1、bank of marin bancorpbuilding relationships that drive success2010 annual reportFor Bank of Marin,2010 was a year of strength and opportunity,with healthy fi nancial results,ongoing strategic expansion in the North Bay,and a continued commitment to our customers and the community.financial performan
2、ce(dollars in thousands,except per share data)20102009200820072006At December 31,Total assets$1,208,150$1,121,672$1,049,557$933,901$876,578 Total loans 941,400 917,748 890,544 724,878 719,778 Total deposits 1,015,739 944,061 852,290 834,642 736,697 Total stockholders equity121,920 109,051 125,546 87
3、,774 89,525 Equity-to-asset ratio10.1%9.7%12.0%9.4%10.2%For the Year Ended December 31,Net income 13,552 12,765 12,150 12,324 11,883 Net income per share(diluted)1 2.55 2.19 2.31 2.31 2.11 Cash dividend payout ratio on common stock223.6%25.8%23.9%21.4%20.8%As of December 31,Total Capital(to risk-wei
4、ghted assets)13.34%12.33%14.08%12.06%12.56%1 Restated for all stock dividends and stock splits.2 Calculated as dividends on common share divided by basic net income per common share.a message from the president&chairman of the boardbank of marin bancorp2010 annual report1Russell A.ColomboPresident a
5、nd Chief Executive OfficerJoel Sklar,MD Chairman of the BoardWe are pleased to report that we have started our third decade in business with strong financial results,while maintaining our position as the number one community bank in Marin County.*Our continued success is based on our disciplined,con
6、servative approach to underwriting,a focus on building strong relationships with our customers and an unwavering commitment to the communities we serve.These fundamental operating principles have been in place since we opened the first Bank of Marin branch in 1990 and will continue to serve us well
7、in the years ahead.FINA NCIA L STR ENGTH&STABILIT YThis past year was an outstanding year for Bank of Marin in many ways.We posted annual earnings of$13.6 million,a 6.2 percent increase over 2009.Deposits grew 7.6 percent and loans were up 2.6 percent.Most importantly,we main-tained excellent credit
8、 quality due to our exceptional underwriting standards and proactive management of rela-tionships with our customers.We continue to be a strong,healthy institution with a Risk-Based Capital Ratio of 13.3 percent,which is well in excess of the regulatory standard for a“Well Capitalized”financial inst
9、itution.Additionally,we were again awarded the highest Bauer Five Star Rating,which we have received for over ten straight years.NORTH BAY EX PA NSIONWe characterized 2010 as a“year of opportunity”for Bank of Marin as we continued our strategic expansion into the North Bay by opening a new commercia
10、l loan office in Santa Rosa and began planning for a full service branch in Sonoma to open by summer of 2011.In February,2011 we had the opportunity to acquire Charter Oak Bank in Napa through an FDIC assisted transaction.This strategic acqui-sition positions the Bank in the middle of the prosperous
11、 Napa Valley and gives us presence in the three major coun-ties in the North Bay region.BUILDING BUSINESS R EL ATIONSHIPSAs a community bank,we recognize the importance of building and maintaining strong relationships with our customers and the business communities where we operate.This is a focus f
12、or our employees every day,from participat-ing in programs with our local Chambers of Commerce,to sponsoring school and non-profit events.Our employees are well-connected in the communities we serve and are dedicated to providing legendary service to our new and long-time customers.COMMUNIT Y COMMIT
13、MENTBank of Marin contributed over one percent of pre-tax earn-ings to charity in 2010,by giving$370,000 to non-profit organizations in the North Bay.Our financial contributions are complemented by the donation of more than 7,000 employee volunteer hours during the year,while also serving on the Boa
14、rds of close to 70 non-profit organizations.We continue to be recognized for our work in the commu-nity.For the eighth year in a row Bank of Marin was honored as one of the“Top Corporate Philanthropists in the Bay Area”by the San Francisco Business Times.In 2010,we also received the Western Banker 2
15、010 Community First Award,which recognizes banks for demonstrating a commitment to helping their local communities and creating a healthier environment through tangible programs,policies and projects.We are pleased with our accomplishments in 2010 and look to the year ahead with a continued focus on
16、 doing our best for our customers,our community,our employees,and our shareholders.Thank you for your ongoing support and your role in making Bank of Marin the strong and healthy institution it is today.Sincerely,*Based on total deposit market share for Marin County-headquartered banks,FDIC,June 201
17、0from left to right:michael kadel,bank of marin central marin regional manager michael ghilotti,ceo,ghilotti brothers inc.2bank of marin bancorp2010 annual report3A phone call from Mario Ghilotti to Bill Murray,the founder of Bank of Marin,was the beginning of a long banking relationship that remain
18、s as strong today as it was sixty years ago.Michael Ghilotti tells the story this way.“Years ago,my father Mario and his brothers got started in business with a call to the Bank after they bought a shipment of army surplus equipment and needed to pay for it.That was the beginning of a fantastic rela
19、tionship thats helped us become a multi-million dollar company and one of the largest employers of construction personnel in northern California.”He adds,“In todays world the challenge is to turn things around quickly and Bank of Marin does just that.They jump in and help at the drop of a phone call
20、.Their ability to expedite things separates them from other financial institutions.They understand what we do and when challenges come up,we feel supported every step of the way.”“What makes the relationship work is our ability to be responsive”says Michael Kadel.“Whether its providing a line of cre
21、dit or just an opportunity to brainstorm ideas,we recognize the importance of being accessible for our customers.”“We are continuously challenged to grow our company and develop it,and we couldnt do that without the sup-port of Bank of Marin,”says Michael Ghilotti.ghilotti brothers inc.san rafael,ca
22、lifornia doyle drive construction,san francisco,california 4Bank of Marins new full service branch is set to open in the town of Sonoma this summer.Yet Highway 12 Vineyards and Winery and Bank of Marin have shared a relationship for years.Co-founders Michael Sebastiani and Paul Giusto have grown the
23、 upstart winery from 650 cases in their first release in 2006 to more than 19,000 cases in 2010.And theyve done it along the renowned Highway 12 corridor through the Sonoma Valley,home to dozens of world-class wineries.“Were a small winery in a small town and Bank of Marin has been a very good fit f
24、or our business.Their personal-ized approach blends well with our family-style opera-tion,and their experience in the wine industry has provided invaluable guidance,”says Michael.Commercial lender Cheryl Cinelli adds,“There are unique lending needs in the wine business.Its very capi-tal intensive an
25、d because of our teams experience in the industry,we can anticipate and be very responsive.All decisions are made in our local office so we can act quickly,which is one of the keys to our success.”“Having a local connection to our Bank gives us a lot of confidence.We know weve got a supportive partn
26、er behind the scenes,”says Paul.“Bank of Marin under-stands our business and they contribute to the commu-nity which is very important to us.They are also our only Bank and that says a lot right there.”highway 12 vineyards&winerysonoma,california bank of marin bancorp2010 annual report highway 12 vi
27、neyards&winery,sonoma,california 5from right to left:michael sebastiani,co-founder and winemaker,highway 12 vineyards&winerypaul giusto,co-founder and president,highway 12 vineyards&winerycheryl cinelli,bank of marin commercial lender6from left to right:chuck silverman,founder and principal,silverma
28、n&lighttim myers,manager,bank of marin san francisco commercial banking officebank of marin bancorp2010 annual report7When Chuck Silverman needed a commercial loan for his engineering business,and later a real estate loan for his companys headquarters in Emeryville,he wanted to work with a bank that
29、 wasnt a hassle and a lender open to new ideas.Thats when he heard about Bank of Marin.Says Chuck,“I was with a big bank and realized I needed more of a people bank.I wanted a person to work with who wasnt just number crunching and hindered by bureaucracy.I wanted a bank that was flexible.”Tim says,
30、“The similarities between Chucks company and Bank of Marin are that we both have high expecta-tions,and we run our respective businesses with a focus on building strong relationships backed by a team of very qualified people.The Banks relationship with Chuck started with a single project and has gro
31、wn as Silverman&Light has also grown.The firm now has projects that include commer-cial and government facilities,hospitals and laboratories,residential housing and restaurants.“Chuck is a very creative,bright guy,”Tim concludes.Like any relationship weve grown it over time,weve earned it,and as a r
32、esult Chuck will say,“Im going to have some-thing else in the works and Id like you to be part of it.In our business,thats the best compliment and something we love to hear.”silverman&lightemeryville,california cragmont elementary school,berkeley,california Experienced leadershipBOARD of DIRECTORSEX
33、ECUTIVE OFFICERSJoel Sklar,MDChief Medical Officer,Marin General Hospital,Chairman,Bank of Marin&Bank of Marin BancorpRussell A.ColomboPresident and Chief Executive Officer,Bank of Marin&Bank of Marin BancorpThomas M.FosterRetired CPA and Independent Financial ConsultantRobert HellerFormer Governor,
34、U.S.Federal Reserve Board and former President and CEO,Visa USANorma J.HowardBusiness ConsultantStuart D.LumPresident and Chief Executive Officer,Edgewood Pacific Inc.Joseph D.MartinoRetired BankerWilliam H.McDevitt,Jr.President,McDevitt&McDevitt Construction Corp.Brian M.SobelPrincipal Consultant,S
35、obel Communications of PetalumaJ.Dietrich StroehPartner,CSW/Stuber-Stroeh Civil Engineering FirmJan I.YanehiroPresident,Jan Yanehiro Inc.,Director,School of Multi Media Communications,Academy of Art University,San FranciscoRussell A.ColomboPresident and Chief Executive OfficerChristina J.CookExecuti
36、ve Vice President and Chief Financial OfficerKevin K.CoonanExecutive Vice President and Chief Credit OfficerPeter PelhamExecutive Vice President and Director of Retail BankingNancy Rinaldi BoatrightSenior Vice President and Corporate Secretary8bank of marin bancorp2010 annual reporttr ansfer agent a
37、nd registr arRegistrar and Transfer Company10 Commerce DriveCranford,NJ 07016-3506(800)368-independent auditorsMoss Adams LLPStockton,CAlegal counselStuart|MooreSan Luis Obispo,CAnasdaq symbolBMRCannual meeting6:00 p.m.,May 17,201110 Avenue of the FlagsSan Rafael,CA 94903periodic reportsThe Companys
38、 annual report for 2010 on Form 10-K,which is required to be filed with the SEC,is available to any shareholder without charge.The report may be obtained by written request to Corporate Secretary,Bank of Marin Bancorp,P.O.Box 2039,Novato,CA 94948.It is available in the Investor Relations section of
