Bank of Marin Bancorp Reports Record Earnings of $5.4 Million

Bank of Marin Bancorp, "Bancorp" (NASDAQ:BMRC), parent company of Bank of Marin, announced record earnings of $5.4 million in the third quarter of 2014, compared to $5.2 million in the second quarter of 2014 and $4.0 million in the third quarter of 2013. Diluted earnings per share totaled $0.89 in the third quarter, compared to $0.86 in the prior quarter and $0.72 in the same quarter a year ago. September 30, 2014 year-to-date earnings totaled $15.1 million compared to $11.9 million for the same period a year ago. Diluted earnings per share for the nine-month period totaled $2.51 as compared to $2.16 for the same period in 2013.

“We are pleased to report record earnings again this quarter and are seeing tangible results from our recent acquisition,” said Russell A. Colombo, President and Chief Executive Officer. “Our ongoing commitment to strong credit quality and relationship banking continues to pay off in this competitive environment.”

Bancorp also provided the following highlights on its operating and financial performance for the third quarter of 2014:

• Loans grew to $1.4 billion, an increase of $22.5 million, or 1.7%, over June 30, 2014, and $268.1 million, or 24.5% over September 30, 2013. The increase in loans from a year ago reflects both acquired loans and organic growth. Credit quality improved with non-accrual loans representing 0.73% of total loans at September 30, 2014, down from 0.76% at June 30, 2014 and 1.58% a year ago. Net recoveries for the third quarter totaled $149 thousand, compared to net recoveries of $68 thousand in the prior quarter and net charge-offs of $68 thousand in the same quarter a year ago.
• Quarterly return on assets (“ROA”) of 1.15% for the quarter ended September 30, 2014, increased from 1.14% in the previous quarter and 1.07% a year ago. Quarterly return on equity (“ROE”) totaled 10.98% for the quarter ended September 30, 2014, compared to 10.96% for the quarter ended June 30, 2014 and 9.91% for the quarter ended September 30, 2013. The increase in ROA and ROE in the current quarter was driven by strong earnings.
• The total risk-based capital ratio for Bancorp was 13.6% at September 30, 2014, compared to 13.5% at June 30, 2014 and 14.1% at September 30, 2013. The ratio declined compared to a year ago due to the NorCal Community Bancorp ("NorCal") acquisition. The risk-based capital ratio continues to be well above both current regulatory requirements for a well-capitalized institution and new requirements that will take effect in 2015 (Basel Committee on Bank Supervision guidelines for determining regulatory capital). Tangible common equity to tangible assets totaled 10.3% at September 30, 2014, compared to 9.9% at the end of the prior quarter.
• On October 17, 2014, the Board of Directors declared a quarterly cash dividend of $0.22 per share, a $0.02 increase from the prior quarter. The cash dividend is payable to shareholders of record at the close of business on October 31, 2014 and will be payable on November 7, 2014.

Loans and Credit Quality

Gross loans increased $22.5 million from the prior quarter, which was driven substantially by commercial and industrial lending and related owner-occupied commercial real estate lending in the Marin, Oakland and Napa markets. Loans increased $268.1 million from a year ago which reflects both loans acquired from NorCal and organic growth.

Non-accrual loans decreased to $9.8 million at September 30, 2014 from $17.3 million a year ago and $10.1 million at June 30, 2014. The decrease in non-accrual loans from June 30, 2014 primarily relates to pay-downs associated with two borrowers. Accruing loans past due 30 to 89 days decreased to $299 thousand at September 30, 2014, from $1.5 million at June 30, 2014 and $2.2 million a year ago. Classified loans increased $5.8 million in the third quarter when compared to the prior quarter. The newly classified loans are well secured and present minimal risk of loss.

There was no provision for loan losses in the third quarter of 2014 compared to $600 thousand in the prior quarter and reversal of $480 thousand in the same quarter a year ago. The ratio of loan loss reserve to loans remained unchanged from June 30, 2014 at 1.11%. The decline compared to 1.26% at September 30, 2013 is primarily due to purchase accounting rules which call for acquired loans to be marked down to fair value without separate allowances established.

