Good morning and thank you for joining us for Bank of Marin Bancorp's Earnings Call for the quarter ended December 31, 2014. My name is Fabia Butler; I am Vice President, Community and Public Relations Manager for Bank of Marin. During the presentation, all participants will be in listen only mode. [Operator Instructions] As a reminder, this conference is being recorded on January 26, 2015. Presenting this morning will be Russ Colombo, President and CEO; and Tani Girton, Chief Financial Officer. You may access the information discussed from the press release which went over the wire at 5 AM Pacific time this morning and on our website at www.bankofmarin.com, where this call is also being webcast. Before we get started, I want to emphasize that this call is based on information that we know as of today, January 26, 2015 and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings press release we issued today as well as Bank of Marin Bancorp's SEC filing. Following the prepared remark, our team will be available for question. And now I'd like to turn the call over to Russ Colombo.

Thank you, Fabia. Good morning, and welcome to the call. I am pleased to be with you this morning and to present our results for the fourth quarter and for the full year. The Bank is in great financial condition and we look forward to another strong year in 2015. Before we get into the detailed results, I'd like to highlight several key milestones for the year. Our annual earnings totaled $19.8 million, as compared to $14.3 million a year ago, reflecting a 39% increase. We completed a successful integration of Bank of Alameda customers and staff and are poised for growth in the East Bay. At year end, total loans were $1.4 billion, an increase $94 million, or 7.4% from $1.3 billion a year ago. Net increases were primarily C&I loans and investor-owned commercial real estate. Our credit quality remains excellent with $124,000 net recovery for the year. As for the quarterly result. Earnings for the quarter were $4.7 million, down from $5.4 million in the previous quarter, reflecting lower interest accretion on acquired loans and increase in reserve for un-utilized loan commitments. Net - new loan volumes were strong at $35 million, but was offset by payoffs related mostly to the sale of underlying asset. We experienced strong growth in C&I and related owner occupied commercial real estate loans, which comprise the majority of new outstandings booked in the quarter. Our strategy of balancing growth in new markets while remaining committed to the core, to our core markets of Marin and Petaluma was evident as new loan volume in the quarter were split evenly between two regions. In Napa, the investment in our new commercial banking team is paying off as they generated $30 million in new loan commitments in the second half of 2014. Virtually all new…

Thank you, Russ. I'll begin by saying that our 2014 earnings of $19.8 million mark a new record for the Bank. Return on equity was 10.31% for the year compared to 8.86% in 2013. Return on assets rose to 1.08% versus 96 basis points a year ago. Year-over-year increases in both ROA and ROE were driven by strong earnings resulting from the successful integration of Bank of Alameda and ongoing relationship management. Diluted earnings per share increased 28% to $3.29 for the year, up from $2.57 a year ago. Adjusting for one time acquisition cost in 2013 and 2014, EPS growth of 11% reflects expense savings on the acquisition greater than originally projected. With regards to net interest income, $17.1 million in the fourth quarter compares to $15.6 million a year ago as a result of higher loan and investment balances. Net interest margin of 3.99% for the quarter is down 6 basis points year-over-year primarily due to lower interest rate on new and renewed loans. Net interest income and net interest margin were down in Q4 from the prior quarter primarily due to the decrease in accretion on acquired loans that Russ mentioned earlier. Looking at expenses for the quarter, non-interest expense totaled $11.6 million which compares to $11.4 million last quarter and $13.9 million a year ago. This $323,000 increase in reserves on unfunded commitments this quarter was the result of an update to the methodology used in our estimation process. Our 2014 efficiency ratio of 59.46% remains one of the best in the industry. While slightly higher than it has been historically, we are staffing for growth in lending and credit administration and building a strong foundation for future opportunity. We continue to hold the line on expenses and make investments that directly impact and support growth in our core businesses. Liquidity is strong and capital ratios continued to be comfortably above regulatory requirements for well capitalized institution. The total risk based capital ratio was 13.9% at quarter end compared to 13.6% last quarter. The tangible common equity ratio totaled 10.7% at December 31, compared to 10.3% at the end of September and 9.5% a year ago. And with that I'd like to turn it back over to you Russ for some additional comments.

