XML 37 R25.htm IDEA: XBRL DOCUMENT
v3.8.0.1

Acquisition | 12 Months Ended
--- | ---
Dec. 31, 2017
Business Combinations [Abstract] |
Acquisition | Acquisition On November 21, 2017, we completed the merger of Bank of Napa, N.A. (OTCQB: BNNP), to enhance our market presence in Napa, California. Bank of Napa was a national bank with two branch offices serving Napa. The acquisition added $134.7 million in loans, $249.9 million in deposits and $75.5 million in investment securities to Bank of Marin as of the acquisition date. Bank of Napa shareholders received 0.307 shares of Bancorp common stock for each share of Bank of Napa common stock outstanding. The acquisition of Bank of Napa constituted a business combination and has been accounted for using the acquisition method of accounting. The assets acquired and liabilities assumed, both tangible and intangible, were recorded at their fair values as of the acquisition date in accordance with ASC 805, Business Combinations. The acquisition was treated as a "reorganization" within the definition of section 368(a) of the Internal Revenue Code and is generally considered tax-free for U.S. federal income tax purposes. The following table reflects the estimated fair values of the assets acquired and liabilities assumed related to the acquisition:
(dollars in thousands) | Acquisition Date November 21, 2017
Assets: |
Cash and cash equivalents | $ | 59,779 |
Investment securities | 75,469 |
Loans | 134,720 |
Core deposit intangible | 4,441 |
Goodwill | 23,705 |
Bank premises and equipment | 599 |
Other assets | 6,408 |
Total assets acquired | $ | 305,121 |
Liabilities: |
Deposits: |
Non-interest bearing | $ | 77,266 |
Interest bearing |
Transaction accounts | 50,080 |
Savings accounts | 12,157 |
Money market accounts | 85,045 |
Other time accounts | 25,338 |
Total deposits | 249,886 |
Other liabilities | 2,050 |
Total liabilities assumed | $ | 251,936 |
Merger consideration of $53,185 (735,264 common shares and 70,145 shares of replacement stock options issued by Bank of Marin Bancorp). | $ | 53,185 |
The following table presents the net assets acquired from Bank of Napa, consideration paid and the estimated fair value adjustments:
(dollars in thousands) | Acquisition Date November 21, 2017
Book value of net assets acquired from Bank of Napa | $ | 26,152 |
Fair value adjustments: |
Loans | 1,301 |
Core deposit intangible asset | 4,441 |
Total purchase accounting adjustments | 5,742 |
Deferred tax liabilities (tax effect of purchase accounting adjustments at 42.05%) | (2,414 | )
Fair value of net assets acquired from Bank of Napa | $ | 29,480 |
Merger consideration | $ | 53,185 |
Less: fair value of net assets acquired | (29,480 | )
Goodwill | $ | 23,705 |
Goodwill As a result of the Bank of Napa acquisition, we recorded $23.7 million in goodwill, which represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. Goodwill mainly reflects expected value created through the combined operations of Bank of Napa and Bank of Marin. It is evaluated for impairment annually. We determined that the fair value of our traditional community banking activities (provided through our branch network) exceeded the carrying amount of the bank-level reporting unit. Therefore, no impairment on goodwill was recorded in 2017. The goodwill is not deductible for tax purposes. The following is a description of the methods used to determine the fair values of significant assets and liabilities whose fair values are different from their carrying amounts on Bank of Napa's books at acquisition date presented above. Loans The fair values for acquired loans were developed based upon the present values of the expected cash flows utilizing market-derived discount rates. Expected cash flows for each acquired loan were projected based on contractual cash flows adjusted for expected prepayment, expected default (i.e. probability of default and loss severity), and principal recovery. Prepayment rates were applied to the principal outstanding based on the type of loan, where appropriate. Prepayments were based on a constant prepayment rate (“CPR”) applied across the life of a loan. For performing loans, we used annual CPRs between 5 percent and 27 percent, depending on the characteristics of the loan pool (e.g. construction, commercial real estate, etc.). For classified loans, no prepayment was assumed and applied. Non-PCI loans were valued on a loan-by-loan basis when applying the discount rate on the expected cash flows. The discount rates used were based on current market rates for new originations of comparable loans, where available, and include adjustments for credit and illiquidity premium. To the extent comparable market rates are not readily available, a discount rate was derived based on the assumptions of a market participant's cost of funds, capital charge, servicing costs, and return requirements for comparable risk assets. PCI loans were also valued on an individual basis. The following table presents the fair value of loans acquired from Bank of Napa for PCI loans as of the acquisition date (November 21, 2017):
