Q1 2026 Bank of Marin Bancorp Earnings Call

April 27, 2026

Speaker #1: Good morning. Thank you for joining Bank of Marin Bancorp's earnings call for the first quarter ended March 31, 2026. I'm Krissy Meyer, Corporate Secretary for Bank of Marin Bancorp.

Krissy Meyer: Good morning. Thank you for joining Bank of Marin Bancorp's earnings call for the Q1 ended 31 March 2026. I'm Krissy Meyer, Corporate Secretary for the 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 Bonaccorso. Our earnings news release and supplementary presentation, which were issued this morning, can be found in the investor relations section of our website at bankofmarin.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.

Speaker #1: During the presentation, all participants will be in 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 Bonaccorso.

Speaker #1: Our earnings news release and supplementary presentation, which were issued this morning, can be found in the Investor Relations section of our website at bankofmarin.com, where this call is also being webcast.

Speaker #1: 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.

Speaker #1: 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 knew as of Friday, April 24, 2026, and may contain forward-looking statements that involve risks and uncertainty.

Krissy Meyer: 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 knew as of Friday, 24 April 2026, and may contain forward-looking statements that involve risks and uncertainties. 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, Misako Stewart, will be available to answer your questions. Now I'd like to turn the call over to Tim Myers.

Speaker #1: 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.

Speaker #1: Following our prepared remarks, Tim, Dave, and our Chief Credit Officer, Misako Stewart, will be available to answer your questions. And now, I'd like to turn the call over to Tim Myers.

Speaker #2: Thank you, Krissy. Good morning, everyone, and welcome to our quarterly earnings call. We are very pleased that our execution in the first quarter, across a number of key areas, resulted in continued improvement in year-over-year profitability metrics, loan production, net interest margin expansion, and improved credit quality.

Tim Myers: Thank you, Krissy. Good morning, everyone, and welcome to our quarterly earnings call. We are very pleased that our execution in Q1 across a number of key areas resulted in continued improvement in year-over-year profitability metrics, loan production, net interest margin expansion, and improved credit quality. I'd like to discuss our Q1 highlights. Compared to Q1 2025, net income and earnings per share grew by 75% and 77% respectively in Q1 of this year. Largely due to the repositioning of our balance sheet, our net interest margin increased 6 basis points on a sequential quarter basis and 47 basis points over the prior year's period. During the quarter, we originated $81 million in new loans, $61 million of which was funded, an almost 30% increase over the prior year's period.

Speaker #2: I'd like to discuss our first quarter highlights. Compared to the first quarter of 2025, net income and earnings per share grew by 75% and 77%, respectively, in the first quarter of this year.

Speaker #2: Largely due to the repositioning of our balance sheet, our net interest margin increased 6 basis points on a sequential quarter basis and 47 basis points over the prior year's period.

Speaker #2: During the quarter, we originated $81 million in new loans, $61 million of which was funded. And almost 30% increase over the prior year's period.

Speaker #2: While the first quarter is a seasonally slower period for production, the additional hires we made to our banking team, with generally favorable economic conditions we continue to see in our markets, and a healthy increase in commercial real estate loan demand, led to our strongest first quarter in a number of years.

Tim Myers: While the Q1 is a seasonally slower period for production, the additional hires we made to our banking team, the generally favorable economic conditions we continue to see in our markets, and a healthy increase in CRE loan demand led to our strongest Q1 in a number of years. New loan product allocation was roughly in line with our existing portfolio with a slight skewing towards C&I. During the quarter, we worked diligently to improve our credit quality. We sold our longest tenure classified and non-accrual loans totaling $16.3 million, which were downgraded to substandard in 2021 and moved to non-accrual in 2024. At that time, we took specific reserves of $7.3 million based on property valuations. The note sale proceeds validated our reserve assumptions with the charge-offs equaling the specific amounts reserved.

Speaker #2: New loan product allocation was roughly in line with our existing portfolio with a slight skewing towards CNI. During the quarter, we worked diligently to improve our credit quality.

Speaker #2: We sold our longest-tenured classified and non-accrual loans totaling $16.3 million. Which were downgraded to substandard in 2021 and moved to non-accrual in 2024. At that time, we took specific reserves of $7.3 million based on property valuations.

Speaker #2: The no-sale proceeds validated our reserve assumptions, with the charge-offs equaling the specific amounts reserved. While other workouts were offset by new downgrades, the impact of the no-sales on credit metrics was substantial.

Tim Myers: While other workouts were offset by new downgrades, the impact of the note sales on credit metrics was substantial. Non-accrual loans declined from 1.27% of assets to 0.41%, and the ratio of classified to total loans decreased from 1.51% to 0.85%. Notably, following the note sales, virtually all of the remaining non-accrual balances are comprised of 1 non-owner occupied commercial real estate loan that has no loss expectations based on underlying valuation and cash flow. Despite strong seasonal loan originations, Q1 loan growth was negatively impacted by our non-accrual loan resolutions. Excluding these purposeful exits, loan payoffs were roughly in line with the prior year's period and were generally driven by asset sales and cash payoffs. We continue to experience elevated payoffs in consumer-related loans, primarily within acquired portfolios, including auto and mortgage loans.

Speaker #2: Non-accrual loans declined from 1.27% of assets to 0.41%, and the ratio of classified to total loans decreased from 1.51% to 0.85%. Notably, following the no-sales, virtually all of the remaining non-accrual balances are comprised of one non-owner-occupied commercial real estate loan that has no loss expectations based on underlying valuation and cash flow.

Speaker #2: Despite strong seasonal loan originations, Q1 loan growth was negatively impacted by our non-accrual loan resolutions. Excluding these purposeful exits, loan payoffs were roughly in line with the prior year's period and were generally driven by asset sales and cash payoffs.

Speaker #2: We continue to experience elevated payoffs in consumer-related loans, primarily within acquired portfolios including auto and mortgage loans. Despite these dynamics, our net interest margin benefited as new loans came onto the books at an average rate that was 40 basis points higher than the average rate on payoffs.

Tim Myers: Despite these dynamics, our net interest margin benefited as new loans came onto the books at an average rate that was 40 basis points higher than the average rate on payoffs. A Q4 interest recovery of $667,000 not repeated in Q1 and the decreased number of days in Q1 matched that rate spread benefit. Excluding other unique transactions, we believe our loan portfolio will positively impact the net interest margin in 2026 going forward. Our banking team continues its relationship-based approach to attract lending opportunities and drive to cultivate new, deeply rooted relationships with particularly strong momentum in Q1 in the Greater Sacramento area. While we continue to navigate a competitive market environment on pricing and structure, we have attracted a significant amount of new client relationships while maintaining our disciplined underwriting and pricing criteria.

Speaker #2: The Q4 interest recovery of $667,000 was not repeated in Q1, and the decreased number of days in the first quarter masked that rate spread benefit.

Speaker #2: Excluding other unique transactions, we believe our loan portfolio will positively impact the net interest margin in 2026 going forward. Our banking team continues its relationship-based approach to attract lending opportunities and strives to cultivate new, deeply rooted relationships, with particularly strong momentum in the first quarter and the greater Sacramento area.

Speaker #2: While we continue to navigate a competitive market environment on pricing and structure, we have attracted a significant amount of new client relationships while maintaining our disciplined underwriting and pricing criteria.

Speaker #2: Our total deposits increased in the first quarter due to a combination of increased balances from long-time clients, as well as continued activity bringing in new relationships.

