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Bank of Marin Bancorp Reports Third Quarter Earnings of $5.3 Million

American River Acquisition Complete, Integration Begins

Bank of Marin Bancorp, "Bancorp" (Nasdaq: BMRC), parent company of Bank of Marin, "Bank," announced earnings of $5.3 million in the third quarter of 2021 compared to $9.3 million in the second quarter of 2021 and $7.5 million in the third quarter of 2020. Diluted earnings per share were $0.35 in the third quarter, $0.71 in the prior quarter, and $0.55 in the same quarter last year. Third quarter 2021 earnings were significantly reduced by the costs associated with our recent acquisition. For the first nine months of 2021, Bancorp earned $23.5 million compared to $22.1 million in the same period last year. Diluted earnings per share were $1.69 and $1.62 in the first nine months of 2021 and 2020, respectively.

The results for the third quarter of 2021 reflect the consolidated operations of American River Bankshares ("AMRB"), including AMRB's subsidiary American River Bank ("ARB"), effective August 6, 2021 (the "merger date"). AMRB merged with and into Bancorp, with Bank of Marin Bancorp surviving, followed thereafter at 12:05 AM on August 7, 2021, by the merger of ARB with and into the Bank, with Bank of Marin surviving, (collectively the "Merger"). The Merger contributed $419.4 million in loans and $790.0 million in deposits as of the merger date, resulting in $42.6 million of goodwill and increasing total assets to $4.261 billion and total stockholder's equity to $458.5 million as of September 30, 2021.

“Bank of Marin is on solid ground financially and in an excellent strategic position. Our integration of American River Bankshares is progressing smoothly, setting the stage for long-term growth across a much larger and more diverse footprint,” said Russell A. Colombo, Chief Executive Officer.

As previously announced, Russell A. Colombo will formally retire as Chief Executive Officer of Bank of Marin and Bank of Marin Bancorp, effective October 31, 2021. The Board of Directors named Tim Myers, currently President and Chief Operating Officer, as his successor. Mr. Colombo will remain on the Boards of Bancorp and the Bank, and Mr. Myers will join both Boards. “I’m very proud of the bank we have built over the past two decades and the team that drives our success," said Mr. Colombo. "As I prepare to retire, I’m confident that Tim is more than ready to succeed me, leading our deep bench of talented bankers to deliver strong returns for our shareholders for years to come.”

"Our merger with American River brought together two institutions that share complementary values and disciplined fundamentals,” said Mr. Myers. “I look forward to leading the combined team as we roll up our sleeves to ensure a seamless integration. By committing significant resources to this process, we are building a strong foundation on which to grow our franchise on a regional scale."

Bancorp provided the following highlights from the third quarter of 2021:

  • Loan balances of $2.317 billion at September 30, 2021 increased by $314.3 million in the third quarter from $2.003 billion at June 30, 2021 largely due to the ARB acquisition. Loan balances were $2.108 billion at September 30, 2020. Total Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans outstanding were $164.8 million at September 30, 2021, down $83.4 million from June 30, 2021.
  • Credit quality remains strong, with non-accrual loans representing 0.36% of total loans as of September 30, 2021, compared to 0.46% at June 30, 2021, and 0.07% at September 30, 2020. The allowance for credit losses increased by $3.3 million and was comprised of a $1.8 million provision, mainly related to purchased ARB loans without credit deterioration, and a $1.5 million merger-date allowance established for purchased credit deteriorated loans. There was no provision for credit losses on unfunded loan commitments in the third quarter of 2021.
  • Total deposits of $3.728 billion at September 30, 2021 increased by $1.044 billion in the third quarter from $2.684 billion at June 30, 2021, mainly due to the ARB acquisition. Non-interest bearing deposits were 49% of total deposits as of September 30, 2021, versus 54% as of June 30, 2021 and September 30, 2020. The decrease in this ratio was primarily due to an increase in interest bearing deposits from one existing customer and a lower ratio of non-interest-bearing deposits acquired from ARB. The cost of average deposits was 0.06% in the third quarter, 0.07% in the second quarter of 2021, and 0.09% in the third quarter of 2020.
  • Merger-related one-time and conversion costs reduced net income by $3.9 million, net of taxes, or 26 cents per share in the quarter and by $4.1 million, net of taxes, or 30 cents per share year-to-date. As shown in the reconciliation of GAAP to non-GAAP financial measures on page 3, year-to-date return on average assets ("ROA") of 0.96% and return on average equity ("ROE") of 8.40% were also significantly impacted by those expenses and would have been 1.13% and 9.87%, respectively, compared to 1.03% and 8.47% for the comparable period in 2020.
  • ROA and ROE ratios were also significantly impacted by provisions for credit losses on acquired loans and shares issued in conjunction with the merger. A good indicator of the merger's positive impact on operating earnings is the efficiency ratio, as it neither includes provisions for losses on loans and unfunded commitments, nor is it impacted by changes in share counts. As shown in the reconciliation of GAAP to non-GAAP financial measures on page 3, the efficiency ratio excluding merger-related one-time and conversion costs of 56.02% for the quarter ended September 30, 2021, improved from 57.76% and 56.88% in the quarters ended June 30, 2021 and September 30, 2020, respectively.
  • All capital ratios were above well-capitalized regulatory requirements. The total risk-based capital ratio for Bancorp was 15.0% at September 30, 2021, compared to 15.5% at June 30, 2021, and 16.1% at September 30, 2020. Bancorp's tangible common equity to tangible assets was 9.1% at September 30, 2021, compared to 10.4% at June 30, 2021 and 11.0% at September 30, 2020 (refer to footnote 5 on page 8 for a discussion of this non-GAAP financial measure). The Bank's total risk-based capital ratio was 14.4% at September 30, 2021, compared to 15.3% at June 30, 2021, and 15.5% at September 30, 2020.
  • The Board of Directors declared a cash dividend of $0.24 per share on October 22, 2021, which represents the 66th consecutive quarterly dividend paid by Bank of Marin Bancorp. The dividend is payable on November 12, 2021, to shareholders of record at the close of business on November 5, 2021.
  • On October 22, 2021, the Board of Directors approved an amendment to the current share repurchase program which increased the total authorization from $25.0 million to $57.0 million. The July 31, 2023 expiration date of the program remained unchanged

