Q2 2020 American River Bankshares Earnings Call
[music].
Welcome to the second quarter 2020 earnings Conference call. My name is and that's not be operator for today's call.
This time all participants are now listen only mode. Later, we'll conduct a question answer session.
A question answer session. The other question. Please press Star then one on your Touchtone phone. Please note that this topic must be recorded I'll now turn the call over to David Ritchie, David Richie you may begin.
Thank you, but that's a good afternoon and welcome. This is Dave Richie President and CEO of American River Bankshares, The parent company of American River Bank headquartered in Rancho Cordova, California. This is our second quarter uptake.
Please be aware that our earnings release, we wherever earnings release, which details our quarterly results went out at market open today as well as our quarterly cash dividend payable next month.
As always we then could itself.
So an economic data in our press release in general and covert 19 has definitely slowed down our markets.
Now I'll turn it turn the call over to Mitch Derenzo, our Chief Financial Officer for an in depth review our financial results.
Thank you Dave and of course, thanks, all of you for taking what kind of listening on the call because I.
I hope everyone is doing well in light of beef unusual time faced this past quarter.
To be forced to build them going forward.
Before we get started I'd remind everyone of our safe Harbor disclosures.
Certain matters discussed in his presentation may constitute forward looking statements the purposes at the federal Securities laws and they involve risks and uncertainties.
Actual results may differ materially from the results from these forward looking statements.
Factors that might cause such differences are discussed in our annual report on form 10-K, you ended December 31st 2019.
In subsequent reports filed on form 10-Q permit.
The company does not undertake any obligation to publicly update or revise any of these forward looking statements, which would include information for future events, except of course as required by law.
Links to defend the report and penetrate or looking at our website.
Welcome to Burbank Dot com.
As the past conference calls I'm going to highlight some of the curious for press release.
This morning, and what I'm going to try to provide some additional detail and then I'll turn it back there for some additional comments off the line for questions.
This morning American River Bankshares reported net income for the second quarter 20, $21.7 million, that's a 336.4% increase over the $1.3 billion recorded second quarter 2019.
Earnings per share were 30 cents quarter in the second quarter 2020.
Up from 22 cents per share in the second quarter 2019.
Also the 36.4% increase.
On a pretax pre provision basis second quarter of 2020 was 2.9 million, that's an increase of a million dollars or 54.7% over the 1.9 billion reported in Q2 of 2019.
Our where they are our and our we for the quarter with 85 basis points and 7.98% respectively.
Thats up from 74 basis points at 6.53%, respectively, one year ago.
Our year to date basis net income in 2020 is 3.2 million. That's an increase of $750000 were 31% over the 2.4 billion recorded during the first six months of 2019.
And then on the pretax pre provision basis income.
The 20, 25.4, 5.4 billion, an increase of 1.8 million or 49% over the 3.6 million reported for the first half of 2019.
Actually the margin was holding up fairly well despite the.
Decreases.
Obviously as you guys know the experienced some significant rate drops would be FOMC actions earlier this year.
The yield on loans was 4.9% in the first half 2020 compared to 4.92 in the first half of 2019.
Overall cost deposits decreased 35 basis points in the first half of 2019 to 25 basis points in the first half of 2020.
Of course, the loan yields have been negatively impacted about at 1% rate on the PPP loans.
But then again its possibly in positively impacted by the subsea Stephen you amortize.
Getting to the PPP detailed in a bit.
Loan growth over the past a year and the uncertainty created by the Cobot 19 pandemic has also warranty the increased the loan loss allowance.
2020, we've added just over $1 million, that's up from $360000 in the first half of 2019.
Here, we go before I get started on my typical review of expense in time.
Analyzing the PPP loans since there was such a huge impact too many areas of the.
This quarter.
During the second quarter 2020, Weve front, we've funded 447, PPP loans totaling $18.2 million.
We did a four loans paid off or canceled in mid may.
And then we receive some small principal amounts on a few others.
Earlier in the quarter or actually earlier in January.
Okay.
Our balance at June Thirtyth.
The outstanding totals, we had 473 loans for $75.8 million.
The net PPP loans I means reduced for the unamortized loan fees was $73.670 million.
The average balance outstanding of the PPP loans during the quarter was $40.7 million.
Our loan growth totals for the quarter will show the increase but the loan fundings also had a significant increase their deposit totals as the balances from the loan fundings were put into our business deposit accounts pending payment for their payroll and other applicable operating costs.