Tim Myers: Our total deposits increased in Q1 due to a combination of increased balances from longtime clients, as well as continued activity bringing in new relationships. The rate environment remains competitive, and clients remain rate sensitive. However, they continue to bank with us for our service levels, accessibility, and commitment to our communities, allowing us to continue reducing our cost of deposits while growing our deposit base. With that, I'll turn the call over to Dave Bonaccorso to discuss our financial results in greater detail.

Speaker #2: The rate environment remains competitive, and clients remain rate-sensitive; however, they continue to bank with us for our service levels, accessibility, and commitment to our communities. This allows us to continue reducing our cost of deposits while growing our deposit base.

Speaker #2: With that, I'll turn the call over to Dave Bonaccorso to discuss our financial results in greater detail.

Speaker #3: Thanks, Tim, and good morning, everyone. Our net income was $8.5 million, or 53 cents per share. Our net interest income increased from the prior quarter to 30.3 million dollars due to average balance sheet growth and higher investment security yields and reduced deposit costs, as well as deposit churn in the loan portfolio that Tim discussed, resulting in a 6 basis point increase in our net interest margin.

Dave Bonaccorso: Thanks, Tim. Good morning, everyone. Our net income was $8.5 million or $0.53 per share. Our net interest income increased from the prior quarter to $30.3 million due to average balance sheet growth and higher investment security yields and reduced deposit costs, as well as the positive churn in the loan portfolio that Tim discussed, resulting in a 6 basis point increase in our net interest margin. Adjusting for the Q4 recovery of interest and fees on a paid-off non-accrual loan relationship, our sequential quarter net interest margin growth would have been even more impressive at 14 basis points. During the quarter, the expansion of a deposit relationship with a relatively high cost was a headwind to net interest margin.

Speaker #3: Adjusting for the fourth quarter recovery of interest and fees on a paid-off non-accrual loan relationship, our sequential quarter net interest margin growth would have been even more impressive at 14 basis points.

Speaker #3: During the quarter, the expansion of the deposit relationship with a relatively high cost was a headwind to net interest margin. At quarter end, we moved a portion of these funds off balance sheet to take advantage of a relatively high one-way sell rate which boosts our overall net income and contributes to non-interest income.

Dave Bonaccorso: At quarter end, we moved a portion of these funds off balance sheet to take advantage of a relatively high One-Way Sell rate, which boosts our overall net income and contributes to non-interest income. This opportunity has persisted into Q2, and we will continue to look for opportunities like these to actively manage our balance sheet to improve shareholder returns. Moving to non-interest income, most areas of fee income were relatively consistent with the prior quarter, although we did receive a special dividend on FHLB stock as well as a BOLI death benefit, which positively impacted our total non-interest income in Q1. Our non-interest expense increased by $2.5 million from the prior quarter, primarily due to higher salaries and employee benefits related to seasonal salary and benefit accrual resets, including payroll taxes, incentive compensation accruals, profit sharing, insurance, and 401(k) matching.

Speaker #3: This opportunity has persisted into Q2, and we will continue to look for opportunities like these to actively manage our balance sheet to improve shareholder returns.

Speaker #3: Moving to non-interest income, most areas of fee income were relatively consistent with the prior quarter, although we did receive a special dividend on FHLB stock, as well as a BOLI death benefit, which positively impacted our total non-interest income in the first quarter.

Speaker #3: Our non-interest expense increased by $2.5 million from the prior quarter, primarily due to higher salaries and employee benefits related to seasonal salary and benefit accrual resets, including payroll taxes, incentive compensation accruals, profit sharing, insurance, and 401(k) matching.

Speaker #3: The first quarter also included a higher level of our annual charitable giving, which we expect will comprise almost 70% of the total for 2026.

Dave Bonaccorso: The Q1 also included a higher level of our annual charitable giving, which we expect will comprise almost 70% of the total for 2026. Overall, Q1 non-interest expense was broadly in line with our expectations. Charitable giving is expected to return to more normalized levels during the coming quarters, we otherwise expect non-interest expense to continue near current levels as we continue to invest in people and technology which we believe will fuel our growth and ultimately drive shareholder returns. Due to the improvement in asset quality in our loan portfolio and the substantial level of reserves we have already built, we did not require a provision for credit losses in the Q1, and our allowance for credit losses remains strong at 1.08% of total loans, which we believe is an appropriate level following the sale of our non-performing loans.

Speaker #3: Overall, Q1 non-interest expense was broadly in line with our expectations. Though charitable giving is expected to return to more normalized levels during the coming quarters, we otherwise expect non-interest expense to continue near current levels as we continue to invest in people and technology, which we believe will fuel our growth and ultimately drive shareholder returns.

Speaker #3: Due to the improvement in asset quality in our loan portfolio, and the substantial level of reserves we have already built, we did not require a provision for credit losses in the first quarter. Our allowance for credit losses remained strong at 1.08% of total loans, which we believe is an appropriate level following the sale of our non-performing loans.

Speaker #3: Given the continued strength of our capital ratios, our board of directors declared a cash dividend of $0.25 per share on April 23rd, the 84th consecutive quarterly dividend paid by the company.

Dave Bonaccorso: Given the continued strength of our capital ratios, our board of directors declared a cash dividend of $0.25 per share on 23 April, the 84th consecutive quarterly dividend paid by the company. With that, I'll turn it back over to you, Tim, to share some final comments.

Speaker #3: With that, I'll turn it back over to you, Tim, to share some final comments.

Speaker #2: Thank you, Dave. We continue to see stable economic conditions in our markets, and our credit quality continues to improve. Our loan pipeline remains strong amid healthy demand, and we continue to expect solid loan growth in 2026 while also continuing to grow deposits through the addition of new relationships and the expansion of existing client relationships.

Tim Myers: Thank you, Dave. We continue to see stable economic conditions in our markets. Our credit quality continues to improve. Our loan pipeline remains strong amid healthy demand, and we continue to expect to generate solid loan growth in 2026, while also continuing to grow deposits through the addition of new relationships and expansion of existing client relationships. Given the positive trends we are seeing in many key metrics, we expect to continue to deliver strong financial performance for our shareholders as we move through the year. With that, I want to thank everyone on today's call for your interest and your support. We will now open the call to questions.

Speaker #2: Given the positive trends we are seeing in many key metrics, we expect to continue to deliver strong financial performance for our shareholders as we move through the year.

Speaker #2: With that, I want to thank everyone on today's call for your interest and your support. We will now open the call to questions.

Speaker #4: If you would like to ask a question, please click on the 'Raise Hand' button at the bottom of your screen. Once prompted, please unmute your line and ask your question.

Operator: If you would like to ask a question, please click on the Raise Hand button at the bottom of your screen. Once prompted, please unmute your line and ask your question. We will now pause a moment to assemble the queue. Our first question will come from Matthew Clark with Piper Sandler. You may now unmute and ask your question.

Speaker #4: We will now pause a moment to assemble the queue. Our first question will come from Matthew Clark with Piper Sandler. You may now unmute and ask your question.

Speaker #5: Hey, good morning, guys.

Matthew Clark: Hey, good morning, guys.

Speaker #6: Good morning, Matthew.

Tim Myers: Morning, Matthew.

Matthew Clark: How much was the interest reversal that negatively impacted the loan yield on a dollar basis?

Speaker #5: How much was the interest reversal that negatively impacted the loan yield on a dollar basis?

