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Bank Of Marin Bancorp (NASDAQ:BMRC)
Q3 2020 Earnings Call
Oct 26, 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 Third Quarter ended September 30, 2020. I am Andrea Henderson, Director of Marketing for Bank of Marin.

[Operator Instructions] This conference call is being recorded on October 26, 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, October 23, 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 you and your families are healthy and safe. We reported solid third quarter result, demonstrating Bank of Marin's disciplined risk management, the strength of our deposit franchise and capital base. And our Bank has committed to proactively working with plan to address financing needs. We and our clients have acclimated to the current environment. The vast majority of our borrowers temporarily deferred loan payments because of the pandemic have resumed normal payments.

Our overall credit quality remains excellent, before classified and non-accrual loans declining in the third quarter from the low levels that we reported a quarter earlier. Before we discuss the highlights in the quarter, I want to note that we also remain committed to our employees and community. To help address expenses and balances linked to the pandemic, we made payments of $1,200 to every employee in the third quarter, totaling $360,000, with Executive Management directing their payments to non-profit organizations at their sites. In addition, we made contributions of $360,000, to ensure equitable access to remote learning resources for underserved students in Marin, Napa and Sonoma counties as well as the City of Alameda.

Turning to our results. In the third quarter, Bank of Marin generated net income of $7.5 million, with diluted earnings per share of $0.55. Total loans held steady at $3.1 billion as we rebalance our commitment with sound underwriting with our bankers uninterrupted efforts to serve existing clients, we continue to win new bids. Total deposits decreased $207.6 million in the third quarter, $2.6 billion, primarily due to normal fluctuations in some of our large business accounts and the transfer of balances deposit network as part of our ongoing liquidity management. The average cost of deposits remained steady at 9 basis points, reflecting the low rate environment in our proven relationship banking model.

Non-interest bearing deposits represented 54% of total deposits, compared to 52% of total deposits in the second quarter. Our total risk-based capital ratio was 16.1% at September 30, well above the regulatory well-capitalized levels. Non-accrual loans totaled $1.4 million or 0.07% of the loan portfolio as of September 30, compared to $1.6 million or 0.08% in the second quarter. Classified loans increased by $2.5 million from the prior quarter to $11 million, primarily to the result of an upgrade in the risk rating for a commercial real estate loan. In light of our continuous capital base and improvements in the economic environment, on October 23, the Board of Directors approved reactivation of the $25 million share repurchase program that was suspended on March 20, 2020 as part of our early pandemic deferral.

Finally, reflecting our continued and reliable profitability, Board of Directors declared a cash dividend of $0.23 per share on October 23. This marks the 62nd consecutive quarterly dividend paid by Bank of Marin Bancorp. The dividend is payable on November 13 to shareholders of record at the close of business on November 6. In summary, our loan portfolio and balance sheet remain strong in our markets, while impacted by the pandemic are showing great interest. Our more than 30 years of managing through various cycles will help us effectively execute for our clients, communities and shareholders in the near term and position Bank of Marin for continued growth in the post-pandemic era.

Tim will now provide more detail on our loan modification program and an update on PPP.

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

Thank you, Russ. As we reported last quarter, thanks to the dedication of our committed team, the Bank successfully helped almost 2,000 companies with the funding through the SBA Paycheck Protection Program. We are now preparing to launch the forgiveness portion of the program with a secure online portal as soon as the FDA and the Treasury Department finalize their guidance on the process. And in meantime, we are in regular communication with all of these customers and look forward to helping them complete the final phase of the program.

As Russ noted, the number of borrowers in need of loan payment declined markedly in the third quarter. Only $47 million of the original $389 million in loans receiving payment relief need continued assistance as of October 19. Of these new loans, 37% are in the education industry, 33% are hospitality or tourism-related and 26% are split evenly between retail oriented commercial real estate and health clubs. It is important to note that 97% of these remaining balances are secured by real estate with loan-to-value ratios averaging 43%.

