Good morning. Thank you for joining Bank of Marin Bancorp's earnings call for the first quarter ended March 31, 2023. I am Andrea Henderson, Director of Marketing for Bank of Marin. During the presentation, all participants will be in a listen only mode. After the call, we will conduct a question and answer session. At that time, if you have questions, please press one followed by four on your telephone. If at any time during the conference call you need to reach an operator, please press star zero. This conference call is being recorded on April 24, 2023. Joining us on the call today are Tim Myers, President and CEO, and Tani Girton, Executive Vice President and Chief Financial Officer.
Our earnings press release, which we issued this morning, and a supplementary presentation can be found in the investor relations portion of our website at bankofmarin.com, where this call is also being webcast. Closed captioning is available during the live webcast as well as on the webcast replay. Before we get started, I want to note that we will be discussing some non-GAAP financial measures. Please refer to the reconciliation table in our earnings press release for both GAAP and non-GAAP measures. The discussion on this call is based on information we know as of Friday, April 21, 2023, 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 our earnings press release as well as our SEC filings.
Following our prepared remarks, Tim, Tani, and Chief Credit Officer Misako Stewart will be available to answer your questions. Now I'll turn the call over to Tim.
Thank you, Andrea. Good morning, everyone, and welcome to our first quarter earnings call. I'd like to begin by addressing the regional bank failures and subsequent events that occurred late in the quarter and highlight how Bank of Marin's business model enabled us to effectively manage through these challenges. These failures, while idiosyncratic in nature and isolated to banks that operated much differently than Bank of Marin and most community banks, did create near-term uncertainty among depositors that resulted in outflows across the industry. While many depositors initially sought the perceived security and returns of money market funds outside of the banking system, according to the latest Federal Reserve data, those transfers have since stabilized. Overall, we have continued our efforts to maintain an industry-leading cost of deposits in light of pandemic related surge balances exacerbated by our American River Bank acquisition and its lower loan to deposit ratio.
It is not unusual for Bank of Marin to experience deposit decreases in the first quarter of the year due to the working capital needs of our customers. In fact, in four of the last eight years, we showed linked quarter declines in Q1 deposits. This year, the 9% decrease of $323 million was due to a number of factors concurrent with, but largely unrelated to, the regional bank failures. Subsequent to these failures, the factors contributing to deposit outflows include, first, outflows due to what we consider singular transactions, such as disbursement of proceeds from the sale of businesses, real property acquisitions for cash, trust distributions, or estate settlements. Second, cash needs from our customers to fund ongoing business operations such as vendor payments, payroll, and taxes. Third, deposit movements to outside brokerage firms and financial institutions for safety and/or higher yields.
Just over $200 million of the net outflows occurred after the bank failures and were concentrated among 100 larger relationships that overshadowed the impact of accumulated smaller transactions. Among those 100 relationship net outflows, 83% was considered normal activity, including vendor payments, taxes, payroll, and the singular events, as I mentioned earlier. 14% moved to brokerage firms or other financial institutions, and the remaining 3% were referrals to our wealth management and trust group. From March 22nd through April 18th, deposit levels have stabilized. In 2022, we maintained excess liquidity in expectation of pandemic surge outflows and managed our deposit costs in order to optimize deposit levels. In early 2023, we increased engagement with customers to discuss pricing and the appropriate deposit mix for their needs.
After March 10th, those discussions accelerated and expanded to include the safety and soundness of the bank, as well as information about our reciprocal deposit network programs that offer depositors expanded FDIC insurance. The result was approximately $80 million of incremental funds placed into these programs, and we now have $220 million with Reich & Tang and IntraFi and are continuing to see interest from our customers. I would also like to note that throughout the first quarter, we successfully opened over 1,000 accounts with $60 million in new deposits. At the same time, we did not see a notable number of account closures with funds leaving the bank.
At quarter end, our deposit mix was steady with non-interest bearing deposits accounting for just over 50% of total deposits, down only slightly from the prior quarter and another indication of our strong deposit franchise. Many of these are commercial accounts that tend to carry larger balances that will fluctuate with our customers' operating cash needs. Approximately 67% of our deposits are FDIC insured. At quarter end, our liquidity was roughly $1.9 billion and consisted of cash, unencumbered securities, and borrowing availability from the FHLB and Federal Reserve Bank, an amount that covers all of our estimated uninsured deposits by approximately 181%. Since 2013, we have had internal policies, controls, and processes that set minimum liquidity requirements similar to the Liquidity Coverage Ratio that larger banks are required to report.
