Earnings Call Transcript
Bank of Marin Bancorp (BMRC)
Earnings Call Transcript - BMRC Q2 2020
Operator, Operator
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. During the presentation, all participants will be in a listen-only mode. 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 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.
Russ Colombo, President and CEO
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 life, 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 commitments, 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 1800 local small businesses and nearly 28,000 employees. These loans will aid many of our customers in bridging the gap through economic recovery. We also implemented a 120-day loan modification program for borrowers with hardship requests. As of July 10, the bank had approved 260 loan modifications exceeding $386 million. As that problem moves towards maturity in August, we continue to have active discussions with our customers about loan modification and will be able to provide more detail next quarter. Although many of our employees continue to work from home, our branches are open and enhanced with safety protocols. 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 with less vulnerability relative to the bigger banks. 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. 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 nine 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 we're still down relative to the first quarter of 2019. The full impact of the 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 07, 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 Meyers, 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, planning, standing small business, 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 region.
Tim Myers, Executive Vice President and Chief Operating Officer
Thank you, Russ. The bank's execution of PPP is a testament to our dedication to meeting our customer’s 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 1800 loans, totaling over $300 million. We committed to focusing on smaller 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 that there were 178 non-profit organizations, ranging from education to health and human services that received $57 million, which helped protect payroll for over 6000 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 was 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 continue to work with customers that need 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 timeframe, this 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 impact 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 Myers 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. 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 and 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. The 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 in fees on PPP loans negatively impacted the net interest margin by three 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 margins 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 release 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 security 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 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.
Russ Colombo, President and CEO
Thank you, Tani. We will continue to address both the impact and the unique challenges created by the pandemic. We enter the second half of 2020 with a strong capital position, a high-quality loan portfolio, and a 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.
Jeff Rulis, Analyst
Thanks. Good morning.
Russ Colombo, President and CEO
Good morning, Jeff.
Jeff Rulis, Analyst
I would like to hear more about your recent decisions. You mentioned lowering some interest rate floors and waiving certain fees. Regarding the first point, can you discuss the impact on margins? Going forward, will you approach this on a case-by-case basis, or do you expect the trend of lowering floors to slow down or stop? How might this influence your margins?
Russ Colombo, President and CEO
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.
Tim Myers, Executive Vice President and Chief Operating Officer
Yes, thank you, Russ. Hi, Jeff. Yes, we are reviewing those case by case. Going forward, a lot of these are our lines of credit with renewals mostly on an annual basis. So those terms for us are going to be naturally adjusted from where they were done one or two years ago. So we'll continue to see some impact of that, but I have not quantified that. Tani?
Tani Girton, Executive Vice President and Chief Financial Officer
Yes, 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 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.
Jeff Rulis, Analyst
Okay, thanks. And I guess on a related front on the service charges, and maybe is it safe to assume that a lot of the waving of those fees upfront was at the front end of this and then going forward, you might see some resumption or some growth in the fee income lines?
Russ Colombo, President and CEO
Hey Jeff, this is Russ. Yes, at some point, we are trying to be mindful of our customers' needs and the challenges everyone is facing right now. Obviously, we're waiting to see how things unfold. But that doesn’t mean this situation will last indefinitely. Once we return to a semblance of normalcy, although no one knows when or what that will look like, and businesses can resume typical activities, we’ll make adjustments accordingly. For now, we are doing this to support our clients during this very challenging time.
Jeff Rulis, Analyst
Sure. I have one last question, possibly for Tim. I'm curious about the sentiment among some borrowers, particularly those who have shown activity leading to reduced line utilization. Can you provide any insights into the behaviors you're observing?
Russ Colombo, President and CEO
Yes, I think, Jeff, 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 paid down lines of credit. We are seeing people in some cases sell out 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 increase usage on lines of credit. But overall, generally speaking, great applications of cash to loans outstanding.
Tim Myers, Executive Vice President and Chief Operating Officer
Jeff, I will add one thing to that. When this crisis began, there were some borrowers who actually just drew 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.
Jeff Rulis, Analyst
Right. Okay, well, thank you.
Tim Myers, Executive Vice President and Chief Operating Officer
Sure.
