BMRC - Earnings call transcript Q4 2017

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Jarrod Gerhardt

Good morning and thank you for joining Bank of Marin Bancorp's Earnings Call for the Fourth Quarter, ended December 31, 2017. I am Jarrod Gerhardt, Senior Vice President, Director of Marketing for Bank of Marin. [Operator Instructions] As a reminder, this conference is being recorded on January 22, 2018.

Joining us on the call today are Russ Colombo, President and CEO; and Tani Girton, Executive Vice President, Chief Financial Officer.

Our earning press release, which we issued this morning, can be found on our website at bankofmarin.com, where this call is also being webcast.

and I is emphasize know uncertainties. based today, XX, started, on the as get statements January call forward-looking this on XXXX, we want risks that to discussion of that Before involve contain and may information we results those forth statements. materially in from differ may such Actual set

filings. and For earnings well as press risks review forward-looking uncertainties, SEC a discussion of statements the release as please these disclosure our our in

And now, the remarks, questions. to and answer call will the Tani Colombo. available like prepared be I'd over Following Russ Russ turn to your to

Russell Colombo

Good call. Jarrod. you, morning, Thank and welcome the to

We results fourth the to are quarter pleased review with you end. our and year for

in some and $X.X which in quarter million Bank was down We positions $X.X equity. as of asset for the Marin strategic $X.X to fourth which write become both These start XXXX. completed $X our income and a of in the million impacted growth a us deferred results of highlights. the were Wine Napa tax of with have which of to million focus tangible County Industry, Napa, recent acquisition quarter X.XX% by of for compared amounts Bank Net Let's continued years. successfully directly and the million, quarter last for fourth

refer a non-GAAP reconciliation X $X.X and our quarter And measures. diluted would per these fourth the respectively. share earnings ended million the XX, related quarter We Page to for been been financial and Napa. of and items, Please two for our for million year million the for net December expenses of more $XX.X incurred in after-tax full of release income the would XXXX, also these acquisition of Without press detailed have $X.X Bank $X.XX to $X.XX year. have

of and combination were XX.X%, as the billion or in deposits of XXXX. by XX% by in Organic strong $XXX.X for year-over-year. $XX.X Non-interest-bearing increased year-end. of Napa, in loan loans result In deposit at we million comprised total loans through the Deposits combined Bank in broad-based and of $X.XXX $X.X compared increases XXXX billion Bank was $X.XXX of in with of both compared X.X% quarter growth deposits growth million year-end up $XXX.X XXXX. the deposits billion a total and as million total $X.X healthy acquired by loans. year with at end with growth billion $XX XXXX, X%, the acquired or $XXX.X at deposits to increased million XX.X% to organic Our increased organic from to million Napa, year-end, was fourth

fourth quarter fourth New the million approximately compared loans of $XX in third in million and to million the quarter XXXX. $XX $XX in quarter were the

XXXX. commercial our EVP responsible strategic in presence our strengthening County His Napa facing Commercial Regional in As Sonoma with and we expanded prior These is our our team and for Napa call, announced customer several Officer we bank, Banking, Operating Scott Manager growing market. include and tiers James Chief Kimball, Jim our on businesses the McAdams, SVP in the Scott team will sales in is extensive sector. team Bay working key in integrating experience Wine with and strategic in - across be banking commercial Sonoma our footprint. expanding that Area team businesses banking the market. for

October Bay opportunities to suffered the the serious wildfire. With in are losses to due year The organic these we ahead. growth addition pursue well-positioned North

monitoring we the not and disaster did this our bank are the of and the business something Along significant are community itself experience carefully. assessing Fortunately, damage. clients on any effects

has provision underpinning $XXX,XXX of wildfires of always and this was and our X.X% at to credit Sonoma XXXX year-end, no continue business will strong make recent County. support long-term and in our both growth. a At in due to the exception. the cycle loan invest Napa been This from for practice and culture, the non-accruals was low potential recovery associated organic extremely We impact effort is in still loans. success with losses acquisition. total loan continuing did We The

addition, on January share XXst reduced paid bank represents It dividend. our a of of Directors never that the cash noting declared $X.XX Bank quarterly Board of dividend In by This worth XX, is per Marin has XXXX. the Bancorp. consecutive dividend the

over Now additional let results. for our me Tani turn financial to insights on it

