Bank of Marin (BMRC) Q3 2026 Earnings Call Transcript

DATE

Mon, Oct. 26, 2026

CALL PARTICIPANTS

• Corporate Secretary - Krissy Meyer
• President and Chief Executive Officer - Timothy D. Myers
• Executive Vice President and Chief Financial Officer - David Bonaccorso
• Chief Credit Officer - Misako Stewart

TAKEAWAYS

• Net Income -- $9.9 million, representing a 7.4% increase from the prior quarter and a 32% increase versus the third quarter of 2025.
• Diluted EPS -- $0.62, up from $0.58 in the preceding quarter due to net interest margin expansion.
• Net Interest Margin -- 3.48% (tax-equivalent), expanding 10 basis points reflecting higher loan yields and lower average deposit costs.
• Total Loans -- $2.144 billion, growing 2.1% from the prior quarter through a combination of $63.6 million in new fundings and a strategic loan pool acquisition.
• Noninterest-bearing Deposits -- $1.282 billion, increasing $45.0 million to reach 37.8% of total deposits.
• New Loan Commitments -- $102 million, bringing year-to-date originations to $281 million, which is 21% higher than the prior year.
• New Loan Yield -- 6.65%, improving 12 basis points over the prior quarter and remaining accretive to the total portfolio yield.
• Loan Pool Purchase -- $31.1 million, consisting of California residential mortgages with an expected yield of approximately 6%.
• Non-interest Income -- $3.7 million, increasing 15.8% driven by a $251,000 increase in business deposit service charges and a $199,000 special Federal Home Loan Bank dividend.
• Non-interest Expense -- $20.6 million, decreasing by $1.0 million sequentially due to incentive accrual adjustments and lower professional services costs.
• Salaries and Related Benefits -- $12.1 million, down from $12.6 million in the prior quarter.
• Pre-tax Pre-provision Net Income -- $14.5 million, up 17.4% on a sequential basis.
• Classified Loans -- $35.0 million, increasing by $15.2 million primarily due to the downgrade of a $14.1 million owner-occupied commercial real estate relationship.
• Special Mention Loans -- $65.1 million, decreasing by $35.8 million due to $18.2 million in upgrades and payouts.
• Tangible Book Value Per Share -- $18.81, declining from $19.92 at June 30, 2026, due to rising interest rates impacting investment security valuations.
• Efficiency Ratio -- 58.65%, improving from 63.62% in the prior quarter.
• Common Equity Tier 1 Ratio -- 12.96%, increasing 3 basis points from the prior quarter.
• Total Deposit Costs -- 1.24%, decreasing from 1.28% in the previous quarter through active balance sheet management.
• One-way Sales Income -- $480,000, representing income from off-balance sheet money market placements.
• Loan to Deposit Ratio -- 63%, indicating substantial capacity to support loan growth without wholesale funding.
• Accumulated Other Comprehensive Loss -- $52.0 million, increasing by $24.8 million during the quarter due to higher market interest rates.

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RISKS

• Bonaccorso noted that "Rising market interest rates negatively impacted AOCI by $24.8 million during the quarter," which resulted in a decrease to the tangible common equity ratio and book value per share.
• Myers reported that classified loans rose by $15.2 million following the "downgrade of a $14.1 million owner-occupied commercial real estate relationship facing a borrower-specific issue."

SUMMARY

Bank of Marin Bancorp (NASDAQ:BMRC) reported higher quarterly earnings and expanded margins driven by rising loan yields and disciplined expense management. Management highlighted a significant shift in deposit mix, with noninterest-bearing balances growing to nearly 38% of the total portfolio despite a competitive interest rate environment. The company supplemented organic loan production with a targeted $31.1 million residential loan pool purchase while maintaining a low loan-to-deposit ratio. Capital ratios remained well above regulatory minimums, though rising interest rates caused a reduction in tangible book value per share through accumulated other comprehensive income adjustments. The board declared its 86th consecutive quarterly dividend of $0.25 per share.

