Bank of Marin Bancorp
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
BMRC$28.44-0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-09.
0001403475-24-000022
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0001403475-24-000040
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 118 previous paragraphs and 113 current paragraphs.
58 unchanged; 30 reworded; 25 added; 28 removed; 2 previous and 0 current paragraphs rearranged.
Tables are not compared: 12 previous and 16 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (25)
Current report
Net loss for the second quarter of 2024 was $21.9 million, compared to net income of $2.9 million for the first quarter of 2024 and $4.6 million for the second quarter of 2023. Diluted loss per share was $(1.36) for the second quarter of 2024, compared to earnings per share of $0.18 for the preceding quarter and $0.28 for the same quarter a year ago. Net loss for the first six months of 2024 totaled $19.0 million, compared to net income of $14.0 million for the same period last year. Diluted (loss) earnings per share was $(1.18) and $0.87 for the first six months of 2024 and 2023, respectively. Both the second quarter and six months of 2024 results reflected a $32.5 million pre-tax loss from the previously announced balance sheet restructuring and a $5.2 million pre-tax provision for credit losses on loans.
Current report
•As previously announced, the Bank sold 56% of its available-for-sale securities ("AFS") portfolio at an after-tax loss of $22.9 million. Redeployment of the $292.6 million net proceeds is expected to provide a 30 basis point increase in annualized net interest margin and $0.46 per share estimated annualized earnings accretion beginning in the third quarter, assuming an average reinvestment yield of 5.75%. The sale is part of our strategy to improve future earnings and increase return on equity. Excluding the loss on security sales, net income and diluted earnings per share for the second quarter would have been $1.0 million and $0.06, all other factors unchanged (refer to the discussion and reconciliation of this non-GAAP financial measure in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures).
Current report
•A $5.6 million provision for credit losses on loans in the first half of 2024 compared to a provision of $850 thousand for the same period last year, bringing the allowance for credit losses to 1.47% of total loans, compared to 1.13% as of June 30, 2023. The provision in 2024 was largely due to an increased individual reserve for one non-owner occupied commercial real estate loan totaling $16.7 million that, although current, has experienced a deteriorating financial condition and a material increase in its loan-to-value ratio associated with a recent valuation of the underlying collateral.
Current report
•Non-accrual loans were also significantly impacted by the loan discussed above and increased to 1.62% of total loans as of June 30, 2024 from 0.39% as of December 31, 2023. Net charge-offs were minimal in 2024. Approximately 60% of non-accrual loans were paying as agreed as of June 30, 2024. Subsequent to quarter end, one commercial loan on non-accrual totaling $1.8 million paid off in full.
Current report
•Loan balances of$2.082 billion increased$8.7 million from $2.074 billion at December 31, 2023. Loan originations funded were $76.5 million for the six months ended June 30, 2024, compared to $67.7 million for the same period of 2023. Payoffs were $53.0 million in the six months ended June 30, 2024, compared to $46.8 million for the same period in 2023.
Current report
•The tax-equivalent net interest margin was 2.51% for the six months ended June 30, 2024, compared to 2.74% for the same period in the prior year. The decrease was primarily attributed to higher deposit costs which reduced the margin by 90 basis points, partially offset by lower borrowing balances which positively impacted the margin by 38 basis points and higher loan yields which contributed 30 basis points.
Current report
•Total borrowings were reduced to zero representing a $26.0 million decrease from December 31, 2023, although there were intermittent borrowings averaging $8.9 million in the first six months of 2024. Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $1.797 billion, or 56% of total deposits and 202% of estimated uninsured and/or uncollateralized deposits as of June 30, 2024.
Current report
•In the second quarter, the Bank reviewed its expense structure and eliminated some positions not viewed as critical to achieving its strategic objectives within the current operating environment. The Bank recorded severance costs in the second quarter of $243 thousand with an additional amount expected in the third
Current report
Page-30 quarter related to the executive officer departure reported on July 25, 2024. The expected pre-tax cost savings for the remainder of 2024 is $876 thousand and the annualized cost savings is approximately $2.7 million.
Current report
•On July 29, 2024, the Bank purchased a pool of high quality 30-year fixed rate residential mortgage loans totaling $35.7 million that is expected to yield approximately 6.30% based on our prepayment expectations.
Current report
•Bancorp's share repurchase program continues to be available for up to $25.0 million, expiring on July 31, 2025. There were no repurchases through June 30, 2024 or in the 2023 year, however the Bank began repurchasing shares in August 2024 and will continue to assess opportunities to utilize the program.
Current report
Net interest income totaled $22.5 million for the second quarter of 2024, compared to $22.7 million for the prior quarter. The $227 thousand decrease from the prior quarter was primarily related to an increase of $356 thousand in interest expense on deposits and slightly higher intra-quarter borrowing balances. This was partially offset by a $186 thousand increase in interest income from the reallocation of proceeds from investment security sales into higher yielding loans, securities and interest-bearing cash accounts. Quarter-over-quarter, the cost of interest-bearing deposits increased by 10 basis points to 2.56%, decelerating significantly from the 33 basis point increase in the first quarter.
Current report
Net interest income totaled $45.2 million for the six months ended June 30, 2024, compared to $54.0 million for the same period in the prior year. The $8.9 million decrease from the prior year was primarily due to higher costing deposits and lower average balances on investments, partially offset by a lower average balance on borrowings and higher yields on loans.
Current report
Page-35 increased average borrowings, putting pressure on the net interest margin. Because market interest rates remained high for longer than many market participants anticipated, during the second quarter of 2024 we sold securities with relatively low yields and redeployed the proceeds to pay off borrowings, invest in higher yielding loans and securities, and position the balance sheet for future acquisitions of similar assets. Primarily due to declining rates of inflation and rising unemployment, many market participants now expect the Federal Reserve to begin lowering policy rates during the second half of 2024. Management and the Board are continuously monitoring and analyzing the impact of market rates on the Company's financial condition and results of operations to enhance performance, safety and soundness and returns to shareholders. See ITEM 3. Quantitative and Qualitative Disclosure about Market Risk for further information.