Later, Tani will explain some of the long-standing practices that uphold our robust liquidity risk management standards. Importantly, despite the decrease in deposits quarter -over -quarter, our average cost of deposits remained low by industry standards at 20 basis points. 40 basis points in the month of March, though this was up from 8 basis points the prior quarter. Our increase in deposit rates has lagged the general market, which benefited our net interest margin by approximately 10 basis points in the fourth quarter. We will continue to carefully manage deposit pricing on a customer-specific basis and diligently defend our industry-leading deposit franchise. I'll shift to a discussion about our loan portfolio and overall credit quality. We grew loans by $20 million or just under 1% during the quarter.
While loan demand has eased from the peak levels of 2022, our teams continue to focus on building pipelines that will achieve risk-adjusted returns and maintain credit quality. Even as we grew loans in the first quarter, our team's efforts to carefully manage asset quality resulted in continued strong credit metrics. We have consistently maintained our principled underwriting and our policies have remained unchanged. Total non-accrual loans declined during the quarter and amounted to just 10 basis points of total loans. We are confident in our allowance for credit loss, which represents 1.1% of total loans. Our loan portfolio remains diversified across borrowers, loan, and property types, as well as geography, and 93% of our loans are borrower-guaranteed. Our largest concentration in the loan portfolio is in commercial real estate, which represents 73% of our total loan balances.
77% of our commercial real estate portfolio is non-owner-occupied, with 89% of these loans being borrower guaranteed. Additionally, since 2000, cumulative net charge-offs in the CRE non-owner-occupied portfolio have been minimal at $740,000. As there has been a good deal of press regarding office buildings, we are providing more granularity on our non-owner-occupied office building portfolio this quarter. Our $370 million of non-owner-occupied office portfolio consists of more than 140 loans with an average loan balance of $2.6 million. The largest loan being $17.2 million. The average loan-to-value was 55%, and the average debt service coverage ratio was 1.67 times based on the most recent information received in our annual review process.
Of the non-owner-occupied office portfolio, 19% is located in the San Francisco market, with the remainder spread across our Northern California footprint. Drilling down further into the San Francisco non-owner-occupied office portfolio, we have 11 loans totaling $72 million with an average loan size of $7 million and average loan-to-value of 60%. 10 of these buildings are considered low-rise office and eight of them report 100% occupancy. Vacancies averaged around 50% on the other three. $19 million or 26% of the $72 million portfolio is graded as substandard as first reported in our Q4 2021 earnings and remains performing. While we understand the heightened concerns that the investment community has regarding the office sector, we believe that given our conservative underwriting and the relatively small loan sizes, our office building exposure is manageable.
We have a strong historical track record of minimal losses from this sector. During the 1st quarter, we also delivered on the final phase of our plans to gain efficiencies from our acquisition of American River Bank by consolidating four northern Sonoma County branches into two that had overlapping customer coverage. We closed two other branches where we can serve customers effectively from nearby branches. This strategic decision enables us to optimize our physical footprint without sacrificing customer service, and by extension, generate savings that we can reinvest into talent and technology. I'm excited to share that we welcomed our new Chief Information Officer, Sathish Arasadi. His extensive and unique experience as a software engineer and technology leader directing large-scale digital and technology transformations will help us execute our bank's strategic priorities.
Throughout our 33-year history, we have not wavered from our guiding principles of relationship banking and disciplined fundamentals, and continue to serve the banking needs of local, small to mid-size businesses, not-for-profit organizations, and commercial real estate investors. Our business model has proven successful throughout various economic cycles, allowing us to navigate this or any challenging environment. Now I'll turn the call over to Tani to discuss our financial results in greater detail.
Thank you, Tim. Good morning. First, I'll start with some key highlights. We generated net income of $9.4 million in the first quarter, or $0.59 per diluted share. Net income was down from the fourth quarter as we began raising interest rates on deposits and borrowing balances increased. Our low cost of deposits was a significant benefit last year, and Bank of Marin achieved record earnings in both the fourth quarter and full year of 2022. Our first quarter tax equivalent net interest margin of 3.04% was down 22 basis points from the fourth quarter, 37 basis points of which was related to higher deposit and borrowing costs, partially offset by a 17 basis point improvement from higher loan yields. We expect continued pressure on the margin as recent increases in deposit costs are in place for a full quarter.
