Bank of Marin Bancorp - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered improved profitability: net income of $6.0M and diluted EPS of $0.38, up 35.71% QoQ on NIM expansion and lower operating expenses; NIM rose 10 bps to 2.80% while the efficiency ratio fell to 65.53%.
• Deposit costs declined (total cost 1.36%; interest-bearing 2.44%) amid targeted rate cuts, supporting NIM; December spot cost for interest-bearing deposits was 2.37%.
• Credit metrics improved: non-accrual loans fell to 1.63% of total loans (from 1.91% in Q3) with no provision for credit losses; classified loans declined to 2.17%.
• Capital and liquidity remained robust (Bancorp total risk-based capital 16.54%; TCE ratio 9.93%; contingent liquidity $1.849B = 197% of estimated uninsured deposits); Board declared a $0.25 dividend (79th consecutive).
• Key catalyst: continued deposit repricing and higher-yield loan originations with pipeline momentum (new loan originations $47.1M; yield on new fundings ~42 bps above payoffs), positioning 2025 for further margin improvement and operating leverage.

What Went Well and What Went Wrong

What Went Well

• NIM expansion and disciplined deposit pricing: tax-equivalent NIM rose to 2.80% (+10 bps QoQ) as the average cost of deposits fell 10 bps and interest-bearing deposits fell 19 bps; management executed additional early-January cuts beyond modeled betas.
• Strengthened profitability and operating leverage: EPS +35.71% QoQ to $0.38; efficiency ratio improved to 65.53% from 75.18% on incentive true-ups and lower compensation accruals.
• Improving credit profile: non-accrual ratio declined to 1.63% with a significant $4.7M paydown; no provision for credit losses, reflecting portfolio stability and proactive risk management.

Management quotes:

• “We increased our net income and earnings per share, with both being bolstered by net interest margin expansion and decreased operating expenses” — Tim Myers, CEO.
• “Our non-accrual and classified loans both declined… we did not record any provision for credit losses” — Dave Bonaccorso, CFO.

What Went Wrong

• Seasonal deposit outflows reduced balances: total deposits fell to $3.220B (from $3.309B in Q3), driven by typical year-end business activities; non-interest-bearing deposits dipped to 43.5%.
• Loan balances contracted slightly QoQ: total loans decreased $6.8M to $2.083B as elevated payoffs (construction completions, residential mortgage pool) offset originations.
• Special mention loans increased (to $108.9M) due to a large construction project pending sale/remargin and CRE vacancies; though all are paying as agreed, migration merits monitoring.

Transcript

Krissy Meyer (Corporate Secretary)

Thank you for joining Bank of Marin Bancorp's earnings call for the fourth quarter ended December 31st, 2024. I'm Krissy Meyer, Corporate Secretary for Bank of Marin Bancorp. During the presentation, all participants will be in a listen-only mode. After the call, we will conduct a question-and-answer session. Joining us on the call today are Tim Myers, President and CEO, and Dave Bonaccorso, Chief Financial Officer. Our earnings news release and supplementary presentation, which were issued this morning, can be found in the Investor Relations section 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 news release for both GAAP and non-GAAP measures.

Additionally, the discussion on the call is based on information we know as of Friday, January 24th, 2025, 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 on these risks and uncertainties, please review the forward-looking statement disclosure in our earnings news release, as well as our SEC filings. Following our prepared remarks, Tim, Dave, and our Chief Credit Officer, Misako Stewart, will be available to answer your questions. And now, I'd like to turn the call over to Tim Myers.

Tim Myers (President and CEO)

Thank you, Krissy. Good morning, everyone, and welcome to our quarterly earnings call. Our fourth quarter results reflect continued improvement in our financial performance due to actions we took earlier in 2024 to both reposition our balance sheet and reduce operating expenses. This resulted in an increase in our net income and earnings per share, largely driven by an expansion in our net interest margin and a lower level of operating expenses. On a broad basis, we continue to have strong asset quality within our loan portfolio, and we made progress on previously reported matters with no new issues emerging. During the fourth quarter, our non-accrual loans and classified loans both declined, largely due to paydowns on these loans, and we had an immaterial amount of net charge-offs. We continue to see improvements in leasing activity in San Francisco.

