Good morning. And thank you for joining us for Bank of Marin Bancorp's Earnings Call for the Third Quarter ended September 30, 2017. I'm Jarrod Gerhardt, Senior Vice President, Director of Marketing for Bank of Marin. During the presentation, all participants will be in listen-only mode. After the call, we will conduct a question-and-answer session. [Operator Instruction] As a reminder, this conference is being recorded on October 23, 2017. Joining us on the call today are Russ Colombo, President and CEO, and Tani Girton, Chief Financial Officer. Our earnings press release which was issued this morning can be found on our website at bankofmarin.com, where this call is also being webcast. Before we start, I want to emphasize that the discussion on this call is based on information we know as of today, October 23, 2017, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings press release as well as our SEC filing. Following the prepared remarks, our team will be available for questions. And now, I'd like to turn the call over to Russ Colombo.

Thank you, Jarrod. Good morning and welcome to the call. Before we review our results for the quarter, I want to take a moment to acknowledge the terrible disaster that has hit our North Bay community, the recent fires in Sonoma, Napa, Lake in Sonoma County. The situation was very fluid one for more than a week and our chief concern was the safety and well-being of everyone affected. We're extremely grateful that all Bank of Marin and Bank of Napa employees are accounted for and safe and our hearts go out to those in the community who were not as fortunate. We are surveying our customer base to determine the impact to their businesses and homes. Bank of Napa is doing the same. The losses are enormous and while the damage continues to be assessed, we are committed to helping our customers in our communities recover and rebuild. Now let's discuss our results for the third quarter. We continue to execute very well and we made significant progress in furthering our growth initiatives. Here are a few highlights, on July 31, we announced our plan to acquire Bank of Napa and we are on track to close this acquisition in the fourth quarter of this year. We are very excited about this addition to Bank of Marin. Our bank share a complimentary, community focused business banking model built on a solid core deposit base and a strong credit culture. This acquisition will be accretive to earnings and following the close we will be the largest Community Bank in Napa County by deposit share. The combined banking will be approximately $2.4 billion in total assets with 23 branches in 5 Bay Area counties. We also made some additions to our executive team during the quarter. In September, James Kimball was…

Thank you, Russ. Good morning everyone. Financially it was a great quarter on all fronts. Our third quarter net income of $5.1 million was down from $5.2 million last quarter. Third quarter earnings included a 325,000 after-tax expense related to the acquisition of Bank of Napa without which earnings per share would have been $0.88. 2016 third quarter and year-to-date net income were significantly higher than this year principally due to a large loan recovery and early pay-offs of acquired loans in 2016. Third quarter net interest income increased 484,000 over second quarter and the tax equivalent net interest margin decreased 8 basis points, both due to growth and total earning assets. And the higher allocation of cash which carries lower yields than other assets. Third quarter non-interest income of $2.1 million was virtually unchanged from the second quarter and year-to-date non-interest income was lower than the first nine months of 2016 due to higher gains on security sales last year. Non-interest expense of $13 million was up from $12.6 million in prior quarter mostly due to $495,000 of acquisition-related costs. While our efficiency ratio of 62.5% was up from 61.9% last quarter. Non-interest expense relative to total assets is down. Credit quality remained strong in the quarter, non-accrual loans were 0.9% of our loan portfolio up only slightly from 0.8% in the prior quarter. Classified loans totaled $33.5 million and accruing past due loans fell to $205,000 from $393,000 at the prior quarter end. Our loan loss reserve is 1% of total loans and 1.05% of legacy Bank of Marin loans. Finally our return on average assets was 0.95% for the quarter and return on average equity was 8.4%. Our total risk based capital ratio was 15.1% at September 30 and tangible common equity to tangible assets was 11%. Our strong capital level and low cost deposit base position us very well to pursue organic growth and acquisition opportunities that deliver value to our shareholders. I will turn it back over to Russ now for some closing comments.

Thank you, Tani. In the third quarter, we continued to successfully deliver on our balance growth strategy as demonstrated by our continued growth in deposits and loans and our pending acquisition of Bank of Napa. We are excited about this acquisition. Our combined resources and higher lending limits will allow us to better serve existing clients and enhance our ability to add new ones. The announcement has been positively received by both Bank of Napa customers and the community at large. Since we announced the acquisition, we had a chance to meet with Bank of Napa staff. In those meetings, we made it clear that they were a key part of what attracted us to the company. In addition, Bank of Napa's client's relationship helped us further deepen our presence in the Napa community. We expect this transaction to be accretive and to position us to deliver a strong year of earnings growth in 2018. Thank you for your time this morning and we will now open it up to answer your questions.

