1、 UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 FORM 10-K(Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31,2019 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF
2、 1934For the transition period from _ to _ Commission 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 100NovatoCA 94947(Address
3、of principal executive office)(Zip Code)Registrants telephone number,including area code:(415)763-4520 Securities registered pursuant to Section 12(b)of the Act:NoneSecurities registered pursuant to section 12(g)of the Act:Title of each classTrading symbolName of each exchange on which registered Co
4、mmon Stock,No Par Value,BMRCThe Nasdaq Stock Marketand attached Share Purchase Rights 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 Sect
5、ion 13 or Section 15(d)of the Act.Yes No Note-checking the 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.Indicate by check mark whether the registrant(1)has filed all reports to be fil
6、ed by Section 13 or 15(d)of the Securities Exchange 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 registran
7、t has submitted electronically and posted on its corporate 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).
8、Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,smaller reporting company,or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer”,“smaller reporting company,”and emerging growth c
9、ompany in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filer(Do not check if a smaller reporting company)Smaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extende
10、d transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.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 29,2019,the last business day of t
11、he registrants most recently completed second fiscal quarter,the aggregate market value of the voting common equity held by non-affiliates,based upon the closing price per share of the registrants common stock as reported by the Nasdaq,was approximately$525 million.For the purpose of this response,d
12、irectors and certain officers of the Registrant are considered affiliates at that date.As of February 28,2020,there were 13,596,535 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrants Proxy Statement for the Annual Meeting of Shareholders to be held on M
13、ay 12,2020 are incorporated by reference into Part III.Page-2TABLE OF CONTENTS PART IForward-Looking StatementsITEM 1.BUSINESSITEM 1A.RISK FACTORSITEM 1B.UNRESOLVED STAFF COMMENTSITEM 2.PROPERTIESITEM 3.LEGAL PROCEEDINGSITEM 4.MINE SAFETY DISCLOSURESPART IIITEM 5.MARKET FOR REGISTRANTS COMMON EQUITY
14、,RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6.SELECTED FINANCIAL DATAITEM 7.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONSForward-Looking StatementsCritical Accounting PoliciesExecutive SummaryRESULTS OF OPERATIONSNet Interest Income
15、Provision for Loan LossesNon-Interest IncomeNon-Interest ExpenseProvision for Income TaxesFINANCIAL CONDITIONInvestment SecuritiesLoansAllowance for Loan LossesOther AssetsDepositsBorrowingsDeferred Compensation ObligationsOff Balance Sheet Arrangements and CommitmentsCapital AdequacyLiquidityITEM 7
16、A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAPage-4Page-4Page-4Page-12Page-19Page-20Page-20Page-20Page-21Page-21Page-23Page-24Page-24Page-24Page-25Page-26Page-26Page-28Page-28Page-29Page-29Page-30Page-30Page-32Page-34Page-37Page-37Page
17、-38Page-38Page-39Page-39Page-40Page-41Page-42Page-3NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1:Summary of Significant Accounting PoliciesNote 2:Investment SecuritiesNote 3:Loans and Allowance for Loan LossesNote 4:Bank Premises and EquipmentNote 5:Bank Owned Life InsuranceNote 6:DepositsNote 7
18、:BorrowingsNote 8:Stockholders Equity and Stock PlansNote 9:Fair Value of Assets and LiabilitiesNote 10:Benefit PlansNote 11:Income TaxesNote 12:Commitments and ContingenciesNote 13:Concentrations of Credit RiskNote 14:Derivative Financial Instruments and Hedging ActivitiesNote 15:Regulatory Matters
19、Note 16:Financial Instruments with Off-Balance Sheet RiskNote 17:Condensed Bank of Marin Bancorp Parent Only Financial StatementsITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSUREITEM 9A.CONTROLS AND PROCEDURESITEM 9B.OTHER INFORMATIONPART IIIITEM 10.DIRECTORS
20、,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 11.EXECUTIVE COMPENSATIONITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED STOCKHOLDER MATTERSITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,AND DIRECTORINDEPENDENCEITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
21、PART IVITEM 15.EXHIBITS,FINANCIAL STATEMENT SCHEDULESITEM 16.FORM 10-K SUMMARY SIGNATURESPage-49Page-49Page-61Page-66Page-72Page-72Page-73Page-73Page-74Page-78Page-80Page-81Page-83Page-85Page-85Page-87Page-88Page-89Page-91Page-91Page-92Page-92Page-92Page-92Page-92Page-92Page-92Page-93Page-93Page-94P
22、age-95Page-4PART 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,(the 1934 Act).Those secti
23、ons 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 results to
24、differ significantly from projected results.Our forward-looking statements include descriptions of plans or objectives of Management for future operations,products or services,and forecasts of revenues,earnings or other measures of economic performance.Forward-looking statements can be identified by
25、 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 preceded by will,would,should,could or may.Forward-looking statements are based on Managements current expe
26、ctations regarding economic,legislative,and regulatory issues that may affect 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 Management expectations.Such factors include,but are not limited to
27、,general economic conditions and the economic uncertainty in the United States and abroad,including changes in interest rates,deposit flows,real estate values,and expected future cash flows on loans and securities;costs or effects of acquisitions;competition;changes in accounting principles,policies
28、 or guidelines;changes in legislation or regulation(including the Tax Cuts and Jobs Act of 2017);natural disasters(such as wildfires and earthquakes in our area);adverse weather conditions;interruptions of utility service in our markets for sustained periods;and other economic,competitive,government
29、al,regulatory and technological factors(including external fraud and cybersecurity threats)affecting our operations,pricing,products and services.Important factors that could cause results or performance to materially differ from those expressed in our prior forward-looking statements are detailed i
30、n ITEM 1A.Risk Factors of this report.Forward-looking statements speak only as of the date they are made.We 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 unant
31、icipated events.ITEM 1 BUSINESSBank of Marin(the“Bank”)was incorporated in August 1989,received its charter from the California Superintendent of Banks(now the California Department of Business Oversight or DBO)and commenced operations in January 1990.The Bank is an insured bank by the Federal Depos
32、it Insurance Corporation(“FDIC”).Bank of Marin Bancorp(“Bancorp”)was formed in 2007 and the Bank became its sole subsidiary when each share of Bank common stock was exchanged for one share of Bancorp common stock.Bancorp is listed on the Nasdaq Stock Market under the symbol BMRC.Upon formation of th
33、e holding company,Bancorp became subject to regulation under the Bank Holding Company Act of 1956,as amended,and reporting and examination requirements by the Board of Governors of the Federal Reserve System(Federal Reserve).Bancorp files periodic reports and proxy statements with the Securities and
34、 Exchange Commission pursuant to the Securities Exchange Act of 1934,as amended.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 and the Bank that are consolidated for financial reporting purposes
35、.Virtually all of our business is conducted through Bancorps subsidiary,Bank of Marin,which is headquartered in Novato,California.In addition to our headquarters,we operate twenty-three offices in Alameda,Contra Costa,Marin,Napa,San Francisco,and Sonoma counties,with a strong emphasis on supporting
36、the local communities.Our customer base is made up of business and personal banking relationships from the communities near our office locations.Our business banking focus is on small to medium-sized businesses,professionals and not-for-profit organizations.We offer a broad range of commercial and r
37、etail deposit and lending programs designed to meet the needs of our target markets.Our lending categories include commercial real estate loans,commercial and industrial loans(including small business loans),construction financing,consumer loans,and home equity lines of credit.Merchant card services
38、 Page-5are available for our business customers.Through third-party vendors,we offer Visa credit card programs for consumers and businesses,an American Express credit card program,a leasing program for commercial equipment financing,prepaid business cards for handling expense reimbursements and a fu
39、ll suite of cash management services.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(HSA),Certificate of Deposit Account Registry
40、Service(CDARS),Insured Cash Sweep(ICS),and Demand Deposit MarketplaceSM(DDM Sweep)accounts.CDARS,ICS and DDM Sweep accounts are networks through which we offer full FDIC insurance coverage in excess of the regulatory maximum by placing deposits in multiple banks participating in the networks.We also
41、 offer deposit options including mobile deposit,remote deposit capture,Automated Clearing House(“ACH”)services,wire transfers,and image lockbox services.A valet pick-up service is available for non-cash deposits to our professional and business clients.Other products and services include Apple Pay,S
42、amsung Pay,Google Pay,SurePayroll,Positive Pay(fraud detection tool),and solutions for clients with cash management needs such as Cash Vault and SafePoint.Automated teller machines(“ATMs”)are available at most retail branch locations.Our ATM network is linked to the PLUS,CIRRUS and NYCE networks,as
43、well as 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 digital banking services available to personal and business account holders.We offer Wealth Management and Trust Services(“WMTS”),which incl
44、ude customized investment portfolio management,trust administration,estate settlement and custody services.We also offer 401(k)plan services to small and medium-sized businesses through a third-party vendor.We make international banking services available to our customers indirectly through other fi
45、nancial 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 Ban
46、k of 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&Tra
47、demark Office.All service marks registered by Bancorp or the Bank are registered on the United States Patent&Trademark Office Principal Register.Market AreaOur primary market area consists of Marin,San Francisco,Napa,Alameda,Sonoma,and Contra Costa counties.Our customer base is primarily made up of
48、business,not-for-profit and personal banking relationships within these market areas.We attract deposit relationships from small to medium-sized businesses,not-for-profit organizations and professionals,merchants and individuals who live and/or work in the communities comprising our market areas.As
49、of December 31,2019,the majority of our deposits were in Marin County and southern Sonoma County,and approximately 61%of our deposits were from businesses and 39%from individuals.CompetitionThe banking business in California generally,and in our market area specifically,is highly competitive with re
50、spect to attracting both loan and deposit relationships.The increasingly competitive environment is affected by changes in regulation,interest rates,technology and product delivery systems,and consolidation among financial service providers.The banking industry is seeing strong competition for quali
51、ty loans,with larger banks expanding their activities to attract businesses that are traditionally community bank customers.In all of our six counties,we have significant competitionfrom nationwide banks with much larger branch networks and greater financial resources,as well as credit unions and ot
52、her local and regional banks.Nationwide banks have the competitive advantages of national advertising campaigns.Large commercial banks also have substantially greater lending limits and the ability to offer certain services,which Page-6are not offered directly by us.Other competitors for depositors
53、funds are money market mutual funds and non-bank financial institutions such as brokerage firms and insurance companies.We differentiate ourselves from the numerous,and often larger,financial institutions in our primary market area,with a business model built on relationship banking,disciplined fund
54、amentals and commitment to the communities we serve.The Banks experienced professionals deliver innovative and custom financing,with a deep local market knowledge and a personal understanding of each customers unique needs.In Marin County,we have the fourth largest market share of total deposits at
55、10.8%,based upon FDIC deposit market share data as of June 30,20191.A significant driver of our franchise value is the growth and stability of our deposits,a low-cost funding source for our loan portfolio.EmployeesAt December 31,2019,we employed 290 full-time equivalent(“FTE”)staff.The actual number
56、 of employees,including part-time employees,at year-end 2019 included seven executive officers,127 other corporate officers and 172 staff.None of our employees are presently represented by a union or covered by a collective bargaining agreement.We believe that our employee relations are good.We have
