Q2 2020 Bank of Marin Bancorp Earnings Call
[music].
Good morning, and thank you for joining the bank Ameren Bancorp earnings call for the second quarter ended June 30, Twentytwenty I'm, Andrei Henderson director of marketing for Bank Ameren.
During the presentation, all participants will be and they listen only mode. After the call. We will conduct a question and answer session.
At that time, if you up questions. Please press one followed by four on your telephone.
If at any time during the conference call you need to reach an operator, Please press star zero.
This conference call is being recorded on July 20, Twentytwenty, joining us on the call today, a Russ Colombo, President and CEO, Tim Meyers Executive Vice President and Chief operating Officer, and Tony Girton, Executive Vice President and Chief Financial Officer.
Our earnings press release, which we issued this morning can be found on our web site at bank of Marine Dotcom, where this call is also being webcast.
Before we get started I want to emphasize that the discussion on this call is based on information we know as of Friday July 17th 2020.
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, Russ, Tim and Tawney, along with the Chief Credit Officer, Beth Reizman will be available to answer your question and now I'd like to turn the call over to Russ Colombo.
Thank you Andrea.
Good morning, and welcome to the call.
I hope everyone remains healthy and say.
It's probably late June persist and impacting our daily lives.
We all find ourselves respond into a very fluid situation.
In the face of so much uncertainty takeover and continues to execute on our guiding principles.
Relationship banking.
Discipline fundamentals.
And community commitment.
Which positions us well to assist our customers in weathering the pandemic.
At the outset of the public health crisis.
They swiftly responding to customer needs, including actively participating in the PPP.
Since the inception of the program, we have funded over $300 million in PPP loans, hoping over 1800, local small businesses and nearly 28000 employees.
These loans will aid many of our customers in bridging the gap to economic recovery.
We also implemented a 120 day loan modification grow them for borrowers with hardship request.
As of July Tim.
They get approved over 260 loan modifications exceeding $386 million.
Is that Golden moves forward.
Moves towards maturity in August we continue to have active discussions with our customers about loan modifications will be able to provide more detail next quarter.
Although many of our employees continue to work from home our branches are open and enhanced with safety protocols.
And our banking teams across our markets are dedicated to helping our customers.
Now I'll turn to the second quarter results.
Our performance reflects a financially sound and stable community bank with a proven ability to manage through changing market conditions.
We are very well capitalized and our loan portfolio is supported by disciplined underwriting standards.
As well as conservative loan to value ratios and personal guarantees.
As we reported last quarter.
Our loan portfolio exposure to the most affected industries is low which leaves us lustful with less vulnerability relative to the bigger banks.
Well, we'll give a more detailed breakdown later in the call.
There are some key highlights from the quarter.
We generated net income of 7.4 million.
Diluted earnings per share 55 cents.
Total loans of 2.1 billion, we're up about 14%.
With solid commercial and industrial growth driven by TPP loans.
We will not see continued growth from PPP loans, because we completed that lending program at the close of the second quarter.
Our commercial bankers are working to understand and meet their customers evolving credit needs.
There are also identifying new opportunities across our markets.
We expect these efforts will help.
To grow our portfolio overtime.
Total deposits increased $473 million in the second quarter to $2.8 billion.
Driven by a combination of PPP loan proceeds and increased liquidity throughout the banking system as a result of higher savings rates.
The average cost of deposits decreased to nine basis points in the second quarter, reflecting a low rate environment and our relationship banking model.
Non interest bearing deposits represented 52% of total deposits.
Our total risk based capital ratio was 15.8% at June Thirtyth.
Well above regulatory requirements and the 15.3% we reported at March 30 Onest.
While we are very well capitalized our share repurchase program remain suspended indefinitely as a precautionary response to the pin debit.
Management and the board of directors continue to monitor the situation and we'll reinstate the program when appropriate.
Non accrual loans decreased by $45000 into first quarter to $1.6 million or 0.08% of total loans.
On slide loans increased by $1.5 billion from the prior quarter to $13.5 million, but we're still down relative to the first quarter of 2019.
The full impact of coded 19 crisis will take time to materialize.
