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Bank of Marin Bancorp Reports Record Third Quarter Earnings of $12.2 Million

Bank of Marin Bancorp, “Bancorp” (Nasdaq: BMRC), parent company of Bank of Marin, “Bank,” announced record earnings of $12.2 million for the third quarter, compared to $11.1 million for the second quarter of 2022. Diluted earnings per share were $0.76 for the third quarter, compared to $0.69 for the preceding quarter. Earnings for the first nine months of 2022 totaled $33.7 million, compared to $23.5 million for the same period last year. Diluted earnings per share were $2.11 and $1.69 for the first nine months of 2022 and 2021, respectively. Certain periods of earnings presented were impacted by the costs associated with our acquisition of American River Bank (“ARB”), the details of which are discussed in this release. In particular, non-GAAP diluted earnings per share for the first nine months of 2022 would have increased by 16 cents per share over 2021 without those costs (refer to pages 2 and 3 for a discussion of this non-GAAP financial measure).

“Our strong third quarter results highlighted our unwavering commitment to disciplined fundamentals, which drove solid loan originations, excellent credit quality, and improved efficiency,” said Tim Myers, President and Chief Executive Officer. “Our relationship banking model has yielded a loyal customer base, providing robust core deposits that allow us to generate steady loan production and keep funding costs low.”

Bancorp also provided the following highlights from the third quarter of 2022:

  • Return on average assets was 1.11% for the third quarter of 2022, compared to 1.03% for the second quarter of 2022 and return on average equity was 11.65%, compared to 10.74% for the prior quarter.
  • The efficiency ratio for the third quarter of 2022 was 52.24%, compared to 55.73% for the second quarter of 2022. The improvement from the prior quarter was primarily due to the increase in net interest income while non-interest expense was slightly lower.
  • The third quarter tax-equivalent net interest margin improved 11 basis points over the preceding quarter from 3.05% to 3.16%, as rising interest rates positively impacted the Bank's earning asset portfolio while the cost of deposits remained flat.
  • Deposits increased by $72.0 million to $3.903 billion at September 30, 2022, compared to $3.831 billion at June 30, 2022. Non-interest bearing deposits made up 53% of total deposits at September 30, 2022, consistent with June 30, 2022. The average cost of deposits for the third quarter of 2022 was 0.06%, unchanged from the preceding quarter.
  • Loan balances of $2.158 billion at September 30, 2022, slightly down from $2.163 billion at June 30, 2022, reflected continued production efforts with a combined $74.5 million in new loans and higher utilization for the third quarter. Excluding PPP, loans increased $5.1 million over June 30, 2022 despite large construction project completions.
  • Credit quality remains strong, with non-accrual loans representing 0.49% of total loans as of September 30, 2022, compared to 0.37% at June 30, 2022. Classified loans decreased by $3.6 million due primarily to paydowns. Shortly after quarter end, non-accrual and classified loans decreased $7.1 million due to the resolution and payoff of a long-standing substandard credit. There was a provision of $422 thousand made to the allowance for credit losses primarily due to an increase in qualitative factors to account for the ongoing deterioration in the economic outlook not captured in the quantitative portion of the allowance. There was no adjustment to the allowance for credit losses on unfunded commitments this quarter.
  • All capital ratios were above well-capitalized regulatory requirements. The total risk-based capital ratio for Bancorp was 15.1% at September 30, 2022, compared to 14.7% at June 30, 2022. The total risk-based capital ratio for the Bank was 14.7% at September 30, 2022, compared to 14.2% at June 30, 2022.
  • Bancorp's tangible common equity to tangible assets was 7.5% at September 30, 2022, compared to 7.8% at June 30, 2022 (refer to footnote 5 on page 7 for a discussion of this non-GAAP financial measure). The Bank's tangible common equity to tangible assets was 7.3% at September 30, 2022, compared to 7.5% at June 30, 2022. Declines in the Bank's and Bancorp's tangible common equity were primarily related to a $22 million increase in after-tax unrealized losses on available-for-sale securities associated with interest rate increases since June 30, 2022, partially offset by earnings.
  • The Board of Directors declared a cash dividend of $0.25 per share on October 21, 2022, which represents the 70th consecutive quarterly dividend paid by Bancorp. The dividend is payable on November 14, 2022, to shareholders of record at the close of business on November 7, 2022.

Statement Regarding use of Non-GAAP Financial Measures

In this press release, Bancorp's financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that presentation of operating results using non-GAAP financial measures provides useful supplemental information to investors and facilitates the analysis of Bancorp's operating results and comparison of operating results across reporting periods. Management also uses non-GAAP financial measures to establish budgets and manage Bancorp's business. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below.