A large non-accrual loan for a previously vacant San Francisco property is now 100% occupied, with cash flows that meet a conforming debt service coverage. Our banking team, reinforced with new members, is doing an improved and more consistent job of developing attractive lending opportunities and generating solid loan production while still maintaining our disciplined underwriting and pricing criteria. While overall loan demand remains fairly consistent, due to the efforts of our banking team, we are getting a larger volume of opportunities that are within our markets. During the quarter, we originated $54 million in loan commitments, with $47 million in outstanding balances. Our originations were a well-diversified mix of both commercial and commercial real estate loans. Additionally, we are seeing more granularity in the loan portfolio and made nearly twice as many commercial and construction loans as in the same period last year.

The outstanding balances from December's bookings will position the bank to benefit from a higher level of interest income during the first quarter when we have the full quarter contribution of these new loans. Our total deposits declined in the fourth quarter. As we indicated on our last call, this was expected given the typical seasonal deposit outflows we see during the fourth quarter due to the nature of our client base, with many professional service firms that have typical year-end fluctuations. Despite the outflows, our proportion of non-interest-bearing deposits remained at a high level at 43% of total deposits, as we continue to benefit from our relationship banking model with high-touch service. Due to our loyal customer base, we have not experienced any material-related deposit outflows as we adjusted our rates in response to the Fed's rate reductions.

Given our improved financial performance and prudent balance sheet management, our capital ratios increased during the fourth quarter and remained very strong, with a total risk-based capital ratio of 16.5% and a TCE ratio of 9.93%. With that, I'd like to welcome our new CFO, Dave Bonaccorso, and turn the call over to him to discuss our financial results in more detail.

Dave Bonaccorso (CFO)

Thanks, Tim. Good morning, everyone. We generated $6 million in net income for the fourth quarter, or $0.38 per share, both of which are higher than the prior quarter as we continue to benefit from the balance sheet repositioning and expense reduction actions we took earlier in the year. Our net interest income increased 4% from the prior quarter to $25.2 million, largely driven by a 10 basis point increase in our net interest margin. The expansion in our net interest margin was attributable to a 10 basis point decrease in our cost of deposits, while our average yield on interest-earning assets was unchanged from the prior quarter despite declines in short-term interest rates.

Our average yield on loans increased by 9 basis points during the fourth quarter, and we expect to see similar improvements in the coming quarters due to repricing benefits within our existing loan book, as well as higher yields from new loan originations. Our non-interest expense decreased by $2.1 million from the prior quarter, mostly due to a decline in salaries and benefits expense resulting from true-ups to accrued incentive compensation. Moving to non-interest income, we had a slight decline from the prior quarter, primarily due to lower wealth management revenue. This was related to an increase in fees during the third quarter for activities to resolve a large trust account and distribute assets. On a year-over-year basis, our wealth management revenue was higher, which reflects our increase in assets under management during 2024. Our total deposits were $3.2 billion at December 31st.

As Tim mentioned, we typically see some seasonal outflows in the fourth quarter, which resulted in the decline we saw in deposits from the end of the prior quarter. These deposits historically built back up during the course of the year. Our average cost of total deposits declined 10 basis points in the fourth quarter as we have passed through rate cuts to our deposit customers without seeing any material rate-related outflows. During the fourth quarter, our interest-bearing cost of deposits declined by 19 basis points, which is generally consistent with net interest income modeling assumptions disclosed in our third quarter 10-Q. Disciplined credit management remains a hallmark of Bank of Marin as well. Both non-accrual loans and classified loans declined in the fourth quarter due to paydowns on two relationships and one upgrade to criticized.

Due to the stability in our loan portfolio, we did not record any provision for credit losses in the fourth quarter. The allowance for credit losses remains at 1.47% of total loans, which is unchanged from the prior quarter. Loan balances of $2.08 billion at the end of the fourth quarter were down $7 million from the prior quarter. While we had strong new loan production, this was offset by an elevated level of loan payoffs for a variety of reasons, including the sale of assets to businesses, the completion of construction projects, and our efforts to manage weaker credits out of the bank. We also had a higher level of payoffs on residential mortgages than we typically see.

