Bank of Marin Bancorp Reports Third Quarter Financial Results Driven by Loan Growth, NIM Expansion and Higher Earnings

NOVATO, Calif.--(BUSINESS WIRE)--Bank of Marin Bancorp, "Bancorp" (Nasdaq: BMRC), parent company of Bank of Marin, "Bank," completed another quarter of improved financial performance, reflecting continued enhanced profitability and overall balance sheet strength. This performance was supported by progress across key financial and operating priorities:

• Increased earnings per share, pre-tax pre-provision net income, and return on average tangible common equity
• Expanded net interest margin from higher loan yields and reduced deposit costs, and grew both total deposits and noninterest-bearing deposits
• Loan growth from organic originations supplemented by a loan pool purchase
• Core non-interest income growth
• Prudent expense management

BMRC reports net income of $9.9 million for the third quarter of 2026. This compares to net income of $9.2 million for the second quarter of 2026 and net income of $7.5 million for the third quarter of 2025. Diluted earnings per share was $0.62 for the third quarter, compared to $0.58 for the prior quarter and $0.47 for the third quarter of the prior year. Continued net interest margin expansion largely drove these increases, contributing to a 32% year-over-year increase in quarterly diluted earnings per share.

"Active management of deposit costs, growth in fee income, and expense discipline drove a 17% increase in pre-tax pre-provision net income on a sequential quarter basis," said President & CEO Tim Myers. "Organic originations drove loan growth during the quarter which was supplemented by a California residential loan pool purchase that utilized excess liquidity, diversified our earning assets, and is expected to provide attractive risk-adjusted returns."

Selected Financial Results

Concurrent with this release, Bancorp issued presentation slides providing supplemental information, some of which will be discussed during the third quarter 2026 earnings call. The earnings release and presentation slides are intended to be reviewed together and can be found online on Bank of Marin’s website at www.bankofmarin.com under “Investor Relations.”

Additional highlights for the third quarter of 2026 included the following:

• The third quarter tax-equivalent net interest margin improved 10 basis points over the preceding quarter to 3.48% from 3.38% due largely to improved average loan yields of 11 basis points.

• Return on average assets ("ROA"), return on average equity ("ROE"), return on average tangible common equity ("ROTCE") and the efficiency ratio improved on a GAAP basis from the prior quarter, as shown below. All ratios benefited from increased revenue and reduced non-interest expense in the third quarter. Non-GAAP ratios for the prior year exclude the loss on security sales in that period, all other factors unchanged, and with adjustments made based on our blended statutory tax rate of 29.56%. See Reconciliation of GAAP and Non-GAAP Financial Measures below.

Operating Results

• Total loans increased by $43.4 million, or 2.07%, to $2.144 billion, through continued healthy fundings of $63.6 million and reduced payoffs of $31.6 million in the quarter. In addition, the Bank used a portion of its excess liquidity to purchase the $31.1 million residential mortgage pool mentioned above.

• Total deposits increased by $25.3 million, or 0.75%, to $3.395 billion as of September 30, 2026 compared to $3.370 billion as of June 30, 2026, primarily within noninterest-bearing accounts which increased by $45.0 million. Noninterest-bearing deposits continued to make up a strong portion of total deposits at 37.8% as of September 30, 2026, compared to 36.7% last quarter.

• The average cost of interest-bearing deposits decreased from 2.04% to 2.03%. The average cost of total deposits decreased from 1.28% to 1.24% primarily due to the increase in average noninterest-bearing deposits and the increase in average one-way sales of interest-bearing deposits which improved the average deposit cost mix. The total deposit spot rate at September 30, 2026 was 1.27% compared to 1.28% at June 30, 2026.

• Non-interest income grew 15.8% including an increase of $251 thousand in service charges on business deposit accounts impacted by an updated pricing strategy that better aligns with our service levels and went into effect on July 1st.

• Special mention loans decreased to $65.1 million from $100.9 million last quarter while classified loans increased by $15.2 million to $35.0 million, or 1.63% of total loans from 0.95% last quarter primarily due to the downgrade of one $14.1 million owner-occupied commercial real estate relationship facing a borrower-specific challenge. The borrower is paying as agreed and there is no expected loss potential. Non-accrual loans increased by $1.2 million to $9.7 million or 0.45% of total loans from 0.40%.

• Due to growth in loan balances and unfunded commitments, the Bank recorded a provision for credit losses on loans of $500 thousand and a provision for credit losses on unfunded commitments of $325 thousand in the third quarter of 2026 compared to a reversal of the provision for credit losses on loans of $320 thousand and no provision for unfunded commitments in the prior quarter. The allowance for credit losses was 1.07% of total loans at both September 30, 2026 and June 30, 2026.

