Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Columbia Banking System Inc (COLB)
Q1 2020 Earnings Call
Apr 30, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Banking System First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session through the web and telephone. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Clint Stein, President and Chief Executive Officer of Columbia Banking System.

Clint E. Stein -- President and Chief Executive Officer

Thank you, Tamara. Good morning everyone and thank you for joining us on today's call as we review our first quarter results, which we released before the market opened this morning. The earnings release is also available at columbiabank.com.

I want to begin the call today by thanking our 2,200 bankers who despite tremendous disruption to the professional and personal lives have joined together to support each other and serve our customers, communities and shareholders as the COVID-19 pandemic has evolved. The Pugent Sound region entered into the pandemic earlier than other parts of the US with the first coronavirus death reported on February 29th. We developed a detailed pandemic plan many years ago and most recently tested it through a bankwide exercise in December of 2018. It is a phased plan and we began to execute against the first phase in early January. Since then, we've continued to follow our plan proactively planning for additional escalation at pre-determined trigger points. Early on, our bankers were in direct communication with our clients to understand their individual challenges and worked through options to provide relief for their businesses and families. We are a community bank at heart and I believe that our bankers empathy, compassion, and support has and will continue to be our most valuable currency.

Columbia Bank is well positioned to handle the impact of COVID-19 and it's ensuing market disruptions. This is different from the great recession of 2008 and 2009 and then it's not a financial crisis that a public health crisis with serious economic ramifications that are still evolving. The strength of our balance sheet, credit profile, liquidity and capital position along with our proactive interest rate risk strategies and sensible expense management will serve us well as we weather the economic consequences of COVID-19.

We started off the year with tremendous momentum and you can see the impact throughout our financial statement line items. EPS declined by $0.44 on a linked quarter basis due to the related credit-loss provision expense of $41.5 million. On a pre-provision basis, this was the fifth best quarter in our history, in what is typically our seasonally weakest quarter. While net income and EPS were significantly impacted by the CECL provision expense, our bankers remained outwardly focused and produced strong loan and deposit growth during the quarter while reducing non-interest expenses. Absent the impact of COVID-19 it would have been an outstanding quarter.

On the call with me today are Eric Eid who until this past Monday was our Interim Chief Financial Officer; Chris Merrywell, our Chief Operating Officer and Andy McDonald, our Chief Credit Officer. Following our prepared remarks, we'll be happy to answer your questions.

Let me remind you that we may make forward-looking statements during the call. For further information on forward-looking comments, please refer to either our earnings release or website or SEC filings.

At this point, I'll turn the call over to Eric.

Eric Eid -- Interim Chief Financial Officer

Thank you, Clint. First quarter earnings of $14.6 million and earnings per share of $0.20 included a CECL day-2 provision for credit losses of $41.5 million. After factoring out the significant provision expense, quarterly pre-tax earnings were the best first quarter on record. Pre-tax pre-provision income was $59.4 million and was $1.3 million higher than the first quarter of 2019. Net interest income for the first quarter was $122.4 million, a decrease of $2.4 million on a linked quarter basis and an increase of $1.4 million from first quarter 2019. The linked-quarter decline in net interest income was due to lower loan income from the reduction in the interest rate environment, one day less of earnings and an increase in interest paid on FHLB advances. This was partially offset by $1.9 million of interest income and discount accretion related to the early payoff of three securities.

The increase in short-term funding costs was mostly due to a decline in average deposits although period end deposits increased during the quarter. The operating NIM of 4.02% was down 7 basis points on a linked quarter basis, primarily due to lower loan yields. Our cost of deposits continue to be industry-leading at 14 basis points, down 7 basis points on a linked quarter basis. Total deposits ended the quarter at $10.8 billion, up $128 million from year-end, primarily due to an increase of $105 million of public funds. Our typical seasonal pattern is for a little to no deposit growth in the first quarter. At March 31st, 49% of our loan portfolio was fixed, 16% was at floors, with another $500 million or 6% protected by our interest rate collar. The result is 71% of our loan portfolio is protected from further rate declines.

