Bank of Marin Bancorp Q2 FY2023 Earnings Call

Thank you for joining Bank of Marin Bancorp's Earnings Call for the Second Quarter Ended June 30, 2023. I am Andrea Henderson, Director of Marketing for Bank of Marin. During the presentation, all participants will be in a listen-only mode. After the call, we will conduct a question-and-answer session. This conference call is being recorded on July 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 and supplementary presentation, which we issued this morning, 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, July 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'd like to turn the call over to Tim Myers.

Thank you, Andrea. Good morning, everyone, and welcome to our second quarter earnings call. Our second quarter reflected the full impact of the late Q1 bank failures, resulting in meaningful net interest margin compression due largely to the higher cost of funds on FHLB borrowings and deposits paired with slower lending activity. We believe that this impact is temporary in nature and will not be an indicator of future performance as we have continued to make significant progress by focusing on our balance sheet. In fact, we substantially strengthened the balance sheet by attracting customers, raising deposits, and improving liquidity to position the bank for efficient growth and stronger profitability. Here are a few key highlights of note. After regional bank failures triggered significant industry deposit outflows and price sensitivity, our deposits quickly stabilized late in the first quarter. During the second quarter, we raised $152 million in new balances at below capital market rates. Additionally, we opened over 1,400 accounts for both new and existing customers. New balances, net of normal customer activity and some continued outflow largely to money market accounts, drove deposit growth of $75 million in the second quarter. Importantly, those new deposits and investment cash flows enabled us to reduce our short-term borrowings at the FHLB by $113.2 million or 28% during the second quarter. Deposit growth has continued post quarter-end and included seasonal DDA growth we had anticipated. From quarter end to July 18, we added $116 million to total deposits which are now within $50 million of pre-bank failure levels in early March 2023. Our percentage of demand deposits has also increased to a level higher than the pre-pandemic percentage at the end of 2019. At the same time, the rate of increase in the cost of deposits has slowed and FHLB borrowings have fallen another $126 million. Our deposit growth strategy was and continues to be driven by proactive customer outreach and relationship-based pricing discussions. We have not offered CD specials or tapped into brokered CD markets. In the quarter, we saw a natural shift from non-interest bearing to interest bearing deposits as customers saw higher yields on excess cash as well as increased FDIC insurance coverage through our reciprocal deposit network offerings. Second quarter deposit costs increased 49 basis points sequentially due to delivery pricing adjustments that we made. We expect that funding cost increases will level off in the second half of 2023 as Fed rate hikes and customer reallocation of funds between operating accounts and interest-bearing accounts slow. Our deposit mix at June 30 consisted of 48% non-interest bearing deposits, down from 50% last quarter. However, the percentage of non-interest bearing deposits was back up to 50% by July 18. Going forward, we will continue to carefully manage deposit pricing on a customer-specific basis and as we have throughout our history, will remain in close contact with our customers to understand opportunities and risks. In alignment with our stringent liquidity standards, we continue to maintain a high level of liquidity that covers all of our uninsured deposits by over 200%. Notably, our uninsured deposits declined to 29% from 33% of our total deposits at quarter-end. In addition, our average balance per deposit account declined slightly by $2,000 to $6,200 from the prior quarter with our largest deposit representing only 1.3% of total deposits. Our available contingent liquidity was approximately $2 billion and consisted of cash, unencumbered securities and borrowing availability from the FHLB and Federal Reserve Bank. Post quarter end, we have taken additional steps to bolster on-balance sheet liquidity by selling AFS securities and Visa B Class shares at a net breakeven and retaining proceeds in cash. In addition, we entered into fixed pay interest rate swaps to protect our other available-for-sale securities from changes in market value. We also continue to actively engage with and support our borrowers and we are optimistic about identifying compelling lending opportunities in the second half of this year. While lending activity has slowed, the new loans that we are bringing on to our books are high quality credits coming on at notably higher yields than those being paid off. This is providing a boost to our interest income and moving forward, we believe should help us protect our NIM as we continue to fund our pipeline. Additionally, approximately 29% of our loan portfolio will reprice in the next 12 months. If those reprices occurred at today's rates, we estimate it will provide an incremental lift of roughly 30 basis points for the loan portfolio. While loan demand has eased, our teams continue to focus on achieving attractive risk-adjusted returns while maintaining solid credit quality. We are sticking to the prudent lending policies and standards that we have always had, carefully monitoring our loan portfolio and proactively adjusting risk rating. While there has been some risk rate migration, largely in special mention loans, there were no meaningful surprises in the quarter. During the second quarter, non-accrual loans held steady at just 10 basis points of total loans. Classified loans comprised only 1.81% of total loans at quarter-end. Classified loans did increase during the quarter centered primarily around the non-office CRE loan, the C&I term loan and increased usage on a previously downgraded line of credit. I'll take a moment to provide added color to our commercial real estate portfolio as it is the largest concentration in our loan book, representing 73% of our total loan balances at the end of the second quarter. Of our total CRE loans, 22% are owner-occupied, which we believe carry a different risk profile than non-owner occupied loans in this environment. Our $366 million non-owner occupied office portfolio consists of 142 loans with an average loan size of $2.6 million, with the largest loan being $17 million. The average LTV was 55% and the average debt service coverage was 1.67 times based on our most recent annual review process. Lastly, we are actively recruiting proven talent as recent industry disruption has made available a considerable number of seasoned bankers. We have taken advantage of the recent market changes and expect to announce meaningful recruiting news soon that we believe will help boost lending activity and deposit growth and deliver greater value to our customers and our shareholders. Now, I'll pass it over to Tani to discuss our financial results in greater detail.