Reconciliation of GAAP and Non-GAAP Financial Measures

 

Three months ended

 

Nine months ended

(in thousands, unaudited)

September 30,

2022

June 30,

2022

 

September 30,

2022

September 30,

2021

Net income

 

 

 

 

 

Net income (GAAP)

$

12,174

 

$

11,066

 

 

$

33,705

 

$

23,514

 

Merger-related one-time and conversion costs:

 

 

 

 

 

Personnel and severance

 

 

 

58

 

 

 

393

 

 

2,668

 

Professional services

 

 

 

 

 

 

67

 

 

1,979

 

Data processing

 

 

 

29

 

 

 

77

 

 

433

 

Other

 

 

 

224

 

 

 

321

 

 

279

 

Total merger costs before tax benefits

 

 

 

311

 

 

 

858

 

 

5,359

 

Income tax benefit of merger-related expenses

 

 

 

(92

)

 

 

(254

)

 

(1,239

)

Total merger-related one-time and conversion costs, net of tax benefits

 

 

 

219

 

 

 

604

 

 

4,120

 

Comparable net income (non-GAAP)

$

12,174

 

$

11,285

 

 

$

34,309

 

$

27,634

 

Diluted earnings per share

 

 

 

 

 

Weighted average diluted shares

 

15,974

 

 

15,955

 

 

 

15,959

 

 

13,881

 

Diluted earnings per share (GAAP)

$

0.76

 

$

0.69

 

 

$

2.11

 

$

1.69

 

Merger-related one-time and conversion costs, net of tax benefits

 

 

 

0.02

 

 

 

0.04

 

 

0.30

 

Comparable diluted earnings per share (non-GAAP)

$

0.76

 

$

0.71

 

 

$

2.15

 

$

1.99

 

Return on average assets

 

 

 

 

 

Average assets

$

4,334,842

 

$

4,312,919

 

 

$

4,330,968

 

$

3,280,505

 

Return on average assets (GAAP)

 

1.11

%

 

1.03

%

 

 

1.04

%

 

0.96

%

Comparable return on average assets (non-GAAP)

 

1.11

%

 

1.05

%

 

 

1.06

%

 

1.13

%

Return on average equity

 

 

 

 

 

Average stockholders' equity

$

414,619

 

$

413,271

 

 

$

423,073

 

$

374,445

 

Return on average equity (GAAP)

 

11.65

%

 

10.74

%

 

 

10.65

%

 

8.40

%

Comparable return on average equity (non-GAAP)

 

11.65

%

 

10.95

%

 

 

10.84

%

 

9.87

%

Efficiency ratio

 

 

 

 

 

Non-interest expense (GAAP)

$

18,678

 

$

18,906

 

 

$

56,959

 

$

53,654

 

Merger-related expenses

 

 

 

(311

)

 

 

(858

)

 

(5,359

)

Non-interest expense (non-GAAP)

$

18,678

 

$

18,595

 

 

$

56,101

 

$

48,295

 

Net interest income

$

33,027

 

$

31,197

 

 

$

94,122

 

$

74,318

 

Non-interest income

$

2,723

 

$

2,728

 

 

$

8,318

 

$

7,413

 

Efficiency ratio (GAAP)

 

52.24

%

 

55.73

%

 

 

55.60

%

 

65.65

%

Comparable efficiency ratio (non-GAAP)

 

52.24

%

 

54.81

%

 

 

54.76

%

 

59.09

%

“Bank of Marin is well-positioned with capital and liquidity to meet our financial and strategic goals,” said Tani Girton, Executive Vice President and Chief Financial Officer. “Earnings accretion from our acquisition is meaningful and on track to meet targets announced when the merger became public. During the third quarter we further increased our net interest income through proactive balance sheet management, generating higher yields on our interest-earning assets. We are confident in our ability to build upon our long track record of delivering healthy returns to our shareholders.”

Loans and Credit Quality

Loans totaled $2.158 billion at September 30, 2022, compared to $2.163 billion at June 30, 2022, a decrease of $4.3 million. Loan originations were $52.2 million, compared to $102.2 million for the second quarter of 2022 and $32.6 million for the third quarter of 2021. Non-PPP loan payoffs were $45.1 million for the third quarter, compared to $109.8 million for the second quarter and $49.9 million for the third quarter of 2021.

The $97.3 million decrease in loans during the nine months ended September 30, 2022 was mostly attributable to a $103.6 million decrease in PPP loans. Non-PPP loan originations were $204.1 million for the nine months ended September 30, 2022, compared to $101.7 million for the nine months ended September 30, 2021. Non-PPP loan payoffs were $204.2 million for the nine months ended September 30, 2022, compared to $145.3 million for the nine months ended September 30, 2021.

Bank of Marin and ARB originated a combined total of 3,556 loans amounting to $550.3 million in two rounds of SBA PPP loan financing. Of these amounts, as of September 30, 2022, there were 42 loans still outstanding totaling $7.6 million (net of $161 thousand in unrecognized fees and costs), compared to 112 loans outstanding at June 30, 2022, for a total of $17.0 million (net of $420 thousand in unrecognized fees and costs). In the third quarter of 2022, Bank of Marin recognized $260 thousand in PPP fees, net of costs, compared to $573 thousand in the preceding quarter.

As of the date of this release, there were no loans benefiting from payment relief under the provisions of the 2020 CARES Act. During the onset of the pandemic, Bank of Marin granted payment relief for 269 loans totaling $402.9 million. Of the three loans outstanding for $23.6 million as of June 30, 2022, one resumed payments and was removed from payment relief prior to September 30, 2022, and the others paid off in early October.