Jackie Bohlen, Analyst
Hi, good morning, everyone.
Russ Colombo, President and CEO
Good morning, Jackie.
Jackie Bohlen, Analyst
I realized this is a challenging question. I'm so just curious on your thoughts and expectations related to the balance sheet size. Obviously, there's a lot of different things at play here. But I'm wondering, a couple of things. Number one, how you're modeling the pay-off of PPP loans? And number two, how you expect on funding and deposit to flow around that?
Russ Colombo, President and CEO
I will, I'll ask Tani to answer the question on the modeling of the PPP loans, which we, frankly, we expect mostly a big portion of that. Maybe all of it to be forgiven, but I'll give it to Tani.
Tani Girton, Executive Vice President and Chief Financial Officer
Well, that’s exactly right, Russ. On 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 gets forgiven. So was there another question there that I missed?
Jackie Bohlen, Analyst
And how were your deposit flows?
Tani Girton, Executive Vice President and Chief Financial Officer
Yes. So, the deposit flows are going out slower than we originally expected. When we had significant deposit inflows associated with PPP loan borrowers, but it is starting to pick up a little bit now. Again, we expect those flows to go out to be sort of consistent with the forgiveness timing, as we expect those funds to be utilized in order to get the forgiveness.
Jackie Bohlen, Analyst
Okay. And are there 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 and Chief Financial Officer
Yes, there is excess liquidity separate from the PPP. I'm not sure how long that will last. We did see some outflows recently related to tax day. There was some buildup around that, but overall, there is increased liquidity in the banking system, which seems to be contributing to our cash position as well.
Jackie Bohlen, Analyst
Okay. Okay. Thank you. And just one more for me and then I’ll step back. So in terms of the San Mateo office that you'll be opening on, 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?
Russ Colombo, President and CEO
Sure, Jackie, Tim Myers is the person that was responsible for that office. So I'm going to ask Tim to answer that question for you.
Tim Myers, Executive Vice President and 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 year. I think what we were initially forecasting, while we're by way of growth expectation that we have to review in this environment. So I'm not comfortable saying long-term growth objectives. But I would expect over time we have at least one or two other commercial banking officers will probably support that from a cash management standpoint from our other regions with a very strong cash management team that's able to do that. I don't expect a great deal more by way of expenses beyond what Tani's has already accounted for, thus far.
Jackie Bohlen, Analyst
Okay.
Russ Colombo, President and CEO
And Jackie, I just add one thing. You know, opening San Mateo 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 will be focusing on that. In addition to the rest of the Peninsula, but our whole intention is to get, to establish established banking offices and serve the entire Bay Area. This is the step.
Jackie Bohlen, Analyst
Okay. And is this a reflection of renewed focus in the area say, I know this is geographically new for you, is it? 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?
Russ Colombo, President and CEO
We had plans to open an office on the Peninsula. The key to opening an office is finding the right people, and we were able to identify Jake and one other person for that office, as well as find a location in San Mateo. We proceeded with it, and this is a great time to open offices given the pandemic. We had the opportunity, and the person was available, which we saw as a great hire. We’re very excited about the opportunities for us and for this office.
Jackie Bohlen, Analyst
Okay, great. Thanks for the added color. Thank you.
Russ Colombo, President and CEO
Thank you.
Matthew Clark, Analyst
Hi. Good morning.
Russ Colombo, President and CEO
Good morning.
Tani Girton, Executive Vice President and Chief Financial Officer
Good morning.
Matthew Clark, Analyst
Maybe first on the deferrals. As you kind of go through the process with your customers and talking with them. Just what's your sense, come next month? How much of that might return to normal payments? Do you have any guesstimate or order of magnitude?
Russ Colombo, President and CEO
I will start by sharing some insights, then I'll pass it to Tim. Our commercial banking team has been reaching out to various customers to gauge their current situation. The responses vary significantly by industry. Some sectors are performing better than anticipated, while others are still facing challenges. I anticipate that we will experience some deferrals, and there will be cases where customers transition from interest-only payments back to their regular payment schedules. It's difficult to predict at this moment, but Tim may have additional thoughts on this.
