2014 and December 31, 2013, there are no securities that are considered Level 1 securities. As of September 30, 2014, we have one available-for-sale security that is considered Level 3 security. The security is a U.S. government agency obligation collateralized by a small pool of business equipment loans guaranteed by the Small Business Administration program. This security is not actively traded and is owned only by a few investors. The significant unobservable data that is reflected in the fair value measurement include dealer quotes, projected prepayment speeds/average life and credit information, among other things. It was transferred to Level 3 security during the second quarter of 2014 and the decrease in unrealized gain during the third quarter is $8 thousand.

On a recurring basis, derivative financial instruments are recorded at fair value, which is based on the income approach using observable Level 2 market inputs, reflecting market expectations of future interest rates as of the measurement date.  Standard valuation techniques are used to calculate the present value of the future expected cash flows assuming an orderly transaction.  Valuation adjustments may be made to reflect both our own credit risk and the counterparties’

Page-12

credit quality in determining the fair value of the derivatives. Level 2 inputs for the valuations are limited to observable market prices for LIBOR cash rates and OIS rates (for the very short term), quoted prices for LIBOR futures contracts, observable market prices for LIBOR and OIS swap rates, and one-month and three-month LIBOR basis spreads at commonly quoted intervals.  Mid-market pricing of the inputs is used as a practical expedient in the fair value measurements.  We project spot rates at reset days specified by each swap to determine future cash flows, then discount to present value using either LIBOR or OIS curves depending on the collateral posted as of the measurement date.  When the value of any collateral placed with counterparties is less than the interest rate derivative liability, an additional discount is applied to reflect our potential credit risk to counterparties.  We have used the spread between the Standard & Poor's BBB rated U.S. Bank Composite rate and LIBOR for the closest maturity term corresponding to the duration of the swaps to derive the credit-risk-related component of the discount rate of future cash flows from the collateral shortfall.

The following table presents the carrying value of financial instruments that were measured at fair value on a nonrecurring basis and that were still held in the statements of condition at each respective period end, by level within the fair value hierarchy as of September 30, 2014 and December 31, 2013.

(dollars in thousands) Description of Financial Instruments	Carrying Value1		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3) 1
At September 30, 2014 (unaudited):
Impaired loans carried at fair value:
Installment and other consumer	64		—		—		64
Total	$	64	$	—	$	—	$	64
At December 31, 2013:
Impaired loans carried at fair value:
Construction	3,037		—		—		3,037
Installment and other consumer	35		—		—		35
Total	$	3,072	$	—	$	—	$	3,072

¹ Represents collateral-dependent loan principal balances that had been generally written down to the values of the underlying collateral, net of specific valuation allowances of $15 thousand and $363 thousand at September 30, 2014 and December 31, 2013, respectively. The carrying value of loans fully charged-off, which includes unsecured lines of credit, overdrafts and all other loans, is zero.

Certain financial assets may be measured at fair value on a non-recurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as impaired loans and other real estate owned ("OREO").

When a loan is identified as impaired, it is reported at the lower of cost or fair value, measured based on the loan's observable market price (Level 1) or the current net realizable value of the underlying collateral securing the loan, if the loan is collateral dependent (Level 3).  Net realizable value of the underlying collateral is the fair value of the collateral less estimated selling costs and any prior liens. Appraisals, recent comparable sales, offers and listing prices are factored in when valuing the collateral. We review and verify the qualifications and licenses of  the certified general appraisers used for appraising commercial properties or certified residential appraisers for residential properties. Real estate appraisals may utilize a combination of approaches including replacement cost, sales comparison and the income approach. Comparable sales and income data are analyzed by the appraisers and adjusted to reflect differences between them and the subject property such as type, leasing status and physical condition. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Appraised values may be adjusted to reflect changes in market conditions that have occurred subsequent to the appraisal date, or for revised estimates regarding the timing or cost of the property sale. These adjustments are based on qualitative judgments made by Management on a case-by-case basis. There have been no significant changes in the valuation techniques during the quarter and nine-month period ended September 30, 2014.

Page-13

OREO represents collateral acquired through foreclosure and is initially recorded at fair value as established by a current appraisal, adjusted for disposition costs. Subsequently, OREO is measured at lower of cost or fair value. OREO values are reviewed on an ongoing basis and any subsequent decline in fair value is recorded as a foreclosed asset expense in the current period. The value of OREO is determined based on independent appraisals, similar to the process used for impaired loans, discussed above, and is generally classified as Level 3. At September 30, 2014andDecember 31, 2013, we had $461 thousand of OREO acquired from Bank of Alameda as part of the Acquisition. There was no change in the estimated fair value of the OREO from the date of the Acquisition through September 30, 2014.

Securities held-to-maturity may be written down to fair value (determined using the same techniques discussed above for securities available-for-sale) as a result of an other-than-temporary impairment, if any.

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of September 30, 2014 and December 31, 2013, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note). The carrying amounts in the following table are recorded in the consolidated statements of condition under the indicated captions. We have excluded non-financial assets and non-financial liabilities defined by the Codification (ASC 820-10-15-1A), such as Bank premises and equipment, deferred taxes and other liabilities.  In addition, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of the Financial Instruments Topic of the Codification (ASC 825-10-50-8), such as Bank-owned life insurance policies.

	September 30, 2014					December 31, 2013
(dollars in thousands; 2014 unaudited)	Carrying Amounts		Fair Value		Fair Value Hierarchy	Carrying Amounts		Fair Value		Fair Value Hierarchy
Financial assets
Cash and cash equivalents	$	46,424	$	46,424	Level 1	$	103,773	$	103,773	Level 1
Investment securities held-to-maturity	118,843		121,177		Level 2	122,495		123,858		Level 2
Loans, net	1,345,936		1,361,745		Level 3	1,255,098		1,245,475		Level 3
Interest receivable	5,645		5,645		Level 2	5,767		5,767		Level 2
Financial liabilities
Deposits	1,571,624		1,572,582		Level 2	1,587,102		1,588,278		Level 2
Federal Home Loan Bank borrowings	15,000		15,501		Level 2	15,000		15,665		Level 2
Subordinated debentures	5,131		5,187		Level 3	4,969		4,950		Level 3
Interest payable	209		209		Level 2	253		253		Level 2

Following is a description of methods and assumptions used to estimate the fair value of each class of financial instrument not recorded at fair value but required for disclosure purposes:

Cash and Cash Equivalents - The carrying amounts of cash and cash equivalents approximate their fair value because of the short-term nature of these instruments.

Held-to-maturity Securities - Held-to-maturity securities, which generally consist of mortgage-backed securities, obligations of state and political subdivisions and corporate bonds, are recorded at their amortized cost. Their fair value for disclosure purposes is determined using methodologies similar to those described above for available-for-sale securities using Level 2 inputs. If Level 2 inputs are not available, we may utilize pricing models that incorporate unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities (Level 3).  As of September 30, 2014 and December 31, 2013, we did not hold any held-to-maturity securities whose fair value was measured using significant unobservable inputs.

Loans - The fair value of loans with variable interest rates approximates current carrying value, because loan rates are regularly adjusted to current market rates. The fair value of fixed rate loans or variable loans at negotiated interest rate floors or ceilings with remaining maturities in excess of one year is estimated by discounting the future cash flows using current market rates at which similar loans would be made to borrowers with similar credit worthiness and similar

Page-14

remaining maturities. The allowance for loan losses (“ALLL”) is considered to be a reasonable estimate of the portion of loan discount attributable to credit risks.

Interest Receivable and Payable - The interest receivable and payable balances approximate their fair value due to the short-term nature of their settlement dates.

Deposits - The fair value of non-interest-bearing deposits, interest-bearing transaction accounts, savings accounts and money market accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the future cash flows using current rates offered for deposits of similar remaining maturities.

Federal Home Loan Bank Borrowings - The fair value is estimated by discounting the future cash flows using current rates offered by the Federal Home Loan Bank of San Francisco ("FHLB") for similar credit advances corresponding to the remaining duration of our fixed-rate credit advances.

Subordinated Debentures - As part of the Acquisition, we assumed two tranches of subordinated debentures from NorCal. See Note 7 for further information. The fair values of the subordinated debentures were estimated by discounting the future cash flows (interest payment at a rate of three-month LIBOR plus 3.05% and 1.40%, respectively) to their present values using current market rates at which similar bonds would be issued with similar credit ratings as ours and similar remaining maturities. Each future quarterly interest payment was discounted at the spot rate for the corresponding term based on comparable trust preferred securities, plus an illiquidity premium of 3.00%. In July 2010, the Dodd-Frank Act was signed into law and limits the ability of certain bank holding companies to treat trust preferred security debt issuances as Tier 1 capital. This law effectively closed the trust-preferred securities markets for new issuance and led to the absence of observable or comparable transactions in the market place. Due to the use of unobservable inputs in the valuation of trust preferred securities, we consider the fair value to be a Level 3 measurement.

Commitments - Loan commitments and standby letters of credit generate ongoing fees, which are recognized over the term of the commitment period. Given the uncertainty in the likelihood and timing of a commitment being drawn upon, the carrying value of the related unamortized commitment fees and the reserve for these off-balance sheet commitments are determined to approximate fair value, which is not material.

Page-15

Note 5:  Investment Securities

Our investment securities portfolio consists of obligations of state and political subdivisions, corporate bonds, U.S. government agency securities, including mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) issued or guaranteed by Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), or Government National Mortgage Association ("GNMA"), debentures issued by government-sponsored agencies such as FNMA and FHLMC, as well as privately issued CMOs, as reflected in the table below:

	September 30, 2014									December 31, 2013
	Amortized		Fair		Gross Unrealized					Amortized		Fair		Gross Unrealized
(dollars in thousands; 2014 unaudited)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)
Held-to-maturity
Obligations of state and   political subdivisions	$	65,089	$	66,943	$	1,935	$	(81	)	$	80,381	$	81,429	$	1,764	$	(716	)
Corporate bonds	40,363		40,691		340		(12		)	42,114		42,429		375		(60		)
MBS pass-through securities issued by FHLMC and FNMA	13,391		13,543		152		—			—		—		—		—
Total held-to-maturity	118,843		121,177		2,427		(93		)	122,495		123,858		2,139		(776		)
Available-for-sale
Securities of U.S. government agencies:
MBS pass-through securities issued by FHLMC and FNMA	100,978		101,345		555		(188		)	124,063		123,033		616		(1,646		)
CMOs issued by FNMA	15,608		15,600		65		(73		)	18,573		18,438		60		(195		)
CMOs issued by FHLMC	33,288		33,243		96		(141		)	23,710		23,679		144		(175		)
CMOs issued by GNMA	19,359		19,715		364		(8		)	24,944		25,454		609		(99		)
Debentures of government- sponsored agencies	14,727		14,552		111		(286		)	21,845		21,312		108		(641		)
Privately issued CMOs	7,627		7,843		220		(4		)	10,649		10,874		257		(32		)
Obligations of state and   political subdivisions	14,156		14,271		137		(22		)	15,948		15,771		14		(191		)
Corporate bonds	4,933		5,013		83		(3		)	5,426		5,437		25		(14		)
Total available-for-sale	210,676		211,582		1,631		(725		)	245,158		243,998		1,833		(2,993		)
Total investment securities	$	329,519	$	332,759	$	4,058	$	(818	)	$	367,653	$	367,856	$	3,972	$	(3,769	)

As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain MBS pass-through securities issued by FHLMC and FNMA that are qualified for Community Reinvestment Act ("CRA") credit. Effective January 31, 2014, we transferred $14.2 million of these CRA qualified MBS, which we intend and have the ability to hold to maturity, from available-for-sale securities to held-to-maturity at fair value. The unrealized pre-tax holding gain of $84 thousand at the date of transfer remained in accumulated other comprehensive income and is amortized over the remaining lives of the securities as an adjustment to yield.

Page-16

The amortized cost and fair value of investment debt securities by contractual maturity at September 30, 2014 are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2014								December 31, 2013
	Held-to-Maturity				Available-for-Sale				Held-to-Maturity				Available-for-Sale
(dollars in thousands; 2014 unaudited)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	25,111	$	25,272	$	2,377	$	2,389	$	8,731	$	8,784	$	5,522	$	5,521
After one year but within five years	63,192		64,436		39,599		39,793		88,255		89,095		42,229		42,338
After five years through ten years	15,900		16,669		19,241		19,031		24,244		24,786		26,232		25,478
After ten years	14,640		14,800		149,459		150,369		1,265		1,193		171,175		170,661
Total	$	118,843	$	121,177	$	210,676	$	211,582	$	122,495	$	123,858	$	245,158	$	243,998

We sold twoavailable-for-sale and six held-to-maturity securities in the first nine months of 2014 with total proceeds of $2.4 million and $2.1 million, respectively, and incurred a loss of $11 thousand and a net gain of $104 thousand, respectively. The sales of the held-to-maturity securities were due to evidence of significant deterioration in issuer creditworthiness since purchase. Two available-for-sale securities were sold in January 2013 with proceeds of $1.1 million and a small net gain of $339.

Investment securities carried at $67.4 million and $61.8 million at September 30, 2014 and December 31, 2013, respectively, were pledged to the State of California: $66.5 million and $61.1 million to secure public deposits in compliance with the Local Agency Security Program at September 30, 2014 and December 31, 2013, respectively, and $860 thousand and $732 thousand to provide collateral for trust deposits at September 30, 2014 and December 31, 2013, respectively. In addition, investment securities carried at $1.1 million were pledged to collateralize an internal Wealth Management and Trust Services (“WMTS”) checking account at both September 30, 2014 and December 31, 2013.

Page-17

Other-Than-Temporarily Impaired Debt Securities

We have evaluated the credit ratings of our investment securities and their issuer and/or insurers. Based on our evaluation, Management has determined that no investment security in our investment portfolio is other-than-temporarily impaired. We do not have the intent, and it is more likely than not that we will not have to sell securities temporarily impaired at September 30, 2014 before recovery of the cost basis.

Twenty-eight and ninety-five investment securities were in unrealized loss positions at September 30, 2014 and December 31, 2013, respectively. Those securities are summarized and classified according to the duration of the loss period in the table below:

September 30, 2014	< 12 continuous months					> 12 continuous months					Total securities  in a loss position
(dollars in thousands; unaudited)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Held-to-maturity
Obligations of state & political subdivisions	$	5,636	$	(27	)	4,280		(54		)	$	9,916	$	(81	)
Corporate bonds	—		—			3,550		(12		)	3,550		(12		)
Total held-to-maturity	5,636		(27		)	7,830		(66		)	13,466		(93		)
Available-for-sale
MBS pass-through securities issued by FNMA and FHLMC	20,670		(188		)	—		—			20,670		(188		)
CMOs issued by FNMA	4,346		(73		)	—		—			4,346		(73		)
CMOs issued by FHLMC	23,886		(141		)	—		—			23,886		(141		)
CMOs issued by GNMA	3,474		(8		)	—		—			3,474		(8		)
Debentures of government- sponsored agencies	493		(2		)	9,717		(284		)	10,210		(286		)
Privately issued CMOs	318		(4		)	—		—			318		(4		)
Obligations of state & political subdivisions	2,804		(22		)	—		—			2,804		(22		)
Corporate bonds	989		(3		)	—		—			989		(3		)
Total available-for-sale	56,980		(441		)	9,717		(284		)	66,697		(725		)
Total temporarily impaired securities	$	62,616	$	(468	)	$	17,547	$	(350	)	$	80,163	$	(818	)

Page-18

December 31, 2013	< 12 continuous months					> 12 continuous months					Total securities  in a loss position
(dollars in thousands)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Held-to-maturity
Obligations of state & political subdivisions	$	13,933	$	(419	)	$	9,033	$	(297	)	$	22,966	$	(716	)
Corporate bonds	3,017		(11		)	4,963		(49		)	7,980		(60		)
Total held-to-maturity	16,950		(430		)	13,996		(346		)	30,946		(776		)
Available-for-sale
MBS pass-through securities issued by FNMA and FHLMC	90,914		(1,297		)	3,172		(349		)	94,086		(1,646		)
CMOs issued by FNMA	17,535		(195		)	—		—			17,535		(195		)
CMOs issued by FHLMC	17,899		(175		)	—		—			17,899		(175		)
CMOs issued by GNMA	3,966		(99		)	—		—			3,966		(99		)
Debentures of government- sponsored agencies	16,872		(641		)	—		—			16,872		(641		)
Privately issued CMOs	4,634		(31		)	159		(1		)	4,793		(32		)
Obligations of state & political subdivisions	11,516		(191		)	—		—			11,516		(191		)
Corporate bonds	1,479		(14		)	—		—			1,479		(14		)
Total available-for-sale	164,815		(2,643		)	3,331		(350		)	168,146		(2,993		)
Total temporarily impaired securities	$	181,765	$	(3,073	)	$	17,327	$	(696	)	$	199,092	$	(3,769	)

As of September 30, 2014, there were five investment positions that had been in a continuous loss position for more than twelve months. These securities consisted of a debenture of government-sponsored agency, obligations of U.S. state and political subdivisions, and a corporate bond. We have evaluated each of the bonds and believe that the decline in fair value is primarily driven by factors other than credit. It is probable that we will be able to collect all amounts due according to the contractual terms and no other-than-temporary impairment exists. MBS are supported by the U.S. Federal government to protect us from credit losses. Additionally, the obligations of state and political subdivisions and corporate bonds were deemed creditworthy based on our review of the issuers' recent financial information and their insurers, if any. Based upon our assessment of expected credit losses given the performance of the underlying collateral and the credit enhancements, we concluded that the security was not other-than-temporarily impaired at September 30, 2014.

Twenty-three investment securities in our portfolio were in a temporary loss position for less than twelve months as of September 30, 2014. They consisted of a debenture issued by government agency, MBS, obligations of U.S. state and political subdivisions, and a corporate bond. We determine that the strengths of GNMA and FNMA through guarantee or support from the U.S. Federal Government are sufficient to protect us from credit losses. The other temporarily impaired securities are deemed creditworthy after our internal analysis. Additionally, all are rated as investment grade by at least one major rating agency. As a result of this impairment analysis, we concluded that these securities were not other-than-temporarily impaired at September 30, 2014.

Non-Marketable Securities

As a member of the FHLB, we are required to maintain a minimum investment in the FHLB capital stock determined by the Board of Directors of the FHLB. The minimum investment requirements can also increase in the event we need to increase our borrowings with the FHLB. Shares cannot be purchased or sold except between the FHLB and its members at its $100 per share par value. We held $8.2 million and $7.8 million of FHLB stock recorded at cost in other assets on the consolidated statements of condition at September 30, 2014 and December 31, 2013, respectively. The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and they do not have a readily determinable market value. Management does not believe that the FHLB stock is other-than-temporarily-impaired, as we expect to be able to redeem this stock at cost. On October 29,

Page-19

2014, the FHLB announced a cash dividend for the third quarter of 2014 at an annualized dividend rate of 7.4% to be distributed in mid-November.

As a member bank of Visa U.S.A., we hold 16,939 shares of Visa Inc. Class B common stock with a carrying value of zero, which is equal to our cost basis. These shares are restricted from resale until their conversion into Class A (voting) shares upon the termination of Visa Inc.'s covered litigation escrow account. As a result of the restriction, these shares are not considered available-for-sale and are not carried at fair value. Converting this Class B common stock to Class A common stock at a conversion rate of 0.4206, the value would be $1.5 million and$1.6 million at September 30, 2014 and December 31, 2013, respectively. The conversion rate is subject to further reduction upon the final settlement of the covered litigation against Visa Inc. and its member banks. See Note 9 herein.

We invest in low income housing tax credit funds as a limited partner, which totaled $1.8 million and $1.0 million as of September 30, 2014 and December 31, 2013, respectively. Starting 2014, we have elected to account for all low income housing investments using the proportional amortization method instead of cost method and recognized $40 thousand of low income housing tax credit as a component of income tax benefit for the nine months ended September 30, 2014 .

Page-20

Note 6:  Loans and Allowance for Loan Losses

Credit Quality of Loans

Outstanding loans by class and payment aging as of September 30, 2014 and December 31, 2013 are as follows:

Loan Aging Analysis by Class as of September 30, 2014 and December 31, 2013
(dollars in thousands; 2014 unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential 1			Installment and other consumer			Total
September 30, 2014
30-59 days past due	$	3		$	—		$	—		$	—		$	—		$	—		$	279		$	282
60-89 days past due	—			—			—			—			—			—			17			17
Greater than 90 days past due (non-accrual) 2	193			1,403			2,505			5,173			436			—			128			9,838
Total past due	196			1,403			2,505			5,173			436			—			424			10,137
Current	201,320			233,090			671,923			40,775			109,219			75,992			18,529			1,350,848
Total loans 3	$	201,516		$	234,493		$	674,428		$	45,948		$	109,655		$	75,992		$	18,953		$	1,360,985
Non-accrual loans to total loans	0.1		%	0.6		%	0.4		%	11.3		%	0.4		%	—		%	0.7		%	0.7		%
December 31, 2013
30-59 days past due	$	18		$	—		$	—		$	—		$	240		$	717		$	17		$	992
60-89 days past due	—			—			—			—			—			—			3			3
Greater than 90 days past due (non-accrual) 2	1,187			1,403			2,807			5,218			234			660			169			11,678
Total past due	1,205			1,403			2,807			5,218			474			1,377			189			12,673
Current	182,086			239,710			622,212			26,359			97,995			71,257			17,030			1,256,649
Total loans 3	$	183,291		$	241,113		$	625,019		$	31,577		$	98,469		$	72,634		$	17,219		$	1,269,322
Non-accrual loans to total loans	0.6		%	0.6		%	0.4		%	16.5		%	0.2		%	0.9		%	1.0		%	0.9		%

¹ Our residential loan portfolio includes no sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or higher loan-to-value ratios.

² Amounts include $1.4 million of Purchased Credit Impaired ("PCI") loans that had stopped accreting interest at both September 30, 2014 and December 31, 2013, and exclude accreting PCI loans of $3.8 million and $5.7 million at September 30, 2014 and December 31, 2013, respectively, as their accretable yield interest recognition is independent from the underlying contractual loan delinquency status. There were no accruing loans more than ninety days past due at September 30, 2014 or December 31, 2013.

³ Amounts include net deferred loan costs of $406 thousand and $24 thousand at September 30, 2014 and December 31, 2013, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $4.9 million and $7.6 million at September 30, 2014 and December 31, 2013, respectively.

Our commercial loans are generally made to established small and mid-sized businesses to provide financing for their working capital needs, equipment purchases, acquisitions, or refinancings.  Management examines historical, current, and projected cash flows to determine the ability of the borrower to repay obligations as agreed. Commercial loans are made based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral. The cash flows of borrowers, however, may not occur as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed, such as accounts receivable or inventory, and include a personal guarantee. Some short-term loans may be made on an unsecured basis. We target stable local businesses with guarantors that have proven to be resilient in periods of economic stress.  Typically, the guarantors provide an additional source of repayment for most of our credit extensions.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans discussed above. We underwrite these loans to be repaid from cash flow and to be supported by real property collateral. Repayment of commercial real estate loans is largely dependent on the successful operation of the property securing the loan, or of the business conducted on the property securing the loan. Underwriting standards for commercial real estate loans include, but are not limited to, conservative debt coverage and loan-to-value ratios. Furthermore, substantially all of our loans are guaranteed by the owners of the properties.  Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. When a vacancy has occurred, strong guarantors have historically carried the loans until a replacement tenant could be found.  The owner's substantial equity investment provides a strong economic incentive to continue to support the commercial real estate projects. As a result, we have experienced a relatively low level of loss and delinquencies in this portfolio.

Construction loans are generally made to developers and builders to finance land acquisition as well as the subsequent construction. These loans are underwritten after evaluation of the borrower's financial strength, reputation, prior track

Page-21

record, and independent appraisals. The construction industry can be impacted by significant events, including: the inherent volatility of real estate markets and vulnerability to delays due to weather, change orders, ability to obtain construction permits, labor or material shortages, and price hikes. Estimates of construction costs and of the completed project value may be inaccurate. Repayment of construction loans is largely dependent on the ultimate success of the project.

Consumer loans primarily consist of home equity lines of credit, other residential (tenants-in-common) loans, and installment and other consumer loans. We originate consumer loans utilizing credit score information, debt-to-income ratio and loan-to-value ratio analysis. Diversification, relatively small loan amounts that are spread across many individual borrowers, also mitigates risk. Additionally, trend reports are reviewed by Management on a regular basis. Underwriting standards for home equity lines of credit include, but are not limited to, a conservative loan-to-value ratio, the number of such loans a borrower can have at one time, and documentation requirements. Installment and other consumer loans are nearly evenly split between mobile home loans and floating home loans along with a small number of personal loans.

We use a risk rating system to evaluate asset quality, and to identify and monitor credit risk in individual loans, and ultimately in the portfolio. Definitions of loans that are risk graded “Special Mention” or worse are consistent with those used by the Federal Deposit Insurance Corporation ("FDIC").  Our internally assigned grades are as follows:

Pass – Loans to borrowers of acceptable or better credit quality. Borrowers in this category demonstrate fundamentally sound financial condition, repayment capacity, credit history and management expertise.  Loans in this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt service coverage ratios.  These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial impacts.  Negative external industry factors are generally not present.  The loan may be secured, unsecured or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain. This category also includes “Watch” loans, where the primary source of repayment has been delayed. “Watch” is intended to be a transitional grade, with either an upgrade or downgrade within a reasonable period.

Special Mention - Potential weaknesses that deserve close attention. If left uncorrected, those potential weaknesses may result in deterioration of the payment prospects for the asset. Special Mention assets do not present sufficient risk to warrant adverse classification.

Substandard - Inadequately protected by either the current sound worth and paying capacity of the obligor or the collateral pledged, if any. A Substandard asset has a well-defined weakness or weaknesses that jeopardize(s) the liquidation of the debt. Substandard assets are characterized by the distinct possibility that we will sustain some loss if such weaknesses or deficiencies are not corrected. Well-defined weaknesses include adverse trends or developments of the borrower’s financial condition, managerial weaknesses and/or significant collateral deficiencies.

Doubtful - Critical weaknesses that make collection or liquidation in full improbable. There may be specific pending events that work to strengthen the asset; however, the amount or timing of the loss may not be determinable. Pending events generally occur within one year of the asset being classified as Doubtful. Examples include: merger, acquisition, or liquidation; capital injection; guarantee; perfecting liens on additional collateral; and refinancing. Such loans are placed on non-accrual status and usually are collateral-dependent.

We regularly review our credits for accuracy of risk grades whenever new information is received. Borrowers are required to submit financial information at regular intervals:

• Generally, commercial borrowers are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk and complexity.

• Investor commercial real estate borrowers with loans greater than $500 thousand are required to submit rent rolls or property income statements at least annually.

• Construction loans are monitored monthly, and assessed on an ongoing basis.

• Home equity and other consumer loans are assessed based on delinquency.

• Loans graded “Watch” or more severe, regardless of loan type, are assessed no less than quarterly.

The following table represents an analysis of loans by internally assigned grades, including the PCI loans, at September 30, 2014 and December 31, 2013:

Page-22

(dollars in thousands; 2014 unaudited)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Purchased credit-impaired		Total
Credit Risk Profile by Internally Assigned Grade:
September 30, 2014
Pass	$	186,922	$	209,600	$	654,889	$	39,358	$	104,794	$	72,732	$	17,937	$	2,203	$	1,288,435
Special Mention	7,749		10,471		9,359		856		1,849		1,704		417		1,146		33,551
Substandard	6,511		11,826		7,995		5,723		2,945		1,556		599		1,844		38,999
Total loans	$	201,182	$	231,897	$	672,243	$	45,937	$	109,588	$	75,992	$	18,953	$	5,193	$	1,360,985
December 31, 2013
Pass	$	162,625	$	216,537	$	609,157	$	25,069	$	93,792	$	69,176	$	16,336	$	1,340	$	1,194,032
Special Mention	13,990		16,533		8,570		725		2,164		1,047		227		894		44,150
Substandard	6,343		3,224		5,413		5,768		2,444		2,411		656		4,881		31,140
Total loans	$	182,958	$	236,294	$	623,140	$	31,562	$	98,400	$	72,634	$	17,219	$	7,115	$	1,269,322

Troubled Debt Restructuring

Our loan portfolio includes certain loans that have been modified in a Troubled Debt Restructuring (“TDR”), where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs on nonaccrual status at the time of restructure may be returned to accruing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months, and there is reasonable assurance of repayment and performance.

When a loan is modified, Management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases Management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If Management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs and unamortized premium or discount), impairment is recognized through a specific allowance or a charge-off of the loan.

The table below summarizes outstanding TDR loans by loan class as of September 30, 2014 and December 31, 2013. The summary includes those TDRs that are on non-accrual status and those that continue to accrue interest.

(dollars in thousands; 2014 unaudited)	As of
Recorded investment in Troubled Debt Restructurings 1	September 30, 2014		December 31, 2013
Commercial and industrial	$	4,337	$	5,117
Commercial real estate, owner-occupied	8,491		4,333
Commercial real estate, investor	527		534
Construction	6,654		6,335
Home equity	703		506
Other residential	1,552		2,063
Installment and other consumer	1,724		1,693
Total	$	23,988	$	20,581

¹ Includes $16.9 million and $12.9 million of TDR loans that were accruing interest as of September 30, 2014 and December 31, 2013, respectively. Includes $1.8 million of acquired loans at both September 30, 2014 and December 31, 2013, respectively.

Page-23

The tables below present the following information for TDRs modified during the periods presented: number of contracts modified, the recorded investment in the loans prior to modification, and the recorded investment in the loans after the loans were restructured. The tables below exclude fully paid-off or fully charged-off TDR loans.

(dollars in thousands; unaudited)	Number of Contracts Modified	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment at period end
Troubled Debt Restructurings during the three months ended September 30, 2014:
Commercial and industrial	2	$	513	$	596	$	596
Commercial real estate, owner-occupied	1	4,226		4,216		4,206
Home equity	1	74		74		74
Other residential	1	815		$	814	$	814
Total	5	$	5,628	$	5,700	$	5,690
Troubled Debt Restructurings during the three months ended September 30, 2013:
Commercial and industrial	3	$	587	$	560	$	558
Commercial real estate, owner occupied	1	2,961		2,956		2,951
Commercial real estate, investor	1	539		538		536
Construction	2	11		9		9
Total	7	$	4,098	$	4,063	$	4,054

Troubled Debt Restructurings during the nine months ended September 30, 2014:
Commercial and industrial 1	7	$	1,336	$	1,460	$	1,431
Commercial real estate, owner-occupied	1	4,226		4,216		4,206
Other residential	1	815		814		814
Home equity	2	224		224		222
Installment and other consumer	6	281		278		270
Total	17	$	6,882	$	6,992	$	6,943
Troubled Debt Restructurings during the nine months ended September 30, 2013:
Commercial and Industrial 2	5	$	1,086	$	1,057	$	991
Commercial real estate, owner-occupied	1	2,961		2,956		2,951
Commercial real estate, investor	1	539		538		536
Construction	1	4,745		4,766		4,806
Installment and other consumer	2	11		9		9
Total	10	$	9,342	$	9,326	$	9,293

¹ Excludes one contract modified and subsequently paid off during the nine months ended September 30, 2014 in the amount of $905 thousand pre-modification and post-modification.

² Excludes two contracts modified and subsequently paid off during the nine months ended September 30, 2013. The pre-modification and post-modification outstanding recorded investment balances were both $218 thousand.

Modifications during the nine months ended September 30, 2014 primarily involved maturity extensions and interest rate concessions, while modifications during the nine months endedSeptember 30, 2013 were primarily due to extensions of maturity. During the first nine months of 2014 and 2013, there were no defaults on loans that had been modified as troubled debt restructuring within the prior twelve-month period. We report defaulted TDRs based on a payment default definition of more than ninety days past due.

Page-24

Impaired Loan Balances and Their Related Allowance by Major Classes of Loans

The tables below summarize information on impaired loans and their related allowance. Total impaired loans include non-accrual loans, accruing TDR loans and accreting PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.

(dollars in thousands; unaudited)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Total
September 30, 2014
Recorded investment in impaired loans:
With no specific allowance recorded	$	1,212	$	5,609	$	3,032	$	5,173	$	550	$	528	$	240	$	16,344
With a specific allowance recorded	3,125		2,882		—		1,492		302		1,024		1,563		10,388
Total recorded investment in impaired loans	$	4,337	$	8,491	$	3,032	$	6,665	$	852	$	1,552	$	1,803	$	26,732
Unpaid principal balance of impaired loans:
With no specific allowance recorded	$	1,258	$	7,266	$	5,023	$	7,863	$	1,036	$	528	$	240	$	23,214
With a specific allowance recorded	3,220		2,882		—		1,682		302		1,024		1,564		10,674
Total unpaid principal balance of impaired loans	$	4,478	$	10,148	$	5,023	$	9,545	$	1,338	$	1,552	$	1,804	$	33,888
Specific allowance	$	817	$	100	$	—	$	3	$	29	$	98	$	286	$	1,333
Average recorded investment in impaired loans during the quarter ended September 30, 2014	$	5,292	$	6,982	$	3,090	$	6,678	$	857	$	1,440	$	1,847	$	26,186
Interest income recognized on impaired loans during the quarter ended September 30, 2014	$	88	$	54	$	7	$	23	$	5	$	14	$	19	$	210
Average recorded investment in impaired loans during the nine months ended September 30, 2014	$	5,818	$	5,980	$	3,186	$	6,568	$	730	$	1,726	$	1,876	$	25,884
Interest income recognized on impaired loans during the nine months ended September 30, 2014	$	309	$	220	$	21	$	67	$	14	$	56	$	56	$	743
Average recorded investment in impaired loans during the quarter ended September 30, 2013	$	5,933	$	3,526	$	6,389	$	8,479	$	775	$	2,576	$	1,842	$	29,520
Interest income recognized on impaired loans during the quarter ended September 30, 2013	$	102	$	63	$	7	$	21	$	5	$	22	$	16	$	236
Average recorded investment in impaired loans during the nine months ended September 30, 2013	$	7,584	$	2,861	$	6,178	$	7,138	$	1,022	$	2,744	$	1,881	$	29,408
Interest income recognized on impaired loans during the nine months ended September 30, 2013	$	343	$	170	$	7	$	233	$	25	$	67	$	50	$	895

(dollars in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Total
December 31, 2013
Recorded investment in impaired loans:
With no specific allowance recorded	$	977	$	1,403	$	3,341	$	2,806	$	349	$	1,254	$	112	$	10,242
With a specific allowance recorded	4,725		4,085		—		3,927		157		809		1,750		$	15,453
Total recorded investment in impaired loans	$	5,702	$	5,488	$	3,341	$	6,733	$	506	$	2,063	$	1,862	$	25,695
Unpaid principal balance of impaired loans:
With no specific allowance recorded	$	977	$	3,060	$	5,333	$	5,547	$	835	$	1,254	$	154	$	17,160
With a specific allowance recorded	4,930		5,088		—		4,114		157		809		1,750		16,848
Total recorded investment in impaired loans	$	5,907	$	8,148	$	5,333	$	9,661	$	992	$	2,063	$	1,904	$	34,008
Specific allowance	$	1,170	$	90	$	—	$	341	$	1	$	23	$	364	$	1,989

Page-25

The gross interest income that would have been recorded, had non-accrual loans been current, totaled $182 thousand and $291 thousand in the quarters ended September 30, 2014, and September 30, 2013, respectively, and totaled $567 thousand and $827 thousand for the nine months ended September 30, 2014 and September 30, 2013, respectively. PCI loans are excluded from the foregone interest data above as their accretable yield interest recognition is independent from the underlying contractual loan delinquency status. See “Purchased Credit-Impaired Loans” below for further discussion.

Management monitors delinquent loans continuously and identifies problem loans, generally loans graded substandard or worse, to be evaluated individually for impairment testing. Generally, we charge off our estimated losses related to specifically-identified impaired loans when it is deemed uncollectible. The charged-off portion of impaired loans outstanding at September 30, 2014 totaled approximately $5.5 million.  At September 30, 2014, there were $1.2 million outstanding commitments to extend credit on impaired loans, including loans to borrowers whose terms have been modified in troubled debt restructurings.

The following table discloses loans by major portfolio category and activity in the ALLL, as well as the related ALLL disaggregated by impairment evaluation method:

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total
For the three months ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,125		$	1,979		$	6,713		$	571		$	944		$	454		$	481		$	633	$	14,900
Provision (reversal)	(263		)	9			(26		)	(33		)	(18		)	(8		)	90			249		—
Charge-offs	—			—			—			—			—			—			(2		)	—		(2		)
Recoveries	44			5			5			96			1			—			—			—		151
Ending balance	$	2,906		$	1,993		$	6,692		$	634		$	927		$	446		$	569		$	882	$	15,049
For the nine months ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,056		$	2,012		$	6,196		$	633		$	875		$	317		$	629		$	506	$	14,224
Provision (reversal)	(208		)	(24		)	455			109			49			129			(136		)	376		750
Charge-offs	(66		)	—			—			(204		)	—			—			(6		)	—		(276		)
Recoveries	124			5			41			96			3			—			82			—		351
Ending balance	$	2,906		$	1,993		$	6,692		$	634		$	927		$	446		$	569		$	882	$	15,049

Page-26

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total
As of September 30, 2014:
Ending ALLL related to loans collectively evaluated for impairment	$	2,089		$	1,893		$	6,692		$	631		$	898		$	348		$	283		$	882	$	13,716
Ending ALLL related to loans  individually evaluated for impairment	$	814		$	100		$	—		$	—		$	29		$	98		$	286		$	—	$	1,327
Ending ALLL related to purchased  credit-impaired loans	$	3		$	—		$	—		$	3		$	—		$	—		$	—		$	—	$	6
Loans outstanding:
Collectively evaluated for impairment	$	197,143		$	224,809		$	669,211		$	39,283		$	108,736		$	74,440		$	17,150		$	—	$	1,330,772
Individually evaluated for impairment1	4,039			7,088			3,032			6,654			852			1,552			1,803			—		25,020
Purchased credit-impaired	334			2,596			2,185			11			67			—			—			—		5,193
Total	$	201,516		$	234,493		$	674,428		$	45,948		$	109,655		$	75,992		$	18,953		$	—	$	1,360,985
Ratio of allowance for loan losses to total loans	1.44		%	0.85		%	0.99		%	1.38		%	0.85		%	0.59		%	3.00		%	NM		1.11		%
Allowance for loan losses to non-accrual loans	868		%	142		%	256		%	12		%	209		%	NM			374		%	NM		153		%

¹ Total excludes $1.7 million of PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.These loans are included in the "purchased credit-impaired" amount in the next line below.