39、the Companys website at .forward-looking statementsThis discussion of financial results includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,as amended,(the“1933 Act”)and Section 21E of the Securities Exchange Act of 1934,as amended,(the“1934 Act”).Thos
40、e sections of the 1933 Act and 1934 Act provide a“safe harbor”for forward-looking statements to encourage companies to provide prospective information about their financial performance so long as they provide meaningful,cautionary statements identifying important factors that could cause actual resu
41、lts to differ significantly from projected results.Our forward-looking statements may include descriptions of plans or objectives of Management for future operations,products or services,and forecasts of our revenues,earnings or other measures of economic performance.Forward looking statements can b
42、e identified by the fact that they do not relate strictly to historical or current facts.They often include the words“believe,”“expect,”“intend,”“estimate”or words of similar meaning,or future or conditional verbs such as“will,”“would,”“should,”“could”or“may.”Forward-looking statements are based on
43、Managements current expectations regarding economic,legislative,and regulatory issues that may impact our earnings in future periods.A number of factorsmany of which are beyond Managements controlcould cause future results to vary materially from current Managements expectations.Such factors include
44、,but are not limited to,general economic conditions,the current financial turmoil in the United States and abroad,changes in interest rates,deposit flows,real estate values and competition;changes in accounting principles,policies or guidelines;changes in legislation or regulation;and other economic
45、,competitive,governmental,regulatory and technological factors affecting our operations,pricing,products and services.These and other important factors are detailed in Item 1A Risk Factors section of this report.Forward-looking statements speak only as of the date they are made.We do not undertake t
46、o update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.corporate informationbusinessOur experienced team of bankers provides creative financial solu-tions tailored t
47、o any size business,delivered with responsiveness,respect and trust.Commercial Loans&Lines of Credit Asset Based Loans Construction&Commercial Real Estate Loans Cash Management Zero Balance&Sweep Accounts ACH Origination&Management,Remote Deposit&Image Lockbox Business Employee Services&Fraud Protec
48、tion Products Business Credit Cards&Merchant ServicescommunityDedicated to the success and well being of our communities through charitable contributions,volunteerism,leadership,and local lending,we are proud to support the communities where we live and work.wealth management&private bankingDeliveri
49、ng extraordinary attentive service,backed by integrity and commitment,our dedicated team provides the highest level of accountability and service.We offer professional guidance,customized financing,and financial solutions to manage your most complex banking needs.And were always available,just aroun
50、d the corner.Investment Management Trust Services Retirement Benefit PlansAt Bank of Marin,we develop trusting,personal relationships with our customers,taking time to understand their needs and how they operate their businesses.An integral part of Bank of Marin is our dedication and support of loca
51、l mitted to your business and our communitycorpor ate headquarters504 redWood blvd.novato,ca 94947415.763.4520sa n fr a ncisco235 pine st.san francisco,ca 94104415.403.5580sausa lito3 harbor dr.sausalito,ca 94965415.289.8710mill va lley23 reed blvd.mill valley,ca 94941415.381.226519 sunnyside ave.mi
52、ll valley,ca 94941415.380.4665corte mader a504 tamalpais dr.corte madera,ca 94925415.927.2265gr eenbr a e501 sir francis drake blvd.greenbrae,ca 94904415.785.1565sa n r a fa el999 andersen dr.san rafael,ca 94901415.259.03651101 fourth st.san rafael,ca 94901415.485.22654460 redWood hWy.san rafael,ca
53、94903415.472.2265novato368 ignacio blvd.novato,ca 94949415.884.22651450 grant ave.novato,ca 94945415.899.7338peta lum a799 bayWood dr.petaluma,ca 94954707.781.22108 4th st.petaluma,ca 94952707.781.18101371 n.mcdoWell blvd.petaluma,ca 94954707.658.4210sa nta rosa50 santa rosa ave.santa rosa,ca 954047
54、07.508.3377sonom a136 W.napa st.sonoma,ca 95476707.933.3750napa600 trancas st.napa,ca 94558707.265.2000st.helena1050 adams st.st.helena,ca 94574707.967.9353WWW201 0 a n n u a l r e p o r tThis p ag e in te n tio n ally le f t blan k.Page-1 BANK OF MARIN BANCORP UNITED STATES SECURITIES AND EXCHANGE
55、COMMISSION Washington,D.C.20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended:December 31,2010 or?TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _ to _ Co
56、mmission File number:001-33572 Bank of Marin Bancorp(Exact name of Registrant as specified in its charter)California 20-8859754(State or other jurisdiction of incorporation)(IRS Employer Identification No.)504 Redwood Blvd.,Suite 100,Novato,CA 94947(Address of principal executive office)(Zip Code)(4
57、15)763-4520(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:None Securities registered pursuant to section 12(g)of the Act:Common Stock,No Par Value,and attached Share Purchase Rights NASDAQ Capital Market(Title of each class)(Name of each e
58、xchange on which registered)Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes?No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes?No Note checking the
59、 box above will not relieve any registrant required to file reports pursuant to section 13 or 15(d)of the Exchange Act from their obligations under these sections.Page-2 Indicate by check mark whether the registrant(1)has filed all reports to be filed by Section 13 or 15(d)of the Securities Exchange
60、 Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes No?Indicate by check mark whether the registrant has submitted electronically and posted on its co
61、rporate Web site,if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).Yes?No?Indicate by check mark if disclosure of deli
62、nquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to the best of the registrants knowledge,in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K.?Indicate by check
63、mark whether the registrant is a large accelerated filer,an accelerated filer,or a non-accelerated filer.See definition of“accelerated filer and large accelerated filer”in Rule 12b-2 of the Exchange Act.(Check One):Large accelerated filer?Accelerated filer Non-accelerated filer?Smaller reporting com
64、pany?Indicate by check mark if the registrant is a shell company,as defined in Rule 12b(2)of the Exchange Act.Yes?No?As of June 30,2010,the last business day of the registrants most recently completed second fiscal quarter,the aggregate market value of the voting and non-voting common equity held by
65、 non-affiliates,based upon the closing price per share of the registrants common stock as reported by the NASDAQ,was approximately$163 million.For the purpose of this response,directors and officers of the Registrant are considered the affiliates at that date.As of February 28,2011 there were 5,300,
66、685 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrants Proxy Statement for the Annual Meeting of Shareholders to be held on May 17,2011 are incorporated by reference into Part III.Page-3 TABLE OF CONTENTS PART I 5 Forward-Looking Statements 5 ITEM 1.BU
67、SINESS 5ITEM 1A.RISK FACTORS 12ITEM 1B.UNRESOLVED STAFF COMMENTS 20ITEM 2.PROPERTIES 20ITEM 3.LEGAL PROCEEDINGS 20ITEM 4.REMOVED AND RESERVED 20 PART II 21 ITEM 5.MARKET FOR REGISTRANTS COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 21ITEM 6.SELECTED FINANCIAL DA
68、TA 23ITEM 7.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24 Forward-Looking Statements 24 Executive Summary 24 Critical Accounting Policies 25 RESULTS OF OPERATIONS 28 Net Interest Income 29 Provision for Loan Losses 33 Non-interest Income 33 Non-interest Expe
69、nse 34 Provision for Income Taxes 36 FINANCIAL CONDITION 37 Investment Securities 37 Loans 38 Allowance for Loan Losses 41 Other Assets 44 Deposits 44 Borrowings 45 Deferred Compensation Obligations 45 Off Balance Sheet Arrangements 45 Commitments 46 Capital Adequacy 46 Liquidity 46 ITEM 7A.QUANTITA
70、TIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 48 ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 56 Note 1:Summary of Significant Accounting Policies 56 Note 2:Investment Securities 62 Note 3:Loans 65 Note 4:Allowance for Loan Losses and Impaired
71、 Loans 69 Note 5:Bank Premises and Equipment 71 Note 6:Bank Owned Life Insurance 71 Note 7:Deposits 71Page-4 Note 8:Borrowings 72 Note 9:Stockholders Equity and Stock Option Plans 73 Note 10:Fair Value of Assets and Liabilities 77 Note 11:Benefit Plans 80 Note 12:Income Taxes 80 Note 13:Commitments
72、and Contingencies 82 Note 14:Concentrations of Credit Risk 82 Note 15:Derivative Financial Instruments and Hedging Activities 83 Note 16:Regulatory Matters 84 Note 17:Financial Instruments with Off-Balance Sheet Risk 85 Note 18:Condensed Bank of Marin Bancorp Parent Only Financial Statements 86 Note
73、 19:Subsequent Event 87 ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 89 ITEM 9A.CONTROLS AND PROCEDURES 89 ITEM 9B.OTHER INFORMATION 90 PART III 91 ITEM 10.DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 91 ITEM 11.EXECUTIVE COMPENSATION 91 ITEM 1
74、2.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 91 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,AND DIRECTOR INDEPENDENCE 91 ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES 91 PART IV 92 ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 92 S
75、IGNATURES 94EXHIBIT INDEX 96Page-5 PART I Forward-Looking Statements This discussion of financial results includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,as amended,(the“1933 Act”)and Section 21E of the Securities Exchange Act of 1934,as amended,(t
76、he“1934 Act”).Those sections of the 1933 Act and 1934 Act provide a“safe harbor”for forward-looking statements to encourage companies to provide prospective information about their financial performance so long as they provide meaningful,cautionary statements identifying important factors that could
77、 cause actual results to differ significantly from projected results.Our forward-looking statements may include descriptions of plans or objectives of Management for future operations,products or services,and forecasts of our revenues,earnings or other measures of economic performance.Forward-lookin
78、g statements can be identified by the fact that they do not relate strictly to historical or current facts.They often include the words“believe,”“expect,”“intend,”“estimate”or words of similar meaning,or future or conditional verbs such as“will,”“would,”“should,”“could”or“may.”Forward-looking statem
79、ents are based on Managements current expectations regarding economic,legislative,and regulatory issues that may impact our earnings in future periods.A number of factors-many of which are beyond Managements control-could cause future results to vary materially from current Managements expectations.
