Bank of Marin Bancorp(BMRC) - 2021 Q3 - Quarterly Report

Part I: Financial Information Financial Statements The financial statements reflect the August 2021 AMRB merger, significantly increasing assets, loans, and deposits, with Q3 net income impacted by merger costs Consolidated Statements of Condition (Balance Sheet) Total assets grew to $4.26 billion by September 30, 2021, a 46% increase driven by the AMRB merger, significantly expanding loans and deposits Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | Change | |---|---|---|---| | Total Assets | $4,261,062 | $2,911,926 | +46.3% | | Cash and cash equivalents | $584,739 | $200,320 | +191.9% | | Total investment securities | $1,159,834 | $501,387 | +131.3% | | Loans, net | $2,294,605 | $2,065,682 | +11.1% | | Goodwill | $72,754 | $30,140 | +141.4% | | Total Liabilities | $3,802,537 | $2,553,673 | +48.9% | | Total deposits | $3,727,696 | $2,504,249 | +48.9% | | Total Stockholders' Equity | $458,525 | $358,253 | +28.0% | Consolidated Statements of Comprehensive Income Q3 2021 net income decreased to $5.3 million due to merger-related expenses, while year-to-date net income increased to $23.5 million Income Statement Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |---|---|---|---|---| | Net Interest Income | $27,753 | $24,566 | $74,318 | $73,060 | | Provision for credit losses | $1,800 | $1,498 | ($3,251) | $6,060 | | Non-interest Income | $3,565 | $1,790 | $7,413 | $6,723 | | Non-interest Expense | $22,686 | $14,990 | $53,654 | $44,238 | | Net Income | $5,282 | $7,491 | $23,514 | $22,125 | | Diluted EPS | $0.35 | $0.55 | $1.69 | $1.62 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $458.5 million by September 30, 2021, primarily due to $124.4 million in shares issued for the AMRB merger and net income - Issued 3,441,235 shares valued at $124.4 million to American River Bankshares shareholders for the merger[15][17] - Repurchased 967,683 shares for a total of $35.2 million in the first nine months of 2021[17][125] - Paid cash dividends of $0.70 per share, totaling $9.3 million for the first nine months of 2021[17] Consolidated Statements of Cash Flows Cash and cash equivalents increased by $384.4 million for the nine months ended September 30, 2021, driven by operating activities, deposit growth, and cash from the AMRB merger Nine Months Ended Sep 30, 2021 Cash Flow (in thousands) | Activity | Amount | |---|---| | Net cash provided by operating activities | $32,326 | | Net cash used in investing activities | ($18,924) | | Net cash provided by financing activities | $371,017 | | Net increase in cash | $384,419 | - Cash acquired from the American River Bankshares merger totaled $140.6 million[19] - Net increase in deposits provided $433.4 million in cash, while stock repurchases used $35.5 million[19] Notes to Consolidated Financial Statements Notes detail the August 2021 AMRB merger, which significantly expanded the loan portfolio to $2.32 billion with strong credit quality, and an increased share repurchase program - The merger with American River Bankshares (AMRB) was completed on August 6, 2021, with Bancorp issuing 3,441,235 shares as part of the $124.5 million total consideration, adding approximately $898.4 million in assets and resulting in $42.6 million of goodwill[21][152][156] - Total loans stood at $2.317 billion, including $164.8 million in outstanding PPP loans, with non-accrual loans low at $8.4 million, or 0.36% of total loans[70][89][215] - The Board of Directors approved a new share repurchase program of $25.0 million in July 2021, subsequently increased to $57.0 million in October 2021[122] - As of September 30, 2021, the company had $602.6 million in unfunded loan commitments and standby letters of credit[128] - On March 15, 2021, Bancorp redeemed its remaining subordinated debenture with a book value of $2.8 million[112] Management's Discussion and Analysis (MD&A) MD&A highlights 46% asset growth to $4.26 billion due to the AMRB merger, strong credit quality, and a compressed net interest margin, while capital ratios remain robust - The merger with AMRB on August 6, 2021, added approximately $898.4 million in assets, $419.4 million in loans, and $790.0 million in deposits[179][180][231] - Q3 2021 GAAP net income of $5.3 million ($0.35/share) was reduced by $3.9 million net of tax ($0.26/share) due to merger-related costs, resulting in comparable non-GAAP net income of $9.2 million ($0.61/share)[180][186] - Credit quality remains strong, with non-accrual loans at 0.36% of total loans, and the allowance for credit losses to total loans was 0.97% (1.04% excluding PPP loans)[182] - The tax-equivalent net interest margin decreased to 3.15% in Q3 2021 from 3.44% in Q3 2020, primarily due to a lower interest rate environment and higher cash balances[204] - All capital ratios exceed 'well-capitalized' regulatory requirements, with the total risk-based capital ratio at 15.0% as of September 30, 2021[182][244] Quantitative and Qualitative Disclosure about Market Risk The company's primary market risk is interest rate risk, with management models indicating an asset-sensitive position where net interest income benefits from rising rates - The company is asset-sensitive, with net interest income expected to rise in a higher interest rate environment[263] Estimated Change in Net Interest Income from Immediate Rate Shifts | Rate Change (bps) | Change in NII (Year 1) | Change in NII (Year 2) | |---|---|---| | +200 | +6.0% | +14.4% | | +100 | +2.8% | +6.9% | | -100 | -2.6% | -4.2% | Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2021, while continuing to integrate American River Bankshares' systems into internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[264] - The company is continuing to integrate American River Bankshares' business processes into its internal control over financial reporting following the merger[265] Part II: Other Information Legal Proceedings The company is not aware of any pending legal proceedings expected to have a material adverse effect on its financial condition or operations - Management is not aware of any pending legal proceedings expected to have a material adverse effect on the company[139][267] Risk Factors No material changes to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K have been reported - No material changes from the risk factors disclosed in the 2020 Form 10-K have been reported[268] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company repurchased 445,735 shares for $15.9 million, with the share repurchase authorization subsequently increased to $57.0 million Issuer Purchases of Equity Securities (Q3 2021) | Period | Total Shares Purchased | Average Price Paid per Share | |---|---|---| | July 2021 | 37,182 | $32.99 | | August 2021 | 159,360 | $35.98 | | September 2021 | 249,193 | $35.81 | | Total Q3 | 445,735 | $35.64 | - On October 22, 2021, the Board increased the share repurchase authorization from $25.0 million to $57.0 million[270] Defaults Upon Senior Securities No defaults upon senior securities were reported - None reported[272] Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Not applicable[273] Other Information No other material information was reported - None reported[273] Exhibits This section lists key exhibits filed, including the AMRB merger agreement, corporate documents, compensation plans, and officer certifications - Key exhibits filed include the Agreement to Merge (2.01), various equity and compensation plans (10.01-10.14), and Sarbanes-Oxley certifications (31.01, 31.02, 32.01)[277]