Bank of Marin Bancorp Reports Record Third Quarter Earnings Increase of 34%

Maintains Healthy Credit Quality and Enhances Capital Strength

• Press Release
• Source: Bank of Marin Bancorp
• On 9:00 am EDT, Monday October 19, 2009

NOVATO, Calif.--(BUSINESS WIRE)--Bank of Marin Bancorp (“Bancorp”) (NASDAQ:BMRC - News) announced 2009 third-quarter earnings of $3.6 million, up $906 thousand, or 33.6%, from the same period a year ago, and up $468 thousand, or 14.9% from the second quarter of 2009. Diluted earnings per share were $0.68 in the third quarter of 2009, up sixteen cents, or 30.8% from the third quarter of 2008, and up eight cents, or 13.3% from the second quarter of 2009.

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“We are pleased to achieve the highest quarterly earnings in our history this quarter,” said Russell A. Colombo, President and Chief Executive Officer. “Our business success is based on our consistent execution on the fundamentals of responsible, solid banking which has been particularly important in this challenging economic environment.”

Bancorp also provided the following highlights on its operating and financial performance for the third quarter of 2009:

“Our capital growth allows us to withstand fluctuations in an uncertain economy and is a reflection of our overall strength,” said Christina J. Cook, Chief Financial Officer. “We are pleased to continue to exceed regulatory standards for well-capitalized institutions.”

Loans and Credit Quality

Total loans reached $919.8 million at the end of third quarter, representing growth of $80.8 million or a 9.6% increase from the same time last year. The mix of loans reflects an increase in home equity lines of credit as a percentage of total loans, as well as a slight decrease in commercial real estate loans as a percentage of total loans.

Non-performing loans totaled $6.0 million, or 0.7% of Bancorp’s loan portfolio at September 30, 2009 compared to $5.9 million or 0.6% at June 30, 2009 and $823 thousand a year ago. Accruing loans past due 30 to 89 days declined to $4.4 million at September 30, 2009, down from $7.2 million and $10.2 million at June 30, 2009 and September 30, 2008, respectively. The allowance for loan losses of $11.1 million is equivalent to 184% of non-performing loans. The allowance for loan losses as a percentage of loans totaled 1.21% at September 30, 2009 compared to 1.11% a year ago. The increase in the allowance for loan losses as a percentage of loans reflects an increased allowance factor for residential subdivision land loans.

Deposits

Total deposits grew $100.1 million or 11.8% over a year ago. New deposit account openings during the first nine months of 2009 increased 17% over the same period in 2008. Early in September 2009, Bank of Marin opened the new Greenbrae branch, which has generated over $5 million in deposits in its first month of operation. Non-interest bearing deposits totaled 26.0% of total deposits at September 30, 2009 and have provided sturdy and low-cost funding for Bancorp’s operations.

“Our healthy deposit growth is a reflection of the confidence and trust our customers continue to place in us,” said Colombo. “By solidifying our footprint in Marin with a new branch in Greenbrae, we are well positioned to increase market share.”

Earnings

Earnings for the nine-month period ended September 30, 2009 totaled $10.0 million, an increase of $606 thousand, or 6.5%, over the same period a year ago. Diluted earnings per share for the nine-month period ended September 30, 2009 totaled $1.66, compared to $1.79 for the same period a year ago. The earnings per common share for the nine-month period ended September 30, 2009 were reduced by $0.25 resulting from Bancorp’s early repurchase of the preferred stock that had been issued under the TCPP¹ and dividends on the preferred stock. Further, earnings reflected a special assessment imposed by the FDIC² on all banks of $496 thousand in the second quarter of 2009, which reduced diluted earnings per share by $0.06 for the nine-month period ended September 30, 2009.