Non-accrual loans totaled $10.6 million, or 0.49%, of the Bank's portfolio at September 30, 2022, compared to $8.0 million, or 0.37% at June 30, 2022. Non-accrual loans at September 30, 2022 included the addition of five loans non-accrual loans totaling $2.7 million in the third quarter, three (or 89%) of which were for one borrowing relationship. Over 90% of the non-accrual loans as of September 30, 2022 were well secured by commercial real estate. Subsequent to quarter end, $7.1 million of the non-accrual loans paid off.

Classified loans totaled $33.4 million at September 30, 2022, compared to $37.0 million at June 30, 2022, decreasing due to a $3.5 million paydown of a commercial line of credit and an additional $417 thousand in collective paydowns, partially offset by $292 thousand in downgrades from pass risk ratings. Accruing loans past due 30 to 89 days totaled $3.1 million at September 30, 2022, compared to $3.2 million at June 30, 2022. Subsequent to quarter end, classified loans decreased by an additional $7.1 million due to payoffs.

Net recoveries for the third quarter of 2022 totaled $2 thousand, compared to net charge-offs of $8 thousand in the second quarter of 2022. The ratio of allowance for credit losses to total loans was 1.06% at September 30, 2022, compared to 1.04% at June 30, 2022.

In the third quarter of 2022 there was a provision for credit losses on loans of $422 thousand, compared to no provision in the second quarter of 2022. Additionally, no provision for credit losses on unfunded commitments was recognized in either the third or second quarter of 2022. The provision made this quarter was primarily due to an increase in qualitative factors to account for the ongoing deterioration in the economic outlook not captured in the quantitative portion of the allowance. The preceding quarter's calculation reflected an improvement in the California unemployment rate forecast, which decreased the quantitative portion of estimated credit losses, while ongoing supply chain issues, inflation and recession risks increased qualitative factors.

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were $185.6 million at September 30, 2022, compared to $115.9 million at June 30, 2022. The $69.7 million increase was primarily due to net cash flows of $18.9 million from the investment portfolio and $72.0 million deposit growth, as noted below, less $20.0 million for investment purchases pending settlement at June 30, 2022.

Investments

The investment securities portfolio totaled $1.772 billion at September 30, 2022, a decrease of $52.4 million from June 30, 2022. The decrease was the result of maturities, calls, and paydowns totaling $52.9 million, $10.7 million in sales and $31.8 million in pre-tax unrealized losses on available-for-sale investment securities related to continued increases in market interest rates. Decreases were partially offset by $44.7 million in securities purchases. The increase in portfolio yield contributed significantly to net interest income during the quarter.

Year-to-date other comprehensive loss totaled $110.8 million before tax. First quarter unrealized losses were more significant due to the rapid and dramatic increases in rates as well as the larger available-for-sale portfolio. During the first quarter we transferred $357.5 million in available-for-sale securities to held-to-maturity to alleviate further unrealized losses associated with rising interest rates.

Deposits

Deposits totaled $3.903 billion at September 30, 2022, compared to $3.831 billion at June 30, 2022, a $72.0 million increase that was primarily due to replacement of expected deposit outflows with deposits held off balance sheet. The average cost of deposits for the third quarter was unchanged from the second quarter at 0.06%. The average cost of deposits for the nine months ended September 30, 2022 was 0.06%, compared to 0.07% in the same period of 2021. As part of our liquidity management, the Bank maintained $11.3 million in deposits off-balance sheet with deposit networks at September 30, 2022, compared to $152.4 million at June 30, 2022.

Earnings

Net Interest Income

Net interest income totaled $33.0 million for the third quarter of 2022, compared to $31.2 million for the prior quarter. The increase from the prior quarter was primarily attributable to higher average balances and yields on investment securities. In addition, higher interest rates increased income from other interest-earning assets while the cost of interest-bearing liabilities went down slightly.

Net interest income totaled $94.1 million for the nine months ended September 30, 2022, compared to $74.3 million for the same period in the prior year. The $19.8 million increase from prior year was primarily due to the larger balance sheet resulting from the ARB acquisition and deposit growth. The Bank also benefited from its asset sensitivity in the rising interest rate environment and the absence of a subordinated debenture that was redeemed in 2021.

The tax-equivalent net interest margin was 3.16% for the third quarter of 2022, compared to 3.05% for the prior quarter. The increase from the prior quarter was primarily due to continued deployment of cash into higher yielding investment securities and higher yields on loans and Federal Reserve balances, partially offset by lower interest and fee income on PPP loans and lower construction loan balances. The average yield on the investment portfolio increased 24 basis points in the third quarter.

The tax-equivalent net interest margin was 3.06% for the nine months ended September 30, 2022, compared to 3.23% for the same period in the prior year. The decrease resulted primarily from a higher proportion of investment securities in the larger balance sheet associated with the acquisition and ARB's lower loan-to-deposit ratio. Additionally, other deposit growth over the period contributed to the larger investment portfolio. Reductions were partially offset by the shift to a higher percentage of non-PPP loans within the loan portfolio and the absence of a subordinated debenture that was redeemed in 2021.

Non-Interest Income

Non-interest income totaled $2.7 million for the third quarter of 2022, substantially unchanged from the preceding quarter. The reduction in Wealth Management and Trust Services income related to stock market volatility and losses on investment securities sold were generally offset by increased fees for off-balance sheet deposits within other income. The $63 thousand loss on sale of investment securities was related to the sale of short-term municipal bonds, the proceeds of which were reinvested into higher yielding securities. The loss earnback period is expected to be less than four months.