Our liquidity position continues to provide us the balance sheet capacity to meet funding needs. Overall, we have access to $4.5 billion of liquidity primarily through our $3.5 billion investment portfolio of which $3 billion are investment grade readily marketable and not pledged on any borrowing base. Additionally, we have $1.5 billion unused borrowing capacity with Federal Home Loan Bank and Correspondent Banks. Non-interest income of $21.2 million was down $600,000 from prior quarter, principally due to decrease in deposit account in other fees, partially offset by an increase in loan fees.

Compared to first quarter 2019, non-interest income was down $489,000, primarily due to lower deposit account fees and net securities gains offset by higher loan fees. Non-interest expense was $84.3 million in the first quarter, which was a decrease of $2.7 million on a linked quarter basis. On a year-over-year basis, net interest expense was actually down $429,000. We anticipate our expense run rate to continue in the mid-80s as we handle expenses associated with COVID and continue to invest in our future. Our core non-interest expense ratio was 2.41% for the quarter, down from 2.53% in the fourth quarter. Our expense ratio compares favorably to the 2.60% reported in the first quarter of 2019. Our effective tax rate for the quarter was 18.1%, which compares to 20.5% on a linked quarter basis and 19% for first quarter 2019.

At this point, I'd like to turn the call over to Chris.

Christopher M. Merrywell -- Executive Vice President and Chief Operating Officer

Thank you. Erica and good morning everyone. To echo Clint's opening comments, we have shifted the way that we work to serve the immediate and critical needs of our clients to communities or at the same time keeping our employees clients and communities safe. Our production and back office teams have been outstanding as they worked around the clock to assist clients with payment forbearance and other relief programs, including the SBA paycheck protection program. The teams have had to pivot very quickly because the regulations have evolved and have been successful in guiding our clients through the process. As a result, we believe the Columbia is positioned to participate in paycheck protection program at levels that are far in excess of our relative market share.

First quarter saw solid loan and deposit growth, in spite of the economic shutdown. Deposit rose by $128 million during the quarter and the mix remained at 59% business and 41% consumer. The increase was predominantly in the public funds and on the retail side. We experienced our typical deposits seasonality as retail clients withdrew funds to pay down credit and other expenses and then built them come back up toward the end of the quarter. Our cost of deposits of 14 basis points continues to be lower than our peers, reflecting the strength of our non-interest bearing deposit base. On the interest bearing side, we immediately moved to reduce rates after the 150 basis points Fed interest rate drop in March and deposit rates back at levels last seen in 2017.

We continue to believe that our relationship-based approach is a key differentiator and our clients rely on this too much as on any deposit interest rate available in the market. Loan balances grew by $119 million, an annualized increase of 9%. New loan production was $341 million and increased line utilization was $120 million during the quarter. In line with the industry's first quarter's increase in line utilization, it was predominantly in the C&I revolving lines increasing from 49% at year-end 2019 to 51.6% at the end of the first quarter. New loan production was mostly centered in CRE, 39% or $128 million and C&I 38% or $126 million with approximately one-third in the real estate rental leasing sector, followed by the construction, healthcare, hospitality and agricultural sectors. This was similar to the first quarter of 2019 where production was centered in the same sectors as well as public administration. It's worth noting that agriculture is now presented separately in our financial statements. Previously, it was a component of C&I loans. Agriculture new production for the quarter was $32 million.

Term loans comprised 78% of the production whereas lines were 22% of the total. The quarterly production mix was 68% fixed, 28% floating and 4% variable. The overall portfolio mix is now 49% fixed, 34% floating and 17% variable. New loan production throughout the quarter was booked at an average tax adjusted coupon rate of 4.3% which is lower than the overall portfolio rate of 4.44% as of quarter end. The overall portfolio rate declined 25 basis points during the quarter with C&I down 39 basis points and CRE down 11 basis points.

We are continuing to invest in the business. As we have said in prior calls, we expect improvements in our peer to peer and banking based money transfer capabilities, online deposit account opening and back-office small business lending capabilities to go online later this year or in early 2021.

Now I will turn the call over to Andy to review our credit performance.