While California's wildfire season has again been challenging for many communities in Northern California, fortunately, Bank of Marin and our clients have been minimally impacted. Tani will discuss the trends in net interest margin in greater detail later. But I want to note that yields on new loan production held steady during the third quarter. The borrowed weighted average interest rate on new loans was similar to those made throughout all of 2020. While that average is approximately 50 basis points low all loans made in 2019, we are working hard to mitigate the effects of the declining rate environment.

Finally, to amplify Russ' comment, we have adapted to live amid the pandemic. We are operating business as usual in this environment. We continue to attract talent and develop strategic opportunities to expand and grow our business. And we are poised for stronger growth in coming quarter. We remain optimistic about our teams in new markets such as Walnut Creek and San Mateo while continuing to pursue growth opportunities in our more established market.

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

Tani Girton -- Executive Vice President and Chief Financial Officer

Thank you, Tim and good morning, everyone. Once again, Bank of Marin produced strong results for our shareholders in third quarter of 2020. We generated net income of $7.5 million and diluted earnings per share of $0.55. The decline in earnings per share of $0.69 from 2019 is primarily due to the economic impact of the pandemic, and the historically low interest rate environment. Because of the potential for long-term impact on the economy, 2020 forgiveness for loan process exceeded what was recorded in first nine months of 2020 by $5.1 million, however, our credit quality [indecipherable]

Net interest income was $24.6 million in the third quarter compared to $24.4 million by quarter, and $24.2 million a year ago. The increase for the prior quarter was due to [indecipherable] income and an additional based interest income in the quarter, partially offset by lower yields to non-PPP loans in the quarter.

The tax-equivalent net interest margin was 3.44% in the third quarter, 9 basis points lower than the prior quarter, and 60 basis points lower than the third quarter 2019. The year-to-date tax equivalent net interest margin was 3.53% with 44 basis points lower than 2019 due to the lower interest rate environment and SBA PPP loans. Non-accrual loans represented only 0.07% of the Bank's loan portfolio. We recorded loan loss provision totaling $1.25 million in the third quarter, and $2 million in the second quarter, primarily due to adjustments to qualitative factors related to the pandemic.

We also provided $248,000 provision for losses off balance sheet. As discussed in prior quarters, we postponed the adoption of the current expected credit loss accounting standard in accordance with the [indecipherable]. We will adopt the CECL standard as of December 31, 2020 cumulative adjustment to retained earnings in our financial statements, net of taxes, based on economic forecasts and other assumptions as of January 1, 2020. That adjustment will result in an increase to our allowance for credit losses of approximately $1.6 million and an increase to the allowance for off-balance sheet commitments of approximately $122,000.

And with this, we will also recognize the difference between the allowance for credit losses calculated under the CECL model as of December 31, 2020, and the allowance for credit losses calculated under the incurred loss model as of September 30, 2020. This difference will be recognized as a provision for credit losses and a provision for credit losses on off-balance sheet commitments, as applicable.

Non-interest income of $1.1 billion [Technical Issues] The year-over-year third quarter decrease was due largely to $544,000 benefit collected by the bank. [Technical Issues] third quarter of 2020.

The efficiency ratio of 57.82% reflect [Technical Issues] third quarter non-interest expense of [Technical Issues] and FDIC. The Bank delivered on the return of assets of 0.98%, and the return on equity is 8.37% in the third quarter. While there is no clear end to the pandemic yet, we are confident that our proven [Technical Issues] results with asset quality and reliable process.

Now I'd like to turn the call over to Russ.

Russell A. Colombo -- President and Chief Executive Officer

Thank you, Tani. I want to conclude by emphasizing that we are confident in the experience of our loan portfolio is consistently supported by disciplined underwriting, conservative loan to value ratio and personal guarantee of very low and declining classified non-accrual loans amplified this. Our exposure to the industries most affected by the pandemic is relatively small and the most clients initially impacted most have adjusted to this new climate and are again making payments as evidenced by steep decline in payment relief data that's been shared.