Interest income earned on Pp loans was $139000 during the quarter.
It really was the fees and the costs associated with loans that have the larger impact.
First we'll talk about the cost.
Under GAAP, we signed a direct loan origination cost each loan to cost is initially accounted for as a reduction of salary expense the cost from deferred and amortized over the life of loan as a reduction to the loan fees.
Hope loan fees alone cost are considered interest income.
Total cost assigned to the PK PD lone as a reduction of salary expense was $332000.
During the quarter, we did amortize $42000 of those costs as a reduction of interest income.
So the net benefit to the origination cost for the quarter was $290000.
As Weve loan fees, we have set them up on a system to be recognized over the two year loan terms. However, we do anticipate many pp loans to be paid off or for given much sooner than the two year term. So the since that time remain the permitting coffin fees will be accelerated.
Sorry for detailed accounting lessened, but since this fees and cost process typically deemed immaterial. These large amounts from the PPP loans with.
Quarter really accentuates impact.
Now onto the fees.
Our total fees collected on these pp loans was nearly $2.7 million.
The average fee was 3.41%.
Of the approximate $2.7 million in fees $348000 had been amortize I recognize that interest income during the second quarter.
The fees of 348000 less the cost of $42000 resulted in a $306000 of interest income that's on top of $139000 apparent from the 1% bone rate.
Lastly on forgiveness.
We do believe that most if not all will seek forgiveness processing them as they come in we're just trying to be prepared for with SPD against further guidance.
As you're aware rouven forgive us or changing the hope is that the continued to streamline the process.
There are a couple amounts being discussed for the global called easy forgiveness plan.
One number that we've heard as $150000.
If that was the case, we have 362 loans at $150000 or less that's 77% of all of our PPP loans.
The other expenses associated with getting these PDP loans approved in books, which is over time employee meal et cetera, et cetera, but those tend to be materials, where I'm not going to break those down we were very fortunate to have a large number of salaried employees volunteered to help with the around the clock loan approval request navigating process at that.
No SPD process.
Hopefully thats.
Enough on the PPP loans I am sure mentioned, a few more times, but I will try to get on the buy regular review now who will talk about the balance sheet.
Our net loans due to increased $72.4 million in the second quarter and have increased $66.6 million from the December 30, Onest 2019 totals again much of that is the growth in the PPP.
Without the PPP loans net loans are down 7.2 billion in 2020, but about $1 million as related to the allowance. So gross non PPP loans were down 6.1 billion.
For the second quarter, non PPP loans were down just $1.4 million.
Second quarter the.
Loan fundings, excluding PPP, we actually funded 17.4 million that's up from the 12.9 billion that we funded in the first quarter 2020, but obviously down from the 42.6 million that we did in the second quarter 2019.
Total unused commitments were 37.1 million at June 30 at about 14.3 million to that was for commercial and consumer.
So those have the ability to evolve, but the remaining 22.8 million is real estate related and should should fund over the next year. So.
We didnt see we haven't seen everybody always asked what kind of draws are people take it on their commitments and we really haven't seen any on the other than the real estate the commercial draws in the.
Real estate type of.
Consumer trouser have been in significant.
Payoffs continue to be manageable, we had just under 9 billion for the second quarter, that's down from 13 million payoffs in the second quarter as well as $13 million to first quarter 2020.
We collected 81000 prepayment penalty for the second quarter that compares to 35002nd quarter 2019.
Year to date prepayment penalties or 264000.
Compared 128000 in 2019.
We did report our exposure to certain sectors in the March.
10-Q.
Im going to reiterate those updates percentages as of June 30.
But in reality have not changed much we haven't made in the loan new loans in those sectors.
In most of the sectors. The percentages went down due to principal pay downs.
One sector went up a tad.
Really thats just based on construction loans, we did.
Yes.
And then the percentages I'm going to give you there excluding the PPP loans in the total loan balance outstanding.
So first one's churches.
They were 4.6% of the outstanding as of June 30 that compares to 4.57 of outstanding as of March 30, Onest. That's the area that we had a construction loan so thats the one that went up.
Restaurants, they were 1.47% at June Thirtyth down from 1.4 at March 30 Onest.
Elder care, but so 171.71 compared to 1.73 at March 31.
Our school slashed healthcare sector, 1.17% versus 1.18 at March 30 Onest.
Our recreation sector, we call the golf in sports clubs.
That's 0.49% versus <unk>, 0.49%.
Change their oil and gas that was.