• The company expects significant tailwinds for loan yields, with CFO Bonaccorso stating, "monthly loan yield 12 months from now based on our ALM forecasting with the flat balance sheet... probably 25-ish basis points of monthly loan yield benefit a year from now."
• Management is focusing on growing its construction loan pipeline, with CEO Myers noting that $25 million in new construction commitments will contribute to growth in subsequent quarters at relatively high interest rates.
• The bank implemented a new business deposit pricing strategy on July 1, which the company expects to generate approximately $1 million in annualized fee income.
• The institution is managing excess liquidity through off-balance sheet "one-way sales," which generated $480,000 in income during the quarter while reducing overall deposit costs.
• Regarding capital management and potential share buybacks, Myers indicated that the company is "working with our regulators, particularly DFPI," to earn back toward peer-level capital ratios before resuming repurchases.
• A significant reduction in loan payoffs, which fell from $71.2 million to $31.6 million, contributed to the first quarterly loan balance increase in a year.

INDUSTRY GLOSSARY

• AOCI: Accumulated Other Comprehensive Income, a component of stockholders' equity that includes unrealized gains and losses on investment securities.
• CET1 Ratio: Common Equity Tier 1 ratio, a key regulatory measure of a bank's core equity capital compared to its total risk-weighted assets.
• Classified Loans: Loans that are graded as substandard, doubtful, or loss, indicating a higher risk of default or loss of principal.
• NIM: Net Interest Margin, the difference between interest income generated and interest paid out to lenders, relative to the amount of interest-earning assets.
• One-way Sales: A strategy where a bank sells its customers' interest-bearing deposits to other institutions through a marketplace, earning fee income instead of holding the deposits on its own balance sheet.
• PTPP: Pre-tax pre-provision net income, representing earnings before taxes and provisions for credit losses are deducted.
• ROTCE: Return on Average Tangible Common Equity, a performance ratio measuring how much profit a company generates with the money shareholders have invested, excluding intangible assets.

Full Conference Call Transcript

Operator: Good morning. And thank you for joining Bank of Britain Bancorp's earnings call. For the third quarter ended September 30, 2026. I am Krissy Meyer, Corporate Secretary for 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, Timothy D. Myers and Chief Financial Officer, David 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 begin, I want to note that we will be discussing some non GAAP financial measures. 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 available as of Friday, October 23, 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, Timothy, David and our Chief Credit Officer, Misako Stewart, will be available to answer your questions. And now I would like to turn the call over to Timothy D. Myers.

Timothy D. Myers: Thank you, Krissy. Good morning, everyone, and welcome to our quarterly earnings call. Our third quarter results reflected another period of improved financial performance. We increased earnings per share and return on average tangible common equity, expanded net interest margin, grew loans and non interest bearing deposits, bolstered core noninterest income, and continued our prudent expense management. Our net interest margin expanded 10 basis points in the quarter, which drove sequential quarter EPS growth of 7% and year to date EPS growth that was 62% higher than the prior year period.

Quarterly return on tangible common equity topped 12% return on average assets exceeded 1%, our efficiency ratio improved to below 60%, and pre tax pre provision earnings increased by 17%. Higher loan yields higher core fee income, lower deposit costs, healthy loan production and disciplined expense management, all contributed to stronger profitability during the quarter. Taken together, these results reflect continued progress across the core drivers of our business. And provide further evidence that our efforts are translating into stronger and more reliable core financial performance. During the quarter, we originated $102 million in new loan commitments which improved year to date originations to $281 million a level that is 21% higher than last year.

While funded loans of $64 million were relatively flat in the third quarter, compared to the prior quarter, a higher level of unfunded commitments in the quarter includes $25 million of construction loan commitments which will contribute to growth in subsequent quarters, and have relatively high interest rates as projects fund. Newly funded loans were originated at a weighted average rate that was 12 basis points higher than the prior quarter. Which contributed to our net interest margin expansion during the quarter and will provide additional benefits in the fourth quarter. Despite competitive pressures, the yield profile of new production remains attractive and is accretive to our overall portfolio yield.

And we believe this healthy production, continued relationship development, and disciplined underwriting will continue to translate into sustainable improvement in asset yields and earnings over time. The organic loan fundings resulted in loan growth for the quarter, we supplemented that growth by using a portion of our excess liquidity to purchase a $31 million pool of California residential loans which we expect to provide attractive risk adjusted returns. Turning to credit quality, special mentioned loans decreased by $36 million while classified loans increased by $15 million. The movement in both categories was primarily due to the downgrade of a $14 million owner occupied commercial real estate relationship facing a borrower specific issue.