Andy McDonald -- Executive Vice President and Chief Credit Officer

Thanks, Chris. The increase in provision under the CECL of $41.5 million is primarily due to a deteriorating economic forecast resulting from the COVID-19 pandemic. We use IHS Markit for our economic forecast and when compared to the estimate at the beginning of the year as you can imagine it has changed quite a bit. In general, our forecast anticipates an annualized reduction in gross domestic product in the second quarter, approaching 28% to 30%, relatively flat performance after that with the following quarter beginning to see a rebound. Therefore, the change in the forecast accounted for about $34 million of our provision and the rest was due to negative migration that occurred in the portfolio.

NPAs clicked up a bit to 34 basis points, however this was not related to COVID-19 impact. The increase was in non-accrual loans represented by borrowers who had been under stress well before COVID-19 issue and related impacts came to fruition. Past due loans for the quarter were 23 basis points and net charge-offs annualized were also 23 basis points for the quarter. Therefore your standard credit metrics for the quarter were very acceptable. On the risk weighting front, loans rated watch or below increased approximately $450 million during the quarter. We saw watch loans increased $126 million going from $184 million to $310 million. Special mentioned loans increased $265 million to $317 million and substandard loans saw an increase of $65 million and are now $304 million in total. These changes increased our loss and the low risk ratings from 5.4% to 10.4% of total loans. Many of these downgrades occurred in portfolios that we believe will be quickly impacted by COVID-19 measures.

Clearly, these are unprecedented times. The rapidly changing environment we are operating in today has dramatically changed the Bank's assessment of credit risk. As with the great recession, we believe it is in the best interest of all of our stakeholders for us to get out in front of this by focusing on industries we believe will be some of the first to exhibit stress. As such, it is only prudent to acknowledge these risks and we believe the provision taken in the quarter and the assessment of risk ratings undertaken prior to quarter-end demonstrated our resolve in doing so.

We have also granted 2,600 requests for payment deferrals amounting to about $1.2 billion in total loans through April 24. We believe these deferrals are in the best interest of our stakeholders as we try to work our way through this pandemic. Most of the deferrals about 1,400 or roughly $580 million were granted to clients in our dental portfolio. Roughly 770 were for small businesses, which accounted for another $300 million in loan deferrals.

With that, I would now like to give you some color on the portfolios we believe will be some of the first to be impacted by the pandemic. For Columbia that includes hotels, retail, restaurants aviation and of course our dental and healthcare portfolios. In aggregate, these industries account for about key $2.2 billion in loans or roughly 5% of our portfolio. The largest portfolio impacted by COVID-19 is our dental portfolio. I'm sure most of you are aware, most states have directed dental practices to cease operation with the exception of emergency type procedures. So effectively, dental offices are closed and are not expected to reopen until sometime in May. As of March 31st, we had $812 million in dental related loans, representing approximately 2,100 hundred notes for an average note size of $382,000. Therefore, it's a very granular portfolio.

As I said, today we have processed payments referrals for approximately two-thirds of this portfolio. As such, most will not be required to resume making payments until August of this year, we believe the impact on this portfolio is truly transitory and by working with these clients, we will be able to minimize the impact of COVID-19 on their businesses, as well as the bank's balance sheet. We anticipate a large number of these clients will also participate in the paycheck protection program, which will assist them with working capital needs as they reopen their businesses.

Before I move on, I would like to share a few credit metrics with you concerning this portfolio. As of March 31st, approximately 95% of the portfolio was rated past. Past dues were minimal at 17 basis points. I would also highlight that deferrals did not affect this number as deferrals were only granted to customers in good standing. Said another way, they made their March payment. We also have approximately $4 million in non-accrual dental loans, however, these loans were already on non-accrual prior to the COVID-19 outbreak. So excluding the dental portfolio, we have another $1.4 billion or 16% of our portfolio to discuss. The next largest segment, which we have identified is having a high risk, relative to the economic disruption caused by COVID-19 is our retail portfolio. We have approximately $498 million in retail related exposure split between commercial real estate and commercial business loan. This represents about 5.6% of our loan portfolio.