Far, this cycle increases in rates on non-maturity interest-bearing deposits reflect a beta of 15%, while our interest rate risk models assume a beta of 45%. Non-interest expenses were well controlled at just under $20 million for the quarter. Our first quarter earnings translated into a return on assets of 92 basis points and a return on equity of 9.12%, down from 1.21% and 12.77% in the previous quarter. Our board of directors declared a cash dividend of $0.25 per share payable on May 12, 2023. This represents the 72nd consecutive quarterly dividend paid by Bank of Marin Bancorp.
I'd like to add a little more detail on our results, beginning with the $350,000 provision for credit losses on loans in the first quarter compared to no provision in the prior quarter. This was due to qualitative risk factor adjustments to account for continued uncertainty about inflation, recession, concentration, and heightened portfolio management risks in the current environment that were not fully captured in the quantitative portion of the allowance calculation. There was a $174,000 credit loss provision reversal due to a $37.4 million reduction in unfunded commitments. As Tim mentioned, credit quality remains strong. Classified loans of $31 million increased $2.9 million, primarily due to higher usage of a revolving line of credit that was previously downgraded.
Other changes include $1.7 million in payoffs and pay downs, $314,000 in upgrades to pass risk rating, partially offset by $1.4 million in downgrades. All of the downgrades in the first quarter were for loans that are secured by real estate collateral. Accruing loans past due 30 to 89 days totaled $1.2 million at March 31, 2023, compared to $664,000 at December 31, 2022. First quarter non-interest income was up 13% from the fourth quarter at $2.9 million, due in large part to higher earnings on bank-owned life insurance, while other line items showed modest increases and decreases.
Non-interest expense of $19.8 million in the first quarter was up from $18.3 million in the fourth quarter. The efficiency ratio increased to 60.24% from 50.92% in the prior quarter due to both higher interest and non-interest expenses. The first quarter typically has elevated non-interest expense related to 401(k) matching and lower utilization of vacation accruals. The first quarter of 2023 included adjustments related to estimated incentive and retirement plan accruals, as well as accelerated amortization and lease expenses associated with branch closures. Technology expenses fell as a result of our recent core processor contract renegotiation, and we expect branch closures to generate net savings of $470,000 in 2023 and $1.4 million per year thereafter.
All capital ratios were above well-capitalized regulatory requirements. The total risk-based capital ratio for Bancorp was 16.2% at the end of the first quarter, compared to 15.9% at December 31, and the bank's total risk-based capital ratio was 15.6% at March 31, compared to 15.7% at the close of 2022. Quarter-end tangible common equity of 8.7% for Bancorp and 8.3% for Bank of Marin were up from 8.2% and 8.1%, respectively, in the previous quarter. Increases were due to earnings and a $16.2 million improvement in AOCI as the value of our available-for-sale securities portfolio increased with falling interest rates.
After adjusting for $76.4 million after-tax unrealized losses in our held to maturity securities portfolio, our tangible common equity ratio would be 6.9% for Bancorp. Our strong capital position and high-quality investment portfolio provide strength and liquidity for the ongoing operations and investments in the future of Bank of Marin.
We evaluate the bank's interest rate, liquidity, economic value, and market price risks under various scenarios regularly, and we stress test underlying assumptions. We conduct capital planning on a regular basis and evaluate various scenarios, stress tests, and potential capital actions. We monitor markets daily for systemic and idiosyncratic risks and maintain contingency plans that support rapid and comprehensive responses if warranted. We also make it a priority to learn from developing situations, and we are incorporating enhancements to current scenarios, assumptions, and stress factors to reflect the heightened potential for deposit volatility in a world of social media and digital banking. We have pledged securities to the Federal Reserve's Bank Term Funding Program and ran a small overnight test to ensure access if ever needed.
The FHLB and Federal Reserve borrowing facilities were established in large part to ensure that banks would not be forced to sell securities at a loss. The FHLB facility proved extremely effective during the global financial crisis, and the BTFP will undoubtedly do the same with its favorable rates and availability tied to the par value of securities. Overall, Bank of Marin's strong balance sheet, liquidity, and capital continue to generate profitability, as has been the case across many interest rate and economic cycles. With that, I'll turn it back to Tim to share some final comments.
Thank you, Tani. In closing, we are opportunistically looking for ways to manage our balance sheet in order to drive margins while maintaining excellent credit quality and operating efficiency. We believe this will lead to consistent earnings and improved profitability and in turn translate into enhanced shareholder value. With that, I want to thank everyone on today's call for your interest and support. We will now open the call to your questions.
Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three tone prompt acknowledging your request. If your question has been answered and you would like to withdraw your registration, please press one three. Questions can also be submitted via the webcast page by clicking the Ask Questions tab and typing your question in the box that appears below the tab. One moment, please, for the first question. Our first question comes from the line of Matthew Clark with Piper Sandler. Please go ahead.
Hey, good morning, Tim and Tani.
Good morning, Matthew.
Morning.
If you just around the margin, could you give us the average margin in the month of March and what your updated outlook is for your cumulative beta through the cycle? We talked previously about 10%-15% for I think the total deposit beta, if memory serves me correct. Any updated thoughts on, on that as well?
Yeah. I'll need to pull the margin for the month of March for you, which I can do in a second. On the betas, right now we're looking at 15% thus far. We have 45 built into our models, which is still above the historical norm, but we are doing some catch up right now, you know. Of the 15 basis point in the non-maturity interest-bearing deposit beta, that's not fully reflected in the third quarter margin or even in the March cost of deposits, because it was ongoing through the month of March. We've got some catch up going there.
I would say that if we look at our modeling for net interest margin, assuming the standard 45% beta, there is a slight increasing trend in the margin. Our assets continue to reprice upward, at the same time, we're undergoing some catch up. I will pull the margin for March, that'll take me a second.
Okay. Okay, sounds good. Just your outlook for deposits and borrowings. Deposits sounds like they have stabilized, but, you know, how do you think about the borrowing balances that you have? Is there a plan to try to reduce those throughout the year, or do you feel like they'll be relatively stable as well?
We're very focused on that. We will opportunistically reduce those where we can. We get cash flows off of both the loan portfolio and the investment portfolio. To the extent that we can deploy those to reduce the borrowings, we will. The borrowings have been, you know, pretty stable for the last couple of months. I think we're good there. As I said, when we have opportunities that make sense for us, that either have low earn back periods or, you know, interest rates go down, giving us an opportunity to sell a larger portion of the securities portfolio at a gain, we will do that.
Matthew, we do tend to have, within our borrowing, or I'm sorry, our depositor base
Some seasonal increases as you get later in the year, that should assist with that too. Certainly this quarter, you know, there's some seasonal declines, but we tend with some of those depositors, large depositors to see increases throughout the year as well. We'll continue to look at all those options, and work those down as soon as possible.
Okay. A couple more here. How much was the BOLI benefit this quarter? Any guidance around your non-interest expense run rate going forward with the savings from the branch closures that you mentioned?
The BOLI benefit was $313,000. I didn't hear the second half of the question.
Just any guidance around the non-interest expense run rate with the cost savings coming through from the branch closures?
Yeah. What I would do on the run rate is look at... We have several adjustments that are actually noted in the earnings release that should be excluded from the run rate. On the branches, that's in the highlight bullet, we should, going forward, get about $470,000 net of those initial write-offs for the year for 2023. For future years, $1.4 million savings.
Okay, thank you.
Our next question from the line of Jeff Rulis with D.A. Davidson. Please go ahead.
Thanks. Good morning. Tani, just on that last point, the $470,000 net, what, could you unpack the... I assume there's upfront costs with that of which I think maybe you've incurred some in the first quarter. Then I guess the savings for the rest of the year, and I guess also if there was savings in the first quarter that you'd call out, just to try to break that piece out, the $470 out a little bit.
Yeah. The accelerated amortization for the two branches closing, for two of the branches closing was $274,000. The others didn't have that, any of that. There was $158,000 of accelerated lease expense, and that was associated with one of the branch closures.
No savings in the first quarter just yet?
I have to run that number for the first quarter, so, to break down that $470 net for the year over the 4-quarter period. I can send out an email after the call on that if you like.
I guess, you know, you got us on the run rate annually, so I could kind of back into that. Just that's fair enough on the, on the cost. Thanks. Wanted to go back, Tim, to that. Appreciate the breakout of the outflow, but focusing in on that 14%, you know, that sort of left the bank. Circling back, I think you gave some reasons that some were seeking safety, some were seeking yield. One, could you confirm those reasons for departure? Two, how has that conversation changed kind of mid-April versus the early stages of the news events in March?