57、 consistently been recognized as one of the“Best Places to Work”by the North Bay Business Journal.SUPERVISION AND REGULATIONBank holding companies and banks are extensively regulated under both federal and state law.The following discussion summarizes certain significant laws,rules and regulations a
58、ffecting Bancorp and the Bank.Bank Holding Company RegulationUpon formation of the bank holding company on July 1,2007,we became subject to regulation under the Bank Holding Company Act of 1956,as amended(“BHCA”)which subjects Bancorp to Federal Reserve reporting and examination requirements.Under t
59、he Federal Reserve law and regulations,a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks.Under this requirement,Bancorp is expected to commit resources to support the Bank,including at times when Bancorp may not be in a financial pos
60、ition to provide such resources,and it may not be in Bancorps,or Bancorps shareholders or creditors,best interests to do so.In addition,any capital loans Bancorp makes to the Bank are subordinate in right of payment to depositors and to certain other indebtedness of the Bank.The BHCA regulates the a
61、ctivities of holding companies including acquisitions,mergers and consolidations and,together with the Gramm-Leach Bliley Act of 1999,the scope of allowable banking activities.Bancorp is also a bank holding company within the meaning of the California Financial Code.As such,Bancorp and its subsidiar
62、ies are subject to examination by,and may be required to file reports with,the DBO.Bank RegulationBanking regulations are primarily intended to protect consumers,depositors funds,federal deposit insurance funds and the banking system as a whole.These regulations affect our lending practices,consumer
63、 protections,capital structure,investment practices and dividend policy.As a state chartered bank,we are subject to regulation,supervision and examination by the DBO.We are also subject to regulation,supervision and periodic examination by the FDIC.If,as a result of an examination of the Bank,the FD
64、IC or the DBO should determine that the financial condition,capital resources,asset quality,earnings prospects,management,liquidity,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 issuin
65、g a“cease and desist”order,monetary penalties,restitution,restricting our growth or removing officers and directors.The Bank addresses the many state and federal regulations it is subject to through a comprehensive compliance program._1 Source:S&P Global Market Intelligence of New York,New YorkPage-
66、7Safety and Soundness Standards(Risk Management)The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions.The guidelines set forth standards for internal controls,informati
67、on systems,internal audit systems,loan documentation,credit underwriting,interest rate exposure,asset growth,compensation,fees and benefits,asset quality and earnings.During the past decade,the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes an
68、d strong internal controls when evaluating the activities of the financial institutions they supervise.Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies,product innovation,and the size an
69、d speed of financial transactions have changed the nature of banking markets.The agencies have identified a spectrum of risks facing a banking institution including,but not limited to,credit,market,liquidity,operational,legal,and reputational.In particular,recent regulatory pronouncements have focus
70、ed on operational risk,which arises from the potential that inadequate information systems,operational problems,breaches in internal controls,fraud,or unforeseen catastrophes will result in unexpected losses.New products and services,third-party risk management and cybersecurity are critical sources
71、 of operational risk that financial institutions are expected to address in the current environment.The Board of Directors and various sub-committees oversee Bancorps consolidated enterprise risk management program that ensures the adequacy of policies,procedures,tolerance levels,risk measurement sy
72、stems,monitoring processes,management information systems and internal controls.Dividends and Stock RepurchasesBancorps ability to pay dividends to its shareholders may be affected by both general corporate law considerations and the policies of the Federal Reserve applicable to bank holding compani
73、es.As a California corporation,Bancorp is subject to the limitations of California law,which allows a corporation to distribute cash or property to shareholders,including a dividend or repurchase or redemption of shares,if the corporation meets certain tests based its performance and financial condi
74、tion.Bancorps primary source of cash is dividends received from the Bank.Prior to any distribution from the Bank to Bancorp,we ensure that the dividend computations comply with the provisions of the California Financial Code and regulations set forth by the DBO and the FDIC.See Note 8 to the Consoli
75、dated Financial Statements,under the heading“Dividends”in ITEM 8 of this report for more information.FDIC Insurance AssessmentsThe FDIC insures our customers deposits to the maximum amount permitted by law,which is currently$250,000 per depositor,based on the 2010 Dodd-Frank Wall Street Reform and C
76、onsumer Protection Act(the“Dodd-Frank Act”).FDIC insurance coverage is funded by the FDICs assessment on insured depository institutions like us and FDICs annual base assessment rates are currently between 1.5 and 40 basis points on the depository institutions quarterly average consolidated total as
77、sets minus average tangible equity.Base assessment rates for banks vary depending on whether a depository institution is small or large and highly complex per FDICs definition.In deriving the base assessment rate,the FDIC applies financial ratios,scorecards,and other financial measures to determine
78、a banks ability to withstand financial stress.Community Reinvestment ActCongress enacted the Community Reinvestment Act(“CRA”)in 1977 to encourage financial institutions to meet the credit needs of the communities in which they are located.All banks and thrifts have a continuing and affirmative obli
79、gation,consistent with safe and sound operations,to help meet the credit needs of their entire communities,including low and moderate income neighborhoods.Regulatory agencies rate each banks performance in assessing and meeting these credit needs.The Bank is committed to serving the credit needs of
80、the communities in which we do business,and it is our policy to respond to all creditworthy segments of our market.As part of its CRA commitment,the Bank maintains strong philanthropic ties to the community.We invest in affordable housing projects that help economically disadvantaged individuals and
81、 residents of low-and moderate-income census tracts,in each case consistent with our long-established prudent underwriting practices.We also donate to,invest in and volunteer with organizations that serve the communities in which we do business,especially low-and moderate-income individuals.These or
82、ganizations offer educational and health programs to economically disadvantaged students and families,Page-8community development services and affordable housing programs.We offer CRA reportable small business,small farm and community development loans within our assessment areas.The CRA requires a
83、depository institutions primary federal regulator,in connection with its examination of the institution,to assess the institutions record in meeting CRA requirements.The regulatory agencys assessment of the institutions record is made available to the public.This record is taken into consideration w
84、hen the institution establishes a new branch that accepts deposits,relocates an office,applies to merge or consolidate,or expands into other activities.The FDIC assigned a“Satisfactory”rating to its CRA performance examination completed in January 2018,which was performed under the large bank requir
85、ements.In December 2019,the FDIC and the OCC announced a proposal to modernize the agencies regulations under the CRA that have not been substantively updated for nearly 25 years.In order to increase transparency for CRA exams,the proposal clarifies what qualifies for credit under the CRA,enabling b
86、anks and their partners to better implement lending and deposit activities that can benefit communities.The proposal also updates the definition of a small business loan and creates an additional definition of“assessment area”tied to where deposits are located,in part to address changes that have oc
87、curred due to the rise in digital banking,ensuring that banks continue to provide loans and other services to low-and moderate-income individuals and businesses in their communities.Anti-Money-Laundering RegulationsA series of banking laws and regulations beginning with the Bank Secrecy Act in 1970
88、requires 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 Providing Appropriate Tools Required to Intercept and Obstruct Terrori
89、sm Act of 2001,financial institutions are subject to prohibitions against specified financial transactions and account relationships,requirements regarding the Customer Identification Program,as well as enhanced due diligence and“know your customer”standards in their dealings with high risk customer
90、s,foreign financial institutions,and foreign individuals and entities.In 2016,Customer Due Diligence Rules under the Bank Secrecy Act clarified and strengthened customer due diligence requirements.These rules contained explicit customer due diligence requirements which included a new requirement to
91、identify and verify the identity of beneficial owners of legal entity customers.Privacy and Data SecurityThe Gramm-Leach Bliley Act(“GLBA”)of 1999 imposes requirements on financial institutions with respect to consumer privacy and the disclosure of non-public personal information about individuals w
92、ho apply for or obtain a financial product to be used for personal,family or household purposes.The GLBA generally prohibits disclosure of consumer information to most nonaffiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure.Fin
93、ancial institutions are further required to disclose their privacy policies to consumers and the conditions under which an institution may disclose non-public information about a consumer to a nonaffiliated third-party.The GLBA also directs federal regulators,including the FDIC,to prescribe standard
94、s 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 to opt out of having non-public customer information disclosed to third par
95、ties.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.We notify our customers when unauthorized disclosure involves sensitive customer information that m
96、ay be misused.Effective January 2020,the California Consumer Privacy Act(“CCPA”)added required notice about personal information we collect,use,share,and disclose for business purposes.The CCPA provides California residents rights regarding their personal information specifically related to exercisi
97、ng access,data portability and deletion rights.There are also California breach notification and disclosure requirements.Consumer Protection RegulationsOur lending activities are subject to a variety of statutes and regulations designed to protect consumers,including the CRA,Home Mortgage Disclosure
98、 Act,Fair Credit Reporting Act,Fair Lending,Fair Debt Collection Practices Act,Flood Disaster Protection Act,Equal Credit Opportunity Act,the Fair Housing Act,Truth-in-Lending Act(TILA),the Real Estate Settlement Procedures Act(RESPA),Protecting Tenants at Foreclosure,and the Secure and Fair Enforce
99、ment for Mortgage Licensing Act(SAFE).Our deposit operations are also subject to laws and regulations that protect consumer rights including Expedited Funds Availability,Truth in Savings Act(TISA),and Electronic Funds Transfers.Page-9Other regulatory requirements include:the Unfair,Deceptive or Abus
100、ive Acts and Practices(UDAAP),Dodd-Frank Act,Right to Financial Privacy,Telephone Consumer Protection Act and Privacy of Consumer Financial Information.Additional rules govern check writing ability on certain interest earning accounts and prescribe procedures for complying with administrative subpoe
101、nas of financial records.Restriction on Transactions between Banks AffiliatesTransactions between Bancorp and the Bank are quantitatively and qualitatively restricted under Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W.Section 23A places restrictions on the Banks“c
102、overed 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 covered transactions,be on market terms and conditions.Federal Reserve Regulation W combi
103、nes statutory restrictions on transactions between the Bank and Bancorp with Federal Reserve interpretations in an effort to simplify compliance with Sections 23A and 23B.Capital RequirementsThe Federal Deposit Insurance Act,as amended(“FDIA”),requires federal banking agencies to take prompt correct
104、ive action(“PCA”)with respect to depository institutions that do not meet minimum capital requirements.The FDIA includes the following five capital tiers:“well capitalized,”“adequately capitalized,”“undercapitalized,”“significantly undercapitalized,”and“critically undercapitalized.”A depository inst
105、itutions capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors,as established by regulation.Bancorps ratios exceed the required minimum ratios for capital adequacy purposes and the Bank meets the definition for well capitalized.