Tim Myers, Executive Vice President and Chief Operating Officer
No. I think, Russ, I think that's exactly right. 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 referrals very early on that expected to be impacted were not and resumed payments almost right away. I think it's still a little bit murky in terms of the outlook to make any kind of quantification or forecasts on that. But we will continue to talk to our customers and figure out the best way going forward. We do have, as 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, Analyst
Okay. Can you share your experience with the forgiveness process with the SBA regarding the PPP? That $1.7 million in PPP net interest income, was that just accruals over a short period, assuming everything will be forgiven by year-end? Or was that actual revenue received from the SBA?
Russ Colombo, President and CEO
I may ask Tani to answer that because I think it's kind of an accounting question. Let’s Tani go ahead.
Tani Girton, Executive Vice President and Chief Financial Officer
Yes. So on the PPP loans, right now, we are amortizing the fee income that hasn't been received already from the SBA over the contractual 24 months 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, 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?
Russ Colombo, President and CEO
Tani?
Tani Girton, Executive Vice President and Chief Financial Officer
Yes. I think it's somewhere between 2.5% and 3%.
Matthew Clark, Analyst
Okay, assuming you receive the majority of the PPP fees in the second half of the year, what is your ability to allocate some of that into your reserves? Do you anticipate a significant portion of that impacting the bottom line?
Russ Colombo, President and CEO
Actually, we're still evaluating what that's going to be used for. Certainly reserves are one thing. There are opportunities to potentially help people within our communities with some of that without coming to income. 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, 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?
Russ Colombo, President and CEO
Tani?
Tani Girton, Executive Vice President and Chief Financial Officer
So I think going forward, yes, you see $890,000 that was included this quarter. Those were origination costs deferred. So that won't repeat. Other than that, though I'd say that the expenses are pretty indicative of where we're going in the future.
Russ Colombo, President and CEO
Sure. You’re welcome.
Tim Coffey, Analyst
Thank you. Good morning, everybody.
Russ Colombo, President and CEO
Good morning, Tim.
Tim Coffey, Analyst
Russ, if 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?
Russ Colombo, President and CEO
No. 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 in those categories. But Beth, do you have more color for Tim?
Beth Reizman, 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.
Tim Coffey, Analyst
Okay. What types of industries are included in that hospitality category?
Beth Reizman, Chief Credit Officer
We have some hotels, some restaurants, things of that nature.
Russ Colombo, President and CEO
Not only restaurants, I mean, Tim, I would say, if we have any restaurants, they're guaranteed. But they may have restaurants in commercial real estate that we finance. Typically, we’re doing a lot of loans directly to restaurants. That's just not an industry we have a lot of exposure to.
Beth Reizman, Chief Credit Officer
Correct. And I believe our health clubs. We have a couple of those in that industry as well.
Tim Coffey, Analyst
Okay. And then, Tani, do you have the amount of deposits that were tax payments since quarter end?
Tani Girton, Executive Vice President and Chief Financial Officer
No, not specifically. We just saw leading up to tax day, some typical builds and then outflows, but I don't have specific numbers.
Tim Coffey, Analyst
Okay. The rest of my questions have been answered. Thank you.
Russ Colombo, President and CEO
Thank you, Tim.
David Feaster, Analyst
Good morning, everybody.
Russ Colombo, President and CEO
Good morning, David.
David Feaster, Analyst
I just wanted to ask maybe more of a strategy question. I mean, given the evolving customer behaviors and maybe more employees work remotely. How has that changed longer-term strategy? And maybe open up opportunities for additional expense rationalization or back office space reduction? And maybe conversely, I mean, is there anything that's you've identified that maybe you need to invest in further or anything like that to keep up with the evolving customer behavior?
