Bank of Marin Bancorp (BMRC) Q1 2023 Earnings Call Transcript

Bank of Marin Bancorp (NASDAQ:BMRC) Q1 2023 Earnings Call dated Apr. 24, 2023.

Corporate Participants:

Andrea Henderson — Director of Marketing

Tim Myers — President and Chief Executive Officer

Tani Girton — Executive Vice President, Chief Financial Officer

Misako Stewart — Executive Vice President, Chief Credit Officer

Analysts:

Matthew Clark — Piper Sandler — Analyst

Jeff Rulis — D.A. Davidson — Analyst

David Feaster — Raymond James — Analyst

Woody Lay — KBW — Analyst

Andrew Terrell — Stephens — Analyst

Timothy Coffey — Janney Montgomery Scott LLC — Analyst

Presentation:

Andrea Henderson — Director of Marketing

Good morning, and thank you for joining Bank of Marin Bancorp’s Earnings Call for the First Quarter Ended March 31, 2023. I’m 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. [Operator Instructions] 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.

Additionally, 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.

And now, I’ll like to turn the call over to Tim.

Tim Myers — President and Chief Executive Officer

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 link-quarter declines in Q1 deposits. This year the 9% decrease of $323 million was due to a number of factors concurrent with the 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. And third, deposit movements to outside brokerage firms and financial institutions for a 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 22 through April 18, deposit levels have stabilized. In 2022, we maintained excess liquidity and 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 10, 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 longstanding practices that uphold our robust liquidity risk management standards. Importantly, despite the decrease in deposits quarter-over-quarter, our average cost of deposits remain low by industry standards at 20 basis points. 40 basis points in the month of March, though, this was up from eight 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.

Now 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 principle of 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 had 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 reported 100% occupancy. Vacancy is averaged around 50% on the other three. $19 million or 26% of the $72 million portfolio is graded as the substandard as first reported in our Q4 2021 earnings and remains performing.

While we understand the heightened concerns of 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 first 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. In addition, 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 in the talent and technology.

Finally, I’m excited to share that we welcomed our new Chief Information Officer, Sathis 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-sized 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.

Tani Girton — Executive Vice President, Chief Financial Officer

Thank you, Tim, and 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. So far this cycle increases in rates and 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 our 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. Additionally, 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, and the efficiency ratio increased to 60.24% from 50.9% 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. Additionally, 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.

On the flip side, 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 provides 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 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 continued 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.

Tim Myers — President and Chief Executive Officer

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.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Questions can also be submitted via the webcast page by clicking the Ask Question tab and typing your question in the box that appears at the tab. [Operator Instructions]. Our first question comes from the line of Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark — Piper Sandler — Analyst

Hey, good morning, Tim and Tani.

Tim Myers — President and Chief Executive Officer

Good morning, Matthew.

Tani Girton — Executive Vice President, Chief Financial Officer

Good morning.

Matthew Clark — Piper Sandler — Analyst

If you just, around the margin — can you give us the average margin in the month of March and what is your updated outlook is for your cumulative beta through the cycle, I think we talked previously about 10% to 15%. I think the total deposit beta, if memory serves me correct, but any updated thoughts on that as well?

Tani Girton — Executive Vice President, Chief Financial Officer

Yeah, so, I’ll need to pull the margin for the month of March for you, which I can do in a second on the betas. So right now we’re looking at 15%, thus far, we have 45 built into our markets [Phonetic], which is still above the historical norm, but we are doing some catch-up right now, as you know, so the — in the 15 — 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 March cost of deposits because it was ongoing through the month of March. So, we’ve got some catch-up going there, but I would say that. if you — if we look at our modeling for net interest margin, assuming the standard 45% beta, there is a slight increasing trend in the margins. So, our assets continue to reprice upward. At the same time, we’re undergoing a patch-up, and I will pull the margin for March, but that will take me a second.

Matthew Clark — Piper Sandler — Analyst

Okay. Okay, sounds good. And then just your outlook for deposits and borrowings. Deposits, it sounds like they’ve stabilized, but 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?

Tani Girton — Executive Vice President, Chief Financial Officer

So, we will — 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. So, to the extent that we can deploy those to reduce the borrowings, we will. The borrowings have been pretty stable for the last couple of months. So, I think we’re good there, and as I said, when we have opportunities that make sense for us that either have low earn-back periods or interest rates go down giving us an opportunity to sell larger portion of the securities portfolio at a gain, we will do that.