The largest part of our retail exposure is comprised of commercial real estate loans with approximately $416 million in total. It's evenly split -- I'm really struggling here, between Washington and Oregon as you would expect centered in the Portland and Seattle MSAs. The average loan size is $344,000. The largest component is building materials and garden center types of businesses representing about 23%. Next is auto vehicle and parts dealers at around 20%, followed by food and beverage stores at 20% as well. Using at origination values, the average loan to value for the portfolio was 54% with 85% of the portfolio having a loan to value less than 65% based on originations. We have stress tested this portfolio for an equivalent decline in value as seen in the great recession. The average loan to value rises to 66% with about 50% of the properties having a loan to value less than 65%. On a stress basis, 92% of the properties have a loan to value less than 85%. For the entire retail portfolio, 85% is past, 6% is special mentioned and 3% substandard. We have also seen minimal requests for payment referrals to-date in this portfolio.

Hotels is the next area I would like to address. We have $326 billion in hotel loans, representing about 3.6% of our loan portfolio. About 38% is in major markets, which would include the Portland and Seattle MSAs, however we also have about 17% of the portfolio or $52 million of exposure out on the Oregon coast. To give you an idea of the type of hotels we finance, most have one of the following flags; Holiday Inn, Best Western Marriott and Radisson. These would be good examples of the types of the flags that properties we financed at. In total, flagged properties comprise 84% of the portfolio. The average loan size is $1.8 million. To-date, we have granted 44 deferral requests for about $110 million.

Similar to the retail commercial real estate loans, we did some stress testing on this portfolio as well. The average loan to value for the portfolio based on originated appraised value is 52% with 80% of the portfolio having a loan to value less than 65%. On a stress basis, about 48% of the portfolio has a loan to value less than 65% with 87% having a loan to value less than 85%.

Non-dental healthcare is about $245 million in total. Approximately $85 million is veterinary and another $122 million are physician practices of varying times and we also have $38 million of other healthcare providers, such as chiropractors, physical therapists and counseling services. The average loan size is $335,000. Today, 98% of the portfolio is past rated with 1% on watch and 1% rated substandard. We have granted 124 deferral requests for about $41 million in total in this segment. Similar to the dental space, we see this sector rebounding when the economy opens up as folks are once again able to see their orthopedists, dermatologists, optometrists and so on.

Okay. Restaurants and food services. We have approximately $183 million in this portfolio with an average loan size of 299,000. Today, 84% is pass-rated, 12% watch and the balance is substandard. We have granted 101 deferrals for about $44 million in this portfolio. Today, 84% is pass-rated 12% is on watch and 4% is substandard. The average credit had a debt service coverage of 1.56 with a loan-to-value of 46%. On a stress case scenario, loan to value rises to 56%.

The last portfolio I'm going to discuss is our aviation portfolio. This comprised of both direct exposure to domestic airline carriers as well as entities that lease airplanes to airline carriers. In total, the portfolio is about $150 million with about $100 million being direct exposure to US domestic airlines and the remaining $50 million exposure to lessors of airplanes. Today, essentially the entire portfolio is rated special mentioned with the exception of one credit rated substandard. As you know, during the week of April 13, the domestic airline carriers began entering into formal agreements with the US Treasury regarding receipt of funds via the CARES Act. We believe this government funding will help them recover from COVID-19 impacts along with the billions of dollars of capital raised in the past few weeks by many industry participants.

As for the lessor portfolio, 49% of the exposure is in Asia, 23% in Europe and 9% in North America. The rest is in South America and the Middle East. The majority of the portfolio consists of narrow-body aircraft with an average age of 6.5 years. We view these younger, more fuel-efficient aircraft to be more in demand post the pandemic. Based on origination values, our average loan to value for the lessor portfolio is 74%. However, based on what we believe today's values are, the loan to value is closer to 81%.

Okay. I'll now turn it back to Clint.

Clint E. Stein -- President and Chief Executive Officer

Thanks Andy. I want to take a moment to welcome Aaron Deer, our new CFO to the Columbia Bank family. Many of you know Aaron as he has covered financial institutions for nearly 20 years. Aaron officially started on Monday and we are delighted to have him on board. Aaron now gets to experience these calls from this side of the table.