Sure. No, that's a good question. As we've talked about before going into the first quarter, you know, we're slow to increase our deposit rates, kind of see what market was gonna do and how our customer base responded. We actually had started talking to clients and doing more broad-based deposit rate increases towards the end of February and early March, prior to the failure of Silicon Valley Bank and the other bank issues at hand. Then we became more aggressive in doing that. I think you had, at that point, an intersection of concern, certainly about the health of regional and community banks that was exacerbated in our market, with news around some of the large regional banks under duress.
You know, it's really hard to parse out completely how much of a concern that was about viability versus just a rate conversation. The higher rates at a large brokerage firm, you know, were enough to help drive some of that. We got much more aggressive, you know, for us later in that quarter, made a lot of adjustments. We actually started a number of tier increases days before or three days before the failure of Silicon Valley Bank. We thought we were getting, you know. Well, I guess we didn't know we were getting ahead of something, but we thought we were going to play catch up at that point. The need for that was exaggerated made some pretty healthy increases for us. We still think we're very competitive from a deposit standpoint.
Most of our clients have left the bank or balances have left to reduce deposit accounts here, and so maintain the best relationships. Then we're working to bring as many of those back out, certainly we improve our viability. Does that answer your question? It was, audio was starting to get a little choppy there. I don't know if that's on my line, but I got the gist of it, so I appreciate it. One other question on just the, you mentioned the three-seven
This is the operator. We hear a choppiness from the line right now coming from that main line.
Jeff, are you there?
I am. You sound quite a bit clearer, Tim.
Yeah, as do you. I couldn't hear you either. Would you mind repeating what you said? I apologize.
Sure. Sure. wanted to ask about thanks for the detail on the office CRE. I think you mentioned $370 million in the non-owner-occupied. What's the balance of the owner-occupied office CRE?
That is in here. Hang on. That's 17% of the $2.1 billion total. It's on page 9-
Okay.
Of the present. 357.
Well, in the office, specifically owner-occupied CRE, that accounts for that entire amount?
Oh, I'm sorry. Office owner-occupied. We'll get you that number, Jeff.
Okay.
I don't have that in front.
Sure. Just a last check-in. The loan pipeline, you know, you scratched out some growth in the first quarter. It looks like pay downs were down. You came in with kind of a lower pipeline, but ended up, you know, a net growth. How does that pipeline look today or at least the start of the quarter versus as you entered the year?
It continues to build. You know, demand is reasonably muted out there with the rates where they are. We are seeing the pipeline build. You know, it gets lumpy and, you know, you close loans, and then you have to build that pipeline back up. I think we're pretty pleased given the environment of how that's shaping up.
Okay. Okay, I'll step back. Thank you.
Thank you.
This is Tani interjecting. In answer to your question, Matthew, the tax equivalent net interest margin for March was 2.74%.
All right, our next question from the line of David Feaster with Raymond James. Please go ahead.
Hey, just thanks for taking the question. One quick one off the bat is, could you remind us of the cash flows off the securities book? I think we had talked about $25 million a quarter. It's been running ahead of that. I guess, what do you think about the pace of securities cash flows?
We do usually think of it as around $100 a year. Of course, that fluctuates from quarter to quarter. If we have any calls on securities, it would accelerate that. It was higher than a little higher than normal this quarter.
Okay. Then just on the expenses, you know, just wanted to clarify whether you would expect those to all flow to the bottom line because in the prepared remarks it kind of sounded like you were planning on reinvesting those. Just want to make sure that we're thinking about kind of the expense run rate the right way.
You're talking about the branch saves, cost saves?
Correct. Yeah.
Eventually, we do want to use the cost saves there to invest in things like technology that are tied to our five-year plan, our strategic initiatives. That'll take some time. You know, hiring will be opportunistic. We don't have, you know, that money earmarked currently for things. I think for some, you know, undetermined period of time, those will drop to the bottom line. Eventually, with our new CIO on board, potentially taking advantage of some of the disruption in the market, we certainly would like to hire, but there's nothing on the immediate horizon for that, for either of those things. You know, we expect that to be true cost saves until we can reinvest in growth.
Okay. That's helpful. I just want to make sure we're thinking about that.
No problem.
Maybe touching on the growth side of the equation. I was hoping you could maybe give us a pulse of the region, what you're hearing from your clients, how demand's trending, how new loan yields are, and maybe just your appetite for growth here, just given the backdrop, what segments you're still seeing good risk-adjusted returns. I mean, obviously C&I was good. Just curious how you think about growth and where you're seeing new opportunities.