Given the continued strength of our capital ratios, a Board of Directors declared a cash dividend of $0.25 per share on January 23rd, the 79th consecutive quarterly dividend paid by the company. With that, I'll turn it back over to you, Tim, to share some final comments.

Tim Myers (President and CEO)

Thank you, Dave. In closing, we believe we are very well positioned to continue generating improved financial performance in 2025. Given the strength of our balance sheet, with high levels of capital and liquidity, we are well positioned to capitalize on any improvement we see in economic conditions and loan demand. With the talent we have added to our banking teams, we are seeing a higher level of loan production that still meets our disciplined underwriting and pricing criteria, which we believe will lead to a higher level of loan growth in 2025. As we start the year, our pipeline remains strong and well-diversified across markets, industries, and asset classes.

Combined with the positive trends we are seeing in our net interest margin and our prudent expense management, while still investing in talent and technology, we should see meaningful revenue growth and a greater degree of operating leverage, which should translate to earnings growth and a higher level of profitability. We have also made strategic and prudent investments in technology over the past several quarters, and during 2024, we went through the process of installing this technology. This year, we expect to see much more of the benefits of these investments in terms of our overall level of efficiency and client service. In summary, we believe that we are very well positioned to increase our market share, add attractive new client relationships, generate profitable growth, and further enhance the value of our franchise in 2025 and the coming years.

With that, I want to thank everyone on today's call for your interest and support. But before we open the call to your questions, I'd like to invite Tani Girton, who served as our Chief Financial Officer for more than a decade and who retires later this week, to share a few words.

Tani Girton (CFO)

Thank you, Tim. Good morning, everyone. I want to take this opportunity to personally say goodbye to all of you and thank you for your support over the years. It's been an honor and a pleasure working with you, and I have learned a great deal from our interactions, making my work extremely rewarding. As you can see, Bank of Marin won't miss a beat with our new CFO, Dave. He joined the bank as Treasurer in 2023, and we have been working closely together for the past year and a half, preparing for the transition. I'm excited to embark on travels and new activities of my own, and I will rest assured that Tim and the talented and energetic executive team he has built are taking the bank to new heights.

So many of the projects we have been working on will come to fruition in 2025, and this is just the beginning. I wish you all success, health, and happiness, and I sincerely hope that our paths will cross again.

Tim Myers (President and CEO)

Thank you, Tani, for your commitment and dedication to the bank and all of our shareholders. We wish you all the best in your new chapter. We will now open the call to your questions.

Operator (participant)

Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you'll receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question will come from Jeff Rulis. You may now unmute your audio and ask your question.

Jeff Rulis (Analyst)

Thanks. Good morning, and Tani, congratulations, and thanks for all your efforts over the years. All the best in retirement.

Tani Girton (CFO)

Thanks, Jeff.

Tim Myers (President and CEO)

Good morning, Jeff. Thank you.

Jeff Rulis (Analyst)

Good morning. Maybe for Dave, and welcome. Just on the margin front, I noticed in the deck a little more liability-sensitive quarter-over-quarter deposit. The average in December was lower than the quarterly average, and you talked about the asset repricing opportunities. Continues to sound like an upward trend. Any kind of framing up of the magnitude? You've had a decent couple of quarters, but just wanted to check in on where you think you settle in in 2025.

Dave Bonaccorso (CFO)

Sure, Jeff. So I can give you the drivers of where we think it's going to go, starting with loans and working into deposits, investments, and cash. So on the loan side, based on a flat balance sheet, I think you might be referring to the disclosure at the bottom of page five. You can see there that you're right. In year one, we expect to be a bit more liability-sensitive with some improvement in rates down. Part of that is due to the natural repricing in our loan book, which we estimate to be about 27 basis points of improvement on a 12-month basis from point to point. That's based on a static balance sheet. You can see that exemplified by our most recent quarter loan yield increasing nine basis points quarter over quarter.