We also announced our regular quarterly dividend of $0.28. This quarter's dividend will be paid on May 28 to shareholders of record as of the close of business on May 14.

This concludes our prepared comments. As a reminder, Andy, Chris and Eric are with me to answer your questions. And now Tamara will open it up for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] On the phone, we have response from Jeff Rulis. Please go ahead.

Jeffrey Allen Rulis -- D.A. Davidson & Co. -- Analyst

Thanks, good morning.

Clint E. Stein -- President and Chief Executive Officer

Hi Jeff.

Jeffrey Allen Rulis -- D.A. Davidson & Co. -- Analyst

First question on the the margin. Before I get to that, the percent of floors I wanted to -- that went through pretty quick. But I think you said 71% of the portfolio was protected from rate moves, which is 49% fixed loans, but could you walk through the percent of loans with floors and those that are at floors.

Eric Eid -- Interim Chief Financial Officer

Yeah, let me pull it up here. So we have -- 49% are fixed, we have 16% are at the floors and then we have the notional collar. $500 million notional collar offset 6% of our one month LIBOR. So when you add all that up, that's how you have come up with the 71%.

Jeffrey Allen Rulis -- D.A. Davidson & Co. -- Analyst

Okay, got you. So the 6% is the notional collar.

Eric Eid -- Interim Chief Financial Officer

Roughly.

Jeffrey Allen Rulis -- D.A. Davidson & Co. -- Analyst

Yeah. So looking taking a step back on margin, I guess, the biggest risk that you will see is that loan yields security yields or sort of the lack of ability to lower deposits, given that they're already pretty low deposit level.

Eric Eid -- Interim Chief Financial Officer

Probably maybe all of those to some extent. I think in the short run with the PPP program, we're going to probably actually see yields increase over the next couple of quarters as loans are forgiven and we take that deferred fee income and to spread longer run obviously for the loans that we carry on our balance sheet. That's going to have an impact on our spreads and margins are going to continue to be under pressure. Forecasting right now is a little bit of a challenge. We're seeing dislocation between LIBOR and fed funds. And so we're getting our arms around that. But I think we're going to see continued pressure on the NIM for sure.

And Clint, you want to add anything?

Clint E. Stein -- President and Chief Executive Officer

Well, I think just looking at it is slightly different way might help. So between the fixed part of the portfolio, roughly $1.5 billion of floating-rate loans that are at their floor already and then when we think about loans that won't reprice within the next year, there is about $6.5 billion of the $8.9 billion in the portfolio, that's not going to face that repricing pressure. I think that as Eric mentioned you know the difficulty with NIM and for modeling purposes, it is a bunch of just originated loans with a 1% coupon. But looking at our core business dynamics, we have a significant part of the loan book, it's not going to reprice, part of our interest rate risk strategy that we put in place, purchasing securities in advance through much of last year that perform well in a down rate environment. So I don't think that you're going to see us necessarily aggressively reinvesting into the securities book at this time. We will be opportunistic about it. So I think that gives us some defense. Asset mix, that's the big unknown. We don't know when the economy reopens, how quickly things return to normal. We had a tremendous amount of momentum through January and February in terms of our organic growth and we saw some asset mix shift on the balance sheet shifting a little more toward loan to deposits as the loan to deposit ratio ticked up. So those are kind of all the factors that we're taking into account as we think about looking forward. And as Chris mentioned, our deposit funding cost -- deposits are near their historic lows, but we still have some fine tuning that we can do in that space as well.

Jeffrey Allen Rulis -- D.A. Davidson & Co. -- Analyst

Okay. And, Clint. Just another question on the capital side. In terms of -- you had a high payout ratio going in that included the special safe to say that you'd maybe table the special and maybe buybacks, but focus on maintaining the regular. Any thoughts on capital there.