Statement Regarding use of Non-GAAP Financial Measures

In this press release, Bancorp's financial results are presented in accordance with GAAP and refer 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 core 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

 

(in thousand, unaudited)

Three months ended

Nine months ended

Net income

September 30,

2021

June 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

Net income (GAAP)

$

5,282

 

$

9,285

 

$

7,491

 

$

23,514

 

$

22,125

 

Merger-related one-time and conversion costs:

 

 

 

 

 

Personnel and severance

2,668

 

 

 

2,668

 

 

Professional services

1,778

 

201

 

 

1,979

 

 

Data processing

433

 

 

 

433

 

 

Other

263

 

16

 

 

279

 

 

Income tax benefit of merger-related expenses

(1,222

)

(17

)

 

(1,239

)

 

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

3,920

 

200

 

 

4,120

 

 

Comparable net income (non-GAAP)

$

9,202

 

$

9,485

 

$

7,491

 

$

27,634

 

$

22,125

 

Diluted earnings per share

 

 

 

 

 

Weighted average diluted shares

14,993

 

13,164

 

13,610

 

13,881

 

13,617

 

Diluted earnings per share (GAAP)

$

0.35

 

$

0.71

 

$

0.55

 

$

1.69

 

$

1.62

 

Comparable diluted earnings per share (non-GAAP)

$

0.61

 

$

0.72

 

$

0.55

 

$

1.99

 

$

1.62

 

Return on average assets

 

 

 

 

 

Average assets

$

3,743,968

 

$

3,093,321

 

$

3,029,342

 

$

3,280,505

 

$

2,876,618

 

Return on average assets (GAAP)

0.56

%

1.20

%

0.98

%

0.96

%

1.03

%

Comparable return on average assets (non-GAAP)

0.98

%

1.23

%

0.98

%

1.13

%

1.03

%

Return on average equity

 

 

 

 

 

Average stockholders' equity

$

420,124

 

$

347,473

 

$

356,230

 

$

374,445

 

$

348,812

 

Return on average equity (GAAP)

4.99

%

10.72

%

8.37

%

8.40

%

8.47

%

Comparable return on average equity (non-GAAP)

8.69

%

10.95

%

8.37

%

9.87

%

8.47

%

Efficiency ratio

 

 

 

 

 

Non-interest expense (GAAP)

$

22,686

 

$

15,556

 

$

14,990

 

$

53,654

 

$

44,238

 

Merger-related expenses

(5,142

)

(217

)

 

(5,359

)

 

Non-interest expense (non-GAAP)

$

17,544

 

$

15,339

 

$

14,990

 

$

48,295

 

$

44,238

 

Net interest income

$

27,753

 

$

24,534

 

$

24,566

 

$

74,318

 

$

73,060

 

Non-interest income

$

3,565

 

$

2,022

 

$

1,790

 

$

7,413

 

$

6,723

 

Efficiency ratio (GAAP)

72.44

%

58.58

%

56.88

%

65.65

%

55.45

%

Comparable efficiency ratio (non-GAAP)

56.02

%

57.76

%

56.88

%

59.09

%

55.45

%

 

Loans and Credit Quality

Loans increased by $314.3 million in the third quarter and totaled $2.317 billion at September 30, 2021. The increase included $419.4 million loans acquired from American River Bank on August 6th. Non-PPP-related loan originations were $32.6 million and $101.7 million for the third quarter and first nine months of 2021, compared to $50.8 million and $122.4 million for the same periods in 2020. Loan payoffs were $49.9 million and $145.3 million in the third quarter and first nine months of 2021, compared to $41.3 million and $124.7 million for the third quarter and first nine months of 2020. Loan payoffs in the third quarter of 2021 consisted largely of commercial borrower cash paydowns as part of ongoing deleveraging, real estate asset sales and third-party refinancing. A significant portion of the commercial third-party refinancing was attributable to price or structural elements outside the bank's desired credit profile.