Tani Girton

morning. Thank Good you, Russ.

per to year tax related associated acquisition to is strength table on early related as when to XXXX's it earnings period the the with for Russ record shown refer acquired million XXXX asset down XXXX, renewals of earnings $X.XX expenses and helpful for December. loan share comparable of was XXXX income in to This that consider X or mentioned, Act underlying deferred quarter were table demonstrate and the comparing which begins million Page of passed net and the of As fourth XXXX write early loans. share reported and earnings with tax press cut of non-GAAP the and Jobs release. full when recovery the the periods, $X.XX payoffs of per $XX.X our same and $X.X you earnings, impact

the team we year. our continuing in fourth quarter the in to compared income As interest $XX quarter-over-quarter third was through quarter walk demonstrate comparisons in million the quarter million statement, growth platform. and while income our net profitability, and and million fourth investing $XX.X also $XX XXXX last

a recorded mainly [ph] million Bank and dividend Loan XXXX. ago. investment $XXX,XXX XXXX fourth in $X.X special on Federal the $XX.X in interest to net a XXXX, year, higher Home million $X third XXXX in totaled million the from quarter The San of acquired million and the tax to accelerated level was million interest in income the interest the asset recovery accretion $X.X XXXX. net compared For and than quarter law to benefited XXX,XXX year income Francisco offset earning securities, the of compared due in more of sold cotangent losses ramification. $XX.X of Non-interest from loan we

acquisition special third tax would points quarter, down gains primarily year this the expenses. years. The Without expenses, to was deferred was for related full slightly expense XXXX. XX.X have of previous offset million year but of also to and expense $X.X tax on partially XX.X% than over insurance to annual due non-interest tax higher staff, Fourth non-interest $XXX,XXX lower and asset to been additional X higher FHLB assessment. acquisition-related of write securities increases rate by not XXXX rate the XXXX XXXX the effective this the due increased due the year, investment to lower Non-interest elevated quarter percentage due was million than sales and charge, $X.X QX million expenses, in the over only SBIC down. $X.X dividend merit in the For by income effective

and points acquisition reduced acquisition of XX.X%, the basis to and ratio was to and we X.X the course, profitability expenses. points Acquisition year made strategic return the X.XX%, for impacted during percentage changes reduced to our equity related for by tax year return by and risk efficiency was Of which XXX XX hires expenses law basis on The on assets points efficiency XXXX. metrics X.XX%. was

over for investments tax law, improved made have expectation accretion new time. in Marin position and with coupled EPS will of Bank efficiencies, We that higher returns XXXX, every the

balance on words few our a sheet. Finally,

X% total XXXX. of December X ratio at loan compared legacy loans September low XXXX points. constant loss the at XX, XX Based December XX, loan reserve to at only, loans XX. and was September loss ratio basis portfolio XX, was loan-to-deposit to including to and X.XX% XX% on our acquired Our loan, X.XX% reserves XXXX, at at X.XX% our at The X.XX% remains was deposit December

capital to and will Russ year. closing growth plenty And We call support the some comments. coming over to liquidity have turn now the of I in back for

Russell Colombo

you, Thank Tani.

enhances as and results. the strong we everyone continuing and XXXX. we grew our Napa, expanding while future a team our We We growth did right to deposits we and our success. heard, of great that appreciate customer this measure, had deal platform a and sector, the As we that a help efforts the contributed loans and existing by position We developing our Wine to people, strategic you all well opportunity. to hired strengthened new we year deliver productive who as in just completed any By financial achieved on relationships acquisition unlock ones. organically in

the will and continue we in organic the and us acquisition strategic position should year, growth In evaluate we add XXXX Importantly, shareholders. in coming opportunities very both investments our well to to that Napa culture our the made with M&A for XXXX. fit value

focus organic primary the conversations the and pleased to start. Area banks Bay find track A Bank have banking we be growth, that to are our our and are will markets team new our footprint relationship based on to set for Napa appealing. continue expanded We in our team, I'm in our market, a strengthen XXXX reputation, hires XXXX the that and to report in of of deliver we with great off model. record which