158, 1.58 down from 1.59.
But it's just that just as a reminder.
We have the loans that are in their considered oil and gas, but those loans were to gas stations in related businesses, such as oil change facility and gas stations would say car washes stand or convenience stores.
The hospitality as reminder, in zero in both periods.
The decrease in the non pp loan PPP loans in the quarter was primarily commercial loans, which decreased 2.9 million.
Real estate loans were up 1.4 million in other was up $700000.
Remaining $600000 different to the change that was due to increased in the allowance and fees, which is really reduction in net.
Net loans, so excluding those non PPP loans.
Those and those items there.
The loans really just down $800000 per quarter.
That 700000 dollar growth of course, that's in the other that's our consumer that's our specialty auto portfolio. We didn't do 56 of those loans loans during the quarter average balance load for $41000.
Now that compares to 43 of those loans and Thats average $66000 in the first quarter of 2020.
Average loan rate on the new $17.4 million in commitments was 4.98.
We also did renew $11.8 million in existing loans during the second quarter and those rates averaged 4.81 person.
And the credit quality.
Is still pretty strong there there was zero nonaccrual loans within the quarter, we had one $3000 commercial loans past due 30, plus but less than 60 days.
That borrower did make a payment in early July.
We also did take possession of the car in late June we wrote it down by $6000 to book value of $19000. We did complete sale in early January early July for no additional loss.
We did that $545000 provision.
Due to the anticipated impact cobot 19.
Although the credit quality credit quality was pretty sound at six fairly.
We don't really know the long term depth of the impact the economic impact of Cobot 19.
So we believe that that 10% increase that we put into the reserve this quarter on top of the 9.7% increase would put in first quarter is prudent.
We did do a deep dive alone deferrals and incorporate that into our a trip low analysis.
We're going to continue to stay in front of our borrowers monitor the impact of the coop and 19 on them and adjust the age of oil accordingly.
Despite the did expect to increase the mutual well during the spike in the PD lone.
While total loans actually decreased to 1.33% at June Thirtyth.
But since those PDP loans are 100% SP, a guaranteed appropriate to look at the triple net of those PPP loans.
That adjusted ratio was 1.58%.
Compare that to 1.43% at March 30, Onest and you could see that actually did did go up.
And we were at 1.31% one year ago.
During the second quarter, we did have a $6000 lost credit I mentioned, we had $22000 in loan recoveries per net $16000 in recoveries.
Year to date net recoveries are $20000.
We still do have the one Oreo property $846000.
Classified assets still relatively low are actually really low.
1.3, 0.4% of equity.
In the classified assets really it's the bigger and 46000 Oreo that $90000 car.
Balance here that we did have a quarter and then the.
We still have the one remaining commercial loan that himself, but look down its book balance of $132000.
So those three items totaled 997.
The 1.34% of classified assets.
Over over the equity.
Investment portfolio really remains the same continued to be comprised of well structured cash were mortgage products some high quality.
Municipal bonds.
Just a relatively short the average life for about four years.
Effective duration is about little over two and a half years and price change and up 300 is 8.7 percents relatively low there as well.
Last quarter I did provide a pretty detailed analysis on how the bond portfolio will hold up and reached on environment.
Those characteristics remain the same somebody skip the detail and just remind you the conclusion.
With the lockout, the portfolio house with a bullet tight bond and slower paying mortgages.
Cash flow does hold up fairly well in rates down.
Liability side deposits ended the quarter to $741.7 million Thats up 138, and a half million from the end of March 2020, So a pretty good quarter.
And year over year.
They were up 169.3 million.
Compared to the 472.4 million one year ago.
The growth, 23% I've got to pretty nice quarter there.
While we do know that much does related to the PPP loans funded and positive into those accounts. It should go out to fund payroll and operating cost as well as there is some deferred tax payments that are in there, which we anticipate going out this week.
As you all know the due date was extended to July 15th So that was yesterday, so keeping a close eye on that.
Theres also some.
What we call our small bought a retail deposits in there.
Well folks just haven't been able to on spend money like they are used to.
But.
Excluding those three out of I, just discussed that some significant amount of what I call true organic growth. We've had a lot of success, bringing over new relationships and expanding relationships implementing those clients that were able to help which are PPP loans.
Interest balances both continue to grow that was they were up $80 million or 35% during the quarter.
And they are now 42% of total deposits.
Comparison that was 38% at March 30, Onest 2020.
Money market accounts that grew by $38 million or 23%.