Current report
We recorded a $5.2 million provision for credit losses on loans in the second quarter. The provision was due primarily to an increase to the individual reserve for one non-owner occupied commercial real estate loan totaling $16.7 million placed on non-accrual during the quarter. The underlying collateral property is a multi-story office building located in San Francisco that was materially impacted by the pandemic and subsequent remote work and vacancy issues. After careful monitoring, we downgraded the credit to substandard in the fourth quarter of 2021, and have continued to evaluate the occupancy, operating income, and underlying valuation. The loan is guaranteed, and payments have always been current with enough pledged cash held at the Bank to cover payments to maturity in 2026. Nonetheless, a recent appraisal indicated that the refinance loan amount for which the property would qualify at maturity would likely be less than the payoff amount based on current rents, occupancy, and sponsorship wherewithal. Based on this consideration we chose to place the loan on non-accrual and provision for that shortfall.
Current report
The provision totaling $850 thousand for the six months ended June 30, 2023 was due primarily to increases in qualitative risk factors to account for continued uncertainty about inflation and recession risks, and from continued negative trends in adversely graded loans and/or collateral values on our non-owner occupied commercial real estate office and multi-family real estate portfolios.
Current report
Non-interest income showed a loss of $29.8 million for the second quarter of 2024, compared to income of $2.8 million for the prior quarter. The decrease from the prior quarter was primarily attributed to a $32.5 million pre-tax net loss on sale of available-for-sale investment securities in the second quarter as part of the balance sheet repositioning, as discussed elsewhere in this quarterly report. Excluding the loss on sale, non-interest income was $2.8 million for the second quarter, consistent with prior quarter. See the non-GAAP disclosure below.
Current report
Non-interest expense totaled $21.9 million for the second quarter of 2024, compared to $21.2 million for the prior quarter, an increase of $725 thousand. The increase included $591 thousand in charitable contributions related to our annual grant program, and $280 thousand in salaries and related benefits, which included both annual merit increases and $243 thousand severance payments related to the recent staff reduction. Last quarter included higher 401(k) contribution matching associated with the usual reset and bonus payments at the beginning of the year. Other expenses decreased by small amounts in various categories including operating expenses due to some efficiencies identified and implemented.
Current report
Non-interest expense totaled$43.1 million for thefirst half of 2024, compared to$40.4 million for thefirst half of 2023, an increase of $2.6 million. The most significant increase was $2.1 million in salaries and related benefits, which included an increase of 15 full-time equivalents ("FTE") on average, annual merit increases and $243 thousand severance payments related to the recent staff reduction discussed above. Stock-based compensation expenses increased due to the accelerated vesting of an officer's awards due to retirement eligibility. An additional $1.1 million in expenses and fees were associated with an increase in our customers' participation in reciprocal deposit networks to bolster their FDIC insured balances. Increases were partially offset by the combined decrease of $891 thousand in depreciation/amortization and occupancy/equipment expenses related to the 2023 acceleration of expenses related to the closure of two branches and other minor decreases in expenses.
Current report
The income tax benefit for the first half of 2024 totaled $(11.5) million at a negative effective tax rate of (37.7)%, compared to a provision of $4.8 million at an effective tax rate of 25.4% for the first half of 2023. The decrease in the effective tax rate in the first half of 2024, as compared to the same period a year ago, was primarily due to the pre-tax loss on investment securities sale in 2024 as mentioned in the previous paragraph.
Current report
The investment securities portfolio totaled $1.158 billion at June 30, 2024, a decrease of $319.7 million from $1.477 billion at December 31, 2023. The decrease was primarily the result of the sale of $325.2 million in available-for-sale securities. The sold securities had an average book yield of 1.94%. The proceeds of the sales were allocated to $19.0 million in securities purchases with an expected yield of 5.23%, intra-quarter borrowing repayments, and loan fundings, with the remainder held in cash available for future use. In addition, there were principal repayments and maturities totaling $40.4 million, a reduction of unrealized loss on available-for-sale securities including the impact of the sales of $28.5 million, and $1.7 million in net amortization.
Current report
Non-accrual loans totaled $33.7 million, or 1.62% of the loan portfolio, at June 30, 2024, compared to $8.0 million, or 0.39% at December 31, 2023. The $25.7 million increase primarily resulted from the movement of seven relationships totaling $27.8 million to non-accrual status in the second quarter, $16.7 million of which is the non-owner occupied commercial real estate loan discussed below. Another $8.8 million relationship consisting of two commercial loans, one commercial real estate loan and one home equity loan is anticipated to pay off all related loans in full through the sale of assets in the near future. In the first six months of 2024, pay-offs and paydowns of non-accrual loans totaled $2.5 million. Of the total non-accrual loans as of June 30, 2024, approximately 60% were paying as agreed, 71% were real estate secured, and all are being closely monitored for payments or payoff. Subsequent to quarter end, one commercial loan on non-accrual totaling $1.8 million paid off in full.
Current report
During the second quarter, we moved a $16.7 million non-owner occupied commercial real estate loan, mentioned above to non-accrual status. The underlying collateral property is a multi-story office building located in San Francisco that was materially impacted by the pandemic and subsequent remote work and vacancy issues. We downgraded the credit to substandard in the fourth quarter of 2021, and have continued to evaluate the occupancy, operating income, and underlying valuation. The loan is guaranteed, and payments have always been current with enough pledged cash held at the Bank to cover payments to maturity in 2026. Nonetheless, a recent appraisal indicated that the refinance loan amount for which the property would qualify at maturity would likely be less than the payoff amount based on current rents, occupancy, and sponsorship wherewithal. Based on this consideration we chose to provision for that shortfall.
Current report
Net charge-offs for the first half of 2024 totaled $47 thousand, compared to net charge-offs of $1 thousand for the first half of last year.
Current report
The total risk-based capital ratio for Bancorp was 16.46% at June 30, 2024, compared to 17.05% at March 31, 2024. The total risk-based capital ratio for the Bank was 15.54% at June 30, 2024, compared to 16.71% at March 31, 2024. Reductions in risk-based capital ratios were related to losses realized on securities sales.