80、Such factors include,but are not limited to,general economic conditions,the current financial turmoil in the United States and abroad,changes in interest rates,deposit flows,real estate values and competition;changes in accounting principles,policies or guidelines;changes in legislation or regulatio
81、n;and other economic,competitive,governmental,regulatory and technological factors affecting our operations,pricing,products and services.These and other important factors are detailed in Item 1A Risk Factors section of this report.Forward-looking statements speak only as of the date they are made.W
82、e do not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.ITEM 1.BUSINESS Bank of Marin(the“Bank”)was incorporated in August 1989,received its chart
83、er from the California Superintendent of Banks(now the California Department of Financial Institutions or“DFI”)and commenced operations in January 1990.The Bank is an insured bank under the Federal Deposit Insurance Act(“FDIC”).On July 1,2007(the“Effective Date”),a bank holding company reorganizatio
84、n was completed whereby Bank of Marin Bancorp(“Bancorp”)became the parent holding company for the Bank,the sole and wholly-owned subsidiary of Bancorp.On the Effective Date,each outstanding share of Bank of Marin common stock was converted into one share of Bank of Marin Bancorp common stock.Bancorp
85、 assumed the ticker symbol BMRC,which was formerly used by the Bank.Prior to the Effective Date,the Bank filed reports and proxy statements with the FDIC pursuant to Sections 12 of the Securities Exchange Act of 1934(the“1934 Act”).Upon formation of the holding company,Bancorp became subject to regu
86、lation under the Bank Holding Company Act of 1956,as amended,which subjects Bancorp to Federal Reserve Board reporting and examination requirements.References in this report to“Bancorp”mean Bank of Marin Bancorp,parent holding company for the Bank.References to“we,”“our,”“us”mean the holding company
87、 and the Bank that are consolidated for financial reporting purposes.Virtually all of our business is conducted through Bancorps sole subsidiary,the Bank,which is headquartered in Novato,California.As of December 31,2010,we operated through sixteen offices in San Francisco,Marin and Sonoma counties
88、with a strong focus on supporting the local community.As discussed in Note 19 to the Consolidated Financial Statements in Item 8 of this report,in February 2011,we expanded our community banking footprint to Napa County through an FDIC-assisted acquisition of certain assets and assumption of certain
89、 liabilities of the former Charter Oak Bank.Our customer base is made up of business and personal banking relationships from the communities near the branch office locations.Our business banking focus is on small to medium-sized businesses,professionals and not-for-profit organizations.We offer a br
90、oad range of commercial and retail deposit and lending programs designed to meet the needs of our target markets.Our loan products include commercial loans and lines of credit,construction financing,consumer loans,and home equity lines of credit.Merchant card services are available for our customers
91、 in retail businesses.Through a third party vendor,we offer a proprietary Visa credit card product combined with a rewards program to our customers,as well as a Business Visa program for business and professional customers.We also offer cash management sweep to business clients through a third party
92、 vendor.Page-6 We offer a variety of personal and business checking and savings accounts,and a number of time deposit alternatives,including time certificates of deposit,Individual Retirement Accounts(“IRAs”),Health Savings Accounts,and Certificate of Deposit Account Registry Service(“CDARS”).CDARS
93、is a network through which we offer full FDIC insurance coverage in excess of the regulatory maximum by placing deposits in multiple banks participating in the network.We also offer remote deposit capture,direct deposit of payroll,social security and pension checks,fraud prevention services includin
94、g an insurance protected Identity Theft Prevention Program and image lockbox services.A valet deposit pick-up service is available to our professional and business clients.Automatic teller machines(“ATMs”)are available at each branch location.Our ATM network is linked to the PLUS and NYCE networks.I
95、n January 2009,we began offering free access to a network of nation-wide surcharge-free ATMs called MoneyPass.We also offer our depositors 24-hour access to their accounts by telephone and through our internet banking products available to personal and business account holders.We offer Wealth Manage
96、ment and Trust Services(“WMTS”)which include customized investment portfolio management,financial planning,trust administration,estate settlement and custody services,and advice of charitable giving.We also offer 401(k)plan services to small and medium businesses through a third party vendor.We offe
97、r branch-based Private Banking as a natural extension of our services.Our Private Banking includes deposit services and loans,as well as a full range of banking services.We do not directly offer international banking services,but do make such services available to our customers through other financi
98、al institutions with whom we have correspondent banking relationships.We hold no patents,licenses(other than licenses required by the appropriate banking regulatory agencies),franchises or concessions.The Bank has registered the service marks“The Spirit of Marin”,the words“Bank of Marin”,the Bank of
99、 Marin logo,and the Bank of Marin tagline“Committed to your business and our community”with the United States Patent&Trademark Office.In addition,Bancorp has registered the service marks for the words“Bank of Marin Bancorp”and for the Bank of Marin Bancorp logo with the United States Patent&Trademar
100、k Office.All service marks registered by Bancorp or the Bank are registered on the United States Patent&Trademark Office Principal Register,with the exception of the words“Bank of Marin Bancorp”which is registered on the United States Patent&Trademark Office Supplemental Register.Market Area Our pri
101、mary market area reaches from Sonoma County to San Francisco and lies between the Pacific Ocean on the west and San Francisco Bay to the east.See also Note 19 to the Consolidated Financial Statements in Item 8 of this report regarding our subsequent expansion into Napa County in February 2011.Our cu
102、stomer base is made up of business and personal banking relationships from the communities near the branch office locations.We attract deposit relationships from individuals,merchants,small to medium-sized businesses,not-for-profit organizations and professionals who live and/or work in the communit
103、ies comprising our market areas.As of December 31,2010,approximately 82%of our deposits are in Marin and southern Sonoma counties,and approximately 56%of our deposits are from businesses and 44%are from individuals.Competition The banking business in California generally,and in our market area speci
104、fically,is highly competitive with respect to attracting both loan and deposit relationships.The increasingly competitive environment is impacted by changes in regulation,interest rate environment,technology and product delivery systems,and the consolidation among financial service providers.The ban
105、king industry is seeing extreme competition for quality loans.Larger banks are seeking to expand lending to small businesses,which are traditionally community bank customers.The Marin County market area is dominated by two major nation-wide banks,each of which has more branch offices than us in the
106、defined service area.Additionally,there are several thrifts,credit unions and other independent banks.Page-7 As of June 30,2010,the latest data available shows 89 banking offices with$8.8 billion in total deposits served the Marin County market.As of that same date,there were approximately 3 thrift
107、offices in Marin with$0.6 billion in total deposits.We have the largest business core deposit market share,representing 24.3%of business core deposits in Marin County1.A significant driver of our franchise value is the growth and stability of our checking and savings deposits,which are a low cost fu
108、nding source for our loan portfolio.We have also gained overall deposit market share in our primary market area in 20101.The four financial institutions with the greatest deposit market share in Marin County are Wells Fargo Bank,Bank of America,Bank of Marin,and Westamerica Bank with deposit market
109、shares of 26.0%and 17.9%,9.9%,and 8.6%,respectively1.In the southern Sonoma County area of Petaluma,there are approximately 25 banking and thrift offices with$1.5 billion in total deposits as of June 30,2010.Compared with our share of 4.5%,the four banking institutions with the greatest overall mark
110、et share,Wells Fargo Bank,Bank of America,Bank of the West,and First Community Bank had deposit market shares in Petaluma of 28.7%,15.6%,9.3%,and 8.9%,respectively1.We also compete for depositors funds with money market mutual funds and with non-bank financial institutions such as brokerage firms an
111、d insurance companies.Among the competitive advantages held by some of these non-bank financial institutions are their ability to finance extensive advertising campaigns,and to allocate investment assets to regions of California or other states with areas of highest demand and,therefore,often higher
112、 yield.Nationwide banks have the competitive advantages of national advertising campaigns and technology infrastructure to achieve economies of scale.Large commercial banks also have substantially greater lending limits and have the ability to offer certain services which are not offered directly by
113、 us.In order to compete with the numerous,and often larger,financial institutions in our primary market area,we use,to the fullest extent possible,the flexibility and rapid response capabilities which are accorded by our independent status.Our competitive advantages also include an emphasis on perso
114、nalized services,community involvement,philanthropic giving,local promotional activities and personal contacts.The commitment and dedication of our organizers,directors,officers and staff have also contributed greatly to our success in competing for business.Employees At December 31,2010,we employed
115、 203 full-time equivalent(“FTE”)staff.The actual number of employees,including part-time employees,at year-end 2010 included 4 executive officers,77 other corporate officers and 142 staff.None of our employees are presently represented by a union or covered by a collective bargaining agreement.We be
116、lieve that our employee relations are good.We have been recognized as one of the“Best Places to Work in the San Francisco Bay Area”by the San Francisco Business Times and the“Best Places to Work”by North Bay Business Journal.SUPERVISION AND REGULATION Bank holding companies and banks are extensively
117、 regulated under both federal and state law.The following discussion summarizes certain significant laws,rules and regulations affecting Bancorp and the Bank.Bank Holding Company Regulation Upon formation of the bank holding company on July 1,2007,we became subject to regulation under the Bank Holdi
118、ng Company Act of 1956,as amended(“BHCA”)which subjects Bancorp to Federal Reserve Board reporting and examination requirements.Under the Federal Reserve Boards regulations,a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks.1 Based on
119、 the latest available FDIC deposit market share data as of June 30,2010.Page-8 The BHCA regulates the activities of holding companies including acquisitions,mergers and consolidations and,together with the Gramm-Leach Bliley Act of 1999,the scope of allowable banking activities.Bank Regulation Banki
120、ng regulations are primarily intended to protect depositors funds,federal deposit insurance funds and the banking system as a whole.These regulations affect our lending practices,consumer protections,capital structure,investment practices and dividend policy.As a state chartered bank,we are subject
121、to regulation and examination by the DFI.We are also subject to regulation,supervision and periodic examination by the FDIC.If,as a result of an examination of the Bank,the FDIC or the DFI should determine that the financial condition,capital resources,asset quality,earnings prospects,management,liq