Tim Myers — President and Chief Executive Officer

And Matthew, we do tend to have within our borrowing, I’m sorry, our depositor base some seasonal increases as you get later in the year that should assist for that too. Certainly this quarter there is some seasonal declines, but we tend with some of those depositors — large depositors to see increases throughout the year as well. So, we’ll continue to look at all those options and work those down, as soon as possible.

Matthew Clark — Piper Sandler — Analyst

Okay. And then a couple more here. How much was the BOLI benefit this quarter and then any guidance around your non-interest expense run-rate going forward with the savings from the branch closures that you mentioned?

Tani Girton — Executive Vice President, Chief Financial Officer

The BOLI benefit was $313,000. And I didn’t hear the second half of the question.

Matthew Clark — Piper Sandler — Analyst

Just around your — any guidance around the non-interest expense run-rate with the cost savings coming through from the branch closures.

Tani Girton — Executive Vice President, Chief Financial Officer

Yeah. So what I would do on the run-rate is, look at — so we have several adjustments that use — that are actually noted in the earnings release. That would — should be excluded from the run rate. And then 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, and then for future years, $1.4 million savings.

Matthew Clark — Piper Sandler — Analyst

Okay. Thank you.

Operator

Our next question is from the line of Jeff Rulis with D. A. Davidson. Please go ahead.

Jeff Rulis — D.A. Davidson — Analyst

Thanks, good morning. Tani, just on that last point, the $470,000 net, what — could you unpack the — I assume there’s upfront cost with that of which, I think maybe you incurred some in the first quarter and then, I guess the savings for the rest of the year and I guess also if there were savings in the first quarter that you’d call-out just to try to break that piece of the $470,000 out a little bit.

Tani Girton — Executive Vice President, Chief Financial Officer

Yeah. So, 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, and then there was $158,000 of accelerated lease expense and that was associated with one of the branch closures.

Jeff Rulis — D.A. Davidson — Analyst

And no savings in the first quarter just yet?

Tani Girton — Executive Vice President, Chief Financial Officer

I have to run that number for the first quarter. So, to break down that $470,000 net for the year over the four-quarter period. I can send out an email after the call on that, if you like.

Jeff Rulis — D.A. Davidson — Analyst

Okay. Just — I guess, you got us on the run-rate annually. So I can kind of back into that. That’s fair enough on the cost. Thanks. I wanted to go back, Tim, to the — to that — I appreciate the breakout of the outflow but focusing in on that 14%, that sort of left the bank. Just trying to get us — just circling back, to you. I think you gave some reasons that some were seeking safety, some were seeking yield. One, could you confirm those reasons for departure? And, two how is that conversation changed kind of to mid-April versus the early stages of the news events in March?

Tim Myers — President and Chief Executive Officer

Sure, no, it’s a good question. So, as we’ve talked about before going into the first quarter, we were slow to increase our deposit rates kind of see what March [Technical Issues] and how our customers may respond, we actually have 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, and so then we became more aggressive in doing that, but I think you added at that point in 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, and so it’s really hard to parse out completely, how much of a concern that was about viability versus just a rate conversation, but certainly the higher rates at a large brokerage firm were enough to help drive some of that.

So we got much more aggressive for us later in that quarter, made a lot of adjustments, we actually started a number of tier increases the day before or three days before the failure to Silicon Valley Bank. So, we thought we were getting — 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 and then certainly the need for that was exacerbated [Technical Issues] pretty healthy increases for us, we still think we’re very [Technical Issues] and still maintain the viability [Technical Issues]. Does that answer your question?

Jeff Rulis — D.A. Davidson — Analyst

Yeah, it was — audio was starting to get a little choppy there. I don’t know if that’s on my line, but, I got you — got the gist of it. I appreciate it. One other question on just the — you mentioned the 37 [Technical Issues].

Operator

This is the operator. We hear choppiness from the line right now coming from that mainline.

Tim Myers — President and Chief Executive Officer

Jeff, are you there?

Jeff Rulis — D.A. Davidson — Analyst

I am. You sound quite a bit clear, Tim.

