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Bank Of Marin Bancorp (NASDAQ:BMRC)
Q2 2020 Earnings Call
Jul 20, 2020, 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Andrea Henderson -- Director of Marketing

Good morning and thank you for joining the Bank of Marin Bancorp's earnings call for the second quarter ended June 30, 2020.

I am Andrea Henderson, Director of Marketing for Bank of Marin.

[Operator Instructions]

This conference call is being recorded on July 20, 2020.

Joining us on the call today are Russ Colombo, President and CEO, Tim Myers, Executive Vice President and Chief Operating Officer, and Tani Girton, Executive Vice President and Chief Financial Officer. Our earnings press release, which we issued this morning, can be found on our website at bankofmarin.com, 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 17, 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 Tani, along with the Chief Credit Officer, Beth Reizman, will be available to answer your questions. And now, I'd like to turn the call over to Russ Colombo.

Russell A. Colombo -- President and Chief Executive Officer

Thank you, Andrea. Good morning and welcome to the call. I hope everyone remains healthy and safe.

As COVID-19 persists in impacting our daily lives, we all find ourselves responding to a very fluid situation. In the face of so much uncertainty, Bank of Marin continues to execute on our guiding principles, relationship banking, disciplined fundamentals and community commitment, which positions us well to assist our customers in weathering the pandemic. At the outset of the public health crisis, the bank swiftly responded to customer needs, including actively participating in the PPP. Since the inception of the program, we have funded over $300 million in PPP loans, helping over 1,800 local small businesses and nearly 28,000 employees. These loans will aid many of our customers in bridging the gap to economic recovery.

We also implemented a 120-day loan modification program for borrowers with hardship requests. As of July 10, the bank had approved over 260 loan modifications exceeding $386 million. As that program moves forward to -- moves toward maturity in August, we continue to have active discussions with our customers about loan modifications and we'll 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 less -- with less vulnerability relative to the bigger banks. We'll give a more detailed breakdown later in the call.

Here are some key highlights from the quarter. We generated net income of $7.4 million, with diluted earnings per share of $0.55. Total loans of $2.1 billion were up about 14%, with solid commercial and industrial growth driven by PPP 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. And they are also identifying new opportunities across our markets. We expect these efforts will help to grow our portfolio over time. 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 9 basis points in the second quarter, reflecting a low-rate environment in our relationship banking model. Non-interest-bearing deposits represented 52% of total deposits. Our total risk-based capital ratio was 15.8% at June 30, well above regulatory requirements and the 15.3% we reported at March 31. While we are very well capitalized, our share repurchase program remains suspended indefinitely as a precautionary response to the pandemic. Management and the Board of Directors continue to monitor this situation and will reinstate the program when appropriate. Non-accrual loans decreased by $45,000 in the first quarter to $1.6 million, or 0.08% of total loans. Classified loans increased by $1.5 million from the prior quarter to $13.5 million, but were still down relative to the first quarter of 2019.

The full impact of COVID-19 crisis will take time to materialize. Our bank is not immune to the significant economic pressures. But we are 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 $0.23 per share on July 17, 2020. This represents the 61st consecutive quarterly dividend paid by Bank of Marin Bancorp. The dividend is payable on August 7, 2020, to shareholders of record at the close of business on July 31, 2020.

Now I'd like to recognize an important change to our leadership team. Tim Myers, most recently, Executive Vice President, Commercial Banking, was named Chief Operating Officer on June 30. Tim has nearly 25 years of experience in finance and banking, spanning small business, the middle market and corporate segments. After 13 years with Bank of Marin, Tim has a deep understanding of our business model and a strong connection to our customers and to our people. I am pleased that Tim was prepared to step up to the role of COO. In these challenging times, stability and consistency in management are more important than ever.

Tim will now provide more detail on our PPP and loan modification programs, as well as an update on our overall loan portfolio and expansion efforts in the Peninsula and South Bay regions.

Timothy D. Myers -- Executive Vice President, Chief Operating Officer

Thank you, Russ.