has never stronger. team Our been

presence years. Our strong Marin’s of year, competitive new position Kimball, great very deposit Napa, East more to on team us to it Southern the market track proven well is expanded and growth model trust share, the Valley to market. and has of with strong continue key believe bankers field, created bolstered the are low-cost commercial of served our allowed addition is a and the Bank through relation and generating County Bank a Of the We by strategies the and and Area expansion existing of building footprint our the we has sales real meaningful of long-term already when for banks marketing in productive CLO, customers has Bay This market ones. in market Last think due lucrative community to attractive our developing acquisition even and Jim's Oakland comes relationships division to serve that it [indiscernible], with reputation. momentum our clients have past California. opening build part attract Jim We migrating Bay asset banking team as in record better and to meeting bank. new enhanced us and been XX loan The large building Central our banking base. advantage in for a people the Sonoma the

recently We businesses the with the growth expect passed look forward and that we supporting to in growth reform, many be will tax plan. investing

organizations, model. we customers continue on we remain sectors, As of to will focused and industry this making non-profit a the across wide wine serve range

We are your and thank morning, see you future for bank. the many will time we answer about will opportunities open excited up questions. to value and to of enhance now, I our your all the we this the it

Operator

question question. first audio line Davidson. D.A. of the the with with Instructions] proceed [Operator Please comes Rulis on line Our Jeff your from

Jeff Rulis

morning. Good Thanks.

Russell Colombo

morning, Good Jeff.

Tani Girton

morning. Good

Jeff Rulis

final as have the I those Bank and Russ, deposit do Napa, you your totals you loan may have from list available? missed – of

Tani Girton

- page on are release, in look They on page actually the a the release. second, of hold you if X

million rounded. You $XXX loans total can were were and see $XXX deposits million,

Jeff Rulis

you Okay, 'XX sorry about organic that. that the is of - your I the a any if sounds while reinvestment acquisitions into Russ, look 'XX. Could it strategic organic just or focus was to greater would of expectations context like continue for more acquired that be 'XX don't - than know that that 'XX you back those. going means to put growth. on for

around put expectations words 'XX and If any you could, kind 'XX? of, versus your

Russell Colombo

Sorry, this. we In the let frame it me acquisitions. make it did 'XX,

We an Jim Hillsburg including McAdams [ph]. also made hiring, in and Kimball, office strategic some Scott open

talk And so, potential acquisitions. continue to we 'XX, to look about banks as we to

when plan for However, to difficult that. happen acquisitions they and it's happen

we - we’re position. – And a focus focus on coming we on strategic this organic we're great growth. So year up think on in

– Bay. as results that I these people go going of Fargo here. particular. the And real to markets to of they bringing we’re We in a brought we a He addition go to attracted lot lot over, in that because the of have, has North we has North see of And came and that that forward. and the out we experience Wells Scott on, was prior Jim knowledge got in forward Bay with some McAdams believe of Jim Napa teams the in So experience since experience in as and out being same,

what future. about on but guidance do confident don't you we I - we this expectations can we're in growth, organic in high give numbers because are our growth in organic to say, So can't of the give market. terms we're needless that,

Jeff Rulis

Got you.

end the So you I of be X% would organic guess 'XX, in what that 'XX? in low if at think growth

Russell Colombo

high for our going are Like I forward. expectations our said, growth,

Jeff Rulis

enough. Fair

and this that more to levels provisioning And pickup into are I fires. from growth on it on guess quarter provision alluded and so on on based provisioning ties you kind unknown, the commentary the perhaps, optimistic as growth of you unknown there the the that risk - Any as level was levels? comment the any

Russell Colombo

Sure.

the that in that expectation growth we the – experienced really the growth in terms all, quarter. growth of we first in of First is provision

there number some the to fourth frankly, don't amount of quarter. So - that wrong, this expectations anything is a of quarter not of pipeline, because is because it. really book there's that [indiscernible] a fair sometimes closed our to so they we first in pretty over that related and anticipate we that that There's carried strong loan of loans in just are it's going make a

So are that our very high for expectations quarter. first

long-term In we about going impact really addition, don't the to mentioned of we is be. that as fires, going know the what

it. kind we term the safety, plan And kind and for really, part of don't for worst best, of what hope that's so, we just the of, I and because way know impact the would the provisioning is the

really acquisition, that. provision it as that that. the well. and people very That has terrific that so acquisition certain extent, far towards takes full change organization a And part of integration, we're is thus to move April. be it Their have whenever to we've time we far, we so exceptionally you does Napa, - that acquired. gone being integrate we've which So this Bank will very, an of it And culture the low, are and matches from pleased in are said, for