122、uidity,or other aspects of our operations are unsatisfactory,or that we have violated any law or regulation,various remedies are available to those regulators including issuing a“cease and desist”order,restricting our growth or removing officers and directors.Dividends The payment of cash dividends
123、by the Bank to Bancorp is subject to restrictions set forth in the California Financial Code(the“Code”).Prior to any distribution from the Bank to Bancorp,a calculation is made to ensure compliance with the provisions of the Code and to ensure that the Bank remains within capital guidelines set fort
124、h by the DFI and the FDIC.As the Bank made a$28 million distribution to Bancorp in March 2009 in connection with Bancorps repurchase of preferred stock discussed in Note 9 to the Consolidated Financial Statements in Item 8 of this report,distributions from the Bank to Bancorp are subject to advance
125、regulatory approval from the DFI for three years beginning in 2010.Management anticipates that there will be sufficient earnings at the Bank level to provide dividends to Bancorp to meet its funding requirements for the foreseeable future.See also Note 9 to the Consolidated Financial Statements,unde
126、r the heading“Dividends”in Item 8 of this report.FDIC Insurance Assessments Our deposits are insured by the FDIC to the maximum amount permitted by law,which is currently$250,000 per depositor.The 2010 enacted Dodd-Frank Wall Street Reform and Consumer Protection Act(the“Dodd-Frank Act”)made the dep
127、osit insurance coverage permanent at the$250,000 level retroactive to January 1,2008.The Dodd-Frank act also provides depositors at all FDIC-insured institutions with unlimited deposit insurance coverage on traditional checking accounts that do not pay interest and Interest on Lawyers Trust Accounts
128、 beginning December 31,2010 through the end of 2012.During 2009 and 2010,we elected to participate in the Temporary Transaction Account Guarantee Program,which provided full deposit insurance coverage to non-interest bearing transaction accounts(including low-interest negotiable order of withdrawal
129、accounts and interest on lawyer trust accounts),by paying a 10 basis point surcharge on the non-interest bearing transaction accounts over$250,000 through December 31,2009,and a 15 basis point surcharge through December 31,2010,when the program ended.Effective April 1,2009,the FDIC revised its risk-
130、based insurance assessment system,effectively increasing the overall assessment rate.The revised base assessment rates for banks in the best risk category range from twelve to sixteen cents annually for every$100 of domestic deposits held.In addition,the FDIC also imposed a one-time special Deposit
131、Insurance assessment of five basis points on all insured institutions total assets minus Tier 1 capital at June 30,2009 in order to replenish the Deposit Insurance Fund.On November 12,2009,the FDIC finalized a Deposit Insurance Fund restoration plan that required banks to prepay,on December 30,2009,
132、their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010,2011 and 2012.Under the plan,banks were assessed through 2010 according to the risk-based premium schedule adopted in April 2009.On February 7,2010,as required by the Dodd-Frank Act,the FDIC approved
133、a rule that changes the FDIC insurance assessment base from adjusted domestic deposits to a banks average consolidated total assets minus average tangible equity,defined as Tier 1 capital.Since the new base is larger than the current base,the new rule lowers assessment rates to between 2.5 and 9 bas
134、is points on the broader base for banks in the lowest risk category,and 30 to 45 basis points for banks in the highest risk category.The change will be effective beginning with the second quarter of 2011 and payable at the end of September 2011.The new rule is expected to lower our FDIC insurance by
135、 more than 30%.Since we have a solid core deposit base and do not rely heavily on borrowings and brokered deposits,the benefit of the lower assessment rate(which is expected to drop by half for us)will significantly outweigh the effect of a wider assessment base.Page-9 The following discussion summa
136、rizes certain significant laws,rules and regulations affecting both Bancorp and the Bank Community Reinvestment Act We are subject to the provisions of the Community Reinvestment Act(“CRA”),under which all banks and thrifts have a continuing and affirmative obligation,consistent with safe and sound
137、operations,to help meet the credit needs of their entire communities,including low and moderate income neighborhoods.The act requires a depository institutions primary federal regulator,in connection with its examination of the institution,to assess the institutions record in meeting the requirement
138、s in CRA.The regulatory agencys assessment of the institutions record is made available to the public.The record is taken into consideration when the institution establishes a new branch that accepts deposits,relocates an office,applies to merge or consolidate,or expands into other activities.CRA pe
139、rformance is evaluated by the FDIC under the intermediate small bank requirements.The FDICs last CRA and consumer compliance examination performed on us was completed on May 7,2009 with a rating of“Satisfactory,”which is the highest rating possible.Anti MoneyLaundering Regulations A series of bankin
140、g laws and regulations beginning with the Bank Secrecy Act in 1970 require banks to prevent,detect,and report illicit or illegal financial activities to the federal government to prevent money laundering,international drug trafficking,and terrorism.Under the Uniting and Strengthening America by Prov
141、iding Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and“know your customer”standards in their dealings with high risk c
142、ustomers,foreign financial institutions,and foreign individuals and entities.We have extensive controls in place to comply with these requirements.Privacy and Data Security The Gramm-Leach Bliley Act(“GLBA”)of 1999 imposes requirements on financial institutions with respect to consumer privacy.The G
143、LBA generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure.Financial institutions are further required to disclose their privacy policies to consumers annually.The GLB
144、A also directs federal regulators,including the FDIC,to prescribe standards for the security of consumer information.We are subject to such standards,as well as standards for notifying consumers in the event of a security breach.We must disclose our privacy policy to consumers and permit consumers t
145、o“opt out”of having non-public customer information disclosed to third parties.We are required to have an information security program to safeguard the confidentiality and security of customer information and to ensure proper disposal of information that is no longer needed.Customers must be notifie
146、d when unauthorized disclosure involves sensitive customer information that may be misused.Consumer Protection Regulations Our lending activities are subject to a variety of statutes and regulations designed to protect consumers,including the Fair Credit Reporting Act,Equal Credit Opportunity Act,th
147、e Fair Housing Act,and the Truth-in-Lending Act.Our deposit operations are also subject to laws and regulations that protect consumer rights including Funds Availability,Truth in Savings,and Electronic Funds Transfers.Additional rules govern check writing ability on certain interest earning accounts
148、 and prescribe procedures for complying with administrative subpoenas of financial records.Additionally,the provision of the Federal Reserve Regulation E has been changed effective July 1,2010.It puts restrictions on institutions assessing overdraft fees on consumers accounts relating to electronic
149、funds transfers.As a result,our overdraft fee income has been negatively impacted.Page-10 Restriction on Transactions between Member Banks and their Affiliates Transactions between Bancorp and the Bank are quantitatively and qualitatively restricted under Sections 23A and 23B of the Federal Reserve
150、Act and Federal Reserve Regulation W.Section 23A places restrictions on the Banks“covered transactions”with Bancorp,including loans and other extensions of credit,investments in the securities of,and purchases of assets from Bancorp.Section 23B requires that certain transactions,including all covere
151、d transactions,be on market terms and conditions.Federal Reserve Regulation W combines statutory restrictions on transactions between the Bank and Bancorp with Board interpretations in an effort to simplify compliance with Sections 23A and 23B.Capital Requirements The Federal Reserve and the FDIC ha
152、ve adopted risk-based capital guidelines for bank holding companies and banks.Bancorps ratios exceed the required minimum ratios for capital adequacy purposes and the Bank meets the definition for well capitalized.Undercapitalized depository institutions may be subject to significant restrictions.Pa
153、yment of interest and principal on subordinated debt of the Bank could be restricted or prohibited,with some exceptions,if the Bank were categorized as“critically undercapitalized”under applicable FDIC regulations.For further information on risk-based capital,see Note 16 to the Consolidated Financia
154、l Statements in Item 8 of this Form 10-K.Sarbanes-Oxley Act of 2002 We are subject to the requirements of the Sarbanes-Oxley Act of 2002 which implemented legislative reforms intended to address corporate and accounting improprieties.Emergency Economic Stabilization Act of 2009(the“EESA”)In response
155、 to the financial crisis affecting the banking system and financial markets and going concern threats of investment banks and other financial institutions,on October 3,2008,the EESA was signed into law,which gave the U.S.Treasury the authority to,among other things,inject$700 billion capital into th
156、e market to stabilize the financial industry.Pursuant to the EESA,the U.S.Treasury also purchased senior preferred shares from the largest nine financial institutions in the nation and the other financial institutions in a program known as the Treasury Capital Purchase Program(“TCPP”)that was carved
157、 out of the Troubled Asset Relief Program(“TARP”).As a result of our participation in the TCPP,we were subject to restrictions on executive compensation and limitations on dividends and stock repurchases from December 5,2008 to March 31,2009,the period that the preferred stock issued to the U.S.Trea
158、sury was outstanding.The American Recovery and Reinvestment Act of 2009(the“Recovery Act”)The Recovery Act was signed into law on February 17,2009 in an effort,among other things,to jumpstart the U.S.economy,prevent job losses,expand educational opportunities,and provide affordable health care and t
159、ax relief.Among the various measures in the Recovery Act,it imposes further restriction on executive compensation and corporate expenditure limits of recipients of the TCPP funds,while allowing them to repurchase the preferred stock at liquidation amount without regard to the original TCPP transacti
160、on terms.See Note 9 to the Consolidated Financial Statements in Item 8 of this report for discussion regarding our repurchase of preferred stock issued under the TCPP.The Dodd-Frank Wall Street Reform and Consumer Protection Act On July 21,2010,President Obama signed into law the Dodd-Frank Wall Str
161、eet Reform and Consumer Protection Act,a landmark financial reform bill comprised of massive volume of new rules and restrictions that will impact banks going forward.It includes key provisions aimed at preventing a repeat of the 2008 financial crisis and a new process for winding down failing,syste
162、mically important institutions in a manner as close to a controlled bankruptcy as possible.The Act includes other key provisions as follows:Page-11(1)The Act establishes a new Financial Stability Oversight Council to monitor systemic financial risks.The Board of Governors of the Federal Reserve(“Fed
163、”)are given extensive new authorities to impose strict controls on large bank holding companies with total consolidated assets equal to or in excess of$50 billion and systemically significant nonbank financial companies to limit the risk they might pose for the economy and to other large interconnec
164、ted companies.The Fed can also take direct control of troubled financial companies that are considered systemically significant.The Act restricts the amount of trust preferred securities(“TPS”)that may be considered as Tier 1 Capital.For bank holding companies below$15 billion in total assets,TPS is
