PART I FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated financial statements for Bank of Marin Bancorp as of September 30, 2023 [Consolidated Statements of Condition](index=3&type=section&id=Consolidated%20Statements%20of%20Condition) Total assets slightly decreased to $4.04 billion, driven by reduced investment securities and net loans, while equity increased Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$4,035,549** | **$4,147,464** | | Total investment securities | $1,593,957 | $1,774,303 | | Loans, net | $2,062,682 | $2,069,563 | | **Total Liabilities** | **$3,616,931** | **$3,735,372** | | Total deposits | $3,443,684 | $3,573,348 | | Short-term borrowings | $120,335 | $112,439 | | **Total Stockholders' Equity** | **$418,618** | **$412,092** | [Consolidated Statements of Comprehensive (Loss) Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) Q3 2023 net income was $5.3 million; nine-month net income decreased to $19.3 million from $33.7 million due to higher interest expense Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $24,469 | $33,027 | $78,497 | $94,122 | | Provision for Credit Losses | $425 | $422 | $1,275 | $(63) | | Non-interest Income | $2,598 | $2,723 | $8,272 | $8,318 | | Non-interest Expense | $19,747 | $18,678 | $60,192 | $56,959 | | **Net Income** | **$5,295** | **$12,174** | **$19,285** | **$33,705** | | **Diluted EPS** | **$0.33** | **$0.76** | **$1.20** | **$2.11** | - Total comprehensive loss for Q3 2023 was **$(1.9) million**, driven by a **$(7.2) million** other comprehensive loss (net of tax), primarily from changes in unrealized gains/losses on available-for-sale securities[149](index=149&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity increased to $418.6 million, primarily from net income, partially offset by dividends and other comprehensive loss Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance at January 1, 2023 | $412,092 | | Net Income | $19,285 | | Other comprehensive loss, net of tax | $(2,834) | | Cash dividends paid on common stock ($0.75 per share) | $(12,070) | | Stock-based compensation & other | $1,945 | | **Balance at September 30, 2023** | **$418,618** | - The company paid cash dividends of **$0.25 per share** in Q3 2023, totaling $4.0 million, consistent with the dividend paid in Q3 2022[9](index=9&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents increased by $77.7 million, with operating and investing activities providing cash, offset by financing activities Cash Flow Summary (Nine Months Ended, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,872 | $38,951 | | Net cash provided by (used in) investing activities | $176,486 | $(283,031) | | Net cash (used in) provided by financing activities | $(133,650) | $81,991 | | **Net increase (decrease) in cash** | **$77,708** | **$(162,089)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed notes cover accounting policies, fair value measurements, investment and loan portfolios, credit quality, borrowings, and derivatives - The company adopted ASU No 2022-02 regarding troubled debt restructurings and vintage disclosures on January 1, 2023, with an **immaterial cumulative-effect adjustment** to retained earnings[13](index=13&type=chunk)[41](index=41&type=chunk)[126](index=126&type=chunk) - On July 7, 2023, the Bank entered into interest rate swap agreements with notional values of **$101.8 million** to hedge interest rate sensitivity on its available-for-sale securities portfolio[89](index=89&type=chunk)[216](index=216&type=chunk) - On July 13, 2023, the Bank sold its entire investment in Visa Inc Class B restricted common stock for a **$2.8 million gain**[62](index=62&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2023 net income of $5.3 million, stable deposits, strong loan performance, and robust capital and liquidity [Executive Summary](index=35&type=section&id=Executive%20Summary) Q3 2023 net income was $5.3 million, with a 2.48% net interest margin, strong credit quality, and capital ratios exceeding well-capitalized levels Q3 2023 Performance Highlights | Metric | Q3 2023 | Q2 2023 | | :--- | :--- | :--- | | Net Income | $5.3 million | $4.6 million | | Diluted EPS | $0.33 | $0.28 | | Tax-equivalent Net Interest Margin | 2.48% | 2.45% | | ROA | 0.52% | 0.44% | | ROE | 4.94% | 4.25% | - Net available funding sources of **$2.1 billion** provided **211% coverage** of an estimated **$989.8 million** in uninsured deposits at September 30, 2023[225](index=225&type=chunk) - The Board of Directors declared a cash dividend of **$0.25 per share**, the **74th consecutive quarterly dividend**[203](index=203&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Net interest income slightly increased quarter-over-quarter, with a provision for credit losses and decreased non-interest expense - Net interest income for the nine months ended Sep 30, 2023, decreased by **$15.6 million** compared to the prior year, primarily due to **$23.9 