Non interest checking and savings account each of those grew by 15% each.
I would have been able to reduce some of our deposit rates as well.
Overall cost of deposits decreased from 36 basis points in the second quarter 2019 to 21 basis points in the second quarter of 2020.
Our borrowings increased by about 12 million during the quarter.
10 million to that is zero percent interest rate borrowings from the federal home loan bank.
And then we did dip our toe in to $2 million in from the.
FRB Paycheck protection program could be facility the PPP Lf as they call. It that's the program designed to help banks fund the PPP loans.
At this point, we did the small advanced test the program and be sure that we have aligned in place in case, we need liquidity during this pandemic.
But with the increase in deposits. We think it's just prudent to keep that program on the shelf Justin's cases needed.
Our average borrowing costs at June Thirtyth was 1.21%.
Capital capital levels remained strong.
$82.9 million at December 31st aid increased to $90.3 million at June Thirtyth.
$7.4 million increase came from the net income of $3.2 million, we did have a nice increase in AOCI $4.8 million.
The reduction for the cash dividends was about $800000 for six months.
Leverage ratio were down 8.4%, obviously that the impact from the PPP loans.
The leverage ratio, but still pretty strong ratio.
Our total risk based capital of 16.7%.
For comparisons at December 31.
Leverage was 9.2 in the total risk base was 15.9.
And then you may seem the press release of did mentioned about the cash do have been going out to two paid next month.
On the income statement.
Let's see stellar noninterest income.
$336000 down from the 421000 in the second quarter last year. The main change there is gain on sales of securities. We Didnt have any sales in the second quarter 2020, we had gains of $29000 in the second quarter of last year.
We did experience a decrease in service charges as well when compared quarter to quarter.
They also decreased by $29000 and that really results from lower fees from return checks with the higher balances our clients checking accounts that had been much level, let's lower level of checks, causing overdrawn balances. So that's a positive we like to fee income. We also want to our clients to to be strong.
On a year to date basis noninterest income was $780000 in 2020.
Thats down from $832000 last year again, thats more lower gain on sale of investment.
In the investment sales area.
Service charges were up slightly year over year.
On the expenses.
Non interest expense was $3.9 billion in the second quarter down from 4.1 of the second quarter 2019.
In down from $4.2 million in the first quarter of 2020.
Much of the decrease one year ago is related to the salaries and benefits, which decreased from $2.7 million. This second quarter last year to two and half million dollars in the second quarter of this year.
The decrease is due to an increase in the deferral of direct loan origination costs, which reduced salary expenses.
The direct.
Production costs.
The $317000 in this quarter versus $114000 in the second quarter of last year I'm sorry.
The increased $370000.
From a $114000 in the second quarter last year to 431002nd quarter. This year again, most of that is from the PPP originations.
I think I mentioned earlier, but I'll tell you again to total originations PPP loans funded during the quarter was $330000.
On a year to date basis noninterest expense was $8.1 billion and 2020, that's down from $8.4 million 29 team with the primary driver being sellers benefits.
Again due to the deferral of the direct loan origination costs associated with the PPP loans.
Salaries and benefits are down $149000 year over year.
The origination costs are up by 295.
The those loan origination cost, which offset somewhat by higher salaries higher allocation vacation accrual and higher equity comp in higher for one came matching.
The higher salaries, that's really just normal cost of living increases and promotions. Our average FTD in 2020 to 101 versus 103 in 2019, So no big change there.
Patient accrual.
That's been increased because of staff and taking their typical locations due to cold and 19 restrictions.
And the four one k. at higher matches, there, but due to higher average balances being deferred and not a change in the matching policy.
The decrease in noninterest expense year over year is also do decrease in other expense of $120000 that dropped from.
2 million in the first half of last year that 1.9 billion in the first half of this year, that's going to be your insurance advertising directors a whole host list of items, but the biggest change there is the advertising business development.
Those decrease $251000.
From 359001st quarter last year to 108 in the first house first quarter of this year.
As much that is related to the shelter in place order within our markets.
Which really reduced the number of business opportunities and events.
I will point out one small non recurring amount in the other expenses, we do have a director that unfortunately passed away during the quarter.
Eligible for the director America's retirement program that will pave the state over the next two years.
We did record the full expense of that payment stream in the second quarter of 2020 that amount was about $70000.
On the taxes.
Provision for income taxes was $445000 in second quarter.
2019 increased to 654000, the second quarter 2020.