Of the fewer than 15 borrowers who continue to defer -- to defer loan payments we anticipate that the vast majority will work through this, and do pay. We know every single one of our clients very well. We are in close contact and helping them each of them navigate in this. In summary, Bank of Marin continue to execute on our guidance related to banking, disciplined fundamentals and community principles. These principles have served our communities and our shareholders exceptionally well for three decades. And we are confident that they will continue to do so as we weather this pandemic and position the bank for growth alongside our customers in 2021.

Thank you for your time this morning. And now we will open it up to your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] So we do have a question coming from the line of Jeff Rulis with DA Davidson. Please go ahead.

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

First question on expenses and really strategy. I think you've seen in peer banks I think with more vocal branch consolidation plans or expense management, you've run a pretty lean bank as it is, but wanted to get a sense for your strategy of sort of balancing expense management with I think you also alluded to some opportunities on reinvestment as well, so it's a broad strategic question. But then I don't know if it narrows down Tani on you've had some charitable contributions, but how does that narrow into the kind of expense run rate ahead. Thanks.

Russell A. Colombo -- President and Chief Executive Officer

Well, I'll take out a shot first and then I'll kick it over to Tani but we're very focused on expenses. And I think that what the pandemic has shown all of us is that we could, we could probably be more efficient and we can utilize this -- the opportunities to have a portion of our workforce remote and you know that that will certainly as we, as we do that it is and it's not all of it, because obviously you know, we make a living of being close to our customers and being contact with them and seeing them and all those things.

So as we go forward. We will take opportunities to utilize certain positions remotely because it's -- there's many benefits there is benefits that you can attract people who don't have to necessarily live in the area. Number two, you don't have to have real estate for that. So that can be more efficient. The other thing we're -- The other thing we're looking at is that the pandemic has in many cases foreseeable we're comfortable with technology to utilize technology and so the bridge, obviously the bridge visits aren't as great. And so we certainly every day, look at opportunities to potentially consolidate branches and things of that nature. And I think that that there's plenty of savings like that, like that.

We would if we did any of that we reallocate our workforce. We don't look at any layoffs at all, but there is always opportunity for people to be recycled brands, the brands. So that's another real opportunity for potential savings and by the way we've been looking at. We have space for many years, we've been reducing our space. Our biggest branch is Corte Madera in terms of deposits and it's about 2200 square feet, so we've been looking at keeping our branch locations very small and lower smallest location is 1400 feet in Tiburon. So that we're always looking for opportunities to keep expenses down and utilize opportunities like that. Now with potentially with remote workforce but I'll ask Tani to follow up on that.

Tani Girton -- Executive Vice President and Chief Financial Officer

Yes, thanks, Russ. So, and good morning, Jeff. I think that the charitable contributions you can see now has its own line on the financial statements because it is material, what was a material amount this quarter. We are looking at further charitable contributions in the next couple of quarters. That also balances well with lower expenses for travel and other things, because of the pandemic. So there is a little bit of trade off there. I do you know when you look at the expense base though in terms of we laid out in the earnings release, a lot of detail on the expenses, but I do think if, if you take into account that detail in the current expense base, it is pretty consistent as Russ indicated, we're pretty diligent in watching the expenses. So I think the base is still indicative of where we'll be in the future.

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

Okay. I appreciate that. And I just wanted to touch on the reactivation of the buyback, in your comments, it seems like while no end to the pandemic, but it's kind of a growing comfort or visibility. And then I guess it's indicated with the buyback language. Just in terms of all maybe Russ use of capital. It seems like that's going to be a near-term lower execution type option relative to seeking M&A. Any follow-up comments on capital use would be great.

Russell A. Colombo -- President and Chief Executive Officer

Sure. And I'll briefly comment in I'll again ask Tani do talk about capital use. We had a buyback in place and deposit back in March because it was the right thing at that point, not knowing where we are. But if we kind of call over to the credit side, when we look at our portfolio and look at how the deferments have all dropped significantly and everything is less so we know these every one of the borrowers, and frankly most of them most of the loans that are on some kind of deferrals had real estate collateral, the average is well under 15%. So we're pretty comfortable at this point that the loan portfolio is in good shape. And despite the pandemic, our customers are performing.