million** in higher funding costs[235](index=235&type=chunk) - The Q3 provision for credit losses of **$425 thousand** was mainly due to qualitative factor adjustments for trends in adversely graded non-owner-occupied commercial real estate and construction loans[227](index=227&type=chunk)[263](index=263&type=chunk) - Q3 non-interest expense decreased by **$918 thousand** from Q2, driven by lower salaries and benefits (**$675 thousand**) and charitable contributions (**$618 thousand**), partially offset by higher fees for reciprocal deposit networks[242](index=242&type=chunk) [Financial Condition Summary](index=44&type=section&id=Financial%20Condition%20Summary) Financial condition remains solid with decreased investment portfolio, stable loan portfolio, robust capital, and strong liquidity - The investment securities portfolio decreased by **$180.3 million** since year-end 2022, primarily due to principal repayments (**$87.7 million**) and sales of AFS securities (**$82.7 million**)[277](index=277&type=chunk) - The non-owner-occupied office portfolio in San Francisco represents **3%** of the total loan portfolio, with a weighted average LTV of **66%** and debt-service coverage of **1.07x**[311](index=311&type=chunk) - Non-interest bearing deposits constituted **47.7%** of total deposits at Sep 30, 2023, down from **51.5%** at year-end 2022, with a corresponding shift to money market and time deposits[312](index=312&type=chunk) Capital Adequacy Ratios (Bancorp) | Ratio | September 30, 2023 | Well-Capitalized Threshold | | :--- | :--- | :--- | | Total Capital (to risk-weighted assets) | 16.56% | 10.00% | | Tier 1 Capital (to risk-weighted assets) | 15.63% | 8.00% | | Common Equity Tier 1 | 15.63% | 6.50% | | Tier 1 Leverage | 10.24% | 5.00% | [Quantitative and Qualitative Disclosure about Market Risk](index=49&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) The company manages interest rate risk through ALCO, using simulations to maintain risk within policy limits - The company manages interest rate risk by correlating the effects of rate changes on assets (loans, investments) with liabilities (deposits, borrowings) to protect net interest margin and capital[296](index=296&type=chunk)[325](index=325&type=chunk) - The company uses interest rate swaps to mitigate changes in the fair value of selected investment securities and long-term fixed-rate loans[297](index=297&type=chunk) Interest Rate Sensitivity Analysis (Estimated Change in Net Interest Income) | Rate Shift (bps) | Year 1 Change | Year 2 Change | | :--- | :--- | :--- | | +200 | (0.3)% | 1.8% | | +100 | 0.0% | 1.3% | | **Base** | **0.0%** | **0.0%** | | -100 | 1.2% | (1.3)% | | -200 | 3.6% | (0.4)% | [Controls and Procedures](index=50&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective, with no significant changes to internal controls over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the reporting period[300](index=300&type=chunk) - **No significant changes** were made to internal controls over financial reporting during the quarter ended September 30, 2023[301](index=301&type=chunk)[329](index=329&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=51&type=section&id=ITEM%201.%20Legal%20Proceedings) No pending legal proceedings are expected to have a material adverse effect on the company's financial condition or operations - The company is not party to any legal actions expected to have a **material adverse effect** on its financial condition or operations[178](index=178&type=chunk)[330](index=330&type=chunk) [Risk Factors](index=51&type=section&id=ITEM%201A.%20Risk%20Factors) Key risks include eroded customer confidence from bank failures, unrealized losses in securities, and increased regulatory scrutiny - Recent high-profile bank failures have **eroded customer confidence**, potentially impacting the company's liquidity, net interest margin, and stock price volatility[344](index=344&type=chunk) - Rising interest rates have created **significant unrealized losses** in the securities portfolio If the company were required to sell these securities for liquidity, it could realize losses that **impair capital and profitability**[303](index=303&type=chunk)[331](index=331&type=chunk) - The company anticipates **increased regulatory scrutiny and new regulations** for banks of its size following recent industry events, which may **increase costs and affect operations**[345](index=345&type=chunk)[346](index=346&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales occurred; a new **$25.0 million** share repurchase program was approved but **no repurchases** made in 2023 - A new share repurchase program for up to **$25.0 million** was approved on July 21, 2023, expiring July 31, 2025[139](index=139&type=chunk)[347](index=347&type=chunk) - There have been **no share repurchases** in 2023[139](index=139&type=chunk) [Defaults Upon Senior Securities](index=52&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) **No defaults** upon senior securities - There were **no defaults** upon senior securities[334](index=334&type=chunk) [Mine Safety Disclosures](index=52&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) **Not applicable** to the company - This item is **not applicable** to the company[348](index=348&type=chunk) [Other Information](index=52&type=section&id=ITEM%205.