DA Davidson analyst upgraded Bank of Marin Bancorp (NASDAQ:BMRC) to Buy from Neutral and raised the price target to $24 from $21.
The analyst writes that the Fed's potential shift to lower rates has enhanced their earnings outlook for BMRC and led to the belief that the bank's credit risks have somewhat diminished.
Consequently, the analyst increased the 2025 EPS estimate by 10%, primarily due to a more optimistic forecast for NIM/NII.
Furthermore, the anticipated relief from interest rates is expected to alleviate some pressure on office CRE and lessen overall investor concerns regarding the broader credit quality landscape, adds the analyst.
The analyst says that the bank sold low-yielding securities to reduce borrowings and invest in higher-yielding assets in the second quarter, expected to raise annualized NIM by about 30 basis points starting in 3Q24 and generate $0.46 in EPS accretion over the next four quarters, representing a three-year payback.
Additionally, a 200 basis point rate reduction could boost NII by 1.8% in the first year, leading the analyst to project NIM will surpass 3.00% by the end of 2025.
The analyst says that while BMRC's credit issues aren't fully resolved, the recent 50 basis point Fed rate cut offers relief for maturing loans and increases the chances of a soft landing, easing investor concerns over credit quality.
The analyst estimates EPS of $(0.70) in 2024 and $1.35 (up from $1.23) in 2025.
Price Action: BMRC shares are up 4.53% at $21.02 at the last check Thursday.
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