Good morning and thank you for joining the Bank of Marin Bancorp’s Earnings Call for the Fourth Quarter and Year Ended December 31, 2018. 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] As a reminder, this conference is being recorded on January 28, 2019. Joining us on the call today are Russ Colombo, President and CEO; and Tani Girton, Executive Vice President and Chief Financial Officer. Our earning press release which we issued this morning can be found on our website at bankofmarin.com, where this call is also being webcast. Before we get started, I want to emphasize that the discussion on this call is based on information we know as of today, January 28, 2019 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, Russ and Tani will be available to answer your questions. And now, I’d like to turn the call over to Russ Colombo.

Thank you. Good morning, welcome to the call. Bank of Marin’s record fourth quarter and year-end 2018 results are testament to the balanced execution of our strategy based on disciplined lending, underwriting, and credit management. Combined with consistent expense control and adherence to our relationship banking models, this approach helps us attracting industry leading level of low cost deposits and gain market share. Let's start with some of the notable highlights. Net income for the fourth quarter was $9.7 million compared to 8.7 million in the previous quarter, and 1.1 million in the fourth quarter of 2017. Diluted earnings per share were $0.69 in the fourth quarter of 2018 compared to $0.62 last quarter and $0.08 in the same quarter a year ago, after adjusting for the November 27, 2018 stock split. Loan growth for the year was 84.9 million or 5.1% in 2018. Loans increased 35 million to 1,764 million in the fourth quarter, compared to 1,729 million in the previous quarter. Deposits were down 38 million in the fourth quarter due to normal cash fluctuations of our large business clients, were up 26.1 million over the course of the year, 2,175 million at December 31 2018. Non-interest bearing deposits grew by 51.9 million in 2018 and comprised 49% of total deposits at year-end. Large business cycles and strong credit culture has always been an underpinning of our success and 2018 is no exception. At year-end, non-accrual loans represented 0.04% of the Bank's loan portfolio. In 2018, we continue to invest in organic growth initiatives. We expanded our footprint in East Bay and hired Wim-Kees van Hout to open a new commercial banking office in Walnut Creek. We have also strengthened our team in Sonoma County naming David Casassa as Commercial Banking Regional Manager for our Santa Rosa market. Our Board of Directors declared a cash dividend of $0.19 per share on January 25, 2019, an increase of $0.015 per share. This represents the 55th consecutive quarterly dividend paid by Bank of Marin Bancorp. It is worth noting that since August 2005 Bank of Marin's average dividend yield growth rate has been 10.2%. Now let me turn it over to Tani for additional insight on our financial results.

Thank you, Russ, good morning. Net income of $32.6 million reflects the successful execution of our strategy to grow organically and leverage acquisitions in 2018. Net interest income of $91.5 million grew 16.6 million or 22% over the 2017 level, thanks to higher average balances of loans, investments and Non-interest bearing deposits, as well as higher average yields across all earning asset categories. Net interest income of 23.3 million in the fourth quarter included a $916,000 charge for accelerated purchase discount accretion on the early redemptions of one subordinated debenture assumed in the NorCal Community Bancorp acquisition. This removes the high cost source of borrowings and the bank will benefit from the reduced interest expense going forward as a result of the transaction. The tax equivalent net interest margins of 3.85% in the fourth quarter and 3.9% year-to-date were negatively impacted by 15 basis points and 4 basis points respectively as a result of the early redemption. Even so the full-year 2018 tax equivalent margin improved by 10 basis points from 2017 and the reported net interest margin improved by 17 basis points. Non-interest income in the first quarter was 3.4 million compared to 2.2 million in the third quarter and 2 million a year-ago. In the fourth quarter of 2018, we sold 6,500 shares of our visa class B holdings for a gain of 956,000. The bank also received 180,000 special dividends from Federal Home Loan Bank of San Francisco. Full-year 2018, non-interest income of $10.3 million was 1.9 million higher than last year due to the visa stock sale and special FHLB dividend as well as fees from the sale of excess deposit balances to deposit network. Fourth quarter 2018 non-interest expense of $13.7 million was generally in line with the third quarter and lower than a year…