Non-interest income totaled $8.3 million for the nine months ended September 30, 2022, compared to $7.4 million for the same period of the prior year. The increase was mostly attributable to higher activity associated with the ARB acquisition and higher fees on deposit balances held off balance sheet with deposit networks, partially offset by a decrease in benefits year-over-year associated with bank-owned life insurance payments.

Non-Interest Expense

Non-interest expense totaled $18.7 million for the third quarter of 2022, compared to $18.9 million for the prior quarter. The decrease from the prior quarter was primarily from $462 thousand less in charitable contributions due to the annual distribution of grant funding related to the Bank's corporate giving program primarily occurring in the second quarter. In addition, the third quarter included a partial reversal of a vendor contract termination fee originally accrued in the second quarter, for a net quarter-over-quarter effect of $200 thousand. These decreases were partially offset by a $345 thousand valuation adjustment to other real estate owned.

While non-interest expense of $57.0 million for the nine months ended September 30, 2022 increased $3.3 million over the same 2021 period, on a non-GAAP basis the efficiency ratio declined from 59.1% to 54.8%, reflecting the improved operating leverage of our larger organization. Almost all expense categories increased over 2021 due primarily to a full nine months of operating expenses attributable to the August 2021 ARB acquisition. In addition, salaries and benefits reflected annual merit and other incentive increases, data processing and information technology expenses were elevated due to the systems conversions associated with the merger and systems upgrades in 2022, and other expense reflected higher recruiting fees. These increases were partially offset by a $2.0 million decrease in professional services expense, as 2021 included merger-related legal and other professional fees.

Share Repurchase Program

Bancorp has an approved share repurchase program with $34.7 million outstanding. The last activity under the program was in the first quarter of 2022.

Earnings Call and Webcast Information

Bank of Marin Bancorp will webcast its third quarter of 2022 earnings call on Monday, October 24, 2022, at 8:30 a.m. PT/11:30 a.m. ET. Investors will have the opportunity to listen to the conference call online through Bank of Marin’s website at https://www.bankofmarin.com under “Investor Relations.” To listen to the live call, please go to the website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available at the same website location shortly after the call.

About Bank of Marin Bancorp

Founded in 1990 and headquartered in Novato, Bank of Marin is the wholly owned subsidiary of Bank of Marin Bancorp (Nasdaq: BMRC). A leading business and community bank in Northern California, with assets of $4.3 billion, Bank of Marin has 31 retail branches and 8 commercial banking offices located across 10 counties. Bank of Marin provides commercial banking, personal banking, and wealth management and trust services. Specializing in providing legendary service to its customers and investing in its local communities, Bank of Marin has consistently been ranked one of the “Top Corporate Philanthropists” by the San Francisco Business Times and one of the “Best Places to Work” by the North Bay Business Journal. Bank of Marin Bancorp is included in the Russell 2000 Small-Cap Index and Nasdaq ABA Community Bank Index. For more information, go to www.bankofmarin.com.

Forward-Looking Statements

This release may contain certain forward-looking statements that are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact Bancorp's earnings in future periods. 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.” Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions and the economic uncertainty in the United States and abroad, including economic or other disruptions to financial markets caused by acts of terrorism, war or other conflicts such as Russia's military action in Ukraine, impacts from inflation, supply change disruptions, changes in interest rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate, deposit flows, real estate values, and expected future cash flows on loans and securities; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; natural disasters (such as wildfires and earthquakes in our area); adverse weather conditions; interruptions of utility service in our markets for sustained periods; and other economic, competitive, governmental, regulatory and technological factors (including external fraud and cybersecurity threats) affecting our operations, pricing, products and services; and successful integration of acquisitions. These and other important factors are detailed in various securities law filings made periodically by Bancorp, copies of which are available from Bancorp without charge. Bancorp undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

BANK OF MARIN BANCORP FINANCIAL HIGHLIGHTS

 

Three months ended

 

Nine months ended

(in thousands, except per share amounts; unaudited)

September 30,

2022

June 30,

2022

 

September 30,

2022

September 30,

2021

Selected operating data and performance ratios:

 

 

 

 

 

Net income

$

12,174

 

$

11,066

 

 

$

33,705

 

$

23,514

 

Diluted earnings per common share

$

0.76

 

$

0.69

 

 

$

2.11

 

$

1.69

 

Return on average assets

 

1.11

%

 

1.03

%

 

 

1.04

%

 

0.96

%

Return on average equity

 

11.65

%

 

10.74

%

 

 

10.65

%

 

8.40

%

Efficiency ratio

 

52.24

%

 

55.73

%

 

 

55.60

%

 

65.65

%

Tax-equivalent net interest margin 1

 

3.16

%

 

3.05

%

 

 

3.06

%

 

3.23

%

Cost of deposits

 

0.06

%

 

0.06

%

 

 

0.06

%

 

0.07

%

Net (recoveries) charge-offs

$

(2

)

$

8

 

 

$

(3

)

$

(83

)

(in thousands; unaudited)

September 30,

2022

June 30,

2022

December 31,

2021

Selected financial condition data:

