Bank of Marin Bancorp(BMRC) - 2023 Q2 - Earnings Call Transcript

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]