(in thousands) | PCI loans
Contractually required payments including interest | $ | 1,769 |
Less: contractual cash flows not expected to be collected (nonaccretable difference) | 805 |
Cash flows expected to be collected (undiscounted) | 964 |
Less: interest component of cash flows expected to be collected (accretable yield) | 109 |
Fair value of PCI loans | $ | 855 |
The following table presents the fair value of loans acquired from Bank of Napa for non-PCI loans as of the acquisition date (November 21, 2017):
(in thousands) | Non-PCI loans
Contractually required payments including interest | $ | 183,833 |
Contractual cash flows not expected to be collected | $ | 14,227 |
Fair value of non-PCI loans | $ | 133,865 |
The following table reflects the outstanding balance and related fair value of PCI loans as of the acquisition date:
PCI Loans (in thousands) | Unpaid principal balance |  | Fair value |
Commercial | $ | 417 |  | $ | 70 |
Commercial real estate | 1,070 |  | 785 |
Total purchased credit-impaired loans | $ | 1,487 |  | $ | 855 |
Core Deposit Intangible The core deposit intangible represents the estimated future benefits of acquired deposits and is booked separately from the related deposits. The value of the core deposit intangible asset was determined using a discounted cash flow approach to arrive at the cost differential between the core deposits (non-maturity deposits such as transaction, savings and money market accounts) and alternative funding sources. It was calculated as the present value of the difference in cash flows between maintaining the core deposits (interest and net maintenance costs) and the cost of an equal amount of funds with a similar term from an alternative source. The core deposit intangible is amortized on an accelerated basis over an estimated ten-year life, and is evaluated periodically for impairment. No impairment loss was recognized in 2017. We recorded a core deposit intangible asset of $4.4 million at acquisition, of which $56 thousand was amortized in 2017. At December 31, 2017, the future estimated amortization expense on the CDI from the Bank of Napa acquisition is as follows:
(in thousands) | 2018 |  | 2019 |  | 2020 |  | 2021 |  | 2022 |  | Thereafter |  | Total |
Core deposit intangible amortization | $ | 508 |  | $ | 499 |  | $ | 488 |  | $ | 475 |  | $ | 460 |  | $ | 1,955 |  | $ | 4,385 |
Pro Forma Results of Operations The first column of the following table presents the former Bank of Napa's operations and its actual contribution to our net interest income and net income included in our consolidated statement of comprehensive income from the acquisition date (November 21, 2017) through December 31, 2017. The table also presents pro forma information of the combined entity as if the acquisition occurred on January 1, 2016. The pro forma information does not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the periods presented, nor is it indicative of the results of operations in future periods. Furthermore, cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts.
Pro Forma Revenue and Earnings |  |  |  |
(in thousands) | Actual from acquisition date through December 31, 2017 |  |  | 2017 |  |  | 2016 |  |
Net interest income | $ | 913 |  |  | $ | 82,802 |  |  | $ | 80,898 |  |
Net (loss) Income | $ | (576 | ) | 1 | $ | 18,898 |  | 2 | $ | 21,559 |  | 2
1 Bank of Napa's net loss from November 21, 2017 through December 31, 2017 includes acquisition-related costs, accretion of the discount on acquired loans and core deposit intangible amortization.
2 2017 pro forma combined net income was adjusted to exclude acquisition related costs of $2.2 million incurred by Bank of Marin Bancorp and $2.5 million incurred by Bank of Napa. 2016 pro forma combined earnings were adjusted to include these acquisition related costs as if the merger occurred on January 1, 2016.
Acquisition-related expenses are recognized as incurred and continue until all systems have been converted and operational functions become fully integrated. Bank of Marin Bancorp incurred acquisition-related expenses in the consolidated statements of comprehensive income in 2017 for the Bank of Napa acquisition as follows:
(in thousands) | Year Ended December 31, 2017
Data processing 1 | $ | 1,108 |
Professional services | 952 |
Personnel severance | 35 |
Other | 114 |
Total | $ | 2,209 |
1 Primarily relates to Bank of Napa's core processing system contract termination and deconversion fees.

X
- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration