Earnings Call Transcript
Bank of Marin Bancorp (BMRC)
Earnings Call Transcript - BMRC Q1 2023
Operator, Operator
Good morning, and thank you for joining Bank of Marin Bancorp's Earnings Call for the First Quarter Ended March 31, 2023. I'm Andrea Henderson, Director of Marketing for Bank of Marin. During the presentation, all participants will be in a listen-only mode. After the call, we will conduct a question-and-answer session. This conference call is being recorded on April 24, 2023. Joining us on the call today are Tim Myers, President and CEO; and Tani Girton, Executive Vice President and Chief Financial Officer. Our earnings press release, which we issued this morning and a supplementary presentation can be found in the Investor Relations portion of our website at bankofmarin.com, where this call is also being webcast. Closed captioning is available during the live webcast as well as on the webcast replay. Before we get started, I want to note that we will be discussing some non-GAAP financial measures. Please refer to the reconciliation table in our earnings press release for both GAAP and non-GAAP measures. Additionally, the discussion on this call is based on information we know as of Friday, April 21, 2023, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in our earnings press release as well as our SEC filings. Following our prepared remarks, Tim, Tani, and Chief Credit Officer, Misako Stewart will be available to answer your questions. And now, I'll turn the call over to Tim.
Tim Myers, President and CEO
Thank you, Andrea. Good morning, everyone, and welcome to our first quarter earnings call. I'd like to begin by addressing the regional bank failures and subsequent events that occurred late in the quarter and highlight how Bank of Marin's business model enabled us to effectively manage through these challenges. These failures, while idiosyncratic in nature and isolated to the banks that operated much differently than Bank of Marin, and most community banks, did create near-term uncertainty among depositors that resulted in outflows across the industry. While many depositors initially sought to perceive security and returns of money market funds outside of the banking system, according to the latest Federal Reserve data, those transfers have since stabilized. Overall, we have continued our efforts to maintain an industry-leading cost of deposits in light of pandemic-related surge balances exacerbated by our American River Bank acquisition and its lower loan-to-deposit ratio. It is not unusual for Bank of Marin Bancorp to experience deposit decreases in the first quarter of the year due to the working capital needs of our customers. In fact, in four of the last eight years, we showed linked quarter declines in Q1 deposits. This year, the 9% decrease of $323 million was due to a number of factors concurrent with but largely unrelated to the regional bank failures. Subsequent to these failures, the factors contributing to deposit outflows include: first, outflows due to what we consider singular transactions, such as disbursement of proceeds from the sale of businesses, real property acquisitions for cash, trust distributions or estate settlements. Second, cash needs from our customers to fund ongoing business operations such as vendor payments, payroll, and taxes. And third, deposit movements to outside brokerage firms and financial institutions for safety and/or higher yields. Just over $200 million of the net outflows occurred after the bank failures and were concentrated among 100 larger relationships that overshadowed the impact of accumulated smaller transactions. Among those 100 relationships, net outflows, 83% was considered normal activity, including vendor payments, taxes, payroll, and the singular events, as I mentioned earlier. 14% moved to brokerage firms or other financial institutions, and the remaining 3% were referrals to our Wealth Management and Trust Group. From March 22 through April 18, deposit levels have stabilized. In 2022, we maintained excess liquidity in expectation of pandemic surge outflows and managed our deposit costs in order to optimize deposit levels. In early 2023, we increased engagement with customers to discuss pricing and the appropriate deposit mix for their needs. After March 10, those discussions accelerated and expanded to include the safety and soundness of the bank, as well as information about reciprocal deposit network programs that offer depositors expanded FDIC insurance. The result was approximately $80 million of incremental funds placed into these programs, and we now have $220 million with Reich & Tan and Intrafi and are continuing to see interest from our customers. I would also like to note that throughout the first quarter, we successfully opened over 1,000 accounts with $60 million in new deposits. At the same time, we did not see a notable number of account closures with funds leaving the bank. At quarter end, our deposit mix was steady, with non-interest-bearing deposits accounting for just over 50% of total deposits, down only slightly from the prior quarter and another indication of our strong deposit franchise. Many of these are commercial accounts that tend to carry larger balances that will fluctuate with our