We have -- we don't have a big percentage of our of our portfolio in kind of what we call risk areas. So we feel comfortable with reinstating the stock repurchase plan. I'll kick it over to Tani on that.

Tani Girton -- Executive Vice President and Chief Financial Officer

Great, thanks Russ. Yeah. So we continue to have profitability and so our capital base continues to grow and we want to be sure that we are deploying our capital in the most efficient way possible and M&A continues to remain a priority and we are watching all the time and Russ is out talking to folks all the time to make sure that we're aware of any opportunities that come available as a result of the pandemic or for any other reasons and but we feel that we have sufficient capital to cover both and we run a capital plan five years forward twice a year, that takes into account all of our expected dividends and dividend growth, as well as share repurchases and potential M&A to make sure that we have sufficient capital going forward to handle all of that.

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

Thank you. Just one quick housekeeping, Tani, the increase of $1.6 million in ACL I think we can expect to see that close 31 or is it as of January 1 adjustment.

Tani Girton -- Executive Vice President and Chief Financial Officer

So that will come in on December 31 and that is the adoption adjustment that takes into account the difference between CECL and the incurred loss model as of January 1, 2020, but it will be booked in the third quarter. Additionally, I mean, in the fourth quarter. Apologies for that. In addition to that, we will be also running the CECL model on the current provision requirement in the fourth quarter. And so there will be another provision amount taken if needed to reflect the difference between CECL at 12/31 requirements, 2020 and the incurred loss model at 9/30, 2020 and we don't expect that amount to be more than 10% of the LLL the allowance for loan losses at 9/30.

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

Fair enough. Thank you.

Operator

And our next question comes from the line Matthew Clark, excuse me from Piper Sandler. Please proceed with your question.

Matthew Clark -- Piper Sandler -- Analyst

Hey, good morning.

Russell A. Colombo -- President and Chief Executive Officer

Good morning, Matt. How are you doing?

Matthew Clark -- Piper Sandler -- Analyst

On the off-balance sheet strategy, can you just touch on the rationale there, I mean your loans were flat on an end-of-period basis, but obviously your core deposits were down I think 8% or so. Just any color on the strategy there and whether or not I guess how much in the way of basis points you might have earned by pushing that off-balance sheet.

Russell A. Colombo -- President and Chief Executive Officer

I'll ask Tani to answer that question.

Tani Girton -- Executive Vice President and Chief Financial Officer

Sure. Thanks. Hi Matthew. Yeah, so we typically, we will push significant deposits off balance sheet for liquidity management if we have excess liquidity that where we're still looking at potential fluctuations in volatility and liquidity. We don't earn that much incremental. But we do earn some incremental and every basis points counts right now, because we're not earning a lot at the Fed either. So typically we will bring those back at the end of each quarter, but this quarter we decided not to do that because there is a lot of liquidity in the banking system and we were concerned that the deposit networks wouldn't be able to place it again after quarter end if we went back out with that chunk of money instead we wanted in place. So we decided just to leave it out -- leave it off balance sheet at the quarter end.

Matthew Clark -- Piper Sandler -- Analyst

Great. And then I noticed your classified numbers came down, upgraded a credit. Can you give us a sense for what the watch list did in the quarter, just knowing that it's not in that number.

Russell A. Colombo -- President and Chief Executive Officer

Let me ask -- we have our Chief Credit Officer, Beth Reizman is on the phone. So why don't I ask Beth to answer that question.

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

Hello, this is Beth Reizman. So our classified loans did go down. We have seen any loans that were on a payment relief we classified watch and so those have actually declined as the payment relief have paid off. We've had some special mention increase, but we do that anytime we feel there's a potential weakness in a credit that we do want to watch a little more closely. We don't feel that any of these credits will be moving forward a classified substandard rating.

Matthew Clark -- Piper Sandler -- Analyst

Okay, great. And then maybe just on the broader Bay Area and your thoughts there around commercial real estate activity in general.