• Capital remained above well-capitalized regulatory thresholds. Bancorp's Tier I leverage ratio increased by 38 basis points to 9.04% as of September 30, 2026 from 8.66% last quarter. Total risk-based capital improved by 1 basis point to 15.59% as of September 30, 2026 for Bancorp compared to 15.58% as of June 30, 2026. Due to rising market interest rates, which negatively impacted accumulated other comprehensive income, the Bancorp's tangible common equity to tangible assets ("TCE ratio") declined by 47 basis points to 8.05% as of September 30, 2026. Similarly, book value per share and tangible book value per share declined slightly by $1.14 and $1.11 to $23.37 and $18.81, respectively.

• The Board of Directors declared a cash dividend of $0.25 per share on October 22, 2026, which was the 86th consecutive quarterly dividend declared by Bancorp. The dividend is payable on November 12, 2026 to shareholders of record at the close of business on November 5, 2026.

“The quarterly growth in deposit service charge income, which annualized to $1 million, is an example of the strategic fee income initiatives we are pursuing to diversify our revenue streams,” said Chief Financial Officer Dave Bonaccorso. “Consistent with prior rising interest rate cycles, we expect that our legendary customer service, strong liquidity position, and high noninterest-bearing deposit percentage will result in a relatively low rising-rate deposit beta. Continued legacy loan repricing along with new loan originations at higher rates should support modest net interest margin expansion over time."

Loans and Credit Quality

Loans increased by $43.4 million for the third quarter and totaled $2.144 billion as of September 30, 2026, compared to $2.101 billion as of June 30, 2026. Third quarter 2026 new fundings were $63.6 million compared to $62.8 million in the prior quarter and $69.0 million in the third quarter of 2025. Year-to-date new fundings increased 12% and total commitments increased 21% from 2025. In addition, the Bank used a portion of its excess liquidity to purchase the $31.1 million residential mortgage pool mentioned above.

Non-accrual loans increased by $1.2 million during the quarter to $9.7 million, or 0.45% of total loans, compared to $8.5 million, or 0.40%, at June 30, 2026.

Classified loans increased by $15.2 million during the third quarter of 2026 to $35.0 million from $19.9 million at June 30, 2026. Loans designated as special mention, which are not considered adversely classified, decreased to $65.1 million at September 30, 2026, compared to $100.9 million at June 30, 2026, largely due to the downgrade of $17.6 million to classified and upgrades and payoffs of $18.2 million. The primary driver of the increase in classified loans and the decrease in special mention loans is a $14.1 million owner-occupied commercial real estate relationship facing a borrower-specific challenge. The loan is well-collateralized, the borrower is paying as agreed, and there is no expected loss potential.

Accruing loans past due 30 to 89 days totaled $2.6 million at September 30, 2026, compared to $2.0 million at June 30, 2026.

Net charge-offs totaled $21 thousand in the third quarter of 2026 compared to $39 thousand in the prior quarter.

The Bank recorded a $500 thousand provision for credit losses on loans in the third quarter of 2026, compared to a reversal of the provision for credit losses on loans of $320 thousand in the prior quarter, driven primarily by loan growth.

The ratio of allowance for credit losses to total loans remained stable at 1.07% for both September 30, 2026 and June 30, 2026.

There was a provision for credit losses on unfunded loan commitments of $325 thousand in the third quarter of 2026 compared to no provision in the prior quarter due to an increase in commitments, primarily within construction.

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were $265.3 million at September 30, 2026, a decrease of $14.3 million compared to $279.6 million at June 30, 2026.

Investments

The investment securities portfolio totaled $1.215 billion at September 30, 2026, a decrease of $27.6 million from June 30, 2026. The decrease in the portfolio was due to principal repayments and calls/maturities totaling $50.2 million and $1.1 million, respectively, and an increase of $35.2 million in unrealized losses on available-for-sale ("AFS") securities, partially offset by purchases of $58.9 million. The portfolio is eligible for pledging to the Federal Home Loan Bank ("FHLB") and the Federal Reserve as collateral for borrowing, and is comprised of high credit quality investments with an average effective duration of 3.11. The portfolio generates cash flows monthly from interest, principal amortization and payoffs, which supports the Bank's liquidity. Those cash flows totaled $64.4 million and $92.1 million in the third quarter of 2026 and the second quarter of 2026, respectively.

Deposits

Deposits increased $25.3 million, or 0.8%, to $3.395 billion at September 30, 2026, compared to $3.370 billion at June 30, 2026, including a $45.0 million increase in noninterest-bearing balances, partially offset by decreases in money market and time accounts. As of September 30, 2026 and June 30, 2026, there were no one-way sales, although the Bank sold an average of $130.6 million in the third quarter, compared to an average of $93.7 million in the second quarter, within money market accounts during the quarter which enhanced non-interest income and net interest margin. Noninterest-bearing deposits continued to make up a strong 37.8% of total deposits at September 30, 2026, compared to 36.7% at June 30, 2026. The Bank's focused business development efforts generated $23.2 million in new deposit relationships during the quarter, including $13.3 million in new noninterest-bearing deposits.