Thanks, Tim. Good morning, everyone. Now that Tim has provided a picture of how our balance sheet is evolving, I will walk through earnings. Bank of Marin generated net income of $4.6 million or $0.28 per diluted share in the second quarter. As Tim said, the decline from the first quarter was largely due to a higher interest expense, both on the rising cost of deposits and higher average borrowing balances. Our second quarter tax equivalent net interest margin of 2.45% was down 59 basis points from the prior quarter as rapid deposit pricing adjustments and higher borrowing balances far outweighed gradually increasing loan yields. While lagging deposit rate increases delayed NIM compression and contributed to 2022 earnings, it also resulted in more change concentrated in the second quarter of 2023. We expect pressure on our net interest margin to continue in the second half of 2023 but to abate somewhat as deposit rates have caught up with market rate changes and loan yields are expected to continue improving. Additionally, we have taken steps early in the third quarter to mitigate the impact of further rate hikes by paying down another $126 million in borrowings, selling $83 million in securities to retain proceeds in cash and entering into $102 million fixed pay interest rate swaps. We made a $500,000 provision for credit losses in the second quarter based on increases in qualitative factors related to our multifamily and non-owner occupied commercial real estate office portfolios impacted by trends in criticized and classified loans and collateral value. Subsequent to quarter-end, we sold our only other real estate owned property at a slight gain. Non-interest income of $2.7 million was down modestly from the first quarter, primarily related to the recognition of policy payments on bank-owned life insurance in the first quarter somewhat offset by higher debit card interchange fees and wealth management and trust services income in the second quarter. Non-interest expenses remain well controlled at $20.7 million for the quarter, up from $19.8 million in the first quarter. The increase included $589,000 in annual giving program charitable contributions, $486,000 in salaries and related benefits, which included annual merit increases, $393,000 in deposit network expenses and a $377,000 FDIC assessment base rate adjustment. These increases were partially offset by reductions of $482,000 in depreciation and amortization expense and $434,000 in occupancy and equipment expense related to first quarter branch closures. In addition, professional services decreased by $326,000 related to the timing of audit work performed. Our second quarter earnings translated into a return on assets of 0.44% and return on equity of 4.25%, down from 0.92% and 9.12% in the prior quarter. The efficiency ratio increased to 76.91% from 60.24% in the prior quarter due to both higher interest and non-interest expenses. All capital ratios were above well capitalized regulatory requirements at June 30. The total risk-based capital ratios for Bancorp and the Bank increased to 16.4% and 16% respectively. Quarter-end tangible common equity was 8.6% for Bancorp and 8.4% for Bank of Marin as compared to 8.7% and 8.3% in the previous quarter, respectively. After adjusting for $85 million after-tax unrealized losses in our HTM securities portfolio, our TCE ratio would be 6.7% for Bancorp. Our Board of Directors declared a quarterly cash dividend of $0.25 per share payable on August 11, 2023. This represents the 73rd consecutive quarterly dividend paid by Bank of Marin Bancorp. The Board also approved a new share repurchase program for $25 million effective through July 2025. Our ample capital position and high-quality investment portfolio provide strength and liquidity for the ongoing operations and investments in the future of Bank of Marin. We evaluate the Bank's interest rate, liquidity, economic value and market price risk under various scenarios regularly and we stress test underlying assumptions. We believe that our unwavering emphasis on the fundamentals of relationship banking and credit, liquidity, and capital management will continue to position Bank of Marin to navigate challenging cycles profitably. Now I'll turn it back to Tim to share some final comments.

