Novato, Calif.-based Bank of Marin Bancorp. is being cautious with lending in certain areas such as office exposure in San Francisco, but the company has continued to see "encouraging" signs of loan growth in the first quarter even in the higher rate environment, President and CEO Timothy Myers said during the fourth-quarter 2022 earnings call.
Myers said when it comes to lending, there are not many areas where the company is pulling back. However, he said the company is remaining prudent.
"Certainly, we're going to be cautious about large new investor real estate office property request in San Francisco," Myers said.
During the call, an analyst asked about Bank of Marin's office exposure in the metro and downtown areas and noted the recent layoffs in the technology industry. Myers said the company is proactively working with borrowers it thinks might have significant exposure to that environment, and it is reevaluating those properties.
"We haven't really seen the trends materially worsen for our portfolio," Myers said. "We're not lending to the Salesforce Tower buildings of the world."
Myers noted that the company had about $450 million in total office commercial real estate exposure, and San Francisco is about $82 million of that, as of Dec. 31, 2022. He said the loan to value is just under 44% in office portfolio, and it is the same for the San Francisco portion.
"We have properties we have concerns on, but that gives us significant cushion to work with those borrowers," Myers said. "And the vast, vast majority cases, we have sponsorship behind those and work closely with them to make sure we stay on track for repayment."
The company believes that it can drive loan growth in areas such as Marin, Napa, Sacramento and Oakland, Calif. The loan pipeline in the first quarter has been "fairly decent" but not "quite as robust as it was last year," as the rate environment was "very different" in 2022, Myers said.
Myers highlighted that even though the yield on loans is "up in every category" the level of competition that is currently seeing is not the same as it was in the first two quarters of 2022.
Bank of Marin Bancorp reported a sequential and year-over-year decline in loan balances. At Dec. 31, 2022, the loan balances were at $2.093 billion, down from $2.158 billion at Sept. 30, 2022, and $2.256 billion at Dec. 31, 2021, according to the company's latest earnings release.
"[T]he volume did decrease in the fourth quarter. I'm not sure that was fully unexpected, given the rate environment and the caution among the borrowing universe out there in this economic environment," Myers said.
Despite the rising interest rates and fears of recession, Bank of Marin Bancorp is starting to see the loan pipeline "build back up" as people grow "accustomed to higher rates"
"They are not abnormally higher long-term rates than we've seen historically, but they're certainly different than they were most recently," the CEO said.