Removed paragraphs (28)
Previous report
Goodwill
Previous report
Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Our annual impairment assessment is performed in the fourth quarter. However, with triggering events occurring in the first quarter of 2024, including a persistent depressed stock price as a result of changes in macroeconomic conditions, market volatility resulting from rising interest rates and the failure of several regional banks in 2023, coupled with a revised five-year strategic forecast for the Bank, we performed a quantitative assessment in the first quarter of 2024, similar to the analysis performed in fourth quarter 2023. The results of this assessment indicated the value of goodwill was not impaired as of March 31, 2024. For a detailed discussion of goodwill accounting and impairment assessment methodology, refer to Note 1, Summary of Significant Accounting Policies, and the Critical Accounting Estimates section of our 2023 Form 10-K filed with the SEC on March 14, 2024.
Previous report
We generated earnings of $2.9 million for the first quarter of 2024, compared to $610 thousand for the fourth quarter of 2023 and $9.4 million for the first quarter of 2023. Diluted earnings per share were $0.18 for the first quarter of 2024, compared to $0.04 for the preceding quarter and $0.59 for the same quarter a year ago. Net interest margin compression due to the rapid rise in interest rates this cycle is clearly evident in the comparison of 2024 and 2023 first quarter earnings. In addition, prior quarter results reflected a $5.9 million pretax loss from balance sheet restructuring.
Previous report
•The first quarter tax-equivalent net interest margin stabilized at 2.50% from 2.53% the previous quarter. Climbing deposit rates continued to put pressure on the margin this quarter. While the average cost of deposits increased 23 basis points to 1.38% in the first quarter compared to a 21 basis point increase in the prior quarter, monthly trends since January show a clear slow down in the pace of increase. Although we reduced borrowings to zero and gained ground in higher yields on loans, the overall average earning asset balances decreased, limiting the positive impact on the margin.
Previous report
•A$350 thousand provision for credit losses on loans in thefirst quarter, compared to a provision of$1.3 million in the previous quarter, brought the allowance for credit losses to 1.24% of total loans, compared to 1.21% as of December 31, 2023.
Previous report
•Non-accrual loans declined to 0.31% of total loans at quarter end, from 0.39% at December 31, 2023, and net charge-offs were minimal. Classified loans increased to 2.67% of total loans from 1.56% last quarter, which we believe evidences our diligent monitoring of customers impacted by current economic conditions.
Previous report
•Loan balances of$2.055 billion as of March 31, 2024, were relatively stable from$2.074 billion as of December 31, 2023, reflecting originationsof $12.4 million and payoffs of $21.8 million. During the quarter, interest rates on loan originations averaged approximately 266 basis points above those that paid off. Loan amortization from scheduled repayments, partially offset by a net increase in utilization of credit lines was $9.4 million during the quarter.
Previous report
•Total borrowings was reduced to zero representing a $26.0 million decrease from December 31, 2023 and a $97.5 million quarter-over-quarter decrease in average balances, resulting in a $1.3 million decline in interest expense. Net available funding sources of $1.905 billion provided 208% coverage of an estimated $915.4 million in uninsured deposits, representing only 28% of total depositsat March 31, 2024.
Previous report
•The Bank optimized its facilities by consolidating two commercial banking offices, closing the San Mateo office in April 2024. We expect the combination of both personnel and facilities pre-tax savings to total approximately $650 thousand in 2024 and $800 thousand in 2025. These savings will be deployed to self-fund talent acquisition aimed at loan growth initiatives.
Previous report
1 Interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms, where applicable.
Previous report
2 Yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value, as changes in fair value are reflected as a component of stockholders' equity. Investment security interest is earned on 30/360 day basis monthly.
Previous report
3 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the Federal statutory rate of 21 percent.
Previous report
4 Average balances on loans outstanding include non-performing loans. The amortized portion of net loan origination fees is included in interest income on loans, representing an adjustment to the yield.
Previous report
5 Net loan origination costs in interest income totaled $375 thousand, $324 thousand, and $190 thousand for the three months ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively.
Previous report
Net interest income totaled $22.7 million for the first quarter of 2024, compared to $24.3 million for the prior quarter. The $1.6 million decrease from the prior quarter was primarily related to an increase of $1.6 million in interest expense on deposits and a decrease of $1.3 million in interest on cash and investments. These were partially offset by a $1.3 million decrease in borrowing costs. Quarter-over-quarter, average interest-bearing deposit balances increased by $36.5 million to $1.860 billion, raising the cost of total deposits by 23 basis points to 1.38%. Average borrowings and other obligations decreased by $97.5 million to $7.3 million, and average investment security balances were down a similar amount.
Previous report
Net interest income totaled $22.7 million for the three months ended March 31, 2024, compared to $29.9 million for the same period in the prior year. The $7.2 million decrease from the prior year was primarily due to a higher cost of deposits totaling $9.6 million, partially offset by lower borrowing costs of $2.6 million.
Previous report
We recorded a $1.3 million provision for credit losses on loans in the fourth quarter. The provision was due primarily to an increase in specific allowances related to a few loans that exhibited certain credit risk characteristics over time that were not indicative of pooled loans. Of the specific allowances, a portion was related to two loans with existing substandard risk ratings and collateral valuation issues caused by persistently higher than average vacancy rates. In addition, a portion wasrelated to two loans that were placed on non-accrual status during the fourth quarter, where the estimated credit losses were derived using either discounted expected cash flows or adjusted collateral values and loss rates. A large portion of these specific allowances was previously recognized in the quantitative and qualitative estimated credit losses for pooled loans and shifted to the allowance for individually evaluated loans in the fourth quarter. Other elements of the provision included a $406 thousand loss on the note sale of a loan to an unrelated third party that was charged to the allowance concurrent with the sale, a decrease in loans, and a stable California unemployment rate forecast for the next four quarters. Net adjustments to qualitative factors in the fourth quarter did not materially affect the provision.
Previous report
The provision totaling $350 thousand for the three months ended March 31, 2023 was due primarilyto increases in qualitative risk factors to account for continued uncertainty about inflation and recession risks. Management believed that these risk factors were not adequately captured in the modeled quantitative portion of the allowance and took the more prudent approach to account for loan and collateral concentration risks, mainly in our construction and commercial real estate portfolios, and the need for heightened portfolio management in light of economic conditions at that time. In addition, a $19.8 million increase in loans contributed modestly to the provision. These increases were partially offset by the quantitative impact of an improvement in Moody's Analytics' baseline California unemployment rate forecasts at the time.