Thank you. [Operator Instructions] Our first question coming from the line of Jeff Rulis with D.A. Davidson. Please proceed with your question.

Thanks. Good morning.

Good morning.

Good morning, Jeff.

Just a question on the pay-off activity, looks like down in a linked quarter almost in half and I don't know if, if we can read in these things into that or kind of a one quarter thing just trying to get a temperature on pay-off activity, we get a sense that maybe slowing versus where it's been steady in past quarters?

Jeff, it's obviously down a little bit. When we budget every year we anticipate about 10% of pay-offs. That is a combination of things amortization of loans, [Indiscernible] sales. Hopefully, very small activity of refinancing elsewhere. And this quarter was particularly good. For the year we are down, total of pay-offs were down about $10 million, I think versus last year. And so, I'm not sure I read too much into that because we still like I said when we budget we really have to show 5% growth. We budgeted to show 15% volume growth. And that's the way we work and we obviously think we can keep those numbers lower than the 10% all of that. But I'm not sure I read too much into a slightly down quarter in terms of pay-off, which is a good thing.

But to your point, the pipelines certainly have actually quarter-over-quarter are in good shape from an origination standpoint. Got it.

Well, I think that the -- I have to say that the commercial banking officers are doing a very good job of building pipelines and as we all know that bigger the pipeline, the more kind of comes through the funnel. And so, it's really important to continue to grow that. And so, we have total pipeline which actually exceeds what we had at this time last year.

Got it. And then, maybe one for Tani. On the ex-accretion impact, core compression about 6 basis points, I guess that was due to the cash build kind of timing on that or and then, maybe any comments on kind of the outlook for -- where you think core margin is bouncing around?

Yes. The bulk of the change in the margins was definitely due to the increase in deposits and thereby an increase in our cash position. A little bit of that was deployed into the investment securities, you saw a net growth of about $11 million over and above maturities and scheduled amortization there. To the extent that, we have the opportunity during the quarter to deploy some of those deposits to -- deposits networks we do that. And that take some of the drag off of the net interest margin.

Okay. And then, maybe one last one just the -- what's the total bank's loan exposure in the Napa and Sonoma counties and I guess if you could comment on a pro forma basis with Bank of Napa?

In Sonoma County, I will kind of break down a few things. In Sonoma, we have of course a real estate exposure of just in excess of about $160 million. In Napa that's a little about $80 million. But, wine industry itself were just a little over in terms of outstanding, little over $60 million. And so --

And that’s both the counties…

So, really have some home equity lines both in -- pardon me…

That was both counties, 60 over Napa, Sonoma.

That's both counties. In addition to that we have just less than $20 million in Sonoma County in home equity lines and only about $5 million in Napa and that's just Bank of Marin that does not include Bank of Napa. The good news on all of that, we have -- we have been working to assess potential damage to clients. And what we had – we’ve done so far is that we have one mobile home that we had financed that was -- that was burned that's already been we paid through insurance proceeds. We have one rental property which was a fourplex which was burned and a large [borrower] [Ph], we are not concerned all about that. And of our wineries, really there was only one that had some slight damage to a vineyard, but the other wineries were all fine. And so, what we have been doing is going through and looking at our clients, looking at zip codes and matching those against the affected areas throughout the North Bay to try and assess damage. And so far, we just have very little. Now, that being said, the long-term impact to the regions both Napa and Sonoma that's something that we can't assess at this point. It's going to be a long road I suspect for the community to rebuild a couple of years minimum just to get all the homes back and rebuild. So, it's going to be a challenge and we’ll see how it all goes, but obviously we are going to be monitoring it very closely.

Okay. Appreciate the comments. It sounds like challenging. Thanks.

Sure. Thanks Jeff.

Thank you. Our next question coming from the line of Tim O'Brien with Sandler O'Neill. Please proceed with your question.

Hi, everyone. This is Andrew on for Tim. Just a question on the deposits that you referenced coming in this quarter, any sense of the timing of how these or when these may be distributed out to some of the owners and beneficiaries?

So, I think that what we are trying to express there is that the increase in deposits sometimes due to sales of businesses or settlement of [a state] [ph], some of that may come in in bulk and some of it may go out not necessarily 100% of it, but that's how we account for some of the fluctuations in the deposits. I think if you look at the long-term trend of the deposits though, it is going up and we continue to have a strong component in transaction account. And so, as our customers grow the cash flows moving through those accounts also tend to grow.

Okay.

