Bank of Marin earnings dip as new loans help offset payoffs

NOVATO - Bank of Marin Bancorp (NASDAQ: BMRC) reported Monday that the bank’s first-quarter earnings dipped 4 percent from the fourth quarter, partly because commercial real estate owners paid off loans, but were on par with results from a year before.

First-quarter 2015 earnings were $14.5 million, down from $14.7 million in the last quarter of 2014.

Total loans were $1.35 billion at the end of last month, down slightly from $1.36 billion at the end of December. Nearly $40 million of loans were paid off during the quarter, as commercial real estate owners sold properties to take advantage of high market valuations, according to Russell Colombo, CEO and president. In the same quarter, serving to offset loan losses due to property sales, the bank made new loans of nearly $30 million.

“That’s exactly the problem,” Colombo said Monday morning. “Everything else is going really well. We had $30 million of new loan volume.”

Property prices are being driven up substantially because of the high-technology boom in the bank’s key markets, particularly Marin County, San Francisco and the East Bay, he said. As a result, property values have soared, providing owners with an ideal selling opportunity at what could be the top of the commercial real estate market cycle.

While selling is a sign of optimism in the real estate market, it poses challenges to the bank in replacing the loans that are paid off when property sells.

“It’s filtering over to Marin and the East Bay,” Colombo said of the real estate selling flurry. “Cap rates are being driven down, and prices are going up.”

In real estate, the capitalization rate is a ratio of net operating income to property value. As the value rises, the cap rate declines.

“If you’re an investor with commercial real estate, and cap rates are getting down to 4 percent, it’s a time when you might say, hmmm, maybe I should take a little money off the table here,” Colombo said. “That’s what’s going on.

“There’s not a heck of a lot you can do, except run really hard,” he said. That means bringing in new loan volume to replace what is lost due to the sales. “Long-term, we are doing most things right,” including “generating new loan volume.”

Last year, the bank originated $180 million in new loans but had $90 million in payoffs. So half of the new business creation disappeared.

Most commercial real estate owners who paid off loans at Bank of Marin will stay on as customers and take out new loans as they acquire new properties, Colombo said.

“Hopefully they’ll have cash and they’ll want to reinvest in something else, and we’ll finance that,” he said. He encourages his 30 loan officers to maintain close contact with such long-term customers.

Bank of Marin, with headquarters in Novato, has assets of $1.8 billion. Founded in 1989, is is the sole subsidiary of Bank of Marin Bancorp, and has 21 offices in Marin, Napa, Sonoma, San Francisco and Alameda counties.

Colombo is a lifelong resident of Marin County who joined Bank of Marin in 2004 then assumed the position of president and CEO in 2006.

The bancorp’s diluted earnings per share in the first quarter were 74 cents, down from 78 cents last quarter and 76 cents a year prior.

On April 17, the board of directors declared a quarterly cash dividend of 22 cents per share, payable on May 8 to shareholders of record at the close of business on May 1.

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