 

 

 

Total assets

$

4,348,653

 

$

4,326,904

 

$

4,314,209

 

Loans:

 

 

 

Commercial and industrial 2

$

207,488

 

$

213,122

 

$

301,602

 

Real estate:

 

 

 

Commercial owner-occupied

 

368,415

 

 

382,897

 

 

392,345

 

Commercial investor-owned

 

1,211,651

 

 

1,190,419

 

 

1,189,021

 

Construction

 

112,154

 

 

118,147

 

 

119,840

 

Home equity

 

89,244

 

 

90,629

 

 

88,746

 

Other residential

 

114,247

 

 

113,361

 

 

114,558

 

Installment and other consumer loans

 

55,137

 

 

54,057

 

 

49,533

 

Total loans

$

2,158,336

 

$

2,162,632

 

$

2,255,645

 

Non-accrual loans: 3

 

 

 

Real estate:

 

 

 

Commercial owner-occupied

$

9,846

 

$

7,564

 

$

7,269

 

Commercial investor-owned

 

 

 

 

 

694

 

Home equity

 

699

 

 

454

 

 

413

 

Installment and other consumer loans

 

92

 

 

 

 

 

Total non-accrual loans

$

10,637

 

$

8,018

 

$

8,376

 

Classified loans (graded substandard and doubtful)

$

33,421

 

$

37,043

 

$

36,235

 

Total accruing loans 30-89 days past due

$

3,097

 

$

3,153

 

$

1,673

 

Allowance for credit losses to total loans

 

1.06

%

 

1.04

%

 

1.02

%

Allowance for credit losses to total loans, excluding SBA PPP loans 4

 

1.07

%

 

1.05

%

 

1.07

%

Allowance for credit losses to non-performing loans

2.16x

2.81x

2.75x

Non-accrual loans to total loans

 

0.49

%

 

0.37

%

 

0.37

%

Total deposits

$

3,902,710

 

$

3,830,670

 

$

3,808,550

 

Loan-to-deposit ratio

 

55.3

%

 

56.5

%

 

59.2

%

Stockholders' equity

$

396,592

 

$

409,573

 

$

450,368

 

Book value per share

$

24.74

 

$

25.58

 

$

28.27

 

Tangible common equity to tangible assets - Bank 5

 

7.3

%

 

7.5

%

 

8.6

%

Tangible common equity to tangible assets - Bancorp 5

 

7.5

%

 

7.8

%

 

8.8

%

Total risk-based capital ratio - Bank

 

14.7

%

 

14.2

%

 

14.4

%

Total risk-based capital ratio - Bancorp

 

15.1

%

 

14.7

%

 

14.6

%

Full-time equivalent employees

 

302

 

 

290

 

 

328

 

1 Net interest income is annualized by dividing actual number of days in the period times 360 days.

2 Includes SBA PPP loans of $7.6 million, $17.0 million and $111.2 million at September 30, 2022, June 30, 2022 and December 31, 2021, respectively.

3 There were no non-performing loans over 90 days past due and accruing interest as of September 30, 2022, June 30, 2022 and December 31, 2021.

4 The allowance for credit losses to total loans, excluding guaranteed SBA PPP loans, is considered a meaningful non-GAAP financial measure, as it represents only those loans that were considered in the calculation of the allowance for credit losses. Refer to footnote 2 above for SBA PPP loan totals.

5 Tangible common equity to tangible assets is considered to be a meaningful non-GAAP financial measure of capital adequacy and is useful for investors to assess Bancorp's ability to absorb potential losses. Tangible common equity includes common stock, retained earnings and unrealized gains (losses) on available-for-sale securities, net of tax, less goodwill and intangible assets of $78.2 million, $78.6 million and $79.4 million at September 30, 2022, June 30, 2022 and December 31, 2021, respectively. Tangible assets exclude goodwill and intangible assets.

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF CONDITION

 

(in thousands, except share data; unaudited)

September 30,

2022

June 30,

2022

December 31,

2021

Assets

 

 

 

Cash, cash equivalents and restricted cash

$

185,552

 

$

115,905

 

$

347,641

 

Investment securities

 

 

 

Held-to-maturity, at amortized cost (net of zero allowance for credit losses at September 30, 2022, June 30, 2022 and December 31, 2021)

 

959,867

 

 

931,587

 

 

342,222

 

Available-for-sale (at fair value; amortized cost of $911,476, $960,379 and $1,169,520 at September 30, 2022, June 30, 2022 and December 31, 2021, respectively; net of zero allowance for credit losses at September 30, 2022, June 30, 2022 and

December 31, 2021)

 

812,493

 

 

893,149

 

 

1,167,568

 

Total investment securities

 

1,772,360

 

 

1,824,736

 

 

1,509,790

 

Loans, at amortized cost

 

2,158,336

 

 

2,162,632

 

 

2,255,645

 

Allowance for credit losses on loans

 

(22,963

)

 

(22,539

)

 

(23,023

)

Loans, net of allowance for credit losses on loans

 

2,135,373

 

 

2,140,093

 

 

2,232,622

 

Goodwill

 

72,754

 

 

72,754

 

 

72,754

 

Bank-owned life insurance

 

62,056

 