Deposits

Deposits totaled $1.6 billion at both September 30, 2014 and June 30, 2014, compared to $1.3 billion at September 30, 2013. The $279 million increase in deposits from a year ago reflects the Bank's expansion into the East Bay market as well as organic growth in Marin and Sonoma markets. The $27.2 million decrease compared to June 30, 2014 is primarily due to normal business activity among several large depositors. Non-interest bearing deposits totaled $718 million at September 30, 2014, a decrease of $7.3 million when compared to June 30, 2014. This represents 45.7% of total deposits as of September 30, 2014, up from 41.6% at September 30, 2013.

Earnings

“We are successfully balancing a disciplined growth strategy combined with expense management,” said Tani Girton, Chief Financial Officer. “As a result, we are seeing continued strength in our ROA, ROE and efficiency ratio this quarter.”

Net interest income totaled $17.5 million in the third quarter of 2014, compared to $17.9 million in the prior quarter and $14.0 million in the same quarter a year ago. The increase from the same quarter a year ago relates to higher balances on loans and investments, as well as accretion on acquired loans. The tax-equivalent net interest margin was 4.03%, 4.23% and 3.99% for those respective periods. The decrease in the third quarter of 2014 compared to the prior quarter is primarily due to the absence of gains on pay-offs of purchased credit impaired ("PCI") loans in the third quarter of 2014.

Summary of Charter Oak and NorCal acquisitions' impact on net interest margin:

For acquired loans not considered credit impaired, the level of accretion varies due to maturities and early pay-offs of these loans. Accretion on PCI loans fluctuates based on changes in cash flows expected to be collected. Gains on pay-offs of PCI loans are recorded as interest income when the pay-off amounts exceed the recorded investment.

Non-interest income in the third quarter of 2014 totaled $2.3 million, compared to $2.4 million in the prior quarter and $2.0 million in the same quarter a year ago. The decrease from the prior quarter primarily relates to lower gains on the sale of investment securities. The increase from the same quarter a year ago reflects higher service charges due to higher transaction volume from the acquisition, higher dividend income from the Federal Home Loan Bank of San Francisco and higher recent debit card interchange fees.

Non-interest expense totaled $11.4 million in the third quarter of 2014, compared to $11.5 million in the prior quarter and $10.1 million in the same quarter a year ago. The increase in non-interest expense from the same quarter a year ago reflects the higher cost base associated with a larger-sized bank, expansion into the East Bay, and increased lending staff in the North Bay.

Earnings Call and Webcast Information

Bank of Marin Bancorp will webcast its third quarter earnings call on Monday, October 20, 2014 at 8:30 a.m. PT/ 11:30 a.m. ET. Investors will have the opportunity to listen to the conference call online through Bank of Marin’s website at http://www.bankofmarin.com under “Latest Press and News.” To listen to the live call, please go to the website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available at the same website location shortly after the call.

About Bank of Marin Bancorp

Bank of Marin is a leading business and community bank in the San Francisco Bay Area, with assets of $1.8 billion. Founded in 1989 and headquartered in Novato, Bank of Marin is the sole subsidiary of Bank of Marin Bancorp (NASDAQ: BMRC). With 21 offices in San Francisco, Marin, Napa, Sonoma and Alameda counties, Bank of Marin provides business and personal banking, commercial lending, and wealth management services. Specializing in providing legendary service to its customers and investing in its local communities, Bank of Marin has consistently been ranked one of the “Top Corporate Philanthropists" by the San Francisco Business Times and one of the “Best Places to Work” by the North Bay Business Journal. Bank of Marin Bancorp is included in the Russell 2000 Small-Cap Index and has been recognized as a Top 200 Community Bank by US Banker Magazine for the past five years. For more information, visit www.bankofmarin.com.

Forward-Looking Statements

This release may contain certain forward-looking statements that are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact Bancorp's earnings in future periods. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words “believe,” “expect,” “intend,” “estimate” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Factors that could cause future results to vary materially from current management expectations include, but are not limited to, our ability to integrate the business of NorCal, general economic conditions, economic uncertainty in the United States and abroad, changes in interest rates, deposit flows, real estate values, expected future cash flows on acquired loans, competition, changes in accounting principles, policies or guidelines, legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting Bancorp's operations, pricing, products and services. These and other important factors, including the impact of the NorCal acquisition, are detailed in various securities law filings made periodically by Bancorp, copies of which are available from Bancorp without charge. Bancorp undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.