Matthew Clark: How much was the interest reversal that negatively impacted the loan yield on a dollar basis?

Speaker #6: That was—you’re talking about the one in Q4? It was, I believe, $667,000.

Tim Myers: That was you're talking about the one in Q4? It was, I believe $667,000.

Speaker #5: Oh, okay. I'm sorry. I think I misheard you. I thought there was another one here in Q1.

Matthew Clark: Okay. I'm sorry. I think I misheard you. I thought there was another one here in Q1.

Speaker #6: There's not. It was over a quarter, and part of the decline was impacted by that $670,000 interest accrual reversal in Q4.

Tim Myers: There's not.

Matthew Clark: Um-Okay.

Dave Bonaccorso: That through the quarter. Part of the decline was impacted by that $670,000 interest accrual reversal in Q4.

Speaker #5: Got it. Okay. Okay, thank you. And then, saw the spot rate on deposits—how are you thinking about deposit costs kind of beyond that spot rate with the Fed on hold? And what would you suggest is your marginal cost of new deposits these days?

Matthew Clark: Got it. Okay. Okay, thank you. Saw the spot rate on deposits. How are you thinking about deposit costs kind of beyond that spot rate with the Fed on hold and what would you suggest is your marginal cost of new deposits these days?

Speaker #6: So, I think similar to what we've done in recent quarters, we'll continue to look at targeted adjustments away from Fed cuts. Obviously, there are probably fewer Fed cuts expected now than what the market was expecting at the start of the year.

Dave Bonaccorso: I think similar to what we've done in recent quarters, we'll continue to look at targeted adjustments away from Fed cuts. Obviously, you know, probably fewer Fed cuts expected than compared to what the market was expecting to start the year. That's how we'll continue to address that. We also have time deposit repricing happening in the background. I believe that was a 24 basis point decline sequential quarter. Those are a couple of data points. Anything else you want to add, Tim?

Speaker #6: So that's how we'll continue to address that. We also have time deposit repricing happening in the background. I believe that was a 24 basis point decline, sequential quarter.

Speaker #6: So, those are a couple of data points. Anything else you want to add, Tim?

Speaker #2: No, I think some of the total, or the pressure on total deposits, continues to be just large existing clients that have relationship rates that continue to go up.

Tim Myers: No, I think some of the total pressure on total deposits continues to be just large existing clients, that have, you know, relationship rates that continue to go up. Some of that's, you know, we're managing with One-Way sells, et cetera. No, overall, we continue to look for off-cycle reductions. As you noted, the spot rate is, you know, 4 bits lower than the total deposit rate at the end of the quarter or, sorry, end of the year.

Speaker #2: Some of that we're managing with one-way sells, etc. But no, overall, we continue to look for off-cycle reductions and, as you noted, the spot rate is four basis points lower than the total deposit rate at the end of the quarter—or, sorry, end of the year—so.

Speaker #5: Yeah, okay, great. And then you haven't bought back stocks for the last couple of quarters. You've got a lot of your credit pretty much resolved here.

Matthew Clark: Yep. Okay, great. You haven't bought back stock for the last couple of quarters. You've got credit, you know, a lot of your credit pretty much resolved here. How should we think about the buyback here going forward?

Speaker #5: How do you think about—how should we think about the buyback here going forward?

Speaker #2: So as we described when we did the balance sheet restructure, given that we got support from the regulators and all our constituents to do it without any equity raise, this was sub debt.

Tim Myers: As we described when we did the balance sheet restructure, given that, you know, we got support from the regulators and all our constituents to do it without any equity raises with sub-debt. We had said we were gonna earn our way back into, you know, a median leverage ratio or CT1 ratio coming back, you know, towards peer level. Certainly at the time, that was, you know, the perception was holding more capital is better in the event that the credit situation with those loans worsen. As you noted, you know, taking that off the table brings us closer to having a comfort level to do that. It's a, it's a conversation we're going to start having, but we still want to earn our way back into a bit of a higher ratio before maybe embarking on that.

Speaker #2: We have said we were going to earn our way back into a median leverage ratio, or CQ1 ratio, coming back towards peer level. And certainly, at the time, the perception was holding more capital is better.

Speaker #2: In the event that the credit situation with those loans worsened, as you noted, taking that off the table brings us closer to having a comfort level to do that.

Speaker #2: So, it's a conversation we're going to start having. But we still want to earn our way back into a bit of a higher ratio before maybe embarking on that.

Speaker #2: But certainly, not needing to keep capital for the risk inherent in those deals we shed during the quarter. We'll feel better about having that conversation.

Tim Myers: Certainly not needing to keep capital for the risk inherent in those deals we shed during the quarter. You know, we'll feel better about having that conversation. I don't want to overpromise, but, you know, that did remove a big hurdle for sure.

Speaker #2: So, I don't want to overpromise, but that did remove a big hurdle for sure.

Speaker #5: Okay. Thank you.

Matthew Clark: Okay. Thank you.

Speaker #4: Your next question will come from Jeff Roulos with B.A. Davidson.

Operator: Your next question will come from Jeff Rulis with D.A. Davidson.

Speaker #5: Thanks. Good morning.

Jeff Rulis: Thanks. Good morning.

Speaker #2: Good morning, Jeff.

Tim Myers: Morning, Jeff.

Jeff Rulis: I guess, kind of following the restatement you had during the quarter, trying to get my bearings on the margin and expense levels. I think you kind of outlined the expense expectation. Sounds like pretty flat from here, pretty front-end loaded Q1 and then leveling off. I guess if I try to get into NII and the margin, I think we had sort of had discussions of a terminal margin level in the high threes, given kind of the adjusted number is sort of a mid-three figure. I'm trying to get a sense for you've had a lot of restructuring and repositioning. Sounds like still an upward bias to the margin, but kind of all in, you know, whether specific or not, you know, kind of a margin level you think that's indicative of the balance sheet today.

Speaker #5: I guess, kind of following the restatement you had during the quarter, I'm trying to get my bearings on the margin and expense levels. I think you've kind of outlined the expense expectation.

Speaker #5: Sounds like pretty flat from here, a pretty front-end-loaded Q1, and then leveling off. But I guess if I try to get into NII and the margin, I think we had had discussions of a terminal margin level in the high threes, given kind of the adjusted number is sort of a mid-three figure.

Speaker #5: I'm trying to get a sense for—you've had a lot of restructuring and repositioning. Sounds like still an upward bias to the margin. But, kind of all in, whether specific or not, what kind of margin level do you think is indicative of the balance sheet today?

Speaker #6: I think, on a full-year basis, mid-threes is probably still appropriate, or appropriate in line with the comment you just made. Obviously, adjusted downward given the restructuring—and we covered deposit costs a little bit—but we still think there are decent tailwinds with regard to loan repricing.

Tim Myers: I think, on a full year basis, mid-threes is probably still appropriate or appropriate in line with the comment you just made. Obviously adjusted downward given the restructuring. You know, we covered deposit costs a little bit, but we still think there are decent tailwinds with regard to loan repricing.

Speaker #5: So Dave, the step up this quarter, link quarter, I guess for the jump-off rate of March is 3.26, and you're sort of saying by the end of the year, a mid-threes is doable.

Jeff Rulis: Dave, the step up this quarter, linked quarter, I guess, you know, for the jump off rate of March is 3.26. You're so to say by the end of the year a mid-threes is doable. I guess that would put kind of the linked quarter margin increase. Is that give or take a pretty good proxy?