The bank's execution of PPP is a testament to our dedication to meeting our customers' needs. A small team of subject matter experts devoted a great deal of time and energy to launching the program and helping hundreds of customers get their loans. After receiving approval to become an SBA lender, we formed cross-functional teams that successfully processed and funded more than 1,800 loans totaling over $300 million. We committed to focusing on small businesses that needed funding to weather the downturn and in time, help our local markets grow during the recovery.

Notably, 73% of the PPP loans were for $150,000 or less and almost 90% were $350,000 or less. Only 48 loans were $1 million or greater representing approximately 30% of the total balance. Among all the businesses we were able to assist, we are proud to say there were 178 non-profit organizations, ranging from education to health and human services that received $57 million, which helped protect payroll for over 6,000 of their employees. Bank of Marin stopped taking applications for PPP loans on June 30 to focus our efforts on helping customers through the loan forgiveness process. We have contracted with a technology provider and a CPA firm to streamline the submission of applications to help educate our bankers and borrowers on the SBA guidelines, forgiveness process and necessary calculations. We were pleased to play a key role in this program and are excited to see it through to completion.

In the first quarter of 2020, with the onset of the pandemic, we identified industries 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 30 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 which is 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 is secured by real estate. Education was $67 million, or 3% of the portfolio, of which $63 million is secured by real estate. And hospitality was $48 million, of which $45 million is secured by real estate. We made $103 million in PPP loans to these industry segments as of June 30, the largest of which were in the medical and dental 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 continued to work with customers that needed temporary assistance.

Loans, for which we process payment relief requests, exceeded $386 million at July 10. $223 million were for payment deferral and $163 million allowed for interest-only payments. While our loan modification agreements largely span a 120-day time frame, a small number of customers requested only 90 days of relief. Of the loans on payment relief, almost 50% fell into our expected pandemic impacted industries, the largest being retail-related commercial real estate at $70 million, hotels and motels at $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 of 45%. Within the largest categories, average loan-to-value was 43% for retail-related properties, 39% for hotels and motels, 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 hired Jake Nguyen to establish a commercial banking office in San Mateo, focusing on the Peninsula and South Bay regions of the Bay Area. Jake is a seasoned and highly regarded banking leader in these markets. Subsequent to joining Bank of Marin, Jake hired an experienced commercial banker, David Mears, and secured an office location in San Mateo that we will occupy soon. This positions us well to serve eight of the nine Bay Area counties, and we are very excited about our prospects south of San Francisco.

With that, I will turn it over to Tani for additional insight on our financial results.

Tani Girton -- Executive Vice President, Chief Financial Officer

Thank you, Tim, and good morning, everyone.

As Russ noted, we generated net income of $7.4 million in the second quarter of 2020. Diluted earnings per share of $0.55 compared to $0.53 in the prior quarter and $0.60 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.

Interest and fees on PPP loans negatively impacted the net interest margin by 3 basis points in the second quarter of 2020. The tax equivalent net interest margin was 3.7% in the first six months of 2020 compared to 4.03% for the same period in 2019. 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 postponed the adoption of the Current Expected Credit Loss accounting standard, or CECL, in accordance with the accounting relief provision in the CARES Act. We will be prepared to adopt CECL when the national emergency ends or December 31, 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 $260,000 provision for losses on off-balance sheet commitments in the second quarter versus $2.2 million and $102,000 respectively, in the prior quarter. Under the existing incurred loss model, we made adjustments to qualitative factors to account for the impacts of the COVID-19 pandemic, primarily the 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 COVID-19. The efficiency ratio of 54% reflects continued expense control, in addition to deferred loan origination costs of $890,000 associated with PPP loans.

Second quarter non-interest expenses are down from the prior quarter due to seasonal first quarter expenses and from the prior year due to reduced data processing expenses associated with our digital platform conversion. The bank delivered a return on assets of 1.01% and a return on equity of 8.53% in the second quarter of 2020. The impact of COVID-19 on Bank of Marin's second quarter performance is meaningful, but we believe our strong underwriting and limited exposure to industries most impacted by the pandemic, position us well as we move into the second half of 2020.

And now Russ would like to share some closing comments with you.

Russell A. Colombo -- President and Chief Executive Officer

Thank you, Tani.

We will continue to address both the impact and the unique challenges created by the pandemic. We entered the second half of 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 and 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.

