Bank of Marin Bancorp(BMRC)Q2 2026 法說會逐字稿

Good morning and thank you for joining Bank of Marin Bancorp Earnings Call for the Second Quarter Ended June 30, 2026. I am Krissy Meyer, Corporate Secretary for Bank of Marin Bancorp. During the presentation, all participants will be in a listen-only mode. After the call, we will conduct a question-and-answer session. Joining us on the call today are Bank of Marin President and CEO, Timothy D. Myers and Chief Financial Officer, David Bonaccorso. Our earnings news release and supplementary presentation which were issued this morning can be found in the Investor Relations section of our website at bankofmarin.com, where this call is also being webcast. Closed captioning is available during the live webcast as well as on the webcast replay. Before we get started, I want to note that we will be discussing some non-GAAP financial measures. Please refer to the reconciliation table in our earnings news release for both GAAP and non-GAAP measures. Additionally, the discussion on the call is based on information we knew as of Friday, July 24, 2026, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion on these risks and uncertainties please review the forward-looking statements disclosure in our earnings news release as well as our SEC filings. Following our prepared remarks, Timothy, David and our Chief Credit Officer, Misako Stewart, will be available to answer your questions. And now I would like to turn the call over to Timothy D. Myers.

Thank you, Krissy. Good morning, everyone, and welcome to our quarterly earnings call. Our second quarter results reflected another quarter of improving financial performance, increasing profitability, and enhanced earnings power for Bank of Marin Bancorp. We expanded net interest margin, reduced funding costs, improved operating profitability, further reduced credit risk, and strengthened capital all while continuing to build the client relationships and platform that support long-term sustainable growth. As a result of our efforts, net income and earnings per share nearly doubled compared to the second quarter of 2025. Our tax-equivalent net interest margin expanded 14 basis points to 3.38% reflecting improved loan yields, targeted deposit rate cuts, and disciplined balance sheet management. These results demonstrate that the platform we have been building is translating into improved profitability and increasing operating leverage. We are now focused on translating improving loan production, relationship growth, disciplined deposit management, and continued proactive credit management into durable earnings power over time. During the quarter, we originated $98 million in new loan commitments of which $63 million funded, a 24% increase over the prior year's period. This reflects the continued efforts of our commercial banking team and our focus on relationship-driven growth across existing and newer markets, including the Greater Sacramento area. To support this momentum, we continue to invest in talent in key markets, adding a regional manager to oversee our East Bay commercial banking offices and expanding our commercial banking team in San Francisco. At the same time, period-end loan balances declined modestly in the quarter to $2.1 billion due primarily to elevated payoff activity, including the planned exit of a $19 million criticized relationship. While this payout was an important de-risking action, it offset positive production trends. Importantly, the yield profile of new production remains attractive, and we believe this healthy production, continued relationship development, and disciplined underwriting will continue to translate into sustainable balance sheet growth over time. Credit quality continued to improve as special mention loans declined meaningfully following the planned exit of the previously mentioned $19 million relationship. Non-accrual loans declined from 0.41% of total loans to 0.40%. Net charge-offs were minimal and we recorded a $320 thousand reversal of provisions for credit losses. Our allowance for credit losses remains stable and sufficient at 1.07% of total loans. On deposits, total balances declined by $58.2 million in the second quarter. The decrease was primarily attributable to a small number of relationships and reflected seasonal customer activity and investment policy decisions rather than any underlying shift in deposit trends. Deposits remain near their strongest levels in recent years and were up nearly 4% from the prior year quarter. While deposit pricing and structure remain competitive, our balanced approach to relationship management and our focused outreach to customers seeking alternative banking solutions continue to generate strong new client activity. We added nearly 1,000 new accounts during the quarter, of which 41% came from new relationships. Our relationship banking approach combined with disciplined pricing enabled us to reduce our average cost of total deposits to 1.28% in the quarter. Overall, the second quarter showed that we are building momentum across the areas that matter most: stronger earnings, a wider margin, reduced credit risk, and a stronger capital base. With that, I will turn the call over to David Bonaccorso to discuss our financial results in more detail.