%20Other%20Information) **Not applicable** to the company - This item is **not applicable** to the company[335](index=335&type=chunk) [Exhibits](index=53&type=section&id=ITEM%206.%20Exhibits) The report includes required certifications and XBRL data files - The report includes **required certifications** pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL filings[350](index=350&type=chunk)

Bank of Marin Bancorp (NASDAQ:BMRC) Q3 2023 Earnings Conference Call October 23, 2023 11:30 AM ET Company Participants Yahaira Garcia-Perea - Marketing and Corporate Communications Manager Tim Myers - President and CEO Tani Girton - EVP and CFO Misako Stewart - Chief Credit Officer Conference Call Participants Jeffrey Rulis - D.A. Davidson David Feaster - Raymond James Woody Lay - KVW Andrew Terrell - Stephens Matthew Clark - Piper Sandler Tim Coffey - Janney Montgomery Scott Operator Good morning, everyone ...

PART I FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for the period ended June 30, 2023 [Consolidated Statements of Condition](index=3&type=section&id=Consolidated%20Statements%20of%20Condition) Total assets slightly decreased to $4.09 billion, driven by a decline in deposits offset by increased borrowings Consolidated Statements of Condition (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$4,092,133** | **$4,147,464** | | Total investment securities | $1,717,750 | $1,774,303 | | Loans, net | $2,078,964 | $2,069,563 | | **Total Liabilities** | **$3,668,192** | **$3,735,372** | | Total deposits | $3,325,212 | $3,573,348 | | Short-term borrowings and other obligations | $292,572 | $112,439 | | **Total Stockholders' Equity** | **$423,941** | **$412,092** | [Consolidated Statements of Comprehensive (Loss) Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) Net income for the first half of 2023 declined to $14.0 million due to significantly higher interest expense Comprehensive Income Highlights (in thousands, except per share data) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Interest Income | $54,029 | $61,095 | | Provision for credit losses on loans | $850 | $(485) | | Non-interest Income | $5,674 | $5,595 | | Non-interest Expense | $40,445 | $38,281 | | **Net Income** | **$13,991** | **$21,531** | | **Diluted EPS** | **$0.87** | **$1.35** | | Total Comprehensive (Loss) Income | $18,357 | $(34,473) | [Consolidated Statements of Changes in Stockholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity grew to $423.9 million, driven by net income and positive other comprehensive income - For the six months ended June 30, 2023, **total stockholders' equity increased by $11.8 million**, primarily due to net income and positive other comprehensive income[200](index=200&type=chunk) - Cash dividends of **$0.50 per share**, totaling **$8.0 million**, were paid during the first six months of 2023[200](index=200&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) A net cash decrease of $5.8 million resulted from financing outflows offsetting operating and investing inflows Cash Flow Summary (in thousands) | Cash Flow Category | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,498 | $19,608 | | Net cash provided by (used in) investing activities | $48,605 | $(265,299) | | Net cash (used in) provided by financing activities | $(75,870) | $13,955 | | **Net decrease in cash** | **$(5,767)** | **$(231,736)** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Details accounting policies, new standards adoption, fair value measures, and specifics on key financial items - The company adopted ASU No. 2022-02, which **eliminated Troubled Debt Restructuring (TDR) accounting** and enhanced disclosure for loan modifications, effective January 1, 2023[40](index=40&type=chunk)[204](index=204&type=chunk) - The company's interest rate swap contracts indexed to LIBOR **transitioned to the Secured Overnight Financing Rate (SOFR)** on July 1, 2023, with no material impact[227](index=227&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes financial performance, highlighting net interest margin pressure, deposit shifts, and strong capital ratios - **Net income for Q2 2023 was $4.6 million ($0.28/share)**, a significant decrease from $9.4 million ($0.59/share) in Q1 2023, primarily due to increased interest expense[274](index=274&type=chunk) - **Deposits decreased by $248.1 million** in the first half of 2023, but showed recovery in Q2; non-interest bearing deposits fell from 51.5% to 47.8% of total deposits[159](index=159&type=chunk)[306](index=306&type=chunk) - The **tax-equivalent