Previous report
Non-interest income totaled $2.8 million for the first quarter of 2024, materially unchanged from the same period of the prior year. The $181 thousand decrease from the prior year period was mostly attributable to a decrease in bank-owned life insurance benefit payments due to the recognition of a death benefit in 2023, partially offset by higher dividend rates paid on Federal Home Loan Bank stock and higher wealth management and trust services income in 2024.
Previous report
Non-interest expense totaled $21.2 million for the first quarter of 2024, compared to $19.3 million for the prior quarter, an increase of $1.9 million. Salaries and related benefits increased $1.7 million largely due to various factors, both in prior and current quarter. Last quarter, profit sharing, supplemental executive retirement plan and stock-based compensation accrual adjustments reduced expenses. In the first quarter of 2024, there were lower deferred loan origination costs, an increase to the 401(k) contribution matching associated with the usual reset and bonus payments at the beginning of the year, and increased salary costs due to new talent acquisition, partially offset by incentive adjustments. In addition, professional services expenses from certain legal, accounting, and consulting costs increased by $157 thousand.
Previous report
Non-interest expense totaled$21.2 million for thefirst quarter of 2024, compared to$19.8 million for thefirst quarter of 2023, an increase of $1.4 million. Significant fluctuations were as follows:
Previous report
•Salaries and related benefits increased by $1.2 million largely due to the increase in full time equivalent employees to 330 from 311 at the same time in prior year.
Previous report
•Deposit network fees increased by$749 thousandas customers sought additional FDIC insurance protection through reciprocal deposit networks.
Previous report
•These increases were partially offset by decreases in occupancy and equipment and depreciation and amortization expenses of $445 thousand and $494 thousand, respectively, mainly from the acceleration of lease-related costs for branch closures in the first quarter of 2023. Beginning in 2024, the estimated annual pre-tax savings from branch closures are expected to be approximately $1.4 million.
Previous report
Loan payoffs were $21.8 million for the three months ended March 31, 2024, compared to $50.3 million for the fourth quarter of 2023. The largest portion of payoffs were the result of construction project completions, followed by refinances of loans not meeting our strategic and risk profile standards, and cash payoffs. There was no dominant overlying trend noted in the quarter.
Previous report
Non-accrual loans totaled $6.3 million, or 0.31% of the loan portfolio, at March 31, 2024, compared to $8.0 million, or 0.39% at December 31, 2023. The $1.7 million decrease resulted from various payoffs and paydowns. Three loan relationships totaling $370 thousand moved to non-accrual status in the first quarter, partially offsetting the decrease. Of the total non-accrual loans as of March 31, 2024 approximately 50% were paying as agreed, with the remaining 50% closely monitored for payments, and 63% were real estate secured.
Previous report
Net charge-offs for the first quarter of 2024 totaled $21 thousand, compared to net charge-offs of $387 thousand for the fourth quarter of 2023. The ratio of allowance for credit losses to total loans was 1.24% at March 31, 2024, compared to 1.21% at December 31, 2023.
Previous report
1 Net unrealized losses on held-to-maturity securities as of March 31, 2024 and December 31, 2023 of $119.2 million and $110.4 million, respectively, as shown in Note 4, net of an estimated $35.2 million and $32.6 million, respectively, in deferred tax benefits based on a blended state and federal statutory tax rate of 29.56%.
Reworded paragraphs (30)
Previous wording
Forward-looking statements are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact Bancorp's earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions and the economic uncertainty in the United States and abroad, including economic or other disruptions to financial markets caused by acts of terrorism, wars or other conflicts, impacts from inflation, supply chain disruptions, changes in interest rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate, deposit flows, real estate values, and expected future cash flows on loans and securities; the impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; natural disasters (such as wildfires and earthquakes in our area); adverse weather conditions; interruptions of utility service in our markets for sustained periods; and other economic, competitive, governmental, regulatory and technological factors (including external fraud and cybersecurity threats) affecting our operations, pricing, products and services; and successful integration of acquisitions.
Current wording
Forward-looking statements are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact Bancorp's earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions and the economic uncertainty in the United States and abroad, including economic or other disruptions to financial markets caused by acts of terrorism, war, impacts from inflation, supply chain disruptions, changes in interest rates (including the actions taken by the Federal Reserve to control inflation), California's unemployment rate, deposit flows, real estate values, and expected future cash flows on loans and securities; the impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks; costs or effects of acquisitions; competition; changes in accounting principles, policies or guidelines; changes in legislation or regulation; natural disasters (such as wildfires and earthquakes in our area); adverse weather conditions; interruptions of utility service in our markets for sustained periods; and other economic, competitive, governmental, regulatory and technological factors (including external fraud and cybersecurity threats) affecting our operations, pricing, products and services; and successful integration of acquisitions.
Previous wording
•Total deposits of$3.284 billion as of March 31, 2024, were essentially flat, compared to$3.290 billion as of December 31, 2023. Non-interest bearing depo sits increased $2.5 million representing 44.0% of total deposits as of March 31, 2024, compared to 43.8% as of December 31, 2023.
Current wording
•Total deposits of$3.214 billion as of June 30, 2024, compared to$3.290 billion as of December 31, 2023. Non-interest bearing depo sits made up 44.1% of total deposits as of June 30, 2024, compared to 43.8% as of December 31, 2023. As anticipated, deposit balances rose in July 2024 with a peak of $67.0 million in growth and an ending balance $26.3 million above June 30, 2024 balances.
Previous wording
•Return on average assets ("ROA") was 0.31% for the first quarter of 2024, compared to 0.06% for the fourth quarter of 2023, and return on average equity ("ROE") was 2.70%, compared to 0.57% for the prior quarter. The efficiency ratio for the first quarter of 2024 was 83.18%, compared to 91.94% for the prior quarter.
Current wording
•Return on average assets ("ROA") was (2.35)% for the second quarter of 2024, compared to 0.31% for the first quarter of 2024, and return on average equity ("ROE") was (20.36)%, compared to 2.70% for the prior quarter. ROA was(1.01)% for thesix months ended June 30, 2024, compared to 0.68% in the same period of the prior year. ROE was(8.79)% for thesix months ended June 30, 2024, compared to 6.65% in the same period of the prior year. The efficiency ratio for thesecond quarter of 2024 was(300.37)%, compared to 83.18% for the prior quarter. The efficiency ratio was 237.13% for thesix months ended June 30, 2024, compared to 67.74% in the same period of the prior year. Excluding the loss on security sales, ROA, ROE and the efficiency ratio for the first six months of 2024, would have been 0.21%, 1.83% and 84.93%, all other factors unchanged. (Refer to the discussion and reconciliation of this non-GAAP financial measure in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures).