Jeff Rulis

two Thanks, Okay. then, ones And Tani. Russ. quick for

your costs quarter. rate one the and expected million Just come forward are just in $X.X 'XX? the the more anticipating we tax categories merger did 'XX Thanks. next and those from cost, on then and this What merger going

Tani Girton

Okay.

in merger cost, pretty much the what running On with are we line those expected.

model deal. when evaluated be recent done, Our all we that then there a and is forecast most said is left the will little and

the at think if We we And looking of you $X question. are M&A another We part have million cost go, have about roughly. to XXXX. more

Jeff Rulis

- that yes, within processing? the salaries data was were I in was in to, or... item, of, It that more kind line If itemize

Tani Girton

Yes.

data expenses acquisition biggest data Napa conversions provider also component the conversion the our in provider of processing provider expenses So termination processing prior and Napa professional the processing the then Bank of services. the and are on to in from data expenses

done So with deal a expenses [ph] filings in of lot other those. associated getting costs SX of have the there with and are that the do terms with associated SEC to the we accounting writing -

in down law. rate some it's hard question, expect tax so with we There percentage there additive associated the on are reduce from effective they a and to on then of to it. – related. tax tax and significant Okay, the not do entirely tax - But tax permanent bases XX% impact as because tax tax to because go change the the XX% are rate federal on differences a our going that is a rate have are rate going change rate a dollar a

Jeff Rulis

is in corporate that that a ballpark, it some Okay. at I in read you were XX% previously, assumption? down to there's the - takes that if XX%, puts level there and XX% decent

Tani Girton

be you down points, XX if it to say, that's going percentage conservative. take I'd

Jeff Rulis

you. Thank Okay.

Operator

comes of Sandler Please Tim with line O'Neill. from your the with proceed question. Our next O'Brien question

Unidentified Analyst

Kagan Thanks. This Tim. on Good morning, is Thomas guys. for

run ballpark out of on in somewhat have broken any to question in that So around those and million items two do came there other quarter. know $X of in these and the the processing similar rate a million you total the guys you've and for service professional each non-recurring for either just I the for are $X acquisition, items? previous data range costs

Tani Girton

significant places are embedded There those… So s the significant other any is associated anything items. those not with in

Unidentified Analyst

Okay.

Tani Girton

have income know, with things forward, loans. to you the acquired other for regard scheduled accretion And the you going impact statement might

we’re a any on the early accretion have income, payoffs interest but Of amount. going to don't small we know is net very impact course, scheduled what

the you I by look release, accretion, for go talks gains the scheduled was So scheduled if – table at much for of purchase sales X in see will the that fourth forward. press you going loans, points accretion up which basis quarter. the accretion can think on on page X don't that about

Unidentified Analyst

at just if influence Okay, one our going forward? your thing. great. that there rate And tax Thank strategies additional remaining the - any you. any then tax Is all benefit could additional quick from

Russell Colombo

the repeat one question Sorry. you Could more time?

Unidentified Analyst

yes. Yes,

I know some do law might this tax in changes? you strategies, of guys you the recent - forward you But the that that just rate going to the any mentioned there information for kind tax guys just about anything So potential could rate. addition the future is influence could - tax in

Russell Colombo

borrowers. things and do to for the we is we one mean, that fair of do forward done do have we've of tax I going we number financing continue and a

nature. because tax currently the that in will on have those the question, make And that's of affect in so pricing tax time, those with our ability the is the changes and flows deals based in rates. [indiscernible] with things although, price rate that's them, interesting the of one But there that an obviously, those on to portfolio many we

So there to how settles and a be deals that in corporate only the tax to market tax-exempt – somewhat will that tax as make we're of see to changes the out them certainly, close forward, financing. attractive, because and be less of, XX% pricing kind rate we go going certainly borrowers gap with will the

back do We that evaluate forward So program deals we've doing. and… and to the that on price want of need we kind been have to particular how what to going step we we

Unidentified Analyst

Okay. Yeah, that’s you. Thank great.

Russell Colombo

Okay.

Operator

comes Jackie KBW. the question with Boland of next line Our from

Jackie Boland

Hi. Good morning, everyone.