Our bank is not immune to the significant economic pressures.
But we're confident in our conservative lending philosophy, and long history of strong asset quality.
Finally, due to our continued profitability the board of directors declared a cash dividend of 23 cents per share.
July 17th.
2020.
This represents a 60 onest consecutive quarterly dividend paid by Bancomer in Bancorp.
The dividends payable on August seven 2022 shareholders of record at the close of business on July 30 Onest.
Many 20.
Now I'd like to recognize an important change to our leadership team.
Jim Meiers, most recently executive Vice President commercial banking was named Chief operating Officer on June Thirtyth.
Tim has nearly 25 years of experience in finance and banking committing spanning small business.
Middle market and corporate segments.
After 13 years with bank of Mervyn King has a deep understanding of our business model and a strong connection to our customers into our people.
I am pleased that Tim was prepared to step up to the role of COO.
In this challenging times stability and consistency and management are more important than ever.
Kim will now provide more detail on our PPP and loan modification programs.
Well as an update on our overall loan portfolio and expansion efforts in the peninsula and self pay region.
Thank you Ross.
The banks execution of PPP is a testament to our dedication to meeting our customers' needs a small team of subject subject matter experts devoted a great deal of time and energy the launching the program in helping hundreds of customers kept their loans.
After receiving approval to become an SPL lender, we formed cross functional teams have successfully process and funded more than 1800 loans totaling over $300 million.
We committed to focusing on small businesses are needed funding to weather the downturn and anytime help our local markets grow during the recovery.
Notably, 73% of the PPP loans were for $150000 or less and almost 90% were 350000 or less.
Only 42 loans were $1 million or greater representing approximately 30% of the total balance.
Among all the businesses, we were able to assist we're proud to say there were 178 nonprofit organizations ranging from education to health and human services, the received $57 million, which help protect payroll for over 6000 of their employees.
Bank of rent stopped taking applications for PPP loans on June Thirtyth to focus our efforts on helping customers, who the loan forgiveness process.
We have contracted with the technology provider and the SCPA firm to streamline the submission of applications to help educate our bankers and borrowers on the Espeed guidelines forgiveness process and necessary calculations.
We were pleased to play a key role in this program and are excited to see it through the completion.
In the first quarter of 2020 with the onset of the pandemic, we identified industry is within our portfolio that could be most impacted.
These included retail transportation and energy medical and dental hotels, and motels entertainment private schools and the wine industry.
Not including PPP loans exposure to these segments totaled $430 million at June thirtyth or 20% of the loan portfolio.
366 million of these loans were secured by real estate.
The greatest exposure was related to both retail businesses and retail related commercial real estate totaling 198 million or 9% of the total portfolio 185 million of richest secured by commercial real estate, our average loan to value on these properties is 39% and the majority are also backed by.
Personal guarantees.
The wine industry exposure was $77 million or 4% of the portfolio of which 42 million a secured by real estate education was 67 million or 3% of the portfolio of which 63 million secured by real estate and hospitality was 48 million of which 45 million is secured by real.
Alistair.
We made 103 million in PPP loans to these industry segments as of June Thirtyth, the largest of which were in the medical and dental SEC sector at 33 million hospitality at $17 million retail, which is mostly commercial real estate at 16 million and education at 12 million.
We also continue to work with customers in either temporary assistance longs for which we process payment relief requests exceeded $386 million of July 10th.
223 million, where for payment deferral, and 163 million a lot for interest only payments.
While our loan modification agreements largely span a 120 to timeframe is small number of customers requested only 90 days of relief.
Of the loans on payment relief, almost 50% fell under our expected pandemic impacted industries.
The largest being retail related commercial real estate at 70 million hotels, and motels, a 37 million and education related commercial real estate at 25 million.
Over 90% of the payment relief loans are secured by real estate and have a total average loan to value a 45%.
Within the largest categories average loan to value was 43% for retail related properties, 39% for hotels and hotels and 37% for education properties.
Even as we respond daily to the impacts of the pandemic, we continue to look for strategic opportunities for expansion.