Tim Myers — President and Chief Executive Officer

Yeah, I couldn’t hear — I couldn’t hear you either. So would you mind repeating what you said, I apologize.

Jeff Rulis — D.A. Davidson — Analyst

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?

Tim Myers — President and Chief Executive Officer

That is in here, hang on. 17% of the $2.1 billion total. It’s on Page 9 of the presentation. So, [Indecipherable].

Jeff Rulis — D.A. Davidson — Analyst

So, all of — well, so in the office specifically of owner-occupied CRE that accounts for that entire amount?

Tim Myers — President and Chief Executive Officer

I’m sorry, office is owner-occupied. We’ll get you that number, Jeff. Don’t have that in front of me.

Jeff Rulis — D.A. Davidson — Analyst

Sure. Just the last check-in. The loan pipeline you scratched out some growth in the first quarter. It looks like paydowns were down. You came in with kind of a lower pipeline but ended up a net growth, how does that pipeline look there, or at least the start of the quarter versus, as you entered the year?

Tim Myers — President and Chief Executive Officer

It continues to build — demand is reasonably muted out there with rates where they are but we are seeing the pipeline build. It gets lumpy and you closed loans and then you have to build that pipeline back up, but I think we’re pretty pleased given the environment of how that’s shaping up.

Jeff Rulis — D.A. Davidson — Analyst

Okay, okay. I’ll step back. Thank you.

Tim Myers — President and Chief Executive Officer

Thank you.

Tani Girton — Executive Vice President, Chief Financial Officer

This is Tani, Interjecting the answer to your question, Matthew. The tax-equivalent net interest margin for March was 2.74%.

Operator

All right. Our next question is from the line of David Feaster with Raymond James. Please go ahead.

David Feaster — Raymond James — Analyst

Hey, just — thanks for taking the questions. One quick [Speech Overlap] that — one quick one-off the bat, is — could you remind us of the cash flows of 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 was.

Tani Girton — Executive Vice President, Chief Financial Officer

Yeah, we usually — we do usually think of it is around 100 a year. Of course that fluctuates from quarter to quarter and if any — but if we have any calls on securities, it would accelerate that, yeah, but it was higher than — a little higher than normal, this quarter.

David Feaster — Raymond James — Analyst

Okay. And then just on the expenses, just wanted to clarify whether you would expect those to all flow to the bottom line because in the prepared remarks, Tim, it kind of sounded like you were planning on reinvesting those. Just wanted to make sure that we’re thinking about kind of the expense run rate the right way.

Tim Myers — President and Chief Executive Officer

You’re talking about the brand saves — cost savings?

David Feaster — Raymond James — Analyst

Correct. Yeah.

Tim Myers — President and Chief Executive Officer

Yeah. So, 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 but that will take some time, hiring of the opportunistic, so we don’t have, that money earmarked currently for things, so I think for some undetermined period of time, those will drop to the bottom line, but eventually with our new CIO onboard, potentially taking advantage of some of the disruption in the market, we certainly would like the higher, but there’s nothing on the immediate horizon for that, for either of those things. So, we expect that to be true cost saves until we can reinvest in growth.

David Feaster — Raymond James — Analyst

Okay, that’s helpful. I just want to make sure we’re thinking about that. 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 is trending. How new loan yields are? And maybe just your appetite for growth here, just given the backdrop what segments you are 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.

Tim Myers — President and Chief Executive Officer

The opportunity 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 bus, but the market is not responded by way of loan yields, and our market the way, maybe we would have liked. And so we will continue to look for loans, that makes 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 is still pretty positive. San Francisco clearly has its issues, but our portfolio has held up well there, and we’re seeing growth out of some of our other regions like Walnut Creek. So, with our different regions now that can be desperate in terms of when one does well versus the others, but we’re seeing a good pipeline build-up in the Sacramento market, and 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.

Tani Girton — Executive Vice President, Chief Financial Officer

And 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 a couple 100 basis points. So, we do continue to see upward momentum on the yields for the asset side.

Tim Myers — President and Chief Executive Officer

But maybe back to your question a little bit, David. I mean, we’ll continue to look for those areas where we can land on a good risk-adjusted return basis, but in some of our niche lending areas like tax-exempt. I mean, we’re still seeing large regional competitors put out and even some money center banks put out offers that 20-year fixed rate loan [Technical Issues] rates. So, we will have choices to make, on those the right assets to put on our books based on the credit quality and the realization of opportunities.