Thank you, Tani. In conclusion, while the current rate environment and the effects of the recent bank failures caused a significant impact on our net interest margin and earnings in the second quarter, we continue to believe those effects to be temporary. Due to our intense focus on the balance sheet, we considerably enhance our prospects for NIM and EPS improvement going forward while doing nothing outside our normal business model. And we have seen material improvement post quarter-end. With that, I want to thank everyone on today's call for your interest and support. We will now open the call to your questions.

Thank you. Our first question is from the line of David Feaster with Raymond James. Please go ahead.

Hey, good morning, everybody.

Good morning, David. How are you?

Maybe just starting out on the deposit side and the flows. Look, it's great to hear the commentary that you had about what you've been very active thus far in the third quarter already. But I'm just curious if you could characterize some of the NIB flows, it sounds like it's a lot of seasonality. Curious how much is continued account growth? And then just how do you think about continued deposit growth going forward and your efforts there, your strategy to continue to drive growth? And then is the kind of the plan to continue to have deposit growth outpace loans and pay down the borrowings hopefully by the end of the year?

So, good question. So the movement in demand deposit accounts in the quarter and after quarter end were reflective of our normal seasonality. You had payroll and taxes in there on the outflow side and we have some seasonal increases that we mentioned on the call last quarter where they start to go up. Maybe $10 million or so of that deposit raising effort was in checking accounts. Most of that was in interest-bearing as you can imagine because we're going out and soliciting funds. So the bulk of the money we mentioned we raised through our deposit initiative was interest-bearing, but what was nice is the weighted average rate on that was 3.20% for the whole pool. So still well below our cost of borrowing. So the goal is to continue to raise deposits. Our goal is not to shrink loans, our goal is to grow loans. We continue to build a pipeline. We did have some closings we expected to happen get pushed into next quarter. When you talk about issues with office real estate, tenancy issues or vacancy. We're seeing that affect us kind of more in the pipeline than we are in portfolio. Our portfolio has maintained very steady. What we have had to do in our pipeline activity is weed out where there's a lot of lease turnover risk, etc., valuation risk. So we continue to build the pipeline. We're looking to make some hires in the near future to help drive that growth. So the goal is to continue to build deposits, pay down the borrowings, and continue to drive a pipeline that will result in loan growth. So long-winded answer, we're trying to do both but we did have a very concerted effort on the fundamentals in the quarter of raising deposits at the lowest rates we could because those will retain as customers when all this goes away and those rates will eventually subside and we are trying to maintain that mix of non-interest-bearing and interest-bearing as close to that level as we can.

Okay. That's helpful. And I want to touch on the growth side in just a second, but before we get there, there's a lot of moving parts for all the things that we've talked about as it relates to the margin. And just hearing, Tani, kind of your commentary, it sounds like expect a bit more pressure in the back half year, but it sounds like we're getting close to the trough. I was hoping just given all the moving parts in there between the borrowing pay downs, the deposit growth you've seen in your quarter, if you could just help us think about the timing of a trough and kind of the NIM trajectory as we look forward?

Yes, I can help with that. In short, I believe we have reached the lowest point, but if not, it should be soon. Much of this depends on our ability to attract more deposits, which we aim to do in order to reduce some of our Federal Home Loan Bank borrowings, as well as the rates at which they are coming in. To put it in perspective, we sold approximately $83 million in securities, yielding about $80 million in proceeds. We plan to keep that on our balance sheet, which will increase our net interest margin by around 150 basis points. Additionally, with the $102 million in swaps, in a scenario with no rate changes and predicting just one increase in the Fed funds rate this week, we likely will see a gain of around 70 basis points there as well as the 150 basis points from securities, assuming a 25 basis point increase in the Fed this week. Regarding deposits, since July 18, we have experienced an additional 20 basis points in cost, raising our deposit costs to 89 basis points. This remains unpredictable. Meanwhile, borrowings have decreased by $175 million, with an average yield of about 5.18% during the quarter. However, we also have $200 million in federal home loan bank borrowings, which remain due to our decision to retain the $80 million on our balance sheet. That part would see a 25 basis point rise. To summarize everything, assuming no growth in the balance sheet and not factoring in future deposit movements beyond July 18, we expect approximately a 10 basis points increase in margin.

