Bank of Marin 1Q earnings up 42%

The parent company of Bank of Marin on Monday reported first-quarter earnings increased 42 percent from a year before, thanks to a bump from the new federal tax law and combined earning assets after the Bank of Napa acquisition.

Bank of Marin Bancorp (Nasdaq: BMRC) reported net income of $6.39 million, or diluted earnings per share of 91 cents, for the quarter ended March 31, up from $4.55 million and 74 cents a share from the same period in 2017.

Net interest income increased 24.4 percent from $17.6 million for the same quarter last year. The bank attributed that primarily to a $390.5 million increase in earning assets from both the Bank of Napa acquisition and organic growth. The Bank of Napa acquisition deal was inked in mid-2017 and closed by year-end. The integration of the two institutions was completed Sunday.

Though interest rates have been low for years, the bank has been faring well, according to Russell Colombo, president and CEO.

“We benefit because we’re asset-sensitive,” he told the Business Journal.

Low rates can mean a better spread between the costs of deposits versus revenue from loans. That margin increased by 11 basis points for the bank in the first quarter, which Colombo called “really good.” That spread is being helped by greater returns for the bank from the higher rates on its portfolios of loans, cash and securities.

The relationship-banking model and focus on business services have helped with deposit costs. About 49 percent of deposits are demand accounts such as checking, and the largest among those are for businesses, according to Tani Girton, chief financial officer. Firms such as construction companies, advertising agencies and manufacturers bid on projects, get contracts funded then disperse money to fulfill orders.

“Those are attractive, because money typically sits in demand accounts,” Girton said. “We try to build relationships.”

While increasing rates are allowing Bank of Marin to price higher short-term borrowing such as lines of credit, there is still a lot of competition on longer-term term financing - three-, five- or seven-year fixed-rate loans - so rates on that haven’t moved up much, Colombo said.

“Banks are looking for growth in their assets with loans, and competition remains strong,” he said.

The increase in interest rates doesn’t appear to have slowed demand for loans overall, said Jim Kimball, chief operating officer.

Two areas of active lending activity for the bank in the first quarter were Oakland and Napa, Colombo said. “We’re seeing increased opportunities with the former Bank of Napa, because they were limited with their lending limits,” he said.

Bank of Napa’s lending cap tended to be $5 million, while Bank of Marin’s is $50 million, with the largest current loans in the $20 million–$30 million range.

“That opens opportunities with existing clients,” Colombo said.

The Novato-based institution also announced Monday it will buy back up to $25 million in common stock through May 1 and pay a larger dividend.

“We have very high capital levels, so this speaks to that, it drives capital levels down, so our returns on equity are better,” Colombo said. “We found on the M&A side, as we talked to banks that have completed acquisitions like Bank of Napa, those were all stock. So you don’t need to keep the dry powder when you have a stock acquisition.”

It is estimated that it will take the bank five quarters to earn back the $25 million, Colombo said.

Bank of Marin Bancorp’s board of directors on April 20 declared its 52nd consecutive quarterly dividend. The cash dividend will be 31 cents per share, up 2 cents a share from the fourth quarter, to be paid May 11 to shareholders of record as of May 4.?Founded in 1989, Bank of Marin has assets of $2.5 billion and 23 offices in San Francisco, Marin, Napa, Sonoma and Alameda counties.

The closing price of Bank of Marin stock was $75.50 on Tuesday, up 3.0 percent from $73.30 on Monday and 8.3 percent from $69.65 on Friday.

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