Bank of Marin Bancorp(US:BMRC)2023-11-07 16:00PART I FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Bank of Marin Bancorp as of September 30, 2023 Consolidated Statements of Condition 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 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 securities149 Consolidated Statements of Changes in Stockholders' Equity 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 20229 Consolidated Statements of Cash Flows 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 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 earnings1341126 - 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 portfolio89216 - On July 13, 2023, the Bank sold its entire investment in Visa Inc Class B restricted common stock for a $2.8 million gain62 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 net income of $5.3 million, stable deposits, strong loan performance, and robust capital and liquidity Executive Summary 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, 2023225 - The Board of Directors declared a cash dividend of $0.25 per share, the 74th consecutive quarterly dividend203 Results of Operations 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 costs235 - 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 loans227263 - 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 networks242 Financial Condition Summary 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 - 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 1.07x311 - 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 deposits312 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 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 capital296325 - The company uses interest rate swaps to mitigate changes in the fair value of selected investment securities and long-term fixed-rate loans297 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 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 period300 - No significant changes were made to internal controls over financial reporting during the quarter ended September 30, 2023301329 PART II OTHER INFORMATION Legal Proceedings 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 operations178330 Risk Factors 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 volatility344 - 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 profitability303331 - The company anticipates increased regulatory scrutiny and new regulations for banks of its size following recent industry events, which may increase costs and affect operations345346 Unregistered Sales of Equity Securities and Use of Proceeds 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, 2025139347 - There have been no share repurchases in 2023139 Defaults Upon Senior Securities No defaults upon senior securities - There were no defaults upon senior securities334 Mine Safety Disclosures Not applicable to the company - This item is not applicable to the company348 Other Information Not applicable to the company - This item is not applicable to the company335 Exhibits 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 filings350