Okay. And so when you say you think the margin has troughed, is that relative to the full second quarter or maybe the June figure?

I was thinking about the second quarter.

Okay. So you think margin starts expanding here in the third quarter?

Yep, that's what I'm thinking. Hey, Dave, I think I left out loans in my last description. That 10 basis points also includes an assumption of an increase of roughly 7 basis points on the loan portfolio with the embedded repricing and assuming a 25 basis point increase at the Fed.

Certainly. There's no doubt that current interest rates, combined with many of our clients being real estate investors, have led to reduced demand. We are actively promoting a commercial and industrial calling program to enhance that area of our business and to further diversify, while also seeking advantages from variable rate lending. However, it's clear that demand is subdued. Regarding refinancing opportunities, we are evaluating rollover risks and ensuring we maintain our credit standards. For instance, if a third of a tenant list is expected to renew in the next year or two for a five or seven-year loan, discussions tend to be more extended because we are not willing to compromise now. Overall, the opportunities we are encountering are fairly consistent across our service areas, primarily in commercial real estate, and we are proceeding with caution. On the hiring front, we have a range of opportunities from credit administration to more targeted hires, and we are looking for candidates who align with our model. In light of the recent bank failures, we aim to attract individuals who already understand our operations to support growth within our framework while also introducing new ideas, albeit without fundamentally altering our lending strategy. Does that address your question, David?

Yeah, no, that's terrific. Thanks for all the color.

Hey, Jeff, regarding your question about the net interest margin for June, it was 2.4%. To provide some context, our borrowed or purchased funds peaked at the end of April at just over $400 million. By June, that amount had decreased to just over $300 million. After accounting for the excess cash we're holding from the $83 million proceeds kept on the balance sheet, our borrowing level is now around $225 million. This reduction will significantly impact our margin improvement.

With that, I want to thank everybody for your questions, your interest and support, and I look forward to talking to you all next quarter.

Thank you.

Thank you. Our next question is from Andrew Terrell with Stephens. Please go ahead.

Good morning, Tim. Good morning, Tani.

Good morning, Andrew.

Tani, just to go back to that last point on the 10 basis point pick-up on the margin, can you talk about the underlying assumptions that might be in that commentary in terms of incremental deposit cost pressure?

What we included is the increase to 89 basis points that we mentioned in our earnings release and presentation as of July 18. This does not account for anything else because, as I mentioned, that's the major unknown. It's difficult to evaluate at this moment because we believe that the repricing of the deposit portfolio will slow down due to the substantial catch-up we had to do during the quarter. However, we are still having discussions and are pricing at levels consistent with our previous approach, and there hasn't been significant pressure to raise those levels. My initial thought is that if we get another 25 basis points, it may not have as much of an impact as the catch-up we experienced. Since we have aligned with where the Fed funds rate is now, the effect might not be as strong, but it's very challenging to determine.

Yep, understood. No, I appreciate that. If I could drill down the deposit front specifically, I appreciate the disclosure for the 89 basis points quarter-to-date in the third quarter. I guess can you give us a sense on how that compares to where total deposit costs ended the quarter or what the June deposit costs was on average? Just trying to get a sense of really whether or not that the cost pressure is leveling off throughout the third quarter or not?

Yeah. So the second quarter total cost of deposits was 69 basis points. If we just look at the month of June, that was 82 basis points. And if we look at July 1 through July 18, that was 89 basis points.

Understood. Okay. So only a 7 basis point lift so far throughout the month of July versus the spot at the end of June?