Previous wording
•Bancorp's and the Bank's total risk-based capital ratios increased during the quarter to 17.05% and 16.71%, respectively, as of March 31, 2024, well above regulatory requirements. Bancorp's tangible common equity to tangible assets ("TCE ratio") increased to 9.76% as of March 31, 2024, and the Bank's TCE ratio was 9.53%, consistent with prior quarter. While we do not intend to sell ourheld-to-maturity securities, the TCE ratio, net of after-tax unrealized losses on held-to-maturity securities as if the losses were realized was 7.67%as of March 31, 2024, compared to 7.80% as of December 31, 2023 (refer to the discussion and reconciliation of this non-GAAP financial measure in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures).
Current wording
•Capital was above well-capitalized regulatory requirements with Bancorp's and the Bank's total risk-based capital ratios of 16.46% and 15.54%, respectively, as of June 30, 2024. Bancorp's tangible common equity to tangible assets ("TCE ratio") increased to 9.92% as of June 30, 2024, and the Bank's TCE ratio was 9.27%, consistent with prior quarter. While we do not intend to sell ourheld-to-maturity securities, the TCE ratio, net of after-tax unrealized losses on held-to-maturity securities as if the losses were realized, was 7.74%as of June 30, 2024, compared to 7.80% as of December 31, 2023 (refer to the discussion and reconciliation of this non-GAAP financial measure in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures).
Previous wording
•The Board of Directors declared a cash dividend of $0.25 per share on April 25, 2024, which represents the 76 th consecutive quarterly dividend paid by Bancorp. The dividend is payable on May 16, 2024, to shareholders of record at the close of business on May 9, 2024.
Current wording
•The Board of Directors approved a cash dividend of $0.25 per share on July 25, 2024, which represents the 77 th consecutive quarterly dividend paid by Bancorp. The dividend is payable on August 15, 2024, to shareholders of record at the close of business on August 8, 2024.
Previous wording
Page-32 decrease in average balances multiplied by prior period rates. Rate variances are equal to the increase or decrease in rates multiplied by prior period average balances. Mix variances are attributable to the change in yields or rates multiplied by the change in average balances, including one day less in the three months ended March 31, 2024, compared to the three months ended December 31, 2023 and one day more in the three months ended March 31, 2024, compared to the same period in 2023.
Current wording
The following table presents the effects of changes in average balances (volume) or changes in average rates on tax-equivalent net interest income for the periods indicated. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates. Rate variances are equal to the increase or decrease in rates multiplied by prior period average balances. Mix variances are attributable to the change in yields or rates multiplied by the change in average balances, including one day more in the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Previous wording
The tax-equivalent net interest margin was 2.50% for the first quarter of 2024, compared to 2.53% for the prior quarter. The higher cost of deposits reduced the margin by 23 basis points, while higher loan yields added 15 basis points. The effect of lower wholesale borrowing balances, partially offset by lower interest-earning deposits with banks, added 5 basis points.
Current wording
The tax-equivalent net interest margin was 2.52% for the second quarter of 2024, compared to 2.50% for the prior quarter. Higher loan yields contributed 6 basis points while a higher cost of deposits reduced the margin by 5 basis points. The combination of lower average investment security balances and higher average cash and borrowing balances contributed 1 basis point.
Previous wording
The tax-equivalent net interest margin was 2.50% for the three months ended March 31, 2024, compared to 3.04% for the same period in the prior year. The decrease was primarily attributed to higher deposit costs, reducing the margin by 107 basis points, partially offset by higher yields on loans, adding 29 basis points, anddecreases in borrowings contributing 26 basis points.
Current wording
The tax-equivalent net interest margin was 2.51% for the six months ended June 30, 2024, compared to 2.74% for the same period in the prior year. The decrease was primarily attributed to higher deposit costs, which reduced the margin by 90 basis points, partially offset by lower borrowing balances which positively affected the margin by 38 basis points and higher loan yields contributed 30 basis points.
Previous wording
In response to the evolving risks to economic activity caused by the COVID-19 pandemic, the FOMC made two emergency federal funds rate cuts totaling 150 basis points in March 2020. The federal funds rate range remained between 0.0% and 0.25% through the beginning of 2022, putting downward pressure on our asset yields and net interest margin. Beginning in March 2022, the FOMC began successive increases to the federal funds rate due to evolving inflation risks, international political unrest, and oil and other supply chain disruptions. As a result of seven
Current wording
In response to the evolving risks to economic activity caused by the COVID-19 pandemic, the FOMC made two emergency federal funds rate cuts totaling 150 basis points in March 2020. The federal funds rate range remained between 0.0% and 0.25% through the beginning of 2022, putting downward pressure on our asset yields and net interest margin. Beginning in March 2022, the FOMC began successive increases to the federal funds rate due to evolving inflation risks, international political unrest, and oil and other supply chain disruptions. As a result of seven rate adjustments during 2022, the federal funds target rate range increased to between 4.25% and 4.50% at year-end 2022 and our net interest margin increased gradually over the course of the year. In 2023, on each of February 1 st, March 22 nd, May 3 rd, and July 26 th, the FOMC increased the target rate by 25 basis points to a range of 5.25% to 5.50%. Rising interest rates resulted in rapid increases in the cost of funds through rising deposit costs and
Previous wording
Non-interest income totaled $2.8 million for the first quarter of 2024, compared to a loss of $3.3 million for the prior quarter. The $6.0 million increase from the prior quarter was primarily attributed to a $5.9 million net loss on sale of available-for-sale investment securities in the prior quarter.
Current wording
Non-interest income showed a loss of $27.0 million for the first half of 2024, compared to income of $5.7 million for the same period of the prior year. The $32.7 million decrease from the prior year period was primarily attributed to a $32.5 million pre-tax net loss on sale of available-for-sale investment securities in the second quarter of 2024, as discussed above. Additionally, 2023 included higher bank owned life insurance income due to death benefits.