106、Undercapitalized depository institutions may be subject to significant restrictions.Banks that are categorized as critically undercapitalized are subject to dividend restrictions.In July 2013,the federal banking regulators approved a final rule to implement the revised capital adequacy standards of
107、the Basel Committee on Banking Supervision,commonly called Basel III,which became effective January 1,2015(subject to a phase-in period).The final rule strengthened the definition of regulatory capital,increased risk-based capital requirements,made selected changes to the calculation of risk-weighte
108、d assets,and adjusted the prompt corrective action thresholds.We have implemented the fully phased-in capital rules as of January 1,2019 and have been in compliance throughout the implementation period of Basel III.For additional information on our risk-based capital positions,refer to the Capital A
109、dequacy section within ITEM 7 to Managements Discussion and Analysis and Note 15 of the Consolidated Financial Statements within ITEM 8 of this report.Effective January 1,2020,the federal banking agencies jointly-issued final rule on the community bank leverage ratio(CBLR)provides for an optional,si
110、mplified measure of capital adequacy for qualifying community banking organizations,consistent with Section 201 of the Economic Growth,Regulatory Relief,and Consumer Protection Act(the Economic Growth Act).Qualifying community banking organizations are defined as having less than$10 billion in total
111、 consolidated assets that meet risk-based qualifying criteria,a CBLR of greater than 9 percent,off-balance sheet exposure of 25 percent or less of total consolidated assets,trading assets and liabilities of 5 percent or less of total consolidated assets,and cannot be an advanced approaches instituti
112、on.Such a community banking organization would not be subject to other risk-based and leverage capital requirements(including the Basel III and Basel IV requirements)and would be considered to have met the well capitalized ratio requirements.The CBLR is determined by dividing a financial institution
113、s tangible equity capital by its average total consolidated assets.The rule further describes what is included in tangible equity capital and average total consolidated assets.Qualifying banks may opt in and out of the CBLR framework at any time.While we are a qualifying community banking organizati
114、on,we will assess the implications of opting into this rule in the future.See below,for further discussion of the Economic Growth Act.The Dodd-Frank Wall Street Reform and Consumer Protection Act and the Economic Growth,Regulatory Relief,and Consumer Protection Act The Dodd-Frank Act,a landmark fina
115、ncial reform bill comprised of voluminous new rules and restrictions on bank operations,included provisions aimed at preventing a repeat of the 2008 financial crisis and a new process for winding down failing,systemically important institutions in a manner as close to a controlled bankruptcy as poss
116、ible.Among other things,the Dodd-Frank Act established new government oversight responsibilities,enhanced capital adequacy Page-10requirements for certain institutions,established consumer protection laws and regulations,and placed limitations on certain banking activities.In an attempt to reduce th
117、e regulatory burden on U.S.companies,including financial institutions,in May 2018,the current Presidential Administration signed the Economic Growth Act,which repeals or modifies certain provisions of the Dodd-Frank Act and eases regulations on all but the largest banks.The Economic Growth Acts high
118、lights include improving consumer access to mortgage credit,adding certain protections for consumers,including veterans and active duty military personnel,expanding credit freezes and creating an identity theft protection database.While the Economic Growth Act modifies several provisions in the Dodd
119、-Frank Act,the modifications are subject to implementing regulations and is expected to continue to impact smaller institutions like us over time.In many respects,the regulations of the Dodd-Frank Act have been put in place.We will continue to evaluate the effect of the Dodd-Frank Act and the Econom
120、ic Growth Act as well as any other new legislative changes for impact on our results of operations and financial condition.Notice and Approval Requirements Related to Control Banking laws impose notice,approval and ongoing regulatory requirements on any shareholder or other party that seeks to acqui
121、re direct or indirect control of an FDIC-insured depository institution.These laws include the BHCA and the Change in Bank Control Act.Among other things,these laws require regulatory filings by a shareholder or other party that seeks to acquire direct or indirect control of an FDIC-insured deposito
122、ry institution or bank holding company.The determination whether an investor controls a depository institution is based on all of the facts and circumstances surrounding the investment.As a general matter,a party is deemed to control a depository institution or other company if the party owns or con
123、trols 25%or more of any class of voting stock.Subject to rebuttal,a party may be presumed to control a depository institution or other company if the investor owns or controls 10%or more of any class of voting stock.Ownership by family members,affiliated parties,or parties acting in concert,is typic
124、ally aggregated for these purposes.If a partys ownership of the Company were to exceed certain thresholds,the investor could be deemed to control the Company for regulatory purposes.This could subject the investor to regulatory filings or other regulatory consequences.In addition,except under limite
125、d circumstances,bank holding companies are prohibited from acquiring,without prior approval:1)control of any other bank or bank holding company or all or substantially all the assets thereof;or 2)more than 5%of the voting shares of a bank or bank holding company that is not already a subsidiary.Ince
126、ntive CompensationThe Dodd-Frank Act required federal bank regulators and the Securities and Exchange Commission(SEC)to establish joint regulations or guidelines prohibiting incentive-based payment arrangements that encourage inappropriate risks by providing an executive officer,employee,director or
127、 principal stockholder with excessive compensation,fees,or benefits or that could lead to material financial loss to the entity.These regulations apply to institutions having at least$1 billion in total assets.In addition,regulators must establish regulations or guidelines requiring enhanced disclos
128、ure to regulators of incentive-based compensation arrangements.The agencies have not finalized regulations proposed in April 2016.If adopted,the proposed regulations could place limits on the manner in which we structure our executive compensation.The Federal Reserve reviews,as part of the regular,r
129、isk-focused examination process,the incentive compensation arrangements of banking organizations.The Federal Reserve tailors its reviews for each organization based on the scope and complexity of the organizations activities and the prevalence of incentive compensation arrangements.The findings of t
130、he supervisory initiatives are included in reports of examination.Deficiencies,if any,are incorporated into the organizations supervisory ratings,which can affect the organizations ability to make acquisitions and take other actions.Enforcement actions may be taken against a banking organization if
131、its incentive compensation arrangements,or related risk management control or governance processes,pose a risk to the organizations safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.Available InformationOn our Internet web site,we post
132、the following filings as soon as reasonably practical after they are filed with or furnished to the Securities and Exchange Commission:Annual Report to Shareholders,Form Page-1110-K,Proxy Statement for the Annual Meeting of Shareholders,quarterly reports on Form 10-Q,current reports on Form 8-K,and
133、any amendments to those reports filed or furnished pursuant to Section 13(a)or 15(d)of the Securities and Exchange Act of 1934.All such materials 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 we
134、bsite information into this document.In addition,copies of our filings are available by requesting them in writing or by phone from:Corporate SecretaryBank of Marin Bancorp 504 Redwood Boulevard,Suite 100Novato,CA 94947415-763-4523These materials are also available at the SECs internet website(https
135、:/www.sec.gov).Page-12ITEM 1A RISK FACTORSWe assume and manage a certain degree of risk in order to conduct our business.The material risks and uncertainties that Management believes may affect our business are listed below and in ITEM 7A,Quantitative and Qualitative Disclosure about Market Risk.The
136、 list is not exhaustive;additional risks and uncertainties that Management is not aware of,or focused on,or currently deems immaterial may also impair business operations.If any of the following risks,or risks that have not been identified,actually occur,our financial condition,results of operations
137、,and stock trading price could be materially and adversely affected.We manage these risks by promoting sound corporate governance practices,which include but are not limited to,establishing policies and internal controls,and implementing internal review processes.Before making an investment decision
138、,investors should carefully consider the risks,together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K and our other filings with the SEC.This report is qualified in its entirety by these risk factors.Earnings are Significantly Influenced b
139、y General Business and Economic ConditionsOur success depends,to a certain extent,on local,national and global economic and political conditions.Unlike larger national or other regional banks that are more geographically diversified,we provide banking and financial services to customers primarily in
140、 the State of California with particular focus on the local markets in the San Francisco Bay Area.The local economic conditions in this area have a significant impact on the demand for our products and services as well as the ability of our customers to repay loans,the value of the collateral securi
141、ng loans and the stability of our deposits as our primary funding source.Economic pressure on consumers and uncertainty regarding the sustainability of economic improvements may result in changes in consumer and business spending,borrowing and saving habits,which may affect the demand for loans and
142、other products and services we offer.Further,loan defaults that adversely affect our earnings correlate highly with deteriorating economic conditions(such as the unemployment rate),which impact our borrowers creditworthiness.In addition,health epidemics or pandemics(or expectations about them)such a