customers' operating cash needs. Approximately 67% of our deposits are FDIC insured. At quarter end, our liquidity was roughly $1.9 billion and consisted of cash, unencumbered securities, and borrowing availability from the FHLB and Federal Reserve Bank, an amount that covers all of our estimated uninsured deposits by approximately 181%. Since 2013, we have had internal policies, controls, and processes that set minimum liquidity requirements similar to the liquidity coverage ratio that larger banks are required to report. Later, Tani will explain some of the long-standing practices that uphold our robust liquidity risk management standards. Importantly, despite the decrease in deposits quarter-over-quarter, our average cost of deposits remained low by industry standards at 20 basis points, 40 basis points in the month of March, though this was up from 8 basis points the prior quarter. Our increase in deposit rates has lagged the general market, which benefited our net interest margin by approximately 10 basis points in the fourth quarter. We will continue to carefully manage deposit pricing on a customer-specific basis and diligently defend our industry-leading deposit franchise. Now I'll shift to a discussion about our loan portfolio and overall credit quality. We grew loans by $20 million or just under 1% during the quarter. While loan demand has eased from the peak levels of 2022, our teams continue to focus on building pipelines that will achieve risk-adjusted returns and maintain credit quality. Even as we grew loans in the first quarter, our team's efforts to carefully manage asset quality resulted in continued strong credit metrics. We have consistently maintained our principled underwriting, and our policies have remained unchanged. Total non-accrual loans declined during the quarter and amounted to just 10 basis points of total loans. We are confident in our allowance for credit loss, which represents 1.1% of total loans. Our loan portfolio remains diversified across borrowers, loan types, and property types as well as geography, and 93% of our loans are borrower guaranteed. Our largest concentration in the loan portfolio is in commercial real estate, which represents 73% of our total loan balances. 77% of our commercial real estate portfolio is non-owner occupied, with 89% of these loans being borrower guaranteed. Additionally, since 2000, cumulative net charge-offs in the CRE non-owner-occupied portfolio have been minimal at $740,000. As there has been a good deal of press regarding office buildings, we are providing more granularity on our non-owner-occupied office building portfolio this quarter. Our $370 million of non-owner-occupied office portfolio consists of more than 140 loans, with an average loan balance of $2.6 million, the largest loan being $17.2 million. The average loan-to-value was 55% and the average debt service coverage ratio was 1.67 times based on the most recent information received in our annual review process. Of the non-owner-occupied office portfolio, 19% is located in the San Francisco market, with the remainder spread across our Northern California footprint. Drilling down further into the San Francisco non-owner-occupied office portfolio, we have 11 loans totaling $72 million, with an average loan size of $7 million and average loan-to-value of 60%. 10 of these buildings are considered low-rise office, and eight of them report 100% occupancy. Vacancies averaged around 50% on the other three. $19 million or 26% of the $72 million portfolio is graded as substandard, as first reported in our Q4 2021 earnings, and remains performing. While we understand the heightened concerns that the investment community has regarding the office sector, we believe that given our conservative underwriting and the relatively small loan sizes, our office building exposure is manageable. We have a strong historical track record of minimal losses from this sector. During the first quarter, we also delivered on the final phase of our plans to gain efficiencies from our acquisition of American River Bank by consolidating four Northern Sonoma County branches into two that had overlapping customer coverage. In addition, we closed two other branches where we service customers effectively from nearby branches. This strategic decision enables us to optimize our physical footprint without sacrificing customer service and, by extension, generate savings that we can reinvest in talent and technology. Finally, I'm excited to share that we welcomed our new Chief Information Officer, Sathis Arasadi. His extensive and unique experience as a software engineer and technology leader directing large-scale digital and technology transformations will help us execute our bank's strategic priorities. Throughout our 33-year history, we have not wavered from our guiding principles of relationship banking and disciplined fundamentals, and continue to serve the banking needs of local, small to mid-sized businesses, not-for-profit organizations, and commercial real estate investors. Our business model has proven successful throughout various economic cycles, allowing us to navigate this or any challenging environment. Now I'll turn the call over to Tani to discuss our financial results in greater detail.