I guess one other data point there would be for our commercial and construction loans, the yield on new fundings was about 42 basis points higher than on payoffs. So all of that speaks to improvement on the loan side. On the deposit side, you mentioned the decline in deposits. And what we've experienced so far from a beta perspective, generally in line with our ALM assumption that we disclosed in our Q3 10-Q, we've adjusted that, and that's what you see in the bottom of page five in the deck, which one of the key adjustments was based on our success in cutting rates thus far. We shortened the lag to two months from three and kept the falling rate beta assumption of 35%. So one thing you should know that's not reflected in the numbers you see today is in response to the December rate cut.

We made additional rate cuts on deposits in early January. The net effect is we cut our non-maturity interest-bearing deposit rates by about nine basis points, which is a bit more than the 35% beta in the ALM assumption. And we did that with more like a two-and-a-half-week lag rather than a two-month lag. So again, all that speaks to the ability to reprice deposits downward. Moving along to the other drivers, investments, I'd say we want over time, we want the portfolio to be a smaller amount of the balance sheet. We want to remix into more loan growth. We do have a securities yield of about 264 for Q4. So any payoffs we get there that are not reinvested in the securities and remain in cash give us a 175 basis point pickup today, given the cash yield of 440 at the Fed.

And obviously, we can do a bit better than that if we go out the curve and reinvest. And then I'd say for cash, we want that, I'd say generally cash is probably going to hang around where it finished the year in the $100 million-$150 million range. The wild card, as you know, is where the Fed goes. But I think we're not expecting that to go quite as low as we may have thought a couple of months ago. So those are the drivers as I see them.

Jeff Rulis (Analyst)

Gotcha. I guess short of forward-looking commentary, I guess as you budget, do you think about sort of a terminal margin rate? I mean, a lot of moving pieces, but thoughts on kind of where either relative to the past couple of quarters of margin expansion, some of that on the restructuring work, just trying to get a sense for what the residual of upside on margin.

Dave Bonaccorso (CFO)

So yeah, a chunk of it's going to come down to the rate environment and to the extent we are continuing to be able to lower deposit rates. But over the long run, I'd say the bank really outperforms in higher rate environments. We just have so much opportunity to reprice our asset yields relative to liability yields that that's the real benefit. So I can't give you a number, but I think the path we're on is pretty indicative of where we're going.

Jeff Rulis (Analyst)

Okay. Appreciate it. I guess, Tim or anyone on the loan growth side, you mentioned pipeline growth. I don't know if you've got that in actual numbers quarter over quarter. I guess the second part of that question is, do you have any greater payoff clarity in 2025? Any feeling of increase or decrease in payoffs? So I guess two parts, the pipeline figure if you've got it, and then any outlook on payoff activity if you have it going forward.

Tim Myers (President and CEO)

Sure. As you know, Jeff, we don't give guidance directly on the pipeline, but what I can say is just like in Q1, that's about 40% higher pipeline than it was prior to Q1. The total pipeline is about double what it was this time last year. One of the things I would highlight is I'm pretty proud of the originations, whether it's our RIF that we announced or we've talked about repositioning talent within the organization, bringing new talent. That is paying off. If you look at the staffing on the production side throughout the year, we were at least a third down, depending on when you look at point in time, of producers, yet we did a better job. We've added people.

The timing of that ad obviously affects the pipeline and subsequent loan closings, but we added someone in December that's having an impact, and we added later in the month, but we added two people in Q1 thus far that are expected to have an impact on production, so we're optimistic. As you know, given the type of relationship loans, not transactional lending, it's hard statistically to map that out for you, but I'm very optimistic by the origination bill or pipeline bill we're seeing and how that will translate. On the payoff side, I mean, as you mentioned, it's really hard to put our fingers on, and if you look at the big jump in category or by category in our payoffs last quarter was residential loans. We don't tend to get a lot of payoffs of mortgages or TICs, but that number was $9 million.

If you look at within the commercial portfolio, going to my notes here, the largest component by far, by almost double, was still just cash deleveraging. That's a really hard number to predict. I think if we get a movement in longer-term rates, maybe there's less pressure to do that, but that's something we really can't control. The next biggest one was just completion of construction projects, and that's supposed to happen. We just have to outrun that. I'm hopeful that the amounts that we lose out the back door for workout or exit reasons will continue to go down. That was another fairly substantial amount for the quarter. Not substantial, but one of the major contributors. We continue to work through our problems, as you saw in the credit part of that earnings release.