Thank you, Tani. While we expect a competitive lending environment in the Bay area to continue, our disciplined approach and prudent growth strategies are paying off. Non-interest bearing core deposits, a value of the franchise continued to be at healthy level at 43% of total deposit. We are making strategic investments in the business, including hiring experienced commercial lenders to drive future growth. For the dividend of $0.22 per share this quarter, this marks the 39th consecutive quarter we've paid a cash dividend. We continue to adhere to disciplined credit practices. Overall, we remain in excellent financial condition with high levels of capital. And on Friday, January 23rd, we celebrated our 25th anniversary in business. We are optimistic about the future and we are confident that we will continue to deliver high value to our shareholders throughout 2015 and beyond. And with that I'd like to thank you for your time this morning. And now we will open it up to answer your questions.

[Operator Instructions] And our first question come from the line of Mr. Jeff Rulis from DA Davidson. Please proceed, sir.

Thanks, good morning and congrats on the 25th anniversary. Question on the payoff activity that you outlined, Russ, so $44 million this quarter, what was that in the prior quarter?

In the prior quarter, yes, I don't know exact -- I can't remember, sorry. I can get back to you Jeff, but I don't know the answer to that, sorry.

In a broader question I guess do you view payoff activity in 2014, any sense that, that would subside in next year. In terms of how those matured or business conditions drove that? I guess the outlook for 2015 and if you say that the origination still remain strong kind of what's your view of the coming year?

Well, originations are still strong. One of the things that drove a lot of the payoff activity is that valuations in the - particularly in the Bay Area have risen dramatically. Rents of have been through -- and frankly it is kind of interesting -- it has been driven primarily from the [indiscernible] on San Francisco but as it goes out around of Bay Area because of technology and so I -- there is a lot of sales, lot of the payoff activity was related to sale or property and we got paid off because they sold property as opposed to refinancing, I think there are something like 17% of our payoff activity was actually be financing but the rest was -- it is sale of property or sale of business. And so we had last year substantial for the full year around $180 million of new loan activity, new loan activity but we had half that again in payoffs due to either sale property sale of business and some refinancing activity. Do I think that's going to continue? Well, it is part of the business. When you do a lot of commercial real estate financing, part of the business is that investors sell property. And so for us we have to generate a substantial volume of new business to just see growth and so fourth quarter we had a quite bit of -- again quite a bit of new volume but unfortunately we had a lot of payoff activity too. So we are looking forward, we think we are optimistic about the next year. But we know that that's part of our business, so we have to generate a big volume in order to continue to show that -- and then for year we showed a net growth of 7.4%.

Right. Okay, and then I guess as accretion income eventually wanes, I guess any thought on attacking the funding side, prepaying borrowings or retiring some debt, anything in place to maybe look at the funding side in the coming year.

So we are paying a lot of attention to the funding side. We don't have a lot of debt on the balance sheet right now. We are mostly funded with deposits, so and our core deposit ratios - our non-interest bearing actually went up year-over-year. So I think everybody is looking to make sure that we grow the deposit base in the appropriate areas to fund future growth of the company.

Got it. So if your -- if I read you right I mean the cost of funds is pretty low. I guess if additional progress there is going to be difficult -- I guess the outlook for the margin as accretion comes in, it’s going to be tough to keep that up or I guess the margin read-through would be what?

Well, I think you are going to -- it is not going to get a whole lot wider right now until rates rise. I mean we are in a -- obviously we have a cost of fund of 10 basis points, can't go much lower, and as we generate a lot of new loan volumes, these are -- the margins are pretty thin, and that's the reality. So it is important for us to generate loan growth because of the shrinking margin. I don't see that changing until rates rise and I don't know that -- I am not an economist but I don't know that's going to be in a very near future.

Thank you. And our next question comes from the line of Mr. Tim Coffey from FIG Partners. Please proceed, sir.