143、s the novel coronavirus(aka COVID-19),international trade disputes,inflation risks,oil price volatility,the level of U.S.debt and global economic conditions could destabilize financial markets in which we operate.Lastly,actions of the Federal Open Market Committee(FOMC)of the Federal Reserve could c
144、ause financial market volatility,which will affect the pricing of our loan and deposit products.Interest Rate Risk is Inherent in Our BusinessOur earnings are largely dependent upon our net interest income,which is the difference between interest income earned on interest-earning assets,such as loan
145、s and securities,and interest expense paid on interest-bearing liabilities,such as deposits and borrowed funds.The banking industry is facing headwinds of interest margin compression coming into 2020 due to a flatter yield curve compared to previous years.Interest rates are sensitive to many factors
146、 outside of our control,including general economic conditions and the policies of various governmental and regulatory agencies and,in particular,the FOMC,which regulates the supply of money and credit in the United States.Changes in monetary policy,including changes in interest rates,can influence n
147、ot only the interest we receive on loans and securities and interest we pay on deposits and borrowings,but can also affect(i)our ability to originate loans and obtain deposits,(ii)the fair value of our financial assets and liabilities,and(iii)the duration of our securities and loan portfolios.Our po
148、rtfolio of loans and securities will generally decline in value if market interest rates increase,and increase in value if market interest rates decline.In addition,our loans and callable mortgage-backed securities are also subject to prepayment risk when interest rates fall,and the borrowers credit
149、 risk may increase in rising rate environments.Factors such as inflation,productivity,oil prices,unemployment rates,and global demand play a role in the FOMCs consideration of future rate adjustments.On March 3,2020,in light of the challenges brought by coronavirus and its potential to disrupt the U
150、.S.and worldwide economies,the FOMC reduced the federal funds target rate by 50 basis points to a range of 1.0%to 1.25%.In a press conference on March 3,2020,Chairman Powell stated that the FOMC took this action to help the U.S.economy keep strong in the face of new risks to the economic outlook.Our
151、 net interest income is vulnerable to a falling or flat rate environment and will benefit if the prevailing market interest rates increase in the long-term.See the sections captioned“Net Interest Income”in Managements Discussion and Analysis of Financial Condition and Results of Operations in ITEM 7
152、 and Quantitative and Qualitative Disclosures about Market Risk in ITEM 7A of this report for further discussion related to management of interest rate risk.Page-13Banks and Bank Holding Companies are Subject to Extensive Government Regulation and SupervisionBancorp and the Bank are subject to exten
153、sive 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,dividend policy,and compliance costs among other
154、 things.Compliance risk is the current and prospective risk to earnings or capital arising from violations of,or non-conformance with,laws,rules,regulations,prescribed practices,internal policies and procedures,or ethical standards set forth by regulators.Compliance risk also arises in situations wh
155、ere 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 fines,civil money penalties,payment of damages and the voiding of contracts.Compliance risk can lead to diminished reputation,reduced fr
156、anchise value,limited business opportunities,reduced expansion potential and an inability to enforce contracts.The Bank manages these risks through its extensive compliance plan,policies and procedures.For further information on supervision and regulation,see the section captioned“SUPERVISION AND RE
157、GULATION”in ITEM 1 of this report.Competition with Other Financial Institutions to Attract and Retain Banking CustomersWe are facing significant competition for customers from other banks and financial institutions located in the markets that we serve.We compete with commercial banks,savings institu
158、tions,credit unions,non-bank financial services companies,including financial technology firms,and other financial institutions operating within or near our service areas.Some of our non-bank competitors and peer-to-peer lenders may not be subject to the same extensive regulations as we are,giving t
159、hem greater flexibility in competing for business.We anticipate intense competition will continue for the coming year due to the consolidation of many financial institutions and more changes in legislation,regulation and technology.National and regional banks much larger than our size have entered o
160、ur market through acquisitions and they may be able to benefit from economies of scale through their wider branch networks,more prominent national advertising campaigns,lower cost of borrowing,capital market access and sophisticated technology infrastructures.Further,intense competition for creditwo
161、rthy borrowers could lead to pressure for loan rate concessions and affect our ability to generate profitable loans.Going forward,we may see continued competition in the industry as competitors seek to expand market share in our core markets.Further,our customers may withdraw deposits to pursue alte
162、rnative investment opportunities in the recent bullish equity market.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 virtual banks and non-bank service providers.Efforts and initiativ
163、es we may undertake to retain and increase deposits,including deposit pricing,can increase our costs.Based on our current strong liquidity position,our adjustment to deposit pricing has lagged the market in a rising interest rate environment.If our customers move money into higher yielding deposits
164、or alternative investments,we may lose a relatively inexpensive source of funds,thus increasing our funding costs through more expensive wholesale borrowings.Activities of Our Large Borrowers and Depositors May Cause Unexpected Volatilities in Our Loan and Deposit Balances,as well as Net Interest Ma
165、rginRising real estate values in the Bay Area market have motivated some of our borrowers to sell real estate that collateralized our loans,contributing to loan payoff activity.Payoffs of loans originated during a higher interest rate environment may be replaced by new loans with lower interest rate
166、s,causing downward pressure on our net interest margin.In addition,our top ten depositor relationships accounted for approximately 16%and 11%of our total deposit balances at December 31,2019 and 2018,respectively.The increase in 2019 primarily relates to funds deposited by a large existing deposit c
167、ustomer whose deposit volatility increases leading to and during an election year.In addition,the business models and cash cycles of some of our large commercial depositors may also cause short-term volatility in their deposit balances held with us.As our customers businesses grow,the dollar value o
168、f their daily activities may also grow leading to larger fluctuations in daily balances.Any long-term decline in deposit funding would adversely affect our liquidity.For additional information on our management of deposit volatility,refer to the Liquidity section of ITEM 7,Managements Discussion and
169、 Analysis,of this report.Page-14Negative Conditions Affecting Real Estate May Harm Our Business and Our Commercial Real Estate(CRE)Concentration May Heighten Such RiskConcentration of our lending activities in the California real estate sector could negatively affect our results of operations if adv
170、erse changes in our lending area occur.Although we do not offer traditional first mortgages,nor have sub-prime or Alt-A residential loans or significant amounts of securities backed by such loans in the portfolio,we are not immune to volatility in those markets.As of December 31,2019,approximately 8
171、8%of our loans were secured by real estate,of which 68%were secured by CRE and the remaining 22%by residential real estate.Real estate valuations are influenced by demand,and demand is driven by economic factors such as employment rates and interest rates.Loans secured by CRE include those secured b
172、y office buildings,owner-user office/warehouses,mixed-use residential/commercial properties and retail properties.There can be no assurance that the companies or properties securing our loans will generate sufficient cash flows to allow borrowers to make full and timely loan payments to us.In the ev
173、ent of default,the collateral value may not cover the outstanding amount due to us,especially during real estate market downturns.Rising CRE lending concentrations may expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the CRE market.Concentration
174、 risk exists when financial institutions deploy too many assets to any one industry or segment.Concentration stemming from commercial real estate is one area of regulatory concern.The CRE Concentration Guidance provides supervisory criteria,including the following numerical indicators,to assist bank
175、 examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny:(i)commercial real estate loans exceeding 300%of capital and increasing 50%or more in the preceding three years;or(ii)construction and land developmen
176、t loans exceeding 100%of capital.The CRE Concentration Guidance does not limit banks levels of commercial real estate lending activities,but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial re
177、al estate concentrations.As of December 31,2019 and 2018,using regulatory definitions in the CRE Concentration Guidance,our CRE loans represented 330%and 340%,respectively,of our total risk-based capital.We are actively working to manage our CRE concentration and we have discussed the CRE Concentrat
178、ion Guidance with the regulatory agencies and believe that our underwriting policies,management information systems,independent credit administration process,and monitoring of real estate loan concentrations are currently sufficient to address the CRE Concentration Guidance.Severe Weather,Natural Di
179、sasters or Other Climate Change Related Matters Could Significantly Affect Our BusinessOur primary market is located in both earthquake and wildfire-prone zones in Northern California,which is also subject to other weather or disasters,such as severe rainstorms,drought or flood.These events have int
180、errupted our business operations unexpectedly(e.g.,October 2019 PG&E power shutoffs in the North Bay).Climate-related physical changes and hazards could also pose credit risks for us.For example,our borrowers may have collateral properties or operations located in areas at risk of wildfires,or coast
181、al areas at risk to rising sea levels and erosion,or subject to the risk of drought in California.The properties pledged as collateral on our loan portfolio could also be damaged by tsunamis,landslides,floods,earthquakes or wildfires and thereby the recoverability of loans could be impaired.A number