The borrower is paying as agreed and we do not expect any loss given the strong collateralization. Special mention loans also benefited from $18 million in upgrades and payouts. Net charge offs were minimal. Primarily driven by loan growth and higher commitments. We did record a $500 thousand provision for credit losses on loans. And a $325 thousand provision for unfunded commitments. Our allowance for credit losses was 1.07% of total loans consistent with that of the prior quarter. Total deposit balances increased 25.3 million including a $45 million increase in non interest bearing balances. Partially offset by decreases in money market and time accounts.

We were especially pleased to see meaningful growth in non interest bearing deposits during the quarter. Which we view as a reflection of the strong relationships our teams have built with clients over time. To that end, our focused outreach continued to result in strong new client activity generating $23.2 million in new relationships including $13 million in new non interest bearing deposits. Noninterest bearing deposits represented 37.8% of total deposits at quarter end. Continuing to differentiate our franchise and provide a meaningful funding in a very competitive market.

With financial markets expecting additional hikes in the Fed funds target rate range, we believe our high non interest bearing deposit concentration positions us well to achieve a relatively low rising rate deposit beta as we have experienced in previous rising rate cycles. Overall, the third quarter reflected continued progress across the franchise. Including higher earnings, continued margin expansion and loan growth. With that, I will turn the call over to David Bonaccorso, to discuss our financial results in more detail.

David Bonaccorso: Thanks, Timothy. Morning, everyone. Our third quarter net income was $9.9 million or $0.62 per share compared with $9.2 million or $0.58 per share in the prior quarter. Return on average assets increased to 1.05%, Return on average tangible common equity grew to 12.26%, our efficiency ratio improved to 58.65%. Our net interest income increased from the prior quarter to $31.4 million due to both higher interest income and lower interest expense. We recorded higher interest income on loan due to an increase in average loan yields from 5.12% in the second quarter to 5.23% in the third quarter.

Additionally, we recorded lower interest expense largely due to a higher proportion of noninterest bearing deposits and active balance sheet management through sales and 1 way deposits which drove a reduction in average total deposit costs from 1.28% to 1.24%. Our yield on new loan fundings increased to 6.65% during the quarter which was a 12-basis-point improvement over the prior quarter. The 142-basis-point spread between the yield on new loan and the yield on the entire loan portfolio is evidence of the opportunity we have to improve net interest margin through loan remixing and repricing over the coming quarters.

Importantly, with a loan to deposit ratio of 63%, and high levels of cash flow expected from our shorter duration securities portfolio, we have substantial capacity to support loan growth without utilizing wholesale funding. Our non interest income was up by $501 thousand during the quarter, primarily due to a $251 thousand increase in service charges on business deposit accounts resulting from an updated pricing strategy effective July 1. And an increase in dividend income due to a special dividend on FHLB stock of $199 thousand Importantly, the increase in service charges reflects initiatives we implemented earlier this year which are helping diversify our revenue streams and build a more durable source of recurring fee income.

And we expect to see these continued benefits in our results going forward. Our non interest expense improved by approximately $1 million primarily related to an incentive bonus accrual adjustment, prior quarter annual event expense that was not repeated, a reduction in professional services expense, and more normalized FDIC insurance expense levels. Looking ahead, we expect expenses to remain well managed while continuing to make targeted investments in areas that support future growth. Although quarterly expense levels may vary, our focus remains on balancing disciplined cost management with investments in our people technology, and client facing capabilities.

With quarterly improvement in interest income, interest expense, non interest income, and non interest expense, our pre tax pre provision net income improved by 17% on a sequential quarter basis. As Tim noted earlier, growth in both loan fundings and loan commitments drove provisions this quarter, which impacted net income though quarterly net income still improved 7% compared to the prior quarter, and 32% compared to the third quarter of 2025.

Our regulatory capital ratios continue to improve with common equity tier 1 ratio increasing to 12.96%, our total capital ratio increasing to 15.59%, and our Tier 1 leverage ratio increasing to 9.04%, Rising market interest rates negatively impacted AOCI by $24.8 million during the quarter, which lowered our tangible common equity ratio to 8.05%, and tangible book value per share to $18.81 Given our continued strength, our Board of Directors declared a dividend of $0.25 per share on October 22, the 86th consecutive quarterly dividend paid by the company. With that, I will turn it back over to Timothy for closing comments.

