Bank of Marin Bancorp

Good morning and thank you for joining the Bank of Marin Bancorp earnings call for the third quarter ended September 30, 2020. I'm Andrea Henderson, Director of Marketing for Bank of Marin. During the presentation, all participants will be in a listen-only mode. After the call, we will conduct a question and answer session. At that time, if you have questions, please press 1 followed by 4 on your telephone. If, at any time during the call, This conference call is being recorded on October 26, 2020. Joining us on the call today are Russ Colombo, President and CEO, Tim Myers, Executive Vice President and Chief Operating Officer, and Tawny Gertz, Executive Vice President and Chief Financial Officer. Our earnings press release, which we issued this morning, will be found on our website at bankofmoran.com where this call is also being webcast. Before we get started, I want to emphasize that the discussion on this call is based on information we know as of Friday, October 23, 2020 and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, please review the forward-looking statement disclosure in our earnings press release. as well as our SEP filing. Following our prepared remarks, Russ, Tim, and Tawny, along with the Chief Credit Officer, Beth Brideman, will be available to answer your questions. And now I'd like to turn the call over to Russ Colombo.

Thank you, Andrea. Good morning and welcome to the call. I hope you and your families are healthy and safe. We reported solid third quarter results. demonstrating Bank of Marin's discipline risk management, the strength of our deposit franchise and capital base, and our bankers' commitment to proactively working with clients to address financing needs. We and our clients have acclimated to the current environment. The vast majority of our borrowers who temporarily deferred loan payments because of the pandemic have resumed normal payments. Our overall credit quality remains excellent. with both classified and non-accrual loans declining in the third quarter from the low levels we reported a quarter earlier. Before we discuss highlights from the quarter, I want to note that we also remain committed to our employees and community. To help address expenses and challenges linked to the pandemic, we made payments of $1,200 to every employee in the third quarter, totaling $360,000. with executive management directing their payments to nonprofit organizations of their choice. In addition, we made contributions of $360,000 to ensure equitable access to remote learning resources for underserved students in Marin, Napa, and Sonoma County, as well as the city of Alameda. Turning to our results. In the third quarter, Bank of Marin generated net income of $7.5 million with diluted earnings per share of $0.55. Total loans have held steady at $2.1 billion as we balance our commitment to sound underwriting with our bankers' uninterrupted efforts to serve existing clients and continue to win new business. Total deposits decreased to $210.6 million in the third quarter to $2.6 billion, primarily due to normal fluctuations in some of our large business accounts and the transfer of balances to deposit networks as part of our ongoing liquidity management. The average cost of deposits remains steady at nine basis points, reflecting the low rate environment in our proven relationship banking model. Non-interest-bearing deposits represented 54% of total deposits, compared to 52% of total deposits in the second quarter. Our total risk-based capital ratio 16.1% at September 30th, well above the regulatory wealth capitalized level. Non-accrual loans totaled $1.4 million or 0.07% of the loan portfolio as of September 30th, compared to $1.6 million or 0.08% in the second quarter. Classified loans increased by $2.5 million from the prior quarter to $11 million primarily as a result of an upgrade in the risk rating for a commercial real estate loan. In light of our continued capital strength and improvements in the economic environment, on October 23rd, the Board of Directors approved reactivation of the $25 million share repurchase program that was suspended on March 20th, 2020 as part of our early pandemic response. Finally, Reflecting our continued and reliable profitability, the Board of Directors declared a cash dividend of 23 cents per share on October 23rd. This marks the 62nd consecutive quarterly dividend paid by Vancouver and Bancorp. The dividend is payable on November 13th to shareholders of record as at the close of business on November 6th. In summary, our loan portfolio and balance sheet remain strong. and our market, while impacted by this pandemic, are showing great resilience. Our more than 30 years of managing through various cycles will help us effectively execute for our clients, communities and shareholders in the near term and position Bank of Marin for continued growth in the post-pandemic era. Tim will now provide more detail on our loan modification program and an update on CPC.

Thank you, Ross. As we reported last quarter, thanks to the dedication of our committed team, the bank successfully helped almost 2000 companies obtain funding through the SBA Paycheck Protection Program. We are now preparing to launch the forgiveness portion of the program with a secure online portal as soon as the SBA and the Treasury Department finalize their guidance on the process. In the meantime, we are in regular communication with all of these customers and look forward to helping them complete the final phase of the program. As Russ noted, the number of borrowers in need of loan payment relief declined markedly in the third quarter. Only 47 million of the original 389 million in loans receiving payment relief need continued assistance as of October 19th. Of these remaining loans, 37% are in the education industry, 33% are hospitality or tourism related, and 26% are split evenly between retail-oriented commercial real estate and health clubs. It is important to note that 97% of these remaining balances are secured by real estate with loan-to-value ratios averaging 42%. While California's wildfire season has again been challenging for many communities in Northern California, fortunately, Bancom Marin and our clients have been minimally impacted. Tommy will discuss the trends in net interest margin in greater detail later. But I want to note that yields on new loan production held steady during the third quarter. The dollar-weighted average interest rate on new loans was similar to those made throughout all of 2020. While that average is approximately 50 basis points below all loans made in 2019, we are working hard to mitigate the effects of this declining rate environment. Finally, to amplify Russ's comments, we have adapted to life amid the pandemic, and we are operating business as usual in this environment. We continue to attract talent and develop strategic opportunities to expand and grow our businesses, and we are poised for stronger growth in coming quarters. We remain optimistic about our teams in new markets, such as Walnut Creek and San Mateo, while continuing to pursue growth opportunities in our more established markets. With that, I will turn it over to Tani for additional insight on our financial results.