We believe the pace of requests has slowed down. While it hasn’t completely stopped, as several of you and others commented on our last call, we had quite a bit of catching up to do. We discussed the fourth quarter where, due to the loan-to-deposit ratio and uncertainty about future rates, we were hesitant to adjust our rates quickly, and then the events of early March occurred. We had already begun that adjustment process, but there was still a significant amount of catching up to accomplish during the quarter. As a result, the quarter was heavily influenced by that rapid adjustment. There are definitely more requests coming in, but the rate at which people are making those requests has moderated.

I understand completely. Thank you for the clarification. I have a question regarding the interest rate risk modeling assumption presented, which uses a 35% interest-bearing beta. If I remember correctly from last quarter, we discussed a 45% beta for interest-bearing in the previous modeling assumption, with expectations to exceed that. I know there are many factors at play right now, but what caused the reduction to 35% in this presentation compared to the earlier discussion of 45%? Now that we’ve seen most of the catch-up, do you believe that 35% is where we will settle in terms of the beta perspective?

So that's a little bit of apples and oranges. The 45% beta was on money market deposits only and the 35% is on all interest-bearing deposits.

I see. Okay.

We are not changing our betas and definitely not reducing them. Instead, we are eliminating the lag in our modeling.

Okay, understood, understood. And then it sounds like maybe getting close on some team hires, I'm just hoping to maybe get a sense on the non-interest expense kind of run rate moving forward? I don’t know how much you can share about the team hires or individual hires you might expect and how that influences the expense run rate, but just any help there? Any potential levers or give back on expenses we should be thinking about going forward?

I don't want to jinx it or promise too much about the timing of the hires, but we are exploring ways to manage those costs and their impact. I'll leave it at that for disclosure reasons.

Yep, understood. Okay. Thank you for the questions.

I apologize for not fully addressing your question regarding the growth in loan yields. Looking at the quarter, the loans with a weighted average yield were about 6.6%, which is significantly higher than the average yield of those that paid off. Unfortunately, the loans that paid off still had a higher yield compared to our overall portfolio yield, which stands at around 5.95%. This indicates the potential for improvement in originations.

Our next question is from Woody Lay with KBW. Please go ahead.

Hey, good morning guys.

Hey.

Good morning, Wood.

I wanted to follow up on the question about expenses. While hiring can impact the figures, there was some distortion in the second quarter expenses due to charitable contributions. If we factor that out, does the second quarter provide a reasonable baseline for our future expenses?

No, I think on depreciation, oh sorry, what was the last thing you said?

Sorry, I just said excluding any potential hires.

Depreciation and amortization, along with occupancy and equipment expenses, reflect the branch closures and will influence future levels. Most of the acceleration occurred in the first quarter, and that trend will continue. The FDIC base rate increased from 3 basis points to 5 basis points, representing a 67% increase. It's advisable to consider the FDIC from the first quarter, adjust for the change in deposits, and then increase that by 67%. The second quarter adjustments were made later than ideal, as we should have accounted for it in the first quarter, which also included a higher accrual moving forward. Therefore, it will be lower than Q2 but higher than Q1. You are correct about charitable contributions primarily being distributed in Q2. Other expenses appear to be elevated due to a rise in reciprocal deposits, which is also significant.

Yep, that's helpful. Maybe shifting over to the new client disclosure. I mean, it looks like it was a really successful quarter on that front. How sticky do you view these clients and how optimistic are you that you can sort of get the full suite of business over time with these clients?

That's a good question. I do tend to think it's sticky. A lot of that was going back and getting money that had left. So you look at the number of accounts that were opened, just over half was new accounts for existing customers. So reallocating the architecture of their account structure, putting some money that was in a DDA into an interest-bearing account or reciprocal account. But over 500 of those were new clients. And so we are already talking to them. There's been some pushes around some of the municipalities and then what other things can we do for them. So we're starting here, yes, but we always look to see how we can grow that relationship in their totality.

Got it. And then last for me. I saw the renewed buyback announcement. Just with the volatility in the market seeming to settle down a little bit, are there any updated thoughts on how you are thinking about the buyback?

They're very similar to how we have described it in the past. We think our stock is a tremendous value. We think the impact that we've had on earnings as a result of what happened in Q1 remains temporary and we want to have the ability to take advantage of that value depression and purchase of stock. All that being said, we are being very cautious about capital preservation. So we're not rushing out to do that. But we want to retain the ability to do so.