And then, asset sales, it was kind of less in the quarter than it has been, but between that and the cash deleveraging, it's a long-winded answer. It just makes it really hard to predict. We really had a very, very small amount go out the back door that we didn't want to leave for any of those other categories. And we continue with that hiring to be very relationship-focused to be in front of that, but I can't predict the final outcome. So that's a hedged answer, but hopefully there's enough detail to explain why.

Jeff Rulis (Analyst)

Nope. I appreciate it, Tim. And I just wanted to clarify that 40% pipeline number, was that at this point starting Q1 over Q1 of last year?

Tim Myers (President and CEO)

Yes.

Jeff Rulis (Analyst)

Okay. And sequentially, as you entered third or excuse me, the fourth quarter, was that similar?

Tim Myers (President and CEO)

That's hard to predict because we closed. Yeah, that's harder because we, or less relevant, because we closed a lot of loans. The pipeline that we started in Q4 obviously shrank with the deals closing. The key is to build that back up as quickly as possible. That's why the Q1 over Q1 is a little more relevant to us from a management standpoint.

Jeff Rulis (Analyst)

Okay. Thank you. Appreciate it.

Tim Myers (President and CEO)

You're welcome.

Operator (participant)

Our next question comes from Andrew Terrell. Please go ahead and ask your question.

Andrew Terrell (Analyst)

Hey, good morning.

Tim Myers (President and CEO)

Morning, Andrew.

Andrew Terrell (Analyst)

Morning. Tani, congratulations. It's been a pleasure working with you, and I wish you all the best, and hope to stay in touch.

Tani Girton (CFO)

Yeah. Thank you, Andrew.

Andrew Terrell (Analyst)

Dave, if I could move first just on expenses, it looks like some of the improvement this quarter might have been related to just lower incentive accruals. I guess I was hoping to maybe quantify whether that benefited the quarter or not, and then just thoughts on what the kind of clean expense run rate is. I know you're still hiring, as you guys mentioned a minute ago, but just a clean kind of expense run rate we should think about moving into 2025.

Dave Bonaccorso (CFO)

Sure, Andrew. So on your first question, yeah, a key driver of this quarter's expenses was the true-ups that we do typically at the end of the year on personnel. What I'd say for a cleaner run rate, and this will help you get to the delta maybe on personnel this quarter, but what I would do is I would probably extrapolate Q2 or Q3 expenses if you're trying to model something ahead. Keep in mind that Q2 has the contributions that occur annually. That's, I think, the number is about $515,000 or so. And then Q3 this year, we had that non-repeatable legal settlement that was, I think, around $615,000. So I would adjust for those couple of things and look at some combination of Q2 and Q3 together as a good run rate looking forward.

Andrew Terrell (Analyst)

Okay. Understood. So maybe, yeah, just maybe a little north of that $20 million figure or right around there. Okay. If I could ask just, Tim, I heard your comments in the prepared remarks around the office loan in San Francisco. Just wanted to confirm that that was still on non-accrual this quarter. And then could you refresh us? You mentioned that the debt service coverage ratio had improved, and it was 100% occupied now. Could you remind us what the debt service coverage is currently? And then what's the path forward for this credit look like in terms of how it's represented on your balance sheet? Just maybe timeline and expectations there.

Tim Myers (President and CEO)

Yeah. I'll start big picture. I think you might be confusing two of the properties. So the one that's mentioned that is now fully occupied was a non-accrual we moved a couple of quarters ago, about $8 million. And that was because the tenant had left. That is now fully occupied. Cash flow is completely adequate. We just have some negotiations around extension documentation, all that for that to move off. The other large one that we've been talking about for years now it seems to get significant lease activity, but newer leases are still coming on at lower lease rates. And so that matures in 2026. I think we still believe we're provisioned adequately, but it will depend on that trajectory and how those lease rates go up.

I mean, if you look at the market overall, it's the first quarter in San Francisco, well, actually, all year was the most leasing activity square footage-wise since 2019. And last quarter was the first positive absorption since 2019. And some of the hardest-hit areas, I mean, we don't have these high-rise Class A spaces a lot of reports refer to, but there's improvement in areas like South of Market where some of our clients have their smaller two to three-story buildings. So we're not out of the woods. Vacancy is still 30% in the city, but we are seeing a positive trend overall, and we are seeing that impact our customers.