NM - Not Meaningful

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total
As of December 31, 2013:
Ending ALLL related to loans collectively evaluated for impairment	$	1,886		$	1,922		$	6,196		$	292		$	874		$	294		$	265		$	506	$	12,235
Ending ALLL related to loans  individually evaluated for impairment	$	987		$	31		$	—		$	341		$	1		$	23		$	364		$	—	$	1,747
Ending ALLL related to purchased  credit-impaired loans	$	183		$	59		$	—		$	—		$	—		$	—		$	—		$	—	$	242
Loans outstanding:
Collectively evaluated for impairment	$	177,550		$	233,330		$	619,833		$	24,829		$	97,894		$	70,571		$	15,357		$	—	$	1,239,364
Individually evaluated for impairment1	5,408			2,930			3,341			6,733			506			2,063			1,862			—		22,843
Purchased credit-impaired	333			4,853			1,845			15			69			—			—			—		7,115
Total	$	183,291		$	241,113		$	625,019		$	31,577		$	98,469		$	72,634		$	17,219		$	—	$	1,269,322
Ratio of allowance for loan losses to total loans	1.67		%	0.83		%	0.99		%	2.00		%	0.89		%	0.44		%	3.65		%	NM		1.12		%
Allowance for loan losses to non-accrual loans	257		%	143		%	221		%	12		%	374		%	48		%	372		%	NM		122		%

¹ Total excludes $2.9 million PCI loans that have experienced credit deterioration post-acquisition, which are included in the "purchased credit-impaired" amount in the next line below.

NM - Not Meaningful

Page-27

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied		Commercial real estate, investor		Construction			Home equity			Other residential			Installment and other consumer			Unallocated			Total
For the three months ended September 30, 2013
Allowance for loan losses:
Beginning balance	$	3,799		$	1,406	$	4,368	$	1,721		$	1,153		$	401		$	1,313		$	196		$	14,357
Provision (reversal)	(965		)	427		1,338		(210		)	(173		)	(124		)	(669		)	(104		)	(480		)
Charge-offs	(129		)	—		—		(24		)	—			—			(1		)	—			(154		)
Recoveries	75			—		9		—			—			—			1			—			85
Ending balance	$	2,780		$	1,833	$	5,715	$	1,487		$	980		$	277		$	644		$	92		$	13,808
For the nine months ended September 30, 2013
Allowance for loan losses:
Beginning balance	$	4,100		$	1,313	$	4,372	$	611		$	1,264		$	551		$	1,231		$	219		$	13,661
Provision (reversal)	(1,204		)	436		1,308		916			(159		)	(274		)	(506		)	(127		)	390
Charge-offs	(586		)	—		—		(41		)	(133		)	—			(87		)	—			(847		)
Recoveries	470			84		35		1			8			—			6			—			604
Ending balance	$	2,780		$	1,833	$	5,715	$	1,487		$	980		$	277		$	644		$	92		$	13,808

Purchased Credit-Impaired Loans

We evaluated loans purchased in acquisitions in accordance with accounting guidance in ASC 310-30 related to loans acquired with deteriorated credit quality. Acquired loans are considered credit-impaired if there is evidence of deterioration of credit quality since origination and it is probable, at the acquisition date, that we will be unable to collect all contractually required payments receivable. Management has determined certain loans purchased in our two previous acquisitions to be PCI loans based on credit indicators such as nonaccrual status, past due status, loan risk grade, loan-to-value ratio, etc. Revolving credit agreements (e.g., home equity lines of credit and revolving commercial loans) are not considered PCI loans as cash flows cannot be reasonably estimated.

The following table reflects the outstanding balance and related carrying value of PCI loans as of September 30, 2014andDecember 31, 2013:

	September 30, 2014				December 31, 2013
PCI Loans (dollars in thousands; 2014 unaudited)	Unpaid principal balance		Carrying value		Unpaid principal balance		Carrying value
Commercial and industrial	$	503	$	334	$	1,094	$	333
Commercial real estate	6,848		4,781		9,152		6,698
Construction	138		11		149		15
Home equity	234		67		239		69
Total purchased credit-impaired loans	$	7,723	$	5,193	$	10,634	$	7,115

The activities in the accretable yield, or income expected to be earned, for PCI loans were as follows:

Accretable Yield	Three months ended						Nine months ended
(dollars in thousands, unaudited)	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Balance at beginning of period	$	4,514		$	3,277		$	3,649		$	3,960
Removals 1	—			—			(273		)	(791		)
Accretion	(126		)	(153		)	(494		)	(545		)
Reclassifications (to) from nonaccretable difference 2	(242		)	—			1,264			500
Balance at end of period	$	4,146		$	3,124		$	4,146		$	3,124

¹ Represents the accretable difference that is relieved when a loan exits the PCI population due to payoff, full charge-off, or transfer to repossessed assets, etc.

² Primarily relates to changes in expected credit performance and changes in expected amounts and/or timing of cash flows.

Page-28

Pledged Loans

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with an unpaid principal balance of $872.6 million and $716.2 million at September 30, 2014 and December 31, 2013, respectively. Our FHLB line of credit totaled $455.8 million and $416.3 million at September 30, 2014 and December 31, 2013, respectively. In addition, we pledge a certain residential loan portfolio, which totaled $28.5 million and $24.4 million at September 30, 2014 and December 31, 2013, respectively, to secure our borrowing capacity with the Federal Reserve Bank (“FRB”). Also see Note 7 below.

Note 7: Borrowings

Federal Funds Purchased – We had unsecured lines of credit totaling $72.0 million with correspondent banks for overnight borrowings at September 30, 2014 and $87.0 million at December 31, 2013.  In general, interest rates on these lines approximate the Federal funds target rate. At September 30, 2014 and December 31, 2013, we had no overnight borrowings outstanding under these credit facilities.

Federal Home Loan Bank Borrowings – As of September 30, 2014 and December 31, 2013, we had lines of credit with the FHLB totaling $455.8 million and $416.3 million, respectively, based on eligible collateral of certain loans.  At September 30, 2014 and December 31, 2013, we had no FHLB overnight borrowings.

On February 5, 2008, we entered into a ten-year borrowing agreement under the same FHLB line of credit for $15.0 million at a fixed rate of 2.07%, which remained outstanding at September 30, 2014. Interest-only payments are required every three months until the entire principal is due on February 5, 2018. The FHLB has the unconditional right to accelerate the due date on November 5, 2014 and every three months thereafter (the “put dates”). If the FHLB exercises its right to accelerate the due date, the FHLB will offer replacement funding at the current market rate, subject to certain conditions. We must comply with the put date, but are not required to accept replacement funding.

At September 30, 2014, $440.6 million was remaining as available for borrowing from the FHLB, net of the term borrowing and letters of credit acquired from NorCal totaling $241 thousand.

Federal Reserve Line of Credit – We have a line of credit with the FRB secured by a certain residential loan portfolio.  At September 30, 2014 and December 31, 2013, we had borrowing capacity under this line totaling $28.5 million and $24.4 million, respectively, and had no outstanding borrowings with the FRB.

As part of the Acquisition, we assumed two tranches of subordinated debentures due to the NorCal Community Bancorp grantor trusts at fair values totaling $4.95 million at acquisition date and contractual values totaling $8.2 million. The difference between the contractual balance and the fair value at acquisition date is accreted into interest expense over the lives of the debentures. Accretion on the subordinated debentures totaled $162 thousand in the first nine months of 2014. The Trusts have the option to defer payment of the distributions for a period of up to five years, as long as there is no default on the subordinated debentures. In the event of interest deferral, dividends to common stockholders are prohibited. The trust preferred securities were sold and issued in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. Bancorp has guaranteed, on a subordinated basis, distributions and other payments due on trust preferred securities totaling $8.0 million issued by the grantor trusts which have identical maturity, repricing and payment terms as the subordinated debentures.

The following is a summary of the contractual terms of the subordinated debentures due to NorCal Community Bancorp grantor trusts as of September 30, 2014:

(dollars in thousands)
Subordinated debentures due to NorCal Community Bancorp Trust I on October 7, 2033 with interest payable quarterly, based on 3-month LIBOR plus 3.05%, repricing quarterly (3.28% as of September 30, 2014), redeemable, in whole or in part, on any interest payment date	$	4,124
Subordinated debentures due to NorCal Community Bancorp Trust II on March 15, 2036 with interest payable quarterly, based on 3-month LIBOR plus 1.40%, repricing quarterly (1.63% as of September 30, 2014), redeemable, in whole or in part, on any interest payment date	4,124
Total	$	8,248

Page-29

Note 8:  Stockholders' Equity

Preferred Stock

Under the United States Department of the Treasury Capital Purchase Program (the “TCPP”), which was intended to stabilize and inject liquidity into the financial industry, on December 5, 2008, Bancorp issued to the U.S. Treasury 28,000 shares of senior preferred stock with a zero par value and a $1,000 per share liquidation preference, along with a warrant to purchase 154,242 shares of common stock at a per share exercise price of $27.23, in exchange for aggregate consideration of $28.0 million. The proceeds of $28.0 million were allocated between the preferred stock and the warrant with $27.0 million allocated to preferred stock and $961 thousand allocated to the warrant, based on their relative fair value at the time of issuance. The warrant was immediately exercisable and expires 10 years after the issuance date.

Under the American Recovery and Reinvestment Act of 2009, which allowed participants in the TCPP to withdraw from the program, we repurchased all 28,000 shares of outstanding preferred stock from the U.S. Treasury at $28 million plus accrued but unpaid dividends of $179 thousand on March 31, 2009. At the time of repurchase, we also accelerated the remaining accretion of the preferred stock totaling $945 thousand through retained earnings, reducing our net income available to common stockholders. The warrant was subsequently auctioned to two institutional investors in November 2011 and remains outstanding. It is adjusted for cash dividend increases to represent a right to purchase 156,688 shares of common stock at $26.81 per share as of September 30, 2014 in accordance with Section 13(c) of the Form of Warrant to Purchase Common Stock.

Dividends

Presented below is a summary of cash dividends paid to common shareholders, recorded as a reduction of retained earnings.

	Three months ended				Nine months ended
(dollars in thousands except per share data, unaudited)	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Cash dividends to common stockholders	$	1,185	$	982	$	3,428	$	2,932
Cash dividends per common share	$	0.20	$	0.18	$	0.58	$	0.54

Share-Based Payments

The fair value of stock options on the grant date is recorded as a stock-based compensation expense in the consolidated statements of comprehensive income over the requisite service period with a corresponding increase in common stock. Stock-based compensation also includes compensation expense related to the issuance of unvested restricted common shares pursuant to the 2007 Equity Plan. The grant-date fair value of the restricted common shares, which is equal to its intrinsic value on that date, is being recorded as compensation expense over the requisite service period with a corresponding increase in common stock as the shares vest. In addition, we record excess tax benefits on the exercise

of non-qualified stock options, the disqualifying disposition of incentive stock options and vesting of in-the-money restricted stock as an addition to common stock with a corresponding decrease in current taxes payable.

The holders of unvested restricted common shares are entitled to dividends on the same per-share ratio as holders of common stock. Dividends paid on the portion of share-based awards not expected to vest are also included in stock-based compensation expense. Tax benefits on dividends paid on the portion of share-based awards expected to vest are recorded as an increase to common stock with a corresponding decrease in current taxes payable.

Page-30

Note 9:  Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

We make commitments to extend credit in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being fully drawn upon, the total commitment amount does not necessarily represent future cash requirements.

We are exposed to credit loss equal to the contract amount of the commitment in the event of nonperformance by the borrower. We use the same credit policies in making commitments as we do for on-balance-sheet instruments and we evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us, is based on Management's credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and real property.

The contractual amount of loan commitments and standby letters of credit not reflected on the consolidated statements of condition was $340.3 million at September 30, 2014. This amount included $172.9 million under commercial lines of credit (these commitments are contingent upon customers maintaining specific credit standards), $111.2 million under revolving home equity lines, $32.2 million under undisbursed construction loans, $10.9 million under standby letters of credit, and a remaining $13.1 million under personal and other lines of credit. We have set aside an allowance for losses in the amount of $677 thousand for these commitments as of September 30, 2014, which is recorded in interest payable and other liabilities on the consolidated statements of condition.

Operating Leases

We rent certain premises and equipment under long-term, non-cancelable operating leases expiring at various dates through the year 2028. Most of the leases contain certain renewal options and escalation clauses. At September 30, 2014, the approximate minimum future commitments payable under non-cancelable contracts for leased premises are as follows:

(dollars in thousands; unaudited)	2014		2015		2016		2017		2018		Thereafter		Total
Operating leases	$	906	$	3,735	$	3,788	$	3,781	$	3,810	$	10,339	$	26,359

Litigation Matters

We may be party to legal actions which arise from time to time as part of the normal course of our business.  We believe, after consultation with legal counsel, that we have meritorious defenses in these actions, and that litigation contingency liabilities, if any, will not have a material adverse effect on our financial position, results of operations, or cash flows.

We are responsible for our proportionate share of certain litigation indemnifications provided to Visa U.S.A. ("Visa") by its member banks in connection with lawsuits related to anti-trust charges and interchange fees ("Covered Litigation"). On December 13, 2013, the district court issued a memorandum and order approving Visa's definitive class settlement agreement in the interchange multidistrict litigation ("Settlement Agreement") with the class plaintiffs. On January 14, 2014, the court entered the final judgment order approving the settlement. A number of objectors to the settlement have appealed that order. Until the appeals are finally adjudicated, no assurance can be provided that Visa will be able to resolve the class plaintiffs' claims as contemplated by the Settlement Agreement. On January 27, 2014, Visa's portion of the takedown payments related to the opt-out merchants, which was calculated to be approximately $1.1 billion, was deposited into the litigation escrow account. The conversion rate of Visa Class B common stock held by us to Class A common stock (as discussed in Note 5) may reduce if Visa makes more Covered Litigation settlement payments in the future and the full impact to member banks is still uncertain. However, we are not aware of significant future cash settlement payments required by us on the Covered Litigation.

Page-31

Note 10: Derivative Financial Instruments and Hedging Activities

We have entered into interest rate swap agreements, primarily as an asset/liability management strategy, in order to mitigate the changes in the fair value of specified long-term fixed-rate loans (or firm commitments to enter into long-term fixed-rate loans) caused by changes in interest rates. These hedges allow us to offer long-term fixed rate loans to customers without assuming the interest rate risk of a long-term asset. Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S. dollar LIBOR index, protects us against changes in the fair value of our loans associated with fluctuating interest rates.

The fixed-rate payment features of the interest rate swap agreements are generally structured at inception to mirror substantially all of the provisions of the hedged loan agreements. These interest rate swaps, designated and qualified as fair value hedges, are carried on the consolidated statements of condition at their fair value in other assets (when the fair value is positive) or in other liabilities (when the fair value is negative). One of our interest rate swap agreements qualifies for shortcut hedge accounting treatment. The change in fair value of the swap using the shortcut accounting treatment is recorded in other non-interest income, while the change in fair value of swaps using non-shortcut accounting is recorded in interest income. The unrealized gain or loss in fair value of the hedged fixed-rate loan due to LIBOR interest rate movements is recorded as an adjustment to the hedged loan and offset in other non-interest income (for shortcut accounting treatment) or interest income (for non-shortcut accounting treatment).

From time to time, we make firm commitments to enter into long-term fixed-rate loans with borrowers backed by yield maintenance agreements and simultaneously enter into forward interest rate swap agreements with correspondent banks to mitigate the change in fair value of the yield maintenance agreement. Prior to loan funding, yield maintenance agreements with net settlement features that meet the definition of a derivative are considered as non-designated hedges and are carried on the consolidated statements of condition at their fair value in other assets (when the fair value is positive) or in other liabilities (when the fair value is negative). The offsetting changes in the fair value of the forward swap and the yield maintenance agreement are recorded in interest income. In August 2010 and June 2011, two previously undesignated forward swaps were designated to offset the change in fair value of a fixed-rate loan originated in each of those periods. Subsequent to the point of the swap designations, the related yield maintenance agreements are no longer considered derivatives. Their fair value at the designation date was recorded in other assets and is amortized using the effective yield method over the life of the respective designated loans.

The net effect of the change in fair value of interest rate swaps, the amortization of the yield maintenance agreement and the change in the fair value of the hedged loans result in an insignificant amount of hedge ineffectiveness recognized in interest income.

Our credit exposure, if any, on interest rate swaps is limited to the favorable value (net of any collateral pledged to us) and interest payments of all swaps by each counterparty. Conversely, when an interest rate swap is in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an amount determined by the agreements (generally when our derivative liability position is greater than $100 thousand or $1.3 million, depending upon the counterparty). Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values.

Page-32

As of September 30, 2014, we have eight interest rate swap agreements, which are scheduled to mature in September 2018, June 2020, August 2020, June 2031, October 2031, July 2032, August 2037 and October 2037. All of our derivatives are accounted for as fair value hedges. Our interest rate swaps are settled monthly with counterparties. Accrued interest on the swaps totaled $39 thousand and $70 thousand as of September 30, 2014 and December 31, 2013, respectively. Information on our derivatives follows:

	Asset derivatives				Liability derivatives
(dollars in thousands; 2014 unaudited)	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Fair value hedges:
Interest rate contracts notional amount	$	10,353	$	17,956	$	21,620	$	21,577
Interest rate contracts fair value1	$	313	$	961	$	1,537	$	2,519

	Three months ended
(dollars in thousands; unaudited)	September 30, 2014			September 30, 2013
Increase in value of designated interest rate swaps recognized in interest income	$	21		$	196
Payment on interest rate swaps recorded in interest income	(251		)	(358		)
Decrease in value of hedged loans recognized in interest income	$	(54	)	(245		)
Decrease in value of yield maintenance agreement recognized against interest income	(15		)	(18		)
Net loss on derivatives recognized against interest income 2	$	(299	)	$	(425	)

	Nine months ended
(dollars in thousands; unaudited)	September 30, 2014			September 30, 2013
Increase in value of designated interest rate swaps recognized in interest income	$	334		$	2,800
Payment on interest rate swaps recorded in interest income	(755		)	(1,075		)
Decrease in value of hedged loans recognized in interest income	(133		)	(3,033		)
Decrease in value of yield maintenance agreement recognized against interest income	(77		)	(54		)
Net loss on derivatives recognized against interest income 2	$	(631	)	$	(1,362	)

¹ See Note 4 for valuation methodology.

² Includes hedge ineffectiveness loss of $48 thousand and loss of $67 thousand for the quarters ended September 30, 2014 and September 30, 2013, respectively. Hedge ineffectiveness gain of $125 thousand and loss of $287 thousand was recorded in interest income during the nine months ended September 30, 2014 and September 30, 2013, respectively. Changes in value of swaps were included in the assessment of hedge effectiveness.

Page-33

Our derivative transactions with counterparties are under International Swaps and Derivative Association (“ISDA”) master agreements that include “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes.

Information on financial instruments that are eligible for offset in the consolidated statements of condition follows:

Offsetting of Financial Assets and Derivative Assets
(dollars in thousands; 2014 unaudited)							Gross Amounts Not Offset in the Statements of Condition
			Gross Amounts		Net Amounts
	Gross Amounts		Offset in the		of Assets Presented
	of Recognized		Statements of		in the Statements		Financial			Cash Collateral
	Assets1		Condition		of Condition1		Instruments			Received		Net Amount
As of September 30, 2014
Derivatives by Counterparty
Counterparty A	$	313	$	—	$	313	$	(313	)	$	—	$	—
Counterparty B	—		—		—		—			—		—
Total	$	313	$	—	$	313	$	(313	)	$	—	$	—
As of December 31, 2013
Derivatives by Counterparty
Counterparty A	$	961	$	—	$	961	$	(825	)	$	—	$	136
Counterparty B	—		—		—		—			—		—
Total	$	961	$	—	$	961	$	(825	)	$	—	$	136

¹ Amounts exclude accrued interest totaling $7 thousand and $10 thousand at September 30, 2014 and December 31, 2013, respectively.

Offsetting of Financial Liabilities and Derivative Liabilities
(dollars in thousands; 2014 unaudited)							Gross Amounts Not Offset in the Statements of Condition
			Gross Amounts		Net Amounts of
	Gross Amounts		Offset in the		Liabilities Presented
	of Recognized		Statements of		in the Statements of		Financial			Cash Collateral
	Liabilities2		Condition		Condition2		Instruments			Pledged			Net Amount
As of September 30, 2014
Derivatives by Counterparty
Counterparty A	$	1,140	$	—	$	1,140	$	(313	)	$	—		$	827
Counterparty B	397		—		397		—			(397		)	—
Total	$	1,537	$	—	$	1,537	$	(313	)	$	(397	)	$	827
As of December 31, 2013
Derivatives by Counterparty
Counterparty A	$	825	$	—	$	825	$	(825	)	$	—		$	—
Counterparty B	1,694		—		1,694		—			(1,694		)	—
Total	$	2,519	$	—	$	2,519	$	(825	)	$	(1,694	)	$	—

² Amounts exclude accrued interest totaling $32 thousand and $60 thousand at September 30, 2014 and December 31, 2013, respectively.

Page-34

ITEM 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion of the financial condition and results of operations should be read in conjunction with the related consolidated financial statements in this Form 10-Q and with the audited consolidated financial statements and accompanying notes included in our 2013 Annual Report on Form 10-K. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances.

Forward-Looking Statements

This discussion of financial results includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "1933 Act") and Section 21E of the Securities Exchange Act of 1934, as amended, (the "1934 Act"). Those sections of the 1933 Act and 1934 Act provide a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their financial performance so long as they provide meaningful, cautionary statements identifying important factors that could cause actual results to differ significantly from projected results.

Our forward-looking statements include descriptions of plans or objectives of Management for future operations, products or services, and forecasts of revenues, earnings or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "intend," "estimate" or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may."

Forward-looking statements are based on Management's current expectations regarding economic, legislative, and regulatory issues that may impact our earnings in future periods. A number of factors—many of which are beyond Management’s control—could cause future results to vary materially from current Management expectations. Such factors include, but are not limited to our ability to integrate the business from Bank of Alameda, general economic conditions, the economic uncertainty in the United States and abroad, changes in interest rates, deposit flows, real estate values, expected future cash flows on acquired loans and securities, competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; adverse weather conditions, including the drought in California; and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services.

The events or factors that could cause results or performance to materially differ from those expressed in our prior forward-looking statements concerning the Acquisition include:

• lower than expected consolidated revenues;

• losses of deposit and loan customers resulting from the acquisition;

• greater than expected loan losses;

• significant increases in competition;

• the inability to achieve expected cost savings from the acquisition, or the inability to achieve those savings as soon as expected; and

• unexpected costs, including litigation risk not discovered during the due diligence period.

These and other important factors are detailed in the Risk Factors section of our 2013 Form 10-K as filed with the SEC, copies of which are available from us at no charge. Forward-looking statements apply only as of the date they are made. We do not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.

Page-35

RESULTS OF OPERATIONS

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

	For the three months ended						For the nine months ended
(dollars in thousands, except per share data; unaudited)	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
For the period:
Net income	$	5,378		$	4,004		$	15,079		$	11,925
Net income per share
Basic	$	0.91		$	0.74		$	2.56		$	2.20
Diluted	$	0.89		$	0.72		$	2.51		$	2.16
Return on average equity	10.98		%	9.91		%	10.65		%	10.09		%
Return on average assets	1.15		%	1.07		%	1.10		%	$	1.10	%
Common stock dividend payout ratio	22.03		%	24.52		%	22.73		%	24.59		%
Average shareholders’ equity to average total assets	10.49		%	10.79		%	10.34		%	10.94		%
Efficiency ratio	57.23		%	63.19		%	59.24		%	61.49		%
Tax equivalent net interest margin	4.03		%	3.99		%	4.17		%	4.25		%
(dollars in thousands, except per share data; 2014 unaudited)	September 30, 2014			December 31, 2013
At period end:
Book value per common share	$	33.00		$	30.78
Total assets	$	1,802,657		$	1,805,194
Total loans	$	1,360,985		$	1,269,322
Total deposits	$	1,571,624		$	1,587,102
Loan-to-deposit ratio	86.6		%	80.0		%
Total risk-based capital ratio - Bancorp	13.6		%	13.2		%
Tier 1 leverage ratio (to average assets) - Bancorp	10.3		%	10.8		%

Page-36

Executive Summary

Earnings in the third quarter of 2014 totaled $5.4 million, compared to $5.2 millionin thesecond quarter of 2014 and $4.0 millionin thethird quarter of 2013. Diluted earnings per share totaled $0.89 in the third quarter of 2014, compared to $0.86 in the prior quarter and $0.72 in the same quarter last year. For the nine-month period ended September 30, 2014, earnings totaled $15.1 million compared to $11.9 million for the same period a year ago. Diluted earnings per share for the nine-month period ended September 30, 2014 totaled $2.51 compared to $2.16 for the same period of 2013.

On October 17, 2014, the Board of Directors declared a quarterly cash dividend of $0.22 per share payable to shareholders on November 7, 2014, an increase of $0.02 per share from the prior quarter.

Gross loans grew to $1.4 billion, an increase of $91.7 million, or 7.2% from December 31, 2013, which was driven by new volume in commercial real estate and commercial and industrial loans. Credit quality improved with non-accrual loans representing 0.73% of total loans at September 30, 2014, down from 0.92% at December 31, 2013. Non-accrual loans decreased from $11.7 million at year-end to $9.8 million at September 30, 2014. Accruing loans past due 30 to 89 days totaled $299 thousand at September 30, 2014, compared to $995 thousand at December 31, 2013.

There was no provision for loan losses in the third quarter of 2014, compared to $600 thousand in the prior quarter and reversal of $480 thousand in the same quarter a year ago. The ratio of allowance for loan losses ("ALLL") to total loans decreased minimally from 1.12% at December 31, 2013 to 1.11% at September 30, 2014.

Deposits totaled $1.6 billion at both September 30, 2014 and December 31, 2013. Non-interest bearing deposits totaled 45.7% of total deposits at September 30, 2014, compared to 40.8% at December 31, 2013. The increase in non-interest bearing deposits reflects organic growth as well as the conversion of certain interest bearing accounts acquired from Bank of Alameda to non-interest bearing accounts in March 2014.

The total risk-based capital ratio for Bancorp was 13.6% at September 30, 2014, up from 13.2% at December 31, 2013. The total tier 1 leverage ratio for Bancorp was 10.3% at September 30, 2014, compared to 10.8% at December 31, 2013. The risk-based capital ratios continue to be well above current regulatory requirements for a well-capitalized institution and new capital requirements that will take effect on January 1, 2015 (Basel Committee on Bank Supervision guidelines for determining regulatory capital).

Net interest income totaled $17.5 million in the third quarter of 2014, compared to $17.9 million in the prior quarter and $14.0 million in the same quarter a year ago. The increase from the same quarter a year ago relates to higher balances on loans and investment securities, as well as accretion on acquired loans. The tax-equivalent net interest margin was 4.03%, 4.23% and 3.99% for these respective periods. The decrease in net interest margin in the third quarter of 2014 compared to the prior quarter is primarily due to the absence of gains on pay-offs of PCI loans in the third quarter.

Non-interest income in the third quarter of 2014 totaled $2.3 million, compared to $2.4 millionin the prior quarter and $2.0 million in the same quarter a year ago. The decrease from the prior quarter primarily relates to lower gains on the sale of investment securities. The increase from the same quarter a year ago reflects higher service charges due to higher transaction volume from the acquisition, higher dividend income from the Federal Home Loan Bank of San Francisco and higher recent debit card interchange fees.

Non-interest expense totaled $11.4 million in the third quarter of 2014, compared to $11.5 million in the prior quarter and $10.1 million in the same quarter a year ago. The increase in non-interest expense from the same quarter a year ago reflects the higher cost base associated with a larger-sized bank, expansion into the East Bay, and increased lending staff in the North Bay.

Page-37

Critical Accounting Policies

Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations and require Management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Management has determined the following five accounting policies to be critical: Allowance for Loan Losses, Acquired Loans, Other-than-temporary Impairment of Investment Securities, Accounting for Income Taxes, and Fair Value Measurements.

Allowance for Loan Losses

Allowance for Loan Losses is based upon estimates of loan losses and is maintained at a level considered adequate to provide for probable losses inherent in the loan portfolio. The allowance is increased by provisions for loan losses charged against earnings and reduced by charge-offs, net of recoveries.

In periodic evaluations of the adequacy of the allowance balance, Management considers current economic conditions, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, our past loan loss experience and other factors. The ALLL is based on estimates, and ultimate losses may vary from current estimates. Our Asset/Liability Management Committee (“ALCO”) reviews the adequacy of the ALLL at least quarterly. The allowance is adjusted based on that review if, in the judgment of the ALCO and Management, changes are warranted.

The overall allowance consists of 1) specific allowances for individually identified impaired loans ("ASC 310-10") and 2) general allowances for pools of loans ("ASC 450-20"), which incorporate changing qualitative and environmental factors (e.g., portfolio growth and trends, credit concentrations, economic and regulatory factors, etc.).

The first component, specific allowances, results from the analysis of identified problem credits and the evaluation of sources of repayment including collateral, as applicable. Through Management's ongoing loan grading and credit monitoring process, individual loans are identified that have conditions indicating the borrower may be unable to pay all amounts due in accordance with the contractual terms. These loans are evaluated for impairment individually by Management. Management considers an originated loan to be impaired when it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement. For allowances established on acquired loans, refer to Acquired Loans discussed below. When the fair value of the impaired loan is less than the recorded investment in the loan, the difference is recorded as impairment through the establishment of a specific allowance. For loans determined to be impaired, the extent of the impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate at origination (for originated loans), based on the loan's observable market price, or based on the fair value of the collateral if the loan is collateral dependent or if foreclosure is imminent. Generally with problem credits that are collateral dependent, we obtain appraisals of the collateral at least annually. We may obtain appraisals more frequently if we believe the collateral value is subject to market volatility, if a specific event has occurred to the collateral, or if we believe foreclosure is imminent.

The second component is an estimate of the probable inherent losses in each loan pool with similar characteristics. This analysis encompasses the entire loan portfolio and excludes acquired loans where the discount has not been fully accreted. For allowance established on acquired loans, see below under Acquired Loans. Under our allowance model, loans are evaluated on a pool basis by loan segment which is further delineated by Federal regulatory reporting codes ("CALL codes"). Each segment is assigned an expected loss factor which is primarily based on a rolling twenty-quarter look-back at our historical losses for that particular segment, as well as a number of other factors.

The model determines loan loss reserves based on objective and subjective factors. Objective factors include an historical loss rate using the rolling twenty-quarter look-back, changes in the volume and nature of the loan portfolio, changes in credit quality metrics (past due loans, non-accrual loans, net charge-offs and adversely-graded loans), and the existence of credit concentrations. Subjective factors include changes in the overall economic environment, legal and regulatory conditions, lending management and other relevant staff, uncertainties related to acquisitions, as well as the quality of our loan review process. The total amount allocated is determined by applying loss multipliers to outstanding loans by CALL code.

Page-38

Acquired Loans

From time to time, we acquire loans through business acquisitions. Acquired loans are recorded at their estimated fair values at acquisition date in accordance with ASC 805 Business Combinations, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses is not carried over or recorded for acquired loans as of the acquisition date.

The process of calculating fair values of the acquired loans, including the estimate of losses that are expected to be incurred over the estimated remaining lives of the loans at acquisition date and the ongoing updates to Management's expectation of future cash flows, requires significant subjective judgments and assumptions, particularly considering the economic environment. The economic environment and the lack of market liquidity and transparency are factors that have influenced, and may continue to affect, these assumptions and estimates.

We estimated the fair value of acquired loans at the acquisition date based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, risk classification, fixed or variable interest rate, term of loan, whether or not the loan was amortizing, and current discount rates. Loans, except for purchased credit impaired ("PCI") loans, were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. Expected cash flows incorporates our best estimate of current key assumptions, such as property values, default rates, loss severity and prepayment speeds. Discount rates were based on market rates for new originations of comparable loans, where available, and included adjustments for liquidity factors.

To the extent comparable market rates are not readily available, a discount rate was derived based on the assumptions of market participants' cost of funds, servicing costs and return requirements for comparable risk assets. In either case, the discount rate does not include a factor for credit losses, as that has been considered in estimating the cash flows. The initial estimate of cash flows to be collected was derived from assumptions such as default rates, loss severities and prepayment speeds.

For acquired loans not considered credit impaired ("non-PCI") loans, we recognize the entire fair value discount accretion to interest income, based on the acquired loan's contractual cash flows using an effective interest rate method for term loans, and on a straight line basis for revolving lines, as the timing and amount of cash flows under revolving lines are not predictable. The level of accretion on non-PCI loans varies from period to period due to maturities and early pay-offs of these loans during the reporting periods. Subsequent to acquisition, if the probable and estimable losses for non-PCI loans exceed the amount of the remaining unaccreted discount, the excess is established as an allowance for loan losses.

We acquired some loans from business combinations with evidence of credit quality deterioration subsequent to their origination and for which it was probable, at acquisition, that we would be unable to collect all contractually required payments (PCI loans). These loans are evaluated on an individual basis. Management has applied significant subjective judgment in determining which loans are PCI loans. Evidence of credit quality deterioration as of the purchase date may include data such as past due and nonaccrual status, risk grades and charge-off history. Revolving credit agreements (e.g., home equity lines of credit and revolving commercial loans) where the borrower had revolving rights at acquisition date are not considered PCI loans because the timing and amount of cash flows cannot be reasonably estimated.

According to the accounting guidance for PCI loans, the difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference and is not recorded. Furthermore, the difference between the expected cash flows and the fair value at acquisition date ("accretable difference") is accreted into interest income at a level yield of return over the remaining term of the loan, provided that the timing and amount of future cash flows is reasonably estimable.

All PCI loans that were classified as non-accrual loans prior to the acquisition were no longer classified as non-accrual if we believed that we would fully collect the new carrying value of these loans at acquisition. When there is doubt as to the timing and amount of future cash flows to be collected, PCI loans are classified as non-accrual loans. It is important to note that judgment is required to classify PCI loans as accruing or non-accrual, and is dependent on having a reasonable expectation about the timing and amount of cash flows expected to be collected.

If we have probable decreases in cash flows expected to be collected on PCI loans, specific allowances are established to account for credit deterioration subsequent to acquisitions.The amount of cash flows expected to be collected and,

Page-39

accordingly, the adequacy of the allowance for loan losses are particularly sensitive to changes in loan credit quality. If we have probable and significant increases in cash flows expected to be collected on PCI loans, we first reverse any previously established specific allowance for loan loss and then increase interest income as a prospective yield adjustment over the remaining life of the loans. The impact of changes in variable interest rates is recognized prospectively as adjustments to interest income.

The estimate of cash flows expected to be collected is updated each quarter and requires the continued use of key assumptions and estimates similar to the initial estimate of fair value. Given the current economic environment, we apply judgment to develop our estimate of cash flows for PCI loans given the impact of collateral value changes, loan workout plans, changing probability of default, loss severities and prepayments. Therefore, accretion on PCI loans fluctuates based on changes in cash flows expected to be collected.

For purposes of accounting for the PCI loans from past business combinations, we elected not to apply the pooling method but to account for these loans individually. Disposals of loans, which may include sales of loans to third parties, receipt of payments in full by the borrower, or foreclosure of the collateral, result in removal of the loan from the PCI loan portfolio at its carrying amount. If a PCI loan pays off earlier than expected, a gain is recorded as interest income when the pay-off amount exceeds the recorded investment.

For further information regarding our acquired loans, see Note 6 to our Consolidated Financial Statements in this Form 10-Q.

Other-than-temporary Impairment of Investment Securities

At each financial statement date, we assess whether declines in the fair value of held-to-maturity and available-for-sale securities below their costs are deemed to be other-than-temporary. We consider, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. Evidence evaluated includes, but is not limited to, the remaining payment terms of the instrument and economic factors that are relevant to the collectability of the instrument, such as: current prepayment speeds, the current financial condition of the issuer(s), industry analyst reports, credit ratings, credit default rates, interest rate trends, the quality of any credit enhancement and the value of any underlying collateral.

For each security in an unrealized loss position, we assess whether we intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis less any current-period credit losses. If we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date is recognized against earnings.

For impaired securities that are not intended for sale and will not be required to be sold prior to recovery of our amortized cost basis, we determine if the impairment has a credit loss component. For both held-to-maturity and available-for-sale securities, if the amount of cash flows expected to be collected are less than those at the last reporting date, an other-than-temporary impairment shall be considered to have occurred and the credit loss component is recognized in earnings as the present value of the change in expected future cash flows. In determining the present value of the expected cash flows, we discount the expected cash flows at the effective interest rate implicit in the security at the date of purchase. The remaining difference between the fair value and the amortized basis is deemed to be due to factors that are not credit related and is recognized in other comprehensive income, net of applicable taxes.

For held-to-maturity securities, if there is no credit loss, no impairment is recognized. The other-than-temporary impairment recognized in other comprehensive income for credit impaired debt securities classified as held-to-maturity is accreted from other comprehensive income to the amortized cost of the debt security over the remaining life of the debt security in a prospective manner on the basis of the amount and timing of future estimated cash flows.