182、 of factors can affect 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 conditions caused by the natural disaster adversely affect the ability of borrowers to repay their loans,and the cos
183、t 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 losses.The ultimate outcome on our business of a natural disaster,whether or not caused by climate change,is difficult
184、to predict.We are Subject to Significant Credit Risk and Loan Losses May Exceed Our Allowance for Loan Losses in the FutureThe operation of our business requires us to manage credit risk.As a lender,we are exposed to the risk that our borrowers will be unable to repay their loans according to their
185、terms,and that the collateral securing repayment of their loans,if any,may not be sufficient to ensure repayment.In addition,there are risks inherent in making any loan,including risks with respect to the period of time over which the loan may be repaid,risks relating to proper loan underwriting,ris
186、ks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers.In order to successfully manage credit risk,we must,among other things,maintain disciplined Page-15and prudent underwriting standards and ensure that our bankers follow those standar
187、ds.The weakening of these standards for any reason,such as an attempt to attract higher yielding loans,a lack of discipline or diligence by our employees in underwriting and monitoring loans,the inability of our employees to adequately adapt policies and procedures to changes in economic or any othe
188、r conditions affecting borrowers and the quality of our loan portfolio,may result in loan defaults,foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for loan losses,each of which could adversely affect our net income.As a result,any inability to
189、 successfully manage credit risk could have a material adverse effect on our business,financial condition or results of operations.We maintain an allowance for loan losses that represents Managements best estimate of probable losses that may be incurred within the existing portfolio of loans(under t
190、he incurred loss model).The level of the allowance reflects Managements continuing evaluation of specific credit risks,loan loss experience,current loan portfolio quality and present economic,political and regulatory conditions.The determination of the appropriate level of the allowance for loan los
191、ses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and trends,all of which may undergo material changes.Inaccurate assumptions in appraisals or an inappropriate choice of the valuation techniques may lead to an inadequate level
192、 of specific reserve or charge-offs.If charge-offs in future periods exceed the allowance for loan losses or cash flows from acquired loans do not perform as expected,we may need to increase our allowance for loan losses.The adoption of ASU No.2016-13,Financial Instruments-Credit Losses(Topic 326):M
193、easurement of Credit Losses on Financial Instruments as of January 1,2020 will impact how we measure the allowance for credit losses as the methodology is based on a current expected credit loss(CECL)model,rather than incurred losses,and requires the recognition of credit loss expense in the consoli
194、dated statements of income and a related allowance for credit losses at the time of origination or purchase of a loan receivable or held-to-maturity debt security.In addition,the CECL model requires the use of not only relevant historical experience and current conditions,but reasonable and supporta
195、ble forecasts of future events and circumstances(e.g.,economic forecasts)incorporating a broad range of information in developing credit loss estimates,which could result in significant changes to both the timing and amount of credit loss expense and allowance.Refer to Note 1 to the Consolidated Fin
196、ancial Statements in ITEM 8 for further information.Securities May Lose Value due to Credit Quality of the IssuersWe invest in significant portions of investment securities issued by government-sponsored enterprises(GSE),such as Federal Home Loan Bank(FHLB),Federal National Mortgage Association(“FNM
197、A”),Federal Home Loan Mortgage Corporation(FHLMC),and Federal Farm Credit Banks Funding Corporation.We also hold mortgage-backed securities(“MBS”)issued by FNMA and FHLMC,both of which have been under U.S.Government conservatorship since 2008.While we consider FNMA and FHLMC securities to have low c
198、redit risk as they carry the explicit backing of the U.S.Government due to the conservatorship,they are not direct obligations of the U.S.Government and the fair value of our securities issued or guaranteed by these two GSE entities may be negatively impacted if the U.S.government ceases to provide
199、them credit support.GSE debt is sponsored but not guaranteed by the federal government and carries implicit backing,whereas government agencies such as Government National Mortgage Association(GNMA)are divisions of the government whose securities are backed by the full faith and credit of the U.S.Go
200、vernment.Although Congress has taken steps to improve regulation and consumer protection related to the housing finance system(e.g.,Dodd-Frank Act),FNMA and FHLMC have entered their twelfth year of U.S.Government conservatorship via the Federal Housing Finance Agency(the FHFA).In September 2019,the
201、U.S.Department of the Treasury issued a Housing Finance Reform Plan that,among other things,directed the Secretary of the Treasury to develop a Roadmap to begin the process of responsibly ending the GSEs conservatorships.In February 2020,the FHFA hired a financial advisor to assist with the developm
202、ent and implementation of the Roadmap,which will include business and capital structures,as well as market impacts,and timing and available capital raising alternatives.While proposals to end the conservatorship may include an initial public offering,at the date of this report,its future and ultimat
203、e impact on the financial markets and our investments in GSEs are uncertain.While we generally seek to minimize our exposure by diversifying the geographic location of our portfolio,investing in investment grade securities and actively monitoring the credit worthiness of the issuers and/or credit gu
204、arantee providers,there is no guarantee that the issuers will remain financially sound or continue their payments on these debentures.Page-16Unexpected Early Termination of Interest Rate Swap Agreements May Affect EarningsWe have entered into interest-rate swap agreements,primarily as an asset/liabi
205、lity risk management tool,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 to offer long-term,fixed-rate loans to customers without assumi
206、ng 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-rate swap agreements early,resulting in prepayment penalties c
207、harged by our counterparties and negatively affect our earnings.Growth Strategy or Potential Future Acquisitions May Produce Unfavorable OutcomesWe seek to expand our franchise safely and consistently.A successful growth strategy requires us to manage multiple aspects of the business simultaneously,
208、such as following adequate loan underwriting standards,balancing loan and deposit growth without increasing interest rate risk or compressing our net interest margin,maintaining sufficient capital,and recruiting,training and retaining qualified professionals.Our strategic plan also includes merger a
209、nd acquisition possibilities that either enhance our market presence or have potential for improved profitability through financial management,economies of scale or expanded services,such as the Bank of Napa acquisition in 2017.We may incur significant acquisition related expenses either during the
210、due diligence phase of acquisition targets or during integration of the acquirees.These expenses have and may continue to negatively impact our earnings prior to realizing the benefits of acquisitions.We may also be exposed to difficulties in combining the operations of acquired institutions into ou
211、r own operations,which may prevent us from achieving the expected benefits from our acquisition activities.Our earnings,financial condition and prospects after the merger may affect our stock price and will depend in part on our ability to integrate the operations and management of the acquired inst
212、itution while continuing to implement other aspects of our business plan.Inherent uncertainties exist in integrating the operations of an acquired institution and there is no assurance that we will be able to do so successfully.Among the issues that we could face are:unexpected problems with operati
213、ons,personnel,technology or credit;loss of customers and employees of the acquiree;difficulty in working with the acquirees employees and customers;the assimilation of the acquirees operations,culture and personnel;instituting and maintaining uniform standards,controls,procedures and policies;and li
214、tigation risk not discovered during the due diligence period.Undiscovered factors as a result of an acquisition could bring liabilities against us,our management and the management of the institutions we acquire.These factors could contribute to our not achieving the expected benefits from our acqui
215、sitions within desired time frames,if at all.Further,although we generally anticipate cost savings from acquisitions,we may not be able to fully realize those savings.Any cost savings may be offset by losses in revenues or other charges to earnings.We May Not Be Able to Attract and Retain Key Employ
216、eesOur success depends in large part on our ability to attract qualified personnel and to retain key people,as well as the prompt replacement of retiring executives.Competition for the best people in most activities engaged by us has been intense,especially in light of the recent improvement in the
217、job market,and we may not be able to hire skilled people or retain them.The loss of key personnel could have an unfavorable effect on our business because of the need for prompt replacement of skills and knowledge of our market and years of industry experience.Accounting Estimates and Risk Managemen
218、t Processes Rely on Analytical and Forecasting ModelsThe processes we use to estimate probable loan losses and to measure the fair value of financial instruments,as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and
219、results of operations,depends upon the use of analytical and forecasting models.These models reflect assumptions that may not be accurate,particularly in times of market stress or other unforeseen circumstances.Even if these assumptions are adequate,the models may prove to be inadequate or inaccurat
220、e because of other flaws in Page-17their design or their implementation.If the models we use for interest rate risk and asset-liability management are inadequate,we may incur increased or unexpected losses upon changes in market interest rates or other market measures.If the models we use for determ
221、ining our probable loan losses are inadequate,the allowance for loan losses may not be sufficient to support future charge-offs.If the models we use to measure the fair value of financial instruments are inadequate,the fair value of such financial instruments may fluctuate unexpectedly or may not ac