The opportunities in terms of pipeline building is pretty even across our footprint. I will say that the pricing we're seeing out there, whether it's for the duration of fixed rate loans or the yields remains very competitive. So I don't want to throw any competitors under the, you know, under the bus, but the market has not responded by way of loan yields in our market the way maybe we would have liked. So we will continue to look for loans that make sense, like you said, on a risk-adjusted basis. The opportunities are there, but it is a muted demand environment. In the North Bay, some of the trends around commercial real estate are still pretty positive. San Francisco clearly has its issues, but our portfolio has held up worth-well there.
We're seeing growth out of some of our other regions like Walnut Creek. You know, with our, with our different regions now that can be, you know, disparate in terms of when one does well versus the others. We're seeing a good pipeline build up in the Sacramento market. Yeah, it's really hard to predict at this point, but by and large, we think there will be opportunities, but it's not going to be at a first half 2022 pace.
If I could just add to that. On a looking backwards basis, over the last few months, the rates on loans coming in new to the portfolio versus the portfolio rate, they are significantly higher on average, so almost 200 basis points. We do continue to see upward momentum on the yields for the asset side.
Maybe back to your question a little bit, David Feaster. I mean, we'll continue to look for those areas where we can lend on a good risk-adjusted return basis. In some of our niche lending areas like tax-exempt, I mean, we're still seeing large regional competitors, you know, put out, and even some money center banks put out offers at 20-year fixed rate loans at what I would not call a risk-adjusted return. I don't know at what point that will abate. You know, we will have choices to make. Are those the right assets to put on our books based on the credit quality and the relationship opportunities?
Okay. Okay. That's helpful. Just following back up on the margin. If I hear your comments earlier about, you're seeing a slight increasing trend in the margin. Do you think we've troughed here kind of from that 374 or 274 that you just mentioned? Kind of just how do you think about the margin looking forward? I know it's a tough question to ask, but.
Yeah, that's a real tough question because as I said, I don't want to predict where the margin's going exactly because in that 274% for March, for example, you know, we're still seeing assets repricing upward. We are still playing catch up on the deposit side, on the deposit beta. If you look at them in isolation, each one of those two factors weighing against each other, they are offsetting each other somewhat. I think, you know, the incorporating the full price increase on deposits that we have that we, you know, put into place during the month of March, that's going to put some pressure on the margin.
Okay. All right. That's helpful. Thank you.
Mm-hmm.
Thank you, David. Jeff, back to your question on owner-occupied CRE office. That total is $65 million.
Next question from the line of Woody Lay, KBW. Please go ahead.
Hey, good morning, guys.
Morning.
Good morning.
Wanted to start off with the office portfolio. I mean, I know San Fran gets a lot of the headlines, but can you talk about the trends you're seeing in the other 81% of the portfolio?
Yes, I will comment briefly on the North Bay market. You know, sales trends are down, but things like cap rates and price per square foot are holding and vacancy is a lot lower. For example, in the North Bay, vacancy for office is around 11%, 12%. Nowhere near the pressure that you're seeing in San Francisco proper. With that, though, I would ask Misako Stewart, our Chief Credit Officer, to weigh in as we have a very robust annual review process that gives us a lot of insight into the markets as we go throughout the year.
Sure. Morning. Like Tim said, you know, San Francisco is probably the most impacted, and maybe next would be Sacramento in terms of office. As noted in the presentation slide, our entire non-owner occupied office portfolio of about $370 million, we do have the 55% average loan-to-value and debt service is based on the most recent information as of 12/31/2022. I think our underwriting standards, you know, builds in enough of a cushion in our loan-to-values. We typically look for some solid sponsorship as well in all of our deals. I think we continue to monitor the portfolio closely, but I think we're in a very manageable situation.
I'll just reiterate something Misako said, because this came in on the line, about San Francisco office exposure and how recently those are refreshed in terms of loan-to-value, debt service coverage, occupancy. That information in the deck, that is all based on 12/31/2022 results in San Francisco, based on operating statements and rent rolls, and then internal valuations when we don't have a more recent appraisal adjusted for current cap rate trends. We really do try to stay on top of those and do an annual review process for a very large percentage of our portfolio throughout the entire Bank.
Yeah, we do reviews for about $1 billion of our $1.2 billion non-owner, occupied real estate portfolio.
That's helpful color. Then I know that office class can be a largely subjective measure, but any color you could give just on the breakdown of Class A, B, or C exposure in the portfolio?