Tani Girton, CFO
Thank you, Tim, and good morning. First, I'll start with some key highlights. We generated net income of $9.4 million in the first quarter or $0.59 per diluted share. Net income was down from the fourth quarter as we began raising interest rates on deposits and borrowing balances increased. Our low cost of deposits was a significant benefit last year, and Bank of Marin achieved record earnings in both the fourth quarter and full year of 2022. Our first quarter tax equivalent net interest margin of 3.04% was down 22 basis points from the fourth quarter, 37 basis points of which was related to higher deposit and borrowing costs, partially offset by a 17 basis point improvement from higher loan yields. We expect continued pressure on the margin as recent increases in deposit costs are in place for a full quarter. So far this cycle, increases in rates on non-maturity interest-bearing deposits reflect a beta of 15%, while our interest rate risk models assume a beta of 45%. Non-interest expenses were well controlled at just under $20 million for the quarter. Our first quarter earnings translated into a return on assets of 92 basis points and a return on equity of 9.12% down from 1.21% and 12.77% in the previous quarter. Our Board of Directors declared a cash dividend of $0.25 per share, payable on May 12, 2023. This represents the 72nd consecutive quarterly dividend paid by Bank of Marin Bancorp. I'd like to add a little more detail on our results, beginning with the $350,000 provision for credit losses on loans in the first quarter compared to no provision in the prior quarter. This was due to qualitative risk factor adjustments to account for continued uncertainty about inflation, recession, concentration, and heightened portfolio management risk in the current environment that were not fully captured in the quantitative portion of the allowance calculation. Additionally, there was a $174,000 credit loss provision reversal due to a $37.4 million reduction in unfunded commitments. As Tim mentioned, credit quality remains strong. Classified loans of $31 million increased $2.9 million, primarily due to higher usage of a revolving line of credit that was previously downgraded. Other changes include $1.7 million in payoffs and paydowns, $314,000 in upgrades to pass risk rating, partially offset by $1.4 million in downgrades. All of the downgrades in the first quarter were for loans that are secured by real estate collateral. Accruing loans past due 30 to 89 days totaled $1.2 million at March 31, 2023, and compared to $664,000 at December 31, 2022. First quarter non-interest income was up 13% from the fourth quarter at $2.9 million, due in large part to higher earnings on bank-owned life insurance, while other line items showed modest increases and decreases. Non-interest expense of $19.8 million in the first quarter was up from $18.3 million in the fourth quarter, and the efficiency ratio increased to 60.24% from 50.92% in the prior quarter due to both higher interest and non-interest expenses. The first quarter typically has elevated non-interest expense related to 401(k) matching and lower utilization of vacation accruals. Additionally, the first quarter of 2023 included adjustments related to estimated incentive and retirement plan accruals, as well as accelerated amortization and lease expenses associated with branch closures. On the flip side, technology expenses fell as a result of our recent core processor contract renegotiation, and we expect branch closures to generate net savings of $470,000 in 2023 and $1.4 million per year thereafter. All capital ratios were above well-capitalized regulatory requirements. The total risk-based capital ratio for Bancorp was 16.2% at the end of the first quarter compared to 15.9% at December 31. And the bank's total risk-based capital ratio was 15.6% at March 31 compared to 15.7% at the close of 2022. Quarter-end tangible common equity of 8.7% for Bancorp and 8.3% for Bank of Marin were up from 8.2% and 8.1%, respectively, in the previous quarter. Increases were due to earnings and a $16.2 million improvement in AOCI as the value of our available-for-sale securities portfolio increased with falling interest rates. After adjusting for $76.4 million after-tax unrealized losses in our held-to-maturity securities portfolio, our tangible common equity ratio would be 6.9% for Bancorp. Our strong capital position and high-quality investment portfolio 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 risks under various scenarios regularly, and we stress test underlying assumptions. We conduct capital planning on a regular basis and evaluate various scenarios, stress tests, and potential capital actions. We monitor markets daily for systemic and idiosyncratic risk and maintain contingency plans that support rapid and comprehensive responses if warranted. We also make it a priority to learn from developing situations, and we are incorporating enhancements to current scenarios, assumptions, and stress factors to reflect the heightened potential for deposit volatility in a world of social media and digital banking. We have pledged securities to the Federal Reserve's Bank term funding program and ran a small overnight test to ensure access, if ever needed. The FHLB and Federal Reserve borrowing facilities were established in large part to ensure that banks would not be forced to sell securities at a loss. The FHLB facility proved extremely effective during the global financial crisis, and the BTFP will undoubtedly do the same with its favorable rates and availability tied to the par value of securities. Overall, Bank of Marin's strong balance sheet, liquidity, and capital continue to generate profitability, as has been the case across many interest rate and economic cycles. With that, I'll turn it back to Tim to share some final comments.
Tim Myers, President and CEO
Thank you, Tani. In closing, we are opportunistically looking for ways to manage our balance sheet in order to drive margins while maintaining excellent credit quality and operating efficiency. We believe this will lead to consistent earnings and improve profitability and in turn, translate into enhanced shareholder value. With that, I want to thank everyone on today's call for your interest and support. We will now open the call to your questions.
Operator, Operator
Thank you. Our first question comes from the line of Matthew Clark with Piper Sandler. Please go ahead.
Matthew Clark, Analyst
Hey. Good morning. Good morning, Tani.
Tim Myers, President and CEO
Good morning, Matthew.
Tani Girton, CFO
Good morning.
