Bank of Marin Bancorp to lower deposit betas in its models

Tani Girton, CFO of Bank of Marin Bancorp., said the company is going to lower the deposit betas, or the proportion of the move in underlying rates that passes through to deposit costs, in its models.

"But I think for us, we model pretty conservatively based on historicals, and we have recently run a historical study and seen that our actual betas are lower than what we've been modeling," Girton said during the company's first-quarter earnings call. "So we are going to lower the betas in our models going forward just so the numbers you see in the queues will reflect that."

Bank of Marin reported a $53 million increase in deposits during the first quarter to $3.9 billion. Looking ahead, Girton said deposits are on an "upward trajectory."

"And so, if we look back at history and then try to extrapolate what that might mean, we could see some deposit outflows," Girton said. "But in general, we are on an upward trend. We have been on a pretty steady upward trend throughout the cycle."

Bank of Marin completed the final step of its 2021 acquisition of American River Bank with the core system conversion in March. The deal allowed the company to generate "robust loan production" in the first quarter, according to President and CEO Timothy Myers.

"So we have had some departures, which were experienced and it is normal in M&A activity," he said. "And that's happened in a number of places, but we actually have made some very good hires.

"We have two very strong managers joining. We've added talent. And so that's helping drive loan demand," Myers said.

Loan originations, excluding the Paycheck Protection Program, totaled $50 million for the first quarter, nearly doubling the year-ago level, and commercial line utilization increased to 38% of total commitments from 34% on Dec. 31, 2021.

The first-quarter net interest margin on a tax-equivalent basis was 2.96%, down from 3.03% the previous quarter, which Girton said was due to "noise" associated with fee amortization and accretion on acquired loans. But the CFO said he expects NIM to improve in the quarters ahead thanks in part to expected rate hikes by the Federal Reserve.

"I think we should see expansion going forward," Girton said. "We are definitely asset-sensitive and looking forward to future interest rate increases."