During the second quarter, we hire Jake wind to establish a commercial banking office in San Mateo focusing on the peninsula in South Bay regions of the Bay area.
Jake is a seasoned and highly regarded banking leader in these markets subsequent to joining banker Moran Jay card and experienced commercial banker, David mirrors and secured an office location San Mateo that we will occupy soon.
This positions us well deserved eight of the nine Bay area counties, and we're very excited about our prospects south of San Francisco.
With that I will turn it over to Tony for additional insight on our financial results.
Thank you, Tim and good morning, everyone.
As Rob noted, we generated net income of $7.4 million in the second quarter of 2020.
Diluted earnings per share of 55 cents compared to 53 cents in the prior quarter and 60 cents in the second quarter last year.
Net interest income totaled 24.4 million in the second quarter compared to 24.1 million in the prior quarter and 23.8 million a year ago.
Second quarter and year to date net interest income included 1.7 million of interest income and fees from PPP loans.
The tax equivalent net interest margin was 3.53% in the second quarter, which compares to 3.88% in the prior quarter and 4.02% in the second quarter of 2019.
Interesting fees on PPP learns negatively impacted the net interest margin by three basis points in the second quarter of 2020.
The tax equivalent net interest margin were 3.7% in the first six months hit 2020 compared to 4.03% for the same period in 2019.
[noise] declines in net interest margin from the first quarter, the same quarter last year and year to date versus 2019 were mostly attributed to a full quarter impact of low interest rates that weighed on our asset yields and put downward pressure on the margin.
As you know we previously postpone the adoption of the current expected credit loss accounting standard we're Cecil in accordance with the accounting relief provision in the carriers that we.
We will be prepared to adopt Cecil when the national emergency ends or December 31st 2020 whichever comes first.
Non accrual loans represented only 0.08% of the bank's loan portfolio at June 30.
We recorded a $2 million provision for loan losses, and a $260000 provision for losses on off balance sheet commitments in the second quarter.
Versus <unk> point, 2 million and 102000, respectively in the prior quarter.
Under the existing incurred loss model he made adjustments to qualitative factors to account for the impacts of the Copeland 19 pandemic, primarily to significant increase in the unemployment rate.
Non interest income of $1.8 million in the second quarter decreased from 3.1 million in the prior quarter, primarily due to significant gains on securities sales in the first quarter and lower service charges and fees in the second quarter related to cope with 19.
The efficiency ratio of 54% reflects continued expense control. In addition to deferred loan origination costs of 890000 associated with PPP learns.
Second quarter non interest expenses are down from the prior quarter due to seasonal first quarter expenses and from the prior year due to reduce data processing expenses associated with our digital platform conversion.
The bank delivered a return on assets of 1.01% and return on equity of 8.53% in the second quarter 2020.
The impact is coke at 19 on Bancomer in second quarter performance is meaningful, but we believe our strong underwriting and limited exposure to industry's most impacted by the pandemic position us well as we move into the second half of 2020.
And now rest would like to share some closing comments with you.
Thank you Tony we will continue to address both the impact and unique challenges created by the pandemic.
We ended the second half of SEC.
2020, with a strong capital position high quality loan portfolio.
And low cost deposit base.
We have a 30 year history of supporting our customers in communities in both prosperous and difficult economic times.
I am confident that by continuing to work together, we will all emerge from this downturn strong and poised for growth.
Thank you for your time this morning, and now we will open it up to your questions.
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One thing.
Once again, ladies and gentlemen on the phone line today's one four to ask a question.
Our first phone question is from the line of chess through this with the D.A. Davidson company.
And if it.
Thanks, Good morning.
Turning to after summer if you're interested in the in the response on a couple of French that you've had your you mentioned lowering some interest rates floors cultural waiting some some fees I guess that first one just on the margin impacts them.
Going forward is that.
I have yet you still think that on a case by case basis, but largely do you anticipate the.
Entering a floors to to sort of aberg or stock.
Going forward.
And how that might affect the margin.
Jeff I'm going ask.
Tim lawyers, and Tony driven to answer that Tim is directly dealing with his clients day to day and Tony can talk to talking about the its impact on the financials. So Tim once you go ahead.