Speaker #5: I guess that would kind of link to the quarter margin increase. Is that, give or take, a pretty good proxy?

Tim Myers: Yeah. Well, I guess I would look at it a different way. I mean, you're probably looking at a handful of basis points a quarter. I mean, there's some movements comparing off the prior quarter, you know, with that non-accrual loan payoff, et cetera. That's how I would think about it moving ahead is with the benefits to loan repricing, you know, that's probably worth a few basis points and then any other deposit repricing benefits we have along the way would add to that. You know, such that you get to, you know, potentially up to a mid-threes number for the year.

Speaker #6: Yeah. Well, I guess I would look at it a different way. I mean, you're probably looking at a handful of basis points a quarter.

Speaker #6: I mean, there's some movements comparing off the prior quarter, with that non-accrual loan payoff, etc. But that's how I would think about it moving ahead—it's with the benefits to loan repricing.

Speaker #6: That's probably worth a few basis points. And then any other deposit repricing benefits we have along the way would add to that, such that you get to potentially up to a mid-threes number for the year.

Speaker #5: That's great, thank you. And then maybe just one other question on the credit side. The timing of the large loan resolution—is that its own independent path, or do you find that's indicative of something moving in the market that makes you feel like you can move forward on this other, larger $8 million owner-occupied CRE?

Jeff Rulis: That's great. Thank you. Then maybe just one other question on the credit side. The timing of the large loan resolution, is that its own independent path, or do you find that's indicative or something moving in the market that you feel like you can move forward on this other larger, $8 million owner-occupied CRE? Or do you view them really independently, that's something that you are chasing down separately and this remaining loan you expect the workout phase to continue for quarters to come?

Speaker #5: Or do you view them really independently? Is that something that you are chasing down separately, and this remaining loan—you expect the workout phase to continue for quarters to come?

Speaker #2: Yeah. So, they're completely different animals, Jeff. The notes we sold were the ones we downgraded. That was our pandemic special that we've been talking about ad nauseam.

Tim Myers: Yeah. They're completely different animals, Jeff. The notes we sold were the ones we downgraded. That was our pandemic special, that we've been talking about ad nauseam for a number of years. The market just wasn't going to recover in time for that to be properly restructured. We're not going to maintain a loan on our books, where we need to take a charge off, so we elected to sell the note, and Misako done a really good job of estimating value and negotiating that sale such so we didn't have any further provisioning impact. The other loan we've mentioned on the calls is something where, again, the loan-to-value, the debt service coverage ratio, all the metrics are adequate. We're in a dispute over terms of an extension.

Speaker #2: For a number of years, the market just wasn't going to recover. In time for that to be properly restructured, we're not going to maintain a book alone on our books.

Speaker #2: Where we need to take a charge-off. So we elected to sell the note, and Misak had done a really good job of estimating value.

Speaker #2: And negotiating that sale such that we didn't have any further provisioning impact. The other loan we've mentioned on the calls is something where, again, the loan-to-value, the debt service coverage ratio, all the metrics are adequate.

Speaker #2: We're in a dispute over terms of an extension or renewal—I'm sorry, extension. And so that's really what's keeping it. So we're in the middle of a legal process on that.

Tim Myers: That's really what's keeping it. We're in the middle of a legal process on that, there really isn't. It's not apples to apples. We will look to continue to look to resolve that. We don't have any loss expectations on that credit, whereas the other one had a serious valuation impact, as you know.

Speaker #2: And so there really isn't—it's not apples to apples. And so we will continue to look to resolve that. But we don't have any loss expectations on that credit.

Speaker #2: Whereas the other one had a serious valuation impact, as you know.

Speaker #5: I appreciate it, Tim. Maybe most importantly, I'm interested in your view of just the general market and, on the CRE side, as you view vacancy rates and the general, kind of broader, Greater Bay Area—sort of firming up or—how would you characterize kind of recent CRE trends in the area?

Jeff Rulis: Appreciate it, Tim. Maybe most importantly, interested in your view of the just the general market in on the CRE side and as you view vacancy rates and the general kind of broader Bay Area, sort of firming up, or how would you characterize kind of recent CRE trends in the area?

Speaker #2: Yeah. So I would continue to bifurcate the Bay Area between San Francisco—particularly for office—and the rest of the Bay Area. We never saw the significant value degradation or lease rate declines in the outer markets that we saw in San Francisco.

Tim Myers: Yeah. I would continue to bifurcate Bay Area between San Francisco, particularly for office and the rest of the Bay Area. We never saw the significant value degradation or lease rate declines in the outer markets that we saw in San Francisco, which, you know, plummeted. The trends continue to be very positive, certainly a lot of that driven by AI-related investments and, you know, even on the property, on the note we sold, you know, we were looking at 20% to 30% a year of improving NOI. The market is rebounding. There's news about retail coming back in the retail areas. It had to hit a bottom. You see people being opportunistic now. For those of us that had assets at prior valuations, that was gonna take a long time.

Speaker #2: Which, as you know, plummeted. The trends continue to be very positive. Certainly, a lot of that driven by AI-related investments. And even on the property, on the note we sold, we were looking at 20% to 30% a year of improving NOI.

Speaker #2: So the market is rebounding. There's news about retail coming back in the retail areas. It had to hit a bottom. You see people being opportunistic now.

Speaker #2: But for those of us that had assets at prior valuations, that was going to take a long time. But we've certainly seen more opportunism in the market.

Tim Myers: We certainly see more opportunism in the market. Some of our activity over the last couple quarters has been related to people taking advantage and making purchases. I view all that as a positive. Again, I would bifurcate between dealing with an asset that was on the book before the value degradation and what's happening now. Overall, the trends remain very positive in San Francisco.

Speaker #2: Some of our activity over the last couple of quarters has been related to people taking advantage and making purchases. And so I view all that as a positive.

Speaker #2: So again, I would bifurcate between dealing with an asset that was on the books before the value degradation and what's happening now. But overall, the trends remain very positive in San Francisco.

Speaker #5: Thanks. Appreciate it.

Jeff Rulis: Thanks. Appreciate it.

Speaker #7: Your next question will come from Woody Lay with KBW.

Operator: Your next question will come from Woody Lay with KBW.

Speaker #8: Hey, good morning, guys.

Woody Lay: Hey, good morning, guys.

Speaker #2: Morning, Woody.

Tim Myers: Morning, Woody.

Woody Lay: I was just hoping that you could sort of walk through the higher expenses in the Q1, the jump from, you know, Q1 to Q4. It sounds like the forecast, you know, excluding the charitable contribution, should remain relatively flat. Does that embed any additional hiring from here?

Speaker #8: I was just hoping that you could sort of walk through the higher expenses in the first quarter—the jump from Q1 to Q4.

Speaker #8: And then it sounds like the forecast, excluding the charitable contribution, should remain relatively flat. Does that embed any additional hiring from here?

Speaker #2: Sure, I'll start that one off. So, just zooming out a little bit, I think the company has a long-standing history of very strong expense management.

Dave Bonaccorso: Sure. I'll start that one off. Just zooming out a little bit, you know, I think the company has a longstanding history of very strong expense management. If you go back the last 10 years or so, our non-interest expense to average assets has been in the favorable, top 30% of peers, you know. It's important to what we do. I think we're pretty thoughtful around it, and that's despite operating in some pretty expensive markets. I think where the deviation may have happened in Q is, if an estimate was jumping off of Q4 for personnel expense, keep in mind, we did have some incentive bonus reversals in Q4. I think historically, Q3 has probably been a better predictor of Q1 than Q4 has.