Questions and Answers:

Operator

[Operator Instructions]

Our first phone question is from the line of Jeff Rulis with D.A. Davidson & Co. Go ahead, your line is open.

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

Thanks. Good morning.

Russell A. Colombo -- President and Chief Executive Officer

Good morning, Jeff.

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

Just interested in the response on a couple of fronts that you've had. You mentioned lowering some interest rate floors, also waiving some fees. I guess, the first one, just on the margin impact then going forward, is that -- have you -- maybe you still take that on a case-by-case basis, but largely, do you anticipate the lowering of floors to sort of ebb or stop going forward? And how that might affect the margin?

Russell A. Colombo -- President and Chief Executive Officer

Jeff, I'm going to ask both Tim Myers and Tani Girton to answer that. Tim is directly dealing with his clients day-to-day, and Tani can talk about the impact on the financials. But Tim, why don't you go ahead.

Timothy D. Myers -- Executive Vice President, Chief Operating Officer

Yeah. Thank you, Russ. Hi Jeff. We are reviewing those case-by-case. Going forward, a lot of these are lines of credit with renewals on a mostly annual basis. So at those time, 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 some impact of that, but I have not quantified that.

Russell A. Colombo -- President and Chief Executive Officer

Tani?

Tani Girton -- Executive Vice President, Chief Financial Officer

Yeah, we haven't quantified, as Tim said, on a go-forward basis because it is on a case-by-case basis. In terms of the current margin, obviously, it's sort of embedded in the full 150-basis-point decrease that occurred in March. I can segment that out and provide it after the call to the analyst community, but I don't have a number on that right now.

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

Okay. Thanks. And I guess on a related front, though, on the service charges, maybe -- is it safe to assume that a lot of the waiving of those fees upfront was at the front end of this? And going forward, you might see some resumption or some growth in the fee income lines?

Russell A. Colombo -- President and Chief Executive Officer

Yeah, Jeff, this is Russ. Yeah, at some point. We're trying to be sensitive to our customers' needs and to the challenge that everybody is going through right now. Obviously, that's -- we're waiving the fees now, but that doesn't mean they're going to go on forever. And once we get back to a -- because nobody knows when the new normal is or what it is. But as we get closer to a time when we can live kind of normal lives and businesses can resume their normal activities, then we'll make changes in that. But for the time being, we're doing that to try and help our clients in this really difficult time.

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

Sure. And just one last one, maybe for Tim. I'm interested in that kind of the sentiment on some of the borrowers, those that have led to some payoff activity or reduced line utilization, just the behavior that you're seeing, any commentary that you could shed some light on what you're seeing?

Timothy D. Myers -- Executive Vice President, Chief Operating Officer

Yeah. I think, Jeff, we -- it's a combination of things. In some cases, during this last quarter, we had PPP loans for people that were on credit sweeps where PPP proceeds pay down lines of credit. We are seeing people, in some cases, sell assets and use proceed -- that we're not financing, they use those proceeds to pay down other loans, and we're generally seeing a trend at least over the last quarter of people just reducing their credit usage. They're not growing at the rate they normally would, which is typically a key driver and increased usage on lines of credit. But overall, we are generally seeing increased [Phonetic] application of cash, borrowers cash to loans outstanding.

Russell A. Colombo -- President and Chief Executive Officer

Jeff, I will add one thing to that. When this crisis began, there were some borrowers who actually withdrew their lines, not knowing what was ahead. And then as things kind of settled down, they paid it back. So utilization went up initially, and then went down.

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

Great. Okay. Well, thank you.

Russell A. Colombo -- President and Chief Executive Officer

Sure.

Operator

Thank you. Our next question is from the line of Jackie Bohlen with KBW. Please go ahead, your line is open.

Jackie Bohlen -- KBW -- Analyst

Hey, good morning, everyone.

Russell A. Colombo -- President and Chief Executive Officer

Good morning, Jackie.

Jackie Bohlen -- KBW -- Analyst

I realize this is a challenging question. 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 a couple of things. Number one, how you're modeling the payoff of PPP loans, and number two, how you expect funding and deposits to flow around that?

Russell A. Colombo -- President and Chief Executive Officer

I will -- I'll ask Tani to answer the question on the modeling of the PPP, which we -- frankly, we expect mostly a big portion of that, maybe all of it to be forgiven, but I'll give it to you. Kick it over to Tani. Tani?