Clint E. Stein -- President and Chief Executive Officer

Yeah. We repurchased I think it was right around 731,000 shares during the quarter under our 10b5-1 plan and wound that down in late March when we get the $20 million that we had allocated for that. We don't have any intentions right now of doing buybacks for the foreseeable future. In terms of the special dividend, that's always been a tool that we've used to manage our capital ratios down. We still have a pretty healthy TCE ratio of 10.7%, but I think there is so much uncertainty out there that our primary focus is maintaining the regular dividend and then I think it be would be content to let those capital ratios drift upward.

Jeffrey Allen Rulis -- D.A. Davidson & Co. -- Analyst

Got it. And one quick last one. The reserve level if you were to include credit marks relative to that $137 million of loan stated, what would that be trued up.

Clint E. Stein -- President and Chief Executive Officer

So if we add back the discounts on the acquired portfolios, is that the question.

Jeffrey Allen Rulis -- D.A. Davidson & Co. -- Analyst

Yeah.

Clint E. Stein -- President and Chief Executive Officer

I haven't done that math. I don't think Andy has either. He has been focused on --

Jeffrey Allen Rulis -- D.A. Davidson & Co. -- Analyst

Just the amount, do you have the discount amount?

Clint E. Stein -- President and Chief Executive Officer

We can follow up with you after the after the call. Okay, all right, thank you. Thanks, Jeff.

Operator

Thank you. Your next response is from Gordon McGuire. Please go ahead.

Gordon Reilly McGuire -- Stephens Inc. -- Analyst

Good morning.

Clint E. Stein -- President and Chief Executive Officer

Hi Gordon.

Gordon Reilly McGuire -- Stephens Inc. -- Analyst

So Clint, you had mentioned January, February production being pretty record levels. I was wondering if you could provide how those trended month by month. I guess how big was the drop-off in March and what does the pipeline look like heading into the next quarter and I guess you just your overall outlook for the rest of this year?

Christopher M. Merrywell -- Executive Vice President and Chief Operating Officer

Gordon, this is Chris. And I can tell you the drop-off was pretty, pretty significant as we moved into the phase of starting to be shut down and businesses being closed, we tabled. Andy had a pretty extensive review of the dental portfolio. So I will use that as an example is we have requests that we put on hold. This standpoint of business being closed and things of that nature. So I didn't get the actual figure on the pipeline, but it was pretty significant for the last month. We were on pace to set a new first quarter record.

Gordon Reilly McGuire -- Stephens Inc. -- Analyst

Okay. The pipeline is pretty muted. I will assume the outlook is probably more flattish from here.

Christopher M. Merrywell -- Executive Vice President and Chief Operating Officer

The pipeline, we still have a good decline. There is some uncertainty around what's going to happen in the economy when people reopen. There is some pent-up demand for things. We'll see if those materialize, but that's going to depend on reopening how quick that happens and how quickly businesses move back to earnings, revenue. You probably directionally correct those, certainly going to be more difficult.

Gordon Reilly McGuire -- Stephens Inc. -- Analyst

Okay. And Chris, you discussed PPP a little bit in your prepared remarks, but I'm not sure if I caught total balances. Do you have that and just how are you guys thinking about funding those balances like I guess with the security is not really being reinvested, can you fund a lot of that would deposits or are you going to look to outside sources.

Christopher M. Merrywell -- Executive Vice President and Chief Operating Officer

We have the ability to funds, we will look at all available options to include the ability to align to put those to the total debt as one of the options as far as discussing totals since we're in the second quarter, we don't provide guidance on that and are prepared to discuss the totals. But I will tell you that the team has been hard at work and lots of long hours nights, days showing up that 9:00 PM to hit 12:00 PM East Coast time reopening these things of that nature. And as we said, we feel that we'll do more than our aggregate share based on our size and and I would tell you that demand outstripped our expectations.

Gordon Reilly McGuire -- Stephens Inc. -- Analyst

Okay. I guess Andy your quote in the release talking about net of credit migration going into a deep dive on the impact of the industries. I guess the deep dive was probably warranted by COVID, but I'm wondering how much of the negative migration that you reference is specific to COVID issues or maybe underlying issues that you might have seen, but were identified as a result of the deep dive you took or are there any correlated beyond just general COVID issues that you saw?