Bank of Marin and American River Bank 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, 2021 there were 871 loans outstanding totaling $164.8 million (net of $4.2 million in unrecognized fees and costs). Of the 2,876 PPP loans totaling $444.1 million funded by Bank of Marin, 2,036 loans for $284.7 million have been forgiven and paid off. Year-to-date, Bank of Marin has recognized $6.6 million in PPP fees, net of costs.

During the onset of the pandemic, Bank of Marin granted payment relief for 269 loans totaling $402.9 million. As of September 30, 2021, only two borrowing relationships with five loans totaling $23.6 million were continuing to benefit from payment relief. We monitor the financial situation of these clients closely and expect them to resume payments as the economy continues to recover.

Non-accrual loans totaled $8.4 million and $9.2 million at September 30, 2021 and June 30, 2021, or 0.36% and 0.46% of total loans, respectively. Non-accrual loans totaled $1.4 million, or 0.07% of total loans a year ago. Our non-accrual loans at September 30, 2021 and June 30, 2021 included two well-secured owner-occupied commercial real estate loans totaling $7.1 million, which were placed on non-accrual status in fourth quarter of 2020. Classified loans totaled $19.0 million at September 30, 2021, compared to $30.8 million at June 30, 2021 and $11.0 million at September 30, 2020. Classified loans included one $118 thousand loan acquired from ARB with a doubtful risk rating as of September 30, 2021, which is well-secured by real estate collateral. There were no loans classified doubtful at June 30, 2021 or September 30, 2020. Accruing loans past due 30 to 89 days totaled $1.4 million at September 30, 2021, compared to $487 thousand at June 30, 2021 and $318 thousand a year ago.

In the third quarter of 2021, we recorded a provision for credit losses on loans of $1.8 million, compared to a reversal of $920 thousand in the prior quarter and a provision of $1.3 million in the third quarter of 2020. The allowance for credit loss was increased by an additional $1.5 million in the third quarter due to the allowance for purchased credit deteriorated ("PCD") loans, which offset the fair value discount on PCD loans at the merger date. Both the current quarter and prior quarter allowances were calculated under the current expected credit loss methodology. Significant factors contributing to the third quarter 2021 provision were portfolio growth from acquired loans partially offset by an improvement in underlying economic forecasts. The third quarter of 2020 included a $1.3 million provision for credit losses on loans, as determined under the incurred loss methodology, due to adjustments to qualitative factors impacted by the COVID-19 pandemic. There was no provision for credit losses on unfunded commitments in the third quarter of 2021, compared to a $612 thousand reversal in the prior quarter and a $248 thousand provision in the third quarter of 2020.

Net recoveries were $9 thousand in the third quarter of 2021 and $62 thousand in the prior quarter, compared to net charge-offs of $4 thousand in the third quarter a year ago. The ratio of allowance for credit losses to total loans was 0.97% at September 30, 2021, 0.95% at June 30, 2021, and 1.05% at September 30, 2020. Excluding acquired loans for periods prior to the adoption of the current expected credit loss methodology and fully-guaranteed SBA PPP loans for which there are zero expected credit losses, the allowance for credit losses on loans represented 1.04% of total loans as of September 30, 2021, compared to 1.09% and 1.29% as of June 30, 2021 and September 30, 2020, respectively (refer to footnote 4 on page 8 for a discussion of this non-GAAP financial measure).

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were $584.7 million at September 30, 2021, compared to $257.5 million at June 30, 2021. The $327.2 million increase was primarily associated with the $166.1 million in cash and cash equivalents from ARB, SBA PPP loans paid off and an increase in customer deposits, partially offset by investment purchases noted below.

Investments

The investment securities portfolio increased to $1.160 billion at September 30, 2021 from $687.0 million at June 30, 2021. The increase was primarily attributed to $297.8 million in securities acquired from ARB, purchases of $263.9 million, partially offset by maturities, paydowns and calls of $81.2 million and sales of $4.1 million. In addition, the fair value of available-for-sale investment securities decreased by $2.3 million due to the increase in interest rates in the third quarter of 2021.

Deposits

Total deposits were $3.728 billion at September 30, 2021, compared to $2.684 billion at June 30, 2021. The $1.044 billion increase was driven by $807.7 million in deposit balances from ARB, SBA PPP loan forgiveness and other increases in customer deposits. The Bank maintained $179.9 million in off-balance sheet deposits with deposit networks at September 30, 2021, compared to $174.0 million at June 30, 2021. Average cost of deposits decreased slightly to 0.06% in the third quarter of 2021, compared to 0.07% in the prior quarter and 0.09% in the same quarter a year ago. Non-interest bearing deposits were 49% of total deposits as of September 30, 2021, versus 54% as of June 30, 2021 and September 30, 2020, as discussed above.

Earnings

“Though merger-related factors impacted our results, we generated strong core net income, carefully managed ongoing costs and maintained pristine credit quality – all key pillars of Bank of Marin’s steady, reliable performance over our more than 30 years,” said Tani Girton, Executive Vice President and Chief Financial Officer. “Now, with the addition of our American River Bank teammates and new opportunities in the Sacramento market, we are well-positioned for success across Northern California’s key growth markets.”