net interest margin decreased to 2.45%** in Q2 2023 from 3.04% in Q1 2023, driven by higher deposit and borrowing costs[73](index=73&type=chunk)[145](index=145&type=chunk) - In July 2023, the bank **sold $82.7 million of AFS securities for a $2.8 million loss**, which was offset by a $2.8 million gain from the sale of Visa Inc. Class B stock[108](index=108&type=chunk) - **Contingent liquidity sources totaled $1.992 billion**, covering 209% of estimated uninsured/uncollateralized deposits as of June 30, 2023[131](index=131&type=chunk)[275](index=275&type=chunk) [Quantitative and Qualitative Disclosure about Market Risk](index=47&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) Details the management of interest rate risk using simulation models within established policy guidelines Estimated Change in Net Interest Income from Immediate Parallel Rate Shifts | Rate Shift (basis points) | Estimated Change in NII (Year 1) | Estimated Change in NII (Year 2) | | :--- | :--- | :--- | | up 400 | (18.0)% | (4.9)% | | up 200 | (9.1)% | (2.8)% | | up 100 | (4.5)% | (1.2)% | | down 100 | 4.9% | 2.9% | | down 200 | 9.1% | 4.8% | - The company uses **interest rate swaps** to mitigate changes in the fair value of long-term fixed-rate loans[362](index=362&type=chunk) [Controls and Procedures](index=48&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management confirms the effectiveness of disclosure controls and procedures as of June 30, 2023 - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of the end of the reporting period[169](index=169&type=chunk) - **No significant changes** were made to internal controls over financial reporting during the quarter ended June 30, 2023[138](index=138&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=49&type=section&id=ITEM%201.%20Legal%20Proceedings) The company reports no pending legal proceedings expected to have a material adverse financial effect - Management is not aware of any pending legal proceedings that would **materially and adversely affect the company**[299](index=299&type=chunk) [Risk Factors](index=49&type=section&id=ITEM%201A.%20Risk%20Factors) Highlights new risks from the banking environment, including eroded confidence and potential regulatory changes - Recent bank failures have **eroded customer confidence**, potentially impacting the company's liquidity, loan funding, and results of operations[170](index=170&type=chunk) - Rising interest rates have **decreased the value of the company's securities portfolio**, and selling these securities could result in losses that impair capital[140](index=140&type=chunk)[366](index=366&type=chunk) - The company anticipates **increased regulatory scrutiny** and new regulations for banks of its size, which could increase costs[178](index=178&type=chunk)[338](index=338&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Discloses a new $25.0 million share repurchase program and confirms no unregistered sales occurred - On July 21, 2023, the Board approved a **new share repurchase program for up to $25.0 million**, expiring July 31, 2025[75](index=75&type=chunk)[172](index=172&type=chunk) - There were **no share repurchases in 2023** under the previous program, which had $34.7 million outstanding as of June 30, 2023[185](index=185&type=chunk) [Defaults Upon Senior Securities](index=51&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) Reports no defaults upon senior securities during the reporting period - None[367](index=367&type=chunk) [Mine Safety Disclosures](index=51&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not applicable[142](index=142&type=chunk) [Other Information](index=51&type=section&id=ITEM%205.%20Other%20Information) This section is not applicable for the reporting period - Not applicable[180](index=180&type=chunk) [Exhibits](index=52&type=section&id=ITEM%206.%20Exhibits) Lists all exhibits filed with the quarterly report, including officer certifications and XBRL documents - The report includes exhibits such as **officer certifications (31.01, 31.02, 32.01)** and Inline XBRL documents[143](index=143&type=chunk)

Financial Data and Key Metrics Changes - The company generated net income of $4.6 million or $0.28 per diluted share in Q2 2023, a decline from the previous quarter largely due to higher interest expenses [14][57] - The tax equivalent net interest margin (NIM) was 2.45%, down 59 basis points from the prior quarter, primarily due to increased funding costs [31][57] - Return on assets decreased to 0.44% and return on equity to 4.25%, down from 0.92% and 9.12% in the prior quarter [57] Business Line Data and Key Metrics Changes - Lending activity has slowed, but new loans are of high quality and at higher yields than those being paid off, which is expected to protect NIM [11][57] - Non-accrual loans remained steady at 10 basis points of total loans, with classified loans comprising only 1.81% of total loans at quarter-end [12][57] - Non-interest