Thank you, Tani. There is an old saying in banking industry. Bad loans are made in good times. The dynamic in protracted economic expansion that the San Francisco Bay Area has experienced for so many years did not last forever. In our view, investors and business owner would be wise to keep a cautious eye on possible peril. And this is imperative that banks maintain disciplines in a way we operate. At Bank of Marin, this is just how we do business. We continue to apply the same standards to our lending practices that we always have, reflecting both the variety and help of the local economies that we serve. Our lending activities continue to grow safely across the footprint. In Marin, Sonoma, Napa, the East Bay and San Francisco were some banking markets. With this extensive built from the strong relationship we have with our clients, a true indication of our relationship banking model is the growth of our deposits, close to 50% of those funds are in demand deposits accounts, primarily operating cash for our clients' businesses. In 2018, we added key people and expanded our presence in growth markets. Our primary focus for 2018 would be on leveraging our talent to drive organic growth and further enhance our profile and reputation as well as our foot print. It is important to note that our vibrant local economy is fueled in large parts by the technology industry. If there is a follow-up in the tech sector, the market volatility would most certainly have an impact on the entire Bay Area economy. While we do not lend to these tech companies directly, we recognized and are well prepared to respond to a downturn in that sector should it develop. We’re structured to manage these changing cycle, thanks to our balanced approach of consistent loan underwriting, maintain a positive business relationship with our clients and with solid understanding of our market. Due to these low cost and stable deposit base solid opportunities for loan growth and our unwavering commitment to relationship banking, we’re well positioned to carry our successful performance into 2019. I would like to thank you for your time this morning. Now, we will open it up to answer any of your questions.

[Operator Instructions] Our first question from the telephone lines comes from the line of Jeff Rulis with D.A. Davidson.

Question on the operating expenses, I guess first in the quarter. Anything kind of wanted to look fairly core, but anything that was somewhat low that would drive kind of a base or just fairly core? And then I guess second part of that is, just expectations in '19 if you look on kind planned hires or other events that may kind of range bound, what you think expense growth would be in '19?

We do -- it's basically core, but we do have -- we did have some openings in towards the banking that we were in the process of selling, so that will drive the cost up a bit. But for the most part, I think those -- and there is always a percentage of positions in the bank that are open. So, if we were 100% fully staffed that will drive that number up a little bit, but for the most part it's pretty much were core expenses.

And then on the visa sales you said, it's roughly half or so of that balance. Is that something that you would revisit annually, quarterly on additional sales? Or how would you approach that ownership going forward?

So, we keep an eye on that portfolio all the time. The reason why this was a good time to sell is that the prices in the market had run up quite a bit and we wanted to capture some of that while that a little bit as a hedge against future volatility in those prices going forward. So, I would say that while we keep an eye on it, our desire at this point is to maintain that position for sometime going forward.

Your next question comes from the line of Jackie Bohlen with KBW. Please proceed.

Just wanted to kick it up, Russ, your prepared remarks comments sounded more cautious in terms of just the economy and how you are viewing it. I wanted to know if, number one, if I'm interpreting that correctly? And number two, how that translates to loan generation?

You are interpreting it correctly. We are cautious just because we have been in this protracted period of expansion and the Bay Area has fair amount of big technology. So, as an organization, we have to be prepared for the future. And if we have issues, the industry falls off it will have an impact on the market that we serve even though we are not a technology lender. But that being said, we still have the same growth expectations we have had historically, and we -- on the loan side we had little over 5% growth this year that's been pretty consistent over time. And we have maintained the same discipline that we have had historically, and we continue to build these relationships. And despite the fact that there is pressure on pricing and all these things, we continue to generate that type of volume and growth. And I don’t expect it to be any different in the next year than we had historically.

Okay so more of just caution based on where we stand in the cycle today versus any weakness that you are seeing in different areas?