165、sued before May 19,2010 will be grandfathered,so their status as Tier 1 capital does not change.Beginning January 1,2013,bank holding companies above$15 billion in assets will have a three-year phase-in period to fill the capital gap caused by the disallowance of the TPS issued before May 19,2010.Ho
166、wever going forward,TPS will be disallowed as Tier 1 capital.(2)The Act creates a new process to liquidate failed financial firms in an orderly manner,including giving the FDIC broader authority to operate or liquidate a failing financial company.(3)The Act also establishes a new independent Federal
167、 regulatory body for consumer protection within the Federal Reserve System known as the Bureau of Consumer Financial Protection(the“Bureau”),which will assume responsibility for most consumer protection laws(except the Community Reinvestment Act).It will also be in charge of setting appropriate cons
168、umer banking fees and caps.The Office of Comptroller of the Currency will continue to have authority to preempt state banking and consumer protection laws if these laws“prevent or significantly”interfere with the business of banking.(4)The Act effects changes in the FDIC assessment as discussed in s
169、ection“FDIC Insurance Assessments”above.(5)The Act places certain limitations on investment and other activities by depository institutions,holding companies and their affiliates,including comprehensive regulation of all over-the-counter derivatives.The impact of the Act on our banking operations is
170、 still uncertain due to the massive volume of new rules still subject to adoption and interpretation.Available Information On our internet web site,we post the following filings as soon as reasonably practicable after they are filed with or furnished to the SEC:Annual Report on Form 10-K,Proxy State
171、ment for the Annual Meeting of Shareholders,quarterly reports on Form 10-Q,current reports on Form 8-K,and any amendments to those reports filed or furnished pursuant to Section 13(a)or 15(d)of the Securities and Exchange Act of 1934.The text of the Code of Ethical Conduct for Bancorp and the Bank i
172、s also included on the website.All such filings on our website are available free of charge.This website address is for information only and is not intended to be an active link,or to incorporate any website information into this document.In addition,copies of our filings are available by requesting
173、 them in writing or by phone from:Corporate Secretary Bank of Marin 504 Redwood Blvd.,Suite 100 Novato,CA 94947 415-763-4523 Page-12 ITEM 1A.RISK FACTORS An investment in our common stock is subject to risks inherent to our business.The material risks and uncertainties that Management believes may a
174、ffect our business are described below.Before making an investment decision,investors should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report.The risks and uncertainties described below are
175、not the only ones facing our business.Additional risks and uncertainties that Management is not aware of or focused on or that Management currently deems immaterial may also impair business operations.This report is qualified in its entirety by these risk factors.If any of the following risks actual
176、ly occur,our financial condition and results of operations could be materially and adversely affected.Our Earnings are Significantly Influenced by General Business and Economic Conditions We are operating in an uncertain economic environment.While the economic recession ended in 2009 and there are s
177、igns of economic conditions improving,the persistent high unemployment rate,weak business and consumer spending,and the U.S.budget deficit underline that the economy remains very fragile.Economic recovery is expected to be slow and long.The housing market is not expected to recover soon amid a bleak
178、 job market.Business activity across a wide range of industries and regions is greatly affected.Local and state governments are in difficulty due to the reduction in sales taxes resulting from the lack of consumer spending and property taxes resulting from declining property values.Financial institu
179、tions continue to be affected by the contraction of the real estate market,elevated foreclosure rates,high unemployment rates and a stricter regulatory environment.While our service area has not experienced the same degree of challenge in unemployment as other areas2,the effects of these issues have
180、 trickled down to households and businesses in our markets.There can be no assurance that the recent economic improvement is sustainable and credit worthiness of our borrowers will not deteriorate.Continued declines in real estate values and home sale volumes,financial stress on borrowers,including
181、job losses,and customers inability to pay debt could adversely affect our financial condition and results of operations in the following aspects:Demand for our products and services may decline Low cost or non-interest bearing deposits may decrease Collateral for our loans,especially real estate,may
182、 decline further in value Loan delinquencies,problem assets and foreclosures may increase Our deposit growth level has outpaced our loan growth recently,which leads to excess liquidity earning a less favorable yield.As the economy is still fragile,consumers are wary of their debts and are reducing t
183、heir borrowing activities.We have noticed a decrease in loan demand due to an unfavorable economic climate and intensified competition for creditworthy borrowers,all of which could impact our ability to generate profitable loans.2 Based on the latest available labor market information from Employmen
184、t Development Department.Preliminary December 2010 results show that the unemployment rate in Marin County was the lowest in California at 7.9%and in Sonoma County at 10.0%,compared to the state of California at 12.3%.Page-13 Nonperforming Assets Take Significant Time To Resolve And Adversely Affect
185、 Our Results Of Operations And Financial Condition.Our nonperforming assets have been maintained at a manageable level historically.As discussed in Note 19 to the Consolidated Financial Statements in Item 8 of this report,we acquired certain assets of the failed Charter Oak Bank on February 18,2011.
186、The acquisition may expose us to credit issues of acquired assets,which may become nonperforming in the future.Nonperforming assets may adversely affect our net income in various ways.Until economic and market conditions improve,we expect to continue to incur additional losses relating to nonperform
187、ing assets.We do not record interest income on non-accrual loans,thereby adversely affecting our income and increasing our loan administration costs.When we take collateral in foreclosures and similar proceedings,we are required to mark the related loan to the then fair market value of the collatera
188、l,which may result in a loss.While we have tried to reduce our problem assets through workouts,restructurings and otherwise,decreases in the value of these assets,or the underlying collateral,or in these borrowers performance or financial conditions,whether or not due to economic and market conditio
189、ns beyond our control,could adversely affect our business,results of operations and financial condition.In addition,the resolution of nonperforming assets requires significant commitments of time from management,which can be detrimental to the performance of other responsibilities.There can be no as
190、surance that we will not experience further increases in nonperforming loans in the future.Recently Enacted Legislation and Other Measures Undertaken by the Government May not Help Stabilize the U.S.Financial System and The Impact of New Financial Reform Legislation is Yet to be Determined As discus
191、sed in Item 1,Section captioned“Supervision and Regulation”above,in 2010,President Obama signed into law a landmark financial reform billthe Dodd-Frank Act.The current rules and interpretations being considered under the Dodd-Frank Act may change banking statutes and the operating environment of Ban
192、corp and the Bank in substantial and unpredictable ways,and could increase the cost of doing business,decrease our revenues,limit or expand permissible activities or affect the competitive balance depending upon whether or how regulations are implemented.We may be forced to invest significant manage
193、ment attention and resources to make any necessary changes related to the Dodd-Frank Act and any regulations promulgated there under.The ultimate effect of the changes would have on the financial condition or results of operations of Bancorp or the Bank is uncertain at this time.The actual impact of
194、 the recently enacted legislation and such related measures undertaken to alleviate the aftermaths of the credit crisis is unknown.The capital and credit markets have experienced volatility and disruption at an unprecedented level in the past few years.In some cases,the markets have produced downwar
195、d pressure on credit availability for certain issuers without regard to those issuers underlying financial strength.If the recent years disruption and volatility return,there can be no assurance that we will not experience an adverse effect on our ability to access credit or capital.In addition to c
196、hanges resulting from the Dodd-Frank Act,recent proposals published by the Basel Committee on Banking Supervision,if adopted,could lead to significantly higher capital requirements,higher capital charges and more restrictive leverage and liquidity ratios.On September 12,2010,the Basel Committee anno
197、unced an agreement on additional capital reforms that increases required Tier 1 capital and minimum Tier 1 common equity capital and requires banks to maintain an additional capital conservation buffer during times of economic prosperity.If adopted,it could restrict our ability to grow or require us
198、 to raise additional capital.As a result,it may affect the result of our financial condition,or business prospects in the future.The Recent Repeal of Federal Prohibitions on Payment of Interest on Demand Deposits Could Increase Our Interest Expense The Dodd-Frank Act has lifted the prohibitions on p
199、ayment of interest on demand deposits.Beginning on July 21,2011,financial institutions can start paying interest on demand deposits in an effort to compete for deposits.Although we do not know what interest rates will be offered by our competitors,we would increase our interest expense and interest
200、rate sensitivity and experience an overall decrease in the net interest margin if we were to offer interest on demand deposits to attract or retain customers.As a result,it may affect the result of our financial condition,or business prospects in the future.Page-14 We May Experience Unfavorable Outc
201、omes with Growth We seek to expand our franchise safely and consistently.A successful growth strategy requires us to manage multiple aspects of the business simultaneously,such as following adequate loan underwriting standards,balancing loan and deposit growth without increasing interest rate risk o
202、r compressing our net interest margin,maintaining sufficient capital,and recruiting,training and retaining qualified professionals.We have recently expanded into Santa Rosa and plan to expand to the town of Sonoma through a new branch opening.These new markets may have characteristics unfamiliar to
203、us.We also expect significant increase in non-interest expenses associated with new branches with a lag in profitability.Our growth strategy also includes merger and acquisition opportunities that either enhance our market presence or have potential for improved profitability through financial manag
204、ement,economies of scale or expanded services.As discussed in Note 19 to the Consolidated Financial Statement in Item 8 of this report,we acquired certain assets and certain liabilities of Napa-based Charter Oak Bank on February 18,2011 through an FDIC-assisted transaction.While FDIC-assisted acquis
205、itions provide attractive opportunities in part due to loans purchased at significant discounts,acquiring other banks or branches involves risks such as exposure to potential asset quality issues of the target company,potential disruption to our normal business activities and diversion of Management
206、s time and attention due to integration and conversion efforts.If we pursue our growth strategy too aggressively and fail to execute integration properly,we may not be able to achieve expected synergies or other anticipated benefits.Interchange Reimbursement Fees and Related Practices Have Been Rece