Net interest income totaled $27.8 million in the third quarter of 2021, compared to $24.5 million in the prior quarter and $24.6 million in the third quarter a year ago. The $3.2 million increase from the prior quarter was primarily attributable to the addition of ARB earning asset balances. We recognized $2.3 million in SBA PPP fees, net of cost in the third quarter of 2021 compared to $2.6 million in the prior quarter, and $1.7 million in the third quarter of 2020.

The $3.2 million increase from the comparative quarter a year ago was reflective of the ARB merger and higher income from SBA PPP loans.

Net interest income totaled $74.3 million in the first nine months of 2021, compared to $73.1 million in the first nine months a year ago. The $1.3 million increase was primarily attributed to the ARB merger and $3.7 million increase in SBA PPP fees, net of costs year-to-date. Increases were partially offset by $1.3 million in accelerated discount accretion from the early redemption of a subordinated debenture in the first quarter of 2021 and lower yielding interest-earning assets. As of September 30, 2021, $4.2 million in PPP fees, net of deferred costs, remain outstanding and will be recognized into income in future periods.

The tax-equivalent net interest margin was 3.15% in the third quarter, 3.37% in the prior quarter, and 3.44% in the third quarter of 2020. The decrease in tax-equivalent margin from prior quarter was primarily attributed to a $262.7 million increase in due from banks interest-earning balances, which lowered the third quarter margin by 24 basis points as these assets only earned a yield of 15 basis points. The decrease in tax-equivalent margin from third quarter of 2020 was primarily attributable to both $271.5 million increase in low yielding due from banks interest-earning balances and the lower interest rate environment. The tax-equivalent net interest margin was 3.23% in the first nine months of 2021 compared to 3.61% in the same period a year ago. The decrease was primarily attributed to a $1.3 million in accelerated discount accretion from the early redemption of a subordinated debenture in the first quarter of 2021, the lower interest rate environment and higher cash balances, partially offset by higher income from PPP loans.

Non-interest income totaled $3.6 million in the third quarter of 2021, compared to $2.0 million in the prior quarter and $1.8 million in the third quarter a year ago. The $1.5 million increase from the prior quarter and $1.8 million increase from the third quarter of 2020 were mostly attributed to the collection of $1.1 million in benefits on bank-owned life insurance policies and increases in fee income from deposit accounts and debit card interchange activity.

Non-interest income increased by $690 thousand to $7.4 million in the first nine months of 2021 from $6.7 million in the first nine months of 2020. The increase was primarily due to BOLI payments noted above, increases in Wealth Management and Trust Services income generated from new accounts and favorable market performance, and fees from deposit accounts and debit card interchange activity. The increase was partially offset by the absence of gains on investment securities, as $915 thousand in gains were recognized in the comparative period a year ago.

Non-interest expense increased by $7.1 million to $22.7 million in the third quarter of 2021 from $15.6 million in the prior quarter. The increase was primarily due to a $4.9 million increase in merger-related one-time and conversion costs (mostly related to professional services, data processing contract termination, and personnel costs), salaries and benefits for retained ARB employees and other ARB-related operating expenses incurred since the merger date. The increase was partially offset by a $458 thousand decrease in charitable contributions as the bank has transitioned to a more defined contributions disbursement schedule with funding occurring in the second and fourth quarters.

Third quarter non-interest expense increased by $7.7 million from $15.0 million in the third quarter of 2020. The increase was primarily due to a $5.1 million increase in merger-related expenses detailed above, partially offset by a $477 thousand decrease in charitable contributions due to both the disbursement schedule change mentioned above and large pandemic-related contributions in 2020.

Non-interest expense increased by $9.4 million to $53.7 million in the first nine months of 2021 compared to $44.2 million in the first nine months of 2020. Higher salaries and related benefits of $5.2 million included $2.7 million in personnel costs related to the merger. The increase in salaries and benefits was also attributed to fewer deferred SBA PPP loan origination costs. Professional services increased by $2.6 million and data processing expenses increased by $815 thousand, mainly due to merger-related expenses. In addition, FDIC deposit insurance expenses were $298 thousand higher. Charitable contributions were lower than 2020 for the reasons mentioned above.

In the second quarter of 2021, we reclassified the allowance for credit losses on unfunded commitments from non-interest expense to a separate line item under net interest income in the consolidated statements of comprehensive income for all periods presented. Efficiency ratios for prior periods were updated to reflect the reclassification.

Share Repurchase Program

The $25.0 million share repurchase program approved by the Bancorp Board of Directors on January 24, 2020 was completed in May 2021. The Board of Directors approved a new share repurchase program on July 16, 2021 under which Bancorp may repurchase up to $25.0 million of its outstanding common stock through July 31, 2023. On October 22, 2021, the Board of Directors approved an amendment that increased the total authorization from $25.0 million to $57.0 million. Bancorp repurchased 445,735 shares totaling $15.9 million in the third quarter of 2021 for a cumulative total of 967,683 shares and $35.2 million in the first nine months of 2021.

