Good morning and thank you for joining the Bank of Marin Bancorp’s Earnings Call for the First Quarter Ended March 31, 2020. I am Andrea Henderson, Director of Marketing for Bank of Marin. During the presentation all participants will be in a listen-only model. [Operator Instructions] As a reminder, this conference is being recorded on April 20, 2020. Joining us on the call today are Russ Colombo, President and CEO; 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, April 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 and Tani along with Chief Credit Officer, Beth Reizman; and Tim Myers, Head of Commercial Banking will be available to answer your question. And now, I’d like to turn the call over to Russ Colombo.

Thank you, Andrea. Good morning and welcome to the call. Before we begin, I hope everyone is healthy and safe. I especially want to express my gratitude to essential workers who continue to provide much needed resources to local communities in Northern California and across the nation. As you know, the world has changed dramatically and the situation remains very challenging. Fortunately, Bank of Marin is well capitalized, and we have ample liquidity and resources to help our clients manage through these trying times. We are participating in the small business administration paycheck protection program, which provides low interest loans to small businesses to cover payroll expenses and other overhead costs. To date, we have received approximately 1,300 applications for an estimated total of $350 million. We were able to submit and receive SBA approval for a meaningful portion of those applications prior to the SBA’s suspension of the program. We continue to process customer applications internally and remain poised to submit them for approval as soon as the program is restarted. In an effort to ease the financial burden on our customers, we are waiving all ATM and overdraft fees, and cancelling early withdrawal penalties for CDs when allowed by law. We are also providing 120 days of payment relief to borrowers with hardship requests and have reduced interest rate floors on prime-based business loans. As of April 14, we have received approximately $322 million in loan relief requests or conversion to interest only or payment deferral. 93% are secured by real estate with loan-to-value ratios averaging less than 45%, and 129 million are linked to industries mostly impacted by California’s shelter-in-place order. Our loan portfolio exposure to the most affected industries includes 10.4% retail properties and businesses, 4.6% wine-related, and 2.7% hospitality. Transportation, dental, recreation, and entertainment combined…

Thank you, Russ, and good morning everyone. As Russ noted, we generated $7.2 million in net income and diluted earnings per share of $0.53 in the first quarter of 2020 compared to 9.1 million and $0.66 respectively in the prior quarter. Net interest income totaled 24.1 million in the first quarter compared to 23.9 million in the prior quarter. Despite lower loan yields and one less day in the quarter, net interest income exceeded that of the fourth quarter 2019, due to a larger earning asset base, accelerated accretion on a called investment security, and money market deposit rate reduction. The tax-equivalent net interest margin was 3.88% in the first quarter compared to 3.82% in the prior quarter. Accelerated accretion on the called investment security added 7 basis points to the first quarter margin. We have postponed the adoption of the current expected credit loss accounting standard or CECL in accordance with the accounting release provision in the CARES Act that allows banks to delay implementation until the end of the national emergency or December 31, whichever occurs first. We recorded a $2.2 million loan loss provision in the first quarter under the incurred loss model. This was unusual for Bank of Marin and up from 500,000 the previous quarter reflecting adjustments to qualitative factors for the economic uncertainties raised by the COVID-19 pandemic. Non-interest income was 3.1 million in the first quarter of 2020, an increase from 2.3 million in the prior quarter primarily due to 800,000 in gains on sale of investment security. The first quarter typically includes some seasonal expenses and this year was no exception. Non-interest expense totaled 15.5 million, compared to 13.3 million in the prior quarter. The increase was primarily due to 1.7 million higher salary and benefit expenses related to January resets of 401K matching and payroll taxes, 2019 bonus accrual true-ups, 401K matching on bonus payments, and stock-based compensation which included 388,000 for participants meeting retirement eligibility criteria. Other increases included four additional full-time equivalent staff and $102,000 provision for off-balance sheet commitments. The Bank delivered a return on assets of 1.09% and a return on equity of 8.54% in the first quarter of 2020. We are pleased with our continued profitability and prepared to leverage our operating strength in support of our customers during the COVID-19 crisis. Now, Russ would like to share some closing comments with you.

Thank you, Tani. No one can predict the length and severity of the pandemic or the extent of its impact on our lives and local economy. However, Bank of Marin has a strong capital position, a high quality loan portfolio with excellent credit metrics, and a low-cost deposit base. For more than 30 years these factors have allowed us to support our customers and communities in good times and bad. We will navigate through the crisis in the same way together. Before we open it for questions, I wanted to provide our latest numbers for the Paycheck Protection Program. Bank of Marin has collected over 1,300 applications since the program launched closing more than $350 million. We processed close to 250 loans before the SBA stopped accepting applications, most of which will fund today. Now, we will open up the line for questions.