income was $2.7 million, down modestly from the first quarter, primarily due to the recognition of policy payments on bank-owned life insurance [32] Market Data and Key Metrics Changes - Deposits grew by $75 million in Q2 2023, with a significant shift from non-interest bearing to interest bearing deposits as customers sought higher yields [8][9] - Uninsured deposits declined to 29% from 33% of total deposits at quarter-end, indicating improved deposit stability [10] - The average balance per deposit account decreased slightly to $6,200 from the prior quarter [10] Company Strategy and Development Direction - The company aims to maintain a balance between non-interest bearing and interest bearing deposits while managing deposit pricing on a customer-specific basis [25][26] - A new share repurchase program for $25 million was approved, reflecting confidence in the company's capital position and investment portfolio [17] - The company is actively recruiting talent to enhance lending activity and deposit growth, taking advantage of recent industry disruptions [30] Management's Comments on Operating Environment and Future Outlook - Management believes the impact of recent bank failures on NIM and earnings is temporary and expects improvement in the second half of 2023 [23][59] - The company is optimistic about identifying compelling lending opportunities despite a muted demand environment [71] - Management emphasized the importance of maintaining a high level of liquidity to cover uninsured deposits by over 200% [26] Other Important Information - The company declared a quarterly cash dividend of $0.25 per share, marking the 73rd consecutive quarterly dividend [17] - The average cost of deposits increased to 89 basis points as of July 18, reflecting ongoing pricing pressures [41][90] Q&A Session Summary Question: What are the expectations for deposit growth and strategy? - Management indicated that the goal is to continue building deposits while paying down borrowings, with a focus on maintaining a healthy loan-to-deposit ratio [62] Question: Can you elaborate on the classified loan increase? - The increase in classified loans was not concentrated geographically and included various asset classes, with no significant deterioration noted [122][124] Question: What is the outlook for net interest margin? - Management believes the NIM has likely troughed and expects it to start expanding in the third quarter, contingent on deposit growth and borrowing reductions [65][67]

FORM 10-Q (Mark One) For the transition period from __________________ to __________________ | --- | --- | --- | --- | --- | --- | |------------------------------------------------------------------------------------|-----------------------------------------|----------|-------|-------|--------------------------------------------------------| | (State or other jurisdiction of incorporation or organization) \n504 Redwood Blvd. | California \nSuite 100 | \nNovato | | CA | 20-8859754 \n(IRS Employer Identificat ...

April 24, 2023 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 statem ...

Financial Data and Key Metrics Changes - The company reported net income of $9.4 million for Q1 2023, translating to $0.59 per diluted share, a decrease from the previous quarter due to increased interest rates on deposits and higher borrowing balances [17][38] - The average cost of deposits increased to 20 basis points, up from 8 basis points in the prior quarter, with a notable rise to 40 basis points in March [11][38] - The efficiency ratio rose to 60.24% from 50.92% in the previous quarter, attributed to higher interest and non-interest expenses [19] Business Line Data and Key Metrics Changes - Total non-accrual loans decreased to just 10 basis points of total loans, with an allowance for credit loss representing 1.1% of total loans [12] - Loans grew by $20 million or just under 1% during the quarter, with a focus on maintaining credit quality despite easing loan demand [32] Market Data and Key Metrics Changes - The company experienced a 9% decrease in deposits, amounting to $323 million, primarily due to customer cash needs and deposit movements to outside brokerage firms [28] - Approximately 67% of deposits are FDIC insured, with liquidity at roughly $1.9 billion, covering uninsured deposits by approximately 181% [10] Company Strategy and Development Direction - The company is focused on managing its balance sheet to drive margins while maintaining credit quality and operating efficiency, with a strategic emphasis on relationship banking and disciplined fundamentals [36][42] - The company is looking for opportunities to optimize its physical footprint through branch consolidations, which are expected to generate savings for reinvestment in talent and technology [15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of regional bank failures on depositors' confidence but noted that deposit levels have stabilized