Accounting for Income Taxes

Income taxes reported in the consolidated financial statements are computed based on an asset and liability approach. We recognize the amount of taxes payable or refundable for the current year and we recognize deferred tax assets and liabilities related to expected future tax consequences. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We record net deferred tax

Page-40

assets to the extent it is more likely than not that they will be realized. In evaluating our ability to recover the deferred tax assets, Management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, Management develops assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates being used to manage the underlying business. Bancorp files consolidated federal and combined state income tax returns.

We recognize the financial statement effect of a tax position when it is more likely than not, based on the technical merits and all available evidence, that the position will be sustained upon examination, including the resolution through protests, appeals or litigation processes. For tax positions that meet the more-likely-than-not threshold, we measure and record the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement with the taxing authority. The remainder of the benefits associated with tax positions taken is recognized as a liability for unrecognized tax benefits, along with any related interest and penalties. Interest and penalties related to unrecognized tax benefits are recorded in tax expense.

In deciding whether or not our tax positions taken meet the more-likely-than-not recognition threshold, we must make judgments and interpretations about the application of inherently complex state and federal tax laws. To the extent tax authorities disagree with tax positions taken by us, our effective tax rates could be materially affected in the period of settlement with the taxing authorities. Revision of our estimate of accrued income taxes also may result from our own income tax planning, which may impact effective tax rates and results of operations for any given quarter.

Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Securities available-for-sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record certain assets at fair value on a non-recurring basis, such as purchased loans recorded at acquisition date, certain impaired loans held for investment, other real estate owned and securities held-to-maturity that are other-than-temporarily impaired. These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting.

When we develop our fair value measurement process, we maximize the use of observable inputs. Whenever there is no readily available market data, we use our best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of Management's judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements. For detailed information on our use of fair value measurements and our related valuation methodologies, see Note 4 to the Consolidated Financial Statements in this Form 10-Q.

Page-41

Net Interest Income

Net interest income is the difference between the interest earned on loans, investments and other interest-earning assets and the 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 amounts and composition of interest-earning assets and interest-bearing liabilities. Interest rate changes can create fluctuations in the net interest margin due to an imbalance in the timing of repricing or maturity of assets or liabilities. We manage interest rate risk exposure with the goal of minimizing the impact of interest rate volatility on net interest margin.

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, Average Statements of Condition and Analysis of Net Interest Income, compares interest income and average interest-earning assets with interest expense and average interest-bearing liabilities for the periods presented. The table also indicates net interest income, net interest margin and net interest rate spread for each period presented.

	Average Statements of Condition and Analysis of Net Interest Income
		Three months ended						Three months ended
		September 30, 2014						September 30, 2013
				Interest						Interest
		Average		Income/		Yield/		Average		Income/		Yield/
(dollars in thousands; unaudited)		Balance		Expense		Rate		Balance		Expense		Rate
Assets
	Interest-bearing due from banks 1	$	58,088	$	37	0.25	%	$	61,409	$	34	0.22	%
	Investment securities 2, 3	332,920		1,997		2.40	%	254,515		1,539		2.42	%
	Loans 1, 3, 4	1,349,740		16,489		4.78	%	1,093,846		13,248		4.74	%
	Total interest-earning assets 1	1,740,748		18,523		4.16	%	1,409,770		14,821		4.11	%
	Cash and non-interest-bearing due from banks	46,258						32,482
	Bank premises and equipment, net	9,337						9,092
	Interest receivable and other assets, net	56,855						34,796
Total assets		$	1,853,198					$	1,486,140
Liabilities and Stockholders' Equity
	Interest-bearing transaction accounts	$	92,907	$	25	0.11	%	$	78,109	$	12	0.06	%
	Savings accounts	127,457		12		0.04	%	100,730		9		0.03	%
	Money market accounts	501,843		126		0.10	%	431,332		101		0.09	%
	Other time accounts	152,995		229		0.59	%	140,606		227		0.64	%
	FHLB fixed-rate advance 1	15,000		79		2.07	%	15,000		80		2.07	%
	Subordinated debenture 1	5,096		106		8.14	%	—		—		—	%
	Total interest-bearing liabilities	895,298		577		0.26	%	765,777		429		0.22	%
	Demand accounts	749,361						547,634
	Interest payable and other liabilities	14,167						12,409
	Stockholders' equity	194,372						160,320
Total liabilities & stockholders' equity		$	1,853,198					$	1,486,140
Tax-equivalent net interest income/margin 1				$	17,946	4.03	%			$	14,392	3.99	%
Reported net interest income/margin 1				$	17,531	3.94	%			$	14,042	3.90	%
Tax-equivalent net interest rate spread						3.91	%					3.89	%

Page-42

		Nine months ended						Nine months ended
		September 30, 2014						September 30, 2013
				Interest						Interest
		Average		Income/		Yield/		Average		Income/		Yield/
(dollars in thousands; unaudited)		Balance		Expense		Rate		Balance		Expense		Rate
Assets
	Interest-bearing due from banks 1	$	65,949	$	125	0.25	%	$	24,072	$	45	0.25	%
	Investment securities 2, 3	348,445		6,498		2.49	%	268,463		4,775		2.37	%
	Loans 1, 3, 4	1,307,611		49,606		5.00	%	1,075,825		40,595		4.98	%
	Total interest-earning assets 1	1,722,005		56,229		4.31	%	1,368,360		45,415		4.38	%
	Cash and non-interest-bearing due from banks	43,280						29,370
	Bank premises and equipment, net	9,218						9,277
	Interest receivable and other assets, net	56,550						37,211
Total assets		$	1,831,053					$	1,444,218
Liabilities and Stockholders' Equity
	Interest-bearing transaction accounts	$	104,662	$	74	0.09	%	$	96,736	$	35	0.05	%
	Savings accounts	122,958		34		0.04	%	97,474		25		0.03	%
	Money market accounts	508,544		415		0.11	%	424,767		295		0.09	%
	Time accounts	156,892		695		0.59	%	145,180		690		0.64	%
	Overnight borrowings 1	—		—		—	%	5,420		7		0.17	%
	FHLB fixed-rate advance 1	15,000		235		2.07	%	15,000		236		2.07	%
	Subordinated debenture 1	5,043		316		8.42	%	—		—		—	%
	Total interest-bearing liabilities	913,099		1,769		0.26	%	784,577		1,288		0.22	%
	Demand accounts	713,882						488,227
	Interest payable and other liabilities	14,725						13,455
	Stockholders' equity	189,347						157,959
Total liabilities & stockholders' equity		$	1,831,053					$	1,444,218
Tax-equivalent net interest income/margin 1				$	54,460	4.17	%			$	44,127	4.25	%
Reported net interest income/margin 1				$	53,299	4.08	%			$	43,143	4.16	%
Tax-equivalent net interest rate spread						4.05	%					4.16	%
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 35 percent.
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.

Third Quarter of 2014 Compared to Third Quarter of 2013

The tax-equivalent net interest margin was 4.03% in the third quarter of 2014, compared to 3.99% in the same quarter a year ago.  The increase of four basis points was primarily due a to higher amount of purchase discount accretion on non-PCI loans from the Acquisition, partially offset by the impact of the low interest rate environment on our loan portfolio and a slightly higher cost of funds, principally from the assumption of the higher costing subordinated debentures from NorCal. The net interest spread increased two basis points over the same period for the same reasons.

The average yield on interest-earning assets increased five basis points in the third quarter of 2014 compared to the third quarter of 2013 due to the reasons listed above. The loan portfolio as a percentage of average interest-earning assets was 77.5% and 77.6% for the third quarter of 2014 and the third quarter of 2013, respectively. Total average interest-earning assets increased $331.0 million, or 23.5%, in the third quarter of 2014, compared to the third quarter of 2013, due to both the Acquisition and organic growth.

Page-43

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"). In December of 2008, the target interest rate reached an historic low with a range of 0% to 0.25% where it remained as of September 30, 2014. The accommodative monetary policy measures taken by the FOMC in recent years, including three rounds of quantitative easing, has led to a prolonged low interest rate environment. As a result, we have experienced downward pricing pressure on our interest-earning assets that negatively impacted our net interest margin and yields on our earning assets. On October 29, 2014, the FOMC ended its third round of quantitative easing by concluding its asset purchase program. When market interest rates rise, our net interest margin is expected to improve. Interest rate floors on loans that mitigated margin compression in this low rate environment can cause a lag in margin improvement when rates rise.

Nine Months 2014 Compared to Nine Months 2013

The tax-equivalent net interest margin was 4.17% in the first nine months of 2014 compared to 4.25% in the same period last year.  The decrease of eight basis points was primarily due to the impact of the low interest rate environment on our loan portfolio, higher cash balances and lower loan balances as a percentage of interest-earning assets, and higher cost of funds, partially offset by the accretion loans from the Acquisition. The net interest spread decreased eleven basis points over the same period for the same reasons.

The average yield on interest-earning assets decreased seven basis points in the first nine months of 2014 compared to the first nine months of 2013 due to the reasons listed above. The loan portfolio as a percentage of average interest-earning assets was 75.9% and 78.6% for the nine months ended September 30, 2014 and 2013, respectively. Total average interest-earning assets increased $353.6 million, or 25.8%, in the first nine months of 2014 compared to the first nine months of 2013, due to both the Acquisition and organic growth.

Impact of Acquired Loans on Net Interest Margin

Our net interest margin fluctuations due to acquired loans were as follows:

	Three months ended						Nine months ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
(dollars in thousands; unaudited)	Dollar Amount		Basis point impact to net interest margin	Dollar Amount		Basis point impact to net interest margin	Dollar Amount		Basis point impact to net interest margin	Dollar Amount		Basis point impact to net interest margin
Accretion on PCI loans	$	126	3 bps	$	153	4 bps	$	494	4 bps	$	545	5 bps
Accretion on non-PCI loans	$	774	17 bps	$	214	6 bps	$	2,817	22 bps	$	591	6 bps
Gains on pay-offs of PCI loans	$	—	0 bps	$	—	0 bps	$	622	5 bps	$	469	5 bps

Page-44

Provision for Loan Losses

Management assesses the adequacy of the allowance for loan losses on a quarterly basis based on several factors including growth of the loan portfolio, analysis of probable losses in the portfolio, recent loss experience and the current economic climate.  Actual losses on loans are charged against the allowance, and the allowance is increased by loss recoveries and through the provision for loan losses charged to expense.  For further discussion, see the section captioned “Critical Accounting Policies.”

There was no provision for loan losses in the third quarter of 2014, compared to $600 thousand in the prior quarter and reversal of $480 thousand in the same quarter a year ago. Provision for loan losses totaled $750 thousand for the nine months endedSeptember 30, 2014, compared to $390 thousand for the same period a year ago.

The allowance for loan losses decreased to 1.11% of loans at September 30, 2014, from 1.12% at December 31, 2013. Non-accrual loans totaled $9.8 million, or 0.73% of Bancorp's loan portfolio at September 30, 2014, compared to $11.7 million, or 0.92% at December 31, 2013. The decrease in non-accrual loans primarily relates to commercial loans that were resolved in the first quarter of 2014 and one residential loan that began performing in the second quarter of 2014.

Impaired loan balances totaled $26.7 million at September 30, 2014, compared to $25.7 million at December 31, 2013, with specific valuation allowances of $1.3 million and $2.0 million, respectively. Classified loans, which have regulatory risk grades of "substandard" or "doubtful", increased to $39.0 million at September 30, 2014, from $31.1 million at December 31, 2013. The loans classified substandard in the third quarter of 2014 are well secured and required minimal specific reserves. As a result, no provision for loan losses was warranted in the third quarter of 2014.

Net recoveries in the third quarter of 2014 totaled $149 thousand, compared to net charge-offs of $68 thousand in the same quarter a year ago. Net recoveries for the nine months endedSeptember 30, 2014 totaled $74 thousand, compared to net charge-offs of $242 thousand for the same period a year ago. The percentage of net charge-offs/(recoveries) to average loans was (0.01)% in the third quarter of 2014, compared to 0.01% in the third quarter of 2013 and (0.01)% for the nine months endedSeptember 30, 2014, compared to 0.02% for the same period a year ago.

Page-45

Non-interest Income

The table below details the components of non-interest income.

	Three months ended					Amount			Percent
(dollars in thousands; unaudited)	September 30, 2014		September 30, 2013			Increase (Decrease)			Increase (Decrease)
Service charges on deposit accounts	$	552	$	509		$	43		8.4	%
Wealth Management and Trust Services	567		532			35			6.6	%
Debit card interchange fees	375		288			87			30.2	%
Merchant interchange fees	224		196			28			14.3	%
Earnings on Bank-owned life insurance	208		179			29			16.2	%
Gain (loss) on sale of securities	4		(35		)	39			NM
Other income	371		284			87			30.6	%
Total non-interest income	$	2,301	$	1,953		$	348		17.8	%
	Nine months ended					Amount			Percent
(dollars in thousands; unaudited)	September 30, 2014		September 30, 2013			Increase (Decrease)			Increase (Decrease)
Service charges on deposit accounts	$	1,636	$	1,545		$	91		5.9	%
Wealth Management and Trust Services	1,744		1,618			126			7.8	%
Debit card interchange fees	1,035		820			215			26.2	%
Merchant interchange fees	629		623			6			1.0	%
Earnings on Bank-owned life insurance	632		766			(134		)	(17.5	)%
Gain (loss) on sale of securities	93		(35		)	128			NM
Other income	1,116		666			450			67.6	%
Total non-interest income	$	6,885	$	6,003		$	882		14.7	%

Service charges on deposit accounts and debit card interchange fees increased for both the three months and the nine months endedSeptember 30, 2014 when compared to the respective periods a year ago primarily due to increased volume related to the Acquisition.

The increase in Wealth Management and Trust Services ("WMTS") income in both the three-month and nine-month periods ended September 30, 2014 compared to the respective periods last year is due to the addition of new assets and market value appreciation of existing assets under management. Assets under management totaled approximately $325.8 million at September 30, 2014 and $310.3 million at September 30, 2013.   

Bank-owned life insurance (“BOLI”) income increased in the quarter ended September 30, 2014 when compared to the quarter ended September 30, 2013 due to new policies from the Acquisition and additional policies purchased during the later half of last year. BOLI income decreased in the nine-month period ended September 30, 2014 when compared to the nine-month period ended September 30, 2013 due to a $223 thousand death benefit realized on the death of an insured employee in the first quarter of 2013, partially offset by earnings from the additional policies.

Other income increased for the three months endedSeptember 30, 2014 when compared to the same quarter a year ago, primarily due to higher dividend income from the FHLB. Other income for the nine months endedSeptember 30, 2014 when compared to the same period a year ago increased due to higher dividend income from FHLB, higher commission income from mortgage brokerage, and other one-time income. After an extensive review, we discontinued the small mortgage brokerage acquired from Bank of Alameda effective June 30, 2014 and the financial impact has not been material and is not expected to be going forward.

Page-46

Non-interest Expense

The table below details the components of non-interest expense.

	Three months ended				Amount			Percent
(dollars in thousands; unaudited)	September 30, 2014		September 30, 2013		Increase (Decrease)			Increase (Decrease)
Salaries and related benefits	$	6,108	$	5,389	$	719		13.3	%
Occupancy and equipment	1,381		1,040		341			32.8	%
Depreciation and amortization	383		343		40			11.7	%
Federal Deposit Insurance Corporation	261		244		17			7.0	%
Data processing	748		612		136			22.2	%
Professional services	537		775		(238		)	(30.7	)%
Other non-interest expense
Advertising	107		90		17			18.9	%
Other expense	1,825		1,614		211			13.1	%
Total other non-interest expense	1,932		1,704		228			13.4	%
Total non-interest expense	$	11,350	$	10,107	$	1,243		12.3	%
	Nine months ended				Amount			Percent
(dollars in thousands; unaudited)	September 30, 2014		September 30, 2013		Increase (Decrease)			Increase (Decrease)
Salaries and related benefits	$	19,270	$	16,117	$	3,153		19.6	%
Occupancy and equipment	4,044		3,165		879			27.8	%
Depreciation and amortization	1,202		1,032		170			16.5	%
Federal Deposit Insurance Corporation	780		681		99			14.5	%
Data processing	2,856		1,857		999			53.8	%
Professional services	1,577		2,116		(539		)	(25.5	)%
Other non-interest expense
Advertising	306		322		(16		)	(5.0	)%
Other expense	5,615		4,931		684			13.9	%
Total other non-interest expense	5,921		5,253		668			12.7	%
Total non-interest expense	$	35,650	$	30,221	$	5,429		18.0	%

Salary and benefit expenses increased in the third quarter of 2014 when compared to the same quarter last year mainly due to an increase in personnel from NorCal and the addition of commercial lenders in our Napa and Santa Rosa offices. Salaries and benefits for the nine months endedSeptember 30, 2014 when compared to the same period a year ago increased due to the same reasons, as well as severance costs incurred in 2014 for the temporary NorCal acquisition integration staff.

The increase in occupancy and equipment expenses in the three months endedSeptember 30, 2014 compared to the three months endedSeptember 30, 2013, is primarily due to the rent and common area maintenance expenses and other occupancy expenses related to new facilities from the NorCal acquisition. Occupancy and equipment expenses for the nine months endedSeptember 30, 2014 when compared to the same period a year ago increased for the same reasons.

Effective October 31, 2014, the branch acquired from NorCal in Emeryville, California was closed. Management determined that our customers and the business community can be easily supported from our Oakland location. The Emeryville staff was reassigned to other existing branch locations. The financial impact is expected to be minimal.

Page-47

The increase in data processing in the three months endedSeptember 30, 2014 compared to the three months endedSeptember 30, 2013, is primarily due to increased data processing transaction volumes due to the NorCal acquisition. The increase for the nine months endedSeptember 30, 2014 when compared to the nine months endedSeptember 30, 2013 reflects one-time system conversion expenses of $442 thousand related to the NorCal acquisition and increased transaction volume.

Professional service expenses decreased in the third quarter of 2014 when compared to the same quarter last year mainly due to the absence of legal and other professional fees incurred to facilitate the NorCal acquisition in 2013 and cost savings on various professional services in 2014. Professional service expenses for the nine months endedSeptember 30, 2014 when compared to the same period a year ago decreased for the same reasons.

FDIC insurance and other expenses include higher ongoing expenses as a result of the NorCal acquisition. In addition, $193 thousand and $578 thousand of amortization of core deposit intangibles from the NorCal acquisition were recorded in other expenses in the third quarter of 2014 and the nine months ended September 30, 2014, respectively, while there were no core deposit intangibles in the respective periods in 2013.

Provision for Income Taxes

The provision for income taxes for the third quarter of 2014 is $3.1 million at an effective tax rate of 36.6%, compared to $2.4 million at an effective tax rate of 37.1% in the same quarter last year. The provision for income taxes for the first nine months of 2014 is $8.7 million at an effective tax rate of 36.6%, compared to $6.6 million at an effective tax rate of 35.7% for the first nine months of 2013. The increase in the year-to-date effective tax rate is primarily due to a higher expected pre-tax income for 2014 compared to 2013, and the expiration of the California Enterprise Zone tax benefits at January 1, 2014. These provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon pre-tax income, and adjusted for the effects of all permanent differences between income for tax and financial reporting purposes (such as earnings on qualified municipal securities, BOLI, certain tax-exempt loans and low income housing tax credits). Therefore, there are fluctuations in the effective rate from period to period based on the relationship of net permanent differences to income before tax.

Bancorp and the Bank have entered into a tax allocation agreement which provides that income taxes shall be allocated between the parties on a separate entity basis. The intent of this agreement is that each member of the consolidated group will incur no greater tax liability than it would have incurred on a stand-alone basis.

We file a consolidated return in the U.S. Federal tax jurisdiction and a combined return in the State of California tax jurisdiction. We are no longer subject to tax examinations by taxing authorities for years beginning before 2011 for U.S. Federal or before 2010 for California. There were no ongoing federal income tax examinations at the issuance of this report.

The State of California is currently examining 2011 and 2012 corporate income tax returns. At the time of issuance of this quarterly report, no adjustments have been proposed by the California Franchise Tax Board in connection with the examination. Although timing of the resolution or closure of the examination is uncertain, we do not anticipate a need to establish a reserve for uncertain tax positions in the next 12 months. At September 30, 2014, neither the Bank nor Bancorp had accruals for interest and penalties related to unrecognized tax benefits.

Page-48

FINANCIAL CONDITION SUMMARY

During the first nine months of 2014, total assets decreased $2.5 million, primarily reflecting a decrease in cash and cash equivalents of $57.3 million and investment securities of $36.1 million, partially offset by an increases of $91.7 million in gross loans. Loan growth from December 31, 2013 was driven substantially by commercial real estate lending in the Marin, Oakland and Napa markets. Our loan-to-deposit ratio has increased from 80.0% at December 31, 2013 to 86.6% at September 30, 2014.

Investment Securities

Investment securities in our portfolio that may be backed by mortgages having sub-prime or Alt-A features (certain privately issued CMOs) represent 1.1% of our total investment portfolio at September 30, 2014, compared to 1.7% at December 31, 2013.

We sold twoavailable-for-sale and six held-to-maturity securities in the first nine months of 2014 with total proceeds of $2.4 million and $2.1 million, respectively, and incurred a loss of $11 thousand and a net gain of $104 thousand, respectively. The sales of the held-to-maturity securities were due to evidence of the issuers' significant creditworthiness deterioration since purchase, such as continuous operating deficits, declines in assessed values and/or adverse demographic trends. The table below summarizes our investment in obligations of state and political subdivisions at September 30, 2014 and December 31, 2013:

		September 30, 2014							December 31, 2013
						% of state and		1					% of state and		1
(dollars in thousands; unaudited)		Amortized Cost		Fair Value		municipal securities			Amortized Cost		Fair Value		municipal securities
Within California:
	General obligation bonds	$	16,763	$	16,932	21.6	%		$	16,682	$	16,720	17.6	%
	Revenue bonds	22,629		23,005		28.5	%		26,804		26,810		27.6	%
	Tax allocation bonds	6,806		6,959		8.2	%		9,114		8,902		9.1	%
Total in California		46,198		46,896		58.3	%		52,600		52,432		54.3	%
Outside California:
	General obligation bonds	22,592		23,863		28.8	%		30,490		31,819		32.1	%
	Revenue bonds	10,455		10,455		12.9	%		13,239		12,949		13.6	%
Total outside California		33,047		34,318		41.7	%		43,729		44,768		45.7	%
Total obligations of state and political subdivisions		$	79,245	$	81,214	100.0	%		$	96,329	$	97,200	100.0	%
1 Based on par values.

The portion of the portfolio outside the state of California is distributed among sixteen states. The largest concentrations are in Ohio (5.8%), Wisconsin (4.0%), Arizona (3.9%) and New York (3.9%). Revenue bonds, both within and outside California, primarily consisted of bonds relating to essential services (such as roads and utilities) and school district bonds.

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 stability of its tax revenues;

• Debt profile and level of unfunded liabilities, diversity of revenue sources, taxing authority of the issuer;

• Local demographics/economics including unemployment data, largest local employers, income indices and home values;

Page-49

• For revenue bonds, the source and strength of revenue for municipal authorities including the obligor’s financial condition and reserve levels, annual debt service and debt coverage ratio, and credit enhancement (such as insurer’s strength);

• Credit ratings by major credit rating agencies.

There are two California tax allocation bonds with amortized cost totaling $2.1 million (fair value of $2.2 million) for which Moody’s credit ratings diverge from the internal assessment. In June 2012, Moody’s Investor Service downgraded to Ba1 all uninsured California redevelopment agency tax allocation bonds (“RDA”s) that were rated Baa3 or higher. The downgrade to Ba1 was prompted by the increased risk of default resulting from the state's dissolution of all redevelopment agencies. The downgrade was based on the potential risk that new laws governing "successor" agencies (Assembly bills 26 and 1484) might further reduce credit quality and uncertainty as to whether there was sufficient information available to assess the credit quality of tax allocation bonds. Internal research shows the dispute between the California State Department of Finance and certain successor agencies regarding funds on hand required for payment of debt service has been successfully resolved in the successor agencies’ favor by the State Superior Court. In addition, the California State Department of Finance is in the process of approving refinancing requests from the successor agencies. Debt coverage ratios and assessed property value trends indicate that Moody’s rating downgrade/withdrawal is not necessarily reflective of the issuers’ credit profiles. Standard & Poors is still rating these two bonds at A.

Loans

We had a strong level of loan originations in the first nine months of 2014, reflecting our recent success in sourcing commercial real estate and commercial/industrial loans from new and existing relationships. Loan originations were partially offset by early pay-offs and refinancing activity, in line with current market pressure and strong competition for quality loans, as well as our successful resolution of problem loans. Our residential loan portfolio includes no sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages," the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or collateral compositions reflecting high loan-to-value ratios. Refer to Note 6 for the composition of outstanding loans by class.

Liabilities

During the first nine months of 2014, total liabilities decreased $17.3 million to $1.6 billion primarily due to a decrease in deposits from normal business activities among several large depositors. The lower level of money market accounts primarily reflects attrition in certain high-priced deposits from Bank of Alameda after lowering rates during the system conversion in March 2014. Non-interest-bearing deposits increased $69.5 million while interest-bearing transaction accounts decreased $47.8 million during the first nine months of 2014. Non-interest bearing deposits totaled $718 million at September 30, 2014, which represents 45.7% of total deposits, up from 40.8% at December 31, 2013.

Capital Adequacy

We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and the Bank’s prompt corrective action classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not directly applicable to bank holding companies such as Bancorp.

Quantitative measures established by regulation to ensure capital adequacy require Bancorp and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to quarterly average assets.

Capital ratios are reviewed by Management on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs.  For all periods presented, the Bank’s ratios exceed the regulatory definition of “well capitalized” under the regulatory framework for prompt corrective action and Bancorp’s ratios exceed the required minimum ratios for capital adequacy purposes. We expect the Bank to remain well capitalized under the current requirements for capital adequacy, as well as under the new Basel III rules.

Page-50

In December 2010, the Basel Committee on Bank Supervision finalized a set of international guidelines for determining regulatory capital known as “Basel III.” These guidelines were developed to address many of the perceived weaknesses in the banking industry that contributed to the past financial crisis, including excessive leverage, inadequate and low quality capital and insufficient liquidity buffers. In July 2013, the Board of Governors of the Federal Reserve, the FDIC and the Office of the Comptroller, finalized a rule to implement Basel III. The rule is subject to a phase in period beginning January 2015, and all changes should be implemented by January 2019.The guidelines, among other things, increase minimum capital requirements of bank holding companies, including increasing the Tier 1 capital to risk-weighted assets ratio to 6%, introducing a new requirement to maintain a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%, and in 2019, when fully phased in, a capital conservation buffer of an additional 2.5% of risk-weighted assets. In addition, there have been several updates to the way risk-weighted assets are assessed. The three changes that will affect the Bank most significantly are: the movement of past due exposures from 100% to 150% risk weight; the movement of off-balance sheet items with an original maturity of one year or less from 0% to 20% risk weight; and the risk weighting ofmortgage-backed securities using the gross-up approach instead of the ratings based approach. As a result of their implementation, we have modeled our ratios under the finalized rules and we do not expect that we will be required to raise additional capital.

The Bank’s and Bancorp’s capital adequacy ratios as of September 30, 2014 and December 31, 2013 are presented in the following tables. Bancorp's tier one capital includes the subordinated debentures, which are not included at the Bank level. The assets acquired from NorCal on November 29, 2013 only contributed one month in quarterly average assets at December 31, 2013, while they had a full quarter impact in quarterly average assets in the current quarter. As a result, the Tier 1 capital to quarterly average assets (total Tier 1 leverage ratio) at September 30, 2014 decreased compared to December 31, 2013. We continue to build capital in 2014 due to the accumulation of net income.

Capital Ratios for Bancorp (dollars in thousands; September 30, 2014 unaudited)	Actual Ratio				Ratio to Capital Adequacy Purposes
As of September 30, 2014	Amount		Ratio		Amount	Ratio
Total Capital (to risk-weighted assets)	$	205,604	13.59	%	≥$121,033	≥ 8.0%
Tier 1 Capital (to risk-weighted assets)	$	189,879	12.55	%	≥$60,516	≥ 4.0%
Tier 1 Capital (to average assets)	$	189,879	10.31	%	≥$73,665	≥ 4.0%
As of December 31, 2013
Total Capital (to risk-weighted assets)	$	190,738	13.21	%	≥$115,524	≥ 8.0%
Tier 1 Capital (to risk-weighted assets)	$	175,835	12.18	%	≥$57,762	≥ 4.0%
Tier 1 Capital (to average assets)	$	175,835	10.78	%	≥$65,222	≥ 4.0%

Capital Ratios for the Bank (dollars in thousands; September 30, 2014 unaudited)	Actual Ratio				Ratio for Capital Adequacy Purposes		Ratio to be Well Capitalized under Prompt Corrective Action Provisions
As of September 30, 2014	Amount		Ratio		Amount	Ratio	Amount	Ratio
Total Capital (to risk-weighted assets)	$	200,586	13.26	%	≥$121,002	≥ 8.0%	≥$151,252	≥ 10.0%
Tier 1 Capital (to risk-weighted assets)	$	184,861	12.22	%	≥$60,501	≥ 4.0%	≥$90,751	≥ 6.0%
Tier 1 Capital (to average assets)	$	184,861	10.04	%	≥$73,649	≥ 4.0%	≥$92,061	≥ 5.0%
As of December 31, 2013
Total Capital (to risk-weighted assets)	$	181,911	12.60	%	≥$115,495	≥ 8.0%	≥$144,368	≥ 10.0%
Tier 1 Capital (to risk-weighted assets)	$	167,007	11.57	%	≥$57,747	≥ 4.0%	≥$86,621	≥ 6.0%
Tier 1 Capital (to average assets)	$	167,007	10.24	%	≥$65,215	≥ 4.0%	≥$81,519	≥ 5.0%

Page-51

Liquidity

The goal of liquidity management is to provide adequate funds to meet both loan demand and unexpected deposit withdrawals. We accomplish this goal by maintaining an appropriate level of liquid assets, and formal lines of credit with the FHLB, FRB and correspondent banks that enable us to borrow funds as needed. Our ALCO, which is comprised of certain directors of the Bank, is responsible for establishing and monitoring our liquidity targets and strategies.

Management regularly adjusts our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning securities and the objectives of our asset/liability management program. Management monitors the Bank's liquidity and capital markets on a regular basis for signs of stress and has a contingency funding plan should liquidity risk increase above internal limits.

We obtain funds from the repayment and maturity of loans as well as deposit inflows, investment security maturities, sales and pay-downs, Federal Funds purchases, FHLB advances, and other borrowings.  Our primary uses of funds are the origination of loans, the purchase of investment securities, withdrawals of deposits, maturities of certificates of deposits, repayment of borrowings, and dividends to common stockholders.

We attract new and retain existing deposits, which depends upon the variety and effectiveness of our customer account products, service and convenience, and rates paid to customers, as well as our financial strength. Any long-term decline in retail deposit funding would adversely impact our liquidity. We have secured borrowing capacity through the FHLB and FRB that can be drawn upon to ensure diversification of funding sources. Management anticipates our current strong liquidity position and core deposit base will provide adequate liquidity to fund our operations.

As presented in the accompanying unaudited consolidated statements of cash flows, the sources of liquidity vary between periods. Our cash and cash equivalents at September 30, 2014 totaled $46.4 million, a decrease of $57.3 million from December 31, 2013. The primary sources of funds during the first nine months of 2014 included $52.6 million in proceeds from sales, pay-downs and maturities of investment securities and $14.1 million net cash provided by operating activities. The primary uses of funds were $88.0 million in loan originations (net of principal collections), $16.4 million in purchases of available-for-sale investment securities and a decline in deposits amounting to $15.5 million which was primarily due to fluctuations in customer balances in the normal course of business. Over the next twelve months $90.2 million of time deposits will mature.

At September 30, 2014, our cash and cash equivalents and unpledged available-for-sale securities with estimated maturities within one year totaled $50.5 million. The remainder of the unpledged available-for-sale securities portfolio of $207.5 million provides additional liquidity. These liquid assets equaled 14.3% of our assets at September 30, 2014, compared to 18.4% at December 31, 2013 and are well within our internal limits.

We anticipate that cash and cash equivalents on hand and other sources of funds will provide adequate liquidity to meet our operating, investing and financing needs and regulatory requirements for the foreseeable future. Management monitors our liquidity position daily, balancing loan fundings/payments with changes in deposit activity and overnight investments. Our emphasis on local deposits combined with a well-capitalized equity position, provides a very stable funding base. In addition to cash and cash equivalents, we have substantial additional borrowing capacity including unsecured lines of credit totaling $72.0 million with correspondent banks.  Further, we have pledged a certain residential loan portfolio to secure our borrowing capacity with the FRB, which totaled $28.5 million at September 30, 2014.  As of September 30, 2014, there was no debt outstanding to correspondent banks or the FRB. We are also a member of the FHLB and have a line of credit (secured under terms of a blanket collateral agreement by a pledge of essentially all of our unencumbered financial assets) in the amount of $455.9 million, of which $440.6 million was available at September 30, 2014. The interest rates on overnight borrowings with both correspondent banks and the FHLB are determined daily and generally approximate the Federal Funds target rate.

Undisbursed loan commitments are discussed in Note 9 to the Consolidated Financial Statements in this Form 10-Q. These commitments, to the extent used, are expected to be funded primarily through the repayment of existing loans, deposit growth and existing balance sheet liquidity.

Since Bancorp is a holding company and does not conduct regular banking operations, its primary source of liquidity is 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 total of the Bank’s undistributed net profits from the previous three fiscal years. The primary uses of funds for Bancorp are shareholder dividends, interest payments on subordinated debentures and ordinary operating expenses.  Bancorp held $4.6 million

Page-52

of cash at September 30, 2014. These funds are deemed sufficient to cover Bancorp's operational needs and cash dividends to shareholders through the end of 2014. Management anticipates that there will be sufficient earnings at the Bank level to provide dividends to Bancorp to meet its funding requirements for the foreseeable future.

Page-53

ITEM 3.     Quantitative and Qualitative Disclosure about MarketRisk

Market risk is defined as the risk of loss arising from an adverse change in the market value of financial instruments caused by fluctuations in market prices or interest rates. Our most significant form of market risk is interest rate risk, which is inherent in our investment, borrowing, lending and deposit gathering activities. Interest rate changes can create fluctuations in the net interest margin due to an imbalance in the timing of repricing or maturity of assets and liabilities. Management, together with ALCO, seeks to minimize the exposure of our earnings, liquidity and capital to changes in interest rates by minimizing the impact of interest rate volatility on our net interest margin.

Sensitivity of net interest income (“NII”), liquidity and capital to interest rate changes results from changes in market prices as well as differences in the maturity or repricing of asset and liability portfolios. To mitigate this risk, the structure of our assets and liabilities is managed with the objective of correlating the movements of interest rates on loans and investments with those of deposits and borrowings. Our policies set limits on the acceptable amount of change to NII, liquidity and capital in changing interest rate environments. We use simulation models to forecast cash flows that produce NII and liquidity.

In addition to our solid core deposit base, we have mitigated earnings sensitivity to a certain extent through the use of interest rate swaps from time to time. We enter into these interest rate swap contracts designated as fair value hedges to mitigate the changes in the fair value of specified long-term fixed-rate loans and firm commitments to enter into long-term fixed-rate loans caused by changes in interest rates. See Note 10 to the Consolidated Financial Statements in this Form 10-Q.

Exposure to interest rate and liquidity risk is reviewed at least quarterly by the ALCO and the Board of Directors. Simulation models are used to measure these risks and to develop ways to improve profitability. A simplified statement of condition is prepared on a quarterly basis as a starting point, using as inputs, actual loans, investments, borrowings and deposits. If potential changes to net equity value, liquidity and net interest income resulting from hypothetical interest changes are not within the limits established by the Board of Directors, Management may adjust the asset and liability mix to bring the risk position within approved limits.

Since 2008, there have been no changes in the Federal funds target rate which has been kept at an historically low level of 0-0.25%. In their policy meeting in June 2014, Federal Reserve officials agreed to end their bond-buying program, also known as quantitative easing which was aimed to hold down long-term interest rates, in October of 2014. The Bank is expected to benefit when market yields in new loans respond to the steepening or upward shifts of the yield curve, although it may be on a lagged basis. The Bank currently has low interest rate risk and is asset sensitive (net interest margin positioned to increase if rates go up).

ITEM 4.       Controlsand Procedures

We maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information required to be disclosed is accumulated and communicated to management in an appropriate manner to allow timely decisions regarding required disclosures. Management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, has reviewed this system of disclosure controls and procedures and believes that our disclosure controls and procedures (as that term is defined in Rule 13a-15(e) of the Exchange Act) were effective, as of the end of the period covered by this report, in recording, processing, summarizing and reporting information required to be disclosed in reports that we file or submit under the Securities and Exchange Act of 1934, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  No material changes were made in our internal controls over financial reporting during the last fiscal quarter.

Page-54

PART II       OTHER INFORMATION

ITEM 1         Legal Proceedings

We may be party to legal actions which arise from time to time as part of the normal course of our business.  We believe, after consultation with legal counsel, that we have meritorious defenses in these actions, and that litigation contingency liability, if any, will not have a material adverse effect on our financial position, results of operations, or cash flows.

We are responsible for our proportionate share of certain litigation indemnifications provided to Visa U.S.A. by its member banks in connection with lawsuits related to anti-trust charges and interchange fees. For further details, see Note 13 to the Consolidated Financial Statements in Item 8 of our 2013 Form 10-K and Note 9 to the Consolidated Financial Statements in this Form 10-Q herein.

ITEM 1A      Risk Factors

There have been no material changes from the risk factors previously disclosed in our 2013 Form 10-K. Refer to “Risk Factors” in our 2013 Form 10-K, pages 12 through 20.

ITEM 2       Unregistered Sales of Equity Securities and Use ofProceeds

We did not have any unregistered sales or repurchases of our equity securities during the three months ended September 30, 2014.