Net interest income of $13.3 million in the quarter ended September 30, 2009 increased $1.0 million, or 8.3%, from the same period last year, and the year-to-date amount for 2009 increased $3.7 million, or 10.3% from the same period last year. The increases reflect growth in interest-earning assets and a reduced cost of funds, partially offset by decreased loan yields primarily due to a lower-rate environment. The tax-equivalent net interest margin was 5.18% in the third quarter of 2009 compared to 5.35% in the third quarter of 2008 and 5.16% in the first nine months of 2009 compared to 5.43% in the first nine months of 2008. Decreases in the tax-equivalent net interest margin were primarily due to the downward re-pricing of our loan portfolio in a declining rate environment and to a lesser extent, interest foregone on non-accrual loans (representing a nine-basis point and a eight-basis point impact on the net interest margin in the quarter and nine months ended September 30, 2009, respectively).

Non-interest income totaled $1.3 million in the third quarter of 2009, an increase of $137 thousand or 11.5% from the same period last year. Excluding the $457 thousand pre-tax non-recurring gain on the sale of Visa Inc. shares in the first quarter of 2008 discussed below, non-interest income of $3.8 million for the first nine months of 2009 remained relatively unchanged from the same period last year.

Non-interest expense totaled $7.8 million in the third quarter of 2009 and $23.9 million in the first nine months of 2009. Excluding the first quarter 2008 reversal of the $242 thousand Visa Inc. litigation liability discussed below, non-interest expense in the first nine months of 2009 increased $2.1 million, or 9.7%, from the same period a year ago. The increase reflected $1.1 million more in FDIC premiums related to a significantly higher FDIC premium assessment rate (including a special assessment of five basis points on total assets minus Tier 1 capital as of June 30, 2009) and increased deposits levels. The increase also reflects higher personnel and occupancy costs associated with branch expansion, operational losses, increased legal fees in connection with our participation and termination in the TCPP program, as well as costs associated with non-accrual loans, partially offset by lower data processing and other professional costs.

Net income for the first nine months of 2008 included a pre-tax non-recurring gain of $457 thousand recorded in the first quarter related to the mandatory redemption of a portion of Bank of Marin’s shares in Visa Inc., and the reversal of a pre-tax charge of $242 thousand that was originally recorded in the fourth quarter of 2007, for the potential obligation to Visa Inc. in connection with certain litigation indemnifications provided to Visa Inc. by Visa member banks. These two non-recurring items positively impacted diluted earnings per share for the first nine months of 2008 by $0.08.

About Bank of Marin Bancorp

Bank of Marin Bancorp's assets currently exceed $1 billion. Bank of Marin, as the sole subsidiary of Bancorp, operates thirteen branch offices in California and a commercial loan production office in San Francisco. The Bank's Administrative offices are located in Novato, California and its Wealth Management Services are located in Greenbrae, Novato and Petaluma, California. Bank of Marin is included in the Russell 2000 Small-Cap Index, is recognized as one of thirty top performing small-cap banks by Sandler O'Neill + Partners, and has received the highest five star rating from Bauer Financial for 41 consecutive quarters. (www.bauerfinancial.com). Bank of Marin has been recognized as one of the "Best Places to Work in the Bay Area" and one of the “Top Corporate Philanthropists” by the San Francisco Business Times.

Forward Looking Statements

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, the current financial turmoil in the United States and abroad, changes in interest rates, deposit flows, real estate values, and competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory and technological factors 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.

¹ ) The U.S. Department of the Treasury Capital Purchase Program. In March 2009, Bancorp repurchased all 28,000 shares of preferred stock issued under the The U.S. Department of the Treasury (the “Treasury”) Capital Purchase Program on December 5, 2008. A total of $28.2 million was paid to the Treasury, including accrued dividends of $179 thousand. Warrants that were issued to the Treasury as part of TARP to purchase 154,242 shares of common stock at a per share exercise price of $27.23 remain outstanding. On June 26, 2009, the Treasury issued guidance on the process banks can use to repurchase warrants under the TCPP. Bancorp currently does not intend to repurchase the warrants from the Treasury under these guidelines.

² ) Federal Deposit Insurance Corporation

For Bank of Marin Bancorp
Sandy Pfaff, 415-633-3224
spfaff@peppercom.com