Matthew Clark, Analyst
Can you provide the average margin for March and your updated outlook for your cumulative beta throughout the cycle? I believe we previously discussed a range of 10% to 15% for the total deposit beta, so any updated thoughts on that would be appreciated.
Tani Girton, CFO
Yes, I will retrieve the margin data for March shortly. Currently, we are observing a beta of 15%. Our models incorporate a beta of 45%, which remains above the historical average, and we are in the process of catching up. The 15 basis points in the non-maturity interest-bearing deposit beta has not fully impacted the third quarter margin or March's cost of deposits, as it continued throughout March. We are working on this catch-up. If we analyze our net interest margin modeling with the typical 45% beta, there is a slight upward trend in the margin since our assets are repricing higher. I will get the March margin soon, but it will require a moment.
Matthew Clark, Analyst
Okay. Sounds good. And then just your outlook for deposits and borrowings. Deposits sounds like they have stabilized. But how do you think about the borrowing balances that you have? Is there a plan to try to reduce those throughout the year or do you feel like they'll be relatively stable as well?
Tani Girton, CFO
We are very focused on this matter and will reduce borrowings opportunistically where possible. We generate cash flows from both our loan and investment portfolios, and we will use those to decrease borrowings when we can. Borrowings have remained stable over the past couple of months, which is positive. As mentioned, when opportunities arise that are beneficial for us—such as low earn back periods or decreasing interest rates that allow us to sell a larger portion of the securities portfolio at a profit—we will take action.
Tim Myers, President and CEO
And Matthew, we do tend to have within our borrowing or I'm sorry, our depositor base, some seasonal increases as you get later in the year, that should assist with that too. Certainly, this quarter, the seasonal declines, but we tend with some of those depositors, large depositors to see increases throughout the year as well. So we'll continue to look at all those options and work those down as soon as possible.
Matthew Clark, Analyst
Okay. And then a couple more here. How much was the BOLI benefit this quarter? And then any guidance around your non-interest expense run rate going forward with the savings from the branch closures that you mentioned?
Tani Girton, CFO
The BOLI benefit was $313,000 and I didn't hear the second half of the question.
Matthew Clark, Analyst
Can you provide guidance on the non-interest expense run rate considering the cost savings from the branch closures?
Tani Girton, CFO
I would suggest looking at the adjustments noted in the earnings release that should be excluded from the run rate. Regarding the branches, we anticipate receiving about $470,000 net of those initial write-offs for 2023 and $1.4 million in savings for future years.
Matthew Clark, Analyst
Okay. Thank you.
Operator, Operator
Our next question is from the line of Jeff Rulis with D.A. Davidson. Please go ahead.
Jeff Rulis, Analyst
Thanks. Good morning. Tani, regarding the $470,000 net, could you explain the upfront costs associated with that? I believe you may have incurred some in the first quarter, and I'm curious about the savings for the rest of the year. Additionally, were there any savings in the first quarter that you mentioned? I’d like to get a clearer breakdown of the $470,000.
Tani Girton, CFO
The accelerated amortization for the two branch closures was $274,000; the other branch did not have any. Additionally, there was $158,000 of accelerated lease expense related to one of the closures.
Jeff Rulis, Analyst
And no savings in the first quarter just yet?
Tani Girton, CFO
I have to run that number for the first quarter, so to break down that $470 million net for the year over the four-quarter period. I can send out an email after the call on that if you like.
Jeff Rulis, Analyst
Okay. You mentioned the annual run rate, so I can work that out. I understand the cost implications. Thanks for breaking down the outflow details, Tim. I'm curious about the reasons people left the bank. Can you confirm that some were seeking safety and others were looking for yield? Also, how has the conversation around this shifted from mid-April compared to the early days of the news in March?
Tim Myers, President and CEO
Sure. It's a good question. As we've mentioned previously, going into the first quarter, we were cautious about raising our deposit rates to gauge market reactions and how our betas would adjust. We began discussions with clients and implemented broader deposit rate increases toward the end of February and early March, before the failure of Silicon Valley Bank and other banking issues emerged. This prompted us to be more aggressive in our approach. At that time, there was significant concern regarding the health of regional and community banks, heightened by news concerning some large regional banks facing difficulties. It’s challenging to determine the exact extent of worry about the banks' viability versus the drive for higher rates, but certainly, the elevated rates at major brokerage firms influenced this situation. We became much more aggressive later in that quarter and made several adjustments, initiating a number of tier increases just days before the failure of Silicon Valley Bank. We believed we were getting ahead of the curve, not knowing we were preparing for a more significant issue, but it became clear that the need for those adjustments was evident.