ITEM 3       Defaults Upon Senior Securities

None.

ITEM 4      Mine Safety Disclosures

Not applicable.

ITEM 5      Other Information

None.

Page-55

ITEM 6       Exhibits

The following exhibits are filed as part of this report or hereby incorporated by references to filings previously made with the SEC.

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Herewith
2.01	Modified Whole Bank Purchase and Assumption Agreement dated February 18, 2011 among Federal Deposit Insurance Corporation, Receiver of Charter Oak Bank, Napa, California, Federal Deposit Insurance Corporation, and Bank of Marin	8-K	001-33572	99.2	February 28, 2011
2.02	Agreement and Plan of Merger with NorCal Community Bancorp, dated July 1, 2013	8-K	001-33572	2.1	July 5, 2013
3.01	Articles of Incorporation, as amended	10-Q	001-33572	3.01	November 7, 2007
3.02	Bylaws, as amended	10-Q	001-33572	3.02	May 9, 2011
4.01	Rights Agreement dated as of July 2, 2007	8-A12B	001-33572	4.1	July 2, 2007
4.02	Form of Warrant for Purchase of Shares of Common Stock, as amended	POS AM S-3	333-156782	4.4	December 20, 2011
10.01	2007 Employee Stock Purchase Plan	S-8	333-144810	4.1	July 24, 2007
10.02	1989 Stock Option Plan	S-8	333-144807	4.1	July 24, 2007
10.03	1999 Stock Option Plan	S-8	333-144808	4.1	July 24, 2007
10.04	2007 Equity Plan	S-8	333-144809	4.1	July 24, 2007
10.05	2010 Director Stock Plan	S-8	333-167639	4.1	June 21, 2010
10.06	Form of Indemnification Agreement for Directors and Executive Officers dated August 9, 2007	10-Q	001-33572	10.06	November 7, 2007
10.07	Form of Employment Agreement dated January 23, 2009	8-K	001-33572	10.1	January 26, 2009
10.08	2010 Director Stock Plan	S-8	333-167639	4.1	June 21, 2010
10.09	2010 Annual Individual Incentive Compensation Plan	8-K	001-33572	99.1	October 21, 2010
10.10a	Salary Continuation Agreements with executive officers, Russell Colombo, Chief Executive Officer and Peter Pelham, Director of Retail Banking, dated January 1, 2011	8-K	001-33572	10.1 10.4	January 6, 2011
10.10b	Salary Continuation Agreements with executive officers, Tani Girton, Chief Financial Officer, dated October 18, 2013 and Elizabeth Reizman, Chief Credit Officer, dated July 20, 2014	8-K	001-33572	10.2 10.3	November 4, 2014
10.11	2007 Form of Change in Control Agreement	8-K	001-33572	10.1	October 31, 2007
10.12	Information Technology Services Agreement with Fidelity Information Services, LLC, dated July 11, 2012	8-K	001-33572	10.1	July 17, 2012
11.01	Earnings Per Share Computation - included in Note 1 to the Consolidated Financial Statements					Filed
14.01	Code of Ethical Conduct	8-K	001-33572	14.01	January 26, 2008
31.01	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					Filed

31.02	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed
32.01	Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002	Filed
101.01*	XBRL Interactive Data File	Furnished

* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Bank of Marin Bancorp
	(registrant)
November 7, 2014	/s/ Russell A. Colombo
Date	Russell A. Colombo
	President &
	Chief Executive Officer
	(Principal Executive Officer)
November 7, 2014	/s/ Tani Girton
Date	Tani Girton
	Executive Vice President &
	Chief Financial Officer
	(Principal Financial Officer)
November 7, 2014	/s/ Cecilia Situ
Date	Cecilia Situ
	First Vice President &
	Manager of Finance & Treasury
	(Principal Accounting Officer)

Page-58

EX-31.01

EXHIBIT 31.01

Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002

I, Russell A. Colombo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bank of Marin Bancorp (the Registrant);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a -15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls over financial reporting.

November 7, 2014	/s/ Russell A. Colombo
Date	Russell A. Colombo
	President &
	Chief Executive Officer

EX-31.02

EXHIBIT 31.02

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002

I, Tani Girton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bank of Marin Bancorp (the Registrant);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls over financial reporting.

November 7, 2014	/s/ Tani Girton
Date	Tani Girton
	Chief Financial Officer

EX-32.01

EXHIBIT 32.01

Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to §906

of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report on Form 10-Q of Bank of Marin Bancorp (the Registrant) for the quarter ended September 30, 2014, as filed with the Securities and Exchange Commission, the undersigned hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1) such Form 10-Q fully complies with the requirements of Section 13(a) or 15(d)

of the Securities Exchange Act of 1934; and

2) the information contained in such Form 10-Q fairly presents, in all material

respects, the financial condition and results of operations of the Registrant.

November 7, 2014	/s/ Russell A. Colombo
Date	Russell A. Colombo
	President &
	Chief Executive Officer

November 7, 2014	/s/ Tani Girton
Date	Tani Girton
	Executive Vice President &
	Chief Financial Officer

This certification accompanies each report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Registrant for purposes of §18 of the Securities Exchange Act of 1934, as amended.

XML

Loans and Allowance for Loan Losses - Troubled Debt Restructuring Modifications (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014 contract	Sep. 30, 2013 contract	Sep. 30, 2014 contract loans	Sep. 30, 2013 loans contract
Financing Receivable, Modifications [Line Items]
Number of Contracts Modified	5	7	17	10
Pre-modification recorded investment	$ 5,628	$ 4,098	$ 6,882	$ 9,342
Post-modification recorded investment	5,700	4,063	6,992	9,326
Post-Modification Outstanding Recorded Investment at period end	5,690	4,054	6,943	9,293
Number of troubled debt restructurings			0	0
Commercial and industrial
Financing Receivable, Modifications [Line Items]
Number of Contracts Modified	2	3	7	5
Pre-modification recorded investment	513	587	1,336	1,086
Post-modification recorded investment	596	560	1,460	1,057
Post-Modification Outstanding Recorded Investment at period end	596	558	1,431	991
Number of contracts modified and subsequently paid off			1	2
Contracts modified and subsequently paid off, pre-modification			905	218
Contracts modified and subsequently paid off, post-modification			905	218
Commercial real estate, owner-occupied
Financing Receivable, Modifications [Line Items]
Number of Contracts Modified	1	1		1
Pre-modification recorded investment	4,226	2,961		2,961
Post-modification recorded investment	4,216	2,956		2,956
Post-Modification Outstanding Recorded Investment at period end	4,206	2,951		2,951
Commercial real estate, investor
Financing Receivable, Modifications [Line Items]
Number of Contracts Modified		1		1
Pre-modification recorded investment		539		539
Post-modification recorded investment		538		538
Post-Modification Outstanding Recorded Investment at period end		536		536
Home equity
Financing Receivable, Modifications [Line Items]
Number of Contracts Modified	1		2
Pre-modification recorded investment	74		224
Post-modification recorded investment	74		224
Post-Modification Outstanding Recorded Investment at period end	74		222
Other residential
Financing Receivable, Modifications [Line Items]
Number of Contracts Modified	1		1
Pre-modification recorded investment	815		815
Post-modification recorded investment	814		814
Post-Modification Outstanding Recorded Investment at period end	814		814
Construction
Financing Receivable, Modifications [Line Items]
Number of Contracts Modified		2		1
Pre-modification recorded investment		11		4,745
Post-modification recorded investment		9		4,766
Post-Modification Outstanding Recorded Investment at period end		9		4,806
Installment and other consumer
Financing Receivable, Modifications [Line Items]
Number of Contracts Modified			6	2
Pre-modification recorded investment			281	11
Post-modification recorded investment			278	9
Post-Modification Outstanding Recorded Investment at period end			$ 270	$ 9

XML

Derivative Financial Instruments and Hedging Activities (Details) (USD $)					3 Months Ended		9 Months Ended													3 Months Ended				9 Months Ended
	Sep. 30, 2014		Dec. 31, 2013		Sep. 30, 2014 Fair value hedge	Sep. 30, 2013 Fair value hedge	Sep. 30, 2014 Fair value hedge	Sep. 30, 2013 Fair value hedge	Sep. 30, 2014 Designated as hedging instrument Fair value hedge	Dec. 31, 2013 Designated as hedging instrument Fair value hedge	Jun. 30, 2011 Interest rate swap Not Designated as Hedging Instrument Fair value hedge Forward swap derivative	Aug. 31, 2010 Interest rate swap Not Designated as Hedging Instrument Fair value hedge Forward swap derivative	Sep. 30, 2014 Interest rate swap Designated as hedging instrument Fair value hedge derivative	Sep. 30, 2014 Interest rate swap Designated as hedging instrument Fair value hedge Other assets	Dec. 31, 2013 Interest rate swap Designated as hedging instrument Fair value hedge Other assets	Sep. 30, 2014 Interest rate swap Designated as hedging instrument Fair value hedge Other liabilities	Dec. 31, 2013 Interest rate swap Designated as hedging instrument Fair value hedge Other liabilities	Jun. 30, 2011 Interest rate swap Designated as hedging instrument Fair value hedge Forward swap derivative	Aug. 31, 2010 Interest rate swap Designated as hedging instrument Fair value hedge Forward swap derivative	Sep. 30, 2014 Interest income Fair value hedge		Sep. 30, 2013 Interest income Fair value hedge		Sep. 30, 2014 Interest income Fair value hedge		Sep. 30, 2013 Interest income Fair value hedge		Sep. 30, 2014 Assets and liabilities at fair value measured on a recurring basis Interest rate contract Designated as hedging instrument Fair value hedge Other assets	Dec. 31, 2013 Assets and liabilities at fair value measured on a recurring basis Interest rate contract Designated as hedging instrument Fair value hedge Other assets	Sep. 30, 2014 Assets and liabilities at fair value measured on a recurring basis Interest rate contract Designated as hedging instrument Fair value hedge Other liabilities	Dec. 31, 2013 Assets and liabilities at fair value measured on a recurring basis Interest rate contract Designated as hedging instrument Fair value hedge Other liabilities
Derivatives, Fair Value [Line Items]
Number of derivative instruments qualifying for short-cut hedge treatment													1
Lower threshold requiring collateral to be posted, liabilities	$ 100,000
Higher threshold requiring collateral to be posted, liabilities	1,300,000
Number of derivative instruments											1	1	8					1	1
Accrued interest on swaps									39,000	70,000
Interest rate contracts notional amount, Asset derivatives														10,353,000	17,956,000
Interest rate contracts notional amount, Liability derivatives																21,620,000	21,577,000
Interest rate contracts fair value, Asset derivatives	313,000	[1]	961,000	[1]																								313,000	961,000
Interest rate contracts fair value, Liability derivatives	1,537,000	[2]	2,519,000	[2]																										1,537,000	2,519,000
Increase in value of designated interest rate swaps recognized in interest income																				21,000		196,000		334,000		2,800,000
Payment on interest rate swaps recorded in interest income																				(251,000)		(358,000)		(755,000)		(1,075,000)
Decrease in value of hedged loans recognized in interest income																				(54,000)		(245,000)		(133,000)		(3,033,000)
Decrease in value of yield maintenance agreement recognized against interest income																				(15,000)		(18,000)		(77,000)		(54,000)
Net loss on derivatives recognized against interest income																				(299,000)	[3]	(425,000)	[3]	(631,000)	[3]	(1,362,000)	[3]
Net hedge ineffectiveness, derivatives					$ 48,000	$ 67,000	$ 125,000	$ 287,000

[1] Amounts exclude accrued interest totaling $7 thousand and $10 thousand at September 30, 2014 and December 31, 2013, respectively.

[2] Amounts exclude accrued interest totaling $32 thousand and $60 thousand at September 30, 2014 and December 31, 2013, respectively.

[3] Includes hedge ineffectiveness loss of $48 thousand and loss of $67 thousand for the quarters ended September 30, 2014 and September 30, 2013, respectively. Hedge ineffectiveness gain of $125 thousand and loss of $287 thousand was recorded in interest income during the nine months ended September 30, 2014 and September 30, 2013, respectively. Changes in value of swaps were included in the assessment of hedge effectiveness.

XML

Stockholders' Equity (Details) (USD $)	0 Months Ended	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended	0 Months Ended			0 Months Ended
	Dec. 05, 2008	Nov. 30, 2011 investor	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Dec. 05, 2008 U.S. Treasury Capital Purchase Program (TCPP)	Sep. 30, 2014 Common stock	Dec. 05, 2008 Common stock U.S. Treasury Capital Purchase Program (TCPP)	Mar. 31, 2009 Senior preferred stock U.S. Treasury Capital Purchase Program (TCPP)	Dec. 05, 2008 Senior preferred stock U.S. Treasury Capital Purchase Program (TCPP)	Dec. 05, 2008 Warrant to purchase common stock U.S. Treasury Capital Purchase Program (TCPP)
Class of Stock [Line Items]
Preferred stock, issued			0		0		0	28,000
Preferred stock, no par value			$ 0		$ 0		$ 0					$ 0
Per share liquidation preference for senior preferred stock								$ 1,000
Number of common stock shares authorized to be purchased by warrant									156,688	154,242
Exercise price of warrant to purchase common stock (usd per share)									$ 26.81	$ 27.23
Proceeds from issuance of senior preferred stock and warrant								$ 28,000,000				$ 27,000,000	$ 961,000
Warrant expiration period	10 years
Stock repurchased from U.S. Treasury, shares											28,000
Stock repurchased from U.S. Treasury, value											28,000,000
Accrued but unpaid dividends on repurchased preferred stock											179,000
Remaining accretion of repurchased preferred stock											945,000
Number of institutional investors that purchased warrant		2
Cash dividends to common stockholders			$ 1,185,000	$ 982,000	$ 3,428,000	$ 2,932,000	$ 3,970,000
Cash dividends paid per common share			$ 0.20	$ 0.18	$ 0.58	$ 0.54

XML

Investment Securities - Securities Sold and Pledged as Collateral (Details) (USD $)	1 Months Ended	9 Months Ended										1 Months Ended	9 Months Ended
	Jan. 31, 2013	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 State of California	Dec. 31, 2013 State of California	Sep. 30, 2014 Public Deposits	Dec. 31, 2013 Public Deposits	Sep. 30, 2014 Trust Deposits	Dec. 31, 2013 Trust Deposits	Sep. 30, 2014 Internal checking account	Dec. 31, 2013 Internal checking account	Jan. 31, 2013 Available-for-sale Securities security	Sep. 30, 2014 Available-for-sale Securities security	Sep. 30, 2014 Held-to-maturity Securities security
Financial Instruments Owned and Pledged as Collateral [Line Items]
Number of securities sold during period												2	2	6
Proceeds from sale of available-for-sale securities		$ 2,435,000	$ 2,220,000									$ 1,100,000
Proceeds from sale of held-to-maturity securities		2,146,000	0
Loss on sale of available-for-sale securities sold		11,000
Gain on sale of held-to-maturity securities		104,000
Gain on sale of available-for-sale securities sold	339
Available-for-sale securities pledged as collateral				$ 67,400,000	$ 61,800,000	$ 66,500,000	$ 61,100,000	$ 860,000	$ 732,000	$ 1,100,000	$ 1,100,000

XML

Derivative Financial Instruments and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

Information on our derivatives follows:

	Asset derivatives				Liability derivatives
(dollars in thousands; 2014 unaudited)	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Fair value hedges:
Interest rate contracts notional amount	$	10,353	$	17,956	$	21,620	$	21,577
Interest rate contracts fair value1	$	313	$	961	$	1,537	$	2,519

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance

	Three months ended
(dollars in thousands; unaudited)	September 30, 2014			September 30, 2013
Increase in value of designated interest rate swaps recognized in interest income	$	21		$	196
Payment on interest rate swaps recorded in interest income	(251		)	(358		)
Decrease in value of hedged loans recognized in interest income	$	(54	)	(245		)
Decrease in value of yield maintenance agreement recognized against interest income	(15		)	(18		)
Net loss on derivatives recognized against interest income 2	$	(299	)	$	(425	)

	Nine months ended
(dollars in thousands; unaudited)	September 30, 2014			September 30, 2013
Increase in value of designated interest rate swaps recognized in interest income	$	334		$	2,800
Payment on interest rate swaps recorded in interest income	(755		)	(1,075		)
Decrease in value of hedged loans recognized in interest income	(133		)	(3,033		)
Decrease in value of yield maintenance agreement recognized against interest income	(77		)	(54		)
Net loss on derivatives recognized against interest income 2	$	(631	)	$	(1,362	)

¹ See Note 4 for valuation methodology.

² Includes hedge ineffectiveness loss of $48 thousand and loss of $67 thousand for the quarters ended September 30, 2014 and September 30, 2013, respectively. Hedge ineffectiveness gain of $125 thousand and loss of $287 thousand was recorded in interest income during the nine months ended September 30, 2014 and September 30, 2013, respectively. Changes in value of swaps were included in the assessment of hedge effectiveness.

Offsetting Assets

Information on financial instruments that are eligible for offset in the consolidated statements of condition follows:

Offsetting of Financial Assets and Derivative Assets
(dollars in thousands; 2014 unaudited)							Gross Amounts Not Offset in the Statements of Condition
			Gross Amounts		Net Amounts
	Gross Amounts		Offset in the		of Assets Presented
	of Recognized		Statements of		in the Statements		Financial			Cash Collateral
	Assets1		Condition		of Condition1		Instruments			Received		Net Amount
As of September 30, 2014
Derivatives by Counterparty
Counterparty A	$	313	$	—	$	313	$	(313	)	$	—	$	—
Counterparty B	—		—		—		—			—		—
Total	$	313	$	—	$	313	$	(313	)	$	—	$	—
As of December 31, 2013
Derivatives by Counterparty
Counterparty A	$	961	$	—	$	961	$	(825	)	$	—	$	136
Counterparty B	—		—		—		—			—		—
Total	$	961	$	—	$	961	$	(825	)	$	—	$	136

¹ Amounts exclude accrued interest totaling $7 thousand and $10 thousand at September 30, 2014 and December 31, 2013, respectively.

Offsetting Liabilities

Offsetting of Financial Liabilities and Derivative Liabilities
(dollars in thousands; 2014 unaudited)							Gross Amounts Not Offset in the Statements of Condition
			Gross Amounts		Net Amounts of
	Gross Amounts		Offset in the		Liabilities Presented
	of Recognized		Statements of		in the Statements of		Financial			Cash Collateral
	Liabilities2		Condition		Condition2		Instruments			Pledged			Net Amount
As of September 30, 2014
Derivatives by Counterparty
Counterparty A	$	1,140	$	—	$	1,140	$	(313	)	$	—		$	827
Counterparty B	397		—		397		—			(397		)	—
Total	$	1,537	$	—	$	1,537	$	(313	)	$	(397	)	$	827
As of December 31, 2013
Derivatives by Counterparty
Counterparty A	$	825	$	—	$	825	$	(825	)	$	—		$	—
Counterparty B	1,694		—		1,694		—			(1,694		)	—
Total	$	2,519	$	—	$	2,519	$	(825	)	$	(1,694	)	$	—

² Amounts exclude accrued interest totaling $32 thousand and $60 thousand at September 30, 2014 and December 31, 2013, respectively.

XML

Derivative Financial Instruments and Hedging Activities - Offsetting of Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Offsetting Liabilities [Line Items]
Gross Amounts of Recognized Liabilities	$ 1,537	[1]	$ 2,519	[1]
Gross Amounts Offset in the Statements of Condition	0		0
Net Amounts of Liabilities Presented in the Statements of Condition	1,537	[1]	2,519	[1]
Gross Amounts Not Offset in the Statements of Condition, Financial Instruments	(313)		(825)
Gross Amounts Not Offset in the Statements of Condition, Cash Collateral Pledged	(397)		(1,694)
Net Amount	827		0
Counterparty A
Offsetting Liabilities [Line Items]
Gross Amounts of Recognized Liabilities	1,140	[1]	825	[1]
Gross Amounts Offset in the Statements of Condition	0		0
Net Amounts of Liabilities Presented in the Statements of Condition	1,140	[1]	825	[1]
Gross Amounts Not Offset in the Statements of Condition, Financial Instruments	(313)		(825)
Gross Amounts Not Offset in the Statements of Condition, Cash Collateral Pledged	0		0
Net Amount	827		0
Counterparty B
Offsetting Liabilities [Line Items]
Gross Amounts of Recognized Liabilities	397	[1]	1,694	[1]
Gross Amounts Offset in the Statements of Condition	0		0
Net Amounts of Liabilities Presented in the Statements of Condition	397	[1]	1,694	[1]
Gross Amounts Not Offset in the Statements of Condition, Financial Instruments	0		0
Gross Amounts Not Offset in the Statements of Condition, Cash Collateral Pledged	(397)		(1,694)
Net Amount	0		0
Other liabilities | Interest rate swap
Offsetting Liabilities [Line Items]
Accrued interest on derivative liability interest swaps	$ 32		$ 60

[1] Amounts exclude accrued interest totaling $32 thousand and $60 thousand at September 30, 2014 and December 31, 2013, respectively.

XML

Loans and Allowance for Loan Losses - Purchased Credit-Impaired Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013	Dec. 31, 2013
PCI Loans, Carrying Value [Abstract]
Unpaid principal balance	$ 7,723				$ 7,723			$ 10,634
Carrying value	5,193				5,193			7,115
Accretable Yield [Roll Forward]
Balance at beginning of period	4,514		3,277		3,649		3,960
Removals	0	[1]	0	[1]	(273)	[1]	(791)
Accretion	(126)		(153)		(494)		(545)
Reclassifications (to) from nonaccretable difference	(242)	[2]	0	[2]	1,264	[2]	500
Balance at end of period	4,146		3,124		4,146		3,124
Commercial and industrial
PCI Loans, Carrying Value [Abstract]
Unpaid principal balance	503				503			1,094
Carrying value	334				334			333
Commercial real estate loans
PCI Loans, Carrying Value [Abstract]
Unpaid principal balance	6,848				6,848			9,152
Carrying value	4,781				4,781			6,698
Construction
PCI Loans, Carrying Value [Abstract]
Unpaid principal balance	138				138			149
Carrying value	11				11			15
Home equity
PCI Loans, Carrying Value [Abstract]
Unpaid principal balance	234				234			239
Carrying value	$ 67				$ 67			$ 69

[1] Represents the accretable difference that is relieved when a loan exits the PCI population due to payoff, full charge-off, or transfer to repossessed assets, etc.

[2] Primarily relates to changes in expected credit performance and changes in expected amounts and/or timing of cash flows.

XML

Loans and Allowance for Loan Losses - Credit Quality of Loans (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Purchase credit-impaired	$ 5,193		$ 7,115
Total loans	1,360,985	[1]	1,269,322	[1]
Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	201,182		182,958
Purchase credit-impaired	334		333
Total loans	201,516	[1]	183,291	[1]
Commercial real estate, owner-occupied
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	231,897		236,294
Purchase credit-impaired	2,596		4,853
Total loans	234,493	[1]	241,113	[1]
Commercial real estate, investor
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	672,243		623,140
Purchase credit-impaired	2,185		1,845
Total loans	674,428	[1]	625,019	[1]
Construction
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	45,937		31,562
Purchase credit-impaired	11		15
Total loans	45,948	[1]	31,577	[1]
Home equity
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	109,588		98,400
Purchase credit-impaired	67		69
Total loans	109,655	[1]	98,469	[1]
Other residential
Financing Receivable, Recorded Investment [Line Items]
Purchase credit-impaired	0		0
Total loans	75,992	[1],[2]	72,634	[1],[2]
Installment and other consumer
Financing Receivable, Recorded Investment [Line Items]
Purchase credit-impaired	0		0
Total loans	18,953	[1]	17,219	[1]
Pass
Financing Receivable, Recorded Investment [Line Items]
Purchase credit-impaired	2,203		1,340
Total loans	1,288,435		1,194,032
Pass | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	186,922		162,625
Pass | Commercial real estate, owner-occupied
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	209,600		216,537
Pass | Commercial real estate, investor
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	654,889		609,157
Pass | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	39,358		25,069
Pass | Home equity
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	104,794		93,792
Pass | Other residential
Financing Receivable, Recorded Investment [Line Items]
Total loans	72,732		69,176
Pass | Installment and other consumer
Financing Receivable, Recorded Investment [Line Items]
Total loans	17,937		16,336
Special Mention
Financing Receivable, Recorded Investment [Line Items]
Purchase credit-impaired	1,146		894
Total loans	33,551		44,150
Special Mention | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	7,749		13,990
Special Mention | Commercial real estate, owner-occupied
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	10,471		16,533
Special Mention | Commercial real estate, investor
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	9,359		8,570
Special Mention | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	856		725
Special Mention | Home equity
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	1,849		2,164
Special Mention | Other residential
Financing Receivable, Recorded Investment [Line Items]
Total loans	1,704		1,047
Special Mention | Installment and other consumer
Financing Receivable, Recorded Investment [Line Items]
Total loans	417		227
Substandard
Financing Receivable, Recorded Investment [Line Items]
Purchase credit-impaired	1,844		4,881
Total loans	38,999		31,140
Substandard | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	6,511		6,343
Substandard | Commercial real estate, owner-occupied
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	11,826		3,224
Substandard | Commercial real estate, investor
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	7,995		5,413
Substandard | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	5,723		5,768
Substandard | Home equity
Financing Receivable, Recorded Investment [Line Items]
Loans excluding purchased credit-impaired loans	2,945		2,444
Substandard | Other residential
Financing Receivable, Recorded Investment [Line Items]
Total loans	1,556		2,411
Substandard | Installment and other consumer
Financing Receivable, Recorded Investment [Line Items]
Total loans	$ 599		$ 656

[1] Amounts include net deferred loan costs of $406 thousand and $24 thousand at September 30, 2014 and December 31, 2013, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $4.9 million and $7.6 million at September 30, 2014 and December 31, 2013, respectively.

[2] Our residential loan portfolio includes no sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or higher loan-to-value ratios.

XML

Commitments and Contingencies (Details) (USD $)		0 Months Ended
	Sep. 30, 2014	Jan. 27, 2014 Visa	Sep. 30, 2014 Loan commitments and standby letters of credit, unused	Sep. 30, 2014 Loan commitments and standby letters of credit, unused Interest payable and other liabilities	Sep. 30, 2014 Commercial lines of credit	Sep. 30, 2014 Revolving home equity lines	Sep. 30, 2014 Undisbursed construction loans	Sep. 30, 2014 Standby letters of credit	Sep. 30, 2014 Personal and other lines of credit
Loss Contingencies [Line Items]
Loan commitments and standby letters of credit, off-balance sheet			$ 340,300,000		$ 172,900,000	$ 111,200,000	$ 32,200,000	$ 10,900,000	$ 13,100,000
Allowance for off balance sheet commitments				677,000
Operating Leases
2014	906,000
2015	3,735,000
2016	3,788,000
2017	3,781,000
2018	3,810,000
Thereafter	10,339,000
Total	26,359,000
Litigation and Regulatory Matters
Estimated portion of the takedown payments related to the opt-out merchants		$ 1,100,000,000

XML

Acquisition

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Acquisition

Acquisition

On November 29, 2013, we completed the merger of NorCal, parent company of Bank of Alameda, to enhance our market presence. The merger added $173.8 million in loans, $241.0 million in deposits and $53.7 million in investment securities to Bank of Marin as well as four branch offices serving Alameda, Emeryville, and Oakland in California. Effective October 31, 2014, the Emeryville branch was closed after Management determined that our customers and the business community can be easily supported from our Oakland location. The assets acquired and liabilities assumed, both tangible and intangible, were recorded at their fair values as of the acquisition date in accordance with ASC 805, Business Combinations. We have up to a year from the acquisition date to obtain additional information that existed at the acquisition date and affected the identification and measurement of assets acquired and liabilities assumed. As of September 30, 2014, there have been no additional information nor significant changes in the acquisition-date fair value of assets acquired or liabilities assumed. The acquisition was treated as a "reorganization" within the definition of section 368(a) of the Internal Revenue Code and is generally considered tax-free for U.S. federal income tax purposes.

As a result of the Acquisition, we recorded $6.4 million in goodwill, which represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. Goodwill mainly reflects expected value created through the combined operations of Bank of Alameda and Bank of Marin and our expanded footprint in the East Bay. It is evaluated for impairment annually. We determined that the fair value of our traditional community banking activities (provided through our branch network) exceeded its carrying amount. Therefore, no impairment on goodwill has been recorded. The goodwill is not deductible for tax purposes.

Core deposit intangible represents estimated future benefits of acquired deposits and is booked separately from the related deposits. We recorded a core deposit intangible asset of $4.6 million on November 29, 2013, of which $69 thousand was amortized in 2013 and $578 thousand was amortized in the first nine months of 2014. It is amortized on an accelerated basis over an estimated ten-year life. The core deposit intangible asset is evaluated periodically for impairment, and no impairment loss was recognized as of September 30, 2014.

XML

Loans and Allowance for Loan Losses - Pledged Loans (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Financial Instruments Owned and Pledged as Collateral [Line Items]
Residential loans pledged for FRB borrowings	$ 872.6	$ 716.2
Other residential
Financial Instruments Owned and Pledged as Collateral [Line Items]
Pledged Financial Instruments, Not Separately Reported, Loans Receivable Pledged as Collateral	28.5	24.4
Line of credit | Federal Home Loan Bank Borrowings
Financial Instruments Owned and Pledged as Collateral [Line Items]
Lines of credit	$ 455.8	$ 416.3

XML

Fair Value of Assets and Liabilities - Recorded on Nonrecurring Basis (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014		Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	$ 26,732		$ 25,695
Specific valuation allowance for impaired loans	1,333		1,989
Discount rate for selling costs applied to all properties	6.00%
OREO acquired	461		461
Changed in estimated value of OREO	0
Impaired loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Specific valuation allowance for impaired loans	15		363
Financial instruments at fair value measured on a nonrecurring basis | Carrying Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	64	[1]	3,072	[1]
Financial instruments at fair value measured on a nonrecurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	0		0
Financial instruments at fair value measured on a nonrecurring basis | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	0		0
Financial instruments at fair value measured on a nonrecurring basis | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	64		3,072
Construction
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	6,665		6,733
Specific valuation allowance for impaired loans	3		341
Construction | Financial instruments at fair value measured on a nonrecurring basis | Carrying Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value			3,037	[1]
Construction | Financial instruments at fair value measured on a nonrecurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value			0
Construction | Financial instruments at fair value measured on a nonrecurring basis | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value			0
Construction | Financial instruments at fair value measured on a nonrecurring basis | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value			3,037
Installment and other consumer
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	1,803		1,862
Specific valuation allowance for impaired loans	286		364
Installment and other consumer | Financial instruments at fair value measured on a nonrecurring basis | Carrying Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	64	[1]	35	[1]
Installment and other consumer | Financial instruments at fair value measured on a nonrecurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	0		0
Installment and other consumer | Financial instruments at fair value measured on a nonrecurring basis | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	0		0
Installment and other consumer | Financial instruments at fair value measured on a nonrecurring basis | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans carried at fair value, carrying value	$ 64		$ 35

[1] Represents collateral-dependent loan principal balances that had been generally written down to the values of the underlying collateral, net of specific valuation allowances of $15 thousand and $363 thousand at September 30, 2014 and December 31, 2013, respectively. The carrying value of loans fully charged-off, which includes unsecured lines of credit, overdrafts and all other loans, is zero.

XML

Fair Value of Assets and Liabilities - Recorded on a Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2014		Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	$ 211,582		$ 243,998
Derivative financial assets (interest rate contracts)	313	[1]	961	[1]
Derivative financial liabilities (interest rate contracts)	1,537	[2]	2,519	[2]
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Number of securities	0		0
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Number of securities	1
Assets and liabilities at fair value measured on a recurring basis | Carrying Value | Interest rate contract
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative financial assets (interest rate contracts)	313		961
Derivative financial liabilities (interest rate contracts)	1,537		2,519
Assets and liabilities at fair value measured on a recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Interest rate contract
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative financial assets (interest rate contracts)	0		0
Derivative financial liabilities (interest rate contracts)	0		0
Assets and liabilities at fair value measured on a recurring basis | Significant Other Observable Inputs (Level 2) | Interest rate contract
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative financial assets (interest rate contracts)	313		961
Derivative financial liabilities (interest rate contracts)	1,537		2,519
Assets and liabilities at fair value measured on a recurring basis | Significant Unobservable Inputs (Level 3) | Interest rate contract
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative financial assets (interest rate contracts)	0		0
Derivative financial liabilities (interest rate contracts)	0		0
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	101,345		123,033
Increase in unrealized gain due to transfers to Level 3	8
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies | Assets and liabilities at fair value measured on a recurring basis | Carrying Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	169,903		190,604
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies | Assets and liabilities at fair value measured on a recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	0		0
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies | Assets and liabilities at fair value measured on a recurring basis | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	167,160		190,604
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies | Assets and liabilities at fair value measured on a recurring basis | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	2,743		0
Debentures of government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	14,552		21,312
Debentures of government sponsored agencies | Assets and liabilities at fair value measured on a recurring basis | Carrying Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	14,552		21,312
Debentures of government sponsored agencies | Assets and liabilities at fair value measured on a recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	0		0
Debentures of government sponsored agencies | Assets and liabilities at fair value measured on a recurring basis | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	14,552		21,312
Debentures of government sponsored agencies | Assets and liabilities at fair value measured on a recurring basis | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	0		0
Privately-issued collateralized mortgage obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	7,843		10,874
Privately-issued collateralized mortgage obligations | Assets and liabilities at fair value measured on a recurring basis | Carrying Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value			10,874
Privately-issued collateralized mortgage obligations | Assets and liabilities at fair value measured on a recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	0		0
Privately-issued collateralized mortgage obligations | Assets and liabilities at fair value measured on a recurring basis | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	7,843		10,874
Privately-issued collateralized mortgage obligations | Assets and liabilities at fair value measured on a recurring basis | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	0		0
Obligations of state and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value			15,771
Obligations of state and political subdivisions | Assets and liabilities at fair value measured on a recurring basis | Carrying Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	14,271		15,771
Obligations of state and political subdivisions | Assets and liabilities at fair value measured on a recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	0		0
Obligations of state and political subdivisions | Assets and liabilities at fair value measured on a recurring basis | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	14,271		15,771
Obligations of state and political subdivisions | Assets and liabilities at fair value measured on a recurring basis | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	0		0
Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	5,013		5,437
Corporate bonds | Assets and liabilities at fair value measured on a recurring basis | Carrying Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	5,013		5,437
Corporate bonds | Assets and liabilities at fair value measured on a recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	0		0
Corporate bonds | Assets and liabilities at fair value measured on a recurring basis | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	5,013		5,437
Corporate bonds | Assets and liabilities at fair value measured on a recurring basis | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale, Fair Value	$ 0		$ 0

[1] Amounts exclude accrued interest totaling $7 thousand and $10 thousand at September 30, 2014 and December 31, 2013, respectively.

[2] Amounts exclude accrued interest totaling $32 thousand and $60 thousand at September 30, 2014 and December 31, 2013, respectively.

