NOVATO – Shareholders of the Novato-based Bank of Marin will see a 1-cent increase in their quarterly cash dividend after the bank’s board of directors voted to increase the payment to 17 cents per share on Friday.

The vote came after the bank’s $4.2 million in reported earnings for the third quarter of 2011, up 26 percent from the same quarter last year, according to a release from the bank today. Shareholders holding shares at the close of business Nov. 3 will receive the dividend on Nov. 14.

From January through the end of September, Bank of Marin, the sole subsidiary of Bank of Marin Bancorp, reported earning $12.2 million, up 26 percent from the same period in 2010.

Those earnings included the impact of the FDIC-assisted absorption of certain assets and liabilities from the former Charter Oak Bank in Napa in February. The acquisition has accounted for approximately $1.6 million of the bank’s pre-tax income in Q3, and $4 million of the income through September 2011.

“We are pleased to report strong earnings this quarter driven by high credit quality and the Napa acquisition,” said Russell Colombo, chief executive officer of the bank.

Diluted earnings per share from Jan. 1 through the end of Q3 were $2.26, up 44 cents from the previous year. For the quarter, diluted earnings per share rose 16 cents, to $0.79

Non-performing loans as of Sept. 30 represented 1.08 percent of total loans, down from 1.13 percent one year ago. The bank’s loan loss provision for the quarter has dropped by $2.5 million from the prior quarter and $900,000 from one year ago, to $500,000.

The decrease in the provision is due to fewer new loans requiring a reserve and a decrease in construction loans, which require a large reserve. Chief Credit Officer Kevin Coonan said that Bank of Marin has made a conscious effort to shrink their construction portfolio over the past two years and that demand has also slowed down in the region.

Total loans at the bank reached $992.6 million at the end of the quarter, a 5.8 percent increase over the same point last year. Bank of Marin attributed much of the increase to the purchase of $61.8 million in loan assets from the former Charter Oak Bank this year. From the end of Q2 on June 30, loans grew by $6 million, or 0.6 percent, an increase that the bank said was primarily due to new relationships.

Deposits have increased by 3.3 percent over the last quarter, or $37.6 million, with non-interest bearing deposits growing 7.9 percent. Non-interest bearing deposits accounted for 31.8 percent of deposits at the end of Q3, compared to 30.4 percent at the end of Q2. Total deposits have increased by $153.2 million—15 percent—since one year ago, to $1.2 billion.

Citing low interest rates and excess liquidity, the bank paid off a $20 million fixed-rate advance from the Federal Home Loan Bank of San Francisco at 2.54 percent.

Non-interest expenses increased by 10.7 percent in Q3 versus Q2, to $9.4 million. The bank cited higher personnel and equipment costs related to their expansion and data processing associated with the acquisition of Charter Oak.

Bank of Marin opened its seventeenth full-service branch this month in Sonoma, which generated $1.8 million in deposits and $2.4 million in loans before opening due to business development efforts. It is the third location opened this year after the assumption of duties for Charter Oak and a new branch in Santa Rosa.

The bank reported $1.4 billion in assets at the end of Q3 2011.