David Feaster — Raymond James — Analyst

Okay, okay, that’s helpful. And just following back up on the margin. If I hear your comments earlier about — you’re seeing a slight increase in trend in the margin. Do you think we’ve troughed here kind of from that $374,000 or $274,000 that you just mentioned? And kind of just how do you think — how do you think about the margin looking forward? I know it’s a tough question to ask, but.

Tani Girton — Executive Vice President, Chief Financial Officer

Yeah, that’s a real tough question because as I said, I don’t want to predict where the margin is going exactly because in that $274,000 for March, for example, we’re still seeing assets repricing upward, but we are still playing catch-up on the deposit side on the deposit beta and — so if you look at them in isolation each one of those two factors weighing against each other, they are offsetting each other somewhat but I think incorporating the full price increase on deposits that we have, that we put into place during the month of March, that’s going to put some pressure on the margin.

David Feaster — Raymond James — Analyst

Okay, all right. That’s helpful. Thank you.

Tim Myers — President and Chief Executive Officer

Thank you, David. Jeff, back to your question on owner-occupied CRE Office that total is $65 million.

Operator

Next question is from the line of Woody Lay, KBW. Please go ahead.

Woody Lay — KBW — Analyst

Hey, good morning, guys.

Tani Girton — Executive Vice President, Chief Financial Officer

Good morning.

Tim Myers — President and Chief Executive Officer

Good morning, Woody.

Woody Lay — KBW — Analyst

Wanted to start off with the office portfolio. I mean, I know North Bay gets a lot of the headlines, but can you talk about the trends you’re seeing in the other 81% of the portfolio?

Tim Myers — President and Chief Executive Officer

Yes, I will comment briefly on the North Bay market. Sales trends are down, but things like cap rates and price per square foot are holding and vacancy is a lot lower. So, for example, in the North Bay, vacancy for office is around 11%, 12%. So, 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 they — we have been a very robust annual review process that gives us a lot of insight into the market as we go throughout the year.

Misako Stewart — Executive Vice President, Chief Credit Officer

Sure. Good morning. Like Tim said, San Francisco is probably the most impacted, and maybe next would be Sacramento, in terms of office, but as noted in the presentation slides, so our entire non-owner occupied office portfolio is about $370 million. We do have — the 55% average loan-to-value in debt service is based on the most recent information as of 12/31/’22 and so I think our underwriting standards 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, so, I think we continue to monitor the portfolio closely, but, I think it’s — we’re in a very manageable situation.

Tim Myers — President and Chief Executive Officer

And I’ll just reiterate something, that Misako said, we just came in on the line about San Francisco office exposure and how recently, those have refreshed in terms of loan-to-value, debt service coverage occupancy. That information in the deck that is all based on 12/31/’22 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 trend. So, 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.

Misako Stewart — Executive Vice President, Chief Credit Officer

Yeah, we do reviews for about $1 billion of our $1.2 billion non-owner-occupied real estate portfolio.

Woody Lay — KBW — Analyst

That’s helpful color. And 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?

Misako Stewart — Executive Vice President, Chief Credit Officer

That’s a tough one to answer. Since, as you point out, it is subjective. I would say in our San Francisco office portfolio, these are not high-rise skyscraper-type buildings. They are relatively smaller in size, and as noted, as Tim mentioned, eight out of our 11 properties are 100% occupied. So yeah, it’s a hard question to answer.

Woody Lay — KBW — Analyst

Okay. Got it.

Tim Myers — President and Chief Executive Officer

Sorry most are in that few story range, there is 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, but the vast majority of our properties are two or three stories.

Woody Lay — KBW — Analyst

Right. Okay and then.

Tani Girton — Executive Vice President, Chief Financial Officer

And then the A, B, C are subjective as you said, so.

Woody Lay — KBW — Analyst

Right, yeah. All right. Well, lastly, I just wanted to hit on deposits and I appreciate the color that balances have held in relatively stable since March ’22 but any color you could just give on the mix-shift over that time, I mean are you seeing the non-interest bearing composition continue to decline or is that holding relatively stable as well?