Jeff Rulis, Analyst
Yeah. The audio was starting to get a little choppy there. I'm not sure if that's on my line, but I understood the main points. Thank you. I have another question regarding what you mentioned as well.
Operator, Operator
Operator, we hear choppiness from the line right now coming from that main line.
Tim Myers, President and CEO
Jeff, are you there?
Jeff Rulis, Analyst
You sound quite a bit clear, Tim.
Tim Myers, President and CEO
Yeah. As you see you, but I couldn't hear you either. So would you mind repeating what you said? I apologize.
Jeff Rulis, Analyst
Sure. Wanted to ask about, thanks for the detail on the office CRE. I think you mentioned $370 million in the non-owner-occupied. What's the balance of the owner-occupied office CRE?
Tim Myers, President and CEO
At 17% of the $2.1 billion total. From Page 9 of the presentation.
Jeff Rulis, Analyst
Well, so in the office specifically of owner-occupied CRE that accounts for that entire amount.
Tim Myers, President and CEO
I'm sorry, office owner-occupied. We'll get you that number, Jeff. I don't have that in front.
Jeff Rulis, Analyst
Sure. Just a last check in. The loan pipeline, you scratched out some growth in the first quarter. It looks like paydowns were down. You came in with kind of a lower pipeline but ended up a net growth. How does that pipeline look today or at least the start of the quarter versus as you entered the year?
Tim Myers, President and CEO
It continues to build. Demand is reasonably muted out there with the rates where they are, but we are seeing the pipeline build. It gets lumpy and you close loans and then you have to build that pipeline back up. But I think we're pretty pleased with how that's shaping up.
Jeff Rulis, Analyst
Okay. I’ll step back. Thank you.
Tim Myers, President and CEO
Thank you.
Tani Girton, CFO
This is Tani, interjecting and answer to your question, Matthew, the tax equivalent net interest margin for March was 2.74%.
Operator, Operator
All right. Our next question from the line of David Feaster with Raymond James. Please go ahead.
David Feaster, Analyst
Thank you for taking questions. I have a quick one regarding the cash flows from the securities book. I believe we discussed an expectation of $25 million per quarter, but it seems to be exceeding that. How do you view the pace of the securities cash flows?
Tani Girton, CFO
Yeah. We do usually think of it as around $100 million a year. Of course, that fluctuates from quarter to quarter. And if we have any calls on securities, it would accelerate that. But yeah, it was higher than normal this quarter.
David Feaster, Analyst
Okay. And then just on the expenses, just wanted to clarify whether you would expect those to all flow to the bottom line? Because in the prepared remarks, Tim, it kind of sounded like you were planning on reinvesting those. Just want to make sure that we're thinking about kind of the expense run rate the right way.
Tim Myers, President and CEO
You're talking about the branch savings?
David Feaster, Analyst
Correct. Yeah.
Tim Myers, President and CEO
Yeah. So eventually, we do want to use the cost savings there to invest in things like technology that are tied to our five-year plan, our strategic initiatives, but that will take some time hiring of the opportunistic. So we don't have that money earmarked currently for those things. So I think for some undetermined period of time, those will drop to the bottom line. But eventually, with our new CIO on board potentially taking advantage of some of the disruption in the market, we certainly would like to hire, but there's nothing on the immediate horizon for that for either of those things. So we expect that to be true cost savings until we can reinvest in growth.
David Feaster, Analyst
Okay. That's helpful. I just want to make sure we're thinking about that. Maybe on the growth side of the equation. I was hoping you could maybe give us a pulse of the region what you're hearing from your clients, how demand is trending how new loan yields are? And maybe just your appetite for growth here, just given the backdrop, what segments you're still seeing good risk-adjusted returns. I mean, obviously, C&I was good. Just curious how you think about growth and where you're seeing new opportunities.
Tim Myers, President and CEO
The opportunities in terms of pipeline building is pretty even across our footprint. I will say that the pricing we're seeing out there, whether it's for the duration of fixed-rate loans or yields remains very competitive. So I don't want to throw any competitors under the bus, but the market has not responded by way of loan yields in our market the way maybe we would have liked. And so we will continue to look for loans that make sense, like you said, on a risk-adjusted basis. The opportunities are there, but it is a muted demand environment. In the North Bay, some of the trends around commercial real estate are still pretty positive. San Francisco clearly has its issues, but our portfolio has held up well there, and we're seeing growth out of some of our other regions like Walnut Creek. So with our different regions now that can be disparate in terms of when one does well versus the others, but we're seeing a good pipeline buildup in the Sacramento market. And it's really hard to predict at this point, but by and large, which we think there will be opportunities, but it's not going to be at a first-half 2022 pace.
