Bank of Marin Bancorp Q2 2025 Earnings Report

Bank of Marin Bancorp EPS Results

• Actual EPS: $0.29
• Consensus EPS: $0.36
• Beat/Miss: Missed by -$0.07
• One Year Ago EPS: N/A

Bank of Marin Bancorp Revenue Results

• Actual Revenue: $10.29 million
• Expected Revenue: $29.07 million
• Beat/Miss: Missed by -$18.78 million
• YoY Revenue Growth: N/A

Bank of Marin Bancorp Announcement Details

• Quarter: Q2 2025
• Date: 7/28/2025
• Time: Before Market Opens
• Conference Call Date: Monday, July 28, 2025
• Conference Call Time: 11:30AM ET

Bank of Marin Bancorp (NASDAQ:BMRC) operates as the holding company for Bank of Marin that provides a range of financial services primarily to small to medium-sized businesses, not-for-profit organizations, and commercial real estate investors in the United States. The company offers personal and business checking and savings accounts; and individual retirement, health savings, and demand deposit marketplace accounts, as well as time certificates of deposit, certificate of deposit account registry, and insured cash sweep services. It also provides commercial real estate, commercial and industrial, and consumer loans, as well as construction financing and home equity lines of credit. In addition, the company offers merchant and payroll services; commercial equipment leasing program; payment solutions; treasury management services; credit cards; and mobile deposit, remote deposit capture, automated clearing house, wire transfer, and image lockbox services. Further, it provides wealth management and trust services comprising customized investment portfolio management, financial planning, trust administration, estate settlement, and custody services, as well as 401(k) plan services; and automated teller machines, and telephone and digital banking services. The company was incorporated in 1989 and is headquartered in Novato, California.

Bank of Marin Bancorp Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Our pretax, pre-provision net income rose 15% sequentially and 85% year-over-year, driven by net interest margin expansion and effective expense management.
• Positive Sentiment: Second-quarter securities repositioning is projected to lift net interest margin by 13 basis points and add $0.20 to annual EPS, with most benefits from Q3 onward.
• Negative Sentiment: GAAP results include a $6.5 million net loss (-$0.41/share) on security sales, though adjusting for this charge, EPS grew 18% from Q1.
• Neutral Sentiment: Loan originations totaled $68.8 million of commitments (with $50.2 million funded), featuring a diversified commercial mix and disciplined underwriting; management expects net loan growth in the second half.
• Positive Sentiment: With a total risk-based capital ratio of 16.25% and TCE of 9.95%, the bank repurchased $2.2 million of shares and declared its 81st consecutive quarterly dividend of $0.25/share.

Presentation

[Krissy Meyer, Corporate Secretary at Bank of Marin Bancorp]

Good morning, and thank you for joining Bank of Marin Bancorp's Earnings Call for the Second Quarter Ended 06/30/2025. I am Krissy 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.

[Krissy Meyer, Corporate Secretary at Bank of Marin Bancorp]

Our earnings news release and supplementary presentation, which were issued this morning, can be found in the Investor Relations section of our website at bankofmorin.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, 07/25/2025, and may contain forward looking statements that involve risks and uncertainties.

[Krissy Meyer, Corporate Secretary at Bank of Marin Bancorp]

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, Masako Stewart, will be available to answer your questions. And now I'd like to turn the call over to Tim Myers.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Thank you, Chrissy. 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 pretax, 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.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

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 $0.20 of annual earnings per share lift with the vast majority of those benefits beginning in the third quarter. Our banking team reinforced the 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 disciplined underwriting and pricing criteria. During the quarter, the total loan originations were $68,800,000 of commitments, including $50,200,000 in fundings, which was relatively consistent with the level we had in the prior quarter.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Our originations were 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've recouped more than 70% of the deposit outflows that occurred in the second quarter.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

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 helped 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.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

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 $2,200,000 of shares within the limited window we had for repurchases. With that, I'll turn the call over to Dave Bonacourza to discuss our financial results in more detail.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

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 $6,500,000 in the second quarter or May 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 25,900,000 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 of 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 noninterest expense was slightly up from the prior quarter due to expected costs of technology and branch upgrades, annual events and regulatory agency fees.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