Andrew Terrell (Analyst)

Got it. Okay. Thank you. And if I could just ask one more.

Tim Myers (President and CEO)

Go on.

Andrew Terrell (Analyst)

Tim, I've had a few questions just on the mixed shelf that was filed this morning. Was this just replacing a prior authorization or any kind of color you can provide on that?

Tim Myers (President and CEO)

Yeah. That's just housekeeping. We view it as it's been a long time. We've been in discussions with our counsel predating all these bank failures and all that to do this. Obviously, we've talked about a number of things that remain options for uses of capital for, frankly, all the banks out there in our segment, and it felt to behoove us to put a shelf filing in place. Obviously, it's for a lot and for a whole buffet of securities. So it really is we view it akin to a share authorization. We get the authorization, but it doesn't mean we're going to use it or anywhere near that. So I put it squarely in that be prepared category for anything.

Andrew Terrell (Analyst)

Got it. Okay. Thank you very much for taking the questions.

Tim Myers (President and CEO)

Yeah. Thank you, Andrew.

Operator (participant)

Our next question comes from Woody Lay. Please ask your question.

Woody Lay (Analyst)

Hey, good morning, guys.

Tim Myers (President and CEO)

Morning, Lay.

Tani Girton (CFO)

Morning.

Woody Lay (Analyst)

Wanted to start on the loan yield, and you had the non-accrual pay down earlier in the quarter. Was there any one-time in nature interest recognized as a part of that pay down that flowed through the loan yield?

Dave Bonaccorso (CFO)

Just some catch-up related to one loan that paid off. That would be it.

Tani Girton (CFO)

We can collect it all.

Woody Lay (Analyst)

Yeah. Any way to quantify the dollar amount? I think last quarter, you might have had six basis points of a headwind there. So just trying to kind of figure out what the core loan yields increased on.

Tim Myers (President and CEO)

I just want to clarify, sorry, Woody. I just want to clarify one thing. The only loan that got upgraded from non-accrual is a smaller loan. I think it was $2 million. The large amount was the pay down on the C&I consumer goods company we've been talking about. So that loan's not paid off. So we haven't made all the accrual adjustments there. So it's a little bit noisier than I think what you mentioned.

Woody Lay (Analyst)

Okay. Got it, and then any way that y'all could provide some more color sort of on where the loan yields were that paid off in the quarter versus where new production is coming on the books?

Dave Bonaccorso (CFO)

The yield for commercial construction, the payoffs were 581, and new originations were 623. 42 basis point improvement there.

Woody Lay (Analyst)

Got it. And then lastly, Special Mention loans saw a little bit of an increase in the quarter on a larger construction project. Any expectations for when that property could sell?

Tani Girton (CFO)

It hasn't been listed yet, but that is our discussion with them currently on the timing of the listing and then also with a plan B on a remargining plan, which they do have the ability to do so.

Tim Myers (President and CEO)

Yeah. There's capacity here. This is just where the market is at completion, but this is not something we worry a great deal about.

Woody Lay (Analyst)

Yep. All right. Well, that's all for me. Congrats on the upcoming retirement, Tani.

Tani Girton (CFO)

Thank you.

Tim Myers (President and CEO)

Thank you, Woody.

Operator (participant)

Our next question comes from David Feaster. Please unmute your line and ask your question.

David Feaster (Analyst)

Hey, good morning, everybody.

Tim Myers (President and CEO)

Morning, Mr. Feaster. How are you?

David Feaster (Analyst)

Doing great. And congrats on the retirement, Tani. Very excited for you about this next chapter. Congrats.

Tani Girton (CFO)

Thank you.

David Feaster (Analyst)

Maybe just staying on the origination side. To me, that's one of the more exciting parts, I think, about the quarter. And reading between the lines, it sounds like it's really more of a function of market share gains and increased productivity from your team rather than really improving demand. Is that a fair characterization? And just kind of thinking about the growth trajectory as we go forward, to the extent that we do get improving demand and some new hires and hopefully slow down in payoffs, maybe we see an accelerating pace of growth over the course of the year?

