Bank of Marin Bancorp

Good morning, and thank you for joining Bank of Marin Bancorp's earnings call for the second quarter ended June 30th, 2025. I am Chrissy 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 Tim Myers and Chief Financial Officer Dave Bonacorso. Our earnings news release and supplementary presentation which were issued this morning, can be found in the investor relations section of our website at bankofmoran.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 know as of Friday, July 25, 2025, 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, Tim, Dave, and our Chief Credit Officer, Misako Stewart, will be available to answer your questions. And now, I'd like to turn the call over to Tim Myers.

Thank you, Christy. Good morning, everyone, and welcome to our quarterly earnings call. We executed well in the second quarter and saw positive trends in a number of key areas, including continued expansion in our net interest margin, effective expense management, and stable asset quality. our pre-tax, pre-provision net income increased 15% compared to the prior quarter and 85% compared to the prior year to date. Our improving financial performance and continued benefits from prudent balance sheet management resulted in increases in both book value and tangible book value per share growth in Q2. And as we announced in early July, our second quarter securities repositioning is expected to add 13 basis points of net interest margin lift and 20 cents of annual earnings per share left with the vast majority of those benefits beginning in the third quarter. Our banking team, reinforced with continued additions we are making and the positive impact of the hires we have made over the past couple of years, continues to do a more consistent job of developing attractive lending opportunities and generating new relationships to the bank. We are excited to add new leaders to our banking teams and are optimistic that they will contribute to our future growth in key markets. We are seeing a very competitive market environment, but we are maintaining our discipline underwriting and pricing criteria. During the quarter, the total loan originations were 68.8 million of commitments, including $50.2 million in fundings, which was relatively consistent with the level we had in the prior quarter. Our originations were a nicely diversified and granular mix across commercial banking categories, industries, and property types. While we are more consistently funding new loans, we continue to see payoffs and paydowns due to asset sales and cash deleveraging, as well as elevated payoffs in our acquired residential mortgage portfolio. Our total deposits declined in the second quarter, which was primarily due to normal client activity, including business expenses, payroll and distributions, asset purchases, and seasonal outflows for tax payments. However, with our continued success in adding new deposit relationships, total deposits have grown year-to-date, and we expect to see the typical seasonal inflows of deposits during the second half of the year. Thus far in July, we have recouped more than 70% of the deposit outflows that occurred in the second quarter. The rate environment remains competitive, and clients remain rate-sensitive. However, we are seeing limited attrition of deposits due to rate. Our customers continue to bank with us for our service levels, accessibility, and commitment to our communities, and not entirely based on pricing. As a result, we continue to be able to reduce our deposit costs, which help drive further expansion in our net interest margin in the second quarter. And similar to the actions taken early in the second quarter, last week we completed additional targeted deposit rate cuts. Given our solid financial performance and prudent balance sheet management, our capital ratios remain very strong with a total risk-based capital ratio of 16.25% and a TCE ratio of 9.95%. Given our high level of capital, during the quarter, we repurchased $2.2 million of shares within the limited window we had for repurchases. With that, I'll turn the call over to Dave Bonicorsa to discuss our financial results in more detail. Thanks, Tim. Good morning, everyone.

Our results this quarter were impacted by the additional securities repositioning that we executed at the end of the quarter and the resulting loss that we incurred on the sale of the securities. We had a net loss of $6.5 million in the second quarter, or 53 cents per share. However, excluding the loss in the security sales and the related tax impact based on our Q2 effective tax rate, our net income and EPS each grew by 18% compared to the prior quarter. Our net interest income increased from the prior quarter to $25.9 million, primarily due to a higher balance of average earning assets and a seven basis point increase in our net interest margin. The expansion in our net interest margin was attributable to a one basis point decrease in our cost of deposits, while our average yield on interest earning assets increased six basis points from the prior quarter. Our average yield on loans increased seven basis points from the prior quarter, as the average rate on new loan production was higher than the average rate on the loans that paid off during the quarter. We also continue to see an increase in the average yield on our securities portfolio, which was bolstered by the securities repositioning that occurred in June. Our non-interest expense was slightly up from the prior quarter due to expected costs of technology and branch upgrades, annual events and regulatory agency fees. Over the remainder of the year, we expect that our non-interest expense will be similar to the first half of 2025. Moving to non-interest income, it was negative this quarter due to the loss we incurred on the securities portfolio repositioning. Aside from this one-time non-recurring item, most other areas of non-interest income were relatively consistent with the prior quarter. Discipline credit management remains a hallmark of Bank of Marin as well. Due to the stability in our loan portfolio and the high level of reserves we have already built, we do not require any provision for credit losses in the second quarter. Overall trends in our level of problem assets reflect our proactive and conservative approach to credit management, where we are aggressive to downgrade and cautious to upgrade. The allowance for credit losses remained at 1.44% of total loans. So far in July, we are seeing indications that there will be additional loan upgrades during the third quarter. Given the continued strength of our capital ratios, our board of directors declared a cash dividend of 25 cents per share on July 24th. the 81st consecutive quarterly dividend paid by the company. With that, I'll turn it back over to you, Tim, to share some final comments.