Thanks, Timothy. Good morning, everyone. Our second quarter net income was $9.2 million or $0.58 per share compared with prior quarter net income of $8.5 million or $0.53 per share. Return on average assets increased to 0.96%. Return on average tangible common equity grew to 11.6%. And our efficiency ratio improved to 63.6%. Our net interest income increased from the prior quarter to $30.8 million driven by higher interest income on loans due to an increase in yields and lower interest expense on deposits. Our yield on new loan fundings increased to 6.53% during the second quarter, which was a 62 basis point improvement over the prior quarter. We continued to make targeted cuts in deposit rates, which resulted in a 7 basis point decline in our quarterly cost of deposits and a 3 basis point decline in our spot cost of deposits from March 31 to June 30, 2026. Our non-interest income was down by $665 thousand in the quarter, almost all of which was attributable to a decrease in dividend income on FHLB stock, including a special dividend, as well as BOLI death benefits received in the first quarter that were not repeated in the second. Setting aside these special items, non-interest income increased by $293 thousand, a portion of which is attributable to fees earned on one-way sales of deposits as part of our active balance sheet management strategy. In addition to growing non-interest income, these one-way sales lowered our quarterly cost of deposits and contributed to our 14 basis point expansion in net interest margin. As we expected, our non-interest expense improved by $942 thousand in the second quarter, following last quarter's elevated seasonal levels in salaries and related benefits as well as charitable contributions. For the second half of 2026, we expect non-interest expense to continue near the first half of 2026 pace as we invest in people and technology, which we believe will fuel our growth and ultimately drive shareholder returns. As Tim mentioned, we recorded a reversal of the provision for credit losses on loans of $320 thousand during the quarter, and our allowance for credit losses remained stable at 1.07% of total loans. We strengthened our capital position during the quarter. Our tangible common equity ratio increased 19 basis points to 8.52%, and our total capital ratio increased 32 basis points to 15.58%. Our Tier 1 leverage ratio increased 43 basis points to 8.66%, and our tangible book value per share increased $0.15 to $19.92. Given this continued strength, our Board of Directors declared a cash dividend of $0.25 per share on July 23, the 85th consecutive quarterly dividend paid by the company. With that, I will turn it back over to Timothy for closing comments.

Thank you, David. To close, the second quarter was another quarter in which Bank of Marin materially advanced our strategic focus areas: improving profitability, expanding margin, reducing balance sheet risk, strengthening capital, and continuing to build new client relationships. Our work over the past several quarters has created a stronger earnings trajectory and reduced risk. We are now focused on translating improved loan and deposit trends and relationship growth into a more optimized balance sheet to continue driving operating leverage and shareholder returns. We believe our success this quarter provides encouraging evidence across each of those areas. With that, I want to thank everyone on today's call for your interest and support and we will now open the call to your questions.

If you would like to ask a question, please click on the raise hand button at the bottom of your screen. Once prompted, please unmute your line and ask your question. We will now pause a moment to assemble the queue. Our first question will come from David Feaster with Raymond James.

Hi. Good morning, everybody. Good morning, David. How are you? I wanted to start on the loan side. Exclusive of the wine loan runoff, loans were pretty stable quarter over quarter. You talked about increasing production. How do you think about and also, in the slide deck, you talk about pipeline. Sounds like pipelines have actually improved pretty well as well. I am just curious if you could elaborate a bit on the strategy to increase production and drive accelerating loan growth, the pipeline growth that you are seeing there and the composition, and just again, how you think about loan growth as we look forward?

Thank you. A lot of that has been driven by the new hires we made over the last year or so, and we continue to be opportunistic. During the quarter, we hired a team of three people in San Francisco and a new leader for our East Bay market. If you look at a map and where the production's come from, those areas, which historically have been some of our better producers, have fallen off. A lot of it is keeping doing what we do right and improving what we are not doing right, which is getting more pistons firing at one time. Part of that is hiring-driven. I would say the mix looks very similar, although we continue to have an increased focus on C&I. I do not want to say we have hired exclusively to do that, but some of the hires should accelerate that. If you look at the outstandings plus commitments year to date through June, we are almost double what we were last year. Certain industries are not heavy borrowers, but those bring non-interest-bearing deposits and treasury management fee income. We will continue to attack all those angles. There is no immediate business line outside of being industry agnostic. We will continue through hiring to look for opportunities where there are verticals to take advantage of. It really is blocking and tackling of calling activity, building a pipeline, a smoother, more efficient process internally to close in a timely manner, get commitments and then close, and just managing the entire process better. Over the last year and a half, that is what we have gotten much better at. We will continue to hire into that and get more out of the folks that have been here for a while to drive totals higher.