Earnings Call and Webcast Information

Bank of Marin Bancorp will present its third quarter earnings call via webcast on Monday, October 25, 2021 at 8:30 a.m. PT/11:30 a.m. ET. Investors will have the opportunity to listen to the webcast online through Bank of Marin’s website at https://www.bankofmarin.com under “Investor Relations.” To listen to the webcast live, 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 the San Francisco Bay Area, with assets of $4.261 billion as of September 30, 2021, Bank of Marin has 31 branches and 8 commercial banking offices located across 10 Northern California counties. Bank of Marin provides commercial banking, personal banking, specialty lending and wealth management and trust services. Specializing in providing legendary service to its customers and investing in its local communities, Bank of Marin has frequently 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, our ability to successfully integrate the acquisition of AMRB and ARB into the Company and Bank, natural disasters (such as wildfires and earthquakes), our borrowers’ actual payment performance as loan deferrals related to the COVID-19 pandemic expire, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance, general economic conditions, economic uncertainty in the United States and abroad, changes in interest rates, deposit flows, real estate values, costs or effects of acquisitions, competition, changes in accounting principles, policies or guidelines, legislation or regulation (including the Tax Cuts & Jobs Act of 2017 and the Coronavirus Aid, Relief and Economic Security Act of 2020, as amended), 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 Bancorp's operations, pricing, products and services. 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.

(BMRC-ER)

 

BANK OF MARIN BANCORP FINANCIAL HIGHLIGHTS

(dollars in thousands, except per share data; unaudited)

September 30,

2021

June 30,

2021

September 30,

2020

Quarter-to-Date

 

 

 

Net income

$

5,282

 

$

9,285

 

$

7,491

 

Diluted earnings per common share

$

0.35

 

$

0.71

 

$

0.55

 

Return on average assets

0.56

%

1.20

%

0.98

%

Return on average equity

4.99

%

10.72

%

8.37

%

Efficiency ratio

72.44

%

58.58

%

56.88

%

Tax-equivalent net interest margin 1

3.15

%

3.37

%

3.44

%

Cost of deposits

0.06

%

0.07

%

0.09

%

Net (recoveries) charge-offs

$

(9

)

$

(62

)

$

4

 

Year-to-Date

 

 

 

Net income

$

23,514

 

 

$

22,125

 

Diluted earnings per common share

$

1.69

 

 

$

1.62

 

Return on average assets

0.96

%

 

1.03

%

Return on average equity

8.40

%

 

8.47

%

Efficiency ratio

65.65

%

 

55.45

%

Tax-equivalent net interest margin 1

3.23

%

 

3.61

%

Cost of deposits

0.07

%

 

0.13

%

Net (recoveries) charge-offs

$

(83

)

 

$

13

 

At Period End

 

 

 

Total assets

$

4,261,062

 

$

3,073,818

 

$

2,975,225

 

Loans:

 

 

 

Commercial and industrial 2

$

377,965

 

$

423,646

 

$

512,973

 

Real estate:

 

 

 

Commercial owner-occupied

398,543

 

296,407

 

299,754

 

Commercial investor-owned

1,157,344

 

967,335

 

966,517

 

Construction

125,060

 

80,841

 

66,663

 

Home equity

92,396

 

92,510

 

107,364

 

Other residential

117,778

 

120,903

 

130,915

 

Installment and other consumer loans

47,933

 

21,125

 

23,805

 

Total loans

$

2,317,019

 

$

2,002,767

 

$

2,107,991

 

Non-performing loans: 3

 

 

 

Real estate:

 

 

 

Commercial owner-occupied

$

7,273

 

$

7,148

 

$

 

Commercial investor-owned

709

 

1,597

 

886

 

Home equity

441

 

445

 

532

 

Installment and other consumer loans

 

 

24

 

Total non-accrual loans

$

8,423

 

$

9,190

 

$

1,442

 

Classified loans (graded substandard and doubtful)

$

18,988

 

$

30,813

 

$

10,999

 

Total accruing loans 30-89 days past due

$

1,354

 

$

487

 

$

318

 

Allowance for credit losses to total loans

0.97

%

0.95

%

1.05

%

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

1.04

%

1.09

%

1.29

%

Allowance for credit losses to non-performing loans

2.66

x

2.08

x

15.34

x

Non-accrual loans to total loans

0.36

%

0.46

%

0.07

%

Total deposits

$

3,727,696

 

$

2,683,575

 

$

2,569,289

 

Loan-to-deposit ratio

62.2

%

74.6

%

82.0

%

Stockholders' equity

$

458,525

 

$

348,649

 

$

357,570

 

Book value per share

$

28.54

 

$

26.71

 

$

26.28

 

Tangible common equity to tangible assets 5

9.1

%

10.4

%

11.0

%

Total risk-based capital ratio - Bank

14.4

%

15.3

%

15.5

%

Total risk-based capital ratio - Bancorp

15.0

%

15.5

%

16.1

%

Full-time equivalent employees

348

 

278

 

291

 

1

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

2

Includes SBA PPP loans of $164.8 million, $248.3 million, and $301.7 million at September 30, 2021, June 30, 2021, and September 30, 2020, respectively.