Russell Colombo

Good morning, Jackie.

Tani Girton

Jackie. morning, Good

Jackie Boland

lending drivers color there. a some are? some going Can you the You more what the little in just of on just that had Oakland, on of provide that’s mentioned increase bit

Russell Colombo

that effective together that - development particular officers, of bankers say, there. the very we they're has office and had are [ph] over generating in as in that we've That market has market most a office the tremendous wholesalers, lightning, distribution, C&I over build team opportunity that to our is which East is very doing now. that is of portfolio. out results, drivers things been really personal are And pretty great the a probably to team would is us business And terrific you high opportunities. are of That's number type it year. great people. great you [indiscernible] level team the and that in Bay of we the our are is, easy aware, lot at put who result probably right our A quarter have job. And have last effective nature, And of people reason. When opportunities. really see. I you a a system usually have the And the gives assembled lenders, performing we've the

Jackie Boland

very helpful. Thank that's you. Okay,

that future, that continue So guess? of I foreseeable it's a will to quarters source for into good come, several sounds the something be like to growth would

Russell Colombo

we And - that anticipate too. other for level they that. we higher our Yes, obviously, certainly at expect grow expectation a offices would

Jackie Boland

me. for Okay. And one one All then right. last

In deposit much pricing to terms of acquisition? related the in of how the that quarter, was

Tani Girton

cost get deposits didn't our of thus and We contribution from seen non-interest Napa. who pressure of going So bearing gotten do haven't in periodically, change, somebody from raise request get far accounts rates our our a get we some rates. really CDA has - but lot did to we we a up

model and accounts as pricing our surfaced our We interest pricing I and CDA are are we haven't operating accounts. And rates sensitive. our big those changed well of our really percentage on because a deposit rate really not associated such yet have relationship think

Jackie Boland

this time in pressure Okay, even the from December at customers? - not with getting much really point rate no hike so

Russell Colombo

model the being which fourth is the such of differential, value accounts, that that because we pressured, funding get the know keeps to have we our demand But value levels future saying of will money and [ph] quarter. we're with demand clip basis deposits which in cost X the this market that funding. we of said what continuing growing - a and Tani rates that the while the of of greater We're relation rise, banking $XX of cost certainly nature. that deposits really because go about model getting We and our at demand expand deposit our pretty we franchise points, that with the pressure. of speaks in That things have, relationship a in at to that nice said, amount as the pressure. that get differential forward, the don't cost that. you even an not million demand remains I'm growth of that and we we deposit because deposits franchise And our show benefit of have have the will high margin certainly

Jackie Boland

Okay, very you. Thank That’s helpful. great.

Russell Colombo

Thanks, Jackie.

Operator

Please comes the of James. Worthington with Raymond [Operator question. your Don Instructions] proceed line from next Our question with

Don Worthington

Good Russ, Thank morning, Tani. you.

Russell Colombo

Good morning, Don.

Tani Girton

Morning.

Don Worthington

that Just you first subject, was while we $XX would are in lose the in on that to be the temporary million anything the deposits consider might quarter? there you

Russell Colombo

large mean, borrowers, a We depositors, I give keep do I'll have couple just - deposits a number substantial the the of large who of you bank. in have examples.

a the large some get a they those in and out. work, contractors they also who municipal lot they in. additional other then they bidding bring have We they the when bank, projects which do goes get contract, But funds funded of new and when money the other money do work. are And comes

money pretty So while are stable. comes goes, the the totals and

of - - normal we coming then goes they replacing that other money others in, have in, that they So and have those while of we deposits number other that transitory that that are of have deposits number kind out. types of which have we a the those and those and a ad money large on have deposits, exactly those It's is of - the agency, kinds end. contractors are - in have there coming they

than had out a we never We the watched dip, it decline. pretty past a So had the we a pretty we've that was time really of we year closely. this not when had the grew deposit this less so been big in over years year And - migration – year.

Don Worthington

to then be lead or you And right, doing thanks. the that, to that All losses? might would anymore of Okay. terms plan gains in of portfolio, restructuring securities

Tani Girton

be basis, the our we're bit and with a one security tax changes, their little -- any not portfolio the an bulk of of any are changes may also done we only there regard on evaluate is upcoming the few securities looking ongoing but the what for we I credit think but portfolio, to it in other there on more, So, be at probably think this we a done, have impacts of law take point. that action ramifications, But will We portfolio. on might that most but in on.