Russ Colombo, President and CEO
That's a great question, David. We have been considering this extensively. Recently, during our strategic planning process, we discussed the potential of implementing a strategy that allows for remote employees, which offers many advantages. Historically, we have not had remote employees as our culture emphasizes having staff on site where they can work closely together, particularly during our monthly staff meetings that foster relationship building. However, there's a chance to leverage what we've learned from this experience. A significant portion of our workforce, over 100 employees, are currently working from home or remotely. Personally, I am also working from home and would prefer being in the office. Looking ahead, when things return to normal, if we could attract employees without requiring them to be in Nevada, it could provide us with considerable flexibility. Many tech companies have adopted this approach. Nonetheless, we must be cautious not to jeopardize the culture of our bank. We're carefully evaluating this, considering both employee attraction and cost management since less office space may be needed. It's a complex issue. During challenging times like this, we hope to gain insights about our employees and their work styles, which may lead us to make beneficial changes in the future, potentially giving us a competitive edge.
David Feaster, Analyst
Yes. It's exciting times, for sure. I just want 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 that actually stronger in the second quarter than the first quarters. 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?
Russ Colombo, President and CEO
I'll make a comment and then turn it over to Tim Myers. You mentioned that credit has become tighter. We've been consistent in our underwriting approach and in managing our relationships. We assess different industries in a way that is distinct from our pre-COVID practices. However, our underwriting methods and credit metrics have remained the same. Now, I'll ask Tim to provide insight on the new loan volume.
Tim Myers, Executive Vice President and Chief Operating Officer
Thank you. As you noted, our year-to-date loan volume for the quarter has been strong and is not too different from where we were at this time last year. I attribute this to our ongoing discussions with borrowers, which have led to some new customer acquisitions. Looking at our current pipeline, there are several significant new opportunities. I agree with Russ that our credit approach has not become stricter or changed; however, it's taking longer to capitalize on these opportunities in the current environment. Although we are using the same criteria, we must apply it to a rapidly changing situation due to COVID. I am encouraged by the activity we’re seeing from our commercial bankers as well as consumer and construction lenders. For future growth beyond what we currently have in the pipeline, I believe it will primarily come from our existing portfolio. This year, we have been pleasantly surprised on a few occasions. We continue to encourage everyone to reach out and do their best. Opening this new office will enable us to reach a significant market south of San Francisco, but predicting how and when we will gain traction amidst these circumstances is quite challenging.
David Feaster, Analyst
Got it.
Russ Colombo, President and CEO
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 businesses is to actually go out and see the business and be with your clients and see how they manage their operation. 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, Analyst
Yes, that's a really good point. I would like to follow up on the deferral discussion. Can you provide any details on the differences between 90-day and 180-day deferrals, interest-only versus full payments? Additionally, I would like to hear your initial thoughts on re-deferral rates and whether a re-deferral could lead to a downgrade in risk ratings. Have you observed any risk rating downgrades so far?
Russ Colombo, President and CEO
I will ask Beth Reizman to answer that. I suspect that Tim would probably like to provide some insights as well. So, I'll turn it over to Beth.
Beth Reizman, 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. Our standard program was 120 days of either interest-only or full deferral. It split about 50/50 between the two. We did not downgrade at that point in time. We are watching them just because they have asked for a deferral. But again, the large majority payments will resume in August. So we are having discussions and already some estimate indicated previously, some have already reverted to their original payments. Others we are talking to. We will analyze each one individually, fully underwrite and determine what's the appropriate grade if they do need further relief.
Russ Colombo, President and CEO
Tim, did you…
Tim Myers, Executive Vice President and Chief Operating Officer
Well, I think that was a great answer. As Beth mentioned, the vast majority of the payment deferrals were 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 request. And whether, it has a longer more meaningful impact on what's going on, the nature of their business, and our related credit structure. So I would echo what Beth said. Again, with that backdrop.
Russ Colombo, President and CEO
That was good, Tim. I'm sorry.
Beth Reizman, Chief Credit Officer
I just wanted to add one more thing. Because of our strong sponsorships and security, we really anticipate that we won't be downgraded as much with these loans.
Russ Colombo, President and CEO
I agree.
David Feaster, Analyst
Correct. That's extremely helpful color. Thank you.
Russ Colombo, President and CEO
Sure.
Operator, Operator
Thank you. And there are no further questions on the phone line.
Russ Colombo, President and CEO
Okay. If there's no other questions, I want to thank everyone for your attention this morning and for calling in to listen. I hope everyone is healthy out there. 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 to everyone. Thank you for calling in.