3

Excludes accruing troubled-debt restructured loans of $3.9 million, $3.3 million and $12.3 million at September 30, June 30, 2021, and September 30, 2020, respectively.

4

The allowance for credit losses to total loans, excluding non-impaired acquired loans and 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. Due to the adoption of CECL on December 31, 2020, all loans previously considered "acquired" are now included in the calculation of the allowance for credit losses. Acquired loans that were not impaired at September 30, 2020 totaled $90.4 million. 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 gain on available for sale securities, net of tax, less goodwill and intangible assets of $79.8 million, $33.6 million and $34.2 million at September 30, 2021, June 30, 2021, and September 30, 2020, respectively. Tangible assets exclude goodwill and intangible assets.

 

BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data; unaudited)

September 30,

2021

June 30,

2021

September 30,

2020

Assets

 

 

 

Cash, cash equivalents and restricted cash

$

584,739

 

$

257,543

 

$

213,584

 

Investment securities

 

 

 

Held-to-maturity, at amortized cost (net of zero allowance for credit losses at September 30, 2021, June 30, 2021 and September 30, 20201)

196,801

 

169,038

 

117,350

 

Available-for-sale (at fair value; amortized cost $952,278, $504,934, and $394,437 at September 30, 2021, June 30, 2021, and September 30, 2020, respectively; net of zero allowance for credit losses at September 30, 2021, June 30, 2021 and September 30, 20201)

963,033

 

517,963

 

413,464

 

Total investment securities

1,159,834

 

687,001

 

530,814

 

Loans, at amortized cost

2,317,019

 

2,002,767

 

2,107,991

 

Allowance for credit losses on loans1

(22,414

)

(19,100

)

(22,113

)

Loans, net of allowance for credit losses on loans

2,294,605

 

1,983,667

 

2,085,878

 

Goodwill

72,754

 

30,140

 

30,140

 

Bank-owned life insurance

61,171

 

45,986

 

43,320

 

Operating lease right-of-use assets

24,776

 

23,506

 

26,041

 

Bank premises and equipment, net

7,807

 

5,248

 

5,266

 

Core deposit intangible

6,998

 

3,423

 

4,045

 

Other real estate owned

800

 

 

 

Interest receivable and other assets

47,578

 

37,304

 

36,137

 

Total assets

$

4,261,062

 

$

3,073,818

 

$

2,975,225

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

Liabilities

 

 

 

Deposits

 

 

 

Non-interest bearing

$

1,837,595

 

$

1,460,076

 

$

1,383,719

 

Interest bearing

 

 

 

Transaction accounts

288,401

 

168,226

 

156,061

 

Savings accounts

336,867

 

230,730

 

192,764

 

Money market accounts

1,124,660

 

729,193

 

738,661

 

Time accounts

140,173

 

95,350

 

98,084

 

Total deposits

3,727,696

 

2,683,575

 

2,569,289

 

Borrowings and other obligations

451

 

438

 

99

 

Subordinated debenture

 

 

2,760

 

Operating lease liabilities

26,637

 

24,919

 

27,527

 

Interest payable and other liabilities

47,753

 

16,237

 

17,980

 

Total liabilities

3,802,537

 

2,725,169

 

2,617,655

 

 

 

 

 

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 - 16,066,889, 13,055,105 and 13,605,363 at Sept 30, 2021, June 30, 2021, and Sept 30, 2020, respectively

217,680

 

108,430

 

129,284

 

Retained earnings

233,997

 

231,841

 

215,976

 

Accumulated other comprehensive income, net of taxes

6,848

 

8,378

 

12,310

 

Total stockholders' equity

458,525

 

348,649

 

357,570

 

Total liabilities and stockholders' equity

$

4,261,062

 

$

3,073,818

 

$

2,975,225

 

1

The September 30, 2021 and June 30, 2021 allowances were calculated under current expected credit loss methodology, while the September 30, 2020 allowance was calculated under incurred loss methodology. Refer to Note 1, Summary of Accounting Policies, in our 2020 Form 10-K for further information on the adoption of ASU 2016-13.

 
BANK OF MARIN BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

Three months ended

 

Nine months ended

(in thousands, except per share amounts; unaudited)

September 30,

2021

 

June 30,

2021

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Interest income

 

 

 

 

 

Interest and fees on loans

$

24,027

 

$

21,429

 

$

21,776

$

66,117

 

$

63,880

 

Interest on investment securities

4,084

 

3,504

 

3,343

10,717

 

11,249

 

Interest on federal funds sold and due from banks

178

 

54

 

50

274

 

421

 

Total interest income

28,289

 

24,987

 

25,169

77,108

 

75,550

 

Interest expense

 

 

 

 

 

Interest on interest-bearing transaction accounts

41

 

39

 

41

119

 

146

 

Interest on savings accounts

26

 

21

 

17

66

 

50

 

Interest on money market accounts

417

 

312

 

377

1,015

 

1,731

 