Okay. So it sounds like there is a pretty high degree of confidence that productivity and production are going to continue to increase. There has been a lot of disruption across your footprint when you talk about where you are seeing productivity. I am curious, have you seen any opportunities to capitalize on that yet, or is it still to come? And then just appetite for continued hiring coming out of that, potential client acquisition, and when do you think that could all start to manifest?

The timing is hard, so I will answer in reverse order. All four of the hires I mentioned came out of some degree of disruption. With hires tend to come opportunities, and we are being opportunistic, hire people, and take advantage of what they bring. Without giving many specifics, that is exactly what we are doing.

Okay. And maybe let's shift gears to deposits. Could you just talk about the competitive landscape for funding and your ability to continue to defend your deposit franchise, because your deposit base is phenomenal. Also with the one-way sales, other deposit sales that you had and some of the seasonality, how do you think about utilizing the deposit networks that you are a part of? How do you think about core deposit growth going forward and the competitive landscape for funding today?

I will start at the back end and then refer to David on how he manages the networks. He has done a great job taking advantage of the benefits that provides as a big arrow in our quiver. Our deposit franchise is outstanding, as you noted, and nothing about it changed. The decline was due to a number of big customers with fairly big seasonal inflows and outflows that do not always match the calendar. We had one customer with a $74 million outflow in the quarter; they continue to open accounts and move money in, but that moves the total needle. A couple of other instances were people with investment policies or government-funded activities who look for other investment opportunities with a higher rate than we are willing to provide, but we maintain all the operating business. Most of it falls into that. Obviously, there is some tax outflow in the quarter, but nothing of note of people leaving the bank. We will continue to see that degree of volatility—money moving in and out. None of this signifies anything as long as we continue to add many new accounts and relationships, build granularity, which you see with the number of new accounts opened every quarter. With the greater focus on C&I effort, that will bring more non-interest-bearing balances, related treasury management fees, and continue that path. It is a very active sport for us. We mentioned targeted rate cuts—we do not just move rack rates up and down; we figure out where we can do it to have the best and least impact on the bank. Sorry, I have a cold.

On one-way sales in general, we are always looking to actively manage the balance sheet. Use of one-way sales has persisted for a few quarters now and was a little bit larger this quarter. Part of that is to manage expected deposit volatility, but it is also a risk management tool that gives us balance sheet flexibility. We have a securities portfolio that is 100% available-for-sale now. By shrinking the balance sheet rather than keeping it the same size, we are avoiding additional AOCI risk if we purchase securities. In a NIM calculation, one-way sales reduce our excess cash, a relatively low-yielding asset, and move relatively high-cost deposits off the balance sheet. The numerator of the NIM calculation gets more efficient while the denominator reduces earning assets, which also benefits ROA and leverage ratio over time. Overall, we like the strategy. It was a little bit larger this quarter and is something we think we can persist.

Thanks, everybody.

Your next question will come from Jeff Rulis with D.A. Davidson.

Maybe, David, just staying on that margin, appreciate the commentary. It reaccelerated higher and sounded like it was a little bit on the high side. If you could just tell us about future momentum with the margin and where you see that? And if you could, did you have a June average for the month? Thanks.

A 14-basis-point improvement on a quarterly basis is a pretty high bar, but there are reasons why a major portion of that can persist. It is probably harder to reduce deposit rates than it was months ago, which is good, and we continue to have benefits from repricing the CD portfolio. The bigger opportunity is on the loan side. We had a large increase in our loan yield in the quarter, up eight basis points. The yield on new funded loans was significantly higher than last quarter, and those were on the books for only a partial quarter, so that provides a tailwind. Our June loan yield was 5.18%, which is an exit level to consider. We continue our typical ALM run and still think we are looking at about 20 basis points or so of monthly loan yield benefit a year from now. Unfunded construction commitments are up a little and have not drawn yet; those tend to be relatively high yielding loans and could be a tailwind. Tax-equivalent NIM for June was 3.51%, which included a relatively high level of one-way sale benefit. A more normalized level of one-way sales would be closer to 3.44%–3.45%, which is a good proxy for where we are.