Over the remainder of the year, we expect that our noninterest expense will be similar to the first half of twenty twenty five. Moving to noninterest income. It was negative this quarter due to the loss we incurred on the securities portfolio repositioning. Aside from this onetime nonrecurring item, most other areas of noninterest income were relatively consistent with the prior quarter. Disciplined credit management remains a hallmark of Bank of Marin as well.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

Due to the stability in our loan portfolio and the high level of reserves we have already built, we did 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 $0.25 per share on July 24, the eighty first consecutive quarterly dividend paid by the company.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

With that, I'll turn it back over to you, Tim, to share some final comments.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Thank you, Dave. In closing, we believe we are very well positioned to continue generating solid financial performance in 2025 you, as we expect to continue to see positive trends in our net interest margin and revenue. Given the strength of our balance sheet and the high levels of capital that we have, we were able to execute on another securities portfolio repositioning at the end of the second quarter that will be accretive to earnings and result in further expansion of our net interest margin. While broadly there is economic uncertainty, we are not seeing this adversely impact our clients and loan demand remains healthy. Our loan pipeline remains strong, and we are continuing to see solid loan production thus far in July.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

As such, we expect to see loan growth during the second half of the year. While we always tightly manage expenses, we will also continue to take advantage of opportunities to add banking talent and enhance efficiency through technology that we believe will help support the continued profitable growth of our franchise. Given the positive trends we expect to see in loan growth, net interest margin, and expense management, we expect to generate improved financial performance over the remainder of the year. With the strength of our balance sheet, we believe we are very well positioned to increase our market share, add attractive new client relationships, generate profitable growth, and further enhance the value of our franchise in 2025 and the coming years. With that, I wanna thank everyone on today's call for your interest and your support. We will now open the call to questions.

[Operator]

If you would like to ask a question, please click on the raise hand button at the bottom of your screen. Our first question will come from Matthew Clark with Piper Sandler. You may now unmute your audio and ask your question.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Hey. Good morning.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Good morning, Matthew.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

First one for me on the two CRE loans that migrated this quarter. Could you just give us some color on the types of CRE loans? And what drove that migration? And any plans for resolution there?

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Yeah. They're generally retail and or mixed use. They're they're obviously smaller loans. They're in they're not in San Francisco. They're in areas They were experiencing tennis tenancy or cash flow issues, so we downgraded them, but there is good sponsorship there.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

And so we you know, they'll continue to 10 it up, and we'll we'll there's a number of loans we're working on remargining, because of the support of our guarantors, and I they're not loans that we're particularly concerned about.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Got it. And then now that you've cleaned up the AFS portfolio, what's your appetite to consider doing something similar in the HTM securities portfolio?

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Yeah. Sure. We've talked about that, obviously, quite a bit, with you all, and it's something we continue to look at. I think we're seeing some more examples in the market, albeit not all apples to apples, but the capital markets seem to be willing to support, and that would be the next mountain to climb there. So it's something we continue to look at, just cautious of the impact on capital and potential dilution to shareholders.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

So we're we continue to juggle all that with the prospect of unleashing those earnings off the balance sheet.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Great. And then last one for me, just on the buyback, kind of renewing, or or I think you guys renewed it or reupped it. I just can't recall. At the top of head, I might be confusing you with someone else. But just your appetite on the buyback, how how aggressive you might get or or continue to be in the market.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Yeah. So you're right. We did just reupped that allocation with the board. The the reason, frankly, we had said we would love to buy back shares below tangible book by the time we went through the exam process and then got approval for the capital plan, the dividend, etcetera, from the regulatory body that limited our time given the blackout that we could execute that within. Obviously, that's competing use of capital, and so we'll continue to juggle that concept with, as you as you said, some more securities repositionings and continue to evaluate, but it was very attractive for us to do that below tangible book. We just ran out of time there.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Understood. Thanks for the questions.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Thank you.

[Operator]

Our next question comes from Andrew Terrell with Stephens. Please go ahead.

[Andrew Terrell, Managing Director at Stephens Inc]

Hey, good morning.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Good morning.