Russell A. Colombo -- President and Chief Executive Officer

I can answer that. Commercial real estate market is certainly in question, certainly people are looking at that and seeing what's going to happen. A lot of what drives was real estate prices certainly San Francisco certainly on the Peninsula not quite as much in Marin County, but technology and certainly in the States too and we've had, we see lots of announcement from tech companies where they have decided to keep employees remote, certainly a lot of, we've said we know till the end of June. Others have said we're going to keep their remote workforce bigger remote workforce going forward.

So obviously if they push some of their real estate out and sublet that that's going to have an impact on the market. So we, it's unclear as to how much impact but it will have an impact. Now the good news for us is that we have always had very conservative approach to commercial real estate and as you see, and particularly in those and those credits that are, that we already had barrels of principal or principal and interest we had an average loan to value on those. The commercial real estate secured 41% we are in a position, while I think there's going to be impacting the gross roofing market across the Bay Area.

We are in a position now because of the way we've underwritten historically now we're going to benefit from that. People who said I suppose said from time to time that we were a bit too conservative but that's not the case. We've been rational about how we've underwritten and done a very good job has been very consistent about that. So as I look forward on the commercial real estate side I personally feel very comfortable with our position in commercial real estate and historically over our 30 years, loans that we have underwritten and not counting any loans that we've taken on from the acquisition. On commercial real estate, we've had net losses of $220,000 over 30 years. So we feel pretty good about our position there.

Matthew Clark -- Piper Sandler -- Analyst

Great. And then last one from me just on the pipeline and how that has changed maybe year-over-year or linked quarter. Are you starting to see your, some of your borrowers take advantage of opportunities or is it still too early.

Russell A. Colombo -- President and Chief Executive Officer

Let me have Tim Myers, our Chief Operating Officer, to answer that question. Tim?

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

Hi, Matthew, yeah thanks, Russ. Matthew, it is -- there is no question it's down at this point from the same period last year. Although the customers have been pretty resilient and we have some folks in new markets like San Mateo, Walnut Creek that are really doing their best in this environment to source new client acquisitions and certainly, we continue to get some activity out of our existing portfolio. So I think that you ended your question is too early to tell exactly how that plays off -- plays out. And while we love it to be higher, it has remained somewhat resilient and that's been nice to stay.

Matthew Clark -- Piper Sandler -- Analyst

Great, thanks again.

Operator

Our next question comes from the line of David Feaster with Raymond James. Please proceed with your question.

David Feaster -- Raymond James -- Analyst

Hi, good morning, everybody.

Russell A. Colombo -- President and Chief Executive Officer

Good morning, David. How are you?

David Feaster -- Raymond James -- Analyst

I just wanted to follow up on the commentary about loan pricing. I mean you're having tremendous success on pricing, you were down only 50 basis point year-over-year despite 150 basis point decline in rates. Just curious that the competitive landscape, what are yields on new loans that just where do you, what do you think differentiates you versus the peers and just being able to maintain price.

Russell A. Colombo -- President and Chief Executive Officer

I am going to ask Tim Myers to answer that but I'll make one quick comment. When you have a -- the model that we have which is relationship based and while we compete on price often, we also feel relationship where the relationship and the ability to talk to bankers worth -- is worth a lot and hopefully is worth a better price than you would get if you just went out in the market. And the fact is, historically, we've done very well with that. And while that's a good, good to say it's just that's the way we operate, our customers have a lot of loyalty and vice versa. And so that's worth some -- that's worth some pricing, how much that is who knows in an environment like as everything so low it's I guess it gets impacted quite a bit, but that's just kind of a comment about the relationship and I'll ask Tim to talk about the market in general. Tim?

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

Yeah. Thank you, Russ, thanks David. Yeah, the relationship model is really critical to that I mean we don't every deal is a competitive bid situation right now, it is a highly competitive market. And then, to be honest, I've seen rates on fairly long duration, money that I don't think I've ever seen. And so we never chase that all the way through the bottom. We do our best as Russ said to be competitive, but we try to leverage, whether it's our industry expertise or our relationship banking or combined with a Treasury management proposal about other ways that can add value to these clients prospects.