Tani Girton, CFO
And if I could just add to that, on a looking-backwards basis, so over the last few months, the rate on loans coming in new to the portfolio versus the portfolio rate, they are significantly higher on average. So almost a couple of hundred basis points. So we do continue to see upward momentum on the yields for the asset side.
Tim Myers, President and CEO
But maybe back to your question a little bit, David. I mean we'll continue to look for those areas where we can lend on a good risk-adjusted return basis. But in some of our niche lending areas like tax exempt, I mean we're still seeing large regional competitors put out and even some money center banks put out offers that are 20-year fixed-rate loans. So we will have spaces to make are those the right assets to put on our books based on the credit quality and the relationship opportunities.
David Feaster, Analyst
Okay. That's helpful. And just following back up on the margin. If I hear your comments earlier about you're seeing a slight increasing trend in the margin. Do you think we've troughed here kind of from that $274 million that you just mentioned? And kind of just how do you think about the margin looking forward? I know it's a tough question to ask, but.
Tani Girton, CFO
Yeah. That's a real tough question because as I said, I don't want to predict where the margin is going exactly because in that $274 for March, for example, we're still seeing assets repricing upward, but we are still playing catch-up on the deposit side, on the deposit beta. And so if you look at them in isolation, each one of those two factors weighing against each other, they are offsetting each other somewhat. But I think incorporating the full price increase on deposits that we have put into place during the month of March, that's going to put some pressure on the margin.
David Feaster, Analyst
Okay. All right. That’s helpful. Thank you.
Tim Myers, President and CEO
Thank you, David. Jeff, back to your question on owner-occupied CRE office, that total is $65 million.
Operator, Operator
Next question from the line of Woody Lay, KBW. Please go ahead.
Woody Lay, Analyst
Hey. Good morning, guys.
Tani Girton, CFO
Good morning.
Woody Lay, Analyst
I wanted to start off with the office portfolio. I mean, I know Sacramento gets a lot of the headlines. But can you talk about the trends you're seeing in the other 81% of the portfolio?
Tim Myers, President and CEO
Yes. I will comment briefly on the North Bay market. Sales trends are down, but things like cap rates and price per square foot are holding and vacancy is a lot lower. So for example, in the North Bay, vacancy for office is around 11%, 12%. So nowhere near the pressure that you're seeing in San Francisco proper. With that, though, I would ask Misako Stewart, our Chief Credit Officer to weigh in as we have a very robust annual review process that gives us a lot of insight into the markets as we go throughout the year.
Misako Stewart, Chief Credit Officer
Sure. Like Tim said, San Francisco is probably the most impacted and maybe next Sacramento in terms of office. But as noted in the presentation slide, so our entire non-owner-occupied office portfolio is about $370 million. We do have the 55% average loan-to-value and debt service based on the most recent information as of 12/31/22. And so I think our underwriting standards in builds in enough of a cushion in our loan-to-value. We typically look for solid sponsorship as well in all of our deals. So I think we continue to monitor the portfolio closely. But I think it's a very manageable situation.
Tim Myers, President and CEO
And I'll just reiterate something that Misako said because this came in on the line about San Francisco's exposure and how recently those are refreshed in terms of loan-to-value, best service coverage occupancy. That information in the deck is all based on 12/31 '22 results in San Francisco based on operating statements and rental and then internal valuations when we don't have a more recent appraisal adjusted for current cap rate trends. So we really do try to stay on top of those and do an annual review process for a very large percentage of our portfolio throughout the entire bank.
Tani Girton, CFO
Yeah. We do reviews for about $1 billion of our $1.2 billion non-owner occupied real estate portfolio.
Woody Lay, Analyst
That's helpful color. And then I know that office class can be a largely subjective measure, but any color you could give just on the breakdown of Class A, B or C exposure in the portfolio.
Tani Girton, CFO
That's a difficult question to answer because, as you mentioned, it's subjective. In our San Francisco office portfolio, we're not dealing with high-rise or skyscraper buildings; they are relatively smaller in size. Additionally, as Tim noted, eight out of our eleven properties are fully occupied. So yes, it's a challenging question to respond to.
Tim Myers, President and CEO
Okay. Most are in the few-story range. There's the one outlier that happens to be our substandard credit that we've referenced in multiple calls in the past that we referenced in the deck, but that is higher, but the vast majority of our properties are two, three stories. Then the A, B, C as objective, as you said.
Woody Lay, Analyst
I wanted to touch on deposits. I appreciate that balances have remained relatively stable since March 22. Could you provide some insights on the changes in the mix during that period? Specifically, is the proportion of non-interest-bearing deposits continuing to decline, or is it also stable?
