Bank of Marin Bancorp — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparative results are for FY2022 unless noted. Bank of Marin is a California community bank focused on business, nonprofit and consumer banking in Northern California.
Financial results and condition
| Metric | FY2023 / Dec. 31, 2023 | FY2022 / Dec. 31, 2022 |
|---|---|---|
| Net interest income | $102.8 million | $127.5 million |
| Net interest margin, tax-equivalent | 2.63% | 3.11% |
| Net income | $19.9 million | $46.6 million |
| Diluted EPS | $1.24 | $2.92 |
| Non-interest income | $5.0 million | $10.9 million |
| Non-interest expense | $79.5 million | $75.3 million |
| Operating cash flow | $35.7 million | $55.3 million |
| Total assets | $3.804 billion | $4.147 billion |
| Loans, net of allowance | $2.049 billion | $2.070 billion |
| Deposits | $3.290 billion | $3.573 billion |
| Borrowings and other obligations | $26.3 million | $112.4 million |
| Stockholders’ equity | $439.1 million | $412.1 million |
The tax-equivalent net interest margin fell as deposit and borrowing costs rose sharply; the average cost of deposits increased to 0.74% from 0.06%. The efficiency ratio rose to 73.76% from 54.39%. Return on average assets was 0.49%, versus 1.08%; return on average equity was 4.69%, versus 11.16%.
The company reported a $2.6 million loan-loss provision, compared with a $63,000 reversal in 2022. The allowance for credit losses was $25.2 million, or 1.21% of loans, versus $23.0 million, or 1.10%. Net charge-offs were $386,000. Non-accrual loans rose to $8.0 million (0.39% of loans) from $2.4 million (0.12%).
Capital ratios remained above regulatory well-capitalized thresholds. Bancorp’s total risk-based capital ratio was 16.89%, and tangible common equity to tangible assets was 9.73%. The latter measure was 7.80% after adjusting for estimated after-tax unrealized losses on held-to-maturity securities, a non-GAAP measure.
Material changes versus FY2022
- Net income declined 57%; net interest income fell $24.7 million, principally because funding costs increased by $34.2 million, partly offset by higher asset yields.
- Deposits decreased $283.3 million. Non-interest-bearing deposits fell to 43.8% of period-end deposits from 51.5%. Management attributed outflows to customer activity, movement into higher-yielding alternatives, relationship exits and industry disruption following regional bank failures.
- Borrowings declined by $86.0 million. At year-end, $26.0 million was outstanding under the Federal Reserve Bank Term Funding Program.
- Non-interest income included a $5.9 million net pretax loss from securities sales. The company sold $214.5 million of lower-yielding available-for-sale securities and used proceeds principally for loan originations and debt repayment; it also realized a $2.8 million gain on its remaining Visa Class B shares.
- Total securities decreased to $1.477 billion from $1.774 billion. Available-for-sale securities had $61.5 million of gross unrealized losses; held-to-maturity securities had $110.4 million of gross unrealized losses at year-end.
- Loan balances contracted modestly overall, while classified loans increased to 1.56% of loans from 1.34%. Commercial real estate represented about 75% of loans; approximately 90% of loans had real estate as a primary or secondary collateral component.
Outlook, risks and notable items
- Management said balance-sheet repositioning was intended to support improved net interest margin and stated it believed the company had laid a foundation for better 2024 earnings, while cautioning that improvement was not assured. The filing provides no numerical earnings or revenue guidance.
- Management reported $1.967 billion of net available funding sources, equal to 60% of deposits and 213% of estimated uninsured and/or uncollateralized deposits. Estimated uninsured and/or uncollateralized deposits were 28% of total deposits.
- Key exposures include deposit competition and outflows, higher funding costs, interest-rate sensitivity, securities losses if forced to sell, and credit deterioration in commercial real estate and construction. CRE loans were 300% of risk-based capital under the regulatory concentration definition.
- Management assessed refinancing risk for 70 non-owner-occupied CRE loans with commitments of at least $1 million, totaling $184.1 million and maturing or repricing in 2024–2025, as manageable. San Francisco office CRE represented 3% of total loans; the company reported a 67% weighted-average LTV and 1.00x debt-service coverage ratio for its San Francisco office loans.
- The Board declared a quarterly dividend of $0.25 per share in January 2024. Management expected capital to remain strong and said it did not expect to need to raise capital in 2024. A new share repurchase authorization of up to $25 million runs through July 2025; no shares were repurchased under it in 2023.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor reported effective controls. The audit identified the loan-loss allowance and goodwill impairment assessment as critical audit matters. Goodwill of $72.8 million was not impaired at the 2023 test date.
- Management reported no pending legal proceedings expected to have a material adverse effect. Visa-related member-bank indemnification remains contingent on litigation outcomes; the filing says no liability was recorded because the probability of loss was considered remote.
Important facts for investors to verify
- Whether deposit balances and mix stabilize, and whether the cost of deposits and other funding moderates.
- Whether the planned margin recovery materializes, including the earnings contribution from securities sales, swaps and balance-sheet repositioning.
- Trends in non-accrual, criticized and classified loans, particularly non-owner-occupied CRE, office and construction exposures, and the adequacy of the allowance.
- Available contingent liquidity and the company’s ability to retain deposits without relying on more costly funding; also monitor maturities of $233.7 million in time deposits during 2024.
- The potential capital effect of securities valuation losses, especially the $110.4 million unrealized loss on held-to-maturity securities, if liquidity needs require sales.
- Regulatory or legal developments, including increased bank supervision and the unresolved Visa covered-litigation process.