Bank of Marin Bancorp Reports Record Fourth Quarter and Full Year 2018 Earnings
NOVATO, Calif.--(BUSINESS WIRE)--Jan 28, 2019--Bank of Marin Bancorp, “Bancorp” (NASDAQ: BMRC), parent company of Bank of Marin, “Bank,” announced record earnings of $9.7 million in the fourth quarter of 2018, compared to $8.7 million in the third quarter of 2018 and $1.1 million in the fourth quarter of 2017. Diluted earnings per share were $0.69 in the fourth quarter of 2018, compared to $0.62 in the prior quarter and $0.08 in the same quarter a year ago. Annual earnings were $32.6 million in 2018 compared to $16.0 million a year ago. Diluted earnings per share were $2.33 for the year ended December 31, 2018, compared to $1.27 per share for the year ended December 31, 2017. 2017 periods were affected by a $3.0 million deferred tax asset write-down associated with the Tax Cuts and Jobs Act of 2017. Share and per share data has been adjusted throughout this document to reflect the two-for-one stock split effective November 27, 2018.
“Balance was the key to our tremendous success in 2018,” said Russell A. Colombo, President and Chief Executive Officer. “Our record-breaking performance is a testament to our consistent execution of disciplined fundamentals across all areas of the Bank. With a low cost and stable deposit base, solid opportunities for loan growth, and our unwavering commitment to relationship banking, we are well-positioned for continued success in 2019.”
Bancorp also provided the following highlights for the fourth quarter and year ended December 31, 2018:Pre-tax net income in the fourth quarter of 2018 was up $1.2 million from the prior quarter and $6.5 million from the fourth quarter of 2017. Higher average balances and yields on both loans and investment securities favorably impacted earnings in the current quarter. As discussed below, a $956 thousand gain on the sale of Visa Inc. Class B restricted common stock was mostly offset by a $916 thousand accelerated purchase discount on the early redemption of a subordinated debenture assumed in the 2013 NorCal Community Bancorp acquisition. The Bank achieved loan growth of $84.9 million in 2018, or 5.1% to $1,763.9 million at December 31, 2018, from $1,679.0 million at December 31, 2017. Loans increased $35.0 million in the fourth quarter from $1,728.9 million at September 30, 2018. In 2018, we expanded our footprint in the East Bay and strengthened our team in Sonoma County. Wim-Kees van Hout was hired as Regional Manager to open a new commercial banking office in Walnut Creek, and David Casassa was named Commercial Banking Regional Manager for our Santa Rosa market. Strong credit quality remains a cornerstone of the Bank’s consistent performance. Non-accrual loans represent 0.04% of the Bank’s loan portfolio as of December 31, 2018. There was no provision for loan losses recorded in 2018 due to continuing high credit quality. Deposits grew $26.1 million, to $2,174.8 million at December 31, 2018, compared to $2,148.7 million at December 31, 2017. Non-interest bearing deposits grew by $51.9 million in 2018 and made up 49% of total deposits at year end. In 2018, cost of deposits remained low at 0.10% despite the higher interest rate environment, compared to 0.07% in 2017. The efficiency ratio decreased to 51.3% in the fourth quarter from 54.2% in the third quarter of 2018, and 68.3% in the fourth quarter last year. The efficiency ratio was 57.3% for the full year, down from 64.7% in 2017. For the quarter ended December 31, 2018, return on assets (“ROA”) was 1.52% and return on equity (“ROE”) was 12.37%, up from 1.38% and 11.20%, respectively, in the third quarter. All capital ratios are well above regulatory requirements for a well-capitalized institution. The total risk-based capital ratio for Bancorp was 14.9% at both December 31, 2018 and December 31, 2017. Tangible common equity to tangible assets increased to 11.3% at December 31, 2018, from 10.7% at December 31, 2017 (refer to footnote 3 on page 6 for definition of this non-GAAP financial measure). The Board of Directors declared a cash dividend of $0.19 per share on January 25, 2019, a $0.015 increase from the prior quarter. This is the 55 th consecutive quarterly dividend paid by Bank of Marin Bancorp. Since August 2005, Bancorp’s average annual dividend growth rate has been 10.2%. The cash dividend is payable on February 15, 2019 to shareholders of record at the close of business on February 8, 2019. On April 23, 2018, Bancorp announced that its Board of Directors approved a Share Repurchase Program under which Bancorp may repurchase up to $25.0 million of its outstanding common stock through May 1, 2019. During 2018, Bancorp repurchased 171,217 shares for a total amount of $7.0 million.