We're trying to really leverage all of that and get as much as we can. So, every one of these deals as I kind of discussion, we don't need to go there. Let's do that and that is ongoing, I expect the market to remain competitive, especially when you're choosing for your borrowers and credit per profile as we are, that's the kind of borrower that everyone wants. And so that will continue, but we will do our best to maintain those that discipline and really continue to emphasize the relationship banking model, but also what other value can the bank provide, we really are never just sitting on a loans, just for a while.

David Feaster -- Raymond James -- Analyst

Okay. That's helpful. And your --

Tani Girton -- Executive Vice President and Chief Financial Officer

Russ, can we add one point to that, and that is -- I think it's really key also that we were very proactive in lowering floors on existing loans when the pandemic began. And I think that that produces a significant amount of goodwill with our customers.

David Feaster -- Raymond James -- Analyst

Yeah. And then just kind of quick in all this together with the deposit initiatives to deploy some of the excess liquidity, the defensibility on the loan pricing side with the loan growth and just how do you think this all translates into the -- to the margin and your thoughts on the margin. When do you think we draw just any thoughts on that.

Russell A. Colombo -- President and Chief Executive Officer

Well, I mean it's hard to look forward to see rate -- rates rising. So we have the bottom you know I kind of hope. So I know I know how much lower because the problem is and we have deposits 90 basis points now. So actually I guess let's lower. And so as competitive factors yes, you continue to get push to as Tim was talking about a lot of the services is so price driven. So for the term and the price at some point you have to say this doesn't work for us and I think we're at, we're at a point now, hopefully that we're getting closer to the bottom, but competition make to do crazy things and at some point, you just have to say we can't, we can participate in that. And if we have a good relationship with our borrowers hopefully that now work that they keep the financing with us, but yeah one never knows what we say. I don't know, Tim, you had anything to add.

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

No, that's it.

Russell A. Colombo -- President and Chief Executive Officer

Okay.

Tani Girton -- Executive Vice President and Chief Financial Officer

This is Tani, if I could just add, I think it's going to be, it could go down a little, it could go up a little. It's -- I think the volatility is going to be somewhat difficult to predict because when forgiveness comes in on PPP that's going to obviously have a significant effect and to the timing of forgiveness is very hard to predict right now but when it does happen, it will, it will be a big piece.

David Feaster -- Raymond James -- Analyst

Okay. That made -- it makes a lot of sense, it's tough out there. And then the last one from me, I'm glad to hear that there hasn't been any real impact from the wildfires. Just wanted to get your thoughts on the wine industry in that portfolio. What you're seeing in there. And then just maybe to be an opportunity to potentially drive some loan growth on the other side of this as you some of those wineries come out of it.

Russell A. Colombo -- President and Chief Executive Officer

I'll make some general comments about the industry and Tim has much specific on different borrowers. You know and I talked to a lot of different wineries about the fires in you know there has been, there is a lot of wineries that have just let the drop to the ground, because the fear that their particularly if you're a high-end winery you don't want to produce something that doesn't, isn't if you're seeing there. So there's just a lot of concern now about the 2020 crop. But it's going to, what it's going to produce. So I think it's going to be a real short crop, which is a function of the fact that a lot of these other, these winery growth what you think the grapes so let them drop.

For our borrowers. In particular, we had we really -- didn't have a lot of impact of the, we have -- we had one borrower unfortunately who we sold a couple of weeks before the before the fires and the buyer, the buyer. And then the winery burn and the new buyer only for maybe two weeks we weren't financing the new buyer, but quite unfortunate set of circumstances, that's for sure, but most of our other wineries came out of this pretty, pretty well and I think Tim has got some more specifics on that, but so, Tim.

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

Yeah, David, I think as Russ said, we, our clients. First and foremost and us dodged a bullet was these fires. But a lot of the negative have been offset by positive in areas in different areas with both the pandemic and fire-related, so as Russ mentioned the fires are certainly affecting the yield on this year's crop. But if you talk about the bulk wine market that's going to help support prices because in certain categories, certain geographies that have been a real blot, so as a lot of our wineries relying on the direct to consumer they've done a really good job on that. They starting to recover from the tasting rooms activity, I think, it remains to be seen how tourism fluctuates or visitation till wineries related to invest around the fires plays out over time.