[Operator Instructions] Your first question is from the line of Jeff Rulis with D.A. Davidson. Please go ahead.

Thanks, good morning.

Good morning, Jeff.

Good morning.

I guess – thanks for the detail on sort of the portfolio exposure in those categories. I guess the wine-related business is maybe a little more unique to you and others, I guess. Could you walk through just the segment kind of those operations that can continue or cannot within the wine industry and what’s your kind of view on how that industry progresses?

Sure, I’d be happy to. It’s kind of interesting because depending upon the winery, you know, there’s still – part of their business is still going fine because its wine clubs, it’s direct shipments to wine club members, it’s sale to grocery stores and things like that who are still in business. The part of the business that’s just not – nothing is happening, it is of course tasting room sales, and you know, on-premise type sales, which is, you know, bars and restaurants and things like that. So that’s off obviously 100% [indiscernible]. You know, we – the wineries we – we have a number of wineries and we have wine-related businesses. They’re certainly off significantly and most of them have applied for PPP because they're off and they’ve had – you know their sales are off, and I feel pretty good about that one. Once we get back to whatever the new normal is, once restaurants open again, those wineries are going to be back in business, back to 100%. So, it is unique, but it's not completely zero. And, you know, eventually tourists will come back to the wine country and start visiting the winery and the tasting rooms, but in the meantime, this is – that part of the business is the struggling, that's for sure.

Right. And I know there is a figure there Russ about, you know, of that 4.7, is there – you know a quarter of it is direct shipments or have you thought of it in that – like what portion is on premise or, you know, real hospitality or kind of direct retail?

You know every business – every winery is different, but, you know, maybe I can ask Beth Reizman, our Chief Credit Officer who is on the line and she may have more specifics on that. Beth?

No, actually many of our clients have all facets of the business where they ship direct; they have a wine tasting room, etcetera. So, we haven’t really broken it down specifically to ones that are just typically wholesale or direct-to-consumer, but I think they all – most of them have an aspect of each part that Russ mentioned in their business.

Okay, thank you. Maybe shifting gears to the fee income side, you mentioned the waiving of fees; I guess the first part of that question is what impact did you see in the first quarter of waiving your fees or if that came very late and didn't see much impact and so that translates to – you know the outlook on fee income expecting maybe investment gains that you booked in the quarter to stop?

Yes, I’ll answer it, and I’ll ask Tani to jump in. You know the impact is minimal in the first quarter because it was towards the end of the quarter that that was all put in place, so there’s not going to be a lot in the first quarter. Second quarter certainly will have an impact on earnings. As you know, we are – you know our fee income relative to our net interest margin spread is relatively small, so it’s not going to have a big an impact I think as others might, but you know, so – but it’s the right thing to do at this point in time, so we have no problem making those changes. But Tani, did you want to make any comments in terms of the gains on sales?

Yes, in terms of the gain on sale, what we sold were some shorter duration mortgage-backed securities that we felt as we were approaching the interest rate cuts or the stressed environment were subjected to higher prepayment risk, and so their duration would shorten even further, and we were able to sell those at a gain and then redeploy much of those funds into longer duration, high credit quality municipal securities, which we did; and that helped the yield on the portfolio and also protects the Bank from interest rate risk in this lower interest rate environment.

And any thoughts on further security sales or you just kind of took a pretty good chunk of it in the quarter?

Yes, that was an opportunity that we saw at that point in the quarter. Right now, we’re not looking at anything in particular. We have plenty of liquidity to support the PPP and other programs that we’re running right now, and you know the PPP LF, the liquidity facility is out there if we want to generate funds. So, we won't be selling securities just for liquidity purposes. If we do see opportunities or -- we also keep a very close eye on the credit quality of the portfolio, so if we anticipate some sort of credit issues, then we might sell one or two as those come out, but in general we have a very high credit quality portfolio and don't do too much of that activity.

Okay, great. Thank you all. I’ll step back.

Thanks, Jeff.

And your next question comes from the line of Matthew Clark with Piper Sandler. Please go ahead.

Hi, good morning.

Good morning.

On the reserve build this quarter, knowing you guys delayed CECL, were you able to kind of consider the subsequent deterioration in the overall economy here in April or was it really as of 3/31? I guess what I'm getting at is whether or not we might see some additional reserve build here at least in the near term?

Yes, good question. I’m going to ask our Chief Credit Officer, Beth Reizman, to answer that question.