since mid-April [27][29] - The company is optimistic about its ability to navigate current economic challenges, citing a strong historical track record and robust liquidity risk management practices [20][56] Other Important Information - The company declared a cash dividend of $0.25 per share, marking the 72nd consecutive quarterly dividend [38] - The tangible common equity ratio improved to 8.7% for Bancorp, up from 8.2% in the previous quarter, driven by earnings and improvements in the available-for-sale securities portfolio [40] Q&A Session Summary Question: What is the outlook for the net interest margin? - Management indicated that the net interest margin is expected to face pressure due to increased deposit costs, but there is a slight upward trend as assets continue to reprice [88] Question: How has the deposit mix changed since March? - The deposit mix has remained stable, with non-interest-bearing deposits accounting for just over 50% of total deposits [30][98] Question: What are the expected savings from branch closures? - Expected savings from branch closures are estimated at $470,000 for 2023 and $1.4 million annually thereafter [48][55] Question: How is the loan pipeline looking? - The loan pipeline is building evenly across the footprint, with competitive pricing observed in the market [72] Question: What is the company's appetite for share buybacks? - The company is cautious about share buybacks due to concerns around credit risk and is monitoring the market closely [151]

Credit Commitments and Losses - Undrawn credit commitments totaled $566.9 million at December 31, 2022, with $87.0 million of time deposits maturing over the next twelve months[135] - Modeled expected credit losses for December 31, 2022, were $12,651 thousand, with total credit losses at $22,983 thousand[140] - Non-accrual loans decreased by $5.9 million in 2022, primarily due to the payoff of two owner-occupied commercial real estate loans totaling $7.1 million[145] - Total accruing TDR loans were $1.8 million as of December 31, 2022, a decrease of $327 thousand from 2021[147] - Non-performing loans and accruing TDR loans totaled $4,204 thousand as of December 31, 2022, compared to $10,475 thousand in 2021[144] - The allowance for credit losses to non-accrual loans ratio was 9.45x as of December 31, 2022, compared to 2.75x in 2021[144] - Net charge-offs and recoveries for the years ended December 31, 2022, 2021, and 2020 were considered insignificant[141] - Criticized and classified loans included $60,207 thousand in special mention and $28,010 thousand in substandard loans as of December 31, 2022[144] Tax Assets and Interest Receivable - Interest receivable and other assets increased by $28.4 million in 2022, primarily due to a $30.5 million increase in net deferred tax assets[151] - Net deferred tax assets increased by $30.5 million in 2022, primarily due to a $30.2 million increase related to unrealized losses on available-for-sale investment securities[127] Deposits and Liquidity - Total average deposits in 2022 were $3.835 billion, with non-interest bearing deposits accounting for 52.0% of the total[133] - Estimated uninsured deposits as of December 31, 2022, were $1.584 billion, down from $1.830 billion in 2021[133] - Bancorp held $4.5 million in cash at December 31, 2022, with liquidity primarily sourced from dividends from the Bank[136] - The company has a market share of 11.5% of total deposits in Marin County, based on FDIC data as of June 30, 2022[190] - The Bank offers a variety of deposit options, including mobile deposit, remote deposit capture, and ACH services, with full FDIC insurance coverage through networks like CDARS and ICS[167] Financial Instruments and Redemptions - The company redeemed a $2.8 million subordinated debenture on March 15, 2021, which carried an average interest rate of 5.68% in 2020[148] Operational and Strategic Initiatives - Bancorp's primary uses of funds include shareholder dividends, operating expenses, and stock repurchases[136] - The company's ATM network is linked to PLUS, CIRRUS, NYCE, and MoneyPass networks, providing 24-hour account access[187] - Bancorp has registered several service marks, including "The Spirit of Marin" and "Bank of Marin," with the United States Patent & Trademark Office[187] - The company's total compensation package includes an Employee Stock Ownership Plan, aimed at attracting and retaining employees[190]

Bank of Marin Bancorp (NASDAQ:BMRC) Q4 2022 Earnings Conference Call January 23, 2023 11:30 AM ET Company Participants Andrea Henderson - Director of Marketing Tim Myers - President and CEO Tani Girton - EVP and CFO Conference Call Participants Matthew Clark - Piper Sandler Jeff Rulis - D.A. Davidson David Feaster - Raymond James Andrew Terrell - Stephens Tim Coffey - Janney Montgomery Scott Andrea Henderson Good morning, and thank you for joining Bank of Marin Bancorp's Earnings Call for the Fourth Quarter ...