Yeah. Thank you outside yes, we are reviewing those case by case by case.
Going forward a lot of these are our lines of credit with renewals and on an mostly annual basis. So those times floors are going to get naturally adjusted from where they were when they were done one or two years ago. So we'll continue to see summer and passive that what I've not quantified.
Tony Yeah, Yeah, we haven't quantified as Tim said on a go forward basis, because it is on a case by case basis.
In terms.
The current margin and.
Obviously, it's it's sort of embedded in the full hundred 50 basis point decrease that that occurred in March I can I can segment that out and provide it after the call to the analyst community.
And but I don't have a number on that right now.
Okay.
Thanks, and I guess on a related front, though on the on the service charges.
And maybe it's safe to assume that a lot of the weighting of those fees up front was at the front ended this event going forward you might see some resumption or some growth.
In the fee income lines.
Yeah, Jeff This is Russ.
Yeah. Its employees, we don't we're trying to be we're trying to be sensitive to our customers needs into the challenge that everybody is going through right now I'm, obviously, that's well wait and see now but that doesn't mean, they're gonna go on forever. It once we get back to a young for somebody knows when the new normal is or what it is but as we get.
Closer to a time when we.
Good how you look kind of normal lives and businesses can resume their normal activities.
You know then we'll there was little well, we'll make changes but for the time being we're doing that you're trying to help our clients in this really difficult time.
Sure and I'd, just one last one maybe for Kim I'm interested in that.
I don't have the sentiment on on some of the borrowers does that have that have not.
Led to some payoff activity or reduce the mine utilization just the behavior that you're seeing any commentary that.
You could shed some light on on what you're seeing.
Oh, Yeah, I think Jeff we it's a combination of things in some cases during this last quarter, we had TPP loans for people to wrong credit Suisse, where TPP proceeds paid down lines of credit we are seeing people and some kids and sell assets and use pros.
You know that were not financing they use those proceeds to pay down other loans and were.
Generally seeing a trend or at least over the last quarter of people just reducing their their credit usage, they're not growing as a rate, but normally would which is typically.
A key driver and increased usage on lines of credit.
But overall, we're generally speaking first application that fast borrowers house to loans outstanding.
Jeff I will add one thing to that.
And this crisis yeah. There were some bar was actually cut through their lines not knowing what was it has and then as things kind of settle down vacated back so utilization with went up initially and then went down.
So right.
Okay, well thank you.
Sure.
Thank you.
Next question is from Diana Jackie Bohlen with KBW. Please go ahead. Your line is open.
Hi, good morning, everyone.
Iran Jackie I.
I realize this is a challenging question I'm. So just curious on your thoughts and expectations related to the balance sheet size. Obviously, there's a lot of different things at play here, but I'm wondering couple of things number one how you're modeling the pay off of TPP loud and number two how you are.
Back.
Funding and apply that to flow around that.
Yes, I will Oh, that's funny to answer your question in the modeling of the CPP, which we frankly, we expect mostly on a big portion of that.
Maybe all of it to be forgive me, but I'll give it to kick it over time.
Well, that's exactly right wrestler modeling right now 100%.
Forgiveness on the P.P.P. long by the end of 2020.
And because that's our goal in our expectation and that's what we're going to put our effort toward is making sure that oh those guests forgiven.
So.
Was there another question there that I missed.
Oh nine how your positive hot close yes, yes, so the deposit flows.
Our going out slower than we originally expected when we had the we did have significant deposit inflows associated with TTP Ron.
Borrowers, but it is starting to pick up a little bit now and again, we expect those flows to go out be at sort of consistent with the forgiveness timing as we expect those funds to be utilized in order to get the forgiveness.
Hi.
And are there in terms of inflows that you saw in the quarter as their excess liquidity.
Hi, or what you would consider to be excess liquidity I've not tied to PPP that might take around on a different schedule.
I'm not sure yes, there is excess liquidity separate from the P.P.P. I'm not sure how long that I'll stick around obviously, we saw fair Oh, we saw some outflows associated with tax day I recently, so there was some buildup associate with that but there is increased liquidity in the bank.