207、iving Significant Legal and Regulatory Scrutiny,and the Resulting Regulations Could Have a Significant Impact on Interchange Fees We Earn The Dodd-Frank Act includes provisions that will regulate the debit interchange rates and certain other network industry practices(the“Durbin Amendment”).In addit
208、ion,the Federal Reserve now has the power to regulate network fees to the extent necessary to prevent evasion of the new rules on interchange rates.The Federal Reserve has proposed rules to restrict interchange fees on debit cards to about 12 cents per transaction for institutions with$10 billion or
209、 more in assets.Interchange represents a transfer of value between the financial institutions participating in a payments network such as Visa and NYCE,in which we participate.In connection with transactions initiated with cards in a payments system,interchange reimbursement fees are typically paid
210、to issuers,the financial institutions such as us that issue debit cards to cardholders.They are typically paid by owners,the financial institutions that offer network connectivity and payment acceptance services to merchants.In January 2010,Visa announced that it will implement a two-tiered pricing
211、system for debit interchange-one for banks with more than$10 billion in assets,and one for all those under the$10 billion threshold.However,it may still not alleviate the negative consequences that the Durbin amendment and the Federal Reserves proposed rules will have for banks of all sizes and cons
212、umers.Despite the statutory attempt to separate out smaller banks from the price controls embodied in the Durbin amendment,the marketplace may drive business to the lowest cost option.Merchants may switch to lower-cost cards and accounts of larger institutions,applying downward pressure on the fees
213、paid to small institutions to compete.Community banks such as us may ultimately be harmed as a result.We may be forced to charge lower fees to customers,affecting our profitability.Owners of networks in which we do not participate could elect to charge higher discount rates to merchants,leading merc
214、hants not to accept cards for payment,or to steer Visa cardholders to alternate payment systems,hence reducing our transaction volumes.Negative Conditions Affecting Real Estate May Harm Our Business Concentration of our lending activities in the California real estate sector could negatively impact
215、our results of operations if the adverse changes in the real estate market in our lending area intensify.Although we do not offer traditional first mortgages,nor have sub-prime or Alt-A residential loans or significant amount of securities backed by such loans in the portfolio,we are not immune from
216、 the effect of the set-back of the real estate market.Approximately 86%of our loans were secured by real estate at December 31,2010,of which 65%were secured by commercial real estate and the remaining 21%by residential real estate.Real estate valuations are impacted by demand,and demand is driven by
217、 factors such as employment;when unemployment rises,demand drops.The unemployment rate has stayed at an elevated level since 2009.Most of the properties that secure our loans are located within Marin and Sonoma Counties.While we have seen improvement in real estate sales statistics3 after a few year
218、s of falling prices,there is no guarantee that the recent trend will continue.3 Based on the latest available real estate information from Keegan&Coppin Company,Inc.Page-15 Loans secured by commercial real estate include those secured by small office buildings,owner-user office/warehouses,mixed-use
219、residential/commercial properties and retail properties.In 2010,office vacancy rates in Marin County have fallen slightly from 26.3%to 25.7%,while industrial and retail rates have risen slightly from approximately 4%to 6%4.In Sonoma County,vacancy rates are generally higher than in Marin County:the
220、rate of industrial,retail,and office vacancies decreased from 15.5%,9.2%,and 24.8%in 2009 to 13.9%,8.5%,and 22.3%in 2010,respectively4.There can be no assurance that the companies or properties securing our loans will generate sufficient cash flows to allow the borrowers to make full and timely loan
221、 payments to us.In late 2006,Federal banking regulators issued final guidance regarding commercial real estate lending to address a concern that rising commercial real estate lending concentrations may expose institutions to unanticipated earnings and capital volatility in the event of adverse chang
222、es in the investor commercial real estate market.This guidance suggests that institutions that are potentially exposed to significant commercial real estate concentration risk will be subject to increased regulatory scrutiny.Institutions that have experienced rapid growth in commercial real estate l
223、ending,have notable exposure to a specific type of commercial real estate lending,or are approaching or exceed certain supervisory criteria that measure an institutions commercial real estate portfolio against its capital levels,may be subject to such increased regulatory scrutiny.Although regulator
224、s have not notified us of any concern,there is no assurance that we will not be subject to additional scrutiny in the future.We are Subject to Interest Rate Risk Our earnings and cash flows are largely dependent upon our net interest income.Net interest income is the difference between interest inco
225、me earned on interest-earning assets,such as loans and securities,and interest expense paid on interest-bearing liabilities,such as deposits and borrowed funds.Interest rates are sensitive to many factors outside our control,including general economic conditions and policies of various governmental
226、and regulatory agencies and,in particular,the Board of Governors of the Federal Reserve System,which regulates the supply of money and credit in the United States.Changes in monetary policy,including changes in interest rates,could influence not only the interest we receive on loans and securities a
227、nd interest we pay on deposits and borrowings,but could also affect(i)our ability to originate loans and obtain deposits,(ii)the fair value of our financial assets and liabilities,and(iii)the average duration of our mortgage-backed securities portfolio.Our portfolio of securities is subject to inter
228、est rate risk and will generally decline in value if market interest rates increase,and generally increase in value if market interest rates decline.Our mortgage-backed security portfolio is also subject to prepayment risk in a low interest rate environment.In response to the recessionary state of t
229、he national economy,the gloomy housing market and the volatility of financial markets,the Federal Open Market Committee of the Federal Reserve Board(“FOMC”)started a series of decreases in Federal funds target rate with seven decreases in 2008,bringing the target rate to a historically low range of
230、0%to 0.25%through December 2010.In the current environment of historically low interest rates,it is imperative for us to mitigate exposure to potential increases in interest rates.If interest rates rise by more than 100 basis points,we anticipate that net interest income will rise assuming no additi
231、onal deposit rate sensitivity.However,it may still take several upward market rate movements for variable rate loans at floors to move above their floor rates.Further,a rise in index rates leads to lower debt service coverage of variable rate loans if the borrowers operating cash flow doesnt also ri
232、se.This creates a leveraged paradox of an improving economy(leading to higher interest rates),but lower credit quality as short-term rates move up faster than the cash flow or income of the borrowers.Higher interest rates may also depress loan demand,making it more difficult for us to grow loans.4 M
233、edian price for single-family re-sales homes were up 3.3%in Marin County and 3.2%in Sonoma County in 2010.Page-16 Interest rate changes can create fluctuations in the net interest margin due to an imbalance in the timing of repricing or maturity of assets or liabilities.We manage interest rate risk
234、exposure with the goal of minimizing the impact of interest rate volatility on the net interest margin.Although we believe we have implemented effective asset and liability management strategies,any substantial,prolonged low interest rate environment could have an adverse effect on our financial con
235、dition and results of operations.See the sections captioned“Net Interest Income”in Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Quantitative and Qualitative Disclosures about Market Risk in Item 7A of this report for further discussion related to
236、 management of interest rate risk.We are Subject to Significant Credit Risk and Loan Losses May Exceed Our Allowance for Loan Losses in the Future We maintain an allowance for loan losses,which is a reserve established through a provision for loan losses charged to expense,that represents Management
237、s best estimate of probable losses that may be incurred within the existing portfolio of loans.The level of the allowance reflects Managements continuing evaluation of industry concentrations,specific credit risks,loan loss experience,current loan portfolio quality and present economic,political and
238、 regulatory conditions.The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends,all of which may undergo material changes.Further,we generally
239、rely on appraisals of the collateral or comparable sales data to determine the level of specific reserve and/or the charge-off amount on certain collateral dependent loans.Inaccurate assumptions in the appraisals or an inappropriate choice of the valuation techniques may lead to an inadequate level
240、of specific reserve or charge-offs.Changes in economic conditions affecting borrowers,new information regarding existing loans and their collateral,identification of additional problem loans and other factors,may require an increase in our allowance for loan losses.In addition,bank regulatory agenci
241、es periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs.In addition,if charge-offs in future periods exceed the allowance for loan losses,we will need to record additional provision for loan loss
242、es.Any increases in the allowance for loan losses will result in an adverse impact on net income and capital.We Face Intense Competition with Other Financial Institutions to Attract and Retain Banking Customers We are facing significant competition for customers from other banks and financial instit
243、utions located in the markets we serve.We compete with commercial banks,saving banks,credit unions,non-bank financial services companies and other financial institutions operating within or near our serving areas.Many of our non-bank competitors are not subject to the same extensive regulations as o
244、urs,thus,are able to offer greater flexibility in competing for business.We anticipate intense competition will be continued for the coming year due to the recent consolidation of many financial institutions and more changes in legislature,regulation and technology.Going forward,we may see tighter c
245、ompetition in the industry as banks seek to take market share in the most profitable customer segments,particularly the small business segment and the mass-affluent segment,which offers a rich source of deposits as well as more profitable and less risky customer relationships.Further,with the reboun
246、d of the equity markets,our deposit customers may perceive alternative investment opportunities as providing superior expected returns.Technology and other changes have made it more convenient for bank customers to transfer funds into alternative investments or other deposit accounts such as online
247、virtual banks and non-bank service providers.The current low interest rate environment could increase such transfers of deposits to higher yielding deposits or other investments.Efforts and initiatives we undertake to retain and increase deposits,including deposit pricing,can increase our costs.When
248、 our customers move money into higher yielding deposits or in favor of alternative investments,we can lose a relatively inexpensive source of funds,thus increasing our funding costs.We also compete with nationwide and regional banks much larger than our size,which may be able to benefit from economi
249、es of scale through their wider branch network,national advertising campaigns and sophisticated technology infrastructure.We intend to seek additional deposits by continuing to establish and strengthen our personal relationships with our existing customers and by offering deposit products that are c