There is also a -- in our portfolio of deposits, we do have a number of large contractors do a lot of the [actual] [ph] work. And so, when they obtain a contract, they are funded for that. And so the dollars come in and as they work the project, the dollars work their way down. But, if they have ongoing projects that could continue to grow and we have seen consistent growth in those -- it's not just one, it's the number of account that we have in those types of deposit accounts. So, it's pretty hard to predict when that will go out, but it's not in today and then out tomorrow, it's in today and then it's over the life of the contract it works its way out.

Okay, very helpful. And then just what the TCE ratio at 11% and Bank of Napa seems like that's progressing smoothly what are your thoughts on to just talk, discuss the M&A environment right now and your outlook for more deals going forward?

We're very interested in doing more. There are, we -- as you all know we've talked about the fact that we are interested in banks in the Bay area. As I said before, banks are sold, they are not bought, it's when a board decides its time and banks get sold. And so, we're very interested, we're certainly well positioned. Our stock prices have stayed -- it's actually been up a bit recently. And so, we're at a good position to acquire and we're actively talking to many different banks and, but there is nothing, certainly nothing to report at this point.

All right. Thank you. Those are my questions, I'll step back.

Thanks.

Thank you. Our next question coming from the line of Don Worthington with Raymond James. Please proceed with your question.

Good morning.

Good morning Don.

Good morning.

Just a question on the, you mentioned there were some loan purchases of tenant-in-common loans during the quarter, just curious what the kind of general terms are on those and whether you might do more?

Yes. There is -- I can tell you that that purchase was made from Umpqua Bank and that was -- there were, that was a result of TICs that were made by Circle Bank which Umpqua acquired number of years back. And so we ended up buying kind of the reminded that portfolio they were not active in the business. And so, we acquired about $7 million in TIC loans primarily in San Francisco there was a couple of that warrants, but for the most part of San Francisco. And, the terms of those we reviewed them, we have -- we actually have a credit ministry working for our bank, [UCG] [ph] credit officer at Circle Bank. And who have been Pat McCarty and he was involved and those were made so, we knew exactly what things we're getting. And we have a portfolio and he demands them quite well. So, that's why we bought them.

Okay. All right. Thanks. And then in terms of deposit betas have you tracked kind of what those have been so far given the fairly increases that have happened to-date?

So the deposit betas that we use for modeling are much higher than what we're actually experiencing. In the market, we're not seeing a lot of pressure across the Board to increase rates. We'll get calls now and then for people who see that that the Feds raising rates and want to know whether we're doing the same. But in general, there has not been a lot of movement in the industry in our market around deposit rate increases.

Okay, great. Thank you.

Thank you. Our next question coming from the line of Matthew Clark with Piper Jaffray. Please proceed with your question.

Good morning. It's actually Nath Race for Matthew.

Hi, Nath.

Good morning.

Just going back to the deployment of the excess of cash that built in the quarter, assuming you get some of the loan growth in the fourth quarter. If you kind of just speak to what optionality and what should we be thinking this in terms of deployment across the securities portfolio into 4Q and into early 2018?

Yes, so exactly as you said, we want to make sure that we maintain plenty of liquidity to support our loan growth and then when we deploy into the securities portfolio, we keep our duration fairly short, its under 5 years. And, that cash component right now in a way represents part of our short-term allocation in the securities portfolio, because we can get one in a quarter at the Fed. That's pretty generous compared to what you can get on the short-term government guaranteed securities. So, we keep it very conservative the portfolio is for liquidity purposes primarily.

Got it. Thanks Tani. And then just Russ if I heard you correctly, it doesn't sound like you guys are expecting any near term credit events or related provisions tied to fires that we saw in the third quarter here. But is it just fair to expect a similar reserve build consistent with the loan growth that you guys had this quarter into 4Q and into early 2018 as well?

I missed the last part of your question, can you - maybe you can repeat that?

Yes. Just the thing in terms of the reserve build potential into the fourth quarter and into early 2018, obviously it doesn't sound like you guys are expecting a whole lot of credit losses with the fires that have transpired even though it is so early in that process. So just trying to figure out the puts and takes from reserve basis near-term?

Okay, okay. So and as we -- we haven't had to reserve for credit issues, we only had to reserve, we only have to reserve for the loan growth. If we do the kind of the same kind of loan growth in fourth quarter the expectation is we will start reserving greater amount. We, but at this point there wasn't a need with [AAA] [ph] model that didn't require that. So, we got such a clean portfolio right now that there is certainly not credit issues that we have to reserve for ourselves. As we see loan growth then that would drive reserving for the -- beyond AAA.

Got it. I appreciate your color. Congrats on a great quarter.

Thanks.

Thank you.

Thank you. Our next question coming from the line of Tim Coffey with FIG Partners. Please proceed with your question.

Good morning. This is Justin calling in for Tim.

Good morning.

Good morning.

Yes. My first question is, are there any changes to the pending merger with Bank of Napa as a result of the North Bay fires?

No.

Great. Does manager anticipate the North Bay fires will change the current rate of modest net recoveries in?

Of what recovery?

Change of the current run rate of modest net recoveries?

No. I don't think so. Like I said, it's pretty hard to predict what will be the long-term impact of the fires, but on the short-term we tried to analyze, customer that -- customers that were affected; collateral that was affected. And for the most part except for the ones that's small number of ones that we saw that we mentioned. We have had -- we've had pretty, I don't say minimal, but relatively modest amount of impact to our loan portfolio and to our customer base. We have customers that have properties up there that we didn't necessarily finance that had issues with the fires, but long-term we don't expect those to be affected too harshly.

That's good to hear. And in that case would you say $13 million per quarter is a good run rate for expenses at legacy BMRC?

Yes we don't give guidance on expenses. So, you can predict yourself.

Sorry do you think a couple of factors you can take into account is there is there are going to be more expenses next quarter as we close the acquisition. And you did see you can see that we had 8 FTE growth in the quarter, some of those came a little bit later in the quarter. So, there will be some expenses associated with those. But I think those are the main factors that can drive some change.

Great. Thank you. The last question, the OREO last quarter was $238,000 what was it for the third quarter 2017?

Going back from Bank of Alameda we had one OREO that's just, that's the legacy from Bank of Alameda going back to when we acquired that bank in end of 2013. There has been nothing else, that's it.

Okay, great. Thank you very much.

All right. You're welcome.

Thank you. [Operator Instructions] Our next question coming from the line of Jackie Bohlen with KBW. Please proceed with your question.

Hi, good morning, everyone.

Good morning, Jackie.

Russ, I know it's obviously very preliminary to kind of answer some of that stuff and also thank you for all the color on the fires and it's great to hear that there has been such little impact to a lot of the customers of Bank of Marin just given the scope of everything. Have you noticed over the last two weeks any change or shift in kind of business operations and how loan demand and are people starting to get back to normal a little bit?

It's pretty hard -- it's still pretty hard to judge what the impact is going to be and what the loan demand -- in particularly Sonoma county and Napa. On the rest of our operations, whether it's in San Francisco or in Marin County or in East Bay really that -- it's not really impacted much at all. And so, it's going to be difficult, I think the impact in Napa relative to Sonoma is much less. Sonoma County, I don't remember, I think the number of these changing, but it's over 5000 homes that are lost there and maybe more commercial properties. And so, it's really going to be difficult to judge how that's going to impact the business operations, the businesses in the area. So, it's daunting to think of how you are going to rebuild that many homes very quickly. And so, I certainly hope the communities got to pull together and they are able to work together to get that done as quickly as possible to get these people back in their homes. We were very fortunate as I mentioned. We did have one employee who lost her home and unfortunate there is, her and her husband and two kids are safe, but their home is in the Coffee Park area and they lost their home. And so, it's going to be so hard to get to from now kind of get back to that task of rebuilding, planning all those things for all those people that lost home. So, how does its going to impact the businesses environment in Sonoma County is hard to judge right now. But, I have great confidence in our region, in the North Bay and I'm sure that we will get this -- they will get it all together very quickly and then get back to normal business operation in Sonoma County.

That's helpful. Thank you. I really understand that obviously it's all very preliminary and there is a lot going on. And then, given that the Bank of Napa merger is scheduled to close next month. Do you have a tentative day for the conversion there?

Yes, in April. We are in our conversion. The anticipated close date is November 20. And the conversion date is April 25, I believe is the day which is [July] [ph] 21, which is converging from -- there with five, seven more week [FYS] [ph] into converting them to FIS. So, that's the preliminary date, for some reason FIS moved it up which probably is unlikely. We would like it to have it faster, but we were kind of -- we were -- respect with their schedule.

Okay. So, assuming that April 25 is the conversion date, is it fair to say we start-off 3Q with a clean run rate on expenses then?

I think there will still be some lingering costs in the third quarter, certainly in the second quarter and possibly the third quarter, but, pretty clean third quarter, certainly fourth quarter for sure.

Okay, great. That's very helpful. And again, I'm glad that that everyone is safe. Thanks guys.

Thank you. Thank you, Jackie.

Thanks.

Thank you. There are no further questions at this time. I will turn the call back to you. Please continue with your presentation or closing remarks.

I want to thank everyone for joining us this morning. And we look forward to talking you to again next quarter and at that point we will have merged Bank of Napa into Bank of Marin and we are very much looking forward to that. So, thank you again for attending this morning.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.