Previous wording
The provision for income taxes for the first quarter of 2024 totaled $1.0 million at an effective tax rate of 25.6%, compared to provision reversal of $218 thousand at a negative effective tax rate of (55.6)% in the prior quarter and $3.4 million at an effective tax rate of 26.7% in the same quarter last year. The increase in the provision for income taxes in the first quarter of 2024 reflected higher pre-tax income as compared to the prior quarter. The increase in the effective tax rate in the first quarter of 2024 was primarily due to the tax provision reversal recorded in the prior quarter that primarily resulted from a $5.9 million pre-tax loss on the sale of available-for-sale investment securities. The 110 basis point decrease in the effective tax rate in the first quarter of 2024, as compared to the same quarter a year ago, was primarily due to the larger proportional effect of permanent tax differences on lower pretax income. This decrease was partially offset by a reduction in the tax-exempt interest exclusion (due to a larger IRC Section 291(e) interest expense disallowance), compared to the prior period.
Current wording
The income tax benefit for the second quarter of 2024 totaled $(12.5) million at a negative effective tax rate of (36.3)%, compared to a provision of $1.0 million at an effective tax rate of 25.6% in the prior quarter. The decrease in the provision for income taxes in the second quarter of 2024 reflected a lower pre-tax income as compared to the prior quarter. The decrease in the effective tax rate in the second quarter of 2024 was primarily due to the recording of an income taxbenefit resulting from a $32.5 million pre-tax loss on the sale of available-for-sale investment securities.
Previous wording
Total cash, cash equivalents and restricted cash were $36.3 million at March 31, 2024, an increase of $5.9 million compared to $30.5 million at December 31, 2023.
Current wording
Total cash, cash equivalents and restricted cash were $231.4 million at June 30, 2024, an increase of $201.0 million compared to $30.5 million at December 31, 2023, largely due to proceeds of $292.6 million from the sale of available-for-sale securities discussed below.
Previous wording
The investment securities portfolio totaled $1.451 billion at March 31, 2024, a decrease of $25.8 million from $1.477 billion at December 31, 2023. The decrease was primarily the result of principal repayments totaling $20.3 million, a $4.6 million increase in pre-tax unrealized losses on available-for-sale investment securities, and $900 thousand in net amortization. Both the available-for-sale and held-to-maturity portfolios are eligible for pledging to FHLB or the Federal Reserve as collateral for borrowings. The portfolios are comprised of high credit quality investments with average effective durations of 4.41 on available-for-sale securities and 5.66 on held-to-maturity securities. Both portfolios generate cash flows monthly from interest, principal amortization and payoffs, which supports the Bank's liquidity. Those cash flows totaled $31.3 million in the first quarter of 2024. See Note 4, Investment Securities, for additional information.
Current wording
Both the available-for-sale and held-to-maturity portfolios are eligible for pledging to FHLB or the Federal Reserve as collateral for borrowings. The portfolios are comprised of high credit quality investments with average effective durations of 5.02 on available-for-sale securities and 5.52 on held-to-maturity securities. Both portfolios generate cash flows monthly from interest, principal amortization and payoffs, which supports the Bank's liquidity. Those cash flows totaled $28.6 million and $31.3 million in the second and first quarters of 2024, respectively. See Note 4, Investment Securities, for additional information.
Previous wording
Of the total investment in obligations of state and political subdivisions, the largest concentrations outside of California are in Texas (37.1%), Washington (15.3%) and Wisconsin (9.0%). Our investment in obligations issued by municipal issuers in Texas are either guaranteed by the AAA rated Texas Permanent School Fund ("PSF") or backed by revenue sources from essential services (such as utilities and transportation).
Current wording
Of the total investment in obligations of state and political subdivisions, the largest concentrations outside of California are in Texas (38.4%), Washington (15.8%) and Wisconsin (9.4%). Our investment in obligations issued by municipal issuers in Texas are either guaranteed by the AAA rated Texas Permanent School Fund ("PSF") or backed by revenue sources from essential services (such as utilities and transportation).
Previous wording
During the first three months of 2024, loans decreased by $18.8 million and totaled $2.055 billion as of March 31, 2024, compared to $2.074 billion as of December 31, 2023. Loan originations were $12.4 million for the three months ended March 31, 2024, compared to $53.8 million for the fourth quarter of 2023. While originations were muted, the pipeline has grown, and key opportunistic hires and new compensation plans have already accelerated calling activity, pipeline growth and diversification.
Current wording
Loans totaled $2.082 billion as of June 30, 2024, compared to $2.074 billion as of December 31, 2023. The increase in the first six months of 2024 totaled $8.7 million, compared to $10.3 million during the six months ended June 30, 2023. Loan originations funded were $76.5 million for the six months ended June 30, 2024, compared to $67.7 million for the six months ended June 30, 2023. The pipeline has grown, and key opportunistic hires and new compensation plans have accelerated calling activity, pipeline growth and diversification. Payoffs were $53.0 million in the six months ended June 30, 2024, compared to $46.8 million for the same period in 2023. The largest portion of payoffs in the first half of 2024 was the result of asset sales by customers.
Previous wording
While Bank of Marin has continued its steadfast conservative underwriting practices and has not changed its credit standards or policies in reaction to current market conditions, our portfolio management and credit teams are exercising heightened awareness of the potential for credit quality weakening. Classified loans totaled $54.8 million as of March 31, 2024, compared to $32.3 million as of December 31, 2023. The increase of $22.5 million was due primarily to a migration of $24.4 million in loans from special mention to substandard risk ratings. The majority of these downgrades were due to protracted issues, therefore, these borrowers' financial conditions merit extra attention and proactive management. The three significant relationships downgraded are of different types and geographies. Two of these are commercial real estate loans that are fully secured and supported with owner-level personal guarantees that have ample liquidity, and we believe there is minimal loss potential in these credits. Only 1% of the additions were on non-accrual status as of March 31, 2024, with 11% of all classified loans on non-accrual status. Excluding the accruing loan over 90 days past due mentioned below, 98% of all classified loans were current on their payments as of March 31, 2024. Additions to classified loans were offset by $2.9 million in payoffs and paydowns.