XML

Borrowings - Lines of Credit (Details) (USD $)	0 Months Ended	9 Months Ended
	Feb. 05, 2008	Sep. 30, 2014	Dec. 31, 2013
Line of Credit Facility [Line Items]
Periodic term lender may accelerate due date		3 months
Federal Funds Purchased | Line of credit
Line of Credit Facility [Line Items]
Amount of borrowings outstanding		$ 0	$ 0
Federal Home Loan Bank Borrowings | Line of credit
Line of Credit Facility [Line Items]
Lines of credit		455,800,000	416,300,000
Term of FHLB borrowing agreements	10 years
Principal amount of borrowing agreements with FHLB		15,000,000
Fixed interest rate of FHLB borrowing agreement	2.07%
Periodic term interest-only payments are due		3 months
Remaining available line of credit from FHLB		440,600,000
Federal Home Loan Bank Borrowings | Letters of credit
Line of Credit Facility [Line Items]
Amount of borrowings outstanding		241,000
Federal Home Loan Bank Overnight Borrowings | Line of credit
Line of Credit Facility [Line Items]
Amount of borrowings outstanding		0	0
Federal Reserve Line of Credit | Line of credit
Line of Credit Facility [Line Items]
Lines of credit		28,500,000	24,400,000
Amount of borrowings outstanding		0
Unsecured Debt | Federal Funds Purchased | Line of credit
Line of Credit Facility [Line Items]
Lines of credit		$ 72,000,000	$ 87,000,000

XML

Fair Value of Assets and Liabilities - Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended				0 Months Ended
	Nov. 29, 2013 debenture	Sep. 30, 2014	Dec. 31, 2013	Nov. 29, 2013 Subordinated Debt	Nov. 29, 2013 NorCal Community Bancorp Trust I Subordinated Debt	Nov. 29, 2013 NorCal Community Bancorp Trust II Subordinated Debt	Sep. 30, 2014 Carrying Value Fair Value Hierarchy, Level 1	Dec. 31, 2013 Carrying Value Fair Value Hierarchy, Level 1	Sep. 30, 2014 Carrying Value Fair Value Hierarchy, Level 2	Dec. 31, 2013 Carrying Value Fair Value Hierarchy, Level 2	Sep. 30, 2014 Carrying Value Fair Value Hierarchy, Level 3	Dec. 31, 2013 Carrying Value Fair Value Hierarchy, Level 3	Sep. 30, 2014 Fair Value Fair Value Hierarchy, Level 1	Dec. 31, 2013 Fair Value Fair Value Hierarchy, Level 1	Sep. 30, 2014 Fair Value Fair Value Hierarchy, Level 2	Dec. 31, 2013 Fair Value Fair Value Hierarchy, Level 2	Sep. 30, 2014 Fair Value Fair Value Hierarchy, Level 3	Dec. 31, 2013 Fair Value Fair Value Hierarchy, Level 3
Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]
Cash and cash equivalents							$ 46,424	$ 103,773					$ 46,424	$ 103,773
Investment securities held to maturity		121,177	123,858						118,843	122,495					121,177	123,858
Loans, net											1,345,936	1,255,098					1,361,745	1,245,475
Interest receivable									5,645	5,767					5,645	5,767
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]
Deposits									1,571,624	1,587,102					1,572,582	1,588,278
Federal Home Loan Bank borrowings									15,000	15,000					15,501	15,665
Subordinated debentures				4,950							5,131	4,969					5,187	4,950
Interest payable									$ 209	$ 253					$ 209	$ 253
Subordinated Debt [Abstract]
Number of subordinated debentures acquired	2
Basis spread on subordinated debentures					3.05%	1.40%
Illiquidity premium, percent	3.00%

XML

Investment Securities - Amortized Cost and Fair Value (Details) (USD $)	0 Months Ended
	Jan. 31, 2014	Sep. 30, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Held to maturity, Amortized Cost		$ 118,843,000	$ 122,495,000
Held to maturity, Fair Value		121,177,000	123,858,000
Held-to-maturity, Gross Unrealized Gains		2,427,000	2,139,000
Held-to-maturity, Total Securities in a loss position, Unrealized loss		(93,000)	(776,000)
Available-for-sale, Amortized Cost		210,676,000	245,158,000
Available-for-sale, Fair Value		211,582,000	243,998,000
Available-for-sale, Gross Unrealized Gains		1,631,000	1,833,000
Available-for-sale, Gross Unrealized Losses		(725,000)	(2,993,000)
Total investment securities, Amortized Cost		329,519,000	367,653,000
Total investment securities, Fair Value		332,759,000	367,856,000
Available-for-sale Securities and Held-to-maturity Securities, Gross Unrealized Gains		4,058,000	3,972,000
Available-for-sale Securities and Held-to-maturity Securities, Gross Unrealized Losses		(818,000)	(3,769,000)
MBS pass-through securities issued by FNMA and FHLMC
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, Amortized Cost		100,978,000	124,063,000
Available-for-sale, Fair Value		101,345,000	123,033,000
Available-for-sale, Gross Unrealized Gains		555,000	616,000
Available-for-sale, Gross Unrealized Losses		(188,000)	(1,646,000)
Available-for-sale securities transferred to held-to-maturity	14,200,000
Available-for-sale securities transferred to held-to-maturity, unrealized pre-tax holding gain	84,000
CMOs issued by FNMA
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, Amortized Cost		15,608,000	18,573,000
Available-for-sale, Fair Value		15,600,000	18,438,000
Available-for-sale, Gross Unrealized Gains		65,000	60,000
Available-for-sale, Gross Unrealized Losses		(73,000)	(195,000)
CMOs issued by FHLMC
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, Amortized Cost		33,288,000	23,710,000
Available-for-sale, Fair Value		33,243,000	23,679,000
Available-for-sale, Gross Unrealized Gains		96,000	144,000
Available-for-sale, Gross Unrealized Losses		(141,000)	(175,000)
CMOs issued by GNMA
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, Amortized Cost		19,359,000	24,944,000
Available-for-sale, Fair Value		19,715,000	25,454,000
Available-for-sale, Gross Unrealized Gains		364,000	609,000
Available-for-sale, Gross Unrealized Losses		(8,000)	(99,000)
Debentures of government sponsored agencies
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, Amortized Cost		14,727,000	21,845,000
Available-for-sale, Fair Value		14,552,000	21,312,000
Available-for-sale, Gross Unrealized Gains		111,000	108,000
Available-for-sale, Gross Unrealized Losses		(286,000)	(641,000)
Privately-issued CMOs
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, Amortized Cost		7,627,000	10,649,000
Available-for-sale, Fair Value		7,843,000	10,874,000
Available-for-sale, Gross Unrealized Gains		220,000	257,000
Available-for-sale, Gross Unrealized Losses		(4,000)	(32,000)
Obligations of state and political subdivisions
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, Amortized Cost		14,156,000	15,948,000
Available-for-sale, Fair Value			15,771,000
Available-for-sale, Gross Unrealized Gains		137,000	14,000
Available-for-sale, Gross Unrealized Losses		(22,000)	(191,000)
Corporate bonds
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, Amortized Cost		4,933,000	5,426,000
Available-for-sale, Fair Value		5,013,000	5,437,000
Available-for-sale, Gross Unrealized Gains		83,000	25,000
Available-for-sale, Gross Unrealized Losses		(3,000)	(14,000)
Obligations of state and political subdivisions
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Held to maturity, Amortized Cost		65,089,000	80,381,000
Held to maturity, Fair Value		66,943,000	81,429,000
Held-to-maturity, Gross Unrealized Gains		1,935,000	1,764,000
Held-to-maturity, Total Securities in a loss position, Unrealized loss		(81,000)	(716,000)
Corporate bonds
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Held to maturity, Amortized Cost		40,363,000	42,114,000
Held to maturity, Fair Value		40,691,000	42,429,000
Held-to-maturity, Gross Unrealized Gains		340,000	375,000
Held-to-maturity, Total Securities in a loss position, Unrealized loss		(12,000)	(60,000)
MBS pass-through securities issued by FNMA and FHLMC
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Held to maturity, Amortized Cost		13,391,000	0
Held to maturity, Fair Value		13,543,000	0
Held-to-maturity, Gross Unrealized Gains		152,000	0
Held-to-maturity, Total Securities in a loss position, Unrealized loss		$ 0	$ 0

XML

Recently Issued Accounting Standards

9 Months Ended

Sep. 30, 2014

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In July 2013, the FASB issued ASU No. 2013-10, Derivatives and Hedging (Topic 815) Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedging Accounting Purposes. The ASU provides for the inclusion of the Fed Funds Effective Swap Rate or also referred to as the Overnight Index Swap Rate ("OIS") as a U.S. benchmark interest rate for hedge accounting purposes, in addition to direct Treasury obligations of the U.S. government ("UST") and London Interbank Offered Rate ("LIBOR"). The ASU is a result of the financial crisis in 2008, as the exposure to and the demand for hedging the Fed Funds rate have increased significantly. ASU 2013-10 is effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. This ASU did not have a significant impact on our financial condition or results of operations.

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The ASU requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss ("NOL") carryforward, or similar tax loss or tax credit carryforward, rather than as a liability, when (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) the entity intends to and is able to use the deferred tax asset for that purpose. Otherwise, the unrecognized tax benefit should be presented as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective prospectively for fiscal years, and interim periods beginning after December 15, 2013 for public entities. We adopted this ASU in the first quarter of 2014 and the adoption did not have an impact on our financial condition or results of operations.

In January 2014, the FASB issued ASU No. 2014-01, Investments - Equity Method and Joint Ventures (Topic 323) Accounting for Investments in Qualified Affordable Housing Projects. This ASU permits entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and the net investment performance is recognized in the income statement as part of income tax expense (benefit). We adopted this ASU in the first quarter of 2014 and elected to account for all low income housing investments using the proportional amortization method instead of cost method. The change in accounting policy did not have a significant impact on our financial condition or results of operations.

In January 2014, the FASB issued ASU No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. Current accounting literature on troubled debt restructurings include guidance on when a creditor obtains one or more collateral assets in satisfaction of all or part of the receivable. The accounting literature indicates that a creditor should reclassify a collateralized mortgage loan such that the loan should be de-recognized and the collateral asset recognized when it is determined that there has been in substance a repossession or foreclosure by the creditor. However, in substance repossession or foreclosure and physical possession are not currently defined and there is diversity about when a creditor should de-recognize the loan receivable and recognize the real estate property. This ASU clarifies when an in substance repossession or foreclosure occurs. ASU 2014-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014 for public entities. We do not expect this ASU to have a significant impact on our financial condition or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective on a retrospective basis for annual reporting periods beginning after December 15, 2016. Since this ASU does not apply to financial instruments, we do not expect this ASU to have a significant impact on our financial condition or results of operations.

In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860) Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. This ASU changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions. The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. This ASU is effective for the first interim or annual period beginning after December 15, 2014. Since we currently do not enter into repurchase agreements, we do not expect this ASU to have a significant impact on our financial condition or results of operations.

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU provides guidance for entities that grant their employees share-based payment awards where a performance target that affects vesting could be achieved after the requisite service period. That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target could be achieved and still be eligible to vest in the award if and when the performance target is achieved. This ASU stipulates that compensation expense should be recognized in the period where the performance target becomes probable of being achieved as opposed to the date that the award was granted. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. We do not expect this ASU to have a significant impact on our financial condition or results of operations, as we currently do not grant share-based payment awards where a performance target that affects vesting could be achieved after the requisite service period.

XML

Investment Securities - Maturities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Investments, Debt and Equity Securities [Abstract]
Held to Maturity, Amortized Cost, Within one year	$ 25,111	$ 8,731
Held to Maturity, Amortized Cost, After one but within five years	63,192	88,255
Held to Maturity, Amortized Cost, After five years through ten years	15,900	24,244
Held to Maturity, Amortized Cost, After ten years	14,640	1,265
Held to Maturity, Amortized Cost, Total	118,843	122,495
Available for Sale Securities, Amortized Cost, Within one year	2,377	5,522
Available for Sale, Amortized Cost, After one but within five years	39,599	42,229
Available for Sale, Amortized Cost, After five years through ten years	19,241	26,232
Available for Sale, Amortized Cost, After ten years	149,459	171,175
Available for Sale, Amortized Cost, Total	210,676	245,158
Held to Maturity, Fair Value, Within one year	25,272	8,784
Held to Maturity, Fair Value, After one but within five years	64,436	89,095
Held to Maturity, Fair Value, After five years through ten years	16,669	24,786
Held to Maturity, Fair Value, After ten years	14,800	1,193
Held to maturity, Fair Value	121,177	123,858
Available for Sale, Fair Value, Within one year	2,389	5,521
Available for Sale, Fair Value, After one but within five years	39,793	42,338
Available for Sale, Fair Value, After five years through ten years	19,031	25,478
Available for Sale, Fair Value, After ten years	150,369	170,661
Available for Sale, Fair Value, Total	$ 211,582	$ 243,998

XML

Loans and Allowance for Loan Losses - Impaired Loans and Related Allowance (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Recorded investment in impaired loans:
With no specific allowance recorded	$ 16,344,000		$ 16,344,000		$ 10,242,000
With a specific allowance recorded	10,388,000		10,388,000		15,453,000
Total recorded investment in impaired loans	26,732,000		26,732,000		25,695,000
Unpaid principal balance of impaired loans:
With no specific allowance recorded	23,214,000		23,214,000		17,160,000
With a specific allowance recorded	10,674,000		10,674,000		16,848,000
Total unpaid principal balance of impaired loans	33,888,000		33,888,000		34,008,000
Specific valuation	1,333,000		1,333,000		1,989,000
Average recorded investment in impaired loans during the period	26,186,000	29,520,000	25,884,000	29,408,000
Interest income recognized on impaired loans during the period ended	210,000	236,000	743,000	895,000
Gross interest income that would have been recorded had nonaccrual loans been current	182,000	291,000	567,000	827,000
Charged-off portion of impaired loans	5,500,000		5,500,000
Outstanding commitments to extend credit on impaired loans	1,185,000		1,185,000
Commercial and industrial
Recorded investment in impaired loans:
With no specific allowance recorded	1,212,000		1,212,000		977,000
With a specific allowance recorded	3,125,000		3,125,000		4,725,000
Total recorded investment in impaired loans	4,337,000		4,337,000		5,702,000
Unpaid principal balance of impaired loans:
With no specific allowance recorded	1,258,000		1,258,000		977,000
With a specific allowance recorded	3,220,000		3,220,000		4,930,000
Total unpaid principal balance of impaired loans	4,478,000		4,478,000		5,907,000
Specific valuation	817,000		817,000		1,170,000
Average recorded investment in impaired loans during the period	5,292,000	5,933,000	5,818,000	7,584,000
Interest income recognized on impaired loans during the period ended	88,000	102,000	309,000	343,000
Commercial real estate, owner-occupied
Recorded investment in impaired loans:
With no specific allowance recorded	5,609,000		5,609,000		1,403,000
With a specific allowance recorded	2,882,000		2,882,000		4,085,000
Total recorded investment in impaired loans	8,491,000		8,491,000		5,488,000
Unpaid principal balance of impaired loans:
With no specific allowance recorded	7,266,000		7,266,000		3,060,000
With a specific allowance recorded	2,882,000		2,882,000		5,088,000
Total unpaid principal balance of impaired loans	10,148,000		10,148,000		8,148,000
Specific valuation	100,000		100,000		90,000
Average recorded investment in impaired loans during the period	6,982,000	3,526,000	5,980,000	2,861,000
Interest income recognized on impaired loans during the period ended	54,000	63,000	220,000	170,000
Commercial real estate, investor
Recorded investment in impaired loans:
With no specific allowance recorded	3,032,000		3,032,000		3,341,000
With a specific allowance recorded	0		0		0
Total recorded investment in impaired loans	3,032,000		3,032,000		3,341,000
Unpaid principal balance of impaired loans:
With no specific allowance recorded	5,023,000		5,023,000		5,333,000
With a specific allowance recorded	0		0		0
Total unpaid principal balance of impaired loans	5,023,000		5,023,000		5,333,000
Specific valuation	0		0		0
Average recorded investment in impaired loans during the period	3,090,000	6,389,000	3,186,000	6,178,000
Interest income recognized on impaired loans during the period ended	7,000	7,000	21,000	7,000
Construction
Recorded investment in impaired loans:
With no specific allowance recorded	5,173,000		5,173,000		2,806,000
With a specific allowance recorded	1,492,000		1,492,000		3,927,000
Total recorded investment in impaired loans	6,665,000		6,665,000		6,733,000
Unpaid principal balance of impaired loans:
With no specific allowance recorded	7,863,000		7,863,000		5,547,000
With a specific allowance recorded	1,682,000		1,682,000		4,114,000
Total unpaid principal balance of impaired loans	9,545,000		9,545,000		9,661,000
Specific valuation	3,000		3,000		341,000
Average recorded investment in impaired loans during the period	6,678,000	8,479,000	6,568,000	7,138,000
Interest income recognized on impaired loans during the period ended	23,000	21,000	67,000	233,000
Home equity
Recorded investment in impaired loans:
With no specific allowance recorded	550,000		550,000		349,000
With a specific allowance recorded	302,000		302,000		157,000
Total recorded investment in impaired loans	852,000		852,000		506,000
Unpaid principal balance of impaired loans:
With no specific allowance recorded	1,036,000		1,036,000		835,000
With a specific allowance recorded	302,000		302,000		157,000
Total unpaid principal balance of impaired loans	1,338,000		1,338,000		992,000
Specific valuation	29,000		29,000		1,000
Average recorded investment in impaired loans during the period	857,000	775,000	730,000	1,022,000
Interest income recognized on impaired loans during the period ended	5,000	5,000	14,000	25,000
Other residential
Recorded investment in impaired loans:
With no specific allowance recorded	528,000		528,000		1,254,000
With a specific allowance recorded	1,024,000		1,024,000		809,000
Total recorded investment in impaired loans	1,552,000		1,552,000		2,063,000
Unpaid principal balance of impaired loans:
With no specific allowance recorded	528,000		528,000		1,254,000
With a specific allowance recorded	1,024,000		1,024,000		809,000
Total unpaid principal balance of impaired loans	1,552,000		1,552,000		2,063,000
Specific valuation	98,000		98,000		23,000
Average recorded investment in impaired loans during the period	1,440,000	2,576,000	1,726,000	2,744,000
Interest income recognized on impaired loans during the period ended	14,000	22,000	56,000	67,000
Installment and other consumer
Recorded investment in impaired loans:
With no specific allowance recorded	240,000		240,000		112,000
With a specific allowance recorded	1,563,000		1,563,000		1,750,000
Total recorded investment in impaired loans	1,803,000		1,803,000		1,862,000
Unpaid principal balance of impaired loans:
With no specific allowance recorded	240,000		240,000		154,000
With a specific allowance recorded	1,564,000		1,564,000		1,750,000
Total unpaid principal balance of impaired loans	1,804,000		1,804,000		1,904,000
Specific valuation	286,000		286,000		364,000
Average recorded investment in impaired loans during the period	1,847,000	1,842,000	1,876,000	1,881,000
Interest income recognized on impaired loans during the period ended	$ 19,000	$ 16,000	$ 56,000	$ 50,000

XML

CONSOLIDATED STATEMENTS OF CONDITION (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Assets
Cash and due from banks	$ 46,424	$ 103,773
Investment securities
Held-to-maturity, at amortized cost	118,843	122,495
Available-for-sale, at fair value (amortized cost $210,676 and $245,158 at September 30, 2014 and December 31, 2013, respectively)	211,582	243,998
Total investment securities	330,425	366,493
Loans, net of allowance for loan losses of $15,049 and $14,224 at September 30, 2014 and December 31, 2013, respectively	1,345,936	1,255,098
Bank premises and equipment, net	9,277	9,110
Goodwill	6,436	6,436
Core deposit intangible	3,925	4,503
Interest receivable and other assets	60,234	59,781
Total assets	1,802,657	1,805,194
Deposits
Non-interest-bearing	717,720	648,191
Interest-bearing
Transaction accounts	89,891	137,748
Savings accounts	127,774	118,770
Money market accounts	485,626	520,525
Time accounts	150,613	161,868
Total deposits	1,571,624	1,587,102
Federal Home Loan Bank (FHLB) borrowing	15,000	15,000
Subordinated debentures	5,131	4,969
Interest payable and other liabilities	15,228	17,236
Total liabilities	1,606,983	1,624,307
Stockholders' Equity
Preferred stock, no par value Authorized - 5,000,000 shares, none issued	0	0
Common stock, no par value Authorized - 15,000,000 shares; Issued and outstanding - 5,930,100 and 5,877,524 at September 30, 2014 and December 31, 2013, respectively	81,993	80,095
Retained earnings	113,115	101,464
Accumulated other comprehensive income (loss), net	566	(672)
Total stockholders' equity	195,674	180,887
Total liabilities and stockholders' equity	$ 1,802,657	$ 1,805,194

XML

Borrowings - Subordinated Debt (Details) (USD $)	9 Months Ended			9 Months Ended		0 Months Ended		0 Months Ended		0 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Nov. 29, 2013 debenture	Sep. 30, 2014 Subordinated Debt	Nov. 29, 2013 Subordinated Debt	Nov. 29, 2013 Subordinated Debt NorCal Community Bancorp Trust I	Sep. 30, 2014 Subordinated Debt NorCal Community Bancorp Trust I	Nov. 29, 2013 Subordinated Debt NorCal Community Bancorp Trust II	Sep. 30, 2014 Subordinated Debt NorCal Community Bancorp Trust II	Nov. 29, 2013 Maximum Subordinated Debt
Debt Instrument [Line Items]
Number of subordinated debentures acquired			2
Subordinated debentures					$ 4,950,000
Contractual value of subordinated debt				8,248,000	8,200,000		4,124,000		4,124,000
Accretion of discount on subordinated debentures	162,000	0		162,000
Debenture distribution deferral period										5 years
Amount guaranteed, on subordinated basis, distributions and other payments on trust preferred securities	$ 8,000,000
Effective interest rate							3.28%		1.63%
Basis spread on subordinated debentures						3.05%		1.40%

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended		12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Cash Flows from Operating Activities:
Net income	$ 15,079	$ 11,925	$ 14,270
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	750	390
Compensation expense--common stock for director fees	170	166
Stock-based compensation expense	336	309
Excess tax benefits from exercised stock options	(104)	(86)
Amortization of core deposit intangible	578	0
Amortization of investment security premiums, net of accretion of discounts	1,982	2,401
Accretion of discount on acquired loans	(3,311)	(1,137)
Accretion of discount on subordinated debentures	162	0
Net amortization of deferred loan origination costs/fees	(382)	(662)
(Gain) loss on sale of investment securities	(93)	35
Depreciation and amortization	1,202	1,032
Gain on sale of repossessed assets	0	(43)
Earnings on bank owned life insurance policies	(632)	(766)
Net change in operating assets and liabilities:
Interest receivable	122	408
Interest payable	(44)	(32)
Deferred rent and other rent-related expenses	165	50
Other assets	(44)	(2,276)
Other liabilities	(1,849)	2,926
Total adjustments	(992)	2,715
Net cash provided by operating activities	14,087	14,640
Cash Flows from Investing Activities:
Purchase of available-for-sale securities	(16,353)	0
Proceeds from sale of available-for-sale securities	2,435	2,220
Proceeds from sale of held-to-maturity securities	2,146	0
Proceeds from paydowns/maturity of held-to-maturity securities	14,738	7,815
Proceeds from paydowns/maturity of available-for-sale securities	33,320	28,963
Loans originated and principal collected, net	(88,028)	(20,375)
Purchase of FHLB stock	492	0
Purchase of premises and equipment	(1,369)	(635)
Proceeds from sale of repossessed assets	0	270
Cash paid for low income housing tax credit investment	(208)	0
Net cash (used in) provided by investing activities	(53,811)	18,258
Cash Flows from Financing Activities:
Net (decrease) increase in deposits	(15,478)	39,187
Proceeds from stock options exercised	1,146	1,736
Stock issued under employee and director stock purchase plans	0	34
Proceeds from stock issued under employee and director stock purchase plans	31	0
Cash dividends paid on common stock	(3,428)	(2,932)
Excess tax benefits from exercised stock options	104	86
Net cash (used in) provided by financing activities	(17,625)	38,111
Net (decrease) increase in cash and cash equivalents	(57,349)	71,009
Cash and cash equivalents at beginning of period	103,773	28,349	28,349
Cash and cash equivalents at end of period	46,424	99,358	103,773
Supplemental disclosure of cash flow information:
Cash paid for interest	1,660	1,320
Cash paid for income taxes	7,165	7,889
Supplemental disclosure of non-cash investing and financing activities:
Change in unrealized gain on available-for-sale securities	(2,066)	(2,556)
Securities transferred from available-for-sale to held-to-maturity	14,297	0
Subscription in low income housing tax credit investment	1,000	1,000
Stock issued in payment of director fees	$ 236	$ 222

XML

Investment Securities - Non-Marketable Securities (Details) (USD $)	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Schedule of Cost-method Investments [Line Items]
Federal Home Loan Bank stock, par value	$ 100
Federal Home Loan Bank, dividend rate percentage	7.40%
Carrying value of securities carried at cost	$ 0
Conversion ratio for common stock	0.4206
Investments in low income housing tax credit funds	1,800,000	1,000,000
Low income housing amortization that was recognized as tax credit	40,000
Visa Inc. Class B common stock
Schedule of Cost-method Investments [Line Items]
Number of shares of securities carried at cost	16,939
Fair value of Class B common stock	1,500,000	1,600,000
Other assets
Schedule of Cost-method Investments [Line Items]
Federal Home Loan Bank stock	$ 8,200,000	$ 7,800,000

XML

Borrowings (Tables)

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments

The following is a summary of the contractual terms of the subordinated debentures due to NorCal Community Bancorp grantor trusts as of September 30, 2014:

(dollars in thousands)
Subordinated debentures due to NorCal Community Bancorp Trust I on October 7, 2033 with interest payable quarterly, based on 3-month LIBOR plus 3.05%, repricing quarterly (3.28% as of September 30, 2014), redeemable, in whole or in part, on any interest payment date	$	4,124
Subordinated debentures due to NorCal Community Bancorp Trust II on March 15, 2036 with interest payable quarterly, based on 3-month LIBOR plus 1.40%, repricing quarterly (1.63% as of September 30, 2014), redeemable, in whole or in part, on any interest payment date	4,124
Total	$	8,248

XML

Loans and Allowance for Loan Losses - Loans Outstanding and Aging Analysis (Details) (USD $)	Sep. 30, 2014 loans		Dec. 31, 2013 loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
30 to 59 Days Past Due	$ 282,000		$ 992,000
60 to 89 Days Past Due	17,000		3,000
Greater than 90 days past due (non-accrual)	9,838,000	[1]	11,678,000	[1]
Total past due	10,137,000		12,673,000
Current	1,350,848,000		1,256,649,000
Total loans	1,360,985,000	[2]	1,269,322,000	[2]
Non-accrual loans to total loans	0.70%		0.90%
Purchased Credit Impaired (PCI) loans no longer accreting interest	1,400,000		1,400,000
Purchased Credit-impaired (PCI) loans accreting interest	3,800,000		5,700,000
Number of accruing loans past due more than ninety days	0		0
Deferred loan fees	406,000		24,000
Unaccreted purchase discounts on non-PCI loans	4,900,000		7,600,000
Commercial and industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
30 to 59 Days Past Due	3,000		18,000
60 to 89 Days Past Due	0		0
Greater than 90 days past due (non-accrual)	193,000	[1]	1,187,000	[1]
Total past due	196,000		1,205,000
Current	201,320,000		182,086,000
Total loans	201,516,000	[2]	183,291,000	[2]
Non-accrual loans to total loans	0.10%		0.60%
Commercial real estate, owner-occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
30 to 59 Days Past Due	0		0
60 to 89 Days Past Due	0		0
Greater than 90 days past due (non-accrual)	1,403,000	[1]	1,403,000	[1]
Total past due	1,403,000		1,403,000
Current	233,090,000		239,710,000
Total loans	234,493,000	[2]	241,113,000	[2]
Non-accrual loans to total loans	0.60%		0.60%
Commercial real estate, investor
Accounts, Notes, Loans and Financing Receivable [Line Items]
30 to 59 Days Past Due	0		0
60 to 89 Days Past Due	0		0
Greater than 90 days past due (non-accrual)	2,505,000	[1]	2,807,000	[1]
Total past due	2,505,000		2,807,000
Current	671,923,000		622,212,000
Total loans	674,428,000	[2]	625,019,000	[2]
Non-accrual loans to total loans	0.40%		0.40%
Minimum principal amount of an investor commercial real estate loan that requires annual proof of income	500,000
Construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
30 to 59 Days Past Due	0		0
60 to 89 Days Past Due	0		0
Greater than 90 days past due (non-accrual)	5,173,000	[1]	5,218,000	[1]
Total past due	5,173,000		5,218,000
Current	40,775,000		26,359,000
Total loans	45,948,000	[2]	31,577,000	[2]
Non-accrual loans to total loans	11.30%		16.50%
Home equity
Accounts, Notes, Loans and Financing Receivable [Line Items]
30 to 59 Days Past Due	0		240,000
60 to 89 Days Past Due	0		0
Greater than 90 days past due (non-accrual)	436,000	[1]	234,000	[1]
Total past due	436,000		474,000
Current	109,219,000		97,995,000
Total loans	109,655,000	[2]	98,469,000	[2]
Non-accrual loans to total loans	0.40%		0.20%
Other residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
30 to 59 Days Past Due	0	[3]	717,000	[3]
60 to 89 Days Past Due	0	[3]	0	[3]
Greater than 90 days past due (non-accrual)	0	[1],[3]	660,000	[1],[3]
Total past due	0	[3]	1,377,000	[3]
Current	75,992,000	[3]	71,257,000	[3]
Total loans	75,992,000	[2],[3]	72,634,000	[2],[3]
Non-accrual loans to total loans	0.00%	[3]	0.90%	[3]
Installment and other consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
30 to 59 Days Past Due	279,000		17,000
60 to 89 Days Past Due	17,000		3,000
Greater than 90 days past due (non-accrual)	128,000	[1]	169,000	[1]
Total past due	424,000		189,000
Current	18,529,000		17,030,000
Total loans	$ 18,953,000	[2]	$ 17,219,000	[2]
Non-accrual loans to total loans	0.70%		1.00%

[1] Amounts include $1.4 million of Purchased Credit Impaired ("PCI") loans that had stopped accreting interest at both September 30, 2014 and December 31, 2013, and exclude accreting PCI loans of $3.8 million and $5.7 million at September 30, 2014 and December 31, 2013, respectively, as their accretable yield interest recognition is independent from the underlying contractual loan delinquency status. There were no accruing loans more than ninety days past due at September 30, 2014 or December 31, 2013.

[2] Amounts include net deferred loan costs of $406 thousand and $24 thousand at September 30, 2014 and December 31, 2013, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $4.9 million and $7.6 million at September 30, 2014 and December 31, 2013, respectively.

[3] Our residential loan portfolio includes no sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or higher loan-to-value ratios.

XML

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases

At September 30, 2014, the approximate minimum future commitments payable under non-cancelable contracts for leased premises are as follows:

(dollars in thousands; unaudited)	2014		2015		2016		2017		2018		Thereafter		Total
Operating leases	$	906	$	3,735	$	3,788	$	3,781	$	3,810	$	10,339	$	26,359

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

 Basis of Presentation

The consolidated financial statements include the accounts of Bancorp and its only wholly-owned bank subsidiary, the Bank. All material intercompany transactions have been eliminated. In the opinion of Management, the unaudited interim consolidated financial statements contain all adjustments necessary to present fairly our financial position, results of operations, changes in stockholders' equity and cash flows. All adjustments are of a normal, recurring nature. Management has evaluated subsequent events through the date of filing, and has determined that there are no subsequent events that require recognition or disclosure.

On November 29, 2013, we completed the merger of NorCal Community Bancorp ("NorCal"), parent company of Bank of Alameda, to enhance our market presence (the “Acquisition”). On the date of acquisition, Bancorp assumed ownership of NorCal Community Bancorp Trusts I and II, respectively (the "Trusts"), which were formed for the sole purpose of issuing trust preferred securities. Bancorp is not considered the primary beneficiary of the Trusts (variable interest entities), therefore the Trusts are not consolidated in our consolidated financial statements, but rather the subordinated debentures are shown as a liability on our consolidated statements of condition. Bancorp's investment in the common stock of the Trusts is accounted for under the equity method and is included in interest receivable and other assets on the consolidated statements of condition.

Certain information and footnote disclosures presented in the annual consolidated financial statements are not included in the interim consolidated financial statements. Accordingly, the accompanying unaudited interim consolidated financial statements should be read in conjunction with our 2013 Annual Report on Form 10-K.  The results of operations for the three months and nine months ended September 30, 2014 are not necessarily indicative of the operating results for the full year.

The following table shows: 1) weighted average basic shares, 2) potentially diluted common shares related to stock options, unvested restricted stock and stock warrant, and 3) weighted average diluted shares. Basic earnings per share (“EPS”) are calculated by dividing net income by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock. Diluted EPS are calculated using the weighted average diluted shares. The number of potentially diluted common shares included in quarterly diluted EPS is computed using the average market prices during the three months included in the reporting period under the treasury stock method. The number of potentially diluted common shares included in year-to-date diluted EPS is a year-to-date weighted average of potentially diluted common shares included in each quarterly diluted EPS computation. We have two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings.

	Three months ended				Nine months ended
(shares and dollars in thousands; except per share data; unaudited)	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Weighted average basic shares outstanding	5,903		5,433		5,887		5,414
Potentially diluted common shares related to stock options	41		46		42		43
Potentially diluted common shares related to unvested restricted stock	4		4		4		4
Potentially diluted common shares related to the warrant	66		55		63		50
Weighted average diluted shares outstanding	6,014		5,538		5,996		5,511
Net income	$	5,378	$	4,004	$	15,079	$	11,925
Basic EPS	$	0.91	$	0.74	$	2.56	$	2.20
Diluted EPS	$	0.89	$	0.72	$	2.51	$	2.16
Weighted average anti-dilutive shares not included in the calculation of diluted EPS	51		51		48		48

XML

CONSOLIDATED STATEMENTS OF CONDITION (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Investment Securities
Available-for-sale, amortized cost	$ 210,676	$ 245,158
Loans, allowance for loan losses	$ 15,049	$ 14,224
Stockholders' Equity
Preferred stock, no par value	$ 0	$ 0
Preferred stock, authorized (in shares)	5,000,000	5,000,000
Preferred stock, issued	0	0
Common stock, no par value (in dollars per share)	$ 0	$ 0
Common stock, authorized (in shares)	15,000,000	15,000,000
Common stock, issued (in shares)	5,930,100	5,877,524
Common stock, outstanding (in shares)	5,930,100	5,877,524

XML

Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Accounting, Policy

The consolidated financial statements include the accounts of Bancorp and its only wholly-owned bank subsidiary, the Bank. All material intercompany transactions have been eliminated. In the opinion of Management, the unaudited interim consolidated financial statements contain all adjustments necessary to present fairly our financial position, results of operations, changes in stockholders' equity and cash flows. All adjustments are of a normal, recurring nature. Management has evaluated subsequent events through the date of filing, and has determined that there are no subsequent events that require recognition or disclosure

Earnings Per Share, Policy

Basic earnings per share (“EPS”) are calculated by dividing net income by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock. Diluted EPS are calculated using the weighted average diluted shares. The number of potentially diluted common shares included in quarterly diluted EPS is computed using the average market prices during the three months included in the reporting period under the treasury stock method. The number of potentially diluted common shares included in year-to-date diluted EPS is a year-to-date weighted average of potentially diluted common shares included in each quarterly diluted EPS computation. We have two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings.

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 31, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	Bank of Marin Bancorp
Entity Central Index Key	0001403475
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		5,933,408

XML

Basis of Presentation (Tables)

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Earnings Per Share Reconciliation

The following table shows: 1) weighted average basic shares, 2) potentially diluted common shares related to stock options, unvested restricted stock and stock warrant, and 3) weighted average diluted shares. Basic earnings per share (“EPS”) are calculated by dividing net income by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock. Diluted EPS are calculated using the weighted average diluted shares. The number of potentially diluted common shares included in quarterly diluted EPS is computed using the average market prices during the three months included in the reporting period under the treasury stock method. The number of potentially diluted common shares included in year-to-date diluted EPS is a year-to-date weighted average of potentially diluted common shares included in each quarterly diluted EPS computation. We have two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings.

	Three months ended				Nine months ended
(shares and dollars in thousands; except per share data; unaudited)	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Weighted average basic shares outstanding	5,903		5,433		5,887		5,414
Potentially diluted common shares related to stock options	41		46		42		43
Potentially diluted common shares related to unvested restricted stock	4		4		4		4
Potentially diluted common shares related to the warrant	66		55		63		50
Weighted average diluted shares outstanding	6,014		5,538		5,996		5,511
Net income	$	5,378	$	4,004	$	15,079	$	11,925
Basic EPS	$	0.91	$	0.74	$	2.56	$	2.20
Diluted EPS	$	0.89	$	0.72	$	2.51	$	2.16
Weighted average anti-dilutive shares not included in the calculation of diluted EPS	51		51		48		48

XML

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Interest income
Interest and fees on loans	$ 16,195	$ 13,049	$ 48,877	$ 40,050
Interest on investment securities
Securities of U.S. government agencies	1,126	553	3,551	1,763
Obligations of state and political subdivisions	496	524	1,737	1,599
Corporate debt securities and other	254	311	778	974
Interest due from banks and other	37	34	125	45
Total interest income	18,108	14,471	55,068	44,431
Interest expense
Interest on interest-bearing transaction accounts	25	12	74	35
Interest on savings accounts	12	9	34	25
Interest on money market accounts	126	101	415	295
Interest on time accounts	229	227	695	690
Interest on FHLB and overnight borrowings	79	80	235	243
Interest on subordinated debentures	106	0	316	0
Total interest expense	577	429	1,769	1,288
Net interest income	17,531	14,042	53,299	43,143
Provision for loan losses	0	(480)	750	390
Net interest income after provision for loan losses	17,531	14,522	52,549	42,753
Non-interest income
Service charges on deposit accounts	552	509	1,636	1,545
Wealth Management and Trust Services	567	532	1,744	1,618
Debit card interchange fees	375	288	1,035	820
Merchant interchange fees	224	196	629	623
Earnings on Bank-owned life insurance	208	179	632	766
Gain on sale of securities	4	(35)	93	(35)
Other income	371	284	1,116	666
Total non-interest income	2,301	1,953	6,885	6,003
Non-interest expense
Salaries and related benefits	6,108	5,389	19,270	16,117
Occupancy and equipment	1,381	1,040	4,044	3,165
Depreciation and amortization	383	343	1,202	1,032
Federal Deposit Insurance Corporation insurance	261	244	780	681
Data processing	748	612	2,856	1,857
Professional services	537	775	1,577	2,116
Other expense	1,932	1,704	5,921	5,253
Total non-interest expense	11,350	10,107	35,650	30,221
Income before provision for income taxes	8,482	6,368	23,784	18,535
Provision for income taxes	3,104	2,364	8,705	6,610
Net income	5,378	4,004	15,079	11,925
Net income per common share:
Basic (usd per share)	$ 0.91	$ 0.74	$ 2.56	$ 2.20
Diluted (usd per share)	$ 0.89	$ 0.72	$ 2.51	$ 2.16
Weighted average shares used to compute net income per common share:
Basic (shares)	5,903	5,433	5,887	5,414
Diluted (shares)	6,014	5,538	5,996	5,511
Dividends declared per common share (usd per share)	$ 0.20	$ 0.18	$ 0.58	$ 0.54
Comprehensive income:
Net income	5,378	4,004	15,079	11,925
Other comprehensive income (loss)
Change in net unrealized (loss) gain on available-for-sale securities	(344)	(621)	2,047	(2,591)
Reclassification adjustment for loss on sale of available-for-sale securities included in net income	4	35	19	35
Net change in unrealized (loss) gain on available-for-sale securities, before tax	(340)	(586)	2,066	(2,556)
Deferred tax (benefit) expense	(141)	(246)	828	(1,073)
Other comprehensive (loss) income, net of tax	(199)	(340)	1,238	(1,483)
Comprehensive income	$ 5,179	$ 3,664	$ 16,317	$ 10,442

XML

Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2014

Receivables [Abstract]

Loans and Allowance for Loan Losses

  Loans and Allowance for Loan Losses

Credit Quality of Loans

Outstanding loans by class and payment aging as of September 30, 2014 and December 31, 2013 are as follows:

Loan Aging Analysis by Class as of September 30, 2014 and December 31, 2013
(dollars in thousands; 2014 unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential 1			Installment and other consumer			Total
September 30, 2014
30-59 days past due	$	3		$	—		$	—		$	—		$	—		$	—		$	279		$	282
60-89 days past due	—			—			—			—			—			—			17			17
Greater than 90 days past due (non-accrual) 2	193			1,403			2,505			5,173			436			—			128			9,838
Total past due	196			1,403			2,505			5,173			436			—			424			10,137
Current	201,320			233,090			671,923			40,775			109,219			75,992			18,529			1,350,848
Total loans 3	$	201,516		$	234,493		$	674,428		$	45,948		$	109,655		$	75,992		$	18,953		$	1,360,985
Non-accrual loans to total loans	0.1		%	0.6		%	0.4		%	11.3		%	0.4		%	—		%	0.7		%	0.7		%
December 31, 2013
30-59 days past due	$	18		$	—		$	—		$	—		$	240		$	717		$	17		$	992
60-89 days past due	—			—			—			—			—			—			3			3
Greater than 90 days past due (non-accrual) 2	1,187			1,403			2,807			5,218			234			660			169			11,678
Total past due	1,205			1,403			2,807			5,218			474			1,377			189			12,673
Current	182,086			239,710			622,212			26,359			97,995			71,257			17,030			1,256,649
Total loans 3	$	183,291		$	241,113		$	625,019		$	31,577		$	98,469		$	72,634		$	17,219		$	1,269,322
Non-accrual loans to total loans	0.6		%	0.6		%	0.4		%	16.5		%	0.2		%	0.9		%	1.0		%	0.9		%

¹ Our residential loan portfolio includes no sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or higher loan-to-value ratios.