Tani Girton -- Executive Vice President, Chief Financial Officer

Well, that's exactly right, Russ. We're modeling right now 100% forgiveness on the PPP loans by the end of 2020 because that's our goal and our expectation, and that's what we're going to put our effort toward is making sure that all of those get forgiven. So was there another question there that I missed?

Jackie Bohlen -- KBW -- Analyst

It's just how you expect deposit flows. [Speech Overlap]

Tani Girton -- Executive Vice President, Chief Financial Officer

Yeah. So the deposit flows are going out slower than we originally expected when we had the -- we did have significant deposit inflows associated with PPP loans borrowers, but it is starting to pick up a little bit now. And again, we expect those flows to go out, be sort of consistent with the forgiveness timing as we expect those funds to be utilized in order to get the forgiveness.

Jackie Bohlen -- KBW -- Analyst

Okay. And are there -- in terms of the flows that you saw in the quarter, is there excess liquidity or what you would consider to be excess liquidity not tied to PPP that might stick around on a different schedule?

Tani Girton -- Executive Vice President, Chief Financial Officer

I'm not sure -- yes, there is excess liquidity separate from the PPP. I'm not sure how long that will stick around. Obviously, we saw some outflows associated with Tax Day recently. So there was some buildup associated with that, but there is increased liquidity in the banking system overall, and that seems to be adding to our cash position as well.

Jackie Bohlen -- KBW -- Analyst

Okay. Okay. Thank you. And just one more for me and then I'll step back in. In terms of the San Mateo office that you'll be opening, if you could just provide some background on what kind of hiring is going to take place with that? What your growth expectations will be in the longer term associated with that? And then just any expenses that we should be on the lookout for?

Russell A. Colombo -- President and Chief Executive Officer

Sure, Jackie. Tim Myers is the person that was responsible for that office. So I'm going to ask him to answer that question for you.

Timothy D. Myers -- Executive Vice President, Chief Operating Officer

Hi Jackie. As I mentioned in my talking points, we did hire a regional manager and thus far, one Commercial Banking Officer. I will say in this environment, having just signed the lease that we're going to play a little bit by ear. I think what we were initially -- sorry, forecasting by way of growth expectations, I think we have to review in this environment. So I'm not comfortable saying long-term growth objections -- objectives. But I would expect, over time, we have at least one or two other commercial banking officers. We'll probably support that from a cash management standpoint from our other regions. We have a very strong cash management team that's able to do that. And so I don't expect a great deal more by way of expenses beyond what Tani has already accounted for thus far.

Jackie Bohlen -- KBW -- Analyst

Okay.

Russell A. Colombo -- President and Chief Executive Officer

And Jackie, I'd just add one thing. Opening San Mateo really -- really puts us in a position where we have commercial banking offices in almost every market in the Bay Area, with maybe the possible exception of San Jose and/or Santa Clara Valley. For the time being, San Mateo, we'll be focusing on that in addition to the rest of the Peninsula. But our whole intent here is to get to establish banking offices that -- and serve the entire Bay Area. So this is a step.

Jackie Bohlen -- KBW -- Analyst

Okay. And is this a reflection of a renewed focus in the area? I know this is geographically new for you. Is it a renewed focus in the area? Or is it -- did the regional manager just, it finally all clicked and you were able to bring this person on board. And so plans that had been in the works for a while, you were able to see them through?

Russell A. Colombo -- President and Chief Executive Officer

Well, we had plans in the works to open an office on the Peninsula. And those offices -- the key to opening an office is really finding the right people. And so we were able to identify Jake and one other person for that office, find a location in San Mateo. And so we went ahead with it. And obviously, this isn't the most opportune time to be opening offices given the pandemic. However, we had the opportunity and the person was available, and we thought it was a great hire, and we're very excited about the opportunities for us in the Peninsula.

Jackie Bohlen -- KBW -- Analyst

Okay. Great. Thanks for the added color.

Russell A. Colombo -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from the line of Matthew Clark with Piper Sandler. Please go ahead, your line is open.

Matthew Clark -- Piper Sandler -- Analyst

Hi, good morning.