Borrowings and Liquidity

As of September 30, 2026, the Bank had no outstanding short-term borrowings, consistent with June 30, 2026. Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity totaled $2.162 billion, or 63.67% of total deposits and 178.5% of estimated uninsured and uncollateralized deposits as of September 30, 2026.

The following table details the components of our contingent liquidity sources as of September 30, 2026.

Subordinated Notes

During the fourth quarter of 2025, Bancorp issued Fixed-to-Floating Subordinated Notes of $45.0 million with a final maturity date of December 1, 2035, to certain investors in a private placement to strengthen capital ratios as part of the balance sheet repositioning. The interest rate of the Bank’s subordinated notes is 6.75%, payable semi-annually in arrears on June 1 and December 1 of each year, which commenced on June 1, 2026. After December 1, 2030, the interest rate will be variable and equal Three-Month Term SOFR plus 335 basis points, resetting quarterly. Subordinated notes outstanding were $44.0 million, net of issuance costs, at September 30, 2026.

Capital Resources

Our capital ratios are summarized in the table below.

The Bank's capital plan and point-in-time capital stress tests indicate that capital ratios will remain above regulatory well-capitalized and internal policy minimums throughout a five-year forecast horizon and across stress scenarios such as additional unrealized losses on the investment portfolio, additional deposit growth or decline, loan credit quality deterioration, and potential share repurchases. Accumulated other comprehensive loss worsened by $24.8 million in the quarter due to higher market interest rates. Consequently, book value per share and tangible book value per share decreased to $23.37 and $18.81, respectively as of September 30, 2026.

Earnings

Net Interest Income

Net interest income totaled $31.4 million for the third quarter of 2026, a $619 thousand increase from the prior quarter. This was driven by an increase of $834 thousand in interest income on loans, largely due to an 11 basis point increase in average loan yields due to growth at higher rates. Also contributing to the increase was the reduction of $527 thousand in interest expense on deposits, due to improved deposit mix and active balance sheet management through one-way sales of deposits. Average balances on interest-bearing transaction accounts decreased in the quarter while average balances of noninterest-bearing balances increased. The increases were partially offset by a $505 thousand decrease in interest income from investment securities due to paydowns.

The net interest margin increased 10 basis points to 3.48% for the third quarter of 2026, compared to 3.38% for the prior quarter. The increase is primarily due to the 11 basis point increase in average loan yields, a four basis point decrease in cost of deposits, and the use of one-way sales of deposits, which improved the mix of average assets and liabilities. Newly funded loans were originated at a weighted average rate of 12 basis points higher than prior quarter.

Non-Interest Income

Non-interest income was $3.7 million for the third quarter of 2026, compared to $3.2 million for the prior quarter. The increase of $501 thousand was primarily attributable to an increase of $251 thousand in service charges on business deposit accounts due to an updated pricing strategy effective July 1st, and an increase in dividend income due to a special dividend on FHLB stock of $199 thousand.

Non-Interest Expense

Non-interest expense totaled $20.6 million for the third quarter of 2026, compared to $21.6 million for the prior quarter, a decrease of $1.0 million, primarily driven by a decrease of $465 thousand in salaries and related benefits expense which included an adjustment to the incentive bonus accrual as well as the impact of a decreased number of full-time equivalent employees at the end of the third quarter. Also contributing to the decrease in quarterly expense was a $239 thousand reduction in Federal Deposit Insurance Corporation insurance expense during the quarter, a decrease of $263 thousand in other expense, and a decrease of $132 thousand in professional services mostly related to audit, operations, compliance, information security and accounting fees.

Share Repurchase Program

On July 24, 2025, the Board of Directors authorized the repurchase of up to $25.0 million of its common stock effective July 24, 2025 through July 31, 2027. There were no repurchases in the third quarter of 2026 or in the second quarter of 2026. As of September 30, 2026, the amount remaining available for repurchase of shares was $23.9 million.

Statement Regarding use of Non-GAAP Financial Measures

Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that providing selected financial measures that exclude the loss on sale of securities is useful to investors as the strategic short-term loss taken for long-term profitability makes the operational performance difficult to compare to other periods. Because there are limits to the usefulness of this or any other non-GAAP measure to investors, Bancorp encourages readers to consider its annual and quarterly consolidated financial statements and notes related thereto for their entirety, as filed with the Securities and Exchange Commission, and not to rely on any single financial measure. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below.

Reconciliation of GAAP and Non-GAAP Financial Measures

MEDIA CONTACT:
Yahaira Garcia-Perea
Marketing & Corporate Communications Manager
916-823-7214 | YahairaGarcia-Perea@bankofmarin.com