Financial Performance - Record earnings of $12.2 million for Q3 2022, up from $11.1 million in Q2 2022, with diluted earnings per share increasing from $0.69 to $0.76[166] - Net income for the three months ended September 30, 2022, was $12,174,000, compared to $11,066,000 for the previous quarter, representing a 10% increase[179] - Net interest income increased to $33,027,000 for the three months ended September 30, 2022, from $31,197,000 in the previous quarter, reflecting a 5.9% growth[182] - Non-interest income for Q3 2022 was $2.7 million, nearly unchanged from the previous quarter, with a $63 thousand loss on the sale of investment securities[213] - Total non-interest income for the first nine months of 2022 was $8.3 million, an increase of $905 thousand from the same period in 2021[214] Ratios and Margins - Return on average assets (ROA) improved to 1.11% and return on average equity (ROE) to 11.65% for Q3 2022, compared to 1.03% and 10.74% in Q2 2022[167] - Efficiency ratio decreased to 52.24% in Q3 2022 from 55.73% in Q2 2022, reflecting improved operating leverage post-merger[168] - Tax-equivalent net interest margin increased by 11 basis points to 3.16% in Q3 2022, while year-to-date margin decreased by 17 basis points to 3.06%[169] - The tax-equivalent net interest margin increased to 3.16% in Q3 2022 from 3.05% in Q2 2022, driven by higher yields on loans and investment securities[194] - The tax-equivalent net interest margin for the first nine months of 2022 was 3.06%, down from 3.23% in the same period of the prior year, due to a higher proportion of investment securities[196] Assets and Liabilities - Total assets as of September 30, 2022, were $4,348,653,000, up from $4,314,209,000 at the end of the previous year[182] - Total liabilities increased by $88.2 million to $3.952 billion during the first nine months of 2022, with total deposits rising by $94.2 million to $3.903 billion[236] - Total deposits rose by $94.2 million to $3.903 billion as of September 30, 2022, with non-interest bearing deposits comprising 53% of total deposits[170] - Total interest-earning assets for the nine months ended September 30, 2022, were $4,107,169 thousand, generating interest income of $96,990 thousand[190] - Total interest-bearing liabilities for the nine months ended September 30, 2022, were $1,858,715 thousand, with an interest expense of $1,718 thousand[190] Loans and Credit Quality - Loan balances decreased to $2.158 billion at September 30, 2022, but year-to-date originations doubled to $204.1 million compared to the same period in 2021[171] - Non-accrual loans represented 0.49% of total loans at September 30, 2022, an increase from 0.37% at December 31, 2021[174] - The allowance for credit losses on loans to total loans was 1.06% as of September 30, 2022, compared to 1.02% at the end of the previous year[182] - A provision for credit losses on loans of $422 thousand was recorded in Q3 2022, primarily due to ongoing economic outlook deterioration[203] - Loans designated as special mention decreased by $9.1 million year-to-date to $64.2 million as of September 30, 2022[206] Capital and Dividends - A cash dividend of $0.25 per share was declared on October 21, 2022, marking the 70th consecutive quarterly dividend[177] - Total risk-based capital ratio for Bancorp was 15.1% at September 30, 2022, up from 14.6% at December 31, 2021[176] - Tangible common equity to tangible assets was 7.5% at September 30, 2022, down from 8.8% at December 31, 2021, primarily due to a $78.0 million increase in after-tax unrealized losses on available-for-sale securities[239] - The Bank's capital ratios exceed the regulatory definition of "well capitalized" as of September 30, 2022, with no conditions affecting this status reported[238] - Total Capital to risk-weighted assets as of September 30, 2022, was $422.1 million, representing a ratio of 15.06%[242] Economic Outlook and Management Commentary - Management's forward-looking statements indicate potential impacts from economic conditions, including inflation and interest rate changes, on future earnings[162] - The Federal Open Market Committee (FOMC) raised the federal funds rate by 75 basis points four times in 2022, bringing the target range to 3.75% - 4.00%[200] - The effective tax rate increased by 160 basis points in the first nine months of 2022 compared to the same period in 2021, primarily due to lower BOLI income[224] - Significant liquidity uses included $537.2 million in investment securities purchased and $11.7 million in cash dividends paid[247] - Undrawn credit commitments totaled $561.7 million at September 30, 2022[249]