Russell A. Colombo -- President and Chief Executive Officer

Good morning.

Tani Girton -- Executive Vice President, Chief Financial Officer

Good morning.

Matthew Clark -- Piper Sandler -- Analyst

Maybe first on the deferrals, as you kind of go through the process with your customers and talking with them. I guess what's your sense come next month, how much of that might return to normal payments? Do you have any estimate or order of magnitude?

Russell A. Colombo -- President and Chief Executive Officer

Well, I'll take a stab initially, and then I'll kick it over also to Tim. It's -- our commercial banking officers have been reaching out to their customers and trying to get a sense of where they are, and it's kind of all over the board, depending upon the industry. Some industries are doing better than expected. Some are still struggling. So I would expect that we would have -- we've continued to have some deferrals. We would have some that don't go, that end the deferral or end -- go from interest-only back to the normal payment schedule. It's hard to 100% judge at this point, but Tim could probably add some color to that. Tim?

Timothy D. Myers -- Executive Vice President, Chief Operating Officer

Well, I think, Russ, I think that's exactly right. I think this is a big unknown in terms of new restrictions or the rolling back of openings is going to cloud that a little bit. We are constantly speaking with our customers, finding out what their needs are and how we need to adapt. I certainly expect that some of these will continue to ask for deferrals. However, some of the borrowers that asked for deferrals very early on that expected to be impacted, were not, and resumed payments almost right away. And so I think it's still a little bit murky in terms of the outlook to make any kind of quantification or forecast on that. But we will continue to talk to our customers and figure out the best way going forward. We do have -- as we mentioned, a lot of these loans have significant sponsorship behind them, and that's going to come into play in making those determinations.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And then on the PPP, I guess what's your experience been so far on the forgiveness process with the SBA? Is that $1.7 million of PPP, net interest income -- was that just accruals over a short period of time, knowing that you're going to -- you're assuming all that gets forgiven by the end of the year, or were they actually -- is that revenue that you actually got from the SBA?

Russell A. Colombo -- President and Chief Executive Officer

I'm going to -- I'm going to ask Tani to answer that because I think it's kind of a Tani-question. Tani, go ahead.

Tani Girton -- Executive Vice President, Chief Financial Officer

Yeah. So on the PPP loans, right now, we are amortizing the fee income that hasn't actually been received already from the SBA over the contractual 24-month life of the loans. As those loans are forgiven, then we will accelerate the fees into interest income. So if you assume that we are successful in getting 100% of those loans forgiven by the end of this year, all those fees will come into income.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And then I know over 70% of them are less than $150,000, which comes with a higher origination rate. What's your updated estimate of the weighted average origination fee, when it's all said and done?

Russell A. Colombo -- President and Chief Executive Officer

Tani?

Tani Girton -- Executive Vice President, Chief Financial Officer

Yeah. I think it's somewhere between 2.5% and 3%.

Matthew Clark -- Piper Sandler -- Analyst

Okay. Okay. And then assuming you do get the lion's share of the PPP fees in the second half of the year, what's your flexibility being able to move some of that into your reserves? Or do you feel like a lot of that might hit -- a lot of that might hit the bottom line?

Russell A. Colombo -- President and Chief Executive Officer

We're still -- actually, we're still evaluating what that's going to be next quarter. Certainly, reserves are one thing. There's opportunities to potentially help people within our communities with some of that without coming to income. So we haven't determined exactly the total use, but we're in conversations internally with the Board on how we utilize those funds and put them to the best possible use.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And then FAS 91 benefited you guys on the PPP side by about $0.05, it looks like in non-interest expense run rate. Assume we should normalize that for the upcoming quarter. But what are your overall thoughts on expenses going forward?

Russell A. Colombo -- President and Chief Executive Officer

Tani?

Tani Girton -- Executive Vice President, Chief Financial Officer

So I think going forward, yeah, the $890,000 that was included this quarter, those were origination costs deferred. So 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.

Matthew Clark -- Piper Sandler -- Analyst

Okay. Great. And then, Russ, great to see that you're sticking around. How much of that was related to not being able to find the talent or the right cultural fit? Or was it solely related just being in the midst of a pandemic?