250、ompetitive with those offered by other financial institutions in our markets.If these efforts are unsuccessful,we may need to fund our asset growth through borrowings,other non-core funding or public offerings of our common stock which could be leveraged.Increased debt would further increase our lev
251、erage,reduce our borrowing capacity and increase our reliance on non-core funds and counterparties credit availability.A public offering may have a dilutive effect on earnings per share and share ownership.Page-17 Our Ability to Access Markets for Funding and Acquire and Retain Customers Could be Ad
252、versely Affected by the Deterioration of Other Financial Institutions or the Financial Service Industrys Reputation.Reputation risk is the risk to liquidity,earnings and capital arising from negative publicity regarding the financial services industry.The financial services industry continues to be
253、featured in negative headlines about their roles in the past global and national credit crisis and the resulting stabilization legislation enacted by the U.S.federal government.These reports can be damaging to the industrys image and potentially erode consumer confidence in insured financial institu
254、tions.Recent bank failures in California,including in our own markets,have had a negative impact and additional failures are expected.In addition,our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial ins
255、titutions.Financial services institutions are interrelated as a result of trading,clearing,counterparty or other relationships.As a result,defaults by,or even rumors or questions about,one or more financial services institutions,or the financial services industry generally,have led to market-wide li
256、quidity problems,losses of depositor,creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions.We could experience increases in deposits and assets as a direct or indirect result of other banks difficulties or failure,which would increase the capital we
257、 need to support such growth or we could experience severe and unexpected decreases in deposits which could adversely impact our liquidity and heighten regulatory concern.Bancorp and the Bank are Subject to Extensive Government Regulation and Supervision Bancorp and the Bank are subject to extensive
258、 federal and state governmental supervision,regulation and control.Holding company regulations affect the range of activities in which Bancorp is engaged.Banking regulations affect the Banks lending practices,capital structure,investment practices and dividend policy among other controls.Future legi
259、slative changes or interpretations may also alter the structure and competitive relationship among financial institutions.The historic disruptions in the financial marketplace over the past few years have prompted the Obama administration to reform the financial market regulation.This proposed refor
260、m includes additional regulations over consumer financial products,bond rating agencies and the creation of a regime for regulating systemic risk across all types of financial service firms.In light of recent economic conditions as well as regulatory and congressional criticism,further restrictions
261、on financial service companies may adversely impact our results of operations and financial condition,as well as increase our compliance risk.Compliance risk is the current and prospective risk to earnings or capital arising from violations of,or nonconformance with,laws,rules,regulations,prescribed
262、 practices,internal policies,and procedures,or ethical standards set forth by regulators.Compliance risk also arises in situations where the laws or rules governing certain bank products or activities of our clients may be ambiguous or untested.This risk exposes Bancorp and the Bank to potential fin
263、es,civil money penalties,payment of damages and the voiding of contracts.Compliance risk can lead to diminished reputation,reduced franchise value,limited business opportunities,reduced expansion potential and an inability to enforce contracts.For further information on supervision and regulation,se
264、e the section captioned“Supervision and Regulation”in Item 1 above.Bancorp Relies on Dividends from the Bank to Pay Cash Dividends to Shareholders Bancorp is a separate legal entity from its subsidiary,the Bank.Bancorp receives substantially all of its revenue from the Bank in the form of dividends,
265、which is Bancorps principal source of funds to pay cash dividends to Bancorps common shareholders.Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to Bancorp.In the event that the Bank is unable to pay dividends to Bancorp,Bancorp may not be able to
266、pay dividends to its shareholders.As a result,it could have an adverse effect on Bancorps stock price and investment value.Page-18 Under federal law,capital distributions from the Bank would become prohibited,with limited exceptions,if the Bank were categorized as“undercapitalized”under applicable F
267、ederal Reserve or FDIC regulations.In addition,as a California bank,the Bank is subject to state law restrictions on the payment of dividends.Distributions from the Bank to Bancorp are subject to advance regulatory approval for three years beginning in 2010.For further information on the distributio
268、n limit from the Bank to Bancorp,see the section captioned“Bank Regulation”in Item 1 above and“Dividends”in Note 9 to the Consolidated Financial Statements in Item 8 below.The Trading Volume of Bancorps Common Stock is Less than That of Other Larger Financial Services Companies Our common stock is l
269、isted on the NASDAQs Capital Market.Our trading volume is less than that of nationwide or regional financial institutions.A public trading market having the desired characteristics of depth,liquidity and orderliness depends on the presence of willing buyers and sellers of common stock at any given t
270、ime.This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.Given the lower trading volume of our common stock,significant trades of our stock in a given time,or the expectations of these trades,could cause the stock pri
271、ce to be more volatile.Failure of Correspondent Banks and Counterparties May Affect our Liquidity In the past few years,the financial services industry in general was materially and adversely affected by the credit crises.We have witnessed failure of banks in the industry in recent years and the tre
272、nd is expected to continue.We rely on our correspondent banks for lines of credit.We also have two correspondent banks as counterparties in our derivative transactions(see Note 15 to the Consolidated Financial Statements).While we continually monitor the financial health of our correspondent banks a
273、nd we have diverse sources of liquidity,should any one of our correspondent banks become financially impaired,our available credit may decline and/or they may be unable to honor their commitments.Unexpected Early Termination of Our Interest Rate Swap Agreements May Impact Our Earnings We have entere
274、d into interest-rate swap agreements,primarily as an asset/liability management strategy,in order to mitigate the changes in the fair value of specified long-term fixed-rate loans and firm commitments to enter into long-term fixed-rate loans caused by changes in interest rates.These hedges allow us
275、to offer long-term fixed rate loans to customers without assuming the interest rate risk of a long-term asset by swapping our fixed-rate interest stream for a floating-rate interest stream.In the event of default by the borrowers on our hedged loans,we may have to terminate these designated interest
276、-rate swap agreements early,resulting in severe prepayment penalties charged by our counterparties.On the other hand,when these interest-rate swap agreements are in an asset position,we are subject to the credit risk of our counterparties,who may default on the interest-rate swap agreements,leaving
277、us vulnerable to interest rate movements.Securities May Lose Value due to Credit Quality of the Issuers We hold securities issued and/or guaranteed by Federal National Mortgage Association(“FNMA”)and Federal Home Loan Mortgage Corporation(“FHLMC”).In 2008,the U.S.Government placed both FNMA and FHLM
278、C under conservatorship.Starting in December 2008,the U.S.Government also began purchasing mortgage-backed securities(“MBS”)issued by FNMA.Further,in December 2009,the U.S.Treasury also announced unlimited capital support for FNMA and FHLMC for the next three years.As a result,the MBS issued by FNMA
279、 and FHLMC has experienced an increase in fair value and our available-for-sale security portfolio has benefitted from this government support.However,the Obama administration released its report to Congress on reforming the housing-finance market on February 11,2011.The proposal would wind down FNM
280、A and FHLMC and incrementally shrink the governments housing-finance footprint by,among other things,gradually increasing the firms guarantee pricing,reducing their conforming loan limits,and phasing in a 10-percent down-payment requirement.When the U.S.Government starts selling the MBS securities i
281、ssued by FNMA and FHLMC,when the government support is phased-out or completely withdrawn,or if either the FNMA or FHLMC comes under further financial stress or deteriorates in their credit worthiness,the fair value of our securities issued or guaranteed by these entities could be negatively affecte
282、d.Page-19 We also invest in obligations of state and political subdivisions,some of which are experiencing financial difficulties in part due to loss of property tax from falling home values and declines in sales tax revenues from a reduction in retail activities.The 2009 federal stimulus funds that
283、 flowed out to state governments across the country is running down and is expected to drop to$89.4 billion for 2011,$23.3 billion in 2012 and$14.3 billion in 2013.State and political subdivisions are expected to undergo further financial stress due to the reduced federal funding.While we seek to mi
284、nimize our exposure by diversifying geographic location of our portfolio and investing in investment grade securities,there is no guarantee that the issuers will remain financially sound to be current with their payments on these debentures.Deterioration of Credit Quality or Insolvency of Insurance
285、Companies May Impede our Ability to Recover Losses The recent financial crisis has led certain major insurance companies to the verge of bankruptcy.We have property,casualty and financial institution risk coverage underwritten by several insurance companies,who may not avoid the insolvency risk perm
286、eating in the insurance industry.In addition,some of our investment in obligations of state and political subdivisions is insured by several insurance companies.While we closely monitor credit ratings of our insurers and insurers of our municipality securities,and we are poised to make quick changes
287、 if needed,we cannot predict an unexpected inability to honor commitments.We also invest in bank-owned life insurance policies on certain members of senior management,which may lose value in the event of the carriers insolvency.In the event that our bank-owned life insurance policy carriers credit r
288、atings fall below investment grade,we may exchange policies underwritten by them to another carrier at a cost charged by the original carrier,or we may terminate the policies which may result in adverse tax consequences.Our loan portfolio is also primarily secured by properties located in earthquake
289、 or fire-prone zones.In the event of a disaster that causes pervasive damage to the region in which we operate,not only the Bank,but also the loan collateral may suffer losses not recovered by insurance.We Rely on Technology and Continually Encounter Technological Change The financial services indus
290、try is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.The effective use of technology will enable efficiency and meeting customers changing needs.Our future success depends,in part,upon our ability to address the needs of
291、our customers by using technology to provide products and services that will satisfy customer demands,as well as to create additional efficiencies in our operations.Many of our competitors have substantially greater resources to invest in technological improvements.We may not be able to effectively
292、implement new technology-driven products and services or be successful in marketing these products and services to retain and compete for customers.Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact of the long-t
