DA Davidson analyst has upgraded Bank of Marin Bancorp (BMRC) to Buy from Neutral, raising the price target to $24 from $21. The analyst believes the Federal Reserve’s potential shift towards lower interest rates has positively impacted BMRC’s earnings outlook and alleviated concerns regarding credit risks. This optimistic view stems from the analyst’s belief that the Fed’s rate cuts will reduce pressure on commercial real estate (CRE) and ease investor worries about broader credit quality.
The analyst’s upgraded rating is driven by several key factors. First, the analyst expects BMRC’s net interest margin (NIM) to benefit significantly from the bank’s strategic move to sell low-yielding securities and invest in higher-yielding assets. This move, implemented in the second quarter, is projected to increase annualized NIM by approximately 30 basis points starting in the third quarter of 2024, leading to an earnings per share (EPS) accretion of $0.46 over the next four quarters. This translates to a three-year payback for the strategic move.
Secondly, the analyst anticipates that a 200 basis point reduction in interest rates could result in a 1.8% boost to net interest income (NII) in the first year. This positive impact is projected to drive NIM beyond 3.00% by the end of 2025.
While the analyst acknowledges that BMRC’s credit issues are not fully resolved, they emphasize that the recent 50 basis point Fed rate cut provides relief for maturing loans and increases the likelihood of a soft landing, further easing investor concerns over credit quality. The analyst estimates an EPS of $(0.70) in 2024 and $1.35 (up from $1.23) in 2025.
Following the upgrade, BMRC shares rose 4.53% to $21.02 at the last check on Thursday.