Timothy D. Myers: Thank you, David. To close, the third quarter was another quarter of strengthening profitability, through our strategic focus areas. We delivered improved earnings expanded net interest margin, resumed balance sheet growth, and generated meaningful improvement in core fee income. While maintaining strong liquidity capital levels, and overall credit performance. While the current operating environment remains competitive, we are encouraged by the opportunities we see to continue growing relationships add earning assets at attractive yields, and maintain disciplined deposit pricing. Together with our ongoing focus on balance sheet management and expense control, we believe these efforts position us well to continue building long term shareholder value. With that, I want to thank everyone on today's call for your interest and support.

We will now open the call to your questions.

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 pause a moment to allow the queue to form. We will take our first question from Wood Lay with KBW. Please unmute your line and ask your question.

Woody Lay: Hey. Good morning, guys. Good morning, Wade. Wanted to start on the net interest margin. It was great to see the quarter. Quarter over quarter improvement, and I was just curious if you had the NIM in the month of September to kind of get an idea of the starting point for next quarter. And then just any additional thoughts on the magnitude of NIM expansion we could see over the coming quarters?

David Bonaccorso: So the September NIM was 3.04 tax equivalent, 3.52 reported. That includes about a 145 million of 1 way sales. So, you know, that definitely has a positive impact there. If you were to completely eliminate 1 way sales, you are probably in 3.46 area, but I think we have the intent and capacity to continue those. And quarter to date, we are about a 115 million or so, which gives you sort of a 3.51 level if we kept that lump. If we kept that level of 1 way sales going. So a roundabout way to give it to you, but there is some nuance to it.

Woody Lay: Yep. And I guess on the 1 way strategy, we were at 100. Or call it 131 million this past quarter. But on an average basis, you think that can go to 300 million? Next quarter?

David Bonaccorso: No. No. I. No. I think you know, slightly higher would be the way to go.

Woody Lay: 300 million would be out of the out of the range, but, you know, could we be 150, 160 Yes. Could we be 120 or 100? Yes. So that. Those are the magnitudes I have in mind.

David Bonaccorso: The income from 1 way sales this quarter, I believe, was 480 thousand compared to $386 thousand last quarter And so, you know, I know a lot of attention on net interest income. But if you adjust for that, you basically assume that the deposits we have if they were not in 1 way sales, we are on the balance sheet, are net interest income would have been about 489 thousand higher. So another way of thinking about that. But you asked the question about margin trajectory, and if you think of, you know, the higher rate environment we are in now, if you think about our greatest challenge and our greatest strength. Our greatest challenge is loan yields.

So the higher environment gives us more time to reprice loans. Allows variable rate loans to reset higher, and then new originations higher yields than previously thought. And then our biggest strength is our deposit franchise. And you know, I think clearly, we get questions from customers about deposits. I would not say it is been that material so far, but I think we have proven over a cycle partly due to the high level of noninterest-bearing deposits, we tended to outperform. And if you look at peers, in the last cycle, our total deposit beta was 29% to 43% for peers.

So I think on a relative basis, we are positioned very well for the rising rate environment, managing deposit costs and then also continued loan repricing. And there is lots of information about the repricing schedule on Page 13 of the deck.

Timothy D. Myers: Yeah. I think, Woody, if you look at as our originations continue to improve, we are looking at a pipeline of right now for the Q4 pretty similar to where we were last year. So that ended up being a blowout quarter. But a lot of the NIM lift here in quarter was due to new loan originations. As Dave mentioned, the repricing over the next 12 to. Or 3 to 12 months variable plus fixed rate repricings. You know, we continue to think we have good tailwinds there. And, also, we talked about in the loan section, We had some nice tailwinds from construction lending. Given the type of stuff we do and the geographies we do it in.

That was really a headwind for a number of years. Primarily in San Francisco. And so a lot of unused commitments gonna borrow up on construction loans and that is. Those are our highest priced commercial real estate loans. So you know, no real silver bullet there for everything, but a lot things are gonna add up to, I think, continued growth.

David Bonaccorso: Yeah. And a statistic we have given out over the years is monthly low yield 12 months from now based on our ALM forecasting with the flat balance sheet. We are looking at probably 25-ish basis points of monthly loan yield benefit a year from now. Which I believe compares favorably to closer to 20-basis-point last quarter. So that just shows a little bit more benefit in rising rates. And again, flat balance sheet there, so if we have loan growth that we expect, there is some upside to that.