Current wording
Bank of Marin has continued its steadfast conservative underwriting practices and, in light of current market conditions, our portfolio management and credit teams are exercising heightened vigilance for potential credit quality weakening. Classified loans increased to $54.7 million as of June 30, 2024, compared to $32.3 million as of December 31, 2023.
Previous wording
Accruing loans past due 30 to 89 days totaled $1.9 million as of March 31, 2024, compared to $1.0 million as of December 31, 2023. We had one accruing non-owner-occupied commercial real estate loan over 90 days past due as of March 31, 2024 totaling $8.1 million that has been in extended renewal negotiations, but it is well-secured and expected to be restored to a current payment status in the near future.
Current wording
Accruing loans past due 30 to 89 days totaled $2.2 million as of June 30, 2024, compared to $1.0 million as of December 31, 2023. We had one accruing non-owner-occupied commercial real estate loan over 90 days past due as of June 30, 2024 that has been in extended renewal negotiations, but it is secured and expected to be restored to a current payment status in the near future.
Previous wording
Loans designated special mention, which are not considered adversely classified, decreased by $34.3 million to $100.9 million as of March 31, 2024, from $135.2 million as of December 31, 2023. The decrease was largely due to $24.4 million in downgrades from special mention to substandard mentioned above, $10.5 million in upgrades to pass risk ratings, and $1.8 million in net paydowns and payoffs, partially offset by $2.0 million in downgrades from pass risk ratings and $443 thousand in balance increases. Of the loans designated special mention, 98% were real estate secured. All but one of the loans, outside of not-for-profits, are guaranteed by owners or sponsors.
Current wording
Loans designated special mention, which are not considered adversely classified, decreased by $36.2 million to $99.0 million as of June 30, 2024, from $135.2 million as of December 31, 2023. Of the loans designated special mention, 99% were real estate secured. All but two of the loans, outside of not-for-profits, are guaranteed by owners or sponsors. One of the two loans had a zero balance at June 30, 2024.
Previous wording
During the first three months of 2024, total liabilities decreased by $34.3 million to $3.330 billion. Deposits totaled $3.284 billion at March 31, 2024, a decrease of $6.0 million, compared to $3.290 billion at December 31, 2023. The Bank had zero outstanding borrowings at March 31, 2024, compared to $26.0 million at December 31, 2023.
Current wording
During the first six months of 2024, total liabilities decreased by $105.1 million to $3.260 billion. Deposits totaled $3.214 billion at June 30, 2024, a decrease of $76.3 million, compared to $3.290 billion at December 31, 2023. The Bank had zero outstanding borrowings at June 30, 2024 as a result of repayments with proceeds from securities sales compared to $26.0 million at December 31, 2023.
Previous wording
Non-interest bearing deposits made up 44.0% of total deposits at March 31, 2024, compared to 43.8% at December 31, 2023. Money market balances remained constant at 34.6% and time deposits increased from 7.6% to 8.1% of total deposits with a weighted average rate of 3.17% and average term of six months. Additionally, the Bank's competitive and balanced approach to relationship management and focused outreach supported the addition of nearly 1,200 new accounts during the first quarter, 34% of which were new relationships (excluding new reciprocal accounts).
Current wording
Non-interest bearing deposits made up 44.1% of total deposits at June 30, 2024, compared to 43.8% at December 31, 2023. Additionally, the Bank's competitive and balanced approach to relationship management and focused outreach supported the addition of approximately 2,500 new accounts during the first half of 2024.
Previous wording
During the first quarter of 2024, outstanding borrowings decreased by $26.0 million to zero at March 31, 2024, resulting from investment and loan cash flows. Although available as a liquidity source, we have not utilized brokered deposits. Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and remaining borrowing capacity was $1.905 billion, or 58% of total deposits and 208% of estimated uninsured and/or uncollateralized deposits as of March 31, 2024.
Current wording
During the first six months of 2024, outstanding borrowings decreased by $26.0 million to zero at June 30, 2024, primarily due to the strategic balance sheet repositioning and the resulting proceeds from the sale of AFS securities mentioned above. There were intermittent borrowings averaging $8.9 million in 2024, compared to $297.5 in the first half of 2023. Although available as a liquidity source, we have not utilized brokered deposits. Net available funding sources, including unrestricted cash, unencumbered available-for-sale securities, and remaining borrowing capacity was $1.797 billion, or 56% of total deposits and 202% of estimated uninsured and/or uncollateralized deposits as of June 30, 2024.
Previous wording
Bancorp's TCE ratio was 9.76% at March 31, 2024, compared to 9.73% at December 31, 2023. Bancorp's TCE ratio, net of after tax unrealized losses on held-to-maturity securities, was 7.67%, compared to 7.80% at December 31, 2023. Management believes this non-GAAP measure is important because it reflects the level of capital available to withstand drastic changes in market conditions(refer to the discussion and reconciliation of this non-GAAP financial measure in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures).
Current wording
Bancorp's TCE ratio was 9.92% at June 30, 2024, compared to 9.73% at December 31, 2023. Bancorp's TCE ratio, net of after tax unrealized losses on held-to-maturity securities, was 7.74%, compared to 7.80% at December 31, 2023. Management believes this non-GAAP measure is important because it reflects the level of capital available to withstand drastic changes in market conditions(refer to the discussion and reconciliation of this non-GAAP financial measure in the section below entitled Statement Regarding Use of Non-GAAP Financial Measures).
Previous wording
Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $1.905 billion, or 208% of estimated uninsured and/or uncollateralized deposits as of March 31, 2024.
Current wording
Net available contingent funding sources, including unrestricted cash, unencumbered available-for-sale securities and total available borrowing capacity was $1.797 billion, or 56% of total deposits and 202% of estimated uninsured and/or uncollateralized deposits as of June 30, 2024.
Previous wording
We obtain funds from the repayment and maturity of loans, deposit inflows, investment securities sales, maturities and paydowns, federal funds purchases, FRB and FHLB advances, other borrowings, and cash flow from operations. Although available as a liquidity source, we have not needed to utilize brokered deposits. Our primary uses of funds are the origination of loans, the purchase of investment securities, withdrawals of deposits, maturity of certificates of deposit, repayment of borrowings, dividends to common stockholders, and operating expenses.