Speaker #2: If you go back the last 10 years or so, our non-interest expense to average assets has been in the favorable top 30% of peers.

Speaker #2: So it's important to what we do. I think we're pretty thoughtful around it, and that's despite operating in some pretty expensive markets. I think where the deviation may have happened is if an estimate was jumping off of Q4 for personnel expense. Keep in mind, we did have some incentive bonus reversals in Q4.

Speaker #2: And I think, historically, Q3 has probably been a better predictor of Q1 than Q4 has. And so, our Q3 actually looks—relative to Q3—our Q1 looks similar to where it has been the last couple of years.

Dave Bonaccorso: Our Q3 relative to Q3, our Q1 looks similar to where it has been the last couple of years. You put on top of that the annual resets that we discussed in our earnings materials like payroll taxes, profit sharing, et cetera. You know, that's how we get to the key driver of our overall number this quarter, which is in personnel. You hit on charitable contributions. We expect that to normalize. I think one other area that was a little bit of an outlier this quarter was the FDIC insurance expense. Due to the repositioning, we had a lower leverage ratio and negative earnings in our last assessment, you know, because of those losses.

Speaker #2: And then you put on top of that the annual resets that we discussed in our earnings materials, like payroll taxes, profit sharing, etc. That's how we get to the key driver of our overall number this quarter, which is in personnel.

Speaker #2: And then you hit on charitable contributions. We expect that to normalize. I think one other area that was a little bit of an outlier this quarter was the FDIC insurance expense.

Speaker #2: And due to the repositioning, we had a lower leverage ratio and negative earnings in our last assessment because of those losses. That was applied to a higher assessment base.

Dave Bonaccorso: That was applied to a higher assessment base and given the balance sheet growth and also lower tangible equity. That I think explains some of the expense you're seeing in Q1, and we expect that to normalize as more of the benefits of the repositioning flow through.

Speaker #2: And given the balance sheet growth, and also lower tangible equity, I think that explains some of the expense you're seeing in Q1. We expect that to normalize.

Speaker #2: As more of the benefits of the repositioning flow through.

Speaker #8: Got it. That's helpful. And then maybe just last for me, sort of putting some of the moving pieces together. I mean, it sounds like there's continued tailwinds to the margin.

Woody Lay: Got it. That's helpful. And then maybe just last for me, sort of putting some of the moving pieces together. I mean, it sounds like there's continued tailwind to the margin. You know, you've got a slightly higher expense base, but it should be relatively stable versus Q1. I mean, the expectation is still for positive operating leverage throughout the year.

Speaker #8: You've got a slightly higher expense base, but it should be relatively stable versus Q1. So, I mean, the expectation is still for positive operating leverage throughout the year?

Speaker #2: Yes, I agree with that. Yeah, I believe that's the case. We are looking to be opportunistic, though, and continue to add hires that can help us drive the growth.

Dave Bonaccorso: Yes, I agree with that.

Tim Myers: Yeah, I believe that's the case. We, we are looking to be opportunistic though and continue to a- continue to add, uh, hire that can help us drive the growth. I can't really predict the timing for that, but, uh, we are looking to make, you know, strategic growth efforts in some of the markets that maybe have been lesser performing for us, uh, to kind of round out, get more pistons firing. And so, you know, if we can-Make some hires that can help drive the growth. Certainly, we'll be doing that with a mind towards adding in, you know, interest-bearing assets to the books. Um, but that could, that could impact the run rate over the year. But as Dave said, I think when you take all the noise out, uh, it starts to, starts to flatten out, uh, minus any adds.

Speaker #2: I can't really predict the timing for that, but we are looking to make strategic growth efforts in some of the markets that maybe have been lesser performing for us to kind of round out, get more pistons firing.

Speaker #2: And so, if we can make some hires, it can help drive the growth. Certainly, we'll be doing that with a mind towards adding interest-bearing assets to the books.

Speaker #2: But that could impact the run rate over the year. But as Dave said, I think when you take all the noise out, it starts to flatten out, minus any ads.

Speaker #8: Got it. All right. Well, I appreciate all the color. Thanks for taking my questions.

Woody Lay: Got it. All right. Well, I appreciate all the color. Thanks for taking my questions.

Speaker #2: Yeah, thank you.

Tim Myers: Yeah, thank you.

Speaker #7: Your next question will come from Andrew Terrell with Stevens.

Operator: Your next question will come from Andrew Terrell with Stephens.

Speaker #9: Hey, good morning.

Andrew Terrell: Hey, good morning.

Speaker #2: Hey, Andrew.

Tim Myers: Hi, Andrew.

Andrew Terrell: Maybe going back to the margin, I was hoping we could, you know, maybe get a finer point on some of the loan repricing dynamics and maybe, you know, just curious where new origination yields are coming in today, how that compares to what's rolling off. If you have kind of the cadence of, you know, what you expect to reprice or turn over on the loan book throughout the year.

Speaker #9: Maybe going back to the margin, I was hoping we could maybe get a finer point on some of the loan repricing dynamics, and maybe just curious where new origination yields are coming in today.

Speaker #9: How does that compare to what's rolling off? And do you have a sense of the cadence for what you expect to reprice or turn over on the loan book throughout the year?

Speaker #2: Sure. I'll start. So, the usual statistic we give is a 12-month look at monthly loan yields. And that number is probably 15 to 20 basis points, comparing the monthly loan yield in March 2027 to March 2026.

Tim Myers: Sure. I'll start. You know, the usual statistic we give is a 12-month look at monthly loan yields, you know. That number is probably 15 to 20 basis points comparing the monthly loan yield in March 2027 to March 2026. That's interest rates flat and flat balance sheet. There's that. Then, I think you asked about yields on new loans. Those were 5.91 most in Q1, which compares to 5.51 for paid off loans. We have about 17% of the portfolio repricing in the next year and 34% over the next 3 years. That is on page 25 of the deck. Not much change to those numbers and still a relatively low level of loan rates.

Speaker #2: That's interest rates flat and flat rebalance sheet, so there's that. And then I think you asked about yields on new loans. Those were 5.91% in Q1, which compares to 5.51% for paid-off loans.

Speaker #2: We have about 17% of the portfolio repricing in the next year, and 34% over the next three years. And that is on page 25 of the deck.

Speaker #2: Not much change in those numbers. And then, still a relatively low level of loan rate. Yeah, I think.

Tim Myers: Yeah, I think.

Andrew Terrell: Great. Okay,

Speaker #9: Okay.

Speaker #2: One of the headwinds is obviously nice, because I think for the prior couple of quarters, it was a pretty flat trend to new asset yields or loan yields versus those paying off.

Tim Myers: One of the headwinds is, you know, obviously nice because I think for the prior couple quarters, it was a pretty flat trend in new asset yields or loan yields versus those paying off. As we continue to have headwinds in the payoff of some of the acquired mortgage or auto loans that we've talked about, and that was one of the larger payoff categories in the quarter again, and those are at higher yields. Getting a 40 basis point lift in despite that is encouraging, but that has been a headwind as those were some of our better yielding loans and the payoffs on that because of the rates have been slightly higher.

Speaker #2: As we continue to have headwinds in the payoff of some of the acquired mortgage or auto loans that we've talked about—and that was one of the larger payoff categories in the quarter again.