Thank you. And Timothy, if I could ask you about capital priorities as those levels continue to build and you see where the dividend is—layering in repurchase opportunity versus any M&A—helpful to revisit?

I do want to touch on something David said and that will also answer part of your question. We are starting to see a revival of our construction lending activity, particularly condo and single-family infill projects in San Francisco and nearby areas. Production had fallen off for a couple of years for obvious reasons and we are seeing that come back to life. That was a big contributor to outstanding balances growth year over year. Construction is a higher-yielding loan for us with excellent credit quality, and it should help both balances and yield. Those projects are just kicking off so we will not see payoffs and project completion for a while. On capital priorities, we were making some small purchases when our tangible book value was trading below or near tangible book and we still have about $24 million approved. We are awaiting approval from the California regulator on shareholder dividend considerations tied to their calculation of what is permitted because of losses taken on balance sheet restructurings; that could require us to ask for permission. We worked with them to execute the large held-to-maturity trade and manage capital back up toward peer median to give them comfort. We continue to build through improved earnings and will start those conversations, but I would not call any buybacks imminent for that reason. M&A remains a priority over episodic buybacks if there is something that provides attractive franchise value enhancement, but there is nothing imminent or in the works.

Next question will come from Woody Lay with KBW.

Hey, thanks for taking my questions. Wanted to start on loan yields and follow-up there. It sounded like new loan rates are coming at higher yields quarter over quarter. Any incremental color you could provide there? And maybe if you also had any color on the loan payoffs you saw in the quarter?

Payoffs: the yield on payoffs for the quarter was 5.86%.

So it was 6.53% on new originations and 5.86% on payoffs. And were there any one-time interest recoveries that flowed through loan yields, or was it very small?

It was on the order of $35,000 to $40,000 for the quarter. Very small.

We have been very disciplined at funding quality loans, aiming close to 200 basis points over a relevant index. Sometimes we get more, sometimes less, but we try not to get into a race to the bottom on aggressively structured fixed-rate pricing. A higher proportion of C&I and construction is helping yield.

Could you talk about the competition you are seeing and how that is impacting pricing or structure? It feels like a major theme this earnings season has been competition.

We are seeing aggressive pricing. We are walking away from deals priced at 150 over and similar levels. We are seeing more deals with nonrecourse requests and we are being very conscious of those structures.

Maybe one last question for David. You mentioned expenses in the third quarter could look like the trend seen in the first half. The salaries line had a gap between the first and second quarter. How should we think about that gap in salaries and what that implies going forward?

Q3 salaries are probably closer to Q2 than Q1. Q1 had unique items like annual resets and incentive compensation. I would expect Q3 to be a little higher than Q2. We have some projects accelerating in Q3 which could increase project-related expenses, but overall the second half looks a lot like the first half on average.

Alright. Well, I appreciate the color. Thank you for taking my questions.

Our next question will come from Matthew Clark with Piper Sandler.

Good morning. On the securities portfolio, it has been coming down the last few quarters. Should we expect that to continue because you are trying to fund loan growth, or should we anticipate you might start to reinvest in the securities book?

Our portfolio is large relative to the size of the balance sheet and we are working to make it a smaller piece and make loans a larger piece. We have not bought anything since January, but I think that probably changes sometime in Q3 as we leg into the market, maybe in line with typical deposit inflows. I do not expect the portfolio to grow significantly over time. We are expecting about $200 million in payoffs over the next 12 months, so the portfolio likely comes down and we will manage the balance sheet more efficiently to lower that percentage and increase loans.

Any update on M&A and appetite there?

No update. M&A remains a priority over buybacks if there is an opportunity that provides attractive franchise value enhancement, but there is nothing imminent or in the works.

A reminder, if you would like to ask a question, please click on the raise hand button at the bottom of your screen. We have no further questions at this time. I will hand it back to Timothy D. Myers for closing remarks.

Thank you, everybody. I apologize for the coughing fit with my cold, but I appreciate all the good questions. As always, please reach out if you need anything further. Thank you.