² Amounts include $1.4 million of Purchased Credit Impaired ("PCI") loans that had stopped accreting interest at both September 30, 2014 and December 31, 2013, and exclude accreting PCI loans of $3.8 million and $5.7 million at September 30, 2014 and December 31, 2013, respectively, as their accretable yield interest recognition is independent from the underlying contractual loan delinquency status. There were no accruing loans more than ninety days past due at September 30, 2014 or December 31, 2013.

³ Amounts include net deferred loan costs of $406 thousand and $24 thousand at September 30, 2014 and December 31, 2013, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $4.9 million and $7.6 million at September 30, 2014 and December 31, 2013, respectively.

Our commercial loans are generally made to established small and mid-sized businesses to provide financing for their working capital needs, equipment purchases, acquisitions, or refinancings.  Management examines historical, current, and projected cash flows to determine the ability of the borrower to repay obligations as agreed. Commercial loans are made based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral. The cash flows of borrowers, however, may not occur as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed, such as accounts receivable or inventory, and include a personal guarantee. Some short-term loans may be made on an unsecured basis. We target stable local businesses with guarantors that have proven to be resilient in periods of economic stress.  Typically, the guarantors provide an additional source of repayment for most of our credit extensions.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans discussed above. We underwrite these loans to be repaid from cash flow and to be supported by real property collateral. Repayment of commercial real estate loans is largely dependent on the successful operation of the property securing the loan, or of the business conducted on the property securing the loan. Underwriting standards for commercial real estate loans include, but are not limited to, conservative debt coverage and loan-to-value ratios. Furthermore, substantially all of our loans are guaranteed by the owners of the properties.  Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. When a vacancy has occurred, strong guarantors have historically carried the loans until a replacement tenant could be found.  The owner's substantial equity investment provides a strong economic incentive to continue to support the commercial real estate projects. As a result, we have experienced a relatively low level of loss and delinquencies in this portfolio.

Construction loans are generally made to developers and builders to finance land acquisition as well as the subsequent construction. These loans are underwritten after evaluation of the borrower's financial strength, reputation, prior track record, and independent appraisals. The construction industry can be impacted by significant events, including: the inherent volatility of real estate markets and vulnerability to delays due to weather, change orders, ability to obtain construction permits, labor or material shortages, and price hikes. Estimates of construction costs and of the completed project value may be inaccurate. Repayment of construction loans is largely dependent on the ultimate success of the project.

Consumer loans primarily consist of home equity lines of credit, other residential (tenants-in-common) loans, and installment and other consumer loans. We originate consumer loans utilizing credit score information, debt-to-income ratio and loan-to-value ratio analysis. Diversification, relatively small loan amounts that are spread across many individual borrowers, also mitigates risk. Additionally, trend reports are reviewed by Management on a regular basis. Underwriting standards for home equity lines of credit include, but are not limited to, a conservative loan-to-value ratio, the number of such loans a borrower can have at one time, and documentation requirements. Installment and other consumer loans are nearly evenly split between mobile home loans and floating home loans along with a small number of personal loans.

We use a risk rating system to evaluate asset quality, and to identify and monitor credit risk in individual loans, and ultimately in the portfolio. Definitions of loans that are risk graded “Special Mention” or worse are consistent with those used by the Federal Deposit Insurance Corporation ("FDIC").  Our internally assigned grades are as follows:

Pass – Loans to borrowers of acceptable or better credit quality. Borrowers in this category demonstrate fundamentally sound financial condition, repayment capacity, credit history and management expertise.  Loans in this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt service coverage ratios.  These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial impacts.  Negative external industry factors are generally not present.  The loan may be secured, unsecured or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain. This category also includes “Watch” loans, where the primary source of repayment has been delayed. “Watch” is intended to be a transitional grade, with either an upgrade or downgrade within a reasonable period.

Special Mention - Potential weaknesses that deserve close attention. If left uncorrected, those potential weaknesses may result in deterioration of the payment prospects for the asset. Special Mention assets do not present sufficient risk to warrant adverse classification.

Substandard - Inadequately protected by either the current sound worth and paying capacity of the obligor or the collateral pledged, if any. A Substandard asset has a well-defined weakness or weaknesses that jeopardize(s) the liquidation of the debt. Substandard assets are characterized by the distinct possibility that we will sustain some loss if such weaknesses or deficiencies are not corrected. Well-defined weaknesses include adverse trends or developments of the borrower’s financial condition, managerial weaknesses and/or significant collateral deficiencies.

Doubtful - Critical weaknesses that make collection or liquidation in full improbable. There may be specific pending events that work to strengthen the asset; however, the amount or timing of the loss may not be determinable. Pending events generally occur within one year of the asset being classified as Doubtful. Examples include: merger, acquisition, or liquidation; capital injection; guarantee; perfecting liens on additional collateral; and refinancing. Such loans are placed on non-accrual status and usually are collateral-dependent.

We regularly review our credits for accuracy of risk grades whenever new information is received. Borrowers are required to submit financial information at regular intervals:

• Generally, commercial borrowers are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk and complexity.

• Investor commercial real estate borrowers with loans greater than $500 thousand are required to submit rent rolls or property income statements at least annually.

• Construction loans are monitored monthly, and assessed on an ongoing basis.

• Home equity and other consumer loans are assessed based on delinquency.

• Loans graded “Watch” or more severe, regardless of loan type, are assessed no less than quarterly.

The following table represents an analysis of loans by internally assigned grades, including the PCI loans, at September 30, 2014 and December 31, 2013:

(dollars in thousands; 2014 unaudited)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Purchased credit-impaired		Total
Credit Risk Profile by Internally Assigned Grade:
September 30, 2014
Pass	$	186,922	$	209,600	$	654,889	$	39,358	$	104,794	$	72,732	$	17,937	$	2,203	$	1,288,435
Special Mention	7,749		10,471		9,359		856		1,849		1,704		417		1,146		33,551
Substandard	6,511		11,826		7,995		5,723		2,945		1,556		599		1,844		38,999
Total loans	$	201,182	$	231,897	$	672,243	$	45,937	$	109,588	$	75,992	$	18,953	$	5,193	$	1,360,985
December 31, 2013
Pass	$	162,625	$	216,537	$	609,157	$	25,069	$	93,792	$	69,176	$	16,336	$	1,340	$	1,194,032
Special Mention	13,990		16,533		8,570		725		2,164		1,047		227		894		44,150
Substandard	6,343		3,224		5,413		5,768		2,444		2,411		656		4,881		31,140
Total loans	$	182,958	$	236,294	$	623,140	$	31,562	$	98,400	$	72,634	$	17,219	$	7,115	$	1,269,322

Troubled Debt Restructuring

Our loan portfolio includes certain loans that have been modified in a Troubled Debt Restructuring (“TDR”), where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs on nonaccrual status at the time of restructure may be returned to accruing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months, and there is reasonable assurance of repayment and performance.

When a loan is modified, Management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases Management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If Management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs and unamortized premium or discount), impairment is recognized through a specific allowance or a charge-off of the loan.

The table below summarizes outstanding TDR loans by loan class as of September 30, 2014 and December 31, 2013. The summary includes those TDRs that are on non-accrual status and those that continue to accrue interest.

(dollars in thousands; 2014 unaudited)	As of
Recorded investment in Troubled Debt Restructurings 1	September 30, 2014		December 31, 2013
Commercial and industrial	$	4,337	$	5,117
Commercial real estate, owner-occupied	8,491		4,333
Commercial real estate, investor	527		534
Construction	6,654		6,335
Home equity	703		506
Other residential	1,552		2,063
Installment and other consumer	1,724		1,693
Total	$	23,988	$	20,581

¹ Includes $16.9 million and $12.9 million of TDR loans that were accruing interest as of September 30, 2014 and December 31, 2013, respectively. Includes $1.8 million of acquired loans at both September 30, 2014 and December 31, 2013, respectively.

The tables below present the following information for TDRs modified during the periods presented: number of contracts modified, the recorded investment in the loans prior to modification, and the recorded investment in the loans after the loans were restructured. The tables below exclude fully paid-off or fully charged-off TDR loans.

(dollars in thousands; unaudited)	Number of Contracts Modified	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment at period end
Troubled Debt Restructurings during the three months ended September 30, 2014:
Commercial and industrial	2	$	513	$	596	$	596
Commercial real estate, owner-occupied	1	4,226		4,216		4,206
Home equity	1	74		74		74
Other residential	1	815		$	814	$	814
Total	5	$	5,628	$	5,700	$	5,690
Troubled Debt Restructurings during the three months ended September 30, 2013:
Commercial and industrial	3	$	587	$	560	$	558
Commercial real estate, owner occupied	1	2,961		2,956		2,951
Commercial real estate, investor	1	539		538		536
Construction	2	11		9		9
Total	7	$	4,098	$	4,063	$	4,054

Troubled Debt Restructurings during the nine months ended September 30, 2014:
Commercial and industrial 1	7	$	1,336	$	1,460	$	1,431
Commercial real estate, owner-occupied	1	4,226		4,216		4,206
Other residential	1	815		814		814
Home equity	2	224		224		222
Installment and other consumer	6	281		278		270
Total	17	$	6,882	$	6,992	$	6,943
Troubled Debt Restructurings during the nine months ended September 30, 2013:
Commercial and Industrial 2	5	$	1,086	$	1,057	$	991
Commercial real estate, owner-occupied	1	2,961		2,956		2,951
Commercial real estate, investor	1	539		538		536
Construction	1	4,745		4,766		4,806
Installment and other consumer	2	11		9		9
Total	10	$	9,342	$	9,326	$	9,293

¹ Excludes one contract modified and subsequently paid off during the nine months ended September 30, 2014 in the amount of $905 thousand pre-modification and post-modification.

² Excludes two contracts modified and subsequently paid off during the nine months ended September 30, 2013. The pre-modification and post-modification outstanding recorded investment balances were both $218 thousand.

Modifications during the nine months ended September 30, 2014 primarily involved maturity extensions and interest rate concessions, while modifications during the nine months endedSeptember 30, 2013 were primarily due to extensions of maturity. During the first nine months of 2014 and 2013, there were no defaults on loans that had been modified as troubled debt restructuring within the prior twelve-month period. We report defaulted TDRs based on a payment default definition of more than ninety days past due.

Impaired Loan Balances and Their Related Allowance by Major Classes of Loans

The tables below summarize information on impaired loans and their related allowance. Total impaired loans include non-accrual loans, accruing TDR loans and accreting PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.

(dollars in thousands; unaudited)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Total
September 30, 2014
Recorded investment in impaired loans:
With no specific allowance recorded	$	1,212	$	5,609	$	3,032	$	5,173	$	550	$	528	$	240	$	16,344
With a specific allowance recorded	3,125		2,882		—		1,492		302		1,024		1,563		10,388
Total recorded investment in impaired loans	$	4,337	$	8,491	$	3,032	$	6,665	$	852	$	1,552	$	1,803	$	26,732
Unpaid principal balance of impaired loans:
With no specific allowance recorded	$	1,258	$	7,266	$	5,023	$	7,863	$	1,036	$	528	$	240	$	23,214
With a specific allowance recorded	3,220		2,882		—		1,682		302		1,024		1,564		10,674
Total unpaid principal balance of impaired loans	$	4,478	$	10,148	$	5,023	$	9,545	$	1,338	$	1,552	$	1,804	$	33,888
Specific allowance	$	817	$	100	$	—	$	3	$	29	$	98	$	286	$	1,333
Average recorded investment in impaired loans during the quarter ended September 30, 2014	$	5,292	$	6,982	$	3,090	$	6,678	$	857	$	1,440	$	1,847	$	26,186
Interest income recognized on impaired loans during the quarter ended September 30, 2014	$	88	$	54	$	7	$	23	$	5	$	14	$	19	$	210
Average recorded investment in impaired loans during the nine months ended September 30, 2014	$	5,818	$	5,980	$	3,186	$	6,568	$	730	$	1,726	$	1,876	$	25,884
Interest income recognized on impaired loans during the nine months ended September 30, 2014	$	309	$	220	$	21	$	67	$	14	$	56	$	56	$	743
Average recorded investment in impaired loans during the quarter ended September 30, 2013	$	5,933	$	3,526	$	6,389	$	8,479	$	775	$	2,576	$	1,842	$	29,520
Interest income recognized on impaired loans during the quarter ended September 30, 2013	$	102	$	63	$	7	$	21	$	5	$	22	$	16	$	236
Average recorded investment in impaired loans during the nine months ended September 30, 2013	$	7,584	$	2,861	$	6,178	$	7,138	$	1,022	$	2,744	$	1,881	$	29,408
Interest income recognized on impaired loans during the nine months ended September 30, 2013	$	343	$	170	$	7	$	233	$	25	$	67	$	50	$	895

(dollars in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Total
December 31, 2013
Recorded investment in impaired loans:
With no specific allowance recorded	$	977	$	1,403	$	3,341	$	2,806	$	349	$	1,254	$	112	$	10,242
With a specific allowance recorded	4,725		4,085		—		3,927		157		809		1,750		$	15,453
Total recorded investment in impaired loans	$	5,702	$	5,488	$	3,341	$	6,733	$	506	$	2,063	$	1,862	$	25,695
Unpaid principal balance of impaired loans:
With no specific allowance recorded	$	977	$	3,060	$	5,333	$	5,547	$	835	$	1,254	$	154	$	17,160
With a specific allowance recorded	4,930		5,088		—		4,114		157		809		1,750		16,848
Total recorded investment in impaired loans	$	5,907	$	8,148	$	5,333	$	9,661	$	992	$	2,063	$	1,904	$	34,008
Specific allowance	$	1,170	$	90	$	—	$	341	$	1	$	23	$	364	$	1,989

The gross interest income that would have been recorded, had non-accrual loans been current, totaled $182 thousand and $291 thousand in the quarters ended September 30, 2014, and September 30, 2013, respectively, and totaled $567 thousand and $827 thousand for the nine months ended September 30, 2014 and September 30, 2013, respectively. PCI loans are excluded from the foregone interest data above as their accretable yield interest recognition is independent from the underlying contractual loan delinquency status. See “Purchased Credit-Impaired Loans” below for further discussion.

Management monitors delinquent loans continuously and identifies problem loans, generally loans graded substandard or worse, to be evaluated individually for impairment testing. Generally, we charge off our estimated losses related to specifically-identified impaired loans when it is deemed uncollectible. The charged-off portion of impaired loans outstanding at September 30, 2014 totaled approximately $5.5 million.  At September 30, 2014, there were $1.2 million outstanding commitments to extend credit on impaired loans, including loans to borrowers whose terms have been modified in troubled debt restructurings.

The following table discloses loans by major portfolio category and activity in the ALLL, as well as the related ALLL disaggregated by impairment evaluation method:

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total
For the three months ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,125		$	1,979		$	6,713		$	571		$	944		$	454		$	481		$	633	$	14,900
Provision (reversal)	(263		)	9			(26		)	(33		)	(18		)	(8		)	90			249		—
Charge-offs	—			—			—			—			—			—			(2		)	—		(2		)
Recoveries	44			5			5			96			1			—			—			—		151
Ending balance	$	2,906		$	1,993		$	6,692		$	634		$	927		$	446		$	569		$	882	$	15,049
For the nine months ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,056		$	2,012		$	6,196		$	633		$	875		$	317		$	629		$	506	$	14,224
Provision (reversal)	(208		)	(24		)	455			109			49			129			(136		)	376		750
Charge-offs	(66		)	—			—			(204		)	—			—			(6		)	—		(276		)
Recoveries	124			5			41			96			3			—			82			—		351
Ending balance	$	2,906		$	1,993		$	6,692		$	634		$	927		$	446		$	569		$	882	$	15,049

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total
As of September 30, 2014:
Ending ALLL related to loans collectively evaluated for impairment	$	2,089		$	1,893		$	6,692		$	631		$	898		$	348		$	283		$	882	$	13,716
Ending ALLL related to loans  individually evaluated for impairment	$	814		$	100		$	—		$	—		$	29		$	98		$	286		$	—	$	1,327
Ending ALLL related to purchased  credit-impaired loans	$	3		$	—		$	—		$	3		$	—		$	—		$	—		$	—	$	6
Loans outstanding:
Collectively evaluated for impairment	$	197,143		$	224,809		$	669,211		$	39,283		$	108,736		$	74,440		$	17,150		$	—	$	1,330,772
Individually evaluated for impairment1	4,039			7,088			3,032			6,654			852			1,552			1,803			—		25,020
Purchased credit-impaired	334			2,596			2,185			11			67			—			—			—		5,193
Total	$	201,516		$	234,493		$	674,428		$	45,948		$	109,655		$	75,992		$	18,953		$	—	$	1,360,985
Ratio of allowance for loan losses to total loans	1.44		%	0.85		%	0.99		%	1.38		%	0.85		%	0.59		%	3.00		%	NM		1.11		%
Allowance for loan losses to non-accrual loans	868		%	142		%	256		%	12		%	209		%	NM			374		%	NM		153		%

¹ Total excludes $1.7 million of PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.These loans are included in the "purchased credit-impaired" amount in the next line below.

NM - Not Meaningful

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total
As of December 31, 2013:
Ending ALLL related to loans collectively evaluated for impairment	$	1,886		$	1,922		$	6,196		$	292		$	874		$	294		$	265		$	506	$	12,235
Ending ALLL related to loans  individually evaluated for impairment	$	987		$	31		$	—		$	341		$	1		$	23		$	364		$	—	$	1,747
Ending ALLL related to purchased  credit-impaired loans	$	183		$	59		$	—		$	—		$	—		$	—		$	—		$	—	$	242
Loans outstanding:
Collectively evaluated for impairment	$	177,550		$	233,330		$	619,833		$	24,829		$	97,894		$	70,571		$	15,357		$	—	$	1,239,364
Individually evaluated for impairment1	5,408			2,930			3,341			6,733			506			2,063			1,862			—		22,843
Purchased credit-impaired	333			4,853			1,845			15			69			—			—			—		7,115
Total	$	183,291		$	241,113		$	625,019		$	31,577		$	98,469		$	72,634		$	17,219		$	—	$	1,269,322
Ratio of allowance for loan losses to total loans	1.67		%	0.83		%	0.99		%	2.00		%	0.89		%	0.44		%	3.65		%	NM		1.12		%
Allowance for loan losses to non-accrual loans	257		%	143		%	221		%	12		%	374		%	48		%	372		%	NM		122		%

¹ Total excludes $2.9 million PCI loans that have experienced credit deterioration post-acquisition, which are included in the "purchased credit-impaired" amount in the next line below.

NM - Not Meaningful

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied		Commercial real estate, investor		Construction			Home equity			Other residential			Installment and other consumer			Unallocated			Total
For the three months ended September 30, 2013
Allowance for loan losses:
Beginning balance	$	3,799		$	1,406	$	4,368	$	1,721		$	1,153		$	401		$	1,313		$	196		$	14,357
Provision (reversal)	(965		)	427		1,338		(210		)	(173		)	(124		)	(669		)	(104		)	(480		)
Charge-offs	(129		)	—		—		(24		)	—			—			(1		)	—			(154		)
Recoveries	75			—		9		—			—			—			1			—			85
Ending balance	$	2,780		$	1,833	$	5,715	$	1,487		$	980		$	277		$	644		$	92		$	13,808
For the nine months ended September 30, 2013
Allowance for loan losses:
Beginning balance	$	4,100		$	1,313	$	4,372	$	611		$	1,264		$	551		$	1,231		$	219		$	13,661
Provision (reversal)	(1,204		)	436		1,308		916			(159		)	(274		)	(506		)	(127		)	390
Charge-offs	(586		)	—		—		(41		)	(133		)	—			(87		)	—			(847		)
Recoveries	470			84		35		1			8			—			6			—			604
Ending balance	$	2,780		$	1,833	$	5,715	$	1,487		$	980		$	277		$	644		$	92		$	13,808

Purchased Credit-Impaired Loans

We evaluated loans purchased in acquisitions in accordance with accounting guidance in ASC 310-30 related to loans acquired with deteriorated credit quality. Acquired loans are considered credit-impaired if there is evidence of deterioration of credit quality since origination and it is probable, at the acquisition date, that we will be unable to collect all contractually required payments receivable. Management has determined certain loans purchased in our two previous acquisitions to be PCI loans based on credit indicators such as nonaccrual status, past due status, loan risk grade, loan-to-value ratio, etc. Revolving credit agreements (e.g., home equity lines of credit and revolving commercial loans) are not considered PCI loans as cash flows cannot be reasonably estimated.

The following table reflects the outstanding balance and related carrying value of PCI loans as of September 30, 2014andDecember 31, 2013:

	September 30, 2014				December 31, 2013
PCI Loans (dollars in thousands; 2014 unaudited)	Unpaid principal balance		Carrying value		Unpaid principal balance		Carrying value
Commercial and industrial	$	503	$	334	$	1,094	$	333
Commercial real estate	6,848		4,781		9,152		6,698
Construction	138		11		149		15
Home equity	234		67		239		69
Total purchased credit-impaired loans	$	7,723	$	5,193	$	10,634	$	7,115

The activities in the accretable yield, or income expected to be earned, for PCI loans were as follows:

Accretable Yield	Three months ended						Nine months ended
(dollars in thousands, unaudited)	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Balance at beginning of period	$	4,514		$	3,277		$	3,649		$	3,960
Removals 1	—			—			(273		)	(791		)
Accretion	(126		)	(153		)	(494		)	(545		)
Reclassifications (to) from nonaccretable difference 2	(242		)	—			1,264			500
Balance at end of period	$	4,146		$	3,124		$	4,146		$	3,124

¹ Represents the accretable difference that is relieved when a loan exits the PCI population due to payoff, full charge-off, or transfer to repossessed assets, etc.

² Primarily relates to changes in expected credit performance and changes in expected amounts and/or timing of cash flows.

Pledged Loans

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with an unpaid principal balance of $872.6 million and $716.2 million at September 30, 2014 and December 31, 2013, respectively. Our FHLB line of credit totaled $455.8 million and $416.3 million at September 30, 2014 and December 31, 2013, respectively. In addition, we pledge a certain residential loan portfolio, which totaled $28.5 million and $24.4 million at September 30, 2014 and December 31, 2013, respectively, to secure our borrowing capacity with the Federal Reserve Bank (“FRB”). Also see Note 7 below.

XML

Investment Securities

9 Months Ended

Sep. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Investment Securities

Our investment securities portfolio consists of obligations of state and political subdivisions, corporate bonds, U.S. government agency securities, including mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) issued or guaranteed by Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), or Government National Mortgage Association ("GNMA"), debentures issued by government-sponsored agencies such as FNMA and FHLMC, as well as privately issued CMOs, as reflected in the table below:

	September 30, 2014									December 31, 2013
	Amortized		Fair		Gross Unrealized					Amortized		Fair		Gross Unrealized
(dollars in thousands; 2014 unaudited)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)
Held-to-maturity
Obligations of state and   political subdivisions	$	65,089	$	66,943	$	1,935	$	(81	)	$	80,381	$	81,429	$	1,764	$	(716	)
Corporate bonds	40,363		40,691		340		(12		)	42,114		42,429		375		(60		)
MBS pass-through securities issued by FHLMC and FNMA	13,391		13,543		152		—			—		—		—		—
Total held-to-maturity	118,843		121,177		2,427		(93		)	122,495		123,858		2,139		(776		)
Available-for-sale
Securities of U.S. government agencies:
MBS pass-through securities issued by FHLMC and FNMA	100,978		101,345		555		(188		)	124,063		123,033		616		(1,646		)
CMOs issued by FNMA	15,608		15,600		65		(73		)	18,573		18,438		60		(195		)
CMOs issued by FHLMC	33,288		33,243		96		(141		)	23,710		23,679		144		(175		)
CMOs issued by GNMA	19,359		19,715		364		(8		)	24,944		25,454		609		(99		)
Debentures of government- sponsored agencies	14,727		14,552		111		(286		)	21,845		21,312		108		(641		)
Privately issued CMOs	7,627		7,843		220		(4		)	10,649		10,874		257		(32		)
Obligations of state and   political subdivisions	14,156		14,271		137		(22		)	15,948		15,771		14		(191		)
Corporate bonds	4,933		5,013		83		(3		)	5,426		5,437		25		(14		)
Total available-for-sale	210,676		211,582		1,631		(725		)	245,158		243,998		1,833		(2,993		)
Total investment securities	$	329,519	$	332,759	$	4,058	$	(818	)	$	367,653	$	367,856	$	3,972	$	(3,769	)

As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain MBS pass-through securities issued by FHLMC and FNMA that are qualified for Community Reinvestment Act ("CRA") credit. Effective January 31, 2014, we transferred $14.2 million of these CRA qualified MBS, which we intend and have the ability to hold to maturity, from available-for-sale securities to held-to-maturity at fair value. The unrealized pre-tax holding gain of $84 thousand at the date of transfer remained in accumulated other comprehensive income and is amortized over the remaining lives of the securities as an adjustment to yield.

The amortized cost and fair value of investment debt securities by contractual maturity at September 30, 2014 are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2014								December 31, 2013
	Held-to-Maturity				Available-for-Sale				Held-to-Maturity				Available-for-Sale
(dollars in thousands; 2014 unaudited)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	25,111	$	25,272	$	2,377	$	2,389	$	8,731	$	8,784	$	5,522	$	5,521
After one year but within five years	63,192		64,436		39,599		39,793		88,255		89,095		42,229		42,338
After five years through ten years	15,900		16,669		19,241		19,031		24,244		24,786		26,232		25,478
After ten years	14,640		14,800		149,459		150,369		1,265		1,193		171,175		170,661
Total	$	118,843	$	121,177	$	210,676	$	211,582	$	122,495	$	123,858	$	245,158	$	243,998

We sold twoavailable-for-sale and six held-to-maturity securities in the first nine months of 2014 with total proceeds of $2.4 million and $2.1 million, respectively, and incurred a loss of $11 thousand and a net gain of $104 thousand, respectively. The sales of the held-to-maturity securities were due to evidence of significant deterioration in issuer creditworthiness since purchase. Two available-for-sale securities were sold in January 2013 with proceeds of $1.1 million and a small net gain of $339.

Investment securities carried at $67.4 million and $61.8 million at September 30, 2014 and December 31, 2013, respectively, were pledged to the State of California: $66.5 million and $61.1 million to secure public deposits in compliance with the Local Agency Security Program at September 30, 2014 and December 31, 2013, respectively, and $860 thousand and $732 thousand to provide collateral for trust deposits at September 30, 2014 and December 31, 2013, respectively. In addition, investment securities carried at $1.1 million were pledged to collateralize an internal Wealth Management and Trust Services (“WMTS”) checking account at both September 30, 2014 and December 31, 2013.

Other-Than-Temporarily Impaired Debt Securities

We have evaluated the credit ratings of our investment securities and their issuer and/or insurers. Based on our evaluation, Management has determined that no investment security in our investment portfolio is other-than-temporarily impaired. We do not have the intent, and it is more likely than not that we will not have to sell securities temporarily impaired at September 30, 2014 before recovery of the cost basis.

Twenty-eight and ninety-five investment securities were in unrealized loss positions at September 30, 2014 and December 31, 2013, respectively. Those securities are summarized and classified according to the duration of the loss period in the table below:

September 30, 2014	< 12 continuous months					> 12 continuous months					Total securities  in a loss position
(dollars in thousands; unaudited)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Held-to-maturity
Obligations of state & political subdivisions	$	5,636	$	(27	)	4,280		(54		)	$	9,916	$	(81	)
Corporate bonds	—		—			3,550		(12		)	3,550		(12		)
Total held-to-maturity	5,636		(27		)	7,830		(66		)	13,466		(93		)
Available-for-sale
MBS pass-through securities issued by FNMA and FHLMC	20,670		(188		)	—		—			20,670		(188		)
CMOs issued by FNMA	4,346		(73		)	—		—			4,346		(73		)
CMOs issued by FHLMC	23,886		(141		)	—		—			23,886		(141		)
CMOs issued by GNMA	3,474		(8		)	—		—			3,474		(8		)
Debentures of government- sponsored agencies	493		(2		)	9,717		(284		)	10,210		(286		)
Privately issued CMOs	318		(4		)	—		—			318		(4		)
Obligations of state & political subdivisions	2,804		(22		)	—		—			2,804		(22		)
Corporate bonds	989		(3		)	—		—			989		(3		)
Total available-for-sale	56,980		(441		)	9,717		(284		)	66,697		(725		)
Total temporarily impaired securities	$	62,616	$	(468	)	$	17,547	$	(350	)	$	80,163	$	(818	)

December 31, 2013	< 12 continuous months					> 12 continuous months					Total securities  in a loss position
(dollars in thousands)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Held-to-maturity
Obligations of state & political subdivisions	$	13,933	$	(419	)	$	9,033	$	(297	)	$	22,966	$	(716	)
Corporate bonds	3,017		(11		)	4,963		(49		)	7,980		(60		)
Total held-to-maturity	16,950		(430		)	13,996		(346		)	30,946		(776		)
Available-for-sale
MBS pass-through securities issued by FNMA and FHLMC	90,914		(1,297		)	3,172		(349		)	94,086		(1,646		)
CMOs issued by FNMA	17,535		(195		)	—		—			17,535		(195		)
CMOs issued by FHLMC	17,899		(175		)	—		—			17,899		(175		)
CMOs issued by GNMA	3,966		(99		)	—		—			3,966		(99		)
Debentures of government- sponsored agencies	16,872		(641		)	—		—			16,872		(641		)
Privately issued CMOs	4,634		(31		)	159		(1		)	4,793		(32		)
Obligations of state & political subdivisions	11,516		(191		)	—		—			11,516		(191		)
Corporate bonds	1,479		(14		)	—		—			1,479		(14		)
Total available-for-sale	164,815		(2,643		)	3,331		(350		)	168,146		(2,993		)
Total temporarily impaired securities	$	181,765	$	(3,073	)	$	17,327	$	(696	)	$	199,092	$	(3,769	)

As of September 30, 2014, there were five investment positions that had been in a continuous loss position for more than twelve months. These securities consisted of a debenture of government-sponsored agency, obligations of U.S. state and political subdivisions, and a corporate bond. We have evaluated each of the bonds and believe that the decline in fair value is primarily driven by factors other than credit. It is probable that we will be able to collect all amounts due according to the contractual terms and no other-than-temporary impairment exists. MBS are supported by the U.S. Federal government to protect us from credit losses. Additionally, the obligations of state and political subdivisions and corporate bonds were deemed creditworthy based on our review of the issuers' recent financial information and their insurers, if any. Based upon our assessment of expected credit losses given the performance of the underlying collateral and the credit enhancements, we concluded that the security was not other-than-temporarily impaired at September 30, 2014.

Twenty-three investment securities in our portfolio were in a temporary loss position for less than twelve months as of September 30, 2014. They consisted of a debenture issued by government agency, MBS, obligations of U.S. state and political subdivisions, and a corporate bond. We determine that the strengths of GNMA and FNMA through guarantee or support from the U.S. Federal Government are sufficient to protect us from credit losses. The other temporarily impaired securities are deemed creditworthy after our internal analysis. Additionally, all are rated as investment grade by at least one major rating agency. As a result of this impairment analysis, we concluded that these securities were not other-than-temporarily impaired at September 30, 2014.

Non-Marketable Securities

As a member of the FHLB, we are required to maintain a minimum investment in the FHLB capital stock determined by the Board of Directors of the FHLB. The minimum investment requirements can also increase in the event we need to increase our borrowings with the FHLB. Shares cannot be purchased or sold except between the FHLB and its members at its $100 per share par value. We held $8.2 million and $7.8 million of FHLB stock recorded at cost in other assets on the consolidated statements of condition at September 30, 2014 and December 31, 2013, respectively. The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and they do not have a readily determinable market value. Management does not believe that the FHLB stock is other-than-temporarily-impaired, as we expect to be able to redeem this stock at cost. On October 29, 2014, the FHLB announced a cash dividend for the third quarter of 2014 at an annualized dividend rate of 7.4% to be distributed in mid-November.

As a member bank of Visa U.S.A., we hold 16,939 shares of Visa Inc. Class B common stock with a carrying value of zero, which is equal to our cost basis. These shares are restricted from resale until their conversion into Class A (voting) shares upon the termination of Visa Inc.'s covered litigation escrow account. As a result of the restriction, these shares are not considered available-for-sale and are not carried at fair value. Converting this Class B common stock to Class A common stock at a conversion rate of 0.4206, the value would be $1.5 million and$1.6 million at September 30, 2014 and December 31, 2013, respectively. The conversion rate is subject to further reduction upon the final settlement of the covered litigation against Visa Inc. and its member banks. See Note 9 herein.

We invest in low income housing tax credit funds as a limited partner, which totaled $1.8 million and $1.0 million as of September 30, 2014 and December 31, 2013, respectively. Starting 2014, we have elected to account for all low income housing investments using the proportional amortization method instead of cost method and recognized $40 thousand of low income housing tax credit as a component of income tax benefit for the nine months ended September 30, 2014 .

XML

Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Dividends Declared

Presented below is a summary of cash dividends paid to common shareholders, recorded as a reduction of retained earnings.

	Three months ended				Nine months ended
(dollars in thousands except per share data, unaudited)	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Cash dividends to common stockholders	$	1,185	$	982	$	3,428	$	2,932
Cash dividends per common share	$	0.20	$	0.18	$	0.58	$	0.54

XML

Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table summarizes our assets and liabilities that were required to be recorded at fair value on a recurring basis.

(dollars in thousands)   Description of Financial Instruments	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
At September 30, 2014 (unaudited):
Securities available-for-sale:
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	169,903	$	—	$	167,160	$	2,743
Debentures of government-sponsored agencies	$	14,552	$	—	$	14,552	$	—
Privately-issued collateralized mortgage obligations	$	7,843	$	—	$	7,843	$	—
Obligations of state and political subdivisions	$	14,271	$	—	$	14,271	$	—
Corporate bonds	$	5,013	$	—	5,013		$	—
Derivative financial assets (interest rate contracts)	$	313	$	—	$	313	$	—
Derivative financial liabilities (interest rate contracts)	$	1,537	$	—	$	1,537	$	—
At December 31, 2013:
Securities available-for-sale:
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	190,604	$	—	$	190,604	$	—
Debentures of government-sponsored agencies	$	21,312	$	—	$	21,312	$	—
Privately-issued collateralized mortgage obligations	$	10,874	$	—	$	10,874	$	—
Obligations of state and political subdivisions	$	15,771	$	—	$	15,771	$	—
Corporate bonds	$	5,437	$	—	$	5,437	$	—
Derivative financial assets (interest rate contracts)	$	961	$	—	$	961	$	—
Derivative financial liabilities (interest rate contracts)	$	2,519	$	—	$	2,519	$	—

Fair Value Measurements, Nonrecurring

The following table presents the carrying value of financial instruments that were measured at fair value on a nonrecurring basis and that were still held in the statements of condition at each respective period end, by level within the fair value hierarchy as of September 30, 2014 and December 31, 2013.

(dollars in thousands) Description of Financial Instruments	Carrying Value1		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3) 1
At September 30, 2014 (unaudited):
Impaired loans carried at fair value:
Installment and other consumer	64		—		—		64
Total	$	64	$	—	$	—	$	64
At December 31, 2013:
Impaired loans carried at fair value:
Construction	3,037		—		—		3,037
Installment and other consumer	35		—		—		35
Total	$	3,072	$	—	$	—	$	3,072

¹ Represents collateral-dependent loan principal balances that had been generally written down to the values of the underlying collateral, net of specific valuation allowances of $15 thousand and $363 thousand at September 30, 2014 and December 31, 2013, respectively. The carrying value of loans fully charged-off, which includes unsecured lines of credit, overdrafts and all other loans, is zero.

Fair Value, by Balance Sheet Grouping

The table below is a summary of fair value estimates for financial instruments as of September 30, 2014 and December 31, 2013, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note). The carrying amounts in the following table are recorded in the consolidated statements of condition under the indicated captions. We have excluded non-financial assets and non-financial liabilities defined by the Codification (ASC 820-10-15-1A), such as Bank premises and equipment, deferred taxes and other liabilities.  In addition, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of the Financial Instruments Topic of the Codification (ASC 825-10-50-8), such as Bank-owned life insurance policies.