Thank you. Good morning and congratulation on the 25th anniversary. My question -- my first question has to do with deposit balances. It looks like they have come down the last two quarters. Is that just repositioning within deposit portfolio or is it something else going on?

There are a couple of things going on. First of all, if you look at our deposit mix, non-interest bearing deposit actually continue to increase which is the -- what we call our relationship deposit. We are very focused on building relationships. We do not try to attract interest rate, sensitive type deposit, in other words we are not chasing deposit with rate. And so we've been pretty disciplined about that. We talk about discipline all the time and the primary thing one thinks about is discipline in our lending policy. So we are also very disciplined in our deposit side. And we have not done anything to try to attract interest rate sensitive deposit. And so what’s happened is we have some volatility but it is okay because we are so liquid, we've been focused on building the relationship side. In the fourth quarter there is always volatility, and we have a few customers who have large balances who are always volatile and frankly at the end of the year we always see a slight decline, whether that's related to tax payments or whatever, who knows. But there is a bit of volatility in those accounts. It is nothing unusual going on other than the fact that we are not trying to attract the rate chases so to speak. When we acquired Bank of Alameda, we re-priced, they had a lot of high rate deposits which we re-priced and frankly a lot of it moved out of the bank immediately. It’s fine to tell you they are not relationship deposits. And so that's our philosophy. That's the way we go, and you go as rate -- even when rates rise obviously we have to make some adjustments. But we are in really good shape on the deposit side primarily because our non-interest bearing deposits are 43% of the total.

Right. No, the mix is very good. Okay, I appreciate the color. And then the other question I had was on the new employee additions that you are making. You made a couple of good hires it sounds like this past quarter. How far are you into the process and bringing on new lenders and do you -- how long do you expect this to go on, the investment of people to go on, is that going to be like 2015 issue?

No. We hired a few people that came on right at the beginning of the year including Jarrod Gerhardt, our Marketing Director. We also added a new audit manager and a new compliance manager, both of whom joined this month in January. We've also added -- we continue to -- we added some lenders. We strengthened our business banking team in Marin. We've also added in East Bay, we've added a couple of lenders in San Francisco, we've added one also. So we are in really good shape as far as lenders go. I mean if there is a opportunistic situation where we have someone that we know that's really great, we might bring them on but right now we are pretty good in terms of the staffing. So I am optimistic going forward because we have a really great team now that we will go forward with and show some growth from that. I don't think you will see -- you will see some in the first quarter just because we did in January but you won't see a lot of that.

Thank you. And the next question comes from the line of Mr. Don Worthington with Raymond James & Associates, Inc. Please proceed, sir.

Good morning. Maybe a little more follow-up on the deposits. You mentioned some seasonality in the fourth quarter non-interest-bearing number. Would you expect to get some of that back in the first quarter?

Maybe. I mean some of our larger deposit accounts are quite volatile because of their businesses that they are in. And I won't go what they are -- those businesses are but and so we do see some seasonality to what they do. Typically we see a run up starting kind of April 15 beyond and beyond and then we see near the end of the year decline. And so you might see some seasonality there. But frankly what we are trying -- we continue to trying to build is more stability with relationship deposits and the bigger account that depend on a good news bad news. They give you the strong growth sometimes but they also can fall off. So relationship with the little market businesses that we think that bring lending and deposit and its their core deposit, the dollar they use everyday in their business, that's what we are trying to build and an indication of that, that demand deposit number and continue to watch that closer than anything because that says we are doing the right thing with our customers.

Okay, thank you. Then in terms of the additions to the lending staff, do you typically draw those from other community banks, or larger banks, or both?

