Bank of Marin Bancorp NASDAQ: BMRC reported higher second-quarter earnings, wider net interest margin and improved capital ratios, while management said it is working to convert stronger loan production and client acquisition into sustainable balance-sheet growth.
Net income for the quarter ended June 30 was $9.2 million, or $0.58 per share, compared with $8.5 million, or $0.53 per share, in the first quarter, Chief Financial Officer Dave Bonaccorso said. President and CEO Tim Myers said earnings per share and net income nearly doubled from the second quarter of 2025.
Return on average assets rose to 0.96%, while return on average tangible common equity reached 11.6%. The efficiency ratio improved to 63.6%.
Margin Expansion Driven by Loan Yields and Deposit Costs
Tax-equivalent net interest margin expanded 14 basis points during the quarter to 3.38%. Myers attributed the improvement to higher loan yields, targeted reductions in deposit rates and balance-sheet management.
Net interest income increased sequentially to $30.8 million, supported by increased interest income on loans and lower deposit expense. The yield on new loan fundings rose 62 basis points from the prior quarter to 6.53%, while the quarterly cost of deposits declined seven basis points. The spot cost of deposits fell three basis points between March 31 and June 30.
Bonaccorso said the 14-basis-point quarterly margin increase was a high bar but that several drivers could continue. He cited expected benefits from certificate-of-deposit repricing, targeted deposit-rate reductions and the impact of newly originated loans being on the balance sheet for a full quarter.
For June, the tax-equivalent net interest margin was 3.48%, though Bonaccorso said a more normalized level, excluding a relatively high benefit from one-way deposit sales, would be approximately 3.44% to 3.45%.
The company has used one-way deposit sales as part of its balance-sheet management strategy. Bonaccorso said the sales reduce excess cash and higher-cost deposits, supporting net interest margin and providing flexibility in managing the balance sheet. He added that the strategy could persist, although activity was somewhat larger during the second quarter.
Loan Production Improves Despite Payoffs
Bank of Marin originated $98 million in new loan commitments during the quarter, including $63 million that funded. Funded production was 23% higher than in the year-earlier period. However, period-end loan balances declined modestly to $2.1 billion because of elevated payoff activity, including the planned exit of a $19 million credit-sized relationship.
Management said the exit was a de-risking action that offset otherwise positive production trends. The yield on second-quarter loan payoffs was 5.86%, compared with 6.53% on new originations, according to Bonaccorso.
Myers said the bank is seeking to expand production through hiring and relationship banking. During the quarter, the company added a three-person team in San Francisco and hired a leader for its East Bay market. Myers said the bank has also continued investing in its Greater Sacramento presence and is placing greater emphasis on commercial and industrial lending.
Management also pointed to an improving construction-lending environment, particularly for condominium and single-family residential infill projects in San Francisco and nearby areas. Myers said this segment had slowed for several years but is beginning to recover, potentially supporting both loan balances and yields.
While competition has included aggressive pricing and non-recourse requests, Myers said Bank of Marin has been walking away from loans priced in the range of 150 basis points over the relevant index. The bank is seeking to maintain disciplined underwriting and pricing, generally targeting new loans near 200 basis points over the relevant index.
Credit Quality and Capital Strengthen
Credit quality improved during the quarter, helped by the exit of the $19 million relationship. Special mention loans declined meaningfully, while nonaccrual loans fell to 0.40% of total loans from 0.41% in the prior quarter. Net charge-offs were minimal.
The company recorded a $320,000 reversal of the provision for credit losses, and its allowance for credit losses remained at 1.07% of total loans.
Capital ratios also increased. The tangible common equity ratio rose 19 basis points to 8.52%, the total capital ratio increased 32 basis points to 15.58%, and the Tier 1 leverage ratio rose 43 basis points to 8.66%. Tangible book value per share increased $0.15 to $19.92.
The board declared a quarterly cash dividend of $0.25 per share on July 23, marking the company’s 85th consecutive quarterly dividend.
Myers said the company still has approximately $24 million authorized for share repurchases, but he does not view buybacks as imminent as the bank continues rebuilding capital following prior balance-sheet restructuring actions. He said acquisitions remain a strategic priority over episodic repurchases when opportunities offer attractive franchise value, though there are no transactions currently in progress.
Deposits, Expenses and Securities Portfolio
Management said deposit balances declined during the quarter because of a small number of relationships, seasonal customer activity and investment-policy decisions. Myers noted that one customer had a $74 million outflow, but said management did not view the activity as evidence of customers leaving the bank.
The bank added nearly 1,000 accounts during the quarter, with 41% coming from new relationships. Deposits were up nearly 4% from the year-earlier quarter, according to management.
Noninterest income declined $665,000 sequentially, largely because the first quarter included FHLB stock dividend income, including a special dividend, and bank-owned life insurance death benefits that did not recur. Excluding those items, noninterest income increased $293,000, aided partly by fees from one-way deposit sales.
Noninterest expense declined $942,000 from the first quarter, following seasonally elevated salary, benefit and charitable-contribution costs. Bonaccorso said second-half expenses should generally track the first-half pace, though third-quarter salaries may be somewhat higher than the second quarter and project spending could increase.
On securities, Bonaccorso said the bank has not made purchases since January but may begin gradually reinvesting during the third quarter. He expects the securities portfolio to decline over time as about $200 million of payoffs are expected over the next 12 months, with management seeking to make loans a larger share of the balance sheet.
About Bank of Marin Bancorp (NASDAQ:BMRC)
Bank of Marin Bancorp is the bank holding company for Bank of Marin, a community-oriented financial institution headquartered in Novato, California. Through its subsidiary, the company provides a broad range of banking services to individuals, small and medium-sized businesses, and nonprofit organizations. Its operating philosophy emphasizes personalized service and strong local relationships across the San Francisco North Bay region.
The company's core product offerings include deposit accounts such as checking, savings, money market and time certificates of deposit.
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