[Andrew Terrell, Managing Director at Stephens Inc]

Maybe just to start, probably for Dave, just on the securities restructuring, the AFS book in second quarter. It looks like the majority of that was kind of already traded and kind of repurchased. Just curious what the performance was like relative to I think your assumption was for a 5% reinvestment rate. Were you able to do better than that or in line or just how should we And I'm assuming the timing was, like, right at the end of the quarter, but any clarity there would be helpful.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

Sure. The sales and purchases occurred throughout June. And the I believe the final yield on purchases was just a touch over 5%, I believe five zero two, somewhere around there. But 5% is pretty good number to work with.

[Andrew Terrell, Managing Director at Stephens Inc]

Got it. Okay. I think in the prepared remarks, you guys mentioned that

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

I was gonna say that that that's oh, the repositioning itself. We buy other bonds during the quarter, you know, so before that. So I don't if you're asking specifically for the for the repositioning or if you're asking for what we did for the entire quarter. What we did for the entire quarter was a little below percent on an average basis. The repositioning related trades, the purchases were just above 5%.

[Andrew Terrell, Managing Director at Stephens Inc]

Understood. You for clarifying. If I could also just ask on the I think you mentioned in the prepared remarks maybe some additional deposit rate cuts more recently. Can you just elaborate on that a little bit more? I think we're seeing, in most examples, just kind of a falling out of ability to lower deposit rates.

[Andrew Terrell, Managing Director at Stephens Inc]

Just would love to hear a little bit more about what you guys are doing there.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Yeah. I don't I wouldn't qualify that as ability. It's just targeted. So whether you're taking reciprocal type deposits or other buckets, we look at buckets where we can do that and have a a manageable impact. And so I think it was about 250, 300,000,000 that we did recently too in in in April.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

So we'll continue to look targeted and selectively where we can do that without too much adverse impact.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

The most recent piece, I mean, I think so we did some some in some in early April and some in early July. The early July piece was around a 185,000,000 or so, and the weighted average cut of those was about 15 basis points. That's worth two basis points roughly to interest bearing deposit cost and one basis point total deposit cost. Small benefits to NIM. And then for along the way, we've been cutting time deposits.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

As you probably saw, we cut time deposits 31 basis points in the quarter. But, yeah, there's definitely more more ability with with Fed moves, but we're being targeted in how we make smaller modifications away from Fed cuts.

[Andrew Terrell, Managing Director at Stephens Inc]

Understood.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

So some of the

[Andrew Terrell, Managing Director at Stephens Inc]

I appreciate it.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

I think I would add the reason it didn't have a larger overall impact because we as we noted in the the presentation, continue to bring in a lot of new customers. The preponderance of that, the majority of that was interest bearing, that's at a slightly higher rate, but we are continue to gather new households, new relationships, and build a more granular portfolio. So it's toggling to have the ability to attract new customers while managing the cost of existing deposits.

[Andrew Terrell, Managing Director at Stephens Inc]

Yes. Okay. And if I could sneak one more in, just I mean, sounds like you're optimistic about loan growth stepping up a little bit in the second half of the year. It sounded like originations were pretty flat sequentially, but I'm curious how you expect to drive positive loan growth in the back half. Is it more from accelerating origination levels?

[Andrew Terrell, Managing Director at Stephens Inc]

Do you feel like payoffs should subside a bit from here? Just any more color on kind of the the kind of net loan growth outlook in the back half?

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Yeah. So the payoffs for the quarter at or below where we expected them. You know, where we have had the higher degree of payoffs than than forecast was on the acquired mortgage portfolio. That's been considerably higher, but the commercial was less than we forecast. We do have a couple of key hires coming in, some new market leaders, and that have joined the bank.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

And so, yes, the pipeline, despite the loans that closed, is slightly higher than it was the prior quarter. And we've actually had some deals push out into July and have had a good amount of closings going into August. So, you know, timing is everything with that stuff in a commercial relationship, so I can't, you know, guarantee the amount, you know, the volume within a quarter, but all those things continue to move in the right direction.

[Andrew Terrell, Managing Director at Stephens Inc]

Awesome. Okay. Thank you for taking the questions.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Thank you.