In system, overall, and and that seems to the adding to our cash position as well.
Okay. Okay.
Okay.
Thank you and one more for me and then I'll step back and but in terms of San Mateo office that you'll be opening on if you could just provide some background on you know what kind of hiring is going to take place at that like you're on growth expectations will be in the longer term associated with that I am and then just I any expenses that we should be.
On the look out for.
Sure Jackie you know Jim Meiers is a the person that was responsible for that that office, so I'm going to ask him to CSF, what's your way.
Hi, Jackie.
As I mentioned in my talking points, we did hire a regional manager.
As far one commercial banking lobster.
I will say in this environment or having just sign the lease.
We're going to play a little bit, but here I think what we originally initially falls false I'm, sorry forecasting followed by way of growth expectation that we have to review in this environment. So I'm not comfortable saying long term growth objection objective, but I would expect overtime we have.
Leaves, a one or two other commercial banking officers.
It will probably supports up from a cash management standpoint from our other regions were very strong cashman gene affordable to do that and so I don't expect a great deal more by way of expenses beyond what colonies already accounted for a thus far.
Okay, and Jack Jackie I'd, just add one thing I'm, you know opening San Mateo really.
He puts us in a position, we're where we have commercial banking offices in.
Almost every market in the Bay area with <unk>, maybe the possible exception of San Jose.
And I'm always physically valley.
For the time being.
And the two will be we'll be focusing on that in addition to the rest of the peninsula, but I'm a whole intent here is to get to establish.
Sadly show banking offices that answered the entire Barry.
So this is a step.
Okay, and if that's a reflection oh.
A renewed focus in the everything I know this is.
Geographically new free with it.
Got a renewed focus on areas where they.
Did the regional manager Jets.
Finally, all collecting you were able to bring that person on board and though plans that had been in the works for a while you were able to see them crew.
Well, we we had plans in the works to two open an office something in school and you know those those offices the key to succeed opening offices really finding the right people and so we were able to identify Jake and and one of the person for that office final location in San Francisco and so we we went ahead with it.
Obviously this is the most opportune time to be opened offices given that given the pandemic. However, we have the opportunity in the person was available and.
We thought it was that we thought it was a great higher and though.
I'm very excited about the opportunity for us incident so.
Okay, great. Thanks for the added color.
Thank you.
Thank you. Our next question that's from the line up my few players please pipers unless they've got doing.
Hi, good morning.
Good morning, so running.
Maybe first on the on the deferrals as you kind of go through the process with your customers and talking with them.
I guess, what's your sense you know come next month.
How much of that might return to normal payments do you have any guesstimate or.
Order of magnitude.
Well I'll take a stab initially and then I'll kick it over all said it's Tim.
You know it's it's.
Our first leg ulcers ever reaching out to other customers and try to to get a sense of where the artist it's kind of all over the board adequately industry. Some industries are.
It's doing better than expected some are still struggling so I would expect that we would have we're continuing to have some deferrals.
We would have some that don't go back.
For older and Oh go from interest only back to normal famous schedule.
It's hard to sort of he said judge at this point, but.
Tim could probably yet.
<unk>.
Well I think Russ I think that's exactly right. I mean this is a big unknown in terms of your restrictions or the rolling back of openings.
Going to cloud that a little bit we are constantly speaking with our customers finding out what their needs are and how we could do a job I certainly expect with some of these well continue to ask for deferrals. However, some of the borrowers and after deferrals very early on that expected to be impacted we're not and resumed payments almost right away.
So I think it's still a little bit murky in terms of C. O wants to make any kinda quantification or forecasts on that but we will continue to talk to that to our customers and figure out the best way going forward you do you have there been mentioned.
A lot of these loans have significant sponsorship behind them and that's Pemex, that's going to come into play making those determinations.
Okay, and then on the P. P. P. I guess, what's what's your experience been so far on the forgiveness process with U.S.P.A. I mean, that's 1.7 million those.
PPP noninterest income was that just accruals you know over a short period of time, knowing that you're going to.
You're assuming all the gets forgiven by the end of year or or were they actually that revenue that you actually got from you as good.