Woody Lay: Yeah, that is great to hear. And maybe just 1 more follow-up on the on the deposit side, deposit betas. You mentioned, you know, the 29% historical Do you think that is the right way to think about it to the extent we get additional rate hikes from here?

David Bonaccorso: Yeah. I do not see why it would differ. The last cycle had the complication of the regional bank failures in our market. Impacting things. And so know, relative to our nationwide peer group, you could argue we were disproportionately affected by that. We were still at 29% relative to the 43%. So I do not see why it would differ from that. And you know, we have had a long history of high noninterest-bearing balances, which really gets you off on the right foot from that perspective in a rising rate environment.

Woody Lay: Yep. Alright. Well, that is all for me. Thanks for taking my questions.

Timothy D. Myers: Thank you, Woody. Thank you.

Operator: Our next question comes from Jeff Rulis with D.A. Davidson. Please unmute your line and ask your question.

Jeff Rulis: Thanks. Good morning. Think you mentioned $102 million in origination activity. How does that compare linked quarter? And then similar question if you had payoffs both in the current and past quarter.

David Bonaccorso: Yes. So sequential quarter, originations went from $98 million to 102 million, roughly. Fundings went from 62.8 million to 63.6 million. Payoffs went from a pretty high mark of 71 million down to 31.6 million. And there is a table in our earnings release that has all this information. You did not catch all that.

Jeff Rulis: Yeah. [Inaudible]

Timothy D. Myers: The 31 million of mortgage purchases are excluded from the numbers he just gave. So, correct. A nice trend in the payoffs. And certainly a big chunk of our year to date payoffs have been working out some of those historical problem loans on the real estate and wine side. So we feel much better about the trend of that as well.

Jeff Rulis: Oh, okay. That was sort of the payoff visibility historically pretty tough. But based on what you see is that, are you encouraged by maybe the payoff wall that you have seen that maybe is lower going forward, or is there particularly, I guess, if we get higher rates maybe also, but I guess the question is your expectations on payoff activity ahead.

Timothy D. Myers: No. that is fair. So there were 2 big headwinds over the last year and a bit period since. We had about 28 million of the problematic loans. Our big pandemic special CRE loan in the city and our large wine industry loan that we had talked about for. Both of which we had talked about for some time. That was 28 million of the payoffs. We also had a lot of construction projects that we are completing which really. You know, the flip side of that is it brought our balances down to almost $16 million. But now we have added a bunch of new loans. Those will fund up over the next 18, 24 months.

So those are 2 of the larger headwinds for payoffs. So again, hard to predict timing, it is hard to predict resolution of workout credits or whatever, but we feel like it is a normalizing trend.

David Bonaccorso: Yeah. And this is the first quarter in a year where we have been below our, you know, last couple of year average. We have averaged 40 million or so, you know, between 38 and 42 million, let's say, depending on your time frame over the last couple of years and payoffs. You know? So it is a we have had a lot of headwinds the last few quarters. This is the first quarter we have had a little bit of relief from a payoff perspective.

Jeff Rulis: Okay. And jumping off that, I guess the further appetite for loan purchases, Was this a 1 off? Would you have more? And the kind of a related question is, what rate did the mortgage pool come on this quarter?

Timothy D. Myers: I will start with the first part. I will let David answer about the mortgage pool. Mean, it is something we wanna be selective about. This is not how we are trying to drive our franchise value, but we be strategic given our loan to deposit ratio. That mortgage pool we acquired a couple years ago to help boost the yield and offset the impact or drive the earnings impact from the larger AFS trade that we did before the HTM trade. That had a much faster prepay rate than we expected. So when we looked at this year, we said, well, if we can find an op.

Just opportunistic portfolio, the geography we are comfortable with, the metrics we are comfortable with, we will try to offset that. So that is effectively how we measure that out. We will continue to be opportunistic about that. that is not our intent about how we are gonna grow the bank. But we do have the liquidity and the loan to deposit ratio to continue to look at that. So do you want to answer the rate question?

David Bonaccorso: Sure. Yeah. The coupon on the pool was about 6.20%, and we paid a small premium for it. So, you know, our expectation is with pretty conservative prepaid speeds, probably yielding around 6%.

Analyst: Which, you know, we actually entered into this about 3 months ago, was about a 160-basis-point spread to treasuries at time.