222、curately reflect what we could realize upon sale or settlement of such financial instruments.Any such failure in our analytical or forecasting models could have a material adverse effect on our business,financial condition and results of operations.The Value of Goodwill and Other Intangible Assets M
223、ay Decline in the FutureAs of December 31,2019,we had goodwill totaling$30.1 million and a core deposit intangible asset totaling$4.7 million from business acquisitions.A significant decline in expected future cash flows,a significant adverse change in the business climate,slower growth rates or a s
224、ignificant and sustained decline in the price of our common stock could necessitate taking charges in the future related to the impairment of goodwill or other intangible assets.If we were to conclude that a future write-down of goodwill or other intangible assets is necessary,we would record the ap
225、propriate charge,which could have a material adverse effect on our business,financial condition and results of operations.We May Take Filing Positions or Follow Tax Strategies That May Be Subject to ChallengeWe provide for current and deferred tax provision in our consolidated financial statements b
226、ased on our results of operations,business activities and business combinations,legal structure and federal and state legislation and regulations.We may take filing positions or follow tax strategies that are subject to interpretation of tax statutes.Our net income may be reduced if a federal,state
227、or local authority were to assess charges for taxes that have not been provided for in our consolidated financial statements.Taxing authorities could change applicable tax laws and interpretations,challenge filing positions or assess new taxes and interest charges.If taxing authorities take any of t
228、hese actions,our business,results of operations or financial condition could be significantly affected.The Financial Services Industry is Undergoing Rapid Technological Changes and,As a Result,We Have a Continuing Need to Stay Current with Those Changes to Compete Effectively and Increase Our Effici
229、encies.We May Not Have the Resources to Implement New Technology to Stay Current with These ChangesThe financial services industry is undergoing technological changes with frequent introductions of new technology-driven products and services.In addition to providing better client service,the effecti
230、ve use of technology increases efficiency and reduces operational costs.Our future success will depend in part upon our ability to use technology to provide products and services that will satisfy client demands securely and cost-effectively.In connection with implementing new technology enhancement
231、s and/or products,we may experience operational challenges(e.g.human error,system error,incompatibility)which could result in us not fully realizing the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner.Risks Assoc
232、iated with Cybersecurity Could Negatively Affect Our Earnings and ReputationOur business requires the secure management of sensitive client and bank information.We work diligently to implement security measures that intend to make our communications and information systems safe to conduct business.C
233、yber threats such as social engineering,ransomware,and phishing emails are more prevalent now than ever before.These incidents include intentional and unintentional events that may present threats designed to disrupt operations,corrupt data,release sensitive information or cause denial-of-service at
234、tacks.A cybersecurity breach of systems operated by the Bank,merchants,vendors,customers,or externally publicized breaches of other financial institutions may significantly harm our reputation,result in a loss of customer business,subject us to regulatory scrutiny,or expose us to civil litigation an
235、d financial liability.While 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 proprietar
236、y client information.If a material security breach were to occur,the Bank has policies and procedures in place to ensure timely disclosure.We Rely on Third-Party Vendors for Important Aspects of Our OperationWe depend on the accuracy and completeness of information and systems provided by certain ke
237、y vendors,including but not limited to data processing,payroll processing,technology support,investment safekeeping and accounting.Page-18For example,we outsource core processing to Fidelity Information Services(FIS)and wire processing to Finastra,which are leading financial services solution provid
238、ers that allow us access to competitive technology offerings without having to invest in their development.Our ability to operate,as well as our financial condition and results of operations,could be negatively affected in the event of an interruption of an information system,an undetected error,a c
239、yber-breach,or in the event of a natural disaster whereby certain vendors are unable to maintain business continuity.Bancorp Relies on Dividends from the Bank to Pay Cash Dividends to ShareholdersBancorp is a separate legal entity from its subsidiary,the Bank.Bancorp receives substantially all of it
240、s cash stream from the Bank in the form of dividends,which is Bancorps principal source of funds to pay cash dividends to Bancorps common shareholders,service subordinated debt,and cover operational expenses of the holding company.Various federal and state laws and regulations limit the amount of di
241、vidends 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 pay dividends to its shareholders or pay interest on the subordinated debentures.As a result,it could have an adverse effect on Bancorps stock price and investment val
242、ue.Federal law would prohibit capital distributions from the Bank,with limited exceptions,if the Bank were categorized as undercapitalized under applicable Federal Reserve or FDIC regulations.In addition,as a California bank,Bank of Marin is subject to state law restrictions on the payment of divide
243、nds.For further information on the distribution limit from the Bank to Bancorp,see the section captioned“Bank Regulation”in ITEM 1 above and“Dividends”in Note 8 to the Consolidated Financial Statements in ITEM 8 of this report.The Trading Volume of Bancorps Common Stock is Less than That of Other,La
244、rger Financial Services CompaniesOur common stock is listed on the Nasdaq Capital Market exchange.Our trading volume is less than that of nationwide or larger regional financial institutions.A public trading market having the desired characteristics of depth,liquidity and orderliness depends on the
245、presence of willing buyers and sellers of common stock at any given time.This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.Given the low trading volume of our common stock,significant trades of our stock in a given
246、 time,or the expectations of these trades,could cause volatility in the stock price.The Small to Medium-sized Businesses that we Lend to may have Fewer Resources to Weather Adverse Business Developments,which may Impair a Borrowers Ability to Repay a Loan,and such Impairment could Adversely Affect o
247、ur Results of Operations and Financial ConditionWe focus our business development and marketing strategy primarily on small to medium-sized businesses.Small to medium-sized businesses frequently have smaller market shares than their competition,may be more vulnerable to economic downturns,often need
248、 substantial additional capital to expand or compete and may experience substantial volatility in operating results,any of which may impair a borrowers ability to repay a loan.In addition,the success of a small and medium-sized business often depends on the management talents and efforts of one or t
249、wo people or a small group of people,and the death,disability or resignation of one or more of these people could adversely affect the business and its ability to repay its loan.If general economic conditions negatively affect the California markets in which we operate and small to medium-sized busi
250、nesses are adversely affected or our borrowers are otherwise affected by adverse business developments,our business,financial condition and results of operations may be negatively affected.A Lack of Liquidity could Adversely Affect our Operations and Jeopardize our Business,Financial Condition and R
251、esults of OperationsLiquidity is essential to our business.We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities,respectively,to ensure that we have adequate liquidity to fund our operations.An inability to rais
252、e funds through deposits,borrowings,securities sales,Federal Home Loan Bank advances,the sale of loans and other sources could have a substantial negative effect on our liquidity.Our most important source of funds consists of deposits.Deposit balances can decrease when customers perceive alternative
253、 investments as providing a better risk/return trade-off.If customers move money out of bank deposits and into other Page-19investments,then we would lose a relatively low-cost source of funds,increasing our funding costs and reducing our net interest income and net income.Other primary sources of f
254、unds consist of cash flows from operations,investment maturities and sales,loan repayments,and proceeds from the issuance and sale of any equity and debt securities to investors.Additional liquidity is provided by the ability to borrow from the Federal Reserve Bank of San Francisco and the Federal H
255、ome Loan Bank and our ability to raise brokered deposits.We also may borrow funds from third-party lenders,such as other financial institutions.Our access to funding sources in amounts adequate to finance or capitalize our activities,or on terms that are acceptable to us,could be impaired by factors
256、 that affect us directly or the bank or non-bank financial services industries or the economy in general,such as disruptions in the financial markets or negative views and expectations about the prospects for the bank or non-bank financial services industries.For example,in September 2019,in respons
257、e to a shortage in liquidity and spikes in the overnight bank funding rate,the New York Federal Reserve began injecting liquidity into the market in the form of overnight market repurchase agreements(repos)designed to smooth money markets and bring interest rates in line with the central banks inten
258、ded range to sustain economic expansion.The availability of liquidity during financial market disruptions such as the repo rate spike is uncertain and the continued liquidity support by the central bank is not guaranteed.Based on experience,we believe that our deposit accounts are relatively stable
259、sources of funds.If we increase interest rates paid to retain deposits,our earnings may be adversely affected,which could have an adverse effect on our business,financial condition and results of operations.Any decline in available funding could adversely affect our ability to originate loans,invest