Russell A. Colombo -- President and Chief Executive Officer

We are in the midst of a pandemic, and it's important to maintain stability, consistency throughout this time. We just don't know how long it's going to last. We don't -- and I am -- I will retire. The question is when. But we want to make sure that we keep this consistency and continuity through a very challenging time for, not only for the bank, for our customers, for the general population. And I think -- I guess I'm liking it to changing horses in the middle of the stream, and we seem to be in the middle of the rapids right now. So it's probably be a good time to not try changing rafts [Phonetic].

Matthew Clark -- Piper Sandler -- Analyst

Okay. I figured. Thank you.

Russell A. Colombo -- President and Chief Executive Officer

Okay. You're welcome.

Operator

Thank you. Our next question is from the line of Tim Coffey with Janney. Please go ahead, your line is open.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Thank you. Good morning, everybody.

Russell A. Colombo -- President and Chief Executive Officer

Good morning, Tim.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Russ, as we look at the at-risk or the loans to industries impacted by COVID, has the balances of those loans changed in the last quarter?

Russell A. Colombo -- President and Chief Executive Officer

Let's see. We have Beth Reizman on the line, who is our Chief Credit Officer. I'm going to ask Beth to answer that. I don't believe there's really been as much in a way of changes of those categories. But Beth, do you have more color for Tim?

Elizabeth H. Reizman -- Executive Vice President, Chief Credit Officer

Yes. This is Beth Reizman. No, there have not been any meaningful changes that I'm aware of at all in those categories.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Okay. And what was -- in the hospitality bucket, what types of industries are in there?

Elizabeth H. Reizman -- Executive Vice President, Chief Credit Officer

We have some hotels, some restaurants, things of that nature.

Russell A. Colombo -- President and Chief Executive Officer

Not a lot of restaurants. Tim, I will say this. If we have any restaurants, they're guaranteed. But they may -- we may have restaurants in commercial real estate that we've financed. Typically, we have guarantors with liquidity. And so it's not our practice to be doing a lot of loans directly to restaurants. That's just not an industry we have a lot of exposure to.

Elizabeth H. Reizman -- Executive Vice President, Chief Credit Officer

[Speech Overlap] Correct. And I believe our health clubs -- we have a couple of those in that industry as well.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Okay, OK. And then, Tani, do you have the amount of deposits that were tax payments since quarter end?

Tani Girton -- Executive Vice President, Chief Financial Officer

No, not specifically. We just saw leading up to tax day, some typical build and then outflows but I don't have specific numbers.

Timothy Coffey -- Janney Montgomery Scott -- Analyst

Okay. All right. The rest of my questions have been answered. Thank you.

Russell A. Colombo -- President and Chief Executive Officer

Great. Thank you, Tim.

Operator

Thank you. And our next question is from the line David Feaster with Raymond James. Please go ahead, your line is open.

David Feaster -- Raymond James -- Analyst

Hey, good morning, everybody.

Russell A. Colombo -- President and Chief Executive Officer

Good morning, David.

David Feaster -- Raymond James -- Analyst

I just wanted to ask maybe more of a strategy question. Given the evolving customer behaviors and maybe more employees working remotely, how does that change your longer-term strategy and maybe open up opportunities for additional expense rationalization or back-office space reduction? And maybe conversely, is there anything that you've identified that maybe you need to invest in further or anything like that to keep up with the evolving customer behaviors?

Russell A. Colombo -- President and Chief Executive Officer

David, that's an excellent question because we have thought about that a lot. And in our strategic planning process recently, we met and we talked about putting together a strategy and an initiative to determine whether we can implement a strategy where we have employees who are remote. And there's many benefits to that. Now we've historically never had remote employees. And frankly, it's part of our culture because we like to have our employees on-site and working together. We have our -- we have our monthly staff meeting where all our employees come together. So we really work together, and that's 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 percentage of our employees, I think, I don't know, somewhere in the 100 range -- or slightly over 100, either working at home or remotely from their normal location. So if you -- by the way, I'm working from home. I don't particularly care for it, frankly. I'd rather be in the office. But if you extend that to the future when we're past this, if we can use that strategy to attract employees where they -- maybe they don't necessarily have to be in Nevada at our headquarters or at one of our branches. It could be in -- frankly, they could be in Reno, for all we care. They're doing their work from home, and that gives us a lot of flexibility as an organization. It's certainly the technology companies have employed.