Speaker #2: And those are at higher yields. And so, getting a 40-basis-point lift in despite that is encouraging. But that has been a headwind, as those were some of our better-yielding loans, and the payoffs on that, because of the rates, have been slightly higher.

Speaker #9: Yeah, okay, great. I appreciate it. And then, if I could shift over to—I know it was talked about a little bit in the question around the buyback—but your CET1 and capital ratios have normalized post the restructure last year.

Andrew Terrell: Yep. Okay. Great. I appreciate it. If I could shift over to. I know it was, you know, talked about a little bit in the question around the buyback, you know, your CT1 and GAAP ratios have normalized post the restructure last year. It seems like you're relatively in line with peer levels. I guess, can you just reframe, you know, post the restructure now that the credit picture looks a lot cleaner right now post this quarter? You know, where would you like to be from a CT1 or leverage ratio standpoint? I guess, can you remind us kind of the North Stars there, the binding constraints?

Speaker #9: It seems like you're relatively in line with peer levels. I guess, can you just reframe post the restructure now that the credit picture looks a lot cleaner right now post this quarter?

Speaker #9: Where would you like to be from a CT1 or leverage ratio standpoint? I guess, can you remind us kind of the North Stars there, or the binding constraints?

Speaker #2: We really haven't established a level where we need to be. It's all relative—relative to the risk on your balance sheet, obviously. And so, as I mentioned before, that's a conversation we're going to be more willing to have.

Tim Myers: We really haven't established a level where we need to be. It's all relative to the risk on your balance sheet, obviously. As I mentioned before, that's a conversation we're going to be more willing to have now that we have less risk within our loan book and less of a chance of large surprising provisioning or charge-offs. I'm reluctant to give a target there, but I would say a conversation we're going to be more willing to have as a management board.

Speaker #2: Now that we have less risk within our loan book and less of a chance of large, surprising provisioning or charge-offs, I'm reluctant to give a target there. But I would say it's a conversation we're going to be more willing to have as a management board.

Speaker #2: And I'll just add, because I think a lot of attention gets paid to holding company capital ratios, an important consideration for us is our bank-level capital ratios, and how we compare to peers there.

Dave Bonaccorso: I'll just add, because I think a lot of attention gets paid to holding company capital ratios. An important consideration for us is our bank level capital ratios and relative to peers there. I think that's where we have probably more to do in terms of rebuilding those.

Speaker #2: And I think that's where we have probably more to do in terms of rebuilding those.

Speaker #9: Got it. Okay, makes sense. And I guess just last question for me—your earnings, your profitability is up quite a lot since the restructure, but the ROTCE on an operating basis is still kind of around that 10% level.

Andrew Terrell: Got it. Okay. makes sense. I guess just last question for me. you know, your earnings, your profitability is up quite a lot since the restructure, but, you know, ROTCE on an operating basis still kind of around that 10%-ish level. I'm just curious, you know, your thoughts. You'll obviously improve as the margin continues to move higher throughout the year. you know, as you step back and kind of look at your forecasts, you know, where do you see the kind of incremental levers to pull to improve profitability closer to peer levels?

Speaker #9: I'm just curious, your thoughts. You'll obviously improve as the margin continues to move higher throughout the year, but as you step back and kind of look at your forecasts, where do you see the kind of incremental levers to pull to improve profitability closer to peer levels?

Speaker #2: So, I mean, the two where we're most intently focused are building loan activity—particularly while yields are where they are—and also driving more fee income.

Tim Myers: I mean, the two where we're most intently focused is building loan activity, and particularly while yields are where they are. Also driving more fee income. We have some strategic initiatives around that. I can't remember if it was you earlier in this, or someone else mentioned building more operating leverage into the model. That's really what we're looking to do. If we make adds, it will be mainly around adds to staff, sorry, mainly around driving loan growth. If that happens quickly enough, and you get that almost immediate positive operating leverage. Again, some strategies around driving fee income that, you know, would rather not give any color on.

Speaker #2: And we have some strategic initiatives around that. And so I can't remember if it was you earlier in this, or someone else, who mentioned building more operating leverage into the model.

Speaker #2: That's really what we're looking to do. So, if we make ads, it will be mainly around ads to staff—sorry, mainly around driving loan growth.

Speaker #2: If that happens quickly enough and you get that almost immediate positive operating leverage—and again, some strategies around driving fee income that I would rather not give any color on, but nothing overly dramatic.

Tim Myers: You know, nothing overly dramatic, but things that we think can add, you know, meaningfully to the bottom line. We'll continue in that area. I don't see any big cost reduction activity. The goal at this point is not to cut our way into more profitability.

Speaker #2: But things that we think can add meaningfully to the bottom line, so we'll continue in that area. I don't see any big cost reduction activity.

Speaker #2: The goal at this point is not to cut our way into more profitability.

Speaker #9: Got it. Okay. Thank you for taking the questions.

Andrew Terrell: Got it. Okay. Thank you for taking the questions.

Speaker #2: Yeah. Thank you.

Tim Myers: Thank you.

Speaker #1: As a reminder, if you'd like to ask a question, please click on the 'Raise Hand' button at the bottom of your screen. Our next question will come from David Feaster with Raymond James.

Operator: As a reminder, if you'd like to ask a question, please click on the Raise Hand button at the bottom of your screen. Our next question will come from David Feaster with Raymond James.

Speaker #8: Hi. Good morning, everybody.

David Feaster: Hi. Good morning, everybody.

Speaker #2: Good morning, David.

Tim Myers: Morning, David.

David Feaster: I want to on the growth side for a minute. You know, there's some really encouraging trends there, you know, with the originations and the pipeline growth. I was hoping you could maybe elaborate a bit on some of the drivers behind this, right? You've alluded to new hires. That makes obvious sense as to increasing productivity. But you also discussed in the deck, you even talked about comp program enhancements, updates to calling programs. Maybe you could elaborate on what you did there and how much of the growth and originations you're seeing this quarter is from the new hires versus, you know, increasing productivity from existing hires, just as we think of the success on some of those adjustments that you've made?

Speaker #8: I want to look on the growth side. For a minute, there are some really encouraging trends there with the originations and the pipeline growth. I was hoping you could maybe elaborate a bit on some of the drivers behind this, right?

Speaker #8: You've alluded to new hires that make obvious sense in increasing productivity. But you also discussed in the deck— you talked about comp programming enhancements, updates to calling programs.

Speaker #8: So, if you could elaborate on what you did there, and how much of the growth and originations you're seeing this quarter is from the new hires versus increasing productivity from existing hires, just as we think of the success on some of those adjustments that you've made.

Speaker #2: Yeah, thanks, David. I would say the majority of the production came from those hires we've been referencing over the last year. The top people continue to be the top people.

Tim Myers: Yeah. Thanks, David. I would say the majority of the production came from those hires we've been referencing over the last year. The top people continue to be the top people. We made some leadership changes in our Sacramento market that certainly realizing we need to do better post the American River Bank acquisition to capture the opportunities out there, that is paying dividends. I would say the Sacramento market overall because a good portion of the growth that was booked in other offices are loans to borrowers that are in Sacramento, just other people's relationships. I think it's doing a better job in Sacramento. It's doing a better job with the hiring.

Speaker #2: We made some leadership changes in our Sacramento market. That's certainly realizing we need to do better post the American River Bank acquisition to capture the opportunities out there.

Speaker #2: And that is paying dividends. I would say the Sacramento market overall, because a good portion of the growth that was booked in other offices are loans to borrowers that are in Sacramento, just other people's relationships.