The effective tax rates during those periods was 25.9 in the second quarter last year versus 27.3 in the second quarter. This year.
That higher provision for taxes and higher effective tax rate this year that compared to last year, primarily resulted from a lower level of tax benefits from tax invest tax exempt investments as those balances decreased.
And a higher level of expense from equity compensation to go along with an increase in taxable income.
Tax expense from the equity comp increase from $16000 in 2019 $42000 in 2020.
In the taxable income increased $700000 from $1.7 million last year to $2.4 million in 2020.
Thank you and I'll turn it back over to Dave for some additional comments. Thanks, Mitch Yes, I'll start out we've been talking about plan for a few years and so I thought our rigorous focus a little bit on that first and.
As far as the plan goes.
We've made continued progress in the second quarter on and we continue to grow a number of relationships.
And we continue to grow a lot of those relationship for something I've told everybody for a long time, our service levels are just outstanding and I'm quite proud of the team keeping those service levels up in these difficult times. So we are growing more relationships such as good news I just ask you to refer back to the trailing four quarters, if you'd like.
Full review of our progress.
Yes, hi, operationally with Covanta, obviously, our primary goal is to protect the health and wellbeing of our team.
Bank is continuing to operate with many of our team members working remotely.
We have.
We have hopes to bring backlog most of our team in sometime in August.
Depending on the guidance and the situation that at that time I think are huge benefit has been as in January two things. One we were able to get some benefit out of launching a new website and we also launched their new online business platform.
But those have really helped us and.
Our daily updates to the website and things of that nature has really helped us through how helping our clients get information get.
Able the process their payments and whatnot without coming into the branches. So.
We're a little lucky there, but we did last at the right timing.
We've got now a lot of lot of people a lot of hits on the website and since growing by corridor by corridor and we're not seeing a lot of people such as you know shopping around we're seeing a lot of people that you're spending.
First four to five minutes going through multiple pages for guidance and it's really helped us. So we're really happy about that.
As far as we've always been really been doing is they will continue to do as assist our clients I mean, obviously some of our clients of the negative impact negatively impacted by the shelter in place orders.
Banking team the credit department are staying close to the clients.
We are now where we always are but we're we've increased our monitoring of the portfolio in particular on the loan deferments that we have accommodated.
Originally we did loan deferments.
Now, we Didnt had 70 requests for $95.2 million.
We had 37 commercial auto.
Deferrals for 4.2 million for a total of 99.4 million.
The majority of these different deferrals were principal and interest where the payment holiday of about 90 days.
All of these were past credits with one exception.
The initial flurry.
Came in April and May and as it is significantly slowed down since then.
So we have.
Sort of circled the wagons in the last month with our borrowers.
And based on discussions with our borrowers we expect in July that approximately 39.4 million.
Of our deferrals and all of our auto loan portfolio will resume normal payments, that's about 46% of the totaled or deferrals.
Another 23.8 billion is scheduled in August with another 5.7 million in September two.
Return back to full payments for the third so by the end of the third quarter. The total of 73.1 main or 74.74% of the total deferrals we've made.
The remaining 30 million is set to resume normal payments through the fourth quarter.
Over 16 million is scheduled for October.
And then on the back on the PPP loans Mitch was mentioning.
He said the final number was 40 477 for $80.2 million, but I think it's very interesting at 362 of those were under $150000. So we truly are helping small businesses.
I think we're really proud of the fact too that we.
We basically.
Help people, we had a lot of request in about 95% of the qualified request we receive we were able to help people.
Just that alone has been fueling many referrals to the bank, which we're really excited about.
As for the forgiveness phase the activity has been slow.
I would expect the activity to increase as recipients become eligible or get more direction from the SBA.
As far as the loan portfolio.
Obviously, we have increased monitoring.
We are staying close to our clients, which I think is the best thing we can do.
As Mitch mentioned, we don't have exposures and hotels on the very limited amount in restaurants and fast food.
As far as CRT, we did some tests on the theory, the real estate portfolio has an overall loan to value just below 60% with 94% of our real estate loans, yielding a debt coverage ratio above 125.
As for inside and going from that to like pipeline.
As far as pipeline, we are seeing opportunities with new and existing clients. Many of these opportunities were delayed because.
Delayed and but we've continued to communicate with the clients and prospects. So we are I guess, where both in a position to move forward with a little bit of caution.
You know so our desires are we will continue to stay on plan.
Which is to increase net income our OE ROI and decrease our efficiency ratio, while increasing our efforts monitoring the portfolio.
