Bank of Marin Q2 earnings drop by over half on higher interest costs

Continuing to combat challenges associated with an environment punctuated by high interest rates and bank failures in the Bay Area, Bank of Marin’s parent company (Nasdaq: BMRC) Monday reported second-quarter earnings were half of what they were in the previous three-month period.

Net income came in at $4.55 million for the period ending June 30, down 51.8% from $9.44 million in the prior quarter and 58.9% from $11.07 million in mid-2022.

The half-year tally amounted to $13.99 million, compared with $21.53 million in the first half of 2022. This was a year dominated by the closing of its $124 million acquisition of American River Bank in 2021.

The buyout traded the costs associated with the acquisition for the Novato-based financial institution’s introduction to the Central Valley region. And, Bank of Marin saved $470,000 by closing four branches as part of cost-saving efforts.

For this half year, Bank of Marin President and CEO Tim Myers assured attendees on an investor relations virtual conference call July 24 with Chief Financial Officer Tani Girton that the banking challenges have predictably reached “the trough” or the low point.

Plus, bank executives have already taken steps to return to normal levels for its major financial balance-sheet barometers.

“We believe this is temporary in nature,” Myers told those on the call.

He pointed to an “economic environment (that) presents elevated uncertainty” as the culprit. Plus, “higher interest rates and market disruptions have impacted both our funding costs and lending activity,” he added.

Total loan balances recorded for the second quarter came in as $2.1 billion, a decrease of $9.5 million from the first quarter.

Along with sticking to its core values centering on “relationship banking,” (which amounts to an upfront presence from a customer’s banker), these steps range from finding new lending opportunities to hiring more personnel, Myers told the Business Journal after the virtual conference call. The number of people and employment costs are unknown at this time.

Like most banks, Bank of Marin Bancorp witnessed a unique set of hurdles when it completed the first quarter a few weeks after the failing Silicon Valley Bank in Santa Clara was taken over by the Federal Deposit Insurance Corporation. The drastic action followed a catastrophic bank run when it became clear it could not cover the deposit outflows.

The ripple effect was far-reaching and consequently spelled trouble for Signature Bank of New York and First Republic Bank based in San Francisco with branches in the North Bay.

In addition to the plummet in net income from quarter to quarter, net interest income declined to $24.13 million for the last quarter. That figure — constituting the difference between the revenue generated by interest-bearing accounts and the costs of servicing liabilities — was down from $29.89 million from the quarter ending in March 31.

Non-interest income, derived by the collective of fees, also showed a drop from $2.93 million to $2.73 million from the first quarter to the second.

There are bright spots, the banking executives shared.

Despite a predicted drop when the government’s pandemic-driven stimulus money dried up, deposits are climbing back, totaling $3.32 billion by June 30, an increase from the first quarter’s $3.25 billion. Deposits wrapped up that quarter also down from the completion of 2022 because of the absence of stimulus.

And even within the sliver of the third quarter, deposits have grown $116 million between June 30 and July 18, Girton dictated.

“Going forward, we’re carefully managing deposit pricing and continuing to have close contact with our customers (to find) compelling lending activity,” Myers told callers.

The bank is eyeing investments in “non-owner occupied” property loans, since the still lucrative real estate market has shown little sign of falling, despite a few ebbs and flows relative to inventory.

Bank of Marin remains steadfast at examining accounts with investments showing “strong credit risk” profiles. Otherwise, it doesn’t pay to welcome and fund risky business ventures, bank officials emphasized.

How do you strike that balance of seeking new lending opportunities while not taking a risk in a competitive environment?

“That is the challenge. It’s whether they fit our standards at a (suitable) rate of growth while demand is muted in this interest rate environment. We just have to look harder,” Myers said.

Assets dipped to $4.11 billion for the second quarter, down from $4.13 billion on March 31 and $4.32 billion at the end of 2022.

Founded in 1990, Bank of Marin has 27 retail branches and eight commercial banking offices spanning 10 counties. It plans to pay a cash dividend of 25 cents per share on Aug. 11.

Susan Wood covers law, cannabis, production, tech, energy, transportation, agriculture as well as banking and finance. She can be reached at 530-545-8662 or susan.wood@busjrnl.com