NOVATO -- Quarterly earnings were lower at Bank of Marin for the three-month period ended June 30 as the bank set aside additional capital as a provision for potential losses from a 2005 land development loan and paid a number of one-time expenses related to new hires and a recently announced acquisition, according to an announcement and executives from the bank.
Bank of Marin Bancorp (NASDAQ: BMRC) announced second-quarter income of $3.1 million, compared to $4.9 million in the prior quarter and $5 million in the second quarter of 2012. Those earnings were equivalent to 55 cents per diluted share, compared to 89 cents in the prior quarter and 91 cents one year ago.
"We continue to have confidence in the strength of our overall credit portfolio. The substantial reserve that we booked this quarter relating to one loan is an isolated situation and is not a reflection of the portfolio quality overall," said Russell Colombo, president and CEO.
The bank set aside $1.1 million as a provision for loan losses in the quarter, largely due to the $4.8 million land development loan. The loan -- by a Marin County-based developer and for a parcel outside of Marin -- had entered and exited escrow three separate times since 2005 amid a tumultuous climate for real estate and construction, Mr. Colombo said. An appraisal in May found a decline in the collateral value, requiring a new reserve.
While the bank expects to fully recoup the cost of the loan, Mr. Colombo called the heightened reserve "prudent." It is the largest development loan that remains on the bank's books since the period before the economic recession, he said. Last year, the bank also boosted its reserve connected to a $4.2 commercial real estate loan that went into foreclosure in the third quarter.
The bank had reversed its provision for loan losses in the prior quarter to a positive $230,000, and had a provision of $100,000 as of June 30 last year.
The bank saw its loan portfolio increase by 1.8 percent over the prior quarter and 6.5 percent over the prior 12 months, largely due to new commercial real estate loans from current and new relationships in Marin, according to the announcement. The bank had a total of $1.1 billion in gross loans, up $100 million from the same period in 2012.
Loans classified as higher risk totaled $27.6 million at the end of the quarter, compared to $31.1 million in the prior quarter and $55.5 million one year ago. Non-performing loans were $18.5 million, up from $15.3 million in the prior quarter and largely attributable to the $4.8 land development loan.
Bank of Marin had $1.2 billion in deposits, largely flat for the prior year. Nearly 41 percent of those deposits were non-interest bearing, primarily due to the discontinuation of a type of interest-bearing consumer account in the first quarter of 2013.
The bank's tax-equivalent net interest margin, describing its margin for interest income versus its costs, was 4.3 percent for the quarter, compared to 4.48 percent in the prior quarter and 4.94 one year ago. The decline was largely due to an early redemption of a municipal security, a general low-interest-rate environment and the lower yields on loans acquired during the 2011 acquisition of Napa's Charter Oak Bank.
[caption id="attachment_19547" align="alignright" width="108"] Beth Reizman[/caption]