Thank you for that and Vanessa can you open up the alliance for some questions.
Thank you will now begin the question answer session. We give a question. Please press Star then one on your Touchtone phone and it looks to be more from the Q. Please press the pass on our behalf.
Now I'll be delayed the for the first question is announced of even a speaker phone you may need to pick up perhaps.
And the numbers.
Once again and then a question. Please press Star then one touchtone phone.
First question comes from.
Matthew Clark Your line is open.
Hey, good afternoon.
Okay.
On the deferrals that 99 million.
I assume that as of this month.
It sounds like you expect a fair amount of that.
Those balances to care over the next several months.
Is there some portion of those deferral that you think might not that might need to be renewed or are you just trying to get kind of a confidence level as it relates that $99 million Theres. Some portion that you are more concerned about that might you be extended there.
You may need some additional support.
Yes.
The answer really is Matthew we reached out to everybody personally.
And.
Some of the deferrals that you see.
That will go back paying let's say in.
Maybe the fourth quarter were originally maybe a 90 day and we did an extra nine here, maybe 60 days to them, but based on information back from the clients.
You know, we feel actually I felt really pretty good about the numbers as they came in.
I think the in that we jumped on that pretty early and I think just the fact that some people got.
Yes, 90 days up front, I think they've been able to.
Adjust and.
Going forward. So these numbers are fresh off of what the clients have told the bank and we'll continue to monitor this obviously things can change as you now.
And so but I think we feel pretty comfortable as lower showing you are telling him.
Okay, and then do you have a breakdown of that 99 million and you gave a couple or.
In Europe is separated out the other piece of 4 million, but you have a.
Better breakdown in terms of the mix of that 99 million.
Yes, I do.
This see an IP service.
About 7.7 million.
You have.
Non owner occupied was $40 million ish.
And you have about.
30 million of owner occupied.
And.
We have about $16 million, which we call.
It's kind of.
Well, we call it residential affected that effectively its individuals that own multiple.
Homes that they run out so there's about 60 million 16 main of that which is about 17%.
Of the total deferrals.
Okay. We are then we've actually had some payments already on some of that I should say that we're we've actually had a couple of that very surprisingly that.
Why don't you know we had one of our loans.
Had a balance of.
$4.8 million and.
Basically called up and said thank him for what you're doing for us and here's another 400000, an accelerated the payments and so.
And a lot of others, we've had some others we have a some some of that.
Clients that have some while serving in the deferrals I think you have to remember to not.
It's kind of hard to discriminate against people asking for a deferral and there's there's some serious wealth that these lend money to hear that obviously need to has taken advantage of that as well.
We had another one for it was about five and a half 958, and then somebody that three months of deferral. They came in so not only to catch up on our payments on any kind of have a lot of stuff going on here and so on the I think weve I think we feel decent evolve over talent in the good but it isn't the into the portfolio that upper single single family folks.
Foster jobs are worked for restaurants and exactly reserved these are businesses that have pretty good global cash flow yet.
Okay.
And then just honing in on the margin.
It looks like you had a fair amount of excess liquidity the ppt loans on helping.
On the deferral is are you accruing interest from an accounting standpoint are you.
Yes, I guess, earning them.
Okay.
Any any can you help maybe help us quantify I mean, we control I guess from the math ourselves in terms of the impact on the margin from excess liquidity, the PPP loans and how much that.
The transitory effect impacted the margin this quarter.
No I haven't run that number and really I'm keep on keeping money on the sidelines I'll have a better idea by the end of this week, what kind of by Investable cash I'm just worried that we're going to have a big big screw share.
This is paying taxes, we have a lot of businesses that have been building up casket, they didnt pay their fourth quarter.
Final payment.
2019, we haven't paid to first and second quarter, which all were due yesterday, so I'll have a better idea by tomorrow.
But as far as.
Impact on the yield I haven't done that you could again, you can buy run that as well would have done as I pulled out the.
The impact from the yield on our if were pulled out the PPP loans that was about 10 basis points that figured out to Paul that's about six basis points on the margin. So.
That 1% is is a low rate we are getting on those the fees do help but pull them out and about 10%.
Negative impact on our margin.
On the loan rate.
Yes, and I think the origination fees on a PPP loans I think you mentioned risk just over 300000 this quarter, it's likely assuming the forgiveness process picks up here you will you could easily see over a million dollars an origination fees in the third quarter.
