Bank of Marin first-quarter earnings drop 20% as it expands to Healdsburg

Bank of Marin’s first-quarter 2017 earnings dipped 20 percent to $4.5 million, down from $5.6 million in the first quarter of 2016 and from $5.7 million in the last quarter of 2016. By late summer Bank of Marin will open a new branch in the northern part of Healdsburg, a town with population of about 12,000.

The bank had net interest income of $17.6 million in the first quarter, $355,000 lower than in the previous quarter and more than $1 million lower than in the first quarter of 2016. The decline was due in part to absence of gains on payoffs of credit-impaired loans. A significant increase in earnings for 2016 resulted from resolution of one problem commercial real estate credit that added $1.4 million of interest recovery in the third quarter and brought a nearly $1.6 million reversal of the provision for loan losses.

A commercial real-estate loan of $1.1 million was placed on non-accrual basis during the first quarter. This and another $9.6 million customer portfolio were downgraded to substandard during the quarter, increasing classified loans to $30.2 million at the end of the first quarter. A classified loan has unpaid interest and principal outstanding.

The Novato-based bank (NASDAQ: BMRC) on April 24 reported diluted earnings per share in the fourth quarter at 74 cents, down from 93 cents in the fourth quarter of 2016. A cash dividend of 27 cents a share will be paid on May 12 to shareholders of record on May 5.

The new Healdsburg location will bring the bank’s total branch number to 21, and is the first new branch since Bank of Marin acquired Bank of Alameda in 2013. The location can be disclosed when the branch is approved by the Federal Deposit Insurance Corporation.

The bank signed a five-year lease on a temporary branch location with a clause that allows the lease to be broken before five years if a better branch location is found, according to Russell Colombo, CEO and president. No expenses for the Healdsburg branch were included in first-quarter earnings.

“It’s a temporary location,” Colombo said. “We have another location we are eyeing - a buildout of a new facility. We expect we’ll have a really nice facility in the future.”

Several other local banks already have branches in Healdsburg, including three on Vine Street south of the town plaza: Wells Fargo, Exchange Bank and Summit State Bank. Bank of the West has a branch on Center Street north of the plaza. Westamerica also has a branch in Healdsburg, as do Community First Credit Union and North Bay Credit Union (formerly Sonoma County Grange Credit Union). “That’s pretty congested where they all are,” Colombo said. “The north part of town may be a better location.” The branch will seek commercial customers in the wine industry.

Bank of Marin has five branches in Sonoma County, with three in Petaluma, one in Santa Rosa and one in Sonoma. The Healdsburg branch will become the sixth. The bank has 10 branches in Marin County, and seeks to add two more in Sonoma County, likely in Santa Rosa, where it has one branch downtown at 50 Santa Rosa Ave.

The manager of the Healdsburg branch, who lives near the new branch, will transfer from the Sonoma branch. Healdsburg’s branch will have three employees, bringing the total full-time-equivalent staffing to 265.

The bank’s average branch is about 2,500 square feet. The biggest branch at nearly 3,500 square feet is in Alameda South Shore Center, a huge waterfront shopping district. In about a month, “we’re going to move to 2,500 square feet” in the same shopping center, Colombo said, reducing the monthly lease amount. The move opportunity resulted from remodeling projects in the shopping center. The branch was acquired in a December 2013 merger with Bank of Alameda. In that merger, Bank of Marin acquired $170 million worth of loans along with $230 million in deposits.

The smallest branch of Bank of Marin is in Tiburon, with about 1,475 square feet. The Corte Madera branch has 2,200 square feet and is the largest in terms of deposits.

The bank also expects to add another loan-production office for commercial banking in the East Bay, Colombo said. The location will likely follow the hiring of key people to serve a particular market, he said. “We are going to find the people. Then we will find the location,” Colombo said, possibly Walnut Creek or Lafayette in the Diablo Valley.

Bank of Marin also has one branch in Napa and one in San Francisco.

Due to extremely high valuations, the San Francisco real estate market includes many properties purchased by tenants-in-common, requiring fractionated loans with multiple buyers on one property. Bank of Marin is one of very few banks that originate tenants-in-common loans, and increased its portfolio in this niche market about $8 million in the first quarter to a total of about $60 million.

In a dozen years serving this part of the San Francisco market, the bank had no loan defaults. “It’s a nice market,” Colombo said. “We do a fair amount of business there. There is a need. We have had excellent credit results. They don’t have those in the Bay Area other than San Francisco.”

The bank has a favorable deposit base in that nearly 45 percent of its deposits are non-interest-bearing demand deposits. “That is a huge benefit we have over our competitors,” Colombo said. “When rates rise, our costs don’t rise equally.”

Bank of Marin has total assets of $2 billion. Founded in 1989 and with headquarters in Novato, Bank of Marin is the sole subsidiary of Bank of Marin Bancorp.

James Dunn covers technology, biotech, law, the food industry, and banking and finance. Reach him at: james.dunn@busjrnl.com or 707-521-4257