 

61,834

 

 

61,473

 

Operating lease right-of-use assets

 

25,006

 

 

22,353

 

 

23,604

 

Bank premises and equipment, net

 

7,102

 

 

7,067

 

 

7,558

 

Core deposit intangible, net

 

5,481

 

 

5,851

 

 

6,605

 

Other real estate owned

 

455

 

 

800

 

 

800

 

Interest receivable and other assets

 

82,514

 

 

75,511

 

 

51,362

Total assets

$

4,348,653

 

$

4,326,904

 

$

4,314,209

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

Liabilities

 

 

 

Deposits

 

 

 

Non-interest bearing

$

2,051,975

 

$

2,034,717

 

$

1,910,240

 

Interest bearing

 

 

 

Transaction accounts

 

293,722

 

 

297,871

 

 

290,813

 

Savings accounts

 

342,630

 

 

343,585

 

 

340,959

 

Money market accounts

 

1,074,568

 

 

1,012,823

 

 

1,116,303

 

Time accounts

 

139,815

 

 

141,674

 

 

150,235

 

Total deposits

 

3,902,710

 

 

3,830,670

 

 

3,808,550

 

Borrowings and other obligations

 

365

 

 

356

 

 

419

 

Operating lease liabilities

 

26,744

 

 

24,117

 

 

25,429

 

Interest payable and other liabilities

 

22,242

 

 

62,188

 

 

29,443

 

Total liabilities

 

3,952,061

 

 

3,917,331

 

 

3,863,841

 

 

 

 

 

Stockholders' Equity

 

 

 

Preferred stock, no par value,

Authorized - 5,000,000 shares, none issued

 

 

 

 

 

 

Common stock, no par value,

Authorized - 30,000,000 shares; issued and outstanding - 16,029,048, 16,009,600 and 15,929,243 at September 30, 2022, June 30, 2022 and December 31, 2021, respectively

214,720

 

 

213,864

 

 

212,524

 

Retained earnings

 

261,907

 

 

253,737

 

 

239,868

 

Accumulated other comprehensive loss, net of taxes

 

(80,035

)

 

(58,028

)

 

(2,024

)

Total stockholders' equity

 

396,592

 

 

409,573

 

 

450,368

 

Total liabilities and stockholders' equity

$

4,348,653

 

$

4,326,904

 

$

4,314,209

 

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

 

 

 

Three months ended

 

Nine months ended

(in thousands, except per share amounts; unaudited)

 

September

30, 2022

 

June 30,

2022

 

September

30, 2022

 

September

30, 2021

Interest income

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

23,357

 

 

$

23,334

 

 

$

70,368

 

 

$

66,117

 

Interest on investment securities

 

 

9,674

 

 

 

8,273

 

 

 

24,640

 

 

 

10,717

 

Interest on federal funds sold and due from banks

 

 

546

 

 

 

180

 

 

 

832

 

 

 

274

 

Total interest income

 

 

33,577

 

 

 

31,787

 

 

 

95,840

 

 

 

77,108

 

Interest expense

 

 

 

 

 

 

 

 

Interest on interest-bearing transaction accounts

 

 

121

 

 

 

53

 

 

 

230

 

 

 

119

 

Interest on savings accounts

 

 

32

 

 

 

32

 

 

 

93

 

 

 

66

 

Interest on money market accounts

 

 

268

 

 

 

438

 

 

 

1,184

 

 

 

1,015

 

Interest on time accounts

 

 

128

 

 

 

67

 

 

 

209

 

 

 

221

 

Interest on borrowings and other obligations

 

 

1

 

 

 

 

 

 

2

 

 

 

8

 

Interest on subordinated debenture

 

 

 

 

 

 

 

 

 

 

 

1,361

 

Total interest expense

 

 

550

 

 

 

590

 

 

 

1,718

 

 

 

2,790

 

Net interest income

 

 

33,027

 

 

 

31,197

 

 

 

94,122

 

 

 

74,318

 

Provision for (reversal of) credit losses on loans

 

 

422

 

 

 

 

 

 

(63

)

 

 

(2,049

)

Reversal of credit losses on unfunded loan commitments

 

 

 

 

 

 

 

 

(318

)

 

 

(1,202

)

Net interest income after provision for (reversal of) credit losses

 

 

32,605

 

 

 

31,197

 

 

 

94,503

 

 

 

77,569

 

Non-interest income

 

 

 

 

 

 

 

 

Wealth Management and Trust Services

 

 

507

 

 

 

630

 

 

 

1,737

 

 

 

1,615

 

Debit card interchange fees, net

 

 

502

 

 

 

531

 

 

 

1,538

 

 

 

1,268

 

Service charges on deposit accounts

 

 

535

 

 

 

465

 

 

 

1,488

 

 

 

1,062

 

Earnings on bank-owned life insurance, net

 

 

222

 

 

 

298

 

 

 

933

 

 

 

1,892

 

Dividends on Federal Home Loan Bank stock

 

 

251

 

 

 

249

 

 

 

759

 

 

 

505

 

Merchant interchange fees, net

 

 

141

 

 

 

149

 

 

 

430

 

 

 

247

 

(Losses) gains on sale of investment securities, net

 

 

(63

)

 

 

 

 