Tim Myers — President and Chief Executive Officer

No, that holding stable, in fact, there’s a slide in the investor presentation that we’ve posted, that shows almost an identical mix by — on Page 4, [Indecipherable]. Yeah, it’s on page four of the deck there and the mix is almost identical. Non-interest bearing DDAs, 50.3% versus 51.5%, money market went from 27.7% to 28%, so from a mix standpoint, it has 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 mean to picking on that, that was the trigger point — was really large outflows tied to specific events that are very easy to point to. I guess, in 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 CRA purchase post-SVB collapse, a lot of — a state and trust disbursements. So it really was unfortunate timing, but in terms of the behavioral attributes, we really have seen things settle since the 22nd and that mix really hasn’t changed a lot.

Woody Lay — KBW — Analyst

Got it, all right. That’s all from me. Thanks for taking my questions.

Tim Myers — President and Chief Executive Officer

Thank you.

Tani Girton — Executive Vice President, Chief Financial Officer

So, while we’re on the topic and waiting for other questions on the phone, we did have an investor ask again about the deposit beta for the quarter versus what we indicated for the cycle. So, they’re both the same because 15% for the cycle, I’m quoting through March 31, so there will likely be more, but this cycle and March 31 to the same as of right now.

And then 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?

So first of all, we wouldn’t sell held-to-maturity securities, we would sell available for sale securities. And if we were going to do any sort of transaction. If we sold at a gain or at a breakeven 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 transactions combining a sale with some other event, we would be looking for an earn-back under one or two years. Hopefully, that answers that question.

Operator

Next phone question from the line of Andrew Terrell with Stephens. Please go ahead.

Andrew Terrell — Stephens — Analyst

Hey, good morning.

Tani Girton — Executive Vice President, Chief Financial Officer

Good morning.

Tim Myers — President and Chief Executive Officer

Hey, Andrew.

Andrew Terrell — Stephens — Analyst

Maybe just to go back and start on the margin here. I just want to clarify the — 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?

Tani Girton — Executive Vice President, Chief Financial Officer

83 basis points, I’m sorry, I’m not following, what?

Andrew Terrell — Stephens — Analyst

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.

Tani Girton — Executive Vice President, Chief Financial Officer

Okay. On interest bearing. Yes.

Andrew Terrell — Stephens — Analyst

83 versus 23, that’s the average throughout the month, correct?

Tani Girton — Executive Vice President, Chief Financial Officer

Yes.

Andrew Terrell — Stephens — Analyst

Okay. And just, I mean, given the velocity there, the 23 to 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?

Tani Girton — Executive Vice President, Chief Financial Officer

No, we don’t have that right now.

Andrew Terrell — Stephens — Analyst

Okay. I mean, it sounds like you guys got a little more aggressive kind of February-March timeframe in ratcheting deposit costs, but 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 and maybe early March timeframe or enough if you had to move further in April so far, I’m just trying get a better sense of where the deposit cost number is at.

Tani Girton — Executive Vice President, Chief Financial Officer

You know what, Andrew, I can send out an April year-to-date number after the call.

Tim Myers — President and Chief Executive Officer

So, I do know most of our adjustments were made in March, Andrew. And yes, we’ve certainly got more aggressive. We have started that process, like I said, two or three days before, collapse of Silicon Valley Bank and accelerated that shortly thereafter but, most of those adjustments, that I’ve seen so far were done through the end of the month.

Andrew Terrell — Stephens — Analyst

Okay. I appreciate it. And then the one other question. I had, you guys have, I think it’s closer to $35 million buyback in place and capital ratios look very-very healthy. With the stock trading around this tangible book-value level, can you talk about your appetite for utilization of the buyback here, I didn’t see any in the quarter but love to hear your thoughts.

Tim Myers — President and Chief Executive Officer

Yeah, we would love to buy shares back at this price. I think we’re waiting and seeing a little bit with the concerns around credit risk, making decisions around whether — watching the market and the ability to sale — available-for-sale securities, reposition our NIM based on reducing FHLB borrowings. And so we’re looking at all those options and how that would impact capital. Again in light of potential credit issues coming so, I would love to do that, but I want to be cautious and prudent in the approach.

Andrew Terrell — Stephens — Analyst

Okay, while the rest of mine were asked and answered already, so I appreciate you taking my questions.

Tim Myers — President and Chief Executive Officer

Yeah, Thank you.

