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, 2026. 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 Bonaccorso. Our earnings news release and supplementary presentation, which were issued this morning, can be found in the investor relations section of our website at bankofmarin.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, July 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 and 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. Our second quarter results reflected another quarter of improving financial performance, increasing profitability, and enhanced earnings power for Bank of Marin Bancorp. We expanded net interest margin, reduced funding costs, improved operating profitability, further reduced credit risk, and strengthened capital, all while continuing to build the client relationships and platform that support long-term sustainable growth. As a result of our efforts, net income and earnings per share nearly doubled compared to the second quarter of 2025. Our tax equivalent net interest margin expanded 14 basis points to 3.38%, reflecting improved loan yields, targeted deposit rate cuts, and disciplined balance sheet management. These results demonstrate that the platform we have been building is translating into improved profitability and increasing operating leverage. We are now focused on translating improving loan production, relationship growth, disciplined deposit management, and continued proactive credit management into durable earnings power over time. During the quarter, we originated $98 million in new loan commitments, of which $63 million funded, a 23% increase over the prior year's period. This reflects the continued efforts of our commercial banking team and our focus on relationship-driven growth across existing and newer markets, including the greater Sacramento area. To support this momentum, we continue to invest in talent in key markets, adding a regional manager to oversee our East Bay commercial banking offices and expanding our commercial banking team in San Francisco. At the same time, period end loan balances declined modestly in the quarter to $2.1 billion due primarily to elevated payoff activity, including the planned exit of a $19 million criticized relationship. While this payoff was an important de-risking action, it offset positive production trends. Importantly, the yield profile of new production remains attractive, and we believe this healthy production, continued relationship development, and disciplined underwriting will continue to translate into sustainable balance sheet growth over time. Credit quality continued to improve as special mention loans declined meaningfully following the planned exit of the previously mentioned $19 million relationship. Non-accrual loans declined from 0.41% of total loans to 0.4%. Net charge-offs were minimal, and we recorded a $320,000 reversal of provisions for credit losses. Our allowance for credit losses remained stable and sufficient at 1.07% of total loans. On deposits, total balances declined to $58.2 million in the second quarter. The decrease was primarily attributable to a small number of relationships and reflected seasonal customer activity and investment policy decisions, rather than any underlying shift in deposit trends. Deposits remained near their strongest levels in recent years and were up nearly 4% from prior year quarters. while deposit pricing and structure remain competitive, our balanced approach to relationship management and our focused outreach to customers seeking alternative banking solutions continue to generate strong new client activity. We added nearly 1,000 new accounts during the quarter of which 41% came from new relationships. Our relationship banking approach combined with disciplined pricing enabled us to reduce our average cost of total deposits to 1.28% in the quarter. Overall, the second quarter showed that we are building momentum across the areas that matter most. Stronger earnings, a wider margin, reduced credit risk, and a stronger capital base. With that, I'll turn the call over to David Bonaccorso to discuss our financial results in more detail.

Thanks, Tim. Good morning, everyone. Our second quarter net income was $9.2 million, or 58 cents per share, compared with prior quarter net income of $8.5 million, or 53 cents per share. Return on average assets increased to 0.96%. Return on average tangible common equity grew to 11.6%, and our efficiency ratio improved to 63.6%. Our net interest income increased from the prior quarter to $30.8 million driven by higher interest income on loans due to an increase in yields and lower interest expense on deposits. Our yield on new loan fundings increased to 6.53% during the second quarter, which was a 62 basis point improvement over the prior quarter. We continued to make targeted cuts in deposit rates, which resulted in a seven basis point decline in our quarterly cost of deposits and a three basis point decline in our spot cost of deposits from March 31st to June 30th. Our non-interest income was down by $665,000 during the quarter, almost all of which was attributable to a decrease in dividend income on FHLB stock, including a special dividend, as well as bowling death benefits received in the first quarter that were not repeated in the second. Setting aside these special items, non-interest income increased by $293,000, a portion of which is attributable to fees earned on one-way sales of deposits as part of our active balance sheet management strategy. In addition to growing non-interest income, these one-way sales lowered our quarterly cost of deposits and contributed to our 14 basis point expansion in net interest margin. As we expected, our non-interest expense improved by $942,000 during the second quarter, following last quarter's elevated seasonal levels in salaries and related benefits, as well as charitable contributions. For the second half of 2026, we expect non-interest expense to continue near the first half of 2026 pace, as we invest in people and technology, which we believe will fuel our growth and ultimately drive shareholder returns. As Tim mentioned, we recorded a reversal of the provision for credit losses on loans of $320,000 during the quarter, and our allowance for credit losses remained stable at 1.07% of total loans. We strengthened our capital position during the quarter. Our tangible common equity ratio increased 19 basis points to 8.52%, and our total capital ratio increased 32 basis points to 15.58%. Our Tier 1 leverage ratio increased 43 basis points to 8.66%, and our tangible book value per share increased 15 cents to $19.92. Given this continued strength, our board of directors declared a cash dividend of 25 cents per share on July 23rd, the 85th consecutive quarterly dividend paid by the company. With that, I'll turn it back over to Tim for closing comments.