	September 30, 2014					December 31, 2013
(dollars in thousands; 2014 unaudited)	Carrying Amounts		Fair Value		Fair Value Hierarchy	Carrying Amounts		Fair Value		Fair Value Hierarchy
Financial assets
Cash and cash equivalents	$	46,424	$	46,424	Level 1	$	103,773	$	103,773	Level 1
Investment securities held-to-maturity	118,843		121,177		Level 2	122,495		123,858		Level 2
Loans, net	1,345,936		1,361,745		Level 3	1,255,098		1,245,475		Level 3
Interest receivable	5,645		5,645		Level 2	5,767		5,767		Level 2
Financial liabilities
Deposits	1,571,624		1,572,582		Level 2	1,587,102		1,588,278		Level 2
Federal Home Loan Bank borrowings	15,000		15,501		Level 2	15,000		15,665		Level 2
Subordinated debentures	5,131		5,187		Level 3	4,969		4,950		Level 3
Interest payable	209		209		Level 2	253		253		Level 2

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

We make commitments to extend credit in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being fully drawn upon, the total commitment amount does not necessarily represent future cash requirements.

We are exposed to credit loss equal to the contract amount of the commitment in the event of nonperformance by the borrower. We use the same credit policies in making commitments as we do for on-balance-sheet instruments and we evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us, is based on Management's credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and real property.

The contractual amount of loan commitments and standby letters of credit not reflected on the consolidated statements of condition was $340.3 million at September 30, 2014. This amount included $172.9 million under commercial lines of credit (these commitments are contingent upon customers maintaining specific credit standards), $111.2 million under revolving home equity lines, $32.2 million under undisbursed construction loans, $10.9 million under standby letters of credit, and a remaining $13.1 million under personal and other lines of credit. We have set aside an allowance for losses in the amount of $677 thousand for these commitments as of September 30, 2014, which is recorded in interest payable and other liabilities on the consolidated statements of condition.

Operating Leases

We rent certain premises and equipment under long-term, non-cancelable operating leases expiring at various dates through the year 2028. Most of the leases contain certain renewal options and escalation clauses. At September 30, 2014, the approximate minimum future commitments payable under non-cancelable contracts for leased premises are as follows:

(dollars in thousands; unaudited)	2014		2015		2016		2017		2018		Thereafter		Total
Operating leases	$	906	$	3,735	$	3,788	$	3,781	$	3,810	$	10,339	$	26,359

Litigation Matters

We may be party to legal actions which arise from time to time as part of the normal course of our business.  We believe, after consultation with legal counsel, that we have meritorious defenses in these actions, and that litigation contingency liabilities, if any, will not have a material adverse effect on our financial position, results of operations, or cash flows.

We are responsible for our proportionate share of certain litigation indemnifications provided to Visa U.S.A. ("Visa") by its member banks in connection with lawsuits related to anti-trust charges and interchange fees ("Covered Litigation"). On December 13, 2013, the district court issued a memorandum and order approving Visa's definitive class settlement agreement in the interchange multidistrict litigation ("Settlement Agreement") with the class plaintiffs. On January 14, 2014, the court entered the final judgment order approving the settlement. A number of objectors to the settlement have appealed that order. Until the appeals are finally adjudicated, no assurance can be provided that Visa will be able to resolve the class plaintiffs' claims as contemplated by the Settlement Agreement. On January 27, 2014, Visa's portion of the takedown payments related to the opt-out merchants, which was calculated to be approximately $1.1 billion, was deposited into the litigation escrow account. The conversion rate of Visa Class B common stock held by us to Class A common stock (as discussed in Note 5) may reduce if Visa makes more Covered Litigation settlement payments in the future and the full impact to member banks is still uncertain. However, we are not aware of significant future cash settlement payments required by us on the Covered Litigation.

XML

Borrowings

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Borrowings

Borrowings

Federal Funds Purchased – We had unsecured lines of credit totaling $72.0 million with correspondent banks for overnight borrowings at September 30, 2014 and $87.0 million at December 31, 2013.  In general, interest rates on these lines approximate the Federal funds target rate. At September 30, 2014 and December 31, 2013, we had no overnight borrowings outstanding under these credit facilities.

Federal Home Loan Bank Borrowings – As of September 30, 2014 and December 31, 2013, we had lines of credit with the FHLB totaling $455.8 million and $416.3 million, respectively, based on eligible collateral of certain loans.  At September 30, 2014 and December 31, 2013, we had no FHLB overnight borrowings.

On February 5, 2008, we entered into a ten-year borrowing agreement under the same FHLB line of credit for $15.0 million at a fixed rate of 2.07%, which remained outstanding at September 30, 2014. Interest-only payments are required every three months until the entire principal is due on February 5, 2018. The FHLB has the unconditional right to accelerate the due date on November 5, 2014 and every three months thereafter (the “put dates”). If the FHLB exercises its right to accelerate the due date, the FHLB will offer replacement funding at the current market rate, subject to certain conditions. We must comply with the put date, but are not required to accept replacement funding.

At September 30, 2014, $440.6 million was remaining as available for borrowing from the FHLB, net of the term borrowing and letters of credit acquired from NorCal totaling $241 thousand.

Federal Reserve Line of Credit – We have a line of credit with the FRB secured by a certain residential loan portfolio.  At September 30, 2014 and December 31, 2013, we had borrowing capacity under this line totaling $28.5 million and $24.4 million, respectively, and had no outstanding borrowings with the FRB.

As part of the Acquisition, we assumed two tranches of subordinated debentures due to the NorCal Community Bancorp grantor trusts at fair values totaling $4.95 million at acquisition date and contractual values totaling $8.2 million. The difference between the contractual balance and the fair value at acquisition date is accreted into interest expense over the lives of the debentures. Accretion on the subordinated debentures totaled $162 thousand in the first nine months of 2014. The Trusts have the option to defer payment of the distributions for a period of up to five years, as long as there is no default on the subordinated debentures. In the event of interest deferral, dividends to common stockholders are prohibited. The trust preferred securities were sold and issued in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. Bancorp has guaranteed, on a subordinated basis, distributions and other payments due on trust preferred securities totaling $8.0 million issued by the grantor trusts which have identical maturity, repricing and payment terms as the subordinated debentures.

The following is a summary of the contractual terms of the subordinated debentures due to NorCal Community Bancorp grantor trusts as of September 30, 2014:

(dollars in thousands)
Subordinated debentures due to NorCal Community Bancorp Trust I on October 7, 2033 with interest payable quarterly, based on 3-month LIBOR plus 3.05%, repricing quarterly (3.28% as of September 30, 2014), redeemable, in whole or in part, on any interest payment date	$	4,124
Subordinated debentures due to NorCal Community Bancorp Trust II on March 15, 2036 with interest payable quarterly, based on 3-month LIBOR plus 1.40%, repricing quarterly (1.63% as of September 30, 2014), redeemable, in whole or in part, on any interest payment date	4,124
Total	$	8,248

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Stockholders' Equity

Stockholders' Equity

Preferred Stock

Under the United States Department of the Treasury Capital Purchase Program (the “TCPP”), which was intended to stabilize and inject liquidity into the financial industry, on December 5, 2008, Bancorp issued to the U.S. Treasury 28,000 shares of senior preferred stock with a zero par value and a $1,000 per share liquidation preference, along with a warrant to purchase 154,242 shares of common stock at a per share exercise price of $27.23, in exchange for aggregate consideration of $28.0 million. The proceeds of $28.0 million were allocated between the preferred stock and the warrant with $27.0 million allocated to preferred stock and $961 thousand allocated to the warrant, based on their relative fair value at the time of issuance. The warrant was immediately exercisable and expires 10 years after the issuance date.

Under the American Recovery and Reinvestment Act of 2009, which allowed participants in the TCPP to withdraw from the program, we repurchased all 28,000 shares of outstanding preferred stock from the U.S. Treasury at $28 million plus accrued but unpaid dividends of $179 thousand on March 31, 2009. At the time of repurchase, we also accelerated the remaining accretion of the preferred stock totaling $945 thousand through retained earnings, reducing our net income available to common stockholders. The warrant was subsequently auctioned to two institutional investors in November 2011 and remains outstanding. It is adjusted for cash dividend increases to represent a right to purchase 156,688 shares of common stock at $26.81 per share as of September 30, 2014 in accordance with Section 13(c) of the Form of Warrant to Purchase Common Stock.

Dividends

Presented below is a summary of cash dividends paid to common shareholders, recorded as a reduction of retained earnings.

	Three months ended				Nine months ended
(dollars in thousands except per share data, unaudited)	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Cash dividends to common stockholders	$	1,185	$	982	$	3,428	$	2,932
Cash dividends per common share	$	0.20	$	0.18	$	0.58	$	0.54

Share-Based Payments

The fair value of stock options on the grant date is recorded as a stock-based compensation expense in the consolidated statements of comprehensive income over the requisite service period with a corresponding increase in common stock. Stock-based compensation also includes compensation expense related to the issuance of unvested restricted common shares pursuant to the 2007 Equity Plan. The grant-date fair value of the restricted common shares, which is equal to its intrinsic value on that date, is being recorded as compensation expense over the requisite service period with a corresponding increase in common stock as the shares vest. In addition, we record excess tax benefits on the exercise

of non-qualified stock options, the disqualifying disposition of incentive stock options and vesting of in-the-money restricted stock as an addition to common stock with a corresponding decrease in current taxes payable.

The holders of unvested restricted common shares are entitled to dividends on the same per-share ratio as holders of common stock. Dividends paid on the portion of share-based awards not expected to vest are also included in stock-based compensation expense. Tax benefits on dividends paid on the portion of share-based awards expected to vest are recorded as an increase to common stock with a corresponding decrease in current taxes payable.

XML

Derivative Financial Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Hedging Activities

Derivative Financial Instruments and Hedging Activities

We have entered into interest rate swap agreements, primarily as an asset/liability management strategy, in order to mitigate the changes in the fair value of specified long-term fixed-rate loans (or firm commitments to enter into long-term fixed-rate loans) caused by changes in interest rates. These hedges allow us to offer long-term fixed rate loans to customers without assuming the interest rate risk of a long-term asset. Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S. dollar LIBOR index, protects us against changes in the fair value of our loans associated with fluctuating interest rates.

The fixed-rate payment features of the interest rate swap agreements are generally structured at inception to mirror substantially all of the provisions of the hedged loan agreements. These interest rate swaps, designated and qualified as fair value hedges, are carried on the consolidated statements of condition at their fair value in other assets (when the fair value is positive) or in other liabilities (when the fair value is negative). One of our interest rate swap agreements qualifies for shortcut hedge accounting treatment. The change in fair value of the swap using the shortcut accounting treatment is recorded in other non-interest income, while the change in fair value of swaps using non-shortcut accounting is recorded in interest income. The unrealized gain or loss in fair value of the hedged fixed-rate loan due to LIBOR interest rate movements is recorded as an adjustment to the hedged loan and offset in other non-interest income (for shortcut accounting treatment) or interest income (for non-shortcut accounting treatment).

From time to time, we make firm commitments to enter into long-term fixed-rate loans with borrowers backed by yield maintenance agreements and simultaneously enter into forward interest rate swap agreements with correspondent banks to mitigate the change in fair value of the yield maintenance agreement. Prior to loan funding, yield maintenance agreements with net settlement features that meet the definition of a derivative are considered as non-designated hedges and are carried on the consolidated statements of condition at their fair value in other assets (when the fair value is positive) or in other liabilities (when the fair value is negative). The offsetting changes in the fair value of the forward swap and the yield maintenance agreement are recorded in interest income. In August 2010 and June 2011, two previously undesignated forward swaps were designated to offset the change in fair value of a fixed-rate loan originated in each of those periods. Subsequent to the point of the swap designations, the related yield maintenance agreements are no longer considered derivatives. Their fair value at the designation date was recorded in other assets and is amortized using the effective yield method over the life of the respective designated loans.

The net effect of the change in fair value of interest rate swaps, the amortization of the yield maintenance agreement and the change in the fair value of the hedged loans result in an insignificant amount of hedge ineffectiveness recognized in interest income.

Our credit exposure, if any, on interest rate swaps is limited to the favorable value (net of any collateral pledged to us) and interest payments of all swaps by each counterparty. Conversely, when an interest rate swap is in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an amount determined by the agreements (generally when our derivative liability position is greater than $100 thousand or $1.3 million, depending upon the counterparty). Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values.

As of September 30, 2014, we have eight interest rate swap agreements, which are scheduled to mature in September 2018, June 2020, August 2020, June 2031, October 2031, July 2032, August 2037 and October 2037. All of our derivatives are accounted for as fair value hedges. Our interest rate swaps are settled monthly with counterparties. Accrued interest on the swaps totaled $39 thousand and $70 thousand as of September 30, 2014 and December 31, 2013, respectively. Information on our derivatives follows:

	Asset derivatives				Liability derivatives
(dollars in thousands; 2014 unaudited)	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Fair value hedges:
Interest rate contracts notional amount	$	10,353	$	17,956	$	21,620	$	21,577
Interest rate contracts fair value1	$	313	$	961	$	1,537	$	2,519

	Three months ended
(dollars in thousands; unaudited)	September 30, 2014			September 30, 2013
Increase in value of designated interest rate swaps recognized in interest income	$	21		$	196
Payment on interest rate swaps recorded in interest income	(251		)	(358		)
Decrease in value of hedged loans recognized in interest income	$	(54	)	(245		)
Decrease in value of yield maintenance agreement recognized against interest income	(15		)	(18		)
Net loss on derivatives recognized against interest income 2	$	(299	)	$	(425	)

	Nine months ended
(dollars in thousands; unaudited)	September 30, 2014			September 30, 2013
Increase in value of designated interest rate swaps recognized in interest income	$	334		$	2,800
Payment on interest rate swaps recorded in interest income	(755		)	(1,075		)
Decrease in value of hedged loans recognized in interest income	(133		)	(3,033		)
Decrease in value of yield maintenance agreement recognized against interest income	(77		)	(54		)
Net loss on derivatives recognized against interest income 2	$	(631	)	$	(1,362	)

¹ See Note 4 for valuation methodology.

² Includes hedge ineffectiveness loss of $48 thousand and loss of $67 thousand for the quarters ended September 30, 2014 and September 30, 2013, respectively. Hedge ineffectiveness gain of $125 thousand and loss of $287 thousand was recorded in interest income during the nine months ended September 30, 2014 and September 30, 2013, respectively. Changes in value of swaps were included in the assessment of hedge effectiveness.

Our derivative transactions with counterparties are under International Swaps and Derivative Association (“ISDA”) master agreements that include “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes.

Information on financial instruments that are eligible for offset in the consolidated statements of condition follows:

Offsetting of Financial Assets and Derivative Assets
(dollars in thousands; 2014 unaudited)							Gross Amounts Not Offset in the Statements of Condition
			Gross Amounts		Net Amounts
	Gross Amounts		Offset in the		of Assets Presented
	of Recognized		Statements of		in the Statements		Financial			Cash Collateral
	Assets1		Condition		of Condition1		Instruments			Received		Net Amount
As of September 30, 2014
Derivatives by Counterparty
Counterparty A	$	313	$	—	$	313	$	(313	)	$	—	$	—
Counterparty B	—		—		—		—			—		—
Total	$	313	$	—	$	313	$	(313	)	$	—	$	—
As of December 31, 2013
Derivatives by Counterparty
Counterparty A	$	961	$	—	$	961	$	(825	)	$	—	$	136
Counterparty B	—		—		—		—			—		—
Total	$	961	$	—	$	961	$	(825	)	$	—	$	136

¹ Amounts exclude accrued interest totaling $7 thousand and $10 thousand at September 30, 2014 and December 31, 2013, respectively.

Offsetting of Financial Liabilities and Derivative Liabilities
(dollars in thousands; 2014 unaudited)							Gross Amounts Not Offset in the Statements of Condition
			Gross Amounts		Net Amounts of
	Gross Amounts		Offset in the		Liabilities Presented
	of Recognized		Statements of		in the Statements of		Financial			Cash Collateral
	Liabilities2		Condition		Condition2		Instruments			Pledged			Net Amount
As of September 30, 2014
Derivatives by Counterparty
Counterparty A	$	1,140	$	—	$	1,140	$	(313	)	$	—		$	827
Counterparty B	397		—		397		—			(397		)	—
Total	$	1,537	$	—	$	1,537	$	(313	)	$	(397	)	$	827
As of December 31, 2013
Derivatives by Counterparty
Counterparty A	$	825	$	—	$	825	$	(825	)	$	—		$	—
Counterparty B	1,694		—		1,694		—			(1,694		)	—
Total	$	2,519	$	—	$	2,519	$	(825	)	$	(1,694	)	$	—

² Amounts exclude accrued interest totaling $32 thousand and $60 thousand at September 30, 2014 and December 31, 2013, respectively.

XML

Investment Securities - Investment Securities in Unrealized Loss Positions (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014 security	Dec. 31, 2013 security
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Number of investment securities other-than-temporarily impaired	0
Number of investment securities in unrealized loss position	28	95
Number of investment securities in unrealized loss position longer than 12 months	5
Number of investment securities in unrealized loss position less than 12 months	23
Held-to-maturity, less than 12 continuous months, Fair value	$ 5,636	$ 16,950
Held-to-maturity, less than 12 continuous months, Unrealized loss	(27)	(430)
Held-to-maturity, greater than 12 continuous months, Fair value	7,830	13,996
Held-to-maturity, greater than 12 continuous months, Unrealized loss	(66)	(346)
Held-to-maturity, Total Securities in a loss position, Fair value	13,466	30,946
Held-to-maturity, Total Securities in a loss position, Unrealized loss	(93)	(776)
Available-for-sale, less than 12 continuous months, Fair value	56,980	164,815
Available-for-sale, less than 12 continuous months, Unrealized loss	(441)	(2,643)
Available-for-sale, greater than 12 continuous months, Fair value	9,717	3,331
Available-for-sale, greater than 12 continuous months, Unrealized loss	(284)	(350)
Available-for-sale, Total Securities in a loss position, Fair Value	66,697	168,146
Available-for-sale, Total Securities in a loss position, Unrealized loss	(725)	(2,993)
Marketable securities, less than 12 continuous months, Fair value	62,616	181,765
Marketable securities, less than 12 continuous months, Unrealized loss	(468)	(3,073)
Marketable securities, greater than 12 continuous months, Fair value	17,547	17,327
Marketable securities, greater than 12 continuous months, Unrealized loss	(350)	(696)
Marketable securities, Total Securities in a loss position, Fair value	80,163	199,092
Marketable securities, Total Securities in a loss position, Unrealized loss	(818)	(3,769)
MBS pass-through securities issued by FNMA and FHLMC
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, less than 12 continuous months, Fair value	20,670	90,914
Available-for-sale, less than 12 continuous months, Unrealized loss	(188)	(1,297)
Available-for-sale, greater than 12 continuous months, Fair value	0	3,172
Available-for-sale, greater than 12 continuous months, Unrealized loss	0	(349)
Available-for-sale, Total Securities in a loss position, Fair Value	20,670	94,086
Available-for-sale, Total Securities in a loss position, Unrealized loss	(188)	(1,646)
CMOs issued by FNMA
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, less than 12 continuous months, Fair value	4,346	17,535
Available-for-sale, less than 12 continuous months, Unrealized loss	(73)	(195)
Available-for-sale, greater than 12 continuous months, Fair value	0	0
Available-for-sale, greater than 12 continuous months, Unrealized loss	0	0
Available-for-sale, Total Securities in a loss position, Fair Value	4,346	17,535
Available-for-sale, Total Securities in a loss position, Unrealized loss	(73)	(195)
CMOs issued by FHLMC
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, less than 12 continuous months, Fair value	23,886	17,899
Available-for-sale, less than 12 continuous months, Unrealized loss	(141)	(175)
Available-for-sale, greater than 12 continuous months, Fair value	0	0
Available-for-sale, greater than 12 continuous months, Unrealized loss	0	0
Available-for-sale, Total Securities in a loss position, Fair Value	23,886	17,899
Available-for-sale, Total Securities in a loss position, Unrealized loss	(141)	(175)
CMOs issued by GNMA
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, less than 12 continuous months, Fair value	3,474	3,966
Available-for-sale, less than 12 continuous months, Unrealized loss	(8)	(99)
Available-for-sale, greater than 12 continuous months, Fair value	0	0
Available-for-sale, greater than 12 continuous months, Unrealized loss	0	0
Available-for-sale, Total Securities in a loss position, Fair Value	3,474	3,966
Available-for-sale, Total Securities in a loss position, Unrealized loss	(8)	(99)
Debentures of government-sponsored agencies
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, less than 12 continuous months, Fair value	493	16,872
Available-for-sale, less than 12 continuous months, Unrealized loss	(2)	(641)
Available-for-sale, greater than 12 continuous months, Fair value	9,717	0
Available-for-sale, greater than 12 continuous months, Unrealized loss	(284)	0
Available-for-sale, Total Securities in a loss position, Fair Value	10,210	16,872
Available-for-sale, Total Securities in a loss position, Unrealized loss	(286)	(641)
Privately-issued CMOs
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, less than 12 continuous months, Fair value	318	4,634
Available-for-sale, less than 12 continuous months, Unrealized loss	(4)	(31)
Available-for-sale, greater than 12 continuous months, Fair value	0	159
Available-for-sale, greater than 12 continuous months, Unrealized loss	0	(1)
Available-for-sale, Total Securities in a loss position, Fair Value	318	4,793
Available-for-sale, Total Securities in a loss position, Unrealized loss	(4)	(32)
Obligations of state and political subdivisions
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, less than 12 continuous months, Fair value	2,804
Available-for-sale, less than 12 continuous months, Unrealized loss	(22)
Available-for-sale, greater than 12 continuous months, Fair value	0
Available-for-sale, greater than 12 continuous months, Unrealized loss	0
Available-for-sale, Total Securities in a loss position, Fair Value	2,804
Available-for-sale, Total Securities in a loss position, Unrealized loss	(22)
Corporate bonds
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Available-for-sale, less than 12 continuous months, Fair value	989
Available-for-sale, less than 12 continuous months, Unrealized loss	(3)
Available-for-sale, greater than 12 continuous months, Fair value	0
Available-for-sale, greater than 12 continuous months, Unrealized loss	0
Available-for-sale, Total Securities in a loss position, Fair Value	989
Available-for-sale, Total Securities in a loss position, Unrealized loss	(3)
Obligations of state and political subdivisions
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Held-to-maturity, less than 12 continuous months, Fair value	5,636	13,933
Held-to-maturity, less than 12 continuous months, Unrealized loss	(27)	(419)
Held-to-maturity, greater than 12 continuous months, Fair value	4,280	9,033
Held-to-maturity, greater than 12 continuous months, Unrealized loss	(54)	(297)
Held-to-maturity, Total Securities in a loss position, Fair value	9,916	22,966
Held-to-maturity, Total Securities in a loss position, Unrealized loss	(81)	(716)
Available-for-sale, less than 12 continuous months, Fair value		11,516
Available-for-sale, less than 12 continuous months, Unrealized loss		(191)
Available-for-sale, greater than 12 continuous months, Fair value		0
Available-for-sale, greater than 12 continuous months, Unrealized loss		0
Available-for-sale, Total Securities in a loss position, Fair Value		11,516
Available-for-sale, Total Securities in a loss position, Unrealized loss		(191)
Corporate bonds
Schedule of Available-for-sale Securities and Held-to-maturity Securities [Line Items]
Held-to-maturity, less than 12 continuous months, Fair value	0	3,017
Held-to-maturity, less than 12 continuous months, Unrealized loss	0	(11)
Held-to-maturity, greater than 12 continuous months, Fair value	3,550	4,963
Held-to-maturity, greater than 12 continuous months, Unrealized loss	(12)	(49)
Held-to-maturity, Total Securities in a loss position, Fair value	3,550	7,980
Held-to-maturity, Total Securities in a loss position, Unrealized loss	(12)	(60)
Available-for-sale, less than 12 continuous months, Fair value		1,479
Available-for-sale, less than 12 continuous months, Unrealized loss		(14)
Available-for-sale, greater than 12 continuous months, Fair value		0
Available-for-sale, greater than 12 continuous months, Unrealized loss		0
Available-for-sale, Total Securities in a loss position, Fair Value		1,479
Available-for-sale, Total Securities in a loss position, Unrealized loss		$ (14)

XML

Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2014

Receivables [Abstract]

Past Due Financing Receivables

Outstanding loans by class and payment aging as of September 30, 2014 and December 31, 2013 are as follows:

Loan Aging Analysis by Class as of September 30, 2014 and December 31, 2013
(dollars in thousands; 2014 unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential 1			Installment and other consumer			Total
September 30, 2014
30-59 days past due	$	3		$	—		$	—		$	—		$	—		$	—		$	279		$	282
60-89 days past due	—			—			—			—			—			—			17			17
Greater than 90 days past due (non-accrual) 2	193			1,403			2,505			5,173			436			—			128			9,838
Total past due	196			1,403			2,505			5,173			436			—			424			10,137
Current	201,320			233,090			671,923			40,775			109,219			75,992			18,529			1,350,848
Total loans 3	$	201,516		$	234,493		$	674,428		$	45,948		$	109,655		$	75,992		$	18,953		$	1,360,985
Non-accrual loans to total loans	0.1		%	0.6		%	0.4		%	11.3		%	0.4		%	—		%	0.7		%	0.7		%
December 31, 2013
30-59 days past due	$	18		$	—		$	—		$	—		$	240		$	717		$	17		$	992
60-89 days past due	—			—			—			—			—			—			3			3
Greater than 90 days past due (non-accrual) 2	1,187			1,403			2,807			5,218			234			660			169			11,678
Total past due	1,205			1,403			2,807			5,218			474			1,377			189			12,673
Current	182,086			239,710			622,212			26,359			97,995			71,257			17,030			1,256,649
Total loans 3	$	183,291		$	241,113		$	625,019		$	31,577		$	98,469		$	72,634		$	17,219		$	1,269,322
Non-accrual loans to total loans	0.6		%	0.6		%	0.4		%	16.5		%	0.2		%	0.9		%	1.0		%	0.9		%

¹ Our residential loan portfolio includes no sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or higher loan-to-value ratios.

² Amounts include $1.4 million of Purchased Credit Impaired ("PCI") loans that had stopped accreting interest at both September 30, 2014 and December 31, 2013, and exclude accreting PCI loans of $3.8 million and $5.7 million at September 30, 2014 and December 31, 2013, respectively, as their accretable yield interest recognition is independent from the underlying contractual loan delinquency status. There were no accruing loans more than ninety days past due at September 30, 2014 or December 31, 2013.

³ Amounts include net deferred loan costs of $406 thousand and $24 thousand at September 30, 2014 and December 31, 2013, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $4.9 million and $7.6 million at September 30, 2014 and December 31, 2013, respectively.

Financing Receivable Credit Quality Indicators

The following table represents an analysis of loans by internally assigned grades, including the PCI loans, at September 30, 2014 and December 31, 2013:

(dollars in thousands; 2014 unaudited)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Purchased credit-impaired		Total
Credit Risk Profile by Internally Assigned Grade:
September 30, 2014
Pass	$	186,922	$	209,600	$	654,889	$	39,358	$	104,794	$	72,732	$	17,937	$	2,203	$	1,288,435
Special Mention	7,749		10,471		9,359		856		1,849		1,704		417		1,146		33,551
Substandard	6,511		11,826		7,995		5,723		2,945		1,556		599		1,844		38,999
Total loans	$	201,182	$	231,897	$	672,243	$	45,937	$	109,588	$	75,992	$	18,953	$	5,193	$	1,360,985
December 31, 2013
Pass	$	162,625	$	216,537	$	609,157	$	25,069	$	93,792	$	69,176	$	16,336	$	1,340	$	1,194,032
Special Mention	13,990		16,533		8,570		725		2,164		1,047		227		894		44,150
Substandard	6,343		3,224		5,413		5,768		2,444		2,411		656		4,881		31,140
Total loans	$	182,958	$	236,294	$	623,140	$	31,562	$	98,400	$	72,634	$	17,219	$	7,115	$	1,269,322

Troubled Debt Restructurings on Financing Receivables

The table below summarizes outstanding TDR loans by loan class as of September 30, 2014 and December 31, 2013. The summary includes those TDRs that are on non-accrual status and those that continue to accrue interest.

(dollars in thousands; 2014 unaudited)	As of
Recorded investment in Troubled Debt Restructurings 1	September 30, 2014		December 31, 2013
Commercial and industrial	$	4,337	$	5,117
Commercial real estate, owner-occupied	8,491		4,333
Commercial real estate, investor	527		534
Construction	6,654		6,335
Home equity	703		506
Other residential	1,552		2,063
Installment and other consumer	1,724		1,693
Total	$	23,988	$	20,581

¹ Includes $16.9 million and $12.9 million of TDR loans that were accruing interest as of September 30, 2014 and December 31, 2013, respectively. Includes $1.8 million of acquired loans at both September 30, 2014 and December 31, 2013, respectively.

The tables below present the following information for TDRs modified during the periods presented: number of contracts modified, the recorded investment in the loans prior to modification, and the recorded investment in the loans after the loans were restructured. The tables below exclude fully paid-off or fully charged-off TDR loans.

(dollars in thousands; unaudited)	Number of Contracts Modified	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment at period end
Troubled Debt Restructurings during the three months ended September 30, 2014:
Commercial and industrial	2	$	513	$	596	$	596
Commercial real estate, owner-occupied	1	4,226		4,216		4,206
Home equity	1	74		74		74
Other residential	1	815		$	814	$	814
Total	5	$	5,628	$	5,700	$	5,690
Troubled Debt Restructurings during the three months ended September 30, 2013:
Commercial and industrial	3	$	587	$	560	$	558
Commercial real estate, owner occupied	1	2,961		2,956		2,951
Commercial real estate, investor	1	539		538		536
Construction	2	11		9		9
Total	7	$	4,098	$	4,063	$	4,054

Troubled Debt Restructurings during the nine months ended September 30, 2014:
Commercial and industrial 1	7	$	1,336	$	1,460	$	1,431
Commercial real estate, owner-occupied	1	4,226		4,216		4,206
Other residential	1	815		814		814
Home equity	2	224		224		222
Installment and other consumer	6	281		278		270
Total	17	$	6,882	$	6,992	$	6,943
Troubled Debt Restructurings during the nine months ended September 30, 2013:
Commercial and Industrial 2	5	$	1,086	$	1,057	$	991
Commercial real estate, owner-occupied	1	2,961		2,956		2,951
Commercial real estate, investor	1	539		538		536
Construction	1	4,745		4,766		4,806
Installment and other consumer	2	11		9		9
Total	10	$	9,342	$	9,326	$	9,293

¹ Excludes one contract modified and subsequently paid off during the nine months ended September 30, 2014 in the amount of $905 thousand pre-modification and post-modification.

² Excludes two contracts modified and subsequently paid off during the nine months ended September 30, 2013. The pre-modification and post-modification outstanding recorded investment balances were both $218 thousand.

Impaired Financing Receivables

The tables below summarize information on impaired loans and their related allowance. Total impaired loans include non-accrual loans, accruing TDR loans and accreting PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.

(dollars in thousands; unaudited)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Total
September 30, 2014
Recorded investment in impaired loans:
With no specific allowance recorded	$	1,212	$	5,609	$	3,032	$	5,173	$	550	$	528	$	240	$	16,344
With a specific allowance recorded	3,125		2,882		—		1,492		302		1,024		1,563		10,388
Total recorded investment in impaired loans	$	4,337	$	8,491	$	3,032	$	6,665	$	852	$	1,552	$	1,803	$	26,732
Unpaid principal balance of impaired loans:
With no specific allowance recorded	$	1,258	$	7,266	$	5,023	$	7,863	$	1,036	$	528	$	240	$	23,214
With a specific allowance recorded	3,220		2,882		—		1,682		302		1,024		1,564		10,674
Total unpaid principal balance of impaired loans	$	4,478	$	10,148	$	5,023	$	9,545	$	1,338	$	1,552	$	1,804	$	33,888
Specific allowance	$	817	$	100	$	—	$	3	$	29	$	98	$	286	$	1,333
Average recorded investment in impaired loans during the quarter ended September 30, 2014	$	5,292	$	6,982	$	3,090	$	6,678	$	857	$	1,440	$	1,847	$	26,186
Interest income recognized on impaired loans during the quarter ended September 30, 2014	$	88	$	54	$	7	$	23	$	5	$	14	$	19	$	210
Average recorded investment in impaired loans during the nine months ended September 30, 2014	$	5,818	$	5,980	$	3,186	$	6,568	$	730	$	1,726	$	1,876	$	25,884
Interest income recognized on impaired loans during the nine months ended September 30, 2014	$	309	$	220	$	21	$	67	$	14	$	56	$	56	$	743
Average recorded investment in impaired loans during the quarter ended September 30, 2013	$	5,933	$	3,526	$	6,389	$	8,479	$	775	$	2,576	$	1,842	$	29,520
Interest income recognized on impaired loans during the quarter ended September 30, 2013	$	102	$	63	$	7	$	21	$	5	$	22	$	16	$	236
Average recorded investment in impaired loans during the nine months ended September 30, 2013	$	7,584	$	2,861	$	6,178	$	7,138	$	1,022	$	2,744	$	1,881	$	29,408
Interest income recognized on impaired loans during the nine months ended September 30, 2013	$	343	$	170	$	7	$	233	$	25	$	67	$	50	$	895

(dollars in thousands)	Commercial and industrial		Commercial real estate, owner-occupied		Commercial real estate, investor		Construction		Home equity		Other residential		Installment and other consumer		Total
December 31, 2013
Recorded investment in impaired loans:
With no specific allowance recorded	$	977	$	1,403	$	3,341	$	2,806	$	349	$	1,254	$	112	$	10,242
With a specific allowance recorded	4,725		4,085		—		3,927		157		809		1,750		$	15,453
Total recorded investment in impaired loans	$	5,702	$	5,488	$	3,341	$	6,733	$	506	$	2,063	$	1,862	$	25,695
Unpaid principal balance of impaired loans:
With no specific allowance recorded	$	977	$	3,060	$	5,333	$	5,547	$	835	$	1,254	$	154	$	17,160
With a specific allowance recorded	4,930		5,088		—		4,114		157		809		1,750		16,848
Total recorded investment in impaired loans	$	5,907	$	8,148	$	5,333	$	9,661	$	992	$	2,063	$	1,904	$	34,008
Specific allowance	$	1,170	$	90	$	—	$	341	$	1	$	23	$	364	$	1,989

Allowance for Credit Losses on Financing Receivables

The following table discloses loans by major portfolio category and activity in the ALLL, as well as the related ALLL disaggregated by impairment evaluation method:

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total
For the three months ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,125		$	1,979		$	6,713		$	571		$	944		$	454		$	481		$	633	$	14,900
Provision (reversal)	(263		)	9			(26		)	(33		)	(18		)	(8		)	90			249		—
Charge-offs	—			—			—			—			—			—			(2		)	—		(2		)
Recoveries	44			5			5			96			1			—			—			—		151
Ending balance	$	2,906		$	1,993		$	6,692		$	634		$	927		$	446		$	569		$	882	$	15,049
For the nine months ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,056		$	2,012		$	6,196		$	633		$	875		$	317		$	629		$	506	$	14,224
Provision (reversal)	(208		)	(24		)	455			109			49			129			(136		)	376		750
Charge-offs	(66		)	—			—			(204		)	—			—			(6		)	—		(276		)
Recoveries	124			5			41			96			3			—			82			—		351
Ending balance	$	2,906		$	1,993		$	6,692		$	634		$	927		$	446		$	569		$	882	$	15,049

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total
As of September 30, 2014:
Ending ALLL related to loans collectively evaluated for impairment	$	2,089		$	1,893		$	6,692		$	631		$	898		$	348		$	283		$	882	$	13,716
Ending ALLL related to loans  individually evaluated for impairment	$	814		$	100		$	—		$	—		$	29		$	98		$	286		$	—	$	1,327
Ending ALLL related to purchased  credit-impaired loans	$	3		$	—		$	—		$	3		$	—		$	—		$	—		$	—	$	6
Loans outstanding:
Collectively evaluated for impairment	$	197,143		$	224,809		$	669,211		$	39,283		$	108,736		$	74,440		$	17,150		$	—	$	1,330,772
Individually evaluated for impairment1	4,039			7,088			3,032			6,654			852			1,552			1,803			—		25,020
Purchased credit-impaired	334			2,596			2,185			11			67			—			—			—		5,193
Total	$	201,516		$	234,493		$	674,428		$	45,948		$	109,655		$	75,992		$	18,953		$	—	$	1,360,985
Ratio of allowance for loan losses to total loans	1.44		%	0.85		%	0.99		%	1.38		%	0.85		%	0.59		%	3.00		%	NM		1.11		%
Allowance for loan losses to non-accrual loans	868		%	142		%	256		%	12		%	209		%	NM			374		%	NM		153		%

¹ Total excludes $1.7 million of PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.These loans are included in the "purchased credit-impaired" amount in the next line below.

NM - Not Meaningful

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands)	Commercial and industrial			Commercial real estate, owner-occupied			Commercial real estate, investor			Construction			Home equity			Other residential			Installment and other consumer			Unallocated		Total
As of December 31, 2013:
Ending ALLL related to loans collectively evaluated for impairment	$	1,886		$	1,922		$	6,196		$	292		$	874		$	294		$	265		$	506	$	12,235
Ending ALLL related to loans  individually evaluated for impairment	$	987		$	31		$	—		$	341		$	1		$	23		$	364		$	—	$	1,747
Ending ALLL related to purchased  credit-impaired loans	$	183		$	59		$	—		$	—		$	—		$	—		$	—		$	—	$	242
Loans outstanding:
Collectively evaluated for impairment	$	177,550		$	233,330		$	619,833		$	24,829		$	97,894		$	70,571		$	15,357		$	—	$	1,239,364
Individually evaluated for impairment1	5,408			2,930			3,341			6,733			506			2,063			1,862			—		22,843
Purchased credit-impaired	333			4,853			1,845			15			69			—			—			—		7,115
Total	$	183,291		$	241,113		$	625,019		$	31,577		$	98,469		$	72,634		$	17,219		$	—	$	1,269,322
Ratio of allowance for loan losses to total loans	1.67		%	0.83		%	0.99		%	2.00		%	0.89		%	0.44		%	3.65		%	NM		1.12		%
Allowance for loan losses to non-accrual loans	257		%	143		%	221		%	12		%	374		%	48		%	372		%	NM		122		%

¹ Total excludes $2.9 million PCI loans that have experienced credit deterioration post-acquisition, which are included in the "purchased credit-impaired" amount in the next line below.