Current wording
We obtain funds from the repayment and maturity of loans, deposit inflows, investment securities sales, maturities and paydowns, federal funds purchases, FRB and FHLB advances, other borrowings, and cash flow from operations. Although available as a liquidity source, we have not chosen to utilize brokered deposits. Our primary uses of funds are the origination of loans, the purchase of investment securities, withdrawals of deposits, maturity of certificates of deposit, repayment of borrowings, dividends to common stockholders, share repurchases and operating expenses.
Previous wording
Our cash and cash equivalents increased $5.9 million in the first three months of 2024. The most significant sources of liquidity during the first three months of 2024 were proceeds from principal paydowns and maturities of investment securities of $20.3 million, and proceeds from loans collected net of originations totaling $18.7 million. In addition, $4.3 million in net cash was provided by operating activities.
Current wording
Our cash and cash equivalents increased $201.0 million in the first six months of 2024. The most significant sources of liquidity during the first six months of 2024 were proceeds of $333.0 million from principal paydowns, maturities and sales of investment securities and $7.8 million in net cash provided by operating activities.
Previous wording
Significant uses of liquidity during the first three months of 2024 were $26.0 million in repayments of short-term borrowings, $6.0 million in net withdrawals of deposits and $4.0 million in cash dividends paid on common stock to our shareholders. Refer to the Consolidated Statement of Cash Flows in this Form 10-Q for additional information on our sources and uses of liquidity. Management anticipates that our current strong liquidity position, as detailed in this report, and contingent funding sources outlined in the table above are adequate to support our operational needs.
Current wording
Significant uses of liquidity during the first six months of 2024 were $76.3 million in net withdrawals of deposits, $26.0 million in repayments of short-term borrowings, $19.0 million in investment securities purchased, $8.9 million in loan originations and advances, net of principal collected, and $8.1 million in cash dividends paid on common stock to our shareholders. Refer to the Consolidated Statement of Cash Flows in this Form 10-Q for additional information on our sources and uses of liquidity. Management anticipates that our current strong liquidity position, as detailed in this report, and contingent funding sources outlined in the table above are adequate to support our operational needs.
Previous wording
Unfunded loan commitments, as discussed in Note 8 to the Consolidated Financial Statements in this Form 10-Q, totaled $489.4 million at March 31, 2024. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, principal paydowns of investment securities, and liquid assets.
Current wording
Unfunded loan commitments, as discussed in Note 8 to the Consolidated Financial Statements in this Form 10-Q, totaled $472.1 million at June 30, 2024. We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, principal paydowns of investment securities, and liquid assets.
Previous wording
Over the next twelve months, $251.4 million of time deposits will mature. We expect to replace these funds with new deposits or excess liquidity. We believe our emphasis on local deposits, combined with our immediately available funding sources, provides a very stable base for our liquidity needs.
Current wording
Over the next twelve months, $252.4 million of time deposits will mature. We expect to replace these funds with new deposits or excess liquidity. We believe our emphasis on local deposits, combined with our immediately available funding sources, provides a very stable base for our liquidity needs.
Previous wording
Because Bancorp is a holding company and does not conduct regular banking operations, its primary sources of liquidity are dividends from the Bank. Under the California Financial Code, payment of a dividend from the Bank to Bancorp without advance regulatory approval is restricted to the lesser of the Bank’s retained earnings or the amount of the Bank’s net profits from the previous three fiscal years less the amount of dividends paid during that period. The primary uses of funds for Bancorp are shareholder dividends and ordinary operating expenses. Bancorp held $8.6 million in cash at March 31, 2024 and management anticipates that there will be sufficient capacity at the Bank to provide dividends to Bancorp to meet its funding requirements for the foreseeable future.
Current wording
Because Bancorp is a holding company and does not conduct regular banking operations, its primary sources of liquidity are dividends from the Bank. Under the California Financial Code, payment of a dividend from the Bank to Bancorp without advance regulatory approval is restricted to the lesser of the Bank’s retained earnings or the amount of the Bank’s net profits from the previous three fiscal years less the amount of dividends paid during that period. The Bank recently received approval for a dividend of $19.0 million which was paid to Bancorp on June 24, 2024. The primary uses of funds for Bancorp are shareholder dividends, share repurchases and ordinary operating expenses. Bancorp held $23.1 million in cash at June 30, 2024, which is expected to cover cash needs beyond January 1, 2025 when the calculation of dividend approval requirements will be reset.
Previous wording
Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that, given recent industry turmoil, the presentation of Bancorp's non-GAAP TCE ratio reflecting the after tax impact of unrealized losses on held-to-maturity securities provides useful supplemental information to investors because it reflects the level of capital remaining after a hypothetical liquidation of the entire securities portfolio. Because there are limits to the usefulness of this measure to investors, Bancorp encourages readers to consider its annual and quarterly consolidated financial statements and notes related thereto in their entirety, as filed with the Securities and Exchange Commission, and not to rely on any single financial measure. A reconciliation of the non-GAAP TCE ratio is presented below.
Current wording
Financial results are presented in accordance with GAAP and with reference to certain non-GAAP financial measures. Management believes that, given industry turmoil that largely began in the first quarter of 2023, the presentation of Bancorp's non-GAAP TCE ratio reflecting the after tax impact of unrealized losses on held-to-maturity securities provides useful supplemental information to investors because it reflects the level of capital remaining after a hypothetical liquidation of the entire securities portfolio. In addition, management believes that providing selected financial measures excluding the loss on sale of securities discussed above 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 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.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
The following table presents the effects of changes in average balances (volume) or changes in average rates on tax-equivalent net interest income for the periods indicated. Volume variances are equal to the increase or
Previous report — wording carried elsewhere
Page-33 rate adjustments during 2022, the federal funds target rate range increased to between 4.25% and 4.50% at year-end 2022 and our net interest margin increased gradually over the course of the year. In 2023, on each of February 1 st, March 22 nd, May 3 rd, and July 26 th, the FOMC increased the target rate by 25 basis points to a range of 5.25% to 5.50%. Rising interest rates resulted in rapid increases in the cost of funds through rising deposit costs and increased average borrowings, putting pressure on the net interest margin. Federal Reserve policymakers continue to monitor inflation and economic developments and are considering rate changes during the balance of 2024. See ITEM 3. Quantitative and Qualitative Disclosure about Market Risk for further information.