 

(63

)

 

 

1

 

Other income

 

 

628

 

 

 

406

 

 

 

1,496

 

 

 

823

 

Total non-interest income

 

 

2,723

 

 

 

2,728

 

 

 

8,318

 

 

 

7,413

 

Non-interest expense

 

 

 

 

 

 

 

 

Salaries and related benefits

 

 

10,557

 

 

 

10,341

 

 

 

32,446

 

 

 

31,223

 

Occupancy and equipment

 

 

1,941

 

 

 

1,891

 

 

 

5,739

 

 

 

5,373

 

Data processing

 

 

1,093

 

 

 

1,199

 

 

 

3,569

 

 

 

3,252

 

Professional services

 

 

736

 

 

 

665

 

 

 

2,314

 

 

 

4,321

 

Information technology

 

 

573

 

 

 

468

 

 

 

1,519

 

 

 

1,105

 

Depreciation and amortization

 

 

414

 

 

 

393

 

 

 

1,259

 

 

 

1,279

 

Amortization of core deposit intangible

 

 

370

 

 

 

374

 

 

 

1,124

 

 

 

742

 

Federal Deposit Insurance Corporation insurance

 

 

300

 

 

 

296

 

 

 

886

 

 

 

597

 

Directors' expense

 

 

233

 

 

 

294

 

 

 

838

 

 

 

660

 

Charitable contributions

 

 

49

 

 

 

511

 

 

 

605

 

 

 

497

 

Other real estate owned

 

 

350

 

 

 

3

 

 

 

355

 

 

 

 

Other expense

 

 

2,062

 

 

 

2,471

 

 

 

6,305

 

 

 

4,605

 

Total non-interest expense

 

 

18,678

 

 

 

18,906

 

 

 

56,959

 

 

 

53,654

 

Income before provision for income taxes

 

 

16,650

 

 

 

15,019

 

 

 

45,862

 

 

 

31,328

 

Provision for income taxes

 

 

4,476

 

 

 

3,953

 

 

 

12,157

 

 

 

7,814

 

Net income

 

$

12,174

 

 

$

11,066

 

 

$

33,705

 

 

$

23,514

 

Net income per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.76

 

 

$

0.70

 

 

$

2.12

 

 

$

1.70

 

Diluted

 

$

0.76

 

 

$

0.69

 

 

$

2.11

 

 

$

1.69

 

Weighted average shares:

 

 

 

 

 

 

 

 

Basic

 

 

15,939

 

 

 

15,921

 

 

 

15,912

 

 

 

13,798

 

Diluted

 

 

15,974

 

 

 

15,955

 

 

 

15,959

 

 

 

13,881

 

Comprehensive (loss) income:

 

 

 

 

 

 

 

 

Net income

 

$

12,174

 

 

$

11,066

 

 

$

33,705

 

 

$

23,514

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Change in net unrealized (losses) gains on available-for-sale securities

 

 

(31,816

)

 

 

(27,050

)

 

 

(97,094

)

 

 

(8,558

)

Reclassification adjustment for losses (gains) on available-for-sale securities included in net income

 

 

63

 

 

 

 

 

 

63

 

 

 

(1

)

Net unrealized losses on securities transferred from available-for-sale to held-to-maturity

 

 

 

 

 

 

 

 

(14,847

)

 

 

 

Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity

 

 

510

 

 

 

472

 

 

 

1,126

 

 

 

385

 

Other comprehensive loss, before tax

 

 

(31,243

)

 

 

(26,578

)

 

 

(110,752

)

 

 

(8,174

)

Deferred tax benefit

 

 

(9,236

)

 

 

(7,857

)

 

 

(32,741

)

 

 

(2,421

)

Other comprehensive loss, net of tax

 

 

(22,007

)

 

 

(18,721

)

 

 

(78,011

)

 

 

(5,753

)

Total comprehensive (loss) income

 

$

(9,833

)

 

$

(7,655

)

 

$

(44,306

)

 

$

17,761

 

BANK OF MARIN BANCORP

AVERAGE STATEMENTS OF CONDITION AND ANALYSIS OF NET INTEREST INCOME

     

 

 

Three months ended

 

Three months ended

 

 

September 30, 2022

 

June 30, 2022

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

 

 

Average

 

Income/

 

Yield/

 

Average

 

Income/

 

Yield/

(in thousands)

 

Balance

 

Expense

 

Rate

 

Balance

 

Expense

 

Rate

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits with banks 1

 

$

94,963

 

$

546

 

2.24 %

 

$

95,326

 

$

180

 

0.75 %

Investment securities 2, 3

 

 

1,875,660

 

 

9,875

 

2.11 %

 

 

1,807,710

 

 

8,469

 

1.87 %

Loans 1, 3, 4

 

 

2,166,879

 

 

23,540

 

4.25 %

 

 

2,194,810

 

 

23,522

 

4.24 %

Total interest-earning assets 1

 

 

4,137,502

 

 

33,961

 

3.21 %

 

 

4,097,846

 

 

32,171

 

3.11 %

Cash and non-interest-bearing due from banks

 

 

44,597

 

 

 

 

 

 

56,408

 

 

 

 

Bank premises and equipment, net

 

 

7,052

 

 

 

 

 