Tim Myers, President and CEO
No. That's holding stable. In fact, there's a slide in the investor presentation that we posted that shows almost an identical mix of 5 on Page 4, and we get a handing on. Yeah. It's on Page 4 of the deck there. And the mix is almost identical. Non-interest-bearing DDA is 50.3% versus 51.5%. Money market went from 27.7% to 28%. So from a mix standpoint, it's remained very stable. A lot of the big outflows that we did have in the quarter, both before and after the failure of Silicon Valley Bank. I don't mean to keep picking on them. That's just the trigger point, was really large outflows tied to specific events that are very easy to point to. I guess I said commercial real estate acquired with cash. We had two companies that sold and those funds were dispersed and unrelated to the owners that was $40 million. It was $20 on the CRE purchase post-SVB collapse, a lot of estate and trust disbursement. So it really was unfortunate timing. But in terms of the behavioral attributes, we really have seen things settle since 2022, and that mix really hasn't changed a lot.
Woody Lay, Analyst
Got it. All right. That’s all from me. Thanks for taking my question.
Tim Myers, President and CEO
Thank you.
Tani Girton, CFO
While we're on the topic and waiting for other questions, we had an investor inquire about the deposit betas for the quarter compared to what we previously indicated for the cycle. They are both the same at 15% for the cycle, as quoted through March 31. There may be more updates ahead, but as of now, March 31 aligns with this cycle. The same investor also asked what the time frame would be if we decided to sell the held-to-maturity securities if we invested at current market rates and perhaps shorter maturities. Firstly, we would not sell held-to-maturity securities; we would consider selling available-for-sale securities instead. If we were to execute any transactions, such as selling at a breakeven point, there wouldn't be a specific earn-back time frame, and we wouldn't reinvest the proceeds but rather use them to pay down borrowings. If we were to pursue a structured transaction that involves conducting a sale alongside another event, we would aim for an earn-back period of one to two years. I hope that clarifies the question.
Operator, Operator
Next one question from the line of Andrew Terrell with Stephens. Please go ahead.
Andrew Terrell, Analyst
Hey. Good morning.
Tani Girton, CFO
Good morning.
Tim Myers, President and CEO
Good morning, Andrew.
Andrew Terrell, Analyst
Maybe just to go back and start on the margin here. I just want to clarify that on Page 15 of the slide deck, the 83 basis point interest-bearing deposits for March. I just want to clarify, that is the average throughout the month of March and not the spot at the end of March, correct, the 83 basis points.
Tani Girton, CFO
It's 83 basis points. I'm sorry, I'm not following, what?
Andrew Terrell, Analyst
I'm looking at the monthly rate paid on interest-bearing deposits versus Fed funds on Page 15 of the slide deck in the bottom right graph.
Tani Girton, CFO
Okay. On interest-bearing, yeah.
Andrew Terrell, Analyst
That's average throughout the month, correct?
Tani Girton, CFO
Yes.
Andrew Terrell, Analyst
Okay. Given the increase from 23 basis points to 83 basis points, that’s quite a significant jump. Do you know what the cost of spot interest-bearing deposits was at the end of the period?
Tani Girton, CFO
No, we don't have that right now.
Andrew Terrell, Analyst
Okay. I mean it sounds like you guys got a little more aggressive kind of February, March time frame and ratcheting deposit costs. But I guess I'm just trying to get a sense of like how that's progressed so far in the month of April, like whether or not it feels like the cost increases in maybe early March time frame are enough if you've had to move further in April so far? I'm just trying to get a better sense of where the deposit cost number is headed.
Tani Girton, CFO
You know what, Andrew, I can send out an April year-to-date number after the call.
Tim Myers, President and CEO
I understand that most of our adjustments were implemented in March, Andrew. Yes, we have indeed become more aggressive. We began this process a couple of days before the collapse of Silicon Valley Bank and quickly ramped it up afterward, but the majority of the adjustments I've observed so far were completed by the end of March.
Andrew Terrell, Analyst
Okay. I appreciate it. And then one other question I had. You guys have, I think it's close to a $35 million buyback in place and capital ratios were very, very healthy with the stock trading kind of around this tangible book value level, can you talk about your appetite for utilization of the buyback here? I didn't see any in the quarter, but I'd love to hear your thoughts.
Tim Myers, President and CEO
Yeah. We would love to buy shares back at this price. I think we're waiting and seeing a little bit with the concerns around credit risk, making decisions around whether watching the market and the ability to sell available-for-sale securities, reposition our NIM based on reducing FHLB borrowings. And so we're looking at all those options and how that would impact capital, again, in light of potential credit issues coming. So I would love to do that, but I want to be cautious and prudent in the approach.