260、 in securities,meet our expenses,and pay dividends to our shareholders or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands,any of which could have a material adverse impact on our liquidity,business,financial condition and results of operations.Changes to,or
261、Elimination of,London Interbank Offered Rate(“LIBOR”)Could Adversely Affect our Financial Instruments with Interest Rates Currently Indexed to LIBORIn 2017,the Financial Conduct Authority of the United Kingdom(the“FCA”)announced its intention to cease sustaining LIBOR after 2021.While the FCA came t
262、o an agreement with panel banks to continue receiving submissions to LIBOR until the end of 2021,it is not possible to predict whether and how credible LIBOR will be as an acceptable market benchmark.The FCA is encouraging due diligence and implementation of alternative rates prior to the phase out
263、of LIBOR.While there is no consensus on what rate or rates may become accepted alternatives to LIBOR,the Alternative Reference Rates Committee(“ARRC”),a steering committee comprised of U.S.financial market participants selected by the Federal Reserve Bank of New York,published recommended fall-back
264、language for LIBOR-linked financial instruments and identified recommended alternatives for certain LIBOR rates(e.g.,Secured Overnight Financing Rate(“SOFR”),a broad measure of the cost of overnight borrowings collateralized by Treasury securities,for U.S.Dollar LIBOR).At this time,we cannot predict
265、 whether ARRCs specific recommendations or proposals will be widely accepted and what effect their implementation will have on floating rate financial instrument markets.Banks like us may need to amend contracts to reference SOFR and identify an acceptable spread to LIBOR or amend the definition of
266、LIBOR through a specific grandfathering protocol.As of December 31,2019,we had loans totaling approximately$1 million and investment securities totaling approximately$27 million indexed to LIBOR that mature after December 31,2021.In addition,our interest rate swap agreements and subordinated debentu
267、res are indexed to LIBOR,all of which mature after December 31,2021.Refer to Note 7 and 14 to the Consolidated Financial Statements in ITEM 8 of this report for more information on our swap agreements and subordinated debentures.The transition from LIBOR could result in additional costs,as well as e
268、conomic and reputation risk.At this time,we cannot predict any favorable or unfavorable effects the chosen alternative index may have on financial instruments currently indexed to LIBOR.ITEM 1B UNRESOLVED STAFF COMMENTSNone Page-20ITEM 2 PROPERTIESWe lease our corporate headquarters building in Nova
269、to,California,which houses loan production,operations,Wealth Management&Trust and administration.We lease branch and office facilities within our primary market areas in the cities of Corte Madera,San Rafael,Novato,Sausalito,Mill Valley,Tiburon,Greenbrae,Petaluma,Santa Rosa,Healdsburg,Sonoma,Napa,Sa
270、n Francisco,Alameda,Oakland,and Walnut Creek.For additional information on properties,see Notes 4 and 12 to the Consolidated Financial Statements included in ITEM 8 of this report.ITEM 3 LEGAL PROCEEDINGS Bancorp may be party to legal actions that arise from time to time as part of the normal course
271、 of business.Bancorps Management is not aware of any pending legal proceedings to which either it or the Bank may be a party or has recently been a party that will have a material adverse effect on the financial condition or results of operations of Bancorp or the Bank.The Bank is responsible for it
272、s proportionate share 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.Because Visa funded a litigation escrow account to insulate member banks from financial liability,we do not expect to
273、 make any cash settlement payments as a result of Visas litigation.For further details,see Note 12 to the Consolidated Financial Statements in ITEM 8 of this report.ITEM 4 MINE SAFETY DISCLOSURES Not applicable.Page-21PART II ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY,RELATED STOCKHOLDER MATTERS AN
274、D ISSUER PURCHASES OF EQUITY SECURITIESMarket Information and HoldersBancorp common stock trades on the Nasdaq Capital Market under the symbol BMRC.On October 22,2018,Bancorp announced a two-for-one stock split,which occurred on November 27,2018.All share and per share data have been adjusted to ref
275、lect the stock split effective November 27,2018.At February 29,2020,13,596,535 shares of Bancorps common stock,no par value,were outstanding and held by approximately 2,832 holders of record and beneficial owners.Five-Year Stock Price Performance GraphThe following graph,compiled by S&P Global Marke
276、t Intelligence of New York,New York,shows a comparison of cumulative total shareholder return on our common stock during the five fiscal years ended December 31,2019compared to the Russell 2000 Stock index and the SNL Bank$1B-$5B Index.The comparison assumes the investment of$100 in our common stock
277、 on December 31,2014 and the reinvestment of all dividends.The graph represents past performance and does not indicate future performance.In addition,total return performance results vary depending on the length of the performance period.201420152016201720182019Bank of Marin Bancorp(BMRC)100.00103.3
278、7137.81136.63168.40187.45Russell 2000 Index100.0095.59115.95132.94118.30148.49SNL Bank$1B-$5B Index 1100.00111.94161.04171.69150.42182.85Source:S&P Global Market Intelligence1 Includes all major exchange(NYSE,NYSE MKT,and Nasdaq)banks in S&P Globals coverage universe with$1 billion to$5 billion in a
279、ssets as of the most recent available financial data.Page-22Shareholder Rights AgreementOn July 6,2017,Bancorp executed a shareholder rights agreement(“Rights Agreement”),which is designed to discourage takeovers that involve abusive tactics or do not provide fair value to shareholders.For further i
280、nformation,see Note 8 to the Consolidated Financial Statements,under the heading“Preferred Stock and Shareholder Rights Plan”in ITEM 8 of this report.Securities Authorized for Issuance under Equity Compensation PlansThe following table summarizes information as of December 31,2019,with respect to eq
281、uity compensation plans.All plans have been approved by the shareholders.Shares to be issued upon exercise of outstanding options1Weighted averageexercise price ofoutstandingoptionsShares remaining available for future issuance 2Equity compensation plans approved by shareholders417,382$28.011,197,89
282、31 Represents shares of common stock issuable upon exercise of outstanding options under the Bank of Marin Bancorp 2017 Equity Plan and 2007 Equity Plan.2 Represents remaining shares of common stock available for future grants under the 2017 Equity Plan and the 2010 Director Stock Plan,excluding 417
283、,382 shares to be issued upon exercise of outstanding options and 382,515 shares available to be issued under the Employee Stock Purchase Plan.Purchases of Equity Securities by the Issuer and Affiliated PurchasersOn April 23,2018,Bancorp announced that its Board of Directors approved a Share Repurch
284、ase Program under which Bancorp may repurchase up to$25.0 million of its outstanding common stock through May 1,2019.Bancorps Board of Directors subsequently extended the Share Repurchase Program,which expired on February 28,2020 with approximately$1.5 million not utilized for repurchases.On January
285、 24,2020,Bancorp Board of Directors approved a new Share Repurchase Program under which Bancorp may repurchase up to$25.0 million of its outstanding common stock through February 28,2022.During 2019 and 2018,Bancorp repurchased 356,000 and 171,217 shares totaling$15.0 million and$7.0 million,respect
286、ively,for a cumulative 527,217 shares totaling$22.0 million repurchased from May 1,2018 through December 31,2019.The following table reflects purchases under the Share Repurchase Program for the periods presented.For further information,see Note 8 to the Consolidated Financial Statements,under the h
287、eading“Share Repurchase Program”in ITEM 8 of this report.(in thousands,except per share data)Total Number ofShares PurchasedAverage PricePaid per ShareTotal Number ofShares Purchasedas Part of PubliclyAnnouncedProgramsApproximateDollar Value ThatMay yet BePurchased Underthe ProgramPeriodJanuary 1-31
288、,201933,834$42.1133,834$16,562February 1-28,201930,82342.9430,82315,236March 1-31,201949,24741.5449,24713,188April 1-30,201937,85842.2337,85811,588May 1-31,201950,30841.7250,3089,486June 1-30,201946,45441.7546,4547,544July 1-31,201919,07042.6219,0706,730August 1-31,201926,01941.2126,0195,657Septembe
289、r 1-30,201920,03841.7620,0384,819October 1-30,201919,28341.8819,2834,010November 1-30,201911,94544.9811,9453,472December 1-31,201911,12145.3311,1212,967Total356,000$42.14356,000Page-23ITEM 6 SELECTED FINANCIAL DATAThe following data has been derived from the audited consolidated financial statements
290、 of Bank of Marin Bancorp.For additional information,refer to ITEM 7,Managements Discussion and Analysis of Financial Condition and Results of Operations,and ITEM 8,Financial Statements and Supplementary Data.At December 31,(in thousands)20192018201720162015Selected financial condition data:Total as
291、sets$2,707,280$2,520,892$2,468,154$2,023,493$2,031,134Loans,net1,826,6091,748,0431,663,2461,471,1741,436,299Deposits2,336,4892,174,8402,148,6701,772,7001,728,226Borrowings and other obligations2,9209,6405,7395,58672,395Stockholders equity336,788316,407297,025230,563214,473For the Years Ended Decembe
292、r 31,(dollars in thousands,except per share data)20192018201720162015Selected operating data:Net interest income$95,680$91,544$74,852$73,161$67,187Provision for(reversal of)loan losses900500(1,850)500Non-interest income9,08410,1398,2689,1619,193Non-interest expense 157,97058,26653,78247,69246,949Net
293、 income 134,24132,62215,97623,13418,441Net income per common share:6Basic$2.51$2.35$1.29$1.90$1.55Diluted$2.48$2.33$1.27$1.89$1.52At or for the Years Ended December 31,20192018201720162015Performance and other financial ratios:Return on average assets1.34%1.31%0.75%1.15%0.98%Return on average equity
294、10.49%10.73%6.49%10.23%8.84%Tax-equivalent net interest margin 23.98%3.90%3.80%3.91%3.83%Cost of deposits0.20%0.10%0.07%0.08%0.09%Efficiency ratio55.33%57.30%64.70%57.93%61.47%Loan-to-deposit ratio78.89%81.10%78.14%83.86%83.97%Cash dividend payout ratio on common stock 331.87%27.23%43.41%26.84%29.03
295、%Cash dividends per common share 6$0.80$0.64$0.56$0.51$0.45Asset quality ratios:Allowance for loan losses to total loans0.90%0.90%0.94%1.04%1.03%Allowance for loan losses to non-performing loans 473.86x22.71x38.88x106.5x6.88xNon-performing loans to total loans 40.01%0.04%0.02%0.01%0.15%Capital ratio
296、s:Equity to total assets ratio12.44%12.55%12.03%11.39%10.60%Tangible common equity to tangible assets 5Total capital(to risk-weighted assets)15.07%14.93%14.91%14.32%13.37%Tier 1 capital(to risk-weighted assets)14.24%14.10%14.04%13.37%12.44%Tier 1 capital(to average assets)11.66%11.54%12.13%11.39%10.