 

7,182

 

 

 

 

Interest receivable and other assets, net

 

 

145,691

 

 

 

 

 

 

151,483

 

 

 

 

Total assets

 

$

4,334,842

 

 

 

 

 

$

4,312,919

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction accounts

 

$

293,296

 

$

121

 

0.16 %

 

$

300,258

 

$

53

 

0.07 %

Savings accounts

 

 

341,468

 

 

32

 

0.04 %

 

 

343,338

 

 

32

 

0.04 %

Money market accounts

 

 

1,025,722

 

 

268

 

0.10 %

 

 

1,076,912

 

 

438

 

0.16 %

Time accounts including CDARS

 

 

142,341

 

 

128

 

0.36 %

 

 

144,432

 

 

67

 

0.19 %

Borrowings and other obligations 1

 

 

337

 

 

1

 

0.93 %

 

 

370

 

 

 

0.61 %

Total interest-bearing liabilities

 

 

1,803,164

 

 

550

 

0.12 %

 

 

1,865,310

 

 

590

 

0.13 %

Demand accounts

 

 

2,069,476

 

 

 

 

 

 

1,984,629

 

 

 

 

Interest payable and other liabilities

 

 

47,583

 

 

 

 

 

 

49,709

 

 

 

 

Stockholders' equity

 

 

414,619

 

 

 

 

 

 

413,271

 

 

 

 

Total liabilities & stockholders' equity

 

$

4,334,842

 

 

 

 

 

$

4,312,919

 

 

 

 

Tax-equivalent net interest income/margin 1

 

 

 

$

33,411

 

3.16 %

 

 

 

$

31,581

 

3.05 %

Reported net interest income/margin 1

 

 

 

$

33,027

 

3.12 %

 

 

 

$

31,197

 

3.01 %

Tax-equivalent net interest rate spread

 

 

 

 

 

3.09 %

 

 

 

 

 

2.98 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

Nine months ended

 

 

September 30, 2022

 

September 30, 2021

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

 

 

Average

 

Income/

 

Yield/

 

Average

 

Income/

 

Yield/

(in thousands)

 

Balance

 

Expense

 

Rate

 

Balance

 

Expense

 

Rate

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits with banks 1

 

$

140,114

 

$

832

 

0.78 %

 

$

273,045

 

$

274

 

0.13 %

Investment securities 2, 3

 

 

1,770,882

 

 

25,214

 

1.90 %

 

 

683,600

 

 

11,196

 

2.18 %

Loans 1, 3, 4

 

 

2,196,173

 

 

70,944

 

4.26 %

 

 

2,117,631

 

 

66,665

 

4.15 %

Total interest-earning assets 1

 

 

4,107,169

 

 

96,990

 

3.11 %

 

 

3,074,276

 

 

78,135

 

3.35 %

Cash and non-interest-bearing due from banks

 

 

56,585

 

 

 

 

 

 

53,020

 

 

 

 

Bank premises and equipment, net

 

 

7,220

 

 

 

 

 

 

5,353

 

 

 

 

Interest receivable and other assets, net

 

 

159,994

 

 

 

 

 

 

147,856

 

 

 

 

Total assets

 

$

4,330,968

 

 

 

 

 

$

3,280,505

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing transaction accounts

 

$

296,239

 

$

230

 

0.10 %

 

$

193,502

 

$

119

 

0.08 %

Savings accounts

 

 

342,704

 

 

93

 

0.04 %

 

 

245,374

 

 

66

 

0.04 %

Money market accounts

 

 

1,074,597

 

 

1,184

 

0.15 %

 

 

784,313

 

 

1,015

 

0.17 %

Time accounts including CDARS

 

 

144,807

 

 

209

 

0.19 %

 

 

105,419

 

 

221

 

0.28 %

Borrowings and other obligations 1

 

 

368

 

 

2

 

0.71 %

 

 

1,047

 

 

8

 

1.10 %

Subordinated debenture 1, 5

 

 

 

 

 

— %

 

 

713

 

 

1,361

 

251.54 %

Total interest-bearing liabilities

 

 

1,858,715

 

 

1,718

 

0.12 %

 

 

1,330,368

 

 

2,790

 

0.28 %

Demand accounts

 

 

1,999,433

 

 

 

 

 

 

1,531,564

 

 

 

 

Interest payable and other liabilities

 

 

49,747

 

 

 

 

 

 

44,128

 

 

 

 

Stockholders' equity

 

 

423,073

 

 

 

 

 

 

374,445

 

 

 

 

Total liabilities & stockholders' equity

 

$

4,330,968

 

 

 

 

 

$

3,280,505

 

 

 

 

Tax-equivalent net interest income/margin 1

 

 

 

$

95,272

 

3.06 %

 

 

 

$

75,345

 

3.23 %

Reported net interest income/margin 1

 

 

 

$

94,122

 

3.02 %

 

 

 

$

74,318

 

3.19 %

Tax-equivalent net interest rate spread

 

 

 

 

 

2.99 %

 

 

 

 

 

3.07 %

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 21 percent in 2022 and 2021.

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.

5 2021 interest on subordinated debenture included $1.3 million in accelerated discount accretion from the early redemption of our last subordinated debenture on March 15, 2021.

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