Not really seeing weakness. Just -- it's only kind of wise to be a little cautious after this extended period of growth. I just -- technology, in particular. We've had -- if you look back in the history, there are periods, you go back, back to the early 2000 when technology had a big correction, as I like to put it. And that had a great impact on everyone. So I just -- maybe I'm just cautious by nature. I just want to make sure that we're prepared for any downturn. That being said, we are opening off the Walnut Creek. We're re-staffing in Santa Rosa. We're really building for growth, but we're being smart about that.

Okay, definitely wouldn't expect anything less. And one last one, and if you to provide an update on pay-offs and how January is looking in terms of that so far?

Yes. In the pay-off side, we had a big -- every year, there's a certain percentage of pay-off that occur. And we kind of plan for around 10% of our portfolio to insure. December sales was actually down in terms of pay-offs. But we had the normal asset sales. I mean we had a few that we wanted to exit that were credit issues. We did have a few that the financing is -- a lot of it was -- and some of -- one of it was really, completely rate driven. We just wouldn't compete. We had another where they refinanced longer term with a property that was a bigger property that we refinanced out with longer term. So those kinds of things happen. The pay-offs for the year were guided where we expected. Actually, slightly below the 10%, which we've been planning. So only about 8% during the year. So that was actually good and we only planned for that. We hope that we get less than 10%, but we plan as we do our budgeting process. We look to the future, we always plan for about 10%, which means to hit mid-digit -- mid-single-digit growth, you have planned for like 15% volume, 15% increase in volume. So I kind of...

The next question comes from the line of Tim O'Brien with Sandler O'Neill. Please proceed.

First question, at core systems contract that you guys were in negotiations on it, is that finalized now? And does that have an impact on your 1 million quarterly data processing expense run rate?

Well, it -- first of all, it is finalized that's why we are getting the benefit of that. However, we're in the middle of a conversion of our mobile platform to a new system of Q2. And when that, -- we're running -- those costs are in there now and we're still running their old system. So there's some overlap at this point in terms of the cost. That will end until mid-second quarter. So we're -- you're not going to really see those numbers change a lot in the first quarter and a half to two quarters, and then you'll see an impact.

How big is that kind of duplicate cost piece, Russ, kind of give a ballpark? Is it a couple 100,000 or 100,000 or something that will come out ultimately starting in the third quarter?

The numbers about 100,000 quarter.

And then a question for you Tani, the remaining 2.6 million in Feb debt. Do you have -- can you tell us the coupon on that? What that interest rate is on the remainder? And is that Bank of Marin issued debt or something else?

That was originally issued by more accounts.

That would suggest that you guys redeemed right, that you guys called, you called 2.69.

There were two and we redeemed one of them, which was the higher rate one and the remaining one has a coupon rate, it's in high five to low six area. But of course it shows a significant discount. So a portion of that, the coupon is lower than that, a portion of that all in rate is the discount amortization.

And those qualify for Tier 2 capital, is that right for you guys even?

Yes.

Okay, so chances are you’ll retain that, that’s a good investment to keep in this environment.

So, I'd say, the other one was significantly higher in terms of the rates we were paying on it. And so, it really depends on -- we don’t need the capital. So depending on where the rate goes in the future, we may decide to early redeem the other one, but right now we think it's sort of pretty fair level.

And then, do you happen to have the share count -- number shares you repurchased this quarter, not for that, I got the full year number from the press release.

I don’t have the fourth quarter number off hand, but I can get that for you.

That would be awesome. And then last question, little color could you guys provide on interest rate sensitivity heading into 2019 kind of the profile of your balance sheet?

We have about 20% of our portfolio -- our loan portfolio is floating rate immediately. So if the rate -- if there's changing rate, it will increase, decrease whatever the case might be. Another 30% is -- 35% is floating. But it's three months to five years. So it's like a variable rate and -- where you leased at. At the end of the term based on the current rate. And the rest is fixed.

And there appeared to be no further questions on the telephone lines.

Thank you for joining us this morning. I look forward to speaking with everyone again next quarter. Thanks for calling in.