Have you don't have units.
I need to answer that because I think.
It was kind of course with Tony go ahead.
Yeah. So on the P.P. Moms are right now we are amortizing the fee income that has actually been received already from the S.P.A. a over the contractual 24 month life of the loans.
As those loans are forgiven, then we will accelerate the C into interest income so.
If you assume that we.
Our successful in I getting 100% of those loans forgiven by the end of this year all those fees will come into income.
Okay, and then I know over 70% of them are less than $150000, which comes with a higher number.
Origination rate what's your.
Fitted.
Estimate of the weighted average origination fee.
When it's often done.
Funny.
Yeah, I think it's somewhere between two and a half and 3%.
Okay.
Okay and then.
Assuming you do get.
The lions share of the P. Beattie.
He's in the second half a year I mean, what's your flexibility enable too.
You to move some of that into your reserves or do you feel like.
A lot of that what makes it a lot of that might hit the bottom line.
<unk> you know actually we're still evaluating what what's that.
Certainly reserves or you know one thing there's there's opportunities to is potentially help.
People within our communities with some of that so when I was going to income. It. So we haven't we haven't determined.
Back to.
Total use over a worry in conversation for a little with the boards on how we utilized.
Those phones and and put them to the does.
Yes, possibly use.
Okay, and then Fas 91.
Doesn't anyone benefited you guys on the PPP side by about five cents it looks like in noninterest expense run rate soon we should.
Normalize that for the upcoming quarter, but what are your overall thoughts on expenses.
Going forward.
Sorry.
So I think right.
Going forward Yeah, you see 890000 that was included this quarter those were origination cost deferred so.
About that won't repeat.
So other than that though I'd say that the expenses are pretty indicative of where we're going in the future.
Okay.
Great and then the rest great to see that you're sticking around how much of that was related to.
Being able to find the town are there other great cultural fit or or was it solely related just seen in the midst of a pandemic.
We are in the midst of this engine that is so it's important to its amazing.
Ability consistency.
Throughout this time as you know, it's we just don't know how long.
The last week.
I will retire.
The question is when but.
We want to make sure that we keep.
Keith this consistency and continuity.
Through a very challenging time for that listen thank for customers for the general population.
Yeah, I guess I I liken it to a changing horses in the middle of it.
Middle of its true even if we seem to be the middle Rapids right. So it's probably a good talking to.
Im not [laughter] sector, the rat [laughter], Okay I figured thank you okay.
Okay.
Thank you.
Your next question is from the line of Tim Coffey Wednesday of Janney. Please go ahead. Your line is open.
Thank you born everybody.
What did you give them.
Oh, Russ is really to the at risk or the the loans to industry is impacted by Covance as the balances are those loans changed in the last quarter.
No. It I'm sure there'll be a best ryzen, otherwise who's our chief credit officer, I'm going to ask not to answer that I don't I don't believe there's only been as much I mean, we've changed those are those categories. The best you have more told for for Jim.
Yes, Oh. This is bad rise I know there have not been any meaningful changes that I'm aware of that all in those categories.
Okay, and what was the hospitality bucket, what's a what types of industries are there.
We have I'm gonna hotels, some restaurants or things of that nature.
Yeah.
No no restaurants, I mean, it's the two levels. It is though if we have any risk their guarantee but they made it would they have restaurants in commercial real estate that we fit is that's typically we have.
There's always with liquidity.
So it's not our soccer practice to be doing a lot of loans correctly to restaurants. That's just not an industry. We have a lot of them a lot of exposure just.
No correctly I believe I believe our health clubs, we have a couple of though isn't that industry as well.
Right Okay. Okay.
And then Tony do you have the amount of deposits that were tax payments.
Since quarter end.
I know not specifically reader.
Leading up to tax day typical build and then outflows, but I don't have specific numbers.
Okay.
Oh, the rest of my questions and answers. Thank you.
Great. Thank you Dan.
Thank you.
Next question is from that I know a D.V. two is true with Raymond James. Please go ahead. Your line is open.
Hey, good morning, everybody.