The one risk is you don't want to risk the culture of this bank. So we have to be careful about that, but we are taking a strong look at that, both from a standpoint of attracting new employees, and you're right, expense control because you don't need as much office space. And you have to balance that with 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 in this, you hopefully learn something. And I think that's what's great about our organization. We're taking advantage of the situation. Hopefully, we've learned something about our employees, about the way they work and how they work. And maybe we can do some things different in the future, which hopefully, will give us an advantage over our competitors.

David Feaster -- Raymond James -- Analyst

Yeah. It's exciting times for sure. I just wanted to get your thoughts on the organic loan growth. Obviously, we talked about the utilization declines and the payoffs and paydowns weighing on growth. But originations, we're seeing it actually stronger in the second quarter than the first quarter. I guess, where are you seeing demand for new credit? And has your credit box tightened for new originations? And then just maybe, where do you think net organic loan growth, exclusive of PPP, goes going forward?

Russell A. Colombo -- President and Chief Executive Officer

I'll make a comment, then I'm going to kick it over to Tim Myers. We've -- the one thing you mentioned about credit kind of getting tighter. We've been pretty consistent about the way we underwrite and the way we manage our relationships. And we haven't necessarily -- and obviously, we look at industries different, some industry different than we did pre-COVID. But we've been consistent about how we underwrite and the credit metrics of what we do. But as far as the new loan volume, let me ask Tim to address that.

Timothy D. Myers -- Executive Vice President, Chief Operating Officer

Of course. Thank you. As you mentioned, our year-to-date loan volume, the quarter was good, the year-to-date, it's not all that far off of where we were this time last year. And I think I attribute that to all the conversations we keep having with our borrowers. There has been some new customer acquisition in there. If I look at our pipeline today, there are some fairly large, new opportunities. To Russ's point, I don't think our credit approach has tightened or changed, but it is taking longer to vet opportunities in this environment because while we might be using the same criteria, we have to apply that criteria to a very rapidly and ever-changing situation related to COVID.

But I have been encouraged by the level of activity of our commercial bankers, as well as the consumer and construction lenders. But they're going to continue -- if you're talking about future growth beyond what's in the pipeline today, I think, by and large, it's going to come out of our existing portfolio, but we have been pleasantly surprised at a couple of points this year. So we continue to encourage everyone to reach out and do the best we can. Opening this office will help us penetrate a large and substantial market down south of San Francisco. But it's almost impossible to predict at what point you're going to get traction in light of what's going on.

Russell A. Colombo -- President and Chief Executive Officer

David, I'd add one thing to that, too. In the underwriting process, one of the important things when you're underwriting and working with new business is actually to go out and see the business and be with your clients and see how they manage their operations. To me, that's a huge part of the underwriting and understanding process. It's pretty difficult today to do that. So while we're still getting volume, it's muted somewhat because of that. Until we can actually get back to a time when we can go out and visit and meet with our clients, I think it's going to be somewhat less than we would have hoped originally.

David Feaster -- Raymond James -- Analyst

Yeah. That's a really good point. Last one for me. Just could you give us -- I just want to follow up on the deferral discussion. Just any color that you could provide? How much are 90 versus 180-day deferrals, interest-only versus full payments? And then just any initial thoughts on redeferral rates? And then maybe whether if you do go to a redeferral, whether that's going to result in a risk rating downgrade? And if you've seen any risk rating downgrades thus far?

Russell A. Colombo -- President and Chief Executive Officer

I will -- I'll ask our Chief Credit Officer, Beth Reizman, to answer that, and then I'll -- I suspect that Tim would like to probably jump in with some color on that, too. So I'll kick it over to Beth.

Elizabeth H. Reizman -- Executive Vice President, Chief Credit Officer

Okay. So our plan for the payment deferral was to provide immediate relief and not put these borrowers through an extensive underwriting process. So our standard program was 120 days of either interest-only or full deferral. It's split about 50-50 between the two. And we did not downgrade at that point in time. We are watching them just because they have asked for a deferral. But again, most of -- a large majority, payments will resume in August. So we are having discussions and already some -- as Tim had indicated previously, some have already reverted to their original payments. Others we're talking to, and we will analyze each one individually, fully underwrite and determine what's the appropriate grade if they do need further relief.