Interest on time accounts

44

 

81

 

133

221

 

436

 

Interest on borrowings and other obligations

8

 

 

8

 

3

 

Interest on subordinated debenture

 

 

35

1,361

 

124

 

Total interest expense

536

 

453

 

603

2,790

 

2,490

 

Net interest income

27,753

 

24,534

 

24,566

74,318

 

73,060

 

Provision for (reversal of) credit losses on loans

1,800

 

(920

)

1,250

(2,049

)

5,450

 

(Reversal of) provision for credit losses on unfunded loan commitments

 

(612

)

248

(1,202

)

610

 

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

25,953

 

26,066

 

23,068

77,569

 

67,000

 

Non-interest income

 

 

 

 

 

Earnings on bank-owned life insurance, net

1,402

 

233

 

232

1,892

 

741

 

Wealth Management and Trust Services

597

 

530

 

450

1,615

 

1,028

 

Debit card interchange fees

483

 

419

 

383

1,268

 

1,375

 

Service charges on deposit accounts

464

 

317

 

284

1,062

 

1,051

 

Dividends on Federal Home Loan Bank stock

179

 

177

 

149

505

 

503

 

Merchant interchange fees

129

 

61

 

63

247

 

183

 

Gains on sale of investment securities, net

1

 

 

1

 

915

 

Other income

310

 

285

 

229

823

 

927

 

Total non-interest income

3,565

 

2,022

 

1,790

7,413

 

6,723

 

Non-interest expense

 

 

 

 

 

Salaries and related benefits

13,127

 

8,888

 

8,638

31,223

 

25,979

 

Occupancy and equipment

1,871

 

1,751

 

1,776

5,373

 

5,100

 

Professional services

2,472

 

986

 

655

4,321

 

1,749

 

Data processing

1,613

 

820

 

822

3,252

 

2,437

 

Depreciation and amortization

431

 

389

 

539

1,279

 

1,591

 

Information technology

496

 

296

 

256

1,105

 

758

 

Amortization of core deposit intangible

334

 

204

 

213

742

 

639

 

Directors' expense

255

 

230

 

184

660

 

533

 

Federal Deposit Insurance Corporation insurance

236

 

182

 

181

597

 

299

 

Charitable contributions

4

 

462

 

481

497

 

921

 

Other expense

1,847

 

1,348

 

1,245

4,605

 

4,232

 

Total non-interest expense

22,686

 

15,556

 

14,990

53,654

 

44,238

 

Income before provision for income taxes

6,832

 

12,532

 

9,868

31,328

 

29,485

 

Provision for income taxes

1,550

 

3,247

 

2,377

7,814

 

7,360

 

Net income

$

5,282

 

$

9,285

 

$

7,491

$

23,514

 

$

22,125

 

Net income per common share:

 

 

 

 

 

Basic

$

0.35

 

$

0.71

 

$

0.55

$

1.70

 

$

1.64

 

Diluted

$

0.35

 

$

0.71

 

$

0.55

$

1.69

 

$

1.62

 

Weighted average shares:

 

 

 

 

 

Basic

14,922

 

13,092

 

13,539

13,798

 

13,526

 

Diluted

14,993

 

13,164

 

13,610

13,881

 

13,617

 

Comprehensive income (loss):

 

 

 

 

 

Net income

$

5,282

 

$

9,285

 

$

7,491

$

23,514

 

$

22,125

 

Other comprehensive income (loss):

 

 

 

 

 

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

(2,274

)

2,798

 

299

(8,558

)

11,605

 

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

(1

)

 

(1

)

(915

)

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

104

 

138

 

149

385

 

394

 

Other comprehensive income (loss), before tax

(2,171

)

2,936

 

448

(8,174

)

11,084

 

Deferred tax (benefit) expense

(641

)

864

 

132

(2,421

)

3,277

 

Other comprehensive income (loss), net of tax

(1,530

)

2,072

 

316

(5,753

)

7,807

 

Total comprehensive income

$

3,752

 

$

11,357

 

$

7,807

$

17,761

 

$

29,932

 

 

BANK OF MARIN BANCORP

AVERAGE STATEMENTS OF CONDITION AND ANALYSIS OF NET INTEREST INCOME

 

 

Three months ended

 

Three months ended

 

Three months ended

 

September 30, 2021

 

June 30, 2021

 

September 30, 2020

 

 

 

Interest

 

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

 

Average

 

Income/

 

Yield/

 

Average

 

Income/

 

Yield/

 

Average

 

Income/

 

Yield/

(in thousands)

Balance

 

Expense

 

Rate

 

Balance

 

Expense

 

Rate

 

Balance

 

Expense

 

Rate

Assets

 

 

 

 

 

 

 

 

 

Interest-earning deposits with banks 1

$

456,405

$

178

0.15

%

$

193,749

$

54

0.11

%

$

184,883

$

50

0.11

%

Investment securities 2, 3

845,127

4,249

2.01

%

661,361

3,666

2.22

%

527,077

3,481

2.64

%

Loans 1, 3, 4

2,189,563

24,229

4.33

%

2,062,497

21,601

4.14

%

2,117,679

21,957

4.06

%

Total interest-earning assets 1

3,491,095

28,656

3.21

%

2,917,607

25,321

3.43

%

2,829,639

25,488

3.52

%

Cash and non-interest-bearing due from banks

68,680

 