Don Worthington

Okay, guess, be expenses, dividend a then, question thanks. I lower policy? benefit the thoughts last terms Your And my of rate, in any tax or from is, might on how deployed? that initiatives

Russell Colombo

policy, be time evaluating We're And longer certainly. an opportunity. in evaluate - period. the that period, with look made we utilize make may other shorter growth would a to investments have to maybe would we have it dividend over We capital we time at ways opportunity as

we're a more They so, don't mostly acquisitions acquisitions as they And seems stock. come are to of acquisitions, most the all that obviously, those capital create at be really here, looking along, to capital. utilize these And lot building opportunities. problem with capital days

those So should I us, back making maybe for okay, say, to because up substantially might deferred be be time what of investments. a that the our investments opportunity at but - look have and tax think going we're now really step then opportunity and change it to earnings are we would of give be so we does to kind to us it's good because an invest,

Don Worthington

you. great. Thank Okay,

Russell Colombo

Okay. Welcome.

Operator

follow-up Clark a question. from Piper with the is question your proceed with Please line question Matthew Jaffray. our of And last

Matt Clark

Hi, good morning.

Russell Colombo

Morning.

Matt Clark

that Napa I color around commentary pipeline just the of a know about Legacy, your more increased tax or get Marin, to you, be of with compares good in comparison change little maybe hoping being environment might your acquisition. aren't Bank sensitize Bank how I'm But with that of much with how the and view and can of the kind reforms? there year-over-year maybe demand fire-related the of, substantial.

Russell Colombo

see fire from see the point. at the start I which don't related. of a don't - the this demand I with is fire-related lot

rebuild. just are a it's to to that actually time time So to the to starting where takes have get It long it's projects a through going -- they process. long take

into December, a it pretty it because is that of thought a closed we have interesting had pushed it to was might – of we number of particularly close, quarter. none month and in times which, going over which We and pipeline year, one this the was had the we all virtually, got first substantial, big

first else was we're And forward So to what a beyond I your remember don't that? looking good question there. quarter

Matt Clark

any indications to -- of around early trying tax of activity there? Just reform, kind increased

Russell Colombo

I don't we look we to over it now. maybe do I maybe when next, see to with say we yet. be projects terms going X But have like think, in that's them of, months right the kind XX of, us, developing which might at delayed, we

that with the for financing. think happen. I'm have our invest to because it's more that's I capital customers, would, have opportunities to us that do us very will to move bring, forward sure, projects. and available will would cash, going have those opportunities We do going have going now for I'm more that capital opportunities to they things available looking at And think delayed, with maybe potentially more law but optimistic be to like the tax I to about that changed, that they customers just

Matt Clark

Okay. of one Napa. Bank [phase] change just Any targeting of cost to as And those last realized? then for on the are in the how timing magnitude terms and

Tani Girton

know so on I don't but estimated when originally we this as we forward. think, now, with, we'll and target right XX.X%, as that's point. I know more, we where go at far We think are

Matt Clark

thank Okay, you.

Russell Colombo

can into have at the looking at are but we how a in our space. we we all, size, never reduce more efficient These have put plan have to at the facilities would of of out things were space, we we as opportunities and not lot move, right can if to we not that to do look facilities, The might able become maybe Napa. things be we

next X XX sure. over happen months, the to that So will for

Matt Clark

shake and quick what comments, guys guesstimate, if at? out we Since I just on our tax that in will you But your think apologize one, expressed. And I have it one missed you XXXX, Okay. jumped it I rate own little curious late. a

Tani Girton

assume rate, effective Yes, bit was what be the point that decrease estimate. a XX a that you I shared earlier in percentage if would little probably tax a about conservative

Matt Clark

Got you. it. Thank

Russell Colombo

Thank you.

Operator

further the And questions have audio we on line.

Russell Colombo

to thank of next for with us you you you. and joining all morning, want quarter. this I all again Okay. will of Thank we talk

Tani Girton

you. Thank

Operator

for conclude gentlemen, kindly thank and Good We conference and call participation, the does ask a you your your lines. for everyone. you disconnect today. that Ladies day, Have this

Bank of Marin Bancorp (BMRC) 22 Jan 182017 Q4 Earnings call transcript