But in general at these different movements of prices, great prices of wine prices you could really see some clients to be able to work through from excess inventory that because this year's production is lower, so we really have, we had a scenario where there have been positive to offset the negative. Not that there has been any shortage of those but overall, they've been very resilient.

Russell A. Colombo -- President and Chief Executive Officer

Yeah. I'd add to that, David, I'd just add that the wineries a lot of the wineries are using this as an opportunity to reduce release inventories that Tim said. This is a time to rationalize inventories. And then, and then in terms of pricing going forward for the '21 and '22 going forward because you reduced inventories you not having the move never be before winery doesn't able to move all their inventories. Then you see discounting, things like that. So this is a real I don't think it's a good opportunity, but an opportunity to do that.

David Feaster -- Raymond James -- Analyst

That makes sense. All right, thanks, everybody.

Russell A. Colombo -- President and Chief Executive Officer

Okay, thanks David.

Operator

And our next question comes from the line of Tim Coffey with Janney. Please proceed with your question.

Tim Coffey -- Janney -- Analyst

Great. So thanks everybody, and thank you for hosting this conference call. Yeah just driving down with the commercial real estate question. So we are seeing a bit of an air pocket in terms of investment does that imply that your loan originations are kind of going to be around the $50 million level going forward.

Russell A. Colombo -- President and Chief Executive Officer

Going to be -- I'm sorry, say that again, I'm not sure I understand, you mean a $50 million pocket.

Tim Coffey -- Janney -- Analyst

Sure. So there is a slower growth in and real commercial real estate investing right now, obviously. Does that mean that your loan originations on a quarterly basis are going to be kind of this low level.

Russell A. Colombo -- President and Chief Executive Officer

Okay. Tim, why don't you have that?

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

Yeah. Of course, thanks, Tim. That's really hard to predict. And a lot of it bank our size as timing of opportunities, we are pursuing a number of opportunities. Do I think it's going to vary wildly or increase wildly from that in the immediate near term that's hard to predict, but I guess the short answer Tim is, I don't know about a normalized number, but we are actively seeking to grow. The pipeline in the closed deals to increase that. But I wouldn't be surprised if it went up, but the timing is things are very delay these days. Timing is hard to predict. And so, quarter-by-quarter that some of these deals have a long lead time now.

Russell A. Colombo -- President and Chief Executive Officer

Tim, what I would -- I would, I would add that it's a time we also have to be pretty careful for the reasons that I mentioned prior, which is we don't know what the valuations. First, we will say around the Bay Area. We're going to do because of as we get through this pandemic we have to see how companies are going to react going forward to remote workforces and things of that nature and the real estate, which were you know the city was just red hot in terms of the commercial real estate activity prior to the pandemic. Now you go downtown and so much going on.

So will that continue, will continue at some level, it will clearly have an impact on prices. So if we're financing based -- we have to, we have to be pretty careful about about advance rates and valuation.

Tim Coffey -- Janney -- Analyst

Right, OK. No, that's helpful. And then Tani, a comment you just made about PPP loans. Have you started the forgiveness process with any of your borrowers yet.

Tani Girton -- Executive Vice President and Chief Financial Officer

I'm going to let Tim answer that question actually.

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

Sure. Thanks, Tani. Tim, we we are in our second round of beta testing. So we really have been waiting for as much finalization of the interim final rules as possible particularly minimum almost automatic forgiveness sizes, final rules or guidance on payroll calculations, timing of payroll calculation. There has been some other forms to introduce that takes some time to get set up with our technology platform provider for that. So we have really been waiting to find out really how this all gets resolved, but we are really ready to go and have been beta testing, like I said and are hoping to get that guidance and start with.

Tim Coffey -- Janney -- Analyst

Okay. I think it is your expectation. You'll have some of them submitted by the, by year-end.