I think I'll just add, Wood, our top priority in the capital management is to maintain the dividend and reinvest in the company if we've got the strategic initiatives and our plates are full on both of those fronts, but maintaining that dividend is really important to us.

Thank you.

Thanks. Good morning.

Good morning, Jeff.

Yes, let me pull that. I should already have that at my fingertips because this ask me that every time. I'll pull it, just a second.

Okay. I wanted to discuss the increase in classified loans, specifically the loans you've mentioned in the segments of commercial and industrial, commercial real estate, and your line of credit. Do you have details on the industries and geography related to those classified loan additions?

Yeah, I'm going to ask Misako Stewart, our Chief Credit Officer, to talk about the classifieds.

Yeah, there's not really a concentration in geography, if that's the question. And it's kind of across the board in terms of both the migration that we saw from watch to the criticized and criticized to classified where it kind of covers all different collateral categories, multifamily, retail, C&I. We only had one small office loan that was downgraded from watch to special mention. But on the sub-standard of the classified, again as Tim noted, it was an increased usage on an already existing classified loan and then two loans that downgraded, one as C&I term loan and the other a CRE secured term loan as well.

Got it. So yeah, not so much geographic concentration, just kind of where they were.

Yeah.

Yes, both geographically and asset class diversified. If you look at the largest migration we had, which was in the special mention within criticized, it's all over the place. There's nothing alike there. There was C&I on the wine industry side, a motel, a retail commercial real estate space, and a multifamily space, none in the same geography, none in the same asset class. So we have not seen meaningful deterioration in any one particular class. The problems we have on the substandard side remain the same ones we've been talking about for multiple quarters. And again, the increase in that, as Misako noted, was outstanding usage on a C&I revolving credit that we're negotiating full real estate collateral for. So we've been able to focus on those properties.

Right. And that line has since paid down. And I also wanted to note too, the migration from watch to special mention isn't necessarily indicative of deterioration. We just haven't seen any meaningful improvement and we kind of treat the watch category as transitory. So if we don't see any meaningful improvement or deterioration for that matter, we do move it to special mention. In this case, it was a matter of not seeing any improvement.

Okay. And maybe, Tim, to go back to the capital and I appreciate the buyback, a prudent cautious approach. Just a philosophy kind of question, I guess, on the TCE, I think you got I think an 8.6% current and I think 6.7% with AOCI baked in?

Yeah.

What do you value more? Is that guiding kind of thought? The regulatory capital is very robust, and I'm curious if you consider that. Is that related to your cautiousness with AOCI? Do you value that metric or focus on 8.6%? I'm trying to understand which capital target you prioritize that we should look at.

It's a good question, Jeff. I'm not sure I have a solid answer. We constantly consider all these factors and have discussions about them internally and with the Board. Yes, we maintain high regulatory capital, but currently, the TCE ratio is significant for both the investment community and us. We need to assess that adjusted for AOCI or the effects of unrealized losses in the HTM book. We will certainly examine this in the context of our deposit trends, asset growth, and earnings generation. We take all these factors into account and are interested in enhancing our stock value, and we would love to repurchase more shares. However, we must evaluate what the right decision is at this time. There isn't a straightforward answer, and I’m not trying to be evasive. If we continue on our path of balance sheet clean-up and our earnings improve without any significant impacts to capital, we will definitely reconsider that option.

Appreciate it. Thank you.

Hey, Jeff, regarding your question about the net interest margin for June, it was 2.4%. To give you some context, our borrowed or purchased fund balance peaked at just over $400 million at the end of April. By June, that had decreased to a bit over $300 million. If we account for the excess cash we're holding from the proceeds of the $83 million sale on our balance sheet, the borrowing level is now around $225 million. This change will significantly impact margin improvement.

And speakers, there are no further questions at this time. Please continue with your presentation or closing remarks.

So we had one more question from the participants online. Can you talk about the duration on the swaps? Should we assume they are immediately accretive to the net margin? So I gave the detail on the swaps. Yes, they are immediately accretive to the net interest margin as of where they are priced right now and including a 25 basis point increase in the Fed. It's roughly somewhere between $500,000 to $700,000 pickup in net interest margin for the year on an annual basis, I should say.

With that, I want to thank everybody for your questions, your interest and support, and I look forward to talking to you all next quarter.

Thank you.