Loans and Credit Quality
Loans grew $35.0 million in the fourth quarter of 2018 and totaled $1,763.9 million at December 31, 2018. For the three months and year ended December 31, 2018, new loan originations of $73.6 million and $239.4 million, respectively, exceeded 2017 loan originations of $51.5 million and $173.1 million for the same periods. New loan originations were partially offset by payoffs of $36.5 million in the fourth quarter and $157.3 million for the full year ended December 31, 2018.
Non-accrual loans totaled $697 thousand, or 0.04%, of the Bank’s loan portfolio at December 31, 2018, an increase from $386 thousand, or 0.02%, at September 30, 2018 and $406 thousand, or 0.02%, a year ago. Loans classified substandard totaled $12.6 million at December 31, 2018, compared to $12.4 million at September 30, 2018 and $27.9 million at December 31, 2017. There were no loans classified doubtful at December 31, 2018 or December 31, 2017. Accruing loans past due 30 to 89 days totaled $1.1 million at December 31, 2018, compared to $301 thousand at September 30, 2018 and $1.9 million a year ago.
There was no provision for loan losses recorded in the fourth quarter of 2018, compared to a $500 thousand provision for loan losses in the fourth quarter a year ago. Net recoveries for both the fourth quarter of 2018 and the prior quarter totaled $4 thousand compared to $21 thousand in the fourth quarter a year ago. Net recoveries totaled $54 thousand for the year ended December 31, 2018, compared to net charge-offs of $175 thousand in 2017. The ratio of loan loss reserve to loans, including acquired loans, was 0.9% at December 31, 2018, September 30, 2018 and December 31, 2017.
The investment portfolio totaled $619.7 million at December 31, 2018, an increase of $49.9 million from September 30, 2018 and $136.2 million from December 31, 2017. Purchases of securities totaling $61.3 million and $237.9 million were made during the fourth quarter and year ended December 31, 2018, respectively. These purchases consisted primarily of securities issued or guaranteed by the U.S. government to take advantage of the higher interest rate environment. Purchases were partially offset by principal paydowns, maturities, calls, and $17.1 million in investments sold in 2018.
Deposits totaled $2,174.8 million at December 31, 2018, compared to $2,212.8 million at September 30, 2018 and $2,148.7 million at December 31, 2017. While there was a $38.0 million decrease in deposits from the prior quarter primarily due to the normal cash fluctuations of our large business clients, total average deposits increased $34.2 million in the fourth quarter. The average cost of deposits increased four basis points in the fourth quarter to 0.14%. The average cost of deposits for the full year of 2018 was 0.10%, up three basis points from 2017.
Loan and investment growth in the fourth quarter was largely funded by cash and one overnight FHLB borrowing of $7.0 million on the last day of the year.
“Our record results for 2018 were powered by a well-executed strategy for growth combined with staying true to our rigorous lending standards,” said Tani Girton, EVP and Chief Financial Officer. “With a 1.31% ROA, tax equivalent net interest margin of 3.9%, a 10.73% ROE and efficiency ratio of 57.3%, we are excited to enter 2019 with great momentum.”
Net interest income totaled $23.3 million in the fourth quarter of 2018 compared to $23.5 million in the prior quarter and $20.1 million in the same quarter a year ago. The tax-equivalent net interest margin was 3.85%, 3.97% and 3.80% for those respective periods. The $200 thousand net interest income decrease from the prior quarter relates to $916 thousand in accelerated discount accretion from the early redemption of a high-rate subordinated debenture assumed in the NorCal Community Bancorp acquisition and increases in certain deposit rates, partially offset by higher yields and average balances on loans and investments and accelerated accretion from the payoff of acquired loans. While the accelerated accretion from the early redemption of the subordinated debenture reduced net interest margin by 15 basis points for the current quarter, the Bank’s interest expense will be lower going forward as a result of this transaction.
The $3.2 million net interest income increase from the same quarter last year was primarily due to the acquisition of Bank of Napa earning assets, organic loan growth, investment security growth, and higher yields across all earning asset categories. The increase was partially offset by the effect of the subordinated debenture redemption and an increase in certain deposit rates.
Net interest income totaled $91.5 million and $74.9 million in 2018 and 2017, respectively. The increase of $16.6 million in 2018 was primarily due to a $337.7 million increase in average earning assets. Additionally, higher yields on loans, investment securities and interest-bearing cash positively impacted interest income. The tax-equivalent net interest margin increased to 3.90% in 2018 compared to 3.80% in 2017 for the same reasons, despite the 0.04% negative impact from the early redemption of the subordinated debenture.