Kind of a mixture. We've had some good success with attracting people from other community banks. Primarily to give you as an example of the Napa where we have hired a team up there, they all came from an East Bay community bank. And we hired five people. And a lender that we hired in San Francisco, East Bay was also from that, from the community bank in East Bay. So we like banks that are similarly positioned to us because they understand the way we operate as community bank. So we had really good success with those people. That being said, it is great when we have lender that might be available from one larger bank because they understand this one in process and things like that. So we are pretty happy with the team we are building. Here in Marin, we hired a couple of people, one as the head of our business banking area who comes from a larger bank, who has brought great amount of discipline and knowledge of commercial lending and the woman that we hired has been tremendous asset. Because of that she has attracted others that have joined us in business banking. Business banking is the lower middle market. And so what I find amazing now or what maybe it is not the right word, what impressive about what's going on now is we are really starting to attract some real quality people on our lending staff which is just which is raising the game so to speak. So we have hired people from and kind of go down the list, well I don't, I shouldn't probably do that. But anyway across the board with a number of banks and we are continuing to attract people to our institution.

Thank you. And our next question comes from the line of Jacque Chimera with Keefe, Bruyette & Woods. Please proceed, sir.

Hi, Russ. Hi, Tani. Looking at the -- Tani, this one's a question for you. Was there anything unusual in the tax rate in the quarter?

No. Actually when we trued up the taxes for the full year there was not a big adjustment.

Okay. And then were there any interest recoveries, or maybe some interest reversals in the prior quarter for the loan yields?

So over the course of the year we had a little bit but not in the -- not anything material in the fourth quarter.

Okay. I know that I used a different day-count annualization factor than you guys do in the press release. But I'm just wondering, for the last three quarters my calculations have showed it being -- we're nearing a more stable level. I feel like a large drop-off has ebbed, especially in the last quarter. Are we hitting a point where what you're putting on is pretty close to what's already on the books?

I am not sure I understand the question, Jacque.

So the new loans -- are we hitting a point where the loan yields are starting to stabilize, where large fall-offs are starting to be a thing of the past, where the new loans that you're booking are close to what is the overall loan yield on the portfolio?

Yes. I'll answer that Jacque. Yes, in fact, that's exactly what's happening, it is stabilizing. We are putting on transactions that are pretty close to where our margin is, our net interest margin is that we are showing for the full portfolio.

And is that realizing that we're very early in the quarter; is that still the case even with what rates have been doing over the last couple of weeks?

Yes. That hasn't changed.

Okay, that's good to hear. And looking at just where cash balances are now, and obviously the desire would be to put them into loans and not into securities, but as you look at your cash ebbs and flows, is there any interest in buying securities now, or is it something where they'll run off, and cash will continue to build if rates don't move upward?

So what we will -- what we will always do is first put the -- first put our cash into loans and if we needed to shrink the securities portfolio in order to make sure that loans are getting the first piece of the liquidity, that's what we are doing, you can see that over the course of the year that's exactly what happens, the securities portfolio did shrink and we have a bigger proportion of the balance sheet and loans now. So we will continue that as long as the loan to deposit ratio is below what our threshold is. There is target size and we won't see significant securities portfolio growth.

And there are no further questions at this time.

We got one question that came in and I will read that and then I will answer it. It says can you speak about the success rate that hire that you made over the past few years. And any market where you need to add bodies? I can talk about -- let me start with Napa, and I think that's a lot but I think it is a good example. We hired five people in Napa about a year ago and so and they have done a tremendous job, first year it takes time certainly to kind of get settled in and start attracting business. They booked over $30 million in new commitment this past year and not all of that has been funded. A lot of that is unfunded at this point. And they have a great pipeline too. They have been a tremendous success that's why we look forward to that being an important part of our growth engine the Napa market. And so that's an example of adding people that have been great success. Now another -- I will add -- mention another person that we added here in Novato, in the business banking side, that person brought in some real discipline about not only the credit side but also the relationship management and really been being in front of your client. And we reverse the trends of having seen some shrinking loan volume out of that -- out of our smaller market here in Marin. And they actually turned that around and have growth. And so that's been terrific hire and we've also acquired other people because of that person being here. So when you are hiring new people it is always tricky but we have had great success with our lending staff and the people we have attracted to the bank. And I think that's reflection of our success and the desire to be at the bank because we've been showing growth and been successful over the last number of years. We didn't have any other questions coming in. Is there any other question --?

There are no questions at this time over the phone.

Okay, well, thank you for joining us this morning. And we will talk to all of you again next quarter. Thank you.