Acquisition (Tables)

12 Months Ended

Dec. 31, 2017

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

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

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period

The following table reflects the unpaid principal balance and related carrying value of PCI loans:



PCI Loans	December 31, 2017				December 31, 2016
(in thousands)	Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance		Carrying Value
Commercial and industrial	$	276	$	65	$	45	$	40
Commercial real estate, owner occupied	1,297		1,166		1,344		1,072
Commercial real estate, investor	1,064		790		1,713		1,706
Construction	—		—		—		—
Home equity	231		94		248		102
Total purchased credit-impaired loans	$	2,868	$	2,115	$	3,350	$	2,920

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

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

At December 31, 2017, the future estimated amortization expense for the CDI arising from our past acquisitions is as follows:



(in thousands)	2018		2019		2020		2021		2022		Thereafter		Total
Core deposit intangible amortization	$	921	$	887	$	853	$	818	$	782	$	2,231	$	6,492

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

Business Acquisition, Pro Forma Information

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.
²2017 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.

Schedule Of Acquisition-Related Expenses

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 processing¹	$	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.