That's a tough one to answer since, as you point out, it is subjective. You know, I would say in our San Francisco office portfolio, these are not high-rise, you know, skyscraper type buildings. They are relatively smaller in size. As noted, as Tim Myers mentioned, you know, eight out of our 11 properties are 100% occupied. Yeah, that's a hard question to answer.
Okay.
Most
Got it.
A few story. Sorry. Most are in a few story range. There's the one outlier, that happens to be our substandard credit that we've referenced in multiple calls in the past, that we referenced in the deck, but that is higher. The vast majority of our properties are, you know, two, three stories.
Right. Okay.
The A, B, C are subjective, as you said, so.
Right. Yeah. Well, last, I just wanted to hit on deposits, and I appreciate the color that, you know, balances have held in relatively stable since March 22nd. Any color you could just give on the mix shift over that time? I mean, are you seeing the non-interest bearing composition, you know, continue to decline, or is that holding relatively stable as well?
No, that's holding stable. In fact, there's a slide in the investor presentation that we posted that shows almost an identical mix of by... on page four. I'm getting hand signals. Hang on. Yeah, it's on page four of the deck there. The mix is almost identical. Non-interest bearing DDA is 50.3 versus 51.5. Money market went from 27.7 to 28. From a mix standpoint, it's remained very stable. A lot of the big outflows that we did have in the quarter, both before and after the failure of Silicon Valley Bank, I don't mean to keep picking on them, that's just the trigger point, was really large outflows tied to specific events that are very easy to point to. Like I said, commercial real estate acquired with cash.
We had two companies that sold, and those funds were dispersed and unrelated to the owners. That was $40 million. It was $20 million on the CRE purchase post SVB collapse. A lot of estate and trust disbursement. It really was unfortunate timing. In terms of the behavioral attributes, we really have seen things settle since the 22nd, and that mix really hasn't changed a lot.
Got it. All right. That's all for me. Thanks for taking my questions.
Thank you.
While we're on the topic and waiting for other questions on the phone, we did have an investor ask again about the deposit data for the quarter versus what we indicated for the cycle. They're both the same because 15% for the cycle, I'm quoting through March 31st. There will likely be more. The cycle and March 31st are the same as of right now. The same person asked if we decided to sell the HTM, what would be the timeframe if we invested at current market and perhaps shorter maturity? First of all, we wouldn't sell held to maturity securities. We would sell available for sale securities.
If we were going to do any sort of transaction, if we sold at a gain or at a break even, there wouldn't be an earn back timeframe and we wouldn't be reinvesting the proceeds. We would be paying down borrowings. If we decided to do any sort of structured transaction, combining, you know, a sale with some other event, we would be looking for an earn back under one or two years. Hopefully, that answers that question.
Next one, question from the line of Andrew Terrell with Stephens. Please go ahead.
Hey, good morning.
Morning.
Morning, Andrew.
Maybe just to go back and start on the margin here. I just want to clarify on page 15 of the slide deck, the 83 basis point interest-bearing deposits for March. I just want to clarify, that is the average throughout the month of March and not the spot at the end of March, correct? The 83 basis points.
883 basis points? Oh, I'm sorry. I'm not following what-
I'm looking at the monthly rate paid on interest-bearing deposits versus Fed funds on page 15 of the slide deck in the bottom right graph.
Okay.
Yeah.
On interest-bearing.
83 versus 23.
Yeah, yeah.
That's average throughout the month, correct?
Yes.
Okay. I mean, given the velocity there, the 23-83 basis points is a pretty big step up. Do you have what the spot interest-bearing deposit cost was at the end of the period?
No, we don't, we don't have that right now.
I mean, it sounds like you guys got a little more aggressive kind of February, March timeframe in ratcheting deposit costs up. I guess I'm just trying to get a sense of, like, how that's progressed so far in the month of April. Like, whether or not it feels like the cost increases in maybe early March timeframe were enough, if you've had to move further in April so far. I'm just trying to get a better sense of where the deposit cost number is headed.
You know what, Andrew? I can send out an April year-to-date number after the call.
I do know most of our adjustments were made in March, Andrew. Yes, we've certainly got more aggressive. We had started that process, like I said, two or three days before the collapse of Silicon Valley Bank and accelerated that shortly thereafter. Most of those adjustments that I've seen so far were done, you know, through the end of the month.
Okay. I appreciate it. The one other question I had. You guys have, I think it's close to a $35 million buyback in place and capital ratios look very, very healthy. With the stock trading kind of around this tangible book value level, can you talk about your appetite for utilization of the buyback here? I didn't see it in the quarter, but love to hear your thoughts.