293、erm aspect our business and,in turn,our financial condition and results of operations.We May Experience a Breach in Security Our business requires the secure handling of sensitive client information.We also rely heavily on communications and information systems to conduct our business.A breach of se
294、curity in the Bank,at our vendors or customers,or widely publicized breaches of other financial institutions could significantly harm our reputation,result in a loss of customer business,subject us to additional regulatory scrutiny,or expose us to civil litigation and possible financial liability.Wh
295、ile we have systems and procedures designed to prevent security breaches,we cannot be certain that advances in criminal capabilities,physical system or network break-ins or inappropriate access will not compromise or breach the technology protecting our networks or proprietary client information.We
296、Rely on Third-Party Vendors for Important Aspects of Our Operation We depend on the accuracy and completeness of information provided by certain key vendors,including but not limited to,data processing,payroll processing,technology support,investment security safekeeping and accounting.Our ability t
297、o operate,as well as the our financial condition and results of operations,could be negatively affected in the event of an interruption of an information system,an undetected error,or in the event of a natural disaster whereby certain vendors are unable to maintain business continuity.Page-20 We May
298、 Not Be Able To Attract and Retain Key Employees Our success depends,in large part,on our ability to attract and retain key people.Competition for the best people in most activities engaged by us can be intense and we may not be able to hire skilled people or retain them.We do not currently have non
299、-competitive agreements with any of our senior officers.The unexpected loss of services of key personnel could have a material adverse impact on our business because of the skills,knowledge of our market,years of industry experience and the difficulty of promptly finding qualified replacement person
300、nel.Severe Weather,Natural Disasters or Other Climate Change Related Matters Could Significantly Impact Our Business Our primary market is located in an earthquake-prone zone in northern California.Other severe weather or disasters,such as severe rainstorms,wildfire or flood,could interrupt our busi
301、ness operations unexpectedly.Climate-related physical changes and hazards could also pose credit risks for us.For example,our borrowers may have collateral properties located in coastal areas at risk to rise in sea level.The properties pledged as collateral on our loan portfolio could also be damage
302、d by tsunamis,floods,earthquake or wildfires and thereby the recoverability of our loan could be impaired.A number of factors affect our credit losses,including the extent of damage to the collateral,the extent of damage not covered by insurance,the extent to which unemployment and other economic co
303、nditions caused by the natural disaster adversely affect the ability of borrowers to repay their loans,and the cost of collection and foreclosure to us.Lastly,there could be increased insurance premiums and deductibles,or a decrease in the availability of coverage,due to severe weather-related losse
304、s.The ultimate impact on our business of a natural disaster,whether or not caused by climate change,is difficult to predict.ITEM 1B.UNRESOLVED STAFF COMMENTS None.ITEM 2.PROPERTIES We lease our corporate headquarters building,which houses our primary loan production,operations,and administrative off
305、ices,in Novato,California.We also lease other branch or office facilities within our primary market areas in the cities of Corte Madera,San Rafael,Novato,Sausalito,Mill Valley,Greenbrae,Petaluma,Santa Rosa,Sonoma,Napa and San Francisco,California.We consider our properties to be suitable and adequat
306、e for our present needs.For additional information on properties,see Notes 5 and 13 to the Consolidated Financial Statements included in Item 8 of this Form 10-K.ITEM 3.LEGAL PROCEEDINGS There are no pending,or to Managements knowledge any threatened,material legal proceedings to which we are a part
307、y,or to which any of our properties are subject.There are no material legal proceedings to which any director,any nominee for election as a director,any executive officer,or any associate of any such director,nominee or officer is a party adverse to us.We are responsible for our proportionate share
308、of certain litigation indemnifications provided to Visa U.S.A.by its member banks in connection with lawsuits related to anti-trust charges and interchange fees.For further details,see Note 13 to the Consolidated Financial Statements in Item 8 of this Form 10-K.ITEM 4.REMOVED AND RESERVED Page-21 PA
309、RT II ITEM 5.MARKET FOR REGISTRANTS COMMON EQUITY,RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES Bancorp common stock trades on the NASDAQ Capital Market under the symbol BMRC.At February 28,2011,5,300,685 shares of Bancorps common stock,no par value,were outstanding and held b
310、y approximately 2,300 holders of record.The following table sets forth,for the periods indicated,the range of high and low sales prices of Bancorps common stock.Calendar Quarter 2010 2009 HighLowHighLow 1st Quarter$33.60$29.19$24.44$17.01 2nd Quarter$36.14$30.80$29.25$21.10 3rd Quarter$35.50$30.08$3
311、3.81$26.55 4th Quarter$36.00$31.69$35.75$30.20 The table below shows cash dividends paid to common shareholders on a quarterly basis in the last two fiscal years.CalendarQuarter2010 2009 Per ShareDollarsPer ShareDollars 1st Quarter$0.15$785,000$0.14$722,000 2nd Quarter$0.15$787,000$0.14$724,000 3rd
312、Quarter$0.15$789,000$0.14$730,000 4th Quarter$0.16$844,000$0.15$784,000 For additional information regarding our ability to pay dividends,see discussion in Note 9 to the Consolidated Financial Statement,under the heading“Dividends,”in Item 8 of this report.During the first nine months of 2008,Bancor
313、p repurchased 88,316 shares at an average price of$28.55,plus commissions,for a total cost of$2.5 million.In September 2008,the repurchases were discontinued to preserve capital during a time of extreme economic turbulence.There were no purchases made by or on behalf of Bancorp or any“affiliated pur
314、chaser”(as defined in Rule 10b-18(a)(3)under the Securities Exchange Act of 1934),of the Bancorps common stock during the fourth quarter of 2010.On July 2,2007,Bancorp executed a shareholder rights agreement(“Rights Agreement”)designed to discourage takeovers that involve abusive tactics or do not p
315、rovide fair value to shareholders.Refer to Exhibit 4.1 to Registration Statement on Form 8-A12B filed with the Securities and Exchange Commission on July 2,2007.Securities Authorized for Issuance under Equity Compensation Plans The following table summarizes information as of December 31,2010,with r
316、espect to equity compensation plans.All plans have been approved by the shareholders.(A)(B)(C)Shares to beissued uponexercise ofoutstandingoptionsWeighted averageexercise price ofoutstandingoptionsShares availablefor future issuance(Excluding sharesin column A)Equity compensation plans approved by s
317、hareholders 317,8041$29.27 499,5842 1 Represents shares of common stock issuable upon exercise of outstanding options under the Bank of Marin 1990 Stock Option Plan,the Bank of Marin 1999 Stock Option Plan and the Bank of Marin Bancorp 2007 Equity Plan.2 Represents shares of common stock available f
318、or future grants under the 2007 Equity Plan and the 2010 Director Share Plan.Page-22 Stock Price Performance Graph The following graph,provided by Keefe,Bruyette,&Woods,Inc.,shows a comparison of cumulative total shareholder return on our common stock during the five fiscal years ended December 31,2
319、010 compared to Russell 2000 Stock index and peer group index of other financial institutions.We have been part of the Russell 2000 index since July 2009.The comparison assumes$100 was invested on December 31,2005 in our common stock and all of the dividends were reinvested.The performance graph rep
320、resents past performance and should not be considered to be an indication of future performance.Ticker symbol BMRC represents the common stock of Bank of Marin Bancorp subsequent to its formation July 1,2007 and represents the common stock of Bank of Marin for periods prior to the formation of the b
321、ank holding company.Indexed Five Year Total Return020406080100120140200520062007200820092010Indexed Prices(%)Bank of MarinPeer Group*Russell 2000 2005 2006 2007 2008 2009 2010 BMRC 100 111 90 74 101 108 Peer Group1 100 109 69 35 21 23 Russell 2000 100 118 117 77 98 125 1BMRC Peer Group represents pu
322、blic California banks with assets between$500 million to$2 billion as of December 31,2010:FMCB,EXSR,AMBZ,BOCH,BBNK,CVCY,FNRN,FNBG,UBFO,SAEB,CWBC,SWBC,CUNB,AMRB,OVLY,PFCF,FCAL,HTBK,HEOP,NOVB,PMBC,PPBI,PFBC,RCBC,BSRR.The peer group composite index is weighted by market capitalization and reinvests div
323、idends on the ex-date and adjusts for stock splits,if applicable.Source:Company Reports,FactSet,and SNL Page-23 ITEM 6.SELECTED FINANCIAL DATA As of For the Year Ended December 31,2010 2009 2008 2007 2006 2009/2010(Dollars in thousands,except per share data)%change At December 31 Total assets$1,208,
324、150$1,121,672$1,049,557$933,901$876,578 7.7%Total loans 941,400 917,748 890,544 724,878 719,778 2.6%Total deposits 1,015,739 944,061 852,290 834,642 736,697 7.6%Total stockholders equity 121,920 109,051 125,546 87,774 89,525 11.8%Equity-to-asset ratio 10.1%9.7%12.0%9.4%10.2%3.8%For year ended Decemb
325、er 31 Net interest income$54,909$52,567$48,359$42,742$41,733 4.5%Provision for loan losses 5,350 5,510 5,010 685 1,266-2.9%Non-interest income 5,521 5,182 5,356 5,718 3,972 6.5%Non-interest expense 33,357 31,696 28,677 27,673 25,891 5.2%Net income 13,552 12,765 12,150 12,324 11,883 6.2%Net income pe
326、r share(diluted)2.55 2.19 2.31 2.31 2.11 16.4%Cash dividend payout ratio on common stock 1 23.6%25.8%23.9%21.4%20.8%-8.5%1 Calculated as dividends on common share divided by basic net income per common share.Page-24 ITEM 7.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPER
327、ATIONS The following discussion of financial condition as of December 31,2010 and 2009 and results of operations for each of the years in the three-year period ended December 31,2010 should be read in conjunction with our consolidated financial statements and related notes thereto,included in Part I
328、I Item 8 of this report.Average balances,including balances used in calculating certain financial ratios,are generally comprised of average daily balances.Forward-Looking Statements The disclosures set forth in this item are qualified by important factors detailed in Part I captioned Forward-Looking
329、 Statements and Item 1A captioned Risk Factors of this report and other cautionary statements set forth elsewhere in the report.Executive Summary We reported record annual earnings of$13.6 million in 2010,an increase of$787 thousand,or 6.2%from$12.8 million a year ago.Earnings growth reflects a lowe
330、r level of credit losses,continued focus on cost controls,and growth in interest earning assets.Our continued focus on responsible community banking fundamentals and our strong customer relationships has led to higher deposits,a core funding source for our loan portfolio.Deposit growth in 2010 was s
331、ubstantial at$71.7 million,or 7.6%,over a year ago without compromising our pricing discipline.Demand deposits grew$51.6 million or 22.4%over a year ago and comprised 27.8%of total deposits at December 31,2010.Diluted earnings per share for the year ended December 31,2010 totaled$2.55,up$0.36 from$2
332、.19 in the prior year.2009 diluted earnings per share were reduced by$0.25 related to Bancorps participation and withdrawal from the TCPP and$0.06 related to an FDIC special assessment,as discussed later.We are committed to actively lend with a focus in our local community.Total loans reached$941.4
333、million at December 31,2010,representing an increase of$23.7 million,or 2.6%,over December 31,2009.This growth primarily reflects growth in our San Francisco and Santa Rosa markets and represents an increase in commercial real estate loans,partially offset by decreases in construction and commercial loans.Our focus on prudent lending standards,proactive management of credit risk and discipline in
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