Jeff Rulis: that is great. Thank you.

Timothy D. Myers: Thank you, Jeff.

David Bonaccorso: Thank you.

Operator: Our next question comes from Matthew Clark with Piper Sandler. Please unmute your line and ask your question.

Matthew Clark: Hey. Good morning. Timothy and David. Good morning, Just to round out that conversation on the single family resi pool, what was the expected duration on that purchase?

David Bonaccorso: So we ran at a 25 CPR, which gets you to about 3.3-year average life. it is 30 year collateral, you know, so there can be movements in the average life depending on prepayment speeds. But that is what we assumed. Which we thought was pretty you know, mortgage rates have moved up since then. So I do not think we are gonna get the wave of very fast prepayments like we did on the prior pool.

Matthew Clark: Yep. Okay. And then any recoveries or interest reversals in the loan yield this quarter? I did not think so, but was not sure.

Timothy D. Myers: Nothing material. Nothing meaningful. We have the 1 large non accrual we have talked about that you know, could resolve through the judicial reference process, but that has a sort of an indeterminate period. So when that happens, that is an $8 million loan in nonaccrual, but nothing just last quarter. But that will be a tailwind when that finally resolves.

Matthew Clark: Okay. And then just back on the expense run rate, how should we think about a normalized run rate going forward here at least in the near term?

David Bonaccorso: So the you know, I would say Q4 is probably gonna look pretty similar to Q3. And my thinking behind that is you know, we had some lower salaries and benefits expense this quarter. That could persist. into the next quarter. I think we. there is some acceleration that probably happens in occupancy as we are rehabbing a few locations and some IT projects catching up. But I think you have nailed that together, Q4 is probably pretty close to where we were in Q3. But where I would remind folks is, you know, there is quite a bit of seasonality on our expense base.

And the way to think about the quarters beyond that is probably to look at the year ago prior quarter. So I would not launch your Q1 numbers off our Q4 numbers. I would look at Q1 26 and then apply some sort of growth rate that. That for looking at Q1 27. And then throughout the year. So, you know, Q1, we have a lot of resets on personnel related items. You know, Q2 tends to be where our expenses peak due to merit increases and a few special items in Q2, and then they start to drift down from there. And that is the that is the pattern I would recommend thinking about going beyond Q4 this year.

Matthew Clark: Yep. Okay. Great. And then just on capital, did not buy back any shares this quarter. Just some color there. And then you know, on slide 6, you note that it is a new slide, but you mentioned acquisitions as part of your strategy. Any update on conversations you might be having, you know, targets you might consider.

Timothy D. Myers: Of late Yeah, sure I will start bigger picture on the capital buyback. So we have talked pretty ad nauseam about working with our regulators, particularly DFPI, on our held to maturity trade, and that we were gonna earn our way back into a more peer level capital ratios before going back and going through the process of getting the necessary approvals tied to the overall dividend to the bank. So. But, you know, we. We are getting closer to a period we will feel more comfortable having those conversations. M&A, certainly with our return on profitability, we are the trajectory we are on, the impact that is had on our valuation, that is helping.

But I would not say there is any conversations that are more progressed at this point than there have been, but I continue to do my job and be out talking to folks. And we would love to be opportunistic, and that is 1 of the key reasons why I keep driving the valuation. And that is-- Got it.

Matthew Clark: Thank you.

Timothy D. Myers: Thank you.

Operator: Our next question comes from David Feaster with Raymond James.

David Feaster: Hi, good morning everybody.

Timothy D. Myers: Hey, David.

David Feaster: I wanted to first start on you know, the demand side. I am curious how demand has trended across your footprint as rates have begun rising and then just kind of how pipelines are. And then as it plays into that, just you know, hiring, I know, has been a big focus for y'all and kind of increased production and, you know, new. Newer markets like Sac and some of the parts of the Bay Area. Just kind of curious how productivity from those bankers is and your thoughts on hiring broadly.

Timothy D. Myers: Okay. Well, thank you, David. there is a lot in there. So I think if you look at demand and the rate environment, what we have seen it more is on the payout side. So, like, on the retail side, HELOCs, paying off with rates where they are. But we continue to have or have seen much better demand on the consumer side. Again, with construction and the bulk of our direct consumer lending activity being tenant and common loans that really died in the city for a while. And I think we are at triple right now year to date, or almost triple where we were the prior year.