Andy McDonald -- Executive Vice President and Chief Credit Officer

The vast majority of the downgrade was as a result of our I guess part dive into specific portfolios. So you look at airlines at $150 million that was all past rated with all move to special mention, that's all COVID-related. They're quite a bit the downgrades in our hotel and retail areas and that's pretty much COVID-related. Were there credits in there, they probably have underlying weaknesses? Sure. I mean I can't argue against that. But I would say is that because of our focus on those portfolios drove the downgrade, so I do believe it's predominantly COVID-19 related.

Gordon Reilly McGuire -- Stephens Inc. -- Analyst

Okay, thank you. I'll step back. Thank you.

Operator

Thank you, your next response is from Jon Arfstrom. Please go ahead.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

Thanks, good morning guys.

Clint E. Stein -- President and Chief Executive Officer

Good morning, Jon.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

Andy anything new or notable on the Ag portfolio?

Andy McDonald -- Executive Vice President and Chief Credit Officer

Anything more notable?

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

Yeah, new or notable? I mean I know we're focused on these other areas. But can you give us your assessment of how things are performing at ag at this point?

Andy McDonald -- Executive Vice President and Chief Credit Officer

Yeah. I think that the area that has been a struggle for us to now a couple of years has been the agricultural portfolio and of course, and I'm sure you all aware of commodity prices. There is certainly the great news reports coming out of the Midwest that more farmers buying things under the ground and dairies pouring milk on to the ground and so we are concerned about the Ag portfolio. We're going to have to see how that plays out. Most of the book came through the 2019 cycle OK. Some still have some product to offload, but for the most part, it is really going to be a function of what do we get in production in 2020 and then do we see any kind of a rebound in commodity prices by the time we bring the 2020 crop to market. Absent that the one portfolio that's not going to have the ability to enjoy I'd say, calendar or time-frame is our cattle book which is about $150 million in exposure and we are also watching that very closely.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

Okay. Good. That helps. And then the dental deferrals. I think I caught what you were saying, but it sounds like you're -- most of these loans would come off their deferrals in August. Is that -- did I catch that right in your prepared comments?

Andy McDonald -- Executive Vice President and Chief Credit Officer

Correct. So our standard deferral programs were four months and that was on purpose to take us into the latter part if you will or at least the middle part of the summer, so give those offices time to adjust to the reopening of the economy, get some revenue under their belt before they would have to start making payments. So again, we think that's the prudent thing to do both for the dental practice and for ourselves.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

Okay. And then just maybe a subtle question here more on the P&L, but what are you seeing on the card revenue trends? Are you seeing, I'm assuming you saw a drop and it looks like it's down a little bit year-over-year and certainly sequentially, but are you seeing stabilization there or changes in activity trends?

Clint E. Stein -- President and Chief Executive Officer

Yeah. I think that there certainly has been a -- we saw a drop. I think you'll start to see as we said, some stabilization based on, it will shift so from in-person purchases to more online purchases, things of that nature. We're also working and expecting some pent-up demand as things been start to become reopens that people will get back out there and want to spend money but certain parts of the industry through this process continue to do very well and those are places for people who are using their cards, so it is fairly simple.

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

Okay. Thanks a lot.

Operator

Thank you. Your next response is from Jackie Bohlen. Please go ahead.

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Hi, good morning everyone.

Clint E. Stein -- President and Chief Executive Officer

Hi Jackie.

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Hi. Andy, I apologize if you mentioned this already in your prepared remarks, I just missed it. But the the migration from the Ag portfolio that went on to non-accrual in the quarter, what sector is that from.

Andy McDonald -- Executive Vice President and Chief Credit Officer

It's primarily from the fishing industry in the state of Alaska. So last fishing season is primarily what they call the pink salmon which is lower quality, a lot of it goes as they say slam it in the can. They delayed the opening of that. So the quality of the fish was less. And so we had a couple of fish processes that as a result, they have lower quality fish, which attracts a lower quality price and that put stress on their business.

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. And is that what the charge-off in the quarter related to?

