Bank of Marin Bancorp

Good morning. Thank you for joining Bank of Marin Bancorp's earnings call for the first quarter ended March 31st, 2026. I'm Chrissy Meyer, Corporate Secretary for the 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 knew as of Friday, April 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, 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, Chrissy. Good morning, everyone, and welcome to our quarterly earnings call. We are very pleased that our execution in the first quarter across a number of key areas resulted in continued improvement in year-over-year profitability metrics, loan production, net interest margin expansion, and improved credit quality. I'd like to discuss our first quarter highlights. Compared to the first quarter of 2025, net income and earnings per share grew by 75% and 77%, respectively, in the first quarter of this year. Largely due to the repositioning of our balance sheet, our net interest margin increased six basis points on a sequential quarter basis and 47 basis points over the prior year's period. During the quarter, we originated $81 million in new loans, $61 million of which was funded, an almost 30% increase over the prior year's period. While the first quarter is a seasonally slower period for production, the additional hires we made to our banking team, the generally favorable economic conditions we continue to see in our markets, and a healthy increase in commercial real estate loan demand led to our strongest first quarter in a number of years. New loan product allocation was roughly in line with our existing portfolio with a slight skewing towards CNI. During the quarter, we worked diligently to improve our credit quality. We sold our longest tenured classified and non-accrual loans totaling $16.3 million, which were downgraded to substandard in 2021 and moved to non-accrual in 2024. At that time, we took specific reserves of $7.3 million based on property valuations. The no-sale proceeds validated our reserve assumptions with the charge-offs equaling the specific amounts reserved. While other workouts were offset by new downgrades, the impact of the no-sales on credit metrics was substantial. Non-accrual loans declined from 1.27% of assets to 0.41%, and the ratio of classified to total loans decreased from 1.51% to 0.85%. Notably, following the no sales, virtually all of the remaining non-accrual balances are comprised of one non-owner-occupied commercial real estate loan that has no loss expectations based on underlying valuation and cash flow. Despite strong seasonal loan originations, Q1 loan growth was negatively impacted by our non-accrual loan resolutions. Excluding these purposeful exits, loan payoffs were roughly in line with the prior year's period and were generally driven by asset sales and cash payoffs. We continue to experience elevated payoffs in consumer-related loans, primarily within acquired portfolios, including auto and mortgage loans. Despite these dynamics, our net interest margin benefited as new loans came onto the books at an average rate that was 40 basis points higher than the average rate on payoffs. The Q4 interest recovery of $667,000, not repeated in Q1, and the decreased number of days in the first quarter masked that rate spread benefit. Excluding other unique transactions, we believe our loan portfolio will positively impact the net interest margin in 2026 going forward. Our banking team continues its relationship-based approach to attract lending opportunities and drive to cultivate new, deeply rooted relationships with particularly strong momentum in the first quarter in the greater Sacramento area. While we continue to navigate a competitive market environment on pricing and structure, we have attracted a significant amount of new client relationships while maintaining our discipline underwriting and pricing criteria. Our total deposits increased in the first quarter due to a combination of increased balances from longtime clients, as well as continued activity bringing in new relationships. The rate environment remains competitive and clients remain rate sensitive. However, they continue to bank with us for our service levels, accessibility, and commitment to our communities, allowing us to continue reducing our cost of deposits while growing our deposit base. With that, I'll turn the call over to Dave Bonacorso, to discuss our financial results in greater detail.

Thanks, Tim, and good morning, everyone. Our net income was $8.5 million, or 53 cents per share. Our net interest income increased from the prior quarter to $30.3 million due to average balance sheet growth and higher investment security yields and reduced deposit costs, as well as the positive churn in the loan portfolio that Tim discussed, resulting in a six basis point increase in our net interest margin. Adjusting for the fourth quarter recovery of interest and fees on a paid-off non-accrual loan relationship, our sequential quarter net interest margin growth would have been even more impressive at 14 basis points. During the quarter, the expansion of a deposit relationship with a relatively high cost was a headwind to net interest margin. At quarter end, we moved a portion of these funds off balance sheet to take advantage of a relatively high one-way sell rate, which boosts our overall net income and contributes to non-interest income. This opportunity has persisted into Q2, and we will continue to look for opportunities like these to actively manage our balance sheet to improve shareholder returns. Moving to non-interest income, most areas of fee income were relatively consistent with the prior quarter, although we did receive a special dividend on FHLB stock as well as a bowling debt benefit, which positively impacted our total non-interest income in the first quarter. Our non-interest expense increased by $2.5 million from the prior quarter, primarily due to higher salaries and employee benefits related to seasonal salary and benefit accrual resets, including payroll taxes, incentive compensation accruals, profit sharing, insurance, and 401k matching. The first quarter also included a higher level of our annual charitable giving, which we expect will comprise almost 70% of the total for 2026. Overall, Q1 non-interest expense was broadly in line with our expectations. Though charitable giving is expected to return to more normalized levels, during the coming quarters, we otherwise expect non-interest expense to continue near current levels as we continue to invest in people and technology, which we believe will fuel our growth and ultimately drive shareholder returns. Due to the improvement in asset quality in our loan portfolio and the substantial level of reserves we have already built, we did not require a provision for credit losses in the first quarter, and our allowance for credit losses remain strong at 1.08% of total loans, which we believe is an appropriate level following the sale of our non-performing loans. Given the continued strength of our capital ratios, our board of directors declared a cash dividend of 25 cents per share on April 23rd, the 84th consecutive quarterly dividend paid by the company. With that, I'll turn it back over to you, Tim, to share some final comments.