At least by our estimates I mean, what's what's the there so I'm, hoping im opened our Matthew but this process so slow on the Burton.
I'm not expecting any guidance for the next month or so as to what to do these things and then there's what another 30 days that they have once we get a man.
90, there im sorry to have an AD 90 days and we had six I sure hope so but yes. This process has been going now unless they combine fair I hear that everything under the $150000 Here's a check.
They do that then well have a pretty good quarter.
In the third quarter, but.
Yes, I wish I was that optimistic you know Matthew just on that too as people have.
Qualified for forgiveness, we were already to go because we did a lot of on as you know and.
It's been where all set up and it's been interesting I think that.
Of the 477, we probably have 60 people that have even.
We've been we've set out applications that hey, if you qualified if you'd like to respond to these fill this outstanding Bakken.
I think we have about 19 of them that are actually ready to go to the SP and we don't know we're in a send them and we probably have any it's been pretty slow at I think I think in general how people are taking advantage of they extended period of time to use and money correctly for one that too.
There's a lot of talk about a one page application to the smaller ones and it takes it uncomplicated for people. So yes, Unlike Mitch I'd love to see them all come back in and get them for given but I think it's going to be a little bit longer haul.
I know you're trying to do Matthew trying to predict that but if.
The toughest Idaho.
Okay. So I guess my follow up there to two questions really around how you guys modeling the forgiveness process, maybe on a percentage basis for the next three four quarters, and then I guess, what's your flexibility or our view on.
Allowing those fees to drop to the bottom line or do you feel like you have some flexibility to stuff it into reserves.
Well first off we do have pretty good process was due to construct a little bit we are working with our borrowers.
We havent.
We know when the when they are eligible to be forgiven, but.
With the unclear rules guidelines are coming out most people havent, even thought about yes, they're just going away. So.
It's really hard to put a number on well we think X percent is going to be in August X percent September October November.
So we do know that by the.
By the six month, Todd the six month window is going to start hitting in the fourth quarter. So I'm I'm leaning more towards a lot of this stuff in the fourth quarter.
As far as.
Accounting for that.
We're just going to continue to accounted for like a regular loan fee.
Amortize it accordingly.
The Dutch when the didn't become forgiven will recognize that fee and the cost number we've got to take that cost with it as well.
That time.
We're looking at maybe should tougher, but but most likely that October one in there on but again I am I'm optimistic that this thing's going to fix itself the they're going to come up with a one page automatic forgiveness and theyre going to start right checks, but no. The just getting the fee that process a lot.
Loan, which was a difficult process hum.
So I'm not that optimistic that were just coming to the cash reserves and start flowing in.
Okay.
And then maybe on the.
I think you mentioned the impaired loans in the press release, I think theyre down slightly but can you speak to downgrade into criticized classified this quarter.
On a dollar basis, what we haven't we have the one substandard loans $132000. We have zero pass due overnight Andy we have just the one $3000 over.
The over 30 days and what we're talking people, who may or April payments, there may payments and they're doing payment. So people are making their payments. So.
And we're in we're watching we're watching the portfolio, but it's hard when people are making payments to say well we need to evaluate this.
Okay, Great and then just on the tax rate.
7% them the rate, we should use going forward or do you think it'll settle back down.
I think so what's the stock price, where it is and any kind of.
Vesting of.
Restricted stock is going to cost us a little bit more in taxes I didn't briefly I think you probably understand its but if we.
Issued the restricted stock at 15 Bucks a share and were trading now a 10 Bucks a share we really when that best we'd have to in essence recognized $5 a share tax on $5 a share all at once so thats whats, causing us in 2019, we were getting tax benefits.
Now we're getting tax expense.
Okay. Thank you.
Our next question comes from.
Tim Coffey from Janney Jane Macquarie.
Tim.
Great well good afternoon gentlemen.
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A personal I appreciate all the color you provided on the PPP program this quarter.
I am wondering Mitch if you could just.
Take it down to the to the bottom line on what the benefit to earnings per share was from their involvement in PBP during the second quarter.
Yes, you got to take the interest income going in $39000.
You are taken the.
Reduction of the salary expense the 332.
But your deducting the $42000 because that's an essence.
Deduction.
Clearly got next a to 90, so a year.
You got that then you got the fees of what three 300 or so so those are really the.
The positives from that.
You're factoring in that our cost of funds was relatively low and that they are self funding, so I'm not really going to flow.
Cost of funds associated with it so I think you to take the income numbers there and.