297、67%Common equity Tier 1 capital(to risk-weighted assets)14.11%13.98%13.75%13.07%12.16%Other data:Number of full service offices2223232020Full time equivalent employees2902902912622591 2018 and 2017 included$962 thousand and$2.2 million,respectively,in merger-related expenses.2 Tax-equivalent net int
298、erest margin is computed by dividing taxable equivalent net interest income,which is adjusted for taxable equivalent income on tax-exempt loans and securities based on federal statutory rate of 21%in 2019 and 2018 and 35%in years prior to 2018,by total average interest-earning assets.3 Calculated as
299、 dividends on common shares divided by basic net income per common share.4 Non-performing loans include loans on non-accrual status and loans past due 90 days or more and still accruing interest.5 Tangible common equity to tangible assets is considered to be a meaningful non-GAAP financial measure o
300、f capital adequacy and is useful for investors to assess Bancorps ability to absorb potential losses.Tangible common equity of$302 million,$281 million,$260 million,$222 million,and$205 million at December 31,2019,2018,2017,2016,and 2015,respectively,includes common stock,retained earnings and unrea
301、lized gains(losses)on available-for sale securities,net of tax,less goodwill and intangible assets of$35 million,$36 million,$37 million,$9 million,and$10 million at December 31,2019,2018,2017,2016,and 2015,respectively.6 Share and per share data have been adjusted to reflect the two-for-one stock s
302、plit effective November 27,2018.Page-24ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of financial condition as of December 31,2019 and 2018 and results of operations for each of the years in the two-year period ended December 31,
303、2019 should be read in conjunction with our consolidated financial statements and related notes thereto,included in Part II ITEM 8 of this report.Average balances,including balances used in calculating certain financial ratios,are generally comprised of average daily balances.All share and per share
304、 data have been adjusted to reflect the stock split effective November 27,2018.Forward-Looking Statements The disclosures set forth in this item are qualified by important factors detailed in Part I captioned Forward-Looking Statements and ITEM 1A captioned Risk Factors of this report and other caut
305、ionary statements set forth elsewhere in the report.Critical Accounting Policies and EstimatesCritical accounting policies are those that are both very important to the portrayal of our financial condition and results of operations and require Managements most difficult,subjective,or complex judgmen
306、ts,often because of the need to make estimates about the effect of matters that are inherently uncertain and imprecise.Management has determined the following four accounting policies to be critical:Allowance for Loan Losses:For information regarding our ALLL methodology,the related provision for lo
307、an losses,risks related to asset quality and lending activity,including the transition from the incurred loss model to the current expected loss model under ASU No.2016-13,Financial Instruments-Credit Losses(Topic 326):Measurement of Credit Losses on Financial Instruments,effective January 1,2020,se
308、e ITEM 1A-Risk Factors,the Allowance for Loan Losses section in ITEM 7-Managements Discussion and Analysis of Financial Condition and Results of Operations,and Note 1-Summary of Significant Accounting Policies and Note 3-Loans and Allowance for Loan Losses in ITEM 8-Financial Statements and Suppleme
309、ntary Data of this Form 10 K.Other-than-temporary Impairment of Investment Securities:For information regarding our investment securities,investment activity,and related risks,see ITEM 1A-Risk Factors,Note 1-Summary of Significant Accounting Policies and Note 2-Investment Securities in ITEM 8-Financ
310、ial Statements and Supplementary Data of this Form 10-K.Accounting for Income Taxes:For information on our tax assets and liabilities,and related provision for income taxes,see Note 1-Summary of Significant Accounting Policies and Note 11-Income Taxes in ITEM 8-Financial Statements and Supplementary
311、 Data of this Form 10-K.Fair Value Measurements:For information on our use of fair value measurements and our related valuation methodologies,see Note 1-Summary of Significant Accounting Policies and Note 9-Fair Value of Assets and Liabilities in ITEM 8-Financial Statements and Supplementary Data of
312、 this Form 10-K.Page-25Executive Summary Annual earnings were$34.2 million in 2019 compared to$32.6 million in 2018.Diluted earnings were$2.48 per share for the year ended December 31,2019,compared to$2.33 per share in the same period of 2018.The following are highlights of operating and financial p
313、erformance for the year ended December 31,2019:The Bank achieved total loan growth of$79.4 million,or 4.5%in 2019,to$1,843.3 million at December 31,2019,from$1,763.9 million at December 31,2018.Strong credit quality remains a cornerstone of the Banks consistent performance.Non-accrual loans represen
314、ted 0.01%of the Banks loan portfolio as of December 31,2019.There was a$900 thousand provision for loan losses recorded in 2019,reflecting loan growth.Deposits grew$161.7 million,or 7.4%,to$2,336.5 million at December 31,2019,compared to$2,174.8 millionat December 31,2018.Non-interest bearing deposi
315、ts grew by$62.8 million in 2019 and made up 48.3%of total deposits at year-end.For the full year of 2019,cost of total deposits remained low at 0.20%,compared to 0.10%in 2018.Net interest income totaled$95.7 million and$91.5 million in 2019 and 2018,respectively.The increase of$4.2 million in 2019 w
316、as primarily due to higher average loan balances and asset yields and the early redemption of a high-rate subordinated debenture in the fourth quarter of 2018.Positive variances were partially offset by higher balances and rates on money market accounts.The tax-equivalent net interest margin increas
317、ed to 3.98%in 2019,compared to 3.90%in 2018 for the same reasons.The efficiency ratio was 55.3%in 2019,down from 57.3%in 2018.Notably,2019 non-interest expenses decreased from the prior year due to higher consulting expenses in 2018 for core processing contract renegotiations and lower FDIC Deposit
318、Insurance Fund expenses in 2019 as discussed in Table 4 below.For the year ended December 31,2019,return on assets and return on equity were 1.34%and 10.49%,respectively,compared to 1.31%and 10.73%in the prior year.All capital ratios exceed regulatory requirements.The total risk-based capital ratio
319、for Bancorp was 15.1%at December 31,2019 up from 14.9%at December 31,2018.The Board of Directors declared a cash dividend of$0.23 per share on January 24,2019,a$0.02 increase from the prior quarter.This was the 59th consecutive quarterly dividend paid by Bank of Marin Bancorp.The cash dividend was p
320、aid on February 14,2020 to shareholders of record at the close of business on February 7,2020.Looking forward into the new year,with a low cost and stable deposit base,opportunities for loan growth,and our unwavering commitment to relationship banking,we believe we are well-positioned to carry our s
321、uccessful performance into 2020.We have ample liquidity and capital to support organic growth and acquisitions in coming years.Acquisitions remain a component of our strategic plan and we will continue to evaluate merger and acquisition opportunities that fit with our culture and add value for our s
322、hareholders.Our disciplined credit culture and relationship-focused banking continue to be critical components of our success.Page-26RESULTS OF OPERATIONSNet Interest Income Net interest income is the difference between the interest earned on loans,investments and other interest-earning assets and t
323、he interest expense incurred on deposits and other interest-bearing liabilities.Net interest income is affected by changes in general market interest rates and by changes in the amounts and composition of interest-earning assets and interest-bearing liabilities.Interest rate changes can create fluct
324、uations in net interest income and/or margin due to an imbalance in the timing of repricing or maturity of assets or liabilities.We manage interest rate risk exposure with the goal of minimizing the effect of interest rate volatility on net interest income.Net interest margin is expressed as net int
325、erest income divided by average interest-earning assets.Net interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate incurred on total interest-bearing liabilities.Both of these measures are reported on a taxable-equivalent basis.Ne
326、t interest margin is the higher of the two because it reflects interest income earned on assets funded with non-interest-bearing sources of funds,which include demand deposits and stockholders equity.The following table compares interest income,average interest-earning assets,interest expense,and av
327、erage interest-bearing liabilities for the periods presented.The table also presents net interest income,net interest margin and net interest rate spread for the years indicated.Table 1 Average Statements of Condition and Analysis of Net Interest IncomeYear endedYear endedDecember 31,2019December 31
328、,2018InterestInterestAverageIncome/Yield/AverageIncome/Yield/(dollars in thousands;unaudited)BalanceExpenseRateBalanceExpenseRateAssetsInterest-bearing due from banks 1$67,192$1,3211.94%$78,185$1,4611.84%Investment securities 2,3555,61815,1022.72%566,88314,5122.56%Loans 1,3,41,775,19385,0624.73%1,70
329、4,39080,4064.65%Total interest-earning assets 12,398,003101,4854.17%2,349,45896,3794.05%Cash and non-interest-bearing due from banks35,95641,595Bank premises and equipment,net6,9118,021Interest receivable and other assets,net109,83786,709Total assets$2,550,707$2,485,783Liabilities and Stockholders E
330、quityInterest-bearing transaction accounts$133,922$3470.26%$143,706$2260.16%Savings accounts172,273700.04%178,907720.04%Money market accounts680,2963,4390.51%612,3721,3550.22%Time accounts,including CDARS106,7835950.56%137,3395420.39%Borrowings and other obligations 12,935772.57%10522.03%Subordinate
331、d debentures 12,6732298.44%5,0251,33926.29%Total interest-bearing liabilities1,098,8824,7570.43%1,077,4543,5360.33%Demand accounts1,094,8061,085,870Interest payable and other liabilities30,57818,514Stockholders equity326,441303,945Total liabilities&stockholders equity$2,550,707$2,485,783Tax-equivale
332、nt net interest income/margin 1$96,7283.98%$92,8433.90%Reported net interest income/margin 1$95,6803.94%$91,5443.84%Tax-equivalent net interest rate spread3.74%3.72%1 Interest income/expense is divided by actual number of days in the period times 360 days to correspond to stated interest rate terms,
333、where applicable.2 Yields on available-for-sale securities are calculated based on amortized cost balances rather than fair value,as changes in fair value are reflected as a component of stockholders equity.Investment security interest is earned on 30/360 day basis monthly.3 Yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the federal
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