Andy McDonald -- Executive Vice President and Chief Credit Officer

No. The charge-off was related to a row crop operation in Eastern Washington.

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. And I would guess that even though it was a little bit elevated in both these metrics in the quarter, it's just kind of normal course of business.

Andy McDonald -- Executive Vice President and Chief Credit Officer

Yeah, we had one charge-off of $4 million, which really drove charge-offs for the quarter. It was an extraordinary situation with this row crop farmer and I would not characterize it as normal business strain. I'll just say he grewsome stuff and then expect them to.

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. So much more of micro issue than a macro issue?

Andy McDonald -- Executive Vice President and Chief Credit Officer

Yes.

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. And then also I wanted to talk a little bit about and the press release noted some efficiency initiatives that were ongoing and I know that you gave a range of where you anticipate expenses to be in just in light of investments and COVID-related costs, but maybe just a little bit of color on what kind of initiatives you're looking at right now from an efficiency standpoint.

Eric Eid -- Interim Chief Financial Officer

Well, with regards to the digital, we're essentially done with our oversized digital spend at this juncture, Jackie, and this has become part of our run rate. That being said, we are going to continue to invest in innovative solutions, keep us competitive, and remain relevant with our clients, but some of the things that are coming Zelle, we've got the small business lending platform coming and the new account open and fund there. They're tracking and, but we're just offsetting, I mean it's just part of our run rate right now.

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay.

Clint E. Stein -- President and Chief Executive Officer

I will add some of the other things that we've done, it's the combination of the things we've been doing over the past few years and starting to get higher adoption rates. Obviously some of that has accelerated with people learning how to conduct business differently and through digital channels, but also it's some of the things that have always been ongoing and that's what Eric was getting, it is part of our DNA is looking for how we can do something better. I'd say in the last six months, we've taken a look at functionally how we're aligned and we've been able to eliminate and reduce some redundancy and that has some efficiency or some improvement in terms of our non-interest expense run rate. There is still some -- some of the things that we've learned actually as we went through the paycheck protection program project. There are some other areas as we talk with our bankers, they say they've learned how they can do things more efficiently. That's the silver lining in this cloud that we are under now with COVID-19 is that people are finding different ways. And when we come out the other side, I think we're going to leverage some of the spend that we've had, focus that we've had as well as some new opportunities that we've uncovered through this. So that's kind of a high-level 90,000 foot overview of the types of things that we've been working on and we'll continue to work on.

Andy McDonald -- Executive Vice President and Chief Credit Officer

I will provide some color on that too Jackie, just with regards to the PPP program. We digitize the whole process from the loan application all the way through fulfillment and we used existing capabilities that we have and we did it rapidly and there is no way we would have been able to keep up with the demand and the 10-day funding requirement without having all hands on deck and that digital background really helped us gives us over the finish line.

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. And understanding that you're not going to provide guidance as to the number of loans or the dollar value, when you did the PPP program, was that open to existing customers or was it existing and some potential new relationships?

Clint E. Stein -- President and Chief Executive Officer

Jackie, we chose to follow the process to work with existing clients and not use it as an opportunity to prospect the demand. And the most important thing we can do is take care of our clients throughout this process.

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. Great, thank you all very much.

Operator

Thank you. There are no further questions in the queue at this time.

Clint E. Stein -- President and Chief Executive Officer

All right. Well, thanks everyone, and good luck. Stay well and stay safe.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Clint E. Stein -- President and Chief Executive Officer

Eric Eid -- Interim Chief Financial Officer

Christopher M. Merrywell -- Executive Vice President and Chief Operating Officer

Andy McDonald -- Executive Vice President and Chief Credit Officer

Jeffrey Allen Rulis -- D.A. Davidson & Co. -- Analyst

Gordon Reilly McGuire -- Stephens Inc. -- Analyst

Jon Glenn Arfstrom -- RBC Capital Markets -- Analyst

Jacquelynne Chimera Bohlen -- Keefe, Bruyette, & Woods, Inc. -- Analyst

More COLB analysis

All earnings call transcripts

AlphaStreet Logo