Supplied by the tax rate and there you go.
Okay.
I can do that I appreciate it.
And then on the modifications the the Mounsey gave our up from I think the last filing in May and Dave just I.
I might Miss heard you on those but reducing majority that increases from auto.
The other than others Theres full point, there is only 4.2 million from auto which was 36 of the 36 loans.
And the difference whereas.
We have 10 until in the quarter of 70, I don't know I caramel, what was the last and room, where we started many charges for gas. So this isn't to say we had so we had 70, Tim for 95 million on just the regular loan book and 37 for 4.2 million on the auto paper.
Okay, so that pulled out the full roughly 100.
100 ahead. So it's really met an April really because really we start getting some request in the first part April. So those are the two months incense at time I mean, there's been a few additional ones as we've gone, but not it's not anywhere near what I was in the beginning at one time close.
Okay. Okay.
And then on of the kind of at risk with the churches in restaurants are you seeing.
What percentage of those longer dollar amount of those two categories are currently and deferment.
Well I commit.
Church churches.
Two churches.
We have to churches and second.
Yes.
C, which are okay, one search on here for.
124000 right on.
Actually that there is another one for three side, so thats about 3 million to aid in the on the churches and the.
Restaurants slashed fast food is around 8 million.
Okay.
When these reserve as operating cash crude slate fell through yet warmed up drive-thrus, or whatever and pretty well heeled borrowers and and the other ones a franchisee that has multiple locations and.
You know actually there there is something that made a significant pay down a few months ago, even after getting the deferment. So.
Okay. Okay.
And then do you guys have available the period and spot rate on the loan yields and your deposit costs.
I can tell you when we were in June just for the month of June.
Now I am.
The.
Our average cost of funds that's our that includes the borrowings.
Our interest bearing deposits as well I was 36 basis points.
About 22 basis points without the when you had in the noninterest bearing.
For the better the expense side the.
Earnings.
Loan rates.
Let's see.
I'll give you the low rate without the.
Without the fees, because I think thats, a little more impactful because with the fees is that where you're amortizing the PPP stuff in there.
Thats about for 35.
Okay.
Okay. Thanks much.
And then.
Yes.
All right, Hey, Tim Tim Let me make a little correction on the face loans, it's a little higher than intelligence I just noticed as a few mark it's probably around 5 million.
I would say just in terms of that one is very large, but it's a very very.
Liquidity Big Big time liquidity.
The mother ship it at a pretty big mother ship mother ship as the foundation.
Got hundreds of millions of liquidity so.
Not too worried about it.
Okay.
Actually the guarantor added guarantor on the alone.
Okay, Alright, Okay. I appreciate that and then Miss you also gave a lot of detailed our non exists expenses during the quarter would have been kind of like the base noninterest expense per quarter.
Well I mean the.
Yeah, you pull out the PPP origination cost the cost 300 Grand.
Yes.
To add that back then you plot that 70 grand on the through direct to retirement plan.
No that's that's pretty close so he really the too.
What I'd call unusual items in there.
Salary expenses were pretty set where we might hire a body or two here and there is replacement but.
We're not looking too.
We'll be talking about area as well.
Yes, hi, sounds and that the base would likely kind of I mean potentially drift lower.
Through the net leased the next quarter, yes, various shelter in place and the limited marketing and advertising.
Spend the would usually.
Isn't that yes, other but Gulf don't get had pack the.
Origination costs because.
[laughter].
Yes, yes, yes, you're right on the rescue when we're not where it would look we're taking a look at any kind of our promotions going forward.
We we typically sponsored some groups in the past, but we're just talking through the benefit of we applaud some of these organizations for having.
Virtual type of Delapaz, Imagings and whatnot, but we're not getting to the networking benefit from those so.
There'll be some the response or just because we we'd like to organization, but we're cutting down because theres little business up to this bowman opportunity there.
Okay and just one final question for me just to kind of and talk about your markets a little bit.
And the and the course of California.
Closing down on reopening not all counties and markets have reacted the same right so and whats phase of shutdown is your footprint Bennett.
Good luck.
We're pretty much with most of California, the consider that our amador is that still open.
But thats a small at this percentage of our of our business for as far as loan opportunities et cetera.
Okay.
Those my questions gentlemen, I appreciate your time.
You're welcome Jim.
There are no more questions at this time, Mr. Richie will conclude.
Hey, Thank you very much when we look forward to talk India at the end of third quarter sales to everybody.
[music].
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.