Well I gave it I just wanted to ask me more of a strategy question I mean, given the evolving customer behaviors and maybe more employees working remotely does how does that change your longer term strategy and maybe you know open up opportunities for additional expense rationalization or.
You know back office office stations option and then you. Conversely, I mean is there anything that you've identified that you need to invest in further or.
Like that keep up with evolving customer behavior.
Oh, that's yeah, David Desert excellent question, because we have thought about that a lot.
In our in our strategic planning.
Process recently, we met and we talked about.
Putting together a a strategy in a.
Initiative to determine you know whether we can implement.
Its strategy, where we have employees, who are we love.
There's there's many benefits that.
We've historically never had remote employees and frankly part of our culture, because we like to have our employees on site and working together, we ever we ever mostly staff meeting were all our employees come together. So we we really worked together not part of the relationship building.
However, there's opportunities I think to take advantage of what we've learned from this we have.
A big presented your work or employees I.
I think I don't know somewhere in the hundreds range or slightly over 100, either working at home or mostly from their normal location. So.
If you if you.
By the way I'm working from home I don't particularly care for its its with rather be the office, but.
But if we see if you'd give that to and the future. When we're past. This yeah. We could if we can use that strategy to attract employees, where the maybe then they don't necessarily have to be luvata, whatever headquarters, where one of our bridge it could be in regular they could be in Reno role here, if they're doing the work.
From home and that gives us a lot flexibility as an organization to total certainly the technology companies have employed under one risk is you know what risks that holds for the sake. So we have to be careful about that but we are taking <unk>. So look at that.
Well from standpoint of attractive employed and you're right expose control because you don't need as much office space and yes about that was called the culture of the organization, but it's a really good question and it's when you're forced into these things like we are this you you hopefully you've learned something I think.
That's what's great about organization, we're we're.
Well they taking advantage of this situation, we've learned something about or employees about that that's the way they work and how they work and maybe we can do something.
Different in the future, which you.
We will give us an advantage over over competitors.
Yes, it's exciting times for sure.
Oh I just wanted to get your thoughts on a the organic loan growth you know, obviously, we talked about utilization equalizer payoffs and paydowns weighing on growth what originations were seen actually stronger in second quarter than the first course, I guess, where are you seeing demand for new credit and you know has.
I'm well make a comment then I'm going to kick it over to do a sits at Midas.
Yeah, Weve, but one thing you mentioned about credits.
Got it getting tighter we we've been pretty consistent about the way, we underwrite where we manage our relationships and.
We haven't necessarily obviously, we look at industry different something different than we did free quoted but but we've been consistent about how we underwrite and media the the credit metrics and what we what we do but as far as he he.
The new loan volume they asked him to.
Yes.
Of course, thank you as you mentioned our year to date loan volume or the corridor with good year to date is not all that far off.
On last year, and I think I attribute that's all the conversations exact keep happening with our borrowers are there has been some new customer acquisition in there if I looked at our pipeline today. There there are some fairly large a new opportunities.
The Ross's point I don't think our credit approach has heightened or change, but it is taking longer to that opportunities in this environment, because while we might using the same criteria, we have to apply that friends here in two ways.
Very rapidly an ever changing situation related the code that Ah, but I have been encouraged by the level of activity of our commercial bankers as well as a consumer and construction lenders.
They're going to continue colleagues, you're talking about future growth beyond what's on the pipeline today I think by and large is going to come out of our existing portfolio well, we have been pleasantly surprised a couple of points. This year. So are we continue to encourage everyone to reach out and do the best we can opening this office will help us penetrate and <unk>.
Margins once the annual market down South San Francisco, but it's almost impossible to predict at 1.3 attraction in light of what's going on.
Okay, David I'd add one things of that.
And.
And they were writing process one of these things and you when you're underwriting and I'm working with new business is actually to go out and.
She is a business would be with your with your clients and see odds and ends or their operation to me. That's a huge part of underwriting understanding process, it's pretty difficult today to do that so well, we still getting volume its muted somewhat skewed because of that until we can actually get.
Back to a time when these bodies visit me with our clients I think is it's gonna be somewhat less than we would've hoped or originally.