Loans acquired through the acquisition of other banks are classified as purchased credit impaired (“PCI”) or non-PCI loans and are recorded at fair value at acquisition date. For acquired loans not considered credit impaired, the level of accretion varies due to maturities and early payoffs. Accretion on PCI loans fluctuates based on changes in cash flows expected to be collected. Gains on payoffs of PCI loans are recorded as interest income when the payoff amounts exceed the recorded investment. PCI loans totaled $2.1 million at December 31, 2018, September 30, 2018, and December 31, 2017.
Accretion and gains on payoffs of purchased loans recorded to interest income were as follows:
Non-interest income in the fourth quarter of 2018 totaled $3.4 million, compared to $2.2 million in the prior quarter and $2.0 million in the same quarter a year ago. The increase compared to the prior quarter and the same quarter a year ago primarily relates to a $956 thousand pre-tax gain on sale of 6,500 shares of Visa Inc. Class B restricted common stock to a member bank of Visa U.S.A, a $180 thousand Federal Home Loan Bank special dividend and an increase in deposit network income. The Bank sold less than half of its Visa Inc. position to realize recent appreciation in market prices and hedge against market volatility. Additionally, there was a net loss of $195 thousand on the sale of investment securities in the fourth quarter of 2017. Non-interest income of $10.1 million in 2018 increased from $8.3 million in 2017 primarily due to the same reasons mentioned above.
Non-interest expense totaled $13.7 million in the fourth quarter of 2018, compared to $14.0 million in the prior quarter and $15.1 million in the same quarter a year ago. The decrease in the fourth quarter of 2018 compared to the same period a year ago was mainly due to Bank of Napa acquisition-related expenses in 2017.
Non-interest expense of $58.3 million in 2018 increased from $53.8 million in 2017, primarily resulting from an increase of approximately $3.4 million in salaries and benefits related to the addition of full-time equivalent personnel (including Bank of Napa employees), annual merit increases, higher employee insurance and stock based compensation awards reaching retirement eligiblity. Additionally, $1.0 million in consulting expenses related to core processing contract negotiations, higher core deposit intangible amortization and acquisition-related rent contributed to the year-over-year increase.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. The law reduced the federal statutory income tax rate to 21% for tax years beginning on or after January 1, 2018. The effective tax rate decreased from 44.6% in 2017 to 24.9% in 2018, 10.5 percentage points of which was attributable to the write-down of the net deferred tax assets in 2017.
Earnings Call and Webcast Information
Bank of Marin Bancorp will webcast its fourth quarter and year end 2018 earnings call on Monday, January 28, 2019 at 8:30 a.m. PT/11:30 a.m. ET. Investors will have the opportunity to listen to the conference call online through Bank of Marin’s website at https://www.bankofmarin.com under “Investor Relations.” To listen to the live call, please go to the website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available at the same website location shortly after the call.
About Bank of Marin Bancorp
Founded in 1989 and headquartered in Novato, Bank of Marin is the wholly-owned subsidiary of Bank of Marin Bancorp (NASDAQ: BMRC). A leading business and community bank in the San Francisco Bay Area, with assets of $2.5 billion and 23 retail offices throughout San Francisco, Marin, Napa, Sonoma and Alameda counties, Bank of Marin provides business and personal banking, commercial lending, and wealth management and trust services. Specializing in providing legendary service to its customers and investing in its local communities, Bank of Marin has consistently been ranked one of the “Top Corporate Philanthropists” by the San Francisco Business Times and one of the “Best Places to Work” by the North Bay Business Journal. Bank of Marin Bancorp is included in the Russell 2000 Small-Cap Index and NASDAQ ABA Community Bank Index. For more information, go to www.bankofmarin.com.
This release may contain certain forward-looking statements that are based on management’s current expectations regarding economic, legislative, and regulatory issues that may impact Bancorp’s earnings in future periods. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words “believe,” “expect,” “intend,” “estimate” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions, economic uncertainty in the United States and abroad, changes in interest rates, deposit flows, real estate values, costs or effects of acquisitions, competition, changes in accounting principles, policies or guidelines, legislation or regulation (including the Tax Cuts & Jobs Act of 2017), and other economic, competitive, governmental, regulatory and technological factors (including external fraud and cyber-security threats) affecting Bancorp’s operations, pricing, products and services. These and other important factors are detailed in various securities law filings made periodically by Bancorp, copies of which are available from Bancorp without charge. Bancorp undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.
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CONTACT: Beth Drummey
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KEYWORD: UNITED STATES NORTH AMERICA CALIFORNIA
INDUSTRY KEYWORD: PROFESSIONAL SERVICES BANKING
SOURCE: Bank of Marin Bancorp
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