NM - Not Meaningful

Allowance for Loan Losses and Recorded Investment in Loans
(dollars in thousands; unaudited)	Commercial and industrial			Commercial real estate, owner-occupied		Commercial real estate, investor		Construction			Home equity			Other residential			Installment and other consumer			Unallocated			Total
For the three months ended September 30, 2013
Allowance for loan losses:
Beginning balance	$	3,799		$	1,406	$	4,368	$	1,721		$	1,153		$	401		$	1,313		$	196		$	14,357
Provision (reversal)	(965		)	427		1,338		(210		)	(173		)	(124		)	(669		)	(104		)	(480		)
Charge-offs	(129		)	—		—		(24		)	—			—			(1		)	—			(154		)
Recoveries	75			—		9		—			—			—			1			—			85
Ending balance	$	2,780		$	1,833	$	5,715	$	1,487		$	980		$	277		$	644		$	92		$	13,808
For the nine months ended September 30, 2013
Allowance for loan losses:
Beginning balance	$	4,100		$	1,313	$	4,372	$	611		$	1,264		$	551		$	1,231		$	219		$	13,661
Provision (reversal)	(1,204		)	436		1,308		916			(159		)	(274		)	(506		)	(127		)	390
Charge-offs	(586		)	—		—		(41		)	(133		)	—			(87		)	—			(847		)
Recoveries	470			84		35		1			8			—			6			—			604
Ending balance	$	2,780		$	1,833	$	5,715	$	1,487		$	980		$	277		$	644		$	92		$	13,808

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period

The following table reflects the outstanding balance and related carrying value of PCI loans as of September 30, 2014andDecember 31, 2013:

	September 30, 2014				December 31, 2013
PCI Loans (dollars in thousands; 2014 unaudited)	Unpaid principal balance		Carrying value		Unpaid principal balance		Carrying value
Commercial and industrial	$	503	$	334	$	1,094	$	333
Commercial real estate	6,848		4,781		9,152		6,698
Construction	138		11		149		15
Home equity	234		67		239		69
Total purchased credit-impaired loans	$	7,723	$	5,193	$	10,634	$	7,115

Accretable Yield Activity

The activities in the accretable yield, or income expected to be earned, for PCI loans were as follows:

Accretable Yield	Three months ended						Nine months ended
(dollars in thousands, unaudited)	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Balance at beginning of period	$	4,514		$	3,277		$	3,649		$	3,960
Removals 1	—			—			(273		)	(791		)
Accretion	(126		)	(153		)	(494		)	(545		)
Reclassifications (to) from nonaccretable difference 2	(242		)	—			1,264			500
Balance at end of period	$	4,146		$	3,124		$	4,146		$	3,124

¹ Represents the accretable difference that is relieved when a loan exits the PCI population due to payoff, full charge-off, or transfer to repossessed assets, etc.

² Primarily relates to changes in expected credit performance and changes in expected amounts and/or timing of cash flows.

XML

Basis of Presentation (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Weighted average basic shares outstanding	5,903	5,433	5,887	5,414
Add: Potential common shares related to stock options	41	46	42	43
Potential common shares related to unvested restricted stock	4	4	4	4
Potential common shares related to warrants	66	55	63	50
Weighted average diluted shares outstanding	6,014	5,538	5,996	5,511
Net income	$ 5,378	$ 4,004	$ 15,079	$ 11,925	$ 14,270
Basic EPS (usd per share)	$ 0.91	$ 0.74	$ 2.56	$ 2.20
Diluted EPS (usd per share)	$ 0.89	$ 0.72	$ 2.51	$ 2.16
Weighted average anti-dilutive shares not included in the calculation of diluted EPS	51	51	48	48

XML

Derivative Financial Instruments and Hedging Activities - Offsetting of Assets (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Offsetting Assets [Line Items]
Gross Amounts of Recognized Assets	$ 313	[1]	$ 961	[1]
Gross Amounts Offset in the Statements of Condition	0		0
Net Amounts of Assets Presented in the Statements of Condition	313	[1]	961	[1]
Gross Amounts Not Offset in the Statements of Condition, Financial Instruments	(313)		(825)
Gross Amounts Not Offset in the Statements of Condition, Cash Collateral Received	0		0
Net Amount	0		136
Counterparty A
Offsetting Assets [Line Items]
Gross Amounts of Recognized Assets	313	[1]	961	[1]
Gross Amounts Offset in the Statements of Condition	0		0
Net Amounts of Assets Presented in the Statements of Condition	313	[1]	961	[1]
Gross Amounts Not Offset in the Statements of Condition, Financial Instruments	(313)		(825)
Gross Amounts Not Offset in the Statements of Condition, Cash Collateral Received	0		0
Net Amount	0		136
Counterparty B
Offsetting Assets [Line Items]
Gross Amounts of Recognized Assets	0	[1]	0	[1]
Gross Amounts Offset in the Statements of Condition	0		0
Net Amounts of Assets Presented in the Statements of Condition	0	[1]	0	[1]
Gross Amounts Not Offset in the Statements of Condition, Financial Instruments	0		0
Gross Amounts Not Offset in the Statements of Condition, Cash Collateral Received	0		0
Net Amount	0		0
Other assets | Interest rate swap
Offsetting Assets [Line Items]
Accrued interest on derivative asset interest rate swaps	$ 7		$ 10

[1] Amounts exclude accrued interest totaling $7 thousand and $10 thousand at September 30, 2014 and December 31, 2013, respectively.

XML

Loans and Allowance for Loan Losses - Allowance for Loan Losses (Details) (USD $)	3 Months Ended			9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013	Dec. 31, 2013
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 14,900,000		$ 14,357,000	$ 14,224,000		$ 13,661,000
Provision for loan losses	0		(480,000)	750,000		390,000
Charge-offs	(2,000)		(154,000)	(276,000)		(847,000)
Recoveries	151,000		85,000	351,000		604,000
Ending balance	15,049,000		13,808,000	15,049,000		13,808,000
Ending ALLL related to loans collectively evaluated for impairment	13,716,000			13,716,000			12,235,000
Ending ALLL related to loans individually evaluated for impairment	1,327,000			1,327,000			1,747,000
Ending ALLL related to purchased credit-impaired loans	6,000			6,000			242,000
Collectively evaluated for impairment	1,330,772,000			1,330,772,000			1,239,364,000
Individually evaluated for impairment	25,020,000	[1]		25,020,000	[1]		22,843,000	[2]
Purchase credit-impaired	5,193,000			5,193,000			7,115,000
Total loans	1,360,985,000	[3]		1,360,985,000	[3]		1,269,322,000	[3]
Ratio of allowance for loan losses to total loans	1.11%			1.11%			1.12%
Allowance for loan losses to non-accrual loans	153.00%			153.00%			122.00%
PCI loans impaired post-acquisition	1,700,000			1,700,000			2,900,000
Commercial and industrial
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	3,125,000		3,799,000	3,056,000		4,100,000
Provision for loan losses	(263,000)		(965,000)	(208,000)		(1,204,000)
Charge-offs	0		(129,000)	(66,000)		(586,000)
Recoveries	44,000		75,000	124,000		470,000
Ending balance	2,906,000		2,780,000	2,906,000		2,780,000
Ending ALLL related to loans collectively evaluated for impairment	2,089,000			2,089,000			1,886,000
Ending ALLL related to loans individually evaluated for impairment	814,000			814,000			987,000
Ending ALLL related to purchased credit-impaired loans	3,000			3,000			183,000
Collectively evaluated for impairment	197,143,000			197,143,000			177,550,000
Individually evaluated for impairment	4,039,000	[1]		4,039,000	[1]		5,408,000	[2]
Purchase credit-impaired	334,000			334,000			333,000
Total loans	201,516,000	[3]		201,516,000	[3]		183,291,000	[3]
Ratio of allowance for loan losses to total loans	1.44%			1.44%			1.67%
Allowance for loan losses to non-accrual loans	868.00%			868.00%			257.00%
Commercial real estate, owner-occupied
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	1,979,000		1,406,000	2,012,000		1,313,000
Provision for loan losses	9,000		427,000	(24,000)		436,000
Charge-offs	0		0	0		0
Recoveries	5,000		0	5,000		84,000
Ending balance	1,993,000		1,833,000	1,993,000		1,833,000
Ending ALLL related to loans collectively evaluated for impairment	1,893,000			1,893,000			1,922,000
Ending ALLL related to loans individually evaluated for impairment	100,000			100,000			31,000
Ending ALLL related to purchased credit-impaired loans	0			0			59,000
Collectively evaluated for impairment	224,809,000			224,809,000			233,330,000
Individually evaluated for impairment	7,088,000	[1]		7,088,000	[1]		2,930,000	[2]
Purchase credit-impaired	2,596,000			2,596,000			4,853,000
Total loans	234,493,000	[3]		234,493,000	[3]		241,113,000	[3]
Ratio of allowance for loan losses to total loans	0.85%			0.85%			0.83%
Allowance for loan losses to non-accrual loans	142.00%			142.00%			143.00%
Commercial real estate, investor
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	6,713,000		4,368,000	6,196,000		4,372,000
Provision for loan losses	(26,000)		1,338,000	455,000		1,308,000
Charge-offs	0		0	0		0
Recoveries	5,000		9,000	41,000		35,000
Ending balance	6,692,000		5,715,000	6,692,000		5,715,000
Ending ALLL related to loans collectively evaluated for impairment	6,692,000			6,692,000			6,196,000
Ending ALLL related to loans individually evaluated for impairment	0			0			0
Ending ALLL related to purchased credit-impaired loans	0			0			0
Collectively evaluated for impairment	669,211,000			669,211,000			619,833,000
Individually evaluated for impairment	3,032,000	[1]		3,032,000	[1]		3,341,000	[2]
Purchase credit-impaired	2,185,000			2,185,000			1,845,000
Total loans	674,428,000	[3]		674,428,000	[3]		625,019,000	[3]
Ratio of allowance for loan losses to total loans	0.99%			0.99%			0.99%
Allowance for loan losses to non-accrual loans	256.00%			256.00%			221.00%
Construction
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	571,000		1,721,000	633,000		611,000
Provision for loan losses	(33,000)		(210,000)	109,000		916,000
Charge-offs	0		(24,000)	(204,000)		(41,000)
Recoveries	96,000		0	96,000		1,000
Ending balance	634,000		1,487,000	634,000		1,487,000
Ending ALLL related to loans collectively evaluated for impairment	631,000			631,000			292,000
Ending ALLL related to loans individually evaluated for impairment	0			0			341,000
Ending ALLL related to purchased credit-impaired loans	3,000			3,000			0
Collectively evaluated for impairment	39,283,000			39,283,000			24,829,000
Individually evaluated for impairment	6,654,000	[1]		6,654,000	[1]		6,733,000	[2]
Purchase credit-impaired	11,000			11,000			15,000
Total loans	45,948,000	[3]		45,948,000	[3]		31,577,000	[3]
Ratio of allowance for loan losses to total loans	1.38%			1.38%			2.00%
Allowance for loan losses to non-accrual loans	12.00%			12.00%			12.00%
Home equity
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	944,000		1,153,000	875,000		1,264,000
Provision for loan losses	(18,000)		(173,000)	49,000		(159,000)
Charge-offs	0		0	0		(133,000)
Recoveries	1,000		0	3,000		8,000
Ending balance	927,000		980,000	927,000		980,000
Ending ALLL related to loans collectively evaluated for impairment	898,000			898,000			874,000
Ending ALLL related to loans individually evaluated for impairment	29,000			29,000			1,000
Ending ALLL related to purchased credit-impaired loans	0			0			0
Collectively evaluated for impairment	108,736,000			108,736,000			97,894,000
Individually evaluated for impairment	852,000	[1]		852,000	[1]		506,000	[2]
Purchase credit-impaired	67,000			67,000			69,000
Total loans	109,655,000	[3]		109,655,000	[3]		98,469,000	[3]
Ratio of allowance for loan losses to total loans	0.85%			0.85%			0.89%
Allowance for loan losses to non-accrual loans	209.00%			209.00%			374.00%
Other residential
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	454,000		401,000	317,000		551,000
Provision for loan losses	(8,000)		(124,000)	129,000		(274,000)
Charge-offs	0		0	0		0
Recoveries	0		0	0		0
Ending balance	446,000		277,000	446,000		277,000
Ending ALLL related to loans collectively evaluated for impairment	348,000			348,000			294,000
Ending ALLL related to loans individually evaluated for impairment	98,000			98,000			23,000
Ending ALLL related to purchased credit-impaired loans	0			0			0
Collectively evaluated for impairment	74,440,000			74,440,000			70,571,000
Individually evaluated for impairment	1,552,000	[1]		1,552,000	[1]		2,063,000	[2]
Purchase credit-impaired	0			0			0
Total loans	75,992,000	[3],[4]		75,992,000	[3],[4]		72,634,000	[3],[4]
Ratio of allowance for loan losses to total loans	0.59%			0.59%			0.44%
Allowance for loan losses to non-accrual loans							48.00%
Installment and other consumer
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	481,000		1,313,000	629,000		1,231,000
Provision for loan losses	90,000		(669,000)	(136,000)		(506,000)
Charge-offs	(2,000)		(1,000)	(6,000)		(87,000)
Recoveries	0		1,000	82,000		6,000
Ending balance	569,000		644,000	569,000		644,000
Ending ALLL related to loans collectively evaluated for impairment	283,000			283,000			265,000
Ending ALLL related to loans individually evaluated for impairment	286,000			286,000			364,000
Ending ALLL related to purchased credit-impaired loans	0			0			0
Collectively evaluated for impairment	17,150,000			17,150,000			15,357,000
Individually evaluated for impairment	1,803,000	[1]		1,803,000	[1]		1,862,000	[2]
Purchase credit-impaired	0			0			0
Total loans	18,953,000	[3]		18,953,000	[3]		17,219,000	[3]
Ratio of allowance for loan losses to total loans	3.00%			3.00%			3.65%
Allowance for loan losses to non-accrual loans	374.00%			374.00%			372.00%
Unallocated
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	633,000		196,000	506,000		219,000
Provision for loan losses	249,000		(104,000)	376,000		(127,000)
Charge-offs	0		0	0		0
Recoveries	0		0	0		0
Ending balance	882,000		92,000	882,000		92,000
Ending ALLL related to loans collectively evaluated for impairment	882,000			882,000			506,000
Ending ALLL related to loans individually evaluated for impairment	0			0			0
Ending ALLL related to purchased credit-impaired loans	0			0			0
Collectively evaluated for impairment	0			0			0
Individually evaluated for impairment	0	[1]		0	[1]		0	[2]
Purchase credit-impaired	0			0			0
Total loans	$ 0			$ 0			$ 0

[1] Total excludes $1.7 million of PCI loans that have experienced post-acquisition declines in cash flows expected to be collected.These loans are included in the "purchased credit-impaired" amount in the next line below.

[2] Total excludes $2.9 million PCI loans that have experienced credit deterioration post-acquisition, which are included in the "purchased credit-impaired" amount in the next line below.

[3] Amounts include net deferred loan costs of $406 thousand and $24 thousand at September 30, 2014 and December 31, 2013, respectively. Amounts are also net of unaccreted purchase discounts on non-PCI loans of $4.9 million and $7.6 million at September 30, 2014 and December 31, 2013, respectively.

[4] Our residential loan portfolio includes no sub-prime loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages", the characteristics of which are loans lacking full documentation, borrowers having low FICO scores or higher loan-to-value ratios.

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) In Thousands, except Share data	Total	Common Stock	Retained Earnings	Accumulated Other Comprehensive Income, Net of Taxes
Balance at Dec. 31, 2012	$ 151,792	$ 58,573	$ 91,164	$ 2,055
Balance (in shares) at Dec. 31, 2012		5,389,210
Net income	14,270	0	14,270	0
Other comprehensive income (loss)	(2,727)	0	0	(2,727)
Stock options exercised (in shares)		71,237
Stock options exercised	2,218	2,218	0	0
Excess tax benefit - stock-based compensation	125	125	0	0
Stock issued under employee stock purchase plan (in shares)		870
Stock issued under employee stock purchase plan	34	34	0	0
Restricted stock granted (in shares)		11,850
Restricted stock granted	0	0	0	0
Restricted stock forfeited/cancelled (in shares)		(3,998)
Restricted stock forfeited/cancelled	0	0	0	0
Stock-based compensation - stock options	175	175	0	0
Stock-based compensation - restricted stock	228	228	0	0
Cash dividends paid on common stock	(3,970)	0	(3,970)	0
Stock purchased by directors under director stock plan (in shares)		160
Stock purchased by directors under director stock plan	6	6
Stock issued in payment of director fees (in shares)		5,619
Stock issued in payment of director fees	222	222	0	0
Stock issued to NorCal Community Bancorp shareholders (in shares)		402,576
Stock issued to NorCal Community Bancorp shareholders	18,514	18,514	0	0
Balance at Dec. 31, 2013	180,887	80,095	101,464	(672)
Balance (in shares) at Dec. 31, 2013	5,877,524	5,877,524
Net income	15,079	0	15,079	0
Other comprehensive income (loss)	1,238	0	0	1,238
Stock options exercised (in shares)		40,123
Stock options exercised	1,146	1,146	0	0
Excess tax benefit - stock-based compensation	149	149	0	0
Stock issued under employee stock purchase plan (in shares)		431
Stock issued under employee stock purchase plan	19	19	0	0
Restricted stock granted (in shares)		8,523
Restricted stock granted	0	0	0	0
Restricted stock forfeited/cancelled (in shares)		(2,067)
Restricted stock forfeited/cancelled	0	0	0	0
Stock-based compensation - stock options	153	153	0	0
Stock-based compensation - restricted stock	183	183	0	0
Cash dividends paid on common stock	(3,428)	0	(3,428)	0
Stock purchased by directors under director stock plan (in shares)		260
Stock purchased by directors under director stock plan	12	12	0	0
Stock issued in payment of director fees (in shares)		5,306
Stock issued in payment of director fees	236	236	0	0
Balance at Sep. 30, 2014	$ 195,674	$ 81,993	$ 113,115	$ 566
Balance (in shares) at Sep. 30, 2014	5,930,100	5,930,100

XML

Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value of Assets and Liabilities

Fair Value of Assets and Liabilities

Fair Value Hierarchy and Fair Value Measurement

We group our assets and liabilities that are measured at fair value in three levels within the fair value hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not involve a significant degree of judgment.

Level 2: Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data.

Level 3: Valuations are based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Values are determined using pricing models and discounted cash flow models and include management judgment and estimation which may be significant.

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our monthly and/or quarterly valuation process.

The following table summarizes our assets and liabilities that were required to be recorded at fair value on a recurring basis.

(dollars in thousands)   Description of Financial Instruments	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
At September 30, 2014 (unaudited):
Securities available-for-sale:
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	169,903	$	—	$	167,160	$	2,743
Debentures of government-sponsored agencies	$	14,552	$	—	$	14,552	$	—
Privately-issued collateralized mortgage obligations	$	7,843	$	—	$	7,843	$	—
Obligations of state and political subdivisions	$	14,271	$	—	$	14,271	$	—
Corporate bonds	$	5,013	$	—	5,013		$	—
Derivative financial assets (interest rate contracts)	$	313	$	—	$	313	$	—
Derivative financial liabilities (interest rate contracts)	$	1,537	$	—	$	1,537	$	—
At December 31, 2013:
Securities available-for-sale:
Mortgage-backed securities and collateralized mortgage obligations issued by U.S. government-sponsored agencies	$	190,604	$	—	$	190,604	$	—
Debentures of government-sponsored agencies	$	21,312	$	—	$	21,312	$	—
Privately-issued collateralized mortgage obligations	$	10,874	$	—	$	10,874	$	—
Obligations of state and political subdivisions	$	15,771	$	—	$	15,771	$	—
Corporate bonds	$	5,437	$	—	$	5,437	$	—
Derivative financial assets (interest rate contracts)	$	961	$	—	$	961	$	—
Derivative financial liabilities (interest rate contracts)	$	2,519	$	—	$	2,519	$	—

Securities available-for-sale are recorded at fair value on a recurring basis. When available, quoted market prices (Level 1) are used to determine the fair value of securities available-for-sale. If quoted market prices are not available, we obtain pricing information from a reputable third-party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity and credit spreads (Level 2).   Level 2 securities include U.S. agencies or government sponsored agencies' debt securities, mortgage-backed securities, government agency-issued and privately-issued collateralized mortgage obligations. As of September 30, 2014 and December 31, 2013, there are no securities that are considered Level 1 securities. As of September 30, 2014, we have one available-for-sale security that is considered Level 3 security. The security is a U.S. government agency obligation collateralized by a small pool of business equipment loans guaranteed by the Small Business Administration program. This security is not actively traded and is owned only by a few investors. The significant unobservable data that is reflected in the fair value measurement include dealer quotes, projected prepayment speeds/average life and credit information, among other things. It was transferred to Level 3 security during the second quarter of 2014 and the decrease in unrealized gain during the third quarter is $8 thousand.

On a recurring basis, derivative financial instruments are recorded at fair value, which is based on the income approach using observable Level 2 market inputs, reflecting market expectations of future interest rates as of the measurement date.  Standard valuation techniques are used to calculate the present value of the future expected cash flows assuming an orderly transaction.  Valuation adjustments may be made to reflect both our own credit risk and the counterparties’ credit quality in determining the fair value of the derivatives. Level 2 inputs for the valuations are limited to observable market prices for LIBOR cash rates and OIS rates (for the very short term), quoted prices for LIBOR futures contracts, observable market prices for LIBOR and OIS swap rates, and one-month and three-month LIBOR basis spreads at commonly quoted intervals.  Mid-market pricing of the inputs is used as a practical expedient in the fair value measurements.  We project spot rates at reset days specified by each swap to determine future cash flows, then discount to present value using either LIBOR or OIS curves depending on the collateral posted as of the measurement date.  When the value of any collateral placed with counterparties is less than the interest rate derivative liability, an additional discount is applied to reflect our potential credit risk to counterparties.  We have used the spread between the Standard & Poor's BBB rated U.S. Bank Composite rate and LIBOR for the closest maturity term corresponding to the duration of the swaps to derive the credit-risk-related component of the discount rate of future cash flows from the collateral shortfall.

The following table presents the carrying value of financial instruments that were measured at fair value on a nonrecurring basis and that were still held in the statements of condition at each respective period end, by level within the fair value hierarchy as of September 30, 2014 and December 31, 2013.

(dollars in thousands) Description of Financial Instruments	Carrying Value1		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3) 1
At September 30, 2014 (unaudited):
Impaired loans carried at fair value:
Installment and other consumer	64		—		—		64
Total	$	64	$	—	$	—	$	64
At December 31, 2013:
Impaired loans carried at fair value:
Construction	3,037		—		—		3,037
Installment and other consumer	35		—		—		35
Total	$	3,072	$	—	$	—	$	3,072

¹ Represents collateral-dependent loan principal balances that had been generally written down to the values of the underlying collateral, net of specific valuation allowances of $15 thousand and $363 thousand at September 30, 2014 and December 31, 2013, respectively. The carrying value of loans fully charged-off, which includes unsecured lines of credit, overdrafts and all other loans, is zero.

Certain financial assets may be measured at fair value on a non-recurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as impaired loans and other real estate owned ("OREO").

When a loan is identified as impaired, it is reported at the lower of cost or fair value, measured based on the loan's observable market price (Level 1) or the current net realizable value of the underlying collateral securing the loan, if the loan is collateral dependent (Level 3).  Net realizable value of the underlying collateral is the fair value of the collateral less estimated selling costs and any prior liens. Appraisals, recent comparable sales, offers and listing prices are factored in when valuing the collateral. We review and verify the qualifications and licenses of  the certified general appraisers used for appraising commercial properties or certified residential appraisers for residential properties. Real estate appraisals may utilize a combination of approaches including replacement cost, sales comparison and the income approach. Comparable sales and income data are analyzed by the appraisers and adjusted to reflect differences between them and the subject property such as type, leasing status and physical condition. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Appraised values may be adjusted to reflect changes in market conditions that have occurred subsequent to the appraisal date, or for revised estimates regarding the timing or cost of the property sale. These adjustments are based on qualitative judgments made by Management on a case-by-case basis. There have been no significant changes in the valuation techniques during the quarter and nine-month period ended September 30, 2014.

OREO represents collateral acquired through foreclosure and is initially recorded at fair value as established by a current appraisal, adjusted for disposition costs. Subsequently, OREO is measured at lower of cost or fair value. OREO values are reviewed on an ongoing basis and any subsequent decline in fair value is recorded as a foreclosed asset expense in the current period. The value of OREO is determined based on independent appraisals, similar to the process used for impaired loans, discussed above, and is generally classified as Level 3. At September 30, 2014andDecember 31, 2013, we had $461 thousand of OREO acquired from Bank of Alameda as part of the Acquisition. There was no change in the estimated fair value of the OREO from the date of the Acquisition through September 30, 2014.

Securities held-to-maturity may be written down to fair value (determined using the same techniques discussed above for securities available-for-sale) as a result of an other-than-temporary impairment, if any.

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of September 30, 2014 and December 31, 2013, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note). The carrying amounts in the following table are recorded in the consolidated statements of condition under the indicated captions. We have excluded non-financial assets and non-financial liabilities defined by the Codification (ASC 820-10-15-1A), such as Bank premises and equipment, deferred taxes and other liabilities.  In addition, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of the Financial Instruments Topic of the Codification (ASC 825-10-50-8), such as Bank-owned life insurance policies.

	September 30, 2014					December 31, 2013
(dollars in thousands; 2014 unaudited)	Carrying Amounts		Fair Value		Fair Value Hierarchy	Carrying Amounts		Fair Value		Fair Value Hierarchy
Financial assets
Cash and cash equivalents	$	46,424	$	46,424	Level 1	$	103,773	$	103,773	Level 1
Investment securities held-to-maturity	118,843		121,177		Level 2	122,495		123,858		Level 2
Loans, net	1,345,936		1,361,745		Level 3	1,255,098		1,245,475		Level 3
Interest receivable	5,645		5,645		Level 2	5,767		5,767		Level 2
Financial liabilities
Deposits	1,571,624		1,572,582		Level 2	1,587,102		1,588,278		Level 2
Federal Home Loan Bank borrowings	15,000		15,501		Level 2	15,000		15,665		Level 2
Subordinated debentures	5,131		5,187		Level 3	4,969		4,950		Level 3
Interest payable	209		209		Level 2	253		253		Level 2

Following is a description of methods and assumptions used to estimate the fair value of each class of financial instrument not recorded at fair value but required for disclosure purposes:

Cash and Cash Equivalents - The carrying amounts of cash and cash equivalents approximate their fair value because of the short-term nature of these instruments.

Held-to-maturity Securities - Held-to-maturity securities, which generally consist of mortgage-backed securities, obligations of state and political subdivisions and corporate bonds, are recorded at their amortized cost. Their fair value for disclosure purposes is determined using methodologies similar to those described above for available-for-sale securities using Level 2 inputs. If Level 2 inputs are not available, we may utilize pricing models that incorporate unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities (Level 3).  As of September 30, 2014 and December 31, 2013, we did not hold any held-to-maturity securities whose fair value was measured using significant unobservable inputs.

Loans - The fair value of loans with variable interest rates approximates current carrying value, because loan rates are regularly adjusted to current market rates. The fair value of fixed rate loans or variable loans at negotiated interest rate floors or ceilings with remaining maturities in excess of one year is estimated by discounting the future cash flows using current market rates at which similar loans would be made to borrowers with similar credit worthiness and similar remaining maturities. The allowance for loan losses (“ALLL”) is considered to be a reasonable estimate of the portion of loan discount attributable to credit risks.

Interest Receivable and Payable - The interest receivable and payable balances approximate their fair value due to the short-term nature of their settlement dates.

Deposits - The fair value of non-interest-bearing deposits, interest-bearing transaction accounts, savings accounts and money market accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the future cash flows using current rates offered for deposits of similar remaining maturities.

Federal Home Loan Bank Borrowings - The fair value is estimated by discounting the future cash flows using current rates offered by the Federal Home Loan Bank of San Francisco ("FHLB") for similar credit advances corresponding to the remaining duration of our fixed-rate credit advances.

Subordinated Debentures - As part of the Acquisition, we assumed two tranches of subordinated debentures from NorCal. See Note 7 for further information. The fair values of the subordinated debentures were estimated by discounting the future cash flows (interest payment at a rate of three-month LIBOR plus 3.05% and 1.40%, respectively) to their present values using current market rates at which similar bonds would be issued with similar credit ratings as ours and similar remaining maturities. Each future quarterly interest payment was discounted at the spot rate for the corresponding term based on comparable trust preferred securities, plus an illiquidity premium of 3.00%. In July 2010, the Dodd-Frank Act was signed into law and limits the ability of certain bank holding companies to treat trust preferred security debt issuances as Tier 1 capital. This law effectively closed the trust-preferred securities markets for new issuance and led to the absence of observable or comparable transactions in the market place. Due to the use of unobservable inputs in the valuation of trust preferred securities, we consider the fair value to be a Level 3 measurement.

Commitments - Loan commitments and standby letters of credit generate ongoing fees, which are recognized over the term of the commitment period. Given the uncertainty in the likelihood and timing of a commitment being drawn upon, the carrying value of the related unamortized commitment fees and the reserve for these off-balance sheet commitments are determined to approximate fair value, which is not material.

XML

Acquisition - Narrative (Details) (USD $)	9 Months Ended				0 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Nov. 29, 2013 NorCal Community Bancorp branch	Nov. 29, 2013 NorCal Community Bancorp Core Deposits [Member]	Sep. 30, 2013 NorCal Community Bancorp Core Deposits [Member]	Dec. 31, 2013 NorCal Community Bancorp Core Deposits [Member]	Nov. 29, 2013 NorCal Community Bancorp Core Deposits [Member]
Business Acquisition [Line Items]
Loans acquired				$ 173,800,000
Deposits acquired				241,000,000
Investment securities				53,700,000
Number of branches acquired				4
Goodwill	6,436,000		6,436,000	6,400,000
Core deposit intangible								4,600,000
Amortization of core deposit intangible	$ 578,000	$ 0				$ 578,000	$ 69,000
Period core deposit is amortized for income tax purposes					10 years

XML

Loans and Allowance for Loan Losses - Troubled Debt Restructuring by Class (Details) (USD $)	Sep. 30, 2014		Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded investment in Troubled Debt Restructurings	$ 23,988,000	[1]	$ 20,581,000	[1]
TDR loans accruing interest as of period end	16,900,000		12,900,000
TDR loans acquired	1,800,000		1,800,000
Commercial and industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded investment in Troubled Debt Restructurings	4,337,000		5,117,000
Commercial real estate, owner-occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded investment in Troubled Debt Restructurings	8,491,000		4,333,000
Commercial real estate, investor
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded investment in Troubled Debt Restructurings	527,000		534,000
Construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded investment in Troubled Debt Restructurings	6,654,000		6,335,000
Home equity
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded investment in Troubled Debt Restructurings	703,000		506,000
Other residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded investment in Troubled Debt Restructurings	1,552,000		2,063,000
Installment and other consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded investment in Troubled Debt Restructurings	$ 1,724,000		$ 1,693,000

[1] Includes $16.9 million and $12.9 million of TDR loans that were accruing interest as of September 30, 2014 and December 31, 2013, respectively. Includes $1.8 million of acquired loans at both September 30, 2014 and December 31, 2013, respectively.

XML

Investment Securities (Tables)

9 Months Ended

Sep. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Schedule of Available-for-sale Securities and Held-to-maturity Securities Reconciliation

Our investment securities portfolio consists of obligations of state and political subdivisions, corporate bonds, U.S. government agency securities, including mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) issued or guaranteed by Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), or Government National Mortgage Association ("GNMA"), debentures issued by government-sponsored agencies such as FNMA and FHLMC, as well as privately issued CMOs, as reflected in the table below:

	September 30, 2014									December 31, 2013
	Amortized		Fair		Gross Unrealized					Amortized		Fair		Gross Unrealized
(dollars in thousands; 2014 unaudited)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)
Held-to-maturity
Obligations of state and   political subdivisions	$	65,089	$	66,943	$	1,935	$	(81	)	$	80,381	$	81,429	$	1,764	$	(716	)
Corporate bonds	40,363		40,691		340		(12		)	42,114		42,429		375		(60		)
MBS pass-through securities issued by FHLMC and FNMA	13,391		13,543		152		—			—		—		—		—
Total held-to-maturity	118,843		121,177		2,427		(93		)	122,495		123,858		2,139		(776		)
Available-for-sale
Securities of U.S. government agencies:
MBS pass-through securities issued by FHLMC and FNMA	100,978		101,345		555		(188		)	124,063		123,033		616		(1,646		)
CMOs issued by FNMA	15,608		15,600		65		(73		)	18,573		18,438		60		(195		)
CMOs issued by FHLMC	33,288		33,243		96		(141		)	23,710		23,679		144		(175		)
CMOs issued by GNMA	19,359		19,715		364		(8		)	24,944		25,454		609		(99		)
Debentures of government- sponsored agencies	14,727		14,552		111		(286		)	21,845		21,312		108		(641		)
Privately issued CMOs	7,627		7,843		220		(4		)	10,649		10,874		257		(32		)
Obligations of state and   political subdivisions	14,156		14,271		137		(22		)	15,948		15,771		14		(191		)
Corporate bonds	4,933		5,013		83		(3		)	5,426		5,437		25		(14		)
Total available-for-sale	210,676		211,582		1,631		(725		)	245,158		243,998		1,833		(2,993		)
Total investment securities	$	329,519	$	332,759	$	4,058	$	(818	)	$	367,653	$	367,856	$	3,972	$	(3,769	)

Investments Classified by Contractual Maturity Date

The amortized cost and fair value of investment debt securities by contractual maturity at September 30, 2014 are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2014								December 31, 2013
	Held-to-Maturity				Available-for-Sale				Held-to-Maturity				Available-for-Sale
(dollars in thousands; 2014 unaudited)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	25,111	$	25,272	$	2,377	$	2,389	$	8,731	$	8,784	$	5,522	$	5,521
After one year but within five years	63,192		64,436		39,599		39,793		88,255		89,095		42,229		42,338
After five years through ten years	15,900		16,669		19,241		19,031		24,244		24,786		26,232		25,478
After ten years	14,640		14,800		149,459		150,369		1,265		1,193		171,175		170,661
Total	$	118,843	$	121,177	$	210,676	$	211,582	$	122,495	$	123,858	$	245,158	$	243,998

Schedule of Unrealized Loss on Investments

Those securities are summarized and classified according to the duration of the loss period in the table below:

September 30, 2014	< 12 continuous months					> 12 continuous months					Total securities  in a loss position
(dollars in thousands; unaudited)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Held-to-maturity
Obligations of state & political subdivisions	$	5,636	$	(27	)	4,280		(54		)	$	9,916	$	(81	)
Corporate bonds	—		—			3,550		(12		)	3,550		(12		)
Total held-to-maturity	5,636		(27		)	7,830		(66		)	13,466		(93		)
Available-for-sale
MBS pass-through securities issued by FNMA and FHLMC	20,670		(188		)	—		—			20,670		(188		)
CMOs issued by FNMA	4,346		(73		)	—		—			4,346		(73		)
CMOs issued by FHLMC	23,886		(141		)	—		—			23,886		(141		)
CMOs issued by GNMA	3,474		(8		)	—		—			3,474		(8		)
Debentures of government- sponsored agencies	493		(2		)	9,717		(284		)	10,210		(286		)
Privately issued CMOs	318		(4		)	—		—			318		(4		)
Obligations of state & political subdivisions	2,804		(22		)	—		—			2,804		(22		)
Corporate bonds	989		(3		)	—		—			989		(3		)
Total available-for-sale	56,980		(441		)	9,717		(284		)	66,697		(725		)
Total temporarily impaired securities	$	62,616	$	(468	)	$	17,547	$	(350	)	$	80,163	$	(818	)

December 31, 2013	< 12 continuous months					> 12 continuous months					Total securities  in a loss position
(dollars in thousands)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Held-to-maturity
Obligations of state & political subdivisions	$	13,933	$	(419	)	$	9,033	$	(297	)	$	22,966	$	(716	)
Corporate bonds	3,017		(11		)	4,963		(49		)	7,980		(60		)
Total held-to-maturity	16,950		(430		)	13,996		(346		)	30,946		(776		)
Available-for-sale
MBS pass-through securities issued by FNMA and FHLMC	90,914		(1,297		)	3,172		(349		)	94,086		(1,646		)
CMOs issued by FNMA	17,535		(195		)	—		—			17,535		(195		)
CMOs issued by FHLMC	17,899		(175		)	—		—			17,899		(175		)
CMOs issued by GNMA	3,966		(99		)	—		—			3,966		(99		)
Debentures of government- sponsored agencies	16,872		(641		)	—		—			16,872		(641		)
Privately issued CMOs	4,634		(31		)	159		(1		)	4,793		(32		)
Obligations of state & political subdivisions	11,516		(191		)	—		—			11,516		(191		)
Corporate bonds	1,479		(14		)	—		—			1,479		(14		)
Total available-for-sale	164,815		(2,643		)	3,331		(350		)	168,146		(2,993		)
Total temporarily impaired securities	$	181,765	$	(3,073	)	$	17,327	$	(696	)	$	199,092	$	(3,769	)