Andrew Terrell, Analyst
Okay. Well, the rest of mine were asked and answered already. So I appreciate taking my questions.
Tim Myers, President and CEO
Yeah. Thank you.
Operator, Operator
We have a question from the line of Tim Coffey with Janney Montgomery Scott. Please go ahead.
Tim Coffey, Analyst
Yeah. Thank you. Good morning, everybody.
Tim Myers, President and CEO
Hi, Tim.
Tim Coffey, Analyst
I appreciate. I really appreciate all the detail that you provided in the investor deck and on the call today. And myself kind of got some follow-up questions on some of those items. The construction book in San Francisco, can you provide some color on that?
Tim Myers, President and CEO
Yeah. I'm going to ask Misako to weigh in on this. She's much better versus the intricacies of it.
Misako Stewart, Chief Credit Officer
Sure. The construction portfolio mostly is multifamily or single-family residences. When you ask about color, is there anything specific you want me to address? I mean they are all performing.
Tim Coffey, Analyst
Yeah. Well, more than kind of a property type and location. I mean, specifically in and around the Central Business District.
Misako Stewart, Chief Credit Officer
They are mostly in San Francisco. They're multifamily. And so they do cover a number of different neighborhoods in San Francisco. If there's anything we have some softening in terms of just condo sales, but they are all performing currently.
Tim Coffey, Analyst
Okay. And then the total CRE loans in San Francisco, are you seeing any signs that they're behaving differently than, say, the office portfolio?
Misako Stewart, Chief Credit Officer
In San Francisco?
Tim Coffey, Analyst
Yes.
Misako Stewart, Chief Credit Officer
I would say that the general trend that we're seeing, which I'm sure many others are seeing as well is just with vacancies as leases come due and maturity, many are not renewing or if they are, they're renewing at lower rates. And so we are continuing to keep a close eye and monitor our entire portfolio for that matter for non-owner-occupied real estate, but mostly for the office property. But it is a general trend that we are seeing. In San Francisco, I think the majority of it is concentrated in office in San Francisco. I think we have a few industrial properties, which are performing as agreed.
Tim Coffey, Analyst
Okay. And then my last question has to with account openings, how many account deposit accounts do you open in a typical quarter?
Tim Myers, President and CEO
Give me one second.
Tim Coffey, Analyst
Yeah. I'm just trying to get an idea of kind of with the 1,000 that you opened in this last quarter in...
Tim Myers, President and CEO
Yeah, probably in the 500 to 600 range.
Tim Coffey, Analyst
Okay. All right. Those are my questions. I appreciate the time. Thank you.
Tim Myers, President and CEO
Very well.
Operator, Operator
And we have no further questions on the phone line.
Tani Girton, CFO
We have a couple of questions from the webcast. The first one is about the net interest margin increasing as assets repriced. In terms of timing, it will be a gradual increase on the asset side. In the next couple of months, the catch-up on deposits will offset it more than in the following months. I hope that helps. We also have a question about the March 31 reserve for unfunded commitments, and I'm currently working on obtaining that information.
Tim Myers, President and CEO
We did have a question about the opportunities to hire from the recent challenges in the wine lending market. We were initially excited about this opportunity, not wishing to benefit from others' misfortunes, but recognizing it as a significant segment for us. So far, teams from Silicon Valley Bank seem to be a focus for their new owner, but we've also spoken with teams focusing on various aspects within Commercial Banking due to other disruptions. I believe there will be hiring opportunities; however, the key question for us is whether it's the right fit and if it will drive our growth in desirable areas, adding value. I anticipate more opportunities in broader commercial banking and hopefully in wine as the situation develops.
Tani Girton, CFO
And going back to the reserve for unfunded commitments as of March 31, it was $1.3 million.
Tim Myers, President and CEO
Looks like we have another question from the line. Please hang on. So I will say this. I'll read the question that came in, what does the back book of loan repricing look like through 2023, 2024? We have about 18% of our book that reprices over every 12-month cycle. We can go back and do some more research, but it's generally been in that 18% to 20% range. If you would like more specificity around that, please reach out to me or through Andrea or Tani directly. I'm not sure who the question came in from.
Operator, Operator
We have no questions from the phone.
Tim Myers, President and CEO
With that, I want to thank everyone for their time, attention, and questions. Please feel free to reach out to any of us if you want further information, but we appreciate your involvement. Thank you.
Tani Girton, CFO
Thank you.