Speaker #2: So, I think it's doing a better job in Sacramento. It's doing a better job with the hiring. It's having an incentive plan that pays people fairly, without maybe so many caps.

Tim Myers: It's having an incentive plan that pays people fairly, without maybe so many caps so that you're incenting a more of a hockey stick approach, I think was key to that. Maybe people have to do more to enter into the incentive component, but if they accelerate or exceed their higher hurdles, then the payouts get bigger. I think, you know, you combine good people with a better plan, and you're gonna get results, and that's what we're seeing. We're starting to see life in the construction market. Our construction group has gotten a lot more active. Going back to my comments earlier, I think Jeff Willis's question about activity in San Francisco. A lot more people stepping in to buy properties for development for condos and/or single-family residences. We're starting to see that come back as well.

Speaker #2: So that you're incenting more of a hockey stick approach. I think that was key to that. So maybe people have to do more to enter into the incentive component, but if they accelerate or exceed their higher hurdles, then the payouts get bigger.

Speaker #2: And I think if you combine good people with a better plan, you're going to get results. And that's what we're seeing. We're starting to see life in the construction market.

Speaker #2: Our construction group has gotten a lot more active, going back to my comments earlier. I think Jeff Rules' question about activity in San Francisco—a lot more people are stepping in to buy properties for development for condos and/or single-family residences.

Speaker #2: So we're starting to see that come back as well. So it's not any one thing; it's a combination of all those things.

Tim Myers: It's not any one thing. It's a combination of all those things.

Speaker #8: Okay. Maybe just touching on the credit side, it's nice to see the credit cleanup this quarter. Exclusive of that, with that in the rearview, I mean, things look pretty benign, at least on your balance sheet.

David Feaster: Okay. Maybe just touch on the credit side. You know, it was nice to see the credit clean up this quarter. Exclusive of that, with that in the rearview, I mean, things look pretty benign, at least on your balance sheet. I'm curious if you could touch on what you're seeing on credit broadly. I know the wine industry is under a bit of pressure. You've done a deep dive into kind of some upcoming CRE maturities. Curious if you could just talk away, you know, some of the takeaways from that high-level credit commentary and just whether you're seeing more pressure on underwriting just or credit broadly just given increasing industry competition.

Speaker #8: I'm curious—if you could touch on what you're seeing on credit broadly. I know the wine industry is under a bit of pressure. You've done a deep dive into some upcoming CRE maturities.

Speaker #8: Curious if you could just talk away some of the takeaways from that—high-level credit commentary—and just whether you're seeing more pressure on underwriting, or credit broadly, just given increasing industry competition.

Speaker #2: Well, I'll start at your admin there. I think competition has picked up. Loan-to-value, debt coverage, recourse versus non-recourse. We certainly see the market getting frothy at times, particularly in certain asset classes like multifamily.

Tim Myers: Well, I'll start at your end there. I think competition has picked up. Loan-to-value, debt coverage, recourse versus non-recourse. We certainly see the market getting frothy at times, particularly in certain asset classes like multifamily. Wine is a big weak spot. I think we're managing that well, and our exposure is not all that big there anymore. In terms of headwinds to part of the north bay economy, yes, that industry is struggling. We don't see a lot of impact, you know, within our customer base or prospects, you know, of things that are making the national news like tariffs or cost of, you know, oil or transportation. Not that it's not out there, but we're generally seeing stable and healthy economic trends with what we're looking at.

Speaker #2: Wine is a big weak spot. I think we're managing that well in our exposure—it's not all that big there anymore. But in terms of headwinds to part of the North Bay economy, yes, that industry is struggling.

Speaker #2: We don't see a lot of impact within our customer base, or prospects, of things that are making the national news, like tariffs, the cost of oil, or transportation.

Speaker #2: Not that it's not out there, but we're generally seeing stable and healthy economic trends with what we're looking at. So I would say we feel good about our commercial real estate, minus some ups and downs and individual performance.

Tim Myers: I would say we feel good about our commercial real estate and, you know, minus some ups and downs and individual performance, I don't see any trends that cause me to worry that we're gonna see, you know, revert back to some of these larger downgrades into substandard or non-accrual. Again, if you took out the legal aspect of what we're dealing with pretty much the singular non-accrual loan we have, we'd be back to almost zero, which as you know is where we love to be.

Speaker #2: I don't see any trends that cause me to worry that we're going to see a revert back to some of these larger downgrades in the substandard or non-accrual.

Speaker #2: And again, if you took out the legal aspect of what we're dealing with with pretty much the singular non-accrual loan we have, we'd be back to almost zero, which, as you know, is where we love to be.

Speaker #8: Yeah, that's helpful. And then just looking at your slide deck, on slide six, you've got those four top priorities for y'all that are to drive long-term value.

David Feaster: Yeah. That's helpful. And then just looking at your slide deck, you know, on slide 6, you got those four top priorities for y'all that are to drive long-term value. Number three, scaling through efficiency gains in M&A. You know, we've already talked a bit about, you know, number four and number one, and you said you're not gonna talk about number two. I was hoping you could talk a bit about number three, and where you're seeing opportunities for efficiency gains and any thoughts that you might have on M&A.

Speaker #8: Number three, scaling through efficiency gains in M&A. We've already talked a bit about number four and number one. And you said you're not going to talk about number two.

Speaker #8: So, I was hoping you could talk a bit about number three, and where you're seeing opportunities for efficiency gains, and any thoughts that you might have on M&A.

Speaker #2: Yeah, so I will talk about number two. It's not that I won't—it's just giving guidance on something that we are very reluctant to do.

Tim Myers: Yeah. I will talk about number two. It's not that I won't. It's just, you know, giving guidance is something that, you know, we are very reluctant to do. We do have specific initiatives around treasury management fee income, wealth management trust income. There's a number of components to that that will add up to a meaningful increase in that component, but no one thing that's, you know, overly dramatic to discuss. All part of getting better. M&A, you know, obviously getting our valuation back and continuing to build on that opens more doors for us. It's certainly something we remain open to, and I haven't shut the door on that at all. It's just for a while, it was challenging on deal metrics or deal economics with where we were trading.

Speaker #2: But we do have specific initiatives around treasury management, fee income, wealth management, and trust income. There are a number of components to that which will add up to a meaningful increase.

Speaker #2: In that component, but no one thing that's overly dramatic to discuss. All part of getting better. M&A, obviously, getting our valuation back and continuing to build on that opens more doors for us.

Speaker #2: So it's certainly something we remain open to. And I haven't shut the door on that at all. It's just, for a while, it was challenging on deal metrics or deal economics with where we were trading.

Speaker #2: But again, we're hoping that continues to make improvements, and that can become a more realistic opportunity for us. We are looking at efficiency.

Tim Myers: Again, we're hoping that continues to make improvements, that can become a more realistic opportunity for us. We are looking at efficiency. You know, over the last couple of years, we have done some staff adjustments. We've closed some branches. Now we have well, going on the second year now, pretty significant efficiency strategies within the technology or back-office world. Now going forward around AI, using that intelligently to build efficiencies into the system and more operating leverage. Again, it's lots of arrows in the quiver as opposed to any one or two big things. Those are the main things we mean in that number three.

Speaker #2: Over the last couple of years, we have done some staff adjustments. We've closed some branches. And now we have added—well, going on the second year now—pretty significant efficiency strategies within the technology or back office world.