Yeah, I'd say, that's a really good point [noise] lots lots over me just I'm sure. He wasn't just one follow up on a deferral discussion just any color that you could provide how how much are 90 versus wondered maybe they deferrals interest only versus a full payment and then you know just any initial thoughts.
On a re deferral rates and then maybe you know whether.
If you do go to read deferral, whether that's going to result in a risk rating downgrade and if you've seen any risk rating downgrades, a thus far.
Our little Alaska or secret out about rising to answer that you know I suspect that they would like it probably jump in moves and some color on that too. So we're still keep it was a tough.
Okay. So our plan for the payment deferral, what to provide immediate relief and not put these borrowers through an extensive underwriting process. So our standard program was 120 days.
Either interest only or full deferral.
Split about 50 50 between the two.
And we did not.
Downgrade at that point in time, we're watching them just because they have asked for a deferral, but again most of that a large majority payments will resume in August so, we're having discussions and already some at Tim. It indicated previously some have already reverted to their original payments others were talking to and we will.
Analyze each one individually fully underwrite and determine what's the appropriate great. If they do need a further relief.
Yeah, Tim could you answer maybe you want to add anything.
No I think that was probably the great answer.
You mentioned the vast majority of the.
Payment deferrals for the 120 days versus a 90 because that was our program I don't remember as a percentage exactly.
But in terms of risk rating adjustments as Bob said, it's gonna be based on these individualize conversations we're having in what the reason would be for any continued deferral requests and whether you know it has a longer more meaningful impact on what's going on on the nature of their business and our related credit structure. So I.
I would echo what best so.
I guess, where does that drops.
Sorry.
They'll go ahead go ahead.
I guess with that backdrop. It you know with the read a fertile.
Or do you expect exploration of the initial deferral period kind of being in the next month or so would you expect.
<unk> re deferral rates or you know.
Relatively elevated would you expect for maybe the third quarter to be the largest.
Reserve build over a year or maybe I mean larger than at least larger than the first quarter in second quarter.
Or any thoughts on timing funding there.
Yeah. That's you haven't goes on it.
Well, it's it's going to depend because.
In our portfolio. We generally are very well secured him gave you on color on the low loan to value average loan to values even in the what we called a sensitive industries. We also have very strong gearing Corey. So we anticipate that we will have some prolonged workout, but not necessarily.
Significant losses, and the reserve into account for losses.
So it kind of it just depends if if we had significant unsecured loans without sponsorship my answer would be yes, but that's not the case.
Hi, David we only because we don't do we don't give a lot of lending unsecured and were as you know just looking into the numbers in terms of it if the entry two.
Things were pretty conservative on.
An advance rates on real estate and we also look for sponsorship so while I'm not.
Uh huh.
There there will be worked out there are right with anybody because there are some industry that well, but this time, we thought you know everybody anticipated by the summer you know we'd have this.
They would.
Hey are doing way better, but we seem to be happy to bounce back now and a negative bounce back I suppose and so.
That's going to cause a lot of people to step back and say okay. This is.
It was.
How's it going to affect my business and so.
It doesn't have the real benefit for US is that we have done a really good job of of collateralize These obligations and.
It's not a matter of losing money and then on these credits its more a matter of just working through them and working with our clients, which is what we do it certainly I was Oh reminds you that during dreamworld, both the financial crisis.
We actually Didnt foreclose on personal property and we we we work with our clients and got the best results.
Because it did work with everything we had guarantors I was very strong that could solve problems and may not make their problem of problem. So I think we're headed for some of that as we go forward.
But you know it's about building, it's about relationships, we have with our clients and working with them to.
For the best possible results.
Sure it's something that's extremely helpful color. Thank you.
Sure.
Yeah.
And there are no further questions on the phone line.
Okay. If there's no other questions I want to thank every once in your attention this morning and pool or fruits for.
I mean is listen I'm I I hope everyone is healthy up there and we look forward to speaking with you again next quarter, hopefully hopefully we'll be will be in a better position from the standpoint of the health of this nation, but.
Meantime, all the best everyone. Thank you for calling it.
All right back in private any questions for me.
Okay anybody.
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