Operator

[Operator Instructions] We have a question from the line of Tim Coffey with Janney Montgomery Scott. Please go ahead.

Timothy Coffey — Janney Montgomery Scott LLC — Analyst

Yeah, thank you. Morning, everybody.

Tim Myers — President and Chief Executive Officer

Hi, Tim.

Tani Girton — Executive Vice President, Chief Financial Officer

Hello.

Timothy Coffey — Janney Montgomery Scott LLC — Analyst

Hey. I appreciate — I really appreciate all the detail that you provided in the investor deck and on the call today and had some follow-up questions on some of those items. The construction book in San Francisco, can you provide some color on that?

Tim Myers — President and Chief Executive Officer

Yes. I am going to ask Misako to weigh in on this, excuse me. much better versed in the [Indecipherable].

Misako Stewart — Executive Vice President, Chief Credit Officer

Sure. The construction portfolio mostly is in multifamily or single-family residences. When you ask about color. Is there anything specific you want me to address, I mean, they have all performed…

Timothy Coffey — Janney Montgomery Scott LLC — Analyst

Yeah, exactly. Well, the modern property type and location. So, I mean specifically in and around the Central business district?

Misako Stewart — Executive Vice President, Chief Credit Officer

They are mostly in San Francisco, they’re multifamily, so they do cover a number of different neighborhoods in San Francisco. If there’s anything we have seen softening in terms of just condo sales, but they are all performing currently.

Timothy Coffey — Janney Montgomery Scott LLC — Analyst

Okay. And then with all — with the total CRE loans in San Francisco. Are you seeing any signs that they’re behaving differently than say, the office portfolio?

Misako Stewart — Executive Vice President, Chief Credit Officer

In San Francisco?

Timothy Coffey — Janney Montgomery Scott LLC — Analyst

Yes.

Misako Stewart — Executive Vice President, Chief Credit Officer

I would say that’s a general trend that we’re seeing, which, I’m sure many others are seeing as well is just with vacancies. As leases come due in maturity. Many are not renewing or if they are, they are renewing at lower rates and so we are — 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, majority of it is concentrated in office in San Francisco, I think we have a few industrial properties at which are performing at the grade.

Timothy Coffey — Janney Montgomery Scott LLC — Analyst

Okay. And then my last question has to do with account openings. How many accounts — deposit accounts do you open in a typical quarter?

Tim Myers — President and Chief Executive Officer

Give me one second.

Timothy Coffey — Janney Montgomery Scott LLC — Analyst

Yeah, I’m just trying to get an idea of kind of your puts a 1,000 you opened in this last quarter in.

Tim Myers — President and Chief Executive Officer

Yeah, probably in the 500 to 600 range.

Timothy Coffey — Janney Montgomery Scott LLC — Analyst

Okay. All right. Those are my questions. I appreciate the time. Thank you.

Tim Myers — President and Chief Executive Officer

You’re welcome.

Operator

And we have no further questions from the phone line.

Tani Girton — Executive Vice President, Chief Financial Officer

Okay. 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 it’s a — on the asset side, it’s a gradual increase and in — like the first the next couple of months with the beta catch-up on the deposits, that’s definitely going to offset it more than in future months, but 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.

Tim Myers — President and Chief Executive Officer

While she is 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 Silicon Valley Bank that seems to be a focus of their new owner as well but we have had conversations with teams with various specific focus within commercial banking from some of the other dislocations, so I do think there will be hiring opportunities. The right — the question for us is going to be is it the right sale? Will that help drive this forward in areas we want to continue to grow in? Is that someone can add value? But, I would expect us to have more opportunities within that broader commercial banking for sure and then hopefully in wine, as we say that — see this continue to play out.

Tani Girton — Executive Vice President, Chief Financial Officer

And going back to the reserve for unfunded commitments as of March 31, it was $1.3 million.

Looks like we have another question from the line. Please hang on.

Operator

[Operator Instructions].

Tim Myers — President and Chief Executive Officer

So, I will say that’s — 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% to 20% range. If you would like more specificity around that, please reach out to me or through Andrea or Tani directly, I’m not sure if you have the question came in from.

Operator

We have no questions from the phone queue.

Tim Myers — President and Chief Executive Officer

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. But we appreciate your involvement. Thank you.

Tani Girton — Executive Vice President, Chief Financial Officer

Thank you.