Tim Myers (President and CEO)

I couldn't have answered your question better than you just said it, David.

David Feaster (Analyst)

Okay. Okay. So kind of thinking I mean, is there an appetite to potentially supplement that organic growth with additional pool purchases, or do you think you're at the point where we can start seeing originations exceed payoffs and pay downs and we start seeing growth inflect?

Tim Myers (President and CEO)

It's a great question. We've talked about this before. By the nature of the payoffs, it's really hard to predict. We do feel like we're getting to that inflection point where the originations outpace the payoffs, but that timing can get in the way of that. That's hard to predict. We've made small purchases around CRA. We used the mortgage purchases in prior quarter to help with the yield on the reinvestment for the AFS repositioning. We have looked at and will continue to look at purchases that will help with CRA. We're not actively looking to buy loans to drive the growth. We did pare down on the Woodside auto loan acquisitions in the quarter that the program we capped after the acquisition of American River Bank. We'll look to be opportunistic.

But I would say it's fair to say our focus continues to be on organic origination, supplemented where able.

David Feaster (Analyst)

Okay. And then maybe just touching on the deposit side, I was hoping you could first, I guess, quantify. It's hard to do. Could you help quantify maybe some of the seasonal dynamics that you're seeing? It sounds like you haven't really seen much attrition from your proactive efforts to reduce deposit costs. And then just where are you seeing opportunities to drive new account growth? You guys have done a great job. The marginal cost of interest-bearing deposit costs is extremely good. So just kind of curious, again, the seasonal dynamics, where you're seeing opportunity for core deposit growth going forward?

Tim Myers (President and CEO)

Almost the entirety of the fluctuation you saw in the quarter was that seasonal nature, whether it's customers who have funds tied to elections or ballot measures or seasonal professional service firms that have seasonal outflows. But almost the entirety of that fluctuation was a very small amount that left for other reasons. Even throughout the month of January, up $50 million, down $5 million. There's a lot of fluctuations at the end of the year and early in the subsequent year. But we are very focused on new client acquisition. You saw we had about 1,000 new accounts come in during the quarter. 43% of them were new customers to the bank. That we can build on. Certainly, the bulk of those by dollar amount is going to be in interest bearing, but those are coming on at a lower rate than the overall portfolio.

So we're not paying up or buying this business. On the commercial banking origination side, certainly one of the plays or core focuses on getting these professional service firms are the non-interest-bearing deposits. So while the outstandings don't necessarily tell the whole story for the quarter, almost a third or just over a third of the loans we originated in the quarter by commitments were to new C&I companies. And so with that, we require the operating business, and it takes a while to bring everything over, but that's a requirement for us on the C&I side. So those are the kind of things you keep all that stuff moving, and you hope to grow your core client non-interest-bearing account base, and then that grows over time.

But while our deposit base is granular, there are names or customers in there that have these large fluctuations, and that is what we saw in the fourth quarter.

David Feaster (Analyst)

Okay. Great. And if I could just squeeze one more in quick, just following up kind of on the capital discussion, you've got a really strong balance sheet, and you've got a lot of flexibility. Historically, you've basically used every form of capital deployment out there. Obviously, it's not burning a hole in your pocket, but could you just touch on maybe some of the capital opportunities that maybe are most attractive to you, whether it's the securities repositioning, buybacks, M&A? Could you just touch on kind of what you guys are looking at and considering?

Tim Myers (President and CEO)

Again, you answered your question better than I could. It's all the above. I mean, those are all conversations we're having. As you know, we repositioned a lot of securities last year. You get to a point, depending on the magnitude, we have more AFS we can reposition. More became available with the unwinding of the swap, which did help our NIM. Obviously, as we've talked about, there are discussions around the potential for an HTM position reposition. That's not something we need to do. We have the ability to sit there, not sit there, but let those earnings accrue back to the P&L over time from the balance sheet. And then there's M&A. And for any potential one or combination of factors, depending on how you model that, make sure we keep the regulators comfortable with our capital position, shareholders, depositors.