We would love to buy shares back at this price. I think we're, you know, waiting and seeing a little bit with the concerns around credit risk. Making decisions around whether, you know, watching the market and, you know, the ability to sell available for sale securities. Reposition our NIM based on reducing FHLB borrowings. We're looking at all those options and how that would impact capital, again, in light of potential credit issues coming. I would love to do that, but I want to be cautious and prudent in the approach.
Okay. Well, the rest of mine were asked and answered already, so I appreciate you taking the questions.
Yeah. Thank you.
Once again, please press one-four if you have any phone questions. We have a question from the line of Timothy Coffey with Janney Montgomery Scott. Please go ahead.
Yeah, thank you. Morning, everybody.
Hi, Tim.
Hello.
Hey. Hey. I really appreciate all the detail that you provided in the investor deck and on the call today, and I just have some kind of follow-up questions on some of those items. The construction book in San Francisco, can you provide some color on that?
Yes, I am. I'm going to ask Misako to weigh in on this. She's much better versed in the intricacies of it.
Sure. The construction portfolio mostly is a multifamily or single family residences. When you ask about color, is there anything specific you want me to address? I mean, they are all performing.
Yeah. Exactly. Yep. Well, more than kind of property type and location. Like, I mean, specifically in and around the Central Business District.
They are mostly in San Francisco. They're multifamily. They do cover a number of different neighborhoods in San Francisco.
Okay.
You know, we have seen softening in terms of just condo sales. But they are all performing currently.
Okay. Then with the total CRE loans in San Francisco, are you seeing any signs that they're behaving differently than, say, the office portfolio?
In San Francisco?
Yes. Yeah.
You know, I would say that the general trend that we're seeing, which, you know, which I'm sure many others are seeing as well, is just with vacancies. You know, as leases come due in maturity, you know, many are not renewing. Or if they are, they're renewing at lower rates. We are, you know, continue to keep a close eye and monitor our entire portfolio for that matter, for the non-owner occupied real estate, but mostly for the office property. But it is a general trend that we are seeing. In San Francisco, I think majority of it is concentrated in office in San Francisco. I think we have a few industrial properties which are performing as agreed.
Okay. My last question has to do with account openings. How many deposit accounts do you open in a typical quarter?
Give me one second.
Yeah. I'm just trying to get an idea of kind of you put the 1,000 that you opened in this last quarter in-?
Yeah, probably in the 500-600 range.
Okay. All right, great. All right. Those are my questions. I appreciate the time. Thank you.
You're very welcome.
We have no further questions on the phone line.
We have a couple of questions from the webcast. The first one is another one on the net interest margin inflecting back up as assets reprice. In terms of timing, how should we think about that? I would say on the asset side, it's a gradual increase. In like the first, you know, the next couple of months with the beta catch up on the deposits, that's definitely, you know, going to offset it more than in future months. Hopefully that's of some help. We also have a question about the March 31 reserve for unfunded commitments, and I'm working on getting that right now.
While she's getting that, we did have a question. What are the opportunities to hire out of the recent dislocation in the wine lending market? We were fairly excited about that opportunity early on. Again, not to take advantage of the misfortune of others, but certainly given that's been an important segment for us. Thus far with teams from the, you know, Silicon Valley Bank, that seems to be a focus of their new owner as well. We have had conversations with teams, with various specific focuses within commercial banking from some of the other dislocations. I do think there will be hiring opportunities. You know, the question for us is gonna be, is it the right fit? Will that help drive us forward in areas we wanna continue to grow in? Is that someone can add value?
I would expect us to have more opportunities within the broader commercial banking for sure, and then hopefully with in wine as we see this continue to play out.
Going back to the reserve for unfunded commitments, as of March 31st, it was $1.3 million. Looks like we have another question from the line. Please hang on.
If you have any phone questions, please press one four on your telephone keypad.
I will say this. I'll read the question that came in. What does the back book of loan repricing look like through 2023, 2024? We have about 18% of our book that reprices over every 12-month cycle. We can go back and do some more research, but it's generally been in that 18%-20% range. If you would like more specificity around that, please reach out to me or to Andre or Tony directly. I'm not sure who the question came in from.
We have no questions in the phone queue.
With that, I want to thank everyone for their time, attention, and questions. Please feel free to reach out to any of us if you want further information.