Russell A. Colombo -- President and Chief Executive Officer

And Tim, did you have some [Speech Overlap].

Elizabeth H. Reizman -- Executive Vice President, Chief Credit Officer

Tim, did you want to add anything?

Timothy D. Myers -- Executive Vice President, Chief Operating Officer

No, I think that was a great answer. As Beth mentioned, the vast majority of the payment deferrals were the 120 days versus the 90 because that was our program. I don't remember the percentage exactly. But in terms of risk rating adjustments, as Beth said, it's going to be based on these individualized conversations we're having and what the reason would be for any continued deferral requests and whether 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 would echo what Beth said.

David Feaster -- Raymond James -- Analyst

I guess with that backdrop -- I'm sorry?

Russell A. Colombo -- President and Chief Executive Officer

No, go ahead. Go ahead.

David Feaster -- Raymond James -- Analyst

I guess with that backdrop with the redeferral -- or the expiration of the initial deferral period kind of being in the next month or so, would you expect -- if the redeferral rates are relatively elevated, would you expect maybe the third quarter to be the largest reserve build of the year? Or maybe, larger than -- at least larger than the first quarter and second quarter? Or any thoughts on timing there?

Russell A. Colombo -- President and Chief Executive Officer

Yeah. Beth, do you have any comments on that?

Elizabeth H. Reizman -- Executive Vice President, Chief Credit Officer

Well, it's going to depend because in our portfolio, we generally are very well secured. Tim gave you color on the low loan to -- average loan to values, even in the what we call the sensitive industries. We also have very strong guarantors. So we anticipate that we will have some prolonged workout, but not necessarily significant losses and the reserve is to account for losses. So it kind of -- it just depends. If we had significant unsecured loans without sponsorship, my answer would be yes, but that's not the case.

Russell A. Colombo -- President and Chief Executive Officer

And David, we don't do a lot of lending unsecured. And we're, as you know, just listening to the numbers in terms of advance rates and things, we're pretty conservative on the advance rates on real estate, and we also look for sponsorship. So while I'm not -- there will be workouts as there are -- as with any bank because there, as an industry that, at this time, we thought -- everybody's anticipated by that summer, we'd have this. We'd be doing way better. But we seem to be having a 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, OK, is this -- how is it going to be affected by business? And so the real benefit for us is that we have done a really good job of collateralizing these obligations and it's not a matter of losing money on these credits, it's more a matter of just working through them and working with our clients, which is what we do historically.

I'll remind you that during the financial crisis, we actually didn't foreclose on a single property. And we worked with our clients and got the best results because we did work with them. And we had guarantors that were very strong, that could solve problems and make -- not make their problem our problem. So I think we're headed for some of that as we go forward, but it's about building -- it's about the relationships we have with our clients and working with them to -- for the best possible results.

David Feaster -- Raymond James -- Analyst

Sure. That's extremely helpful color. Thank you.

Russell A. Colombo -- President and Chief Executive Officer

Sure.

Operator

Thank you. And there are no further questions on the phone lines.

Russell A. Colombo -- President and Chief Executive Officer

Okay. If there's no other questions, I want to thank everyone for your attention this morning and for phoning in to listen. I hope everyone is healthy out there, and we look forward to speaking with you again next quarter. Hopefully, we'll be in a better position from the standpoint of the health of this nation. But in the meantime, all the best, everyone. Thank you for calling in.

Duration: 52 minutes

Call participants:

Andrea Henderson -- Director of Marketing

Russell A. Colombo -- President and Chief Executive Officer

Timothy D. Myers -- Executive Vice President, Chief Operating Officer

Tani Girton -- Executive Vice President, Chief Financial Officer

Elizabeth H. Reizman -- Executive Vice President, Chief Credit Officer

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

Jackie Bohlen -- KBW -- Analyst

Matthew Clark -- Piper Sandler -- Analyst

Timothy Coffey -- Janney Montgomery Scott -- Analyst

David Feaster -- Raymond James -- Analyst

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