We just want to make sure we have something in place that can help us deal with any contingency. But all of those things, as you mentioned, are all things we talk about and consider all the time.

David Feaster (Analyst)

Terrific. Thanks, everybody.

Tim Myers (President and CEO)

Thank you.

Tani Girton (CFO)

Thank you.

Operator (participant)

Our next question comes from Matthew Clark. Please ask your question. Our next question comes from Matthew Clark. Please go ahead and unmute your line to ask your question.

Matthew Clark (Analyst)

Hey, thank you. Sorry, I was talking to myself. Congrats, Tani. Sounds like you're going to keep busy based on our conversation late last year. Just first one for me, just on the deposit costs. We see the averages, I think, in your presentation, but do you have the spot rate at the end of the year? And Dave, if you're willing to offer up the spot rate here in January based on the additional changes you've made.

Dave Bonaccorso (CFO)

Sure. So our December cost of deposits was 132. Interest-bearing deposits in December was 237. And we've brought down, as I mentioned, interest-bearing deposits by about eight to nine basis points so far this year.

Matthew Clark (Analyst)

How about at year-end, though? I'm looking for the spot rate at year-end, not the average for the month.

Dave Bonaccorso (CFO)

I'd say so there weren't a lot of cuts later in the month, so the spot rate at 1231 would be very, very close to the average.

Matthew Clark (Analyst)

Okay. Got it. Thank you. And then with the shelf out there, can you give us a sense for the probability or likelihood of tapping that shelf to either reposition HTM, maybe do some team liftouts to grow organically at a faster clip, and/or M&A? Just updated thoughts on just the willingness to tap the shelf for any of those three things and the likelihood of, I guess, which is maybe more of a higher probability than the other?

Tim Myers (President and CEO)

The short answer is no. I can't give you a sense for that because there are no immediate plans for tapping into the shelf. I think we have the capital for things like team lifts. We have the capital for AFS repositionings. But there are, again, if there's any combination of activities that happen or we do something larger of the nature of the things being discussed out there among all the banks, like us, that might require a bigger number. Nowhere near, in my anticipation, the total filing of $125 million. It's just it is a buffet of things just in case. So there's no plan right now to do that, but I can't tell you. I mean, as you know, things happen. Opportunities present themselves. But I have no immediate plan, nor is there a timeline for that, Matthew.

Matthew Clark (Analyst)

Okay, and then just updated thoughts on M&A in general?

Tim Myers (President and CEO)

Valuations obviously continue to be an impediment to deals, but it's my job to be out talking to folks all the time. There certainly is nothing imminent or far enough along to talk about, but it doesn't change our job is to continue to explore opportunities and be prepared if something were to present itself.

Matthew Clark (Analyst)

Can you just remind us the types of things you're interested in on the M&A side?

Tim Myers (President and CEO)

The bank has been very independent, as you know, in the past, and I think would prefer to remain independent and be an acquirer. That's where the valuation and the stock currency could be an issue. Obviously, we've seen some no-premium or MOE deals over the last couple of years that present unique opportunities. The universe is shrinking, so that's harder to predict. We think there is a number of potential attractive opportunities out there, but all the stars have to align. We're very comfortable with continuing on organically. We feel like there's continued upside in our balance sheet for our P&L and our margins. We feel like we're getting traction on the origination side and continue to do an outstanding job on the low-cost relationship-based deposit side. We're perfectly comfortable with our bright future continuing organically.

Matthew Clark (Analyst)

Got it. And then just housekeeping on the tax rate, should we assume that kind of resets back to that 25%-26% range?

Dave Bonaccorso (CFO)

That's correct.

Matthew Clark (Analyst)

Okay. Thank you.

Tim Myers (President and CEO)

Thank you, Matthew.

Operator (participant)

As a reminder, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. We'll now pause a moment to allow for additional questions to join the queue. We have no further questions at this time. I will now hand it back to Tim Myers for closing remarks.

Tim Myers (President and CEO)

Once again, thank you, everyone, for the questions, for calling in, for the support. And I, again, want to wish Tani all the best in her future endeavors. And congratulate Dave. As you can see, our future is very bright, and we'll continue to be outstanding oversight of our financial future. So thank you very much, Tani. Goodbye.