Despite where rates are because of the boom in San Francisco residential lending. The commercial pipeline while overall, we are achieving a much more consistent and higher consistent level of production, we did have some deals pushed. So we feel good about the volume. Our pipeline looks similar now for Q4 than it did last year for Q4, and that ended up being a great quarter. You know? it is always tough to say how that will all play out, but right now, we saw some residential lending on the floating home side, which we have not really seen in a while. Again, despite where rates are.

So you do not know how you know, borrower behavior will be when rates drop after you have done all that, but we are really not seeing it limit the amount of things going in the funnel. And I am sorry if I missed something in there. But that is that is where we have seen most and on the hiring side, no. We continue to look. Know? Sometimes the hiring is more on the support underwriting function to support the new sales people. We have actually had a pretty active hiring quarter or going into Q4. Not all of it producers, but we continue to look to fill those positions and be opportunistic.

And we are pretty excited You know, nothing dramatic to report at this time, but I think the teams are building out nicely. To, again, get that more consistently higher level of activity. I feel I feel good about the trajectory.

David Feaster: that is great. Maybe just on the other side of the balance sheet, just touching on funding. I mean, that is probably 1 of the more impressive things about the quarter in my mind. I mean, the noninterest bearing deposit growth was phenomenal. I know we are entering a seasonally weak quarter in the fourth quarter. But curious, some of the drivers behind the growth you saw this quarter, and how customers are responding as rates are rising? Have you seen more exception pricing requests? Do you see more funding cost leverage on the horizon? And just any thoughts on the deposit side.

Timothy D. Myers: Well, I think for us, every request is an exception pricing request, and that is. You know, that makes the contacts that is partly how we manage that. Right? And so I do not I have not seen a wave of request for activity that we would have thought, but that is because of ongoing day to day relationship management. The fluctuations are largely driven by balances within our larger customers. And so our goal is really to maintain that and not have them move those funds out elsewhere, but those are operating balances We have had over the last couple of quarters some money leave where it is a quasi or public entity.

They have investment policies, and that money is gonna sit in some other type of investment vehicle generating a higher yield than we are willing to pay, but we are not And that was more last quarter than this quarter, to be honest. So pretty blocking and tackling quarter on the deposit side. In terms of the trends. Our goal is to just continue to get better at new business client acquisition Of course, we want to continue to acquire consumer loans to get those business operating accounts, and, you know, we continue to have strategies around how we continue to evolve or get better at that, again, to have a more consistent growth and get more granularity from there.

So that is. We continue to focus on that and not just sort of you know, leave it to fate in terms of deposit balances. Okay.

David Feaster: And then that is great. And then just last 1. Just you know, you have done a great job finding opportunities to maybe charge for products. And services that you have not historically or maybe where you were undercharging. You talked about, you know, a $1 million kinda annualized run rate that you have been. You have seen so far. Where are we at in that process? It sounds like. You know, from your commentary, it sounds like there might be some more on the horizon. But curious kinda where are we in that in that process as you think about opportunities to just maybe generate some revenues where you maybe should have been already?

Timothy D. Myers: Yeah. So I will break that into 2 parts. We continue to have things coming online working on that will overall drive greater noninterest income. Particularly related to the business service fees Those are just things where we were undercharging or, you know, when you look at a bank that grew in large part by acquisition of a smaller banks. Very common for banks to waive or have generous fee schedules, etcetera. I was taking the time to sit back and quantify and qualify that. And what does this need to look like? What does it need to look like relative to our peers? what is fair? Tier that properly. And so that is implemented.

So that run rate is based on the new fee schedule for our business. Commercial treasury management customers, that utilize those services. We will continue to look to add things that will be additive to that. Sorry for the redundancy there. But we do have other things in the works overall to drive fee income unrelated to deposit service charge.

David Feaster: Terrific. Thanks, everybody.

Timothy D. Myers: Thank you.

David Bonaccorso: Thank you.

Operator: As a reminder, if you would like to ask a question, We will pause a moment to allow the queue to form. We have no further questions at this time. I will hand it back to Timothy D. Myers for closing remarks.

Timothy D. Myers: Thank you very much. Thank you, everyone, for joining. As always, please feel free to reach out to us. We are happy to provide more color. We look forward to talking to next quarter.

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