Speaker #2: And now, going forward around AI, using that intelligently to build efficiencies into the system and more operating leverage. So again, it’s lots of arrows in the quiver as opposed to any one or two big things.

Speaker #2: But those are the main things we mean in that number three.

Speaker #8: Okay. That's helpful. Thanks, everybody.

David Feaster: Okay. That's helpful. Thanks, everybody.

Speaker #2: You're welcome.

Tim Myers: You're welcome.

Speaker #1: Your next question will come from Tim Coffey with Breen Capital.

Operator: Your next question will come from Tim Coffey with Brean Capital.

Speaker #9: All right. How are you guys doing today?

Timothy Coffey: All right. How you guys doing today?

Speaker #2: Good morning, Tim.

Tim Myers: Good morning, Tim.

Speaker #9: Good morning, Tim. Hey, okay. So I've got a couple of questions on kind of the loan side. When it comes to the spreads in the market right now, are you at all concerned about some of that starting to—those spreads starting to compress, given one, the general level of competition, but also some of the new entrants to the market?

Timothy Coffey: Morning, Tim. Hey, okay, I got a couple questions on kind of the loan side. When it comes to the spreads in the market right now, are you at all concerned about some of that starting to compress given, one, the general level of competition, also some of the new entrants to the market?

Speaker #2: There's no question. There's been pretty incredible compression in pricing. We really try to stick hard to an approach that meets our ROA hurdles. Generally, loans priced in the 200 over Treasury, depending on the type of loan or above, are going to meet that.

Tim Myers: Well, there's no question there's been pretty incredible compression in pricing. You know, we really try to stick hard to an approach that meets our ROA hurdles. You know, generally loans priced in the 200 over Treasury, depending on the type of loan or above, are going to meet that. We regularly see people bidding at the 1.5 to 175 level, our job is to parse through or what we've been doing is parsing through those really attractive opportunities, get as much as we can, not race to the bottom, but get high quality credit at as high a spread as we can. There is no question the market's very aggressive on pricing.

Speaker #2: We regularly see people bidding at the one-and-a-half to 1.75 level. And so our job is to parse through, or what we've been doing is parsing through those really attractive opportunities.

Speaker #2: Get as much as we can not race to the bottom, but get high-quality credit at as high a spread as we can. But there is no question the market's very aggressive on pricing.

Timothy Coffey: Okay. As you grow loans this year or book new loans, are you agnostic to the type, or do you prefer, you know, one over the other, like commercial over commercial real estate, for instance?

Speaker #9: Okay. And as you grow loans this year, book new loans, are you agnostic to the type? Or do you prefer one or the other, like commercial over commercial real estate, for instance?

Speaker #2: Well, I've been saying for a while I would love to do a higher proportion of CNI. That's not a slow ship to turn, in terms of more aggressively building that, but we are seeing a higher proportion.

Tim Myers: Well, I've, you know, I've been saying for a while I would love to do a higher proportion of C&I. You know, that's not that's a slow ship to turn in terms of more aggressively building that, but we are seeing a higher proportion. If you look at the breakdown of loans we booked this quarter, pretty much mirrors that of the overall portfolio. You know, within that breakdown, there was a skewing towards C&I as a percentage. You know, we're hoping to, you know, almost $9 million of unfunded commitments within that C&I bucket for the quarter. Would love to continue to drive that. We are seeing a higher mix over the last few quarters of multifamily, I think all of which has been CRA qualified, that accomplishes a number of things.

Speaker #2: If you look at the breakdown of loans we booked this quarter, it pretty much mirrors that of the overall portfolio. But within that breakdown, there was a skewing towards CNI as a percentage.

Speaker #2: So we're hoping to have almost $9 million of unfunded commitments within that CNI bucket for the quarter. So we'd love to continue to drive that.

Speaker #2: We are seeing a higher mix over the last few quarters of multifamily, I think all of which has been CRA qualified. And so that accomplishes a number of things.

Speaker #2: So if we can win a multifamily deal at a good spread, and get that, that's something worth being moderately aggressive over. I expect construction to pick back up.

Tim Myers: If we can win a multifamily deal at a good spread and get that's something worth being, you know, moderately aggressive over. I expect construction to pick back up. Obviously, there's always risk in that book you have to manage, but, you know, that's been a piece or a piston that wasn't firing, given the kind of construction projects we did in the geographies we did them. It's nice to see that coming back as well. You know, you're right, we are generally agnostic, but I think if we continue those trends, it'll help from both a concentration standpoint but also just, you know, the growth aspect of it. I think where we're doing a good job and where the growth in the market is right now seem to align pretty well.

Speaker #2: Obviously, there's always risk in that book. You have to manage. But that's been a piece, or a piston, that wasn't firing, given the kind of construction projects we did in the geographies we did them.

Speaker #2: It's nice to see that coming back as well. So, you're right. We are generally agnostic, but I think if we continue those trends, it'll help from both the concentration standpoint, but also just the growth aspect of it.

Speaker #2: I think where we're doing a good job, and where the growth in the market is right now, seem to align pretty well.

Speaker #9: Okay. Further growth in CNI and construction, all else equal, would probably put upward pressure on your allowance ratio. Is that about right?

Timothy Coffey: further growth in C&I and construction, all else equal, would probably put upward pressure on your allowance ratio. Is that about right?

Speaker #2: Say that last part again. Put upward pressure on what?

Tim Myers: Say that last part again. Put upward pressure on what?

Timothy Coffey: If you see more production in C&I and construction, that would probably put an upward bias on your allowance ratio.

Speaker #9: Oh, if you see more production in CNI and construction, that would probably put an upward bias on your allowance ratio.

Timothy Coffey: If you see more production in C&I and construction, that would probably put an upward bias on your allowance ratio.

Speaker #2: Well, I guess possibly, yes. I guess it depends on the individual credits. But yeah, 'it depends' is almost always the answer. But that's possible, yes.

Tim Myers: Well, yeah, possibly, yes. I guess it depends on the individual credits. Yeah, and it depends is almost always the answer, but that's possible, yes.

Speaker #9: Okay. And then one for you, Dave. What's the appropriate tax rate to use?

Timothy Coffey: Okay. Then one for you, Dave. What's the appropriate tax rate to use?

Dave Bonaccorso: What we experienced this quarter, I think is pretty indicative for the full year.

Speaker #2: What we experienced this quarter, I think, is pretty indicative for the full year.

Dave Bonaccorso: What we experienced this quarter, I think is pretty indicative for the full year.

Speaker #9: Okay. All right. Great. Those are my questions. Thank you very much.

Timothy Coffey: Okay. All right. Great. Those are my questions. Thank you much.

Dave Bonaccorso: A little easier year from a tax perspective than last year.

Speaker #2: Well, easier year from a tax perspective than last year.

Speaker #9: Great. All right. Got it. Thank you.

Timothy Coffey: All right. Got it. Thank you.

Speaker #1: We have no further questions at this time. I will hand back to Tim Myers for closing remarks.

Operator: We have no further questions at this time. I will hand back to Tim Myers for closing remarks.

Speaker #2: Thank you again to everybody. If you need any follow-up information, by all means, please reach out to Dave and/or myself, and we will get you answers.

Tim Myers: Thank you again to everybody. If you need any follow-up information, by all means, please reach out to Dave and or myself. We will get you answers. Looking forward to see you guys on the next quarterly call.

Q1 2026 Bank of Marin Bancorp Earnings Call

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