 

39,252

 

 

55,353

 

 

Bank premises and equipment, net

6,468

 

 

4,795

 

 

5,412

 

 

Interest receivable and other assets, net

177,725

 

 

131,667

 

 

138,938

 

 

Total assets

$

3,743,968

 

 

$

3,093,321

 

 

$

3,029,342

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

Interest-bearing transaction accounts

$

237,883

$

41

0.07

%

$

167,787

$

39

0.09

%

$

153,089

$

41

0.11

%

Savings accounts

293,434

26

0.03

%

227,767

21

0.04

%

191,915

17

0.04

%

Money market accounts

911,294

417

0.18

%

735,784

312

0.17

%

802,585

377

0.19

%

Time accounts including CDARS

124,247

44

0.14

%

95,354

81

0.34

%

97,465

133

0.54

%

Borrowings and other obligations 1, 6

3,010

8

1.09

%

61

1.15

%

113

2.51

%

Subordinated debenture 1, 5

%

%

2,751

35

4.97

%

Total interest-bearing liabilities

1,569,868

536

0.14

%

1,226,753

453

0.15

%

1,247,918

603

0.19

%

Demand accounts

1,707,142

 

 

1,478,119

 

 

1,380,708

 

 

Interest payable and other liabilities

46,834

 

 

40,976

 

 

44,486

 

 

Stockholders' equity

420,124

 

 

347,473

 

 

356,230

 

 

Total liabilities & stockholders' equity

$

3,743,968

 

 

$

3,093,321

 

 

$

3,029,342

 

 

Tax-equivalent net interest income/margin 1

 

$

28,120

3.15

%

 

$

24,868

3.37

%

 

$

24,885

3.44

%

Reported net interest income/margin 1

 

$

27,753

3.11

%

 

$

24,534

3.33

%

 

$

24,566

3.40

%

Tax-equivalent net interest rate spread

 

 

3.07

%

 

 

3.28

%

 

 

3.33

%

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

Nine months ended

 

 

September 30, 2021

 

September 30, 2020

 

 

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

 

 

 

 

Average

 

Income/

 

Yield/

 

Average

 

Income/

 

Yield/

(in thousands)

 

 

 

Balance

 

Expense

 

Rate

 

Balance

 

Expense

 

Rate

Assets

 

 

 

 

 

 

 

 

 

Interest-earning deposits with banks 1

 

 

 

$

273,045

$

274

0.13

%

$

152,587

$

421

0.36

%

Investment securities 2, 3

 

 

 

683,600

11,196

2.18

%

544,754

11,632

2.85

%

Loans 1, 3, 4

 

 

 

2,117,631

66,665

4.15

%

1,998,456

64,423

4.24

%

Total interest-earning assets 1

 

 

 

3,074,276

78,135

3.35

%

2,695,797

76,476

3.73

%

Cash and non-interest-bearing due from banks

 

 

 

53,020

 

 

44,665

 

 

Bank premises and equipment, net

 

 

 

5,353

 

 

5,631

 

 

Interest receivable and other assets, net

 

 

 

147,856

 

 

130,525

 

 

Total assets

 

 

 

$

3,280,505

 

 

$

2,876,618

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

Interest-bearing transaction accounts

 

 

 

$

193,502

$

119

0.08

%

$

144,784

$

146

0.13

%

Savings accounts

 

 

 

245,374

66

0.04

%

179,288

50

0.04

%

Money market accounts

 

 

 

784,313

1,015

0.17

%

786,012

1,731

0.29

%

Time accounts including CDARS

 

 

 

105,419

221

0.28

%

96,237

436

0.61

%

Borrowings and other obligations 1, 6

 

 

 

1,047

8

1.10

%

208

3

2.14

%

Subordinated debenture 1, 5

 

 

 

713

1,361

251.54

%

2,733

124

5.96

%

Total interest-bearing liabilities

 

 

 

1,330,368

2,790

0.28

%

1,209,262

2,490

0.27

%

Demand accounts

 

 

 

1,531,564

 

 

1,278,265

 

 

Interest payable and other liabilities

 

 

 

44,128

 

 

40,279

 

 

Stockholders' equity

 

 

 

374,445

 

 

348,812

 

 

Total liabilities & stockholders' equity

 

 

 

$

3,280,505

 

 

$

2,876,618

 

 

Tax-equivalent net interest income/margin 1

 

 

 

 

$

75,345

3.23

%

 

$

73,986

3.61

%

Reported net interest income/margin 1

 

 

 

 

$

74,318

3.19

%

 

$

73,060

3.56

%

Tax-equivalent net interest rate spread

 

 

 

 

 

3.07

%

 

 

3.45

%

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 2021 and 2020.

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.

6

Average balances and rate consider $13.9 million in FHLB borrowings acquired from American River Bank that were redeemed on August 25, 2021.

 

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