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

We certainly hope so. Again that minimum or easier forgiveness group, for example, currently, it's a 50,000 or less. Right. But discussions in Washington have included iterations of 150,000 or less some higher so what we just did reluctant to do is start going through that process, potentially some it doesn't get all their loan forgiven and then find out ultimately would have automatically been forgiven for the process altered and that's what we're trying to avoid. So, while I don't want to pretend to predict timing of resolution of these talks in Congress. We are going to try to wait, but we are, we would certainly be helpful to get for that a lot of that to happen by year-end, if possible.

Tim Coffey -- Janney -- Analyst

Okay. No, that's helpful. Tim, thank you. All right. Those are my questions have been asked and answered. Thank you.

Russell A. Colombo -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Jackie Bohlen with KBW. Please proceed with your question.

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

Hi, good morning everyone.

Russell A. Colombo -- President and Chief Executive Officer

Good morning, Jackie.

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

I wanted to touch on fees. I know last quarter when we spoke, you discussed about waving, a lot of those still. I just wanted to see if that what you plan to do through the end of the pandemic, or if we might see a little bit of a rebound before that happens.

Russell A. Colombo -- President and Chief Executive Officer

You're talking about the fees customer fees and as opposed to not the fees that we're getting from the PPP program. Correct?

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

No, no. Customer-related fees that are booked.

Russell A. Colombo -- President and Chief Executive Officer

Yeah, Tim, why don't you jump in about?

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

Yeah, hi, good morning. Jackie, I'm really what we're trying to do is continue to provide support to our customers during this time. And I think the short answer to your question is, we're going to continue to watch and see how that plays out. Certainly as soon as we feel like it's prudent to do that without causing undue harm on borrowers who are already doing with the difficult time will revert back to being fair to the bank as well.

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

Okay. Thank you for the update and then, and I realize this is challenging in light of the environment, but just thinking about balance sheet liquidity. You had the proactive actions that you took at 9/30 to keep some of that off balance sheet. But how are you -- what is, what the customer behavior look like so far in the quarter in terms of balance fluctuations and are there any either outflows are inflows that you might be expecting in the fourth quarter.

Russell A. Colombo -- President and Chief Executive Officer

Tim?

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

Yeah. It's really a mixed bag, Jack, I mean, we certainly have some deposit that resulted from PPP findings that paid down lines left the Bank to pay other people we have some large accounts that fluctuate fairly dramatically month to month that those ins and outs obviously are usual exclusive, meaning they might have money large sums going out the loan purpose, and there are some going in for other purposes and so it is really hard to predict. We do have some seasonality to that a little bit, but by and large, we have a lot of debt being paid down. That's been one of our larger loan payoffs categories year-to-date this year compared to the year, prior years people are very conservative and I would expect of that to continue certainly partly why our loan utilization is down a little bit on the revolving credit.

So I think you'll continue to see some of that behavior with slow growth and conservative minded environment. So that is hard to predict a little bit. Does that answer your question?

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

Yes, yes, it does. Thank you. That's helpful. And then my last one is a little housekeeping item. In terms of the CECL adjustment. Does that all the -- and I understand about the the $1.6 million. But for the transfer from CECL from the incurred loss model that one quarter difference there is that going to flow through the fourth quarter's provision expense or is it potentially results in any sort of a recast the restatement of prior quarters expense.

Tani Girton -- Executive Vice President and Chief Financial Officer

That will flow through the -- yeah, that will flow through the fourth quarter provision expense.

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

Okay, great. Thanks, Tani. And thank you everyone.

Russell A. Colombo -- President and Chief Executive Officer

Thank you, Jackie.

Operator

Thank you. And there are no further questions at this time.

Russell A. Colombo -- President and Chief Executive Officer

Okay. Well, I thank everyone for your attendance this morning and we look forward to talking to you again next quarter at the end of the year as we cover the year-end results. So thank you again for your time.

Duration: 51 minutes

Call participants:

Andrea Henderson -- Director of Marketing

Russell A. Colombo -- President and Chief Executive Officer

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

Tani Girton -- Executive Vice President and Chief Financial Officer

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

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

Matthew Clark -- Piper Sandler -- Analyst

David Feaster -- Raymond James -- Analyst

Tim Coffey -- Janney -- Analyst

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

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