[Operator]

Our next question comes from Jeff Rulis with D. A. Davidson and Co. Please go ahead.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Great. Thanks. Good morning. Maybe just to clarify, Tim, on growth front. Loan is pretty flat year to date.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

We know there's a lot of churn. It sounds like you're optimistic. But on a net are you saying you anticipate net growth in the second half? Or is it, hey, we feel good about originations, payoffs could negate that and we're flat through the end of the year? I just wanted to kind of gauge where you are on a net basis by year end, what your expectation.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Sure. Yeah. We are still targeting that growth, Jeff. And we feel like we have the pipeline and the the activity to justify that that plan. It is hard to I don't mean to sound like I'm hedging.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

It is hard to answer that question of how the net we had told everybody about mid single digit growth for the year. You know, can I double that for the second half of the year and the tar target that mid single digit? That's our that's our goal, but, obviously, that becomes harder as you get later in the year. But we are targeting an acceleration of fundings and have net growth for the year.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Okay. Thank you. And Dave, the margin, look at a nice pickup of this restructuring kind of pulls you up. I guess, we just point to point, we're closer to three zero five margin. You had seven basis points of lift this last quarter with targeted rate cuts.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Sounds like the core, absent the restructure, is on the way up. If you could kind of maybe bake in the restructuring benefit and and kinda talk about maybe the second half of what you think total reported margin. Sounds like an upward trend above the restructuring benefit.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

Correct. So maybe I can I can cover some of the drivers? You know? So on the loan side, you know, the usual statistic we we share is that point to point monthly loan yield benefit over the course of the year. We think we have about 20 to 25 basis points of natural loan repricing yield over the next twelve months getting out to June 26.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

We had about six or seven basis points of loan yield increases most recently, so, you know, that that tracks well with the estimate I just gave. Obviously, you'd have upside if you had loan growth and and higher intermediate term rates, let's say, for variable rate loans. You know, headwinds could potentially be lower short term rates, Things like prepayment changes and nonaccrual positives or negatives are wildcards there. But, you know, overall, still a a very good trend on the loan side, and, you know, the the yield on funded loans this quarter was 72 basis points higher than than prior quarter. So, again, good trends there.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

I think we've mostly covered what's what's available on the security side with the the repositioning, adding the the 13 basis points, primarily beginning I think there's there's a just a touch of of impact in June just given when we did those trades, but the bulk of those benefits really occur in q three. And then on on deposits, like, you know, we continue to do targeted things. We continue to to reprice time deposits down, and then the question is what do we what do we get from the Fed that would allow us to do bigger things on the deposit side? But overall, there's there's still plenty of opportunity to remix assets and, again, have the demonstrated ability to to to lower deposit rates.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Got it. I mean, that sounds like pretty good visibility on the loan side. I mean, we'll we'll wait to see what the yield curve gives us. But, I mean, a a a margin kinda closer to three and a half well into next year. Is that as you guys talk in house, is that a realistic goal?

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Or just trying to gauge sounds like a long runway of benefit absent any other further restructuring efforts.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

Yeah. So I think loan loan growth would be a a question there. You know, what do we get there that would would help us? And I'd say three and a half is probably more a back half of '26 number than a, you know, front half of 26 number.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Fair enough. Got it. And then one last one for you, Dave. You you did mention the credit upgrades anticipated or or in into the third quarter. Is any kind of segment detail on on where you're seeing some some of those upgrades?

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

It's really all over the place. There's some, you know, substandard or non accrual C and I, real estate where we're getting remargining. Yeah. I don't wanna jinx it and or, you know, give away too much information, but refinancing some of these problematic credits out. So we've made a lot of progress.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

I wish the timing had worked so we could share that with you, but we feel optimistic that a considerable portion of substandard, some nonaccrual, and special mentions will get upgraded in the near future.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

And are those sizable? Any I mean, I hate to you you don't wanna spill all of it, but any of the larger credits that you're seeing, or are these sort of on the on the edges granular stuff?

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

No. There's some there's some meaningful amounts in there. If you're talking specifically about our largest loan that we've talked so much about. You know, that's still a work in progress. We are seeing progress in the market.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

You know, we just did a new appraisal, and over the last year, the value of that went up 23%. Now it went down a lot. So we have more room to to make up. The office space in that building is now in San Francisco almost a 100% leased, but the retail portion of that is problematic. And I think that's reflective of what we're seeing in San Francisco overall.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

We are seeing leasing activity pick up, but at certainly lower rates. And that's where you go back to our guarantors, our sponsorship, and remargining at the right amount. So, no, some of the loans that we're talking about are some of the bigger ones we've we've had conversations with you all about. So we're we're optimistic. You know, it's not over till that all happens, but we've made a lot of progress.

[Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies]

Appreciate the detail. Thanks.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

You're welcome.

[Operator]

As a reminder, if you would like Our next question comes from Tim Coffey at Janney Montgomery Scott. Please unmute your line and ask your question.

[Timothy Coffey, MD & Associate Director - Depository Research at Janney Montgomery Scott]

Great. Thank you. Good morning, gentlemen.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Morning, Tim.

[Timothy Coffey, MD & Associate Director - Depository Research at Janney Montgomery Scott]

Yep. Hey, Ken. Can you talk a little bit more about the hires that you made? I think you've mentioned that one of them or couple of them are market leaders.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Yes. We've got I'd rather speak more about it next time because some of this is still, you know, in the process of being announced various places. But we have a new manager in San Francisco. We continue to hire in the Sacramento market. That's making a meaningful difference in the activity out there.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

If you look at where the bulk of activity is coming, actually, Sacramento is a market, probably our most active market. You some of those loans are done in other commercial banking groups where they have those relationships. But with those hires, again, just like the activity we've seen year to date, you know, for our top five producers, our new brand new or reasonably new bank, we're seeing that play out in the Sacramento market as well. And so but there's splattered throughout kind kind of the footprint, but they are making a difference when you look at our staff rankings.

[Timothy Coffey, MD & Associate Director - Depository Research at Janney Montgomery Scott]

Okay. That's great color. Appreciate that. And how does this, you know, that kind of information got translate to kind of the expense outlook? Outlook?

[Timothy Coffey, MD & Associate Director - Depository Research at Janney Montgomery Scott]

Because I think if I look at last year, core expenses first half of the year, about where they are now before trailing off in the second half of the year, it doesn't seem like that's gonna happen this time. Am I am I reading that correctly?

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Yeah. I'll let Dave talk about the expenses. But in terms of the hiring, that's either already reflected in here or there's some replacement offsets. And so, you know, there might be some modest, you know, net difference there, but I'll let Dave talk about that that run rate overall.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

Sure. So last quarter, we talked about a four percent compound annual growth rate of expenses. Historically, for us since 2021 being a good place to start forecasting, we also talked about the moves in our charitable contributions from q two to q one. Excuse me. That played out as as expected.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

Same with the IT projects we we talked about and and and that expense. So the other categories expense growth included occupancy. We had some branch upgrades and relocations where the expense was higher in q two, but there's some cost saves, I think, coming ahead for that. We also had some one time or annual events, I should say, in q two that make q two higher than q one in in that category. So our our outlook really is that there'll be movements within the buckets, but the second half of the year is gonna look probably quite a bit like the first half of the year, and that includes some giving some thought to the fact that our our employee vacancy rate is actually lower than usual, including and also including some of these new folks that we're bringing on or potentially bringing on.

[Dave Bonaccorso, EVP, CFO & Principal Accounting Officer at Bank of Marin Bancorp]

So that's embedded in in in that thought that the second half is close to the first half expense wise.

[Timothy Coffey, MD & Associate Director - Depository Research at Janney Montgomery Scott]

Okay. That's all great color. I really appreciate, the the candor. I'll step back. Thank you.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Yeah. Thank you, Tim.

[Operator]

Thank you. We have no further questions at this time. I will hand it back to Tim Myers for closing remarks.

[Tim Myers, Director, President & CEO at Bank of Marin Bancorp]

Again, thank you everyone for your interest, the excellent questions, and we look forward to talking to you next quarter.

Participants

Executives

• Krissy Meyer, Corporate Secretary
• Tim Myers, Director, President & CEO
• Dave Bonaccorso, EVP, CFO & Principal Accounting Officer

Analysts

• Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies
• Andrew Terrell, Managing Director at Stephens Inc
• Jeff Rulis, MD & Senior Research Analyst at D.A. Davidson Companies
• Timothy Coffey, MD & Associate Director - Depository Research at Janney Montgomery Scott