So, we use our incurred loss model, which is the existing model that we’re using prior to the conversion of CECL. So we looked at where we were as of 3/31. However, there was already deterioration definitely in the market. We had, as Russ had indicated, numerous clients request payment relief, so for that reason we adjusted our economic factors. That said, if there’s continued deterioration, we will take that into account in June, especially whichever model we’re under.

Okay. And then, as you kind of dig deeper on the exposure that you have that are most at risk in this environment, have you run a stress test internally to try to get a sense for what the potential loss content could be if this environment phase, you know, if it sticks around for another three months or so?

Again, I’ll ask Beth to answer that question.

So, as we stress our real estate portfolio annually and I’d say you have numbers as far as clients that requested payment relief, they’re indicative of our portfolio. The average LTV was less than 45%. So, we are looking at clients on a case-by-case basis if there’s a request or if they’re experiencing financial difficulty, but the overall portfolio is very well secured and we are a relationship bank and our credit generally have very strong sponsorship behind them as well in the form of guarantees.

Okay, great.

I’ll just add to it – Matthew, I’ll just add to that, you know, one of the hallmarks of our portfolio is the low loan-to-value that Beth mentioned on our real estate and the – you know we have quite a bit of our portfolio secured by the real estate, low loan-to-value guarantors and liquidity and I will just say that if you look back to the last recession, we came through that really well because our borrowers have a commitment to those property, and when there was a problem, they fixed the problem as opposed to the bank inheriting the problem, and I think that continues to be the case. As Beth mentioned, you know, 45% loan-to-value on our – on the portfolio of the stress – you know those that we gave loan modifications to is indicative of the strength of that part of the portfolio and the strength of the total portfolio because that’s the portion that asked for help, the rest did not. So, I’m feeling very good about it going forward. Of course, everyone is going to have problem depending upon how long this goes on, you know, the problems will intensify I’m sure, but I'm feeling pretty good about the position we’re in and our ability to write out this crisis.

Russ, may I add a comment to that?

Sure.

So, I do want to emphasize that $2.2 million is a very large provision for Bank of Marin and even in the incurred loss model, as Beth said, there is a projection, not a projection, but a factor in the qualitative factors for the unknown associated with COVID-19. So, while we don't have the forward-looking aspect of the CECL model incorporated, there is a significant chunk of uncertainty associated with COVID-19 that it is – that is embedded in the provision that we took, which is why it was so large.

Got it. and then, just on the [PPP] program, I think it’s a – you know timing and geography questions to some degree, but you know, assuming the $350 million fully funds, which, you know, I don’t know what the probability of that is or not, maybe if you could help answer that, but assuming it does I mean with an average loan size under, you know, $280,000 it would imply about a 5% origination fee on the those balances which would be about $17.5 million of origination fees that I would think you could use to help kind of get through this and it’s a little bit of life alone, but my question is really around you have to the whole out of these loans and kind of the timing of those origination fees should you decide to unload them as you submit them to the SBA for getting paid back?

First of all in terms of – I have to try to hold on to them, [1% seems the] most appealing loans that you are holding, there is a fee related. You know, we don't know exactly what the fee income will be. It’s such a big number of loans that – you know it’s kind of spread across. We had anticipated more of an average here in [360, 370] that was just a guess, but if that was the case, we’re probably having – you know averaging more in 3% range as opposed to 5%, but that’s – it’s still hard to determine at this point. You know, I am going to ask Tim Myers at this point to jump in. Tim is in commercial banking have been really shepherding this whole program through and have been very hard at work. So, let me ask Tim jump in to address those issues.

Sure. Thanks Russ. Yes, I think in terms of the fee income, we really haven’t gone to the part of trying to calculate based on the size of each individual application and the volume of that in its entirety. As Russ also pointed out, these are going to stay on the books at 1% if they do. So, our intent is, you know, as we get more guidance from the SBA is to follow the forgiveness process and we have a platform we acquired to help with the application through documentation, submission, tracking, and forgiveness phase, I think we’re waiting for additional guidance on how to go about that, but our intent is to, you know, once we’re able to start processing that for our customers, and certainly, there may be somewhere depending on how the money is spent or how they view that application or use the proceeds where we end up with, but I think our intent at this time is to allow all the forgiveness to take place the [cam].

Okay. And do you – is your sense that is going to come through and I assume it would, but any confirmation on it?

That is going to what?

Is your expectation that the, sorry, the – is your expectation then those origination fees when you do realize and will come through spread revenue and not fee income pretty naturally?

I’m not sure on that one, I – Tani could you answer that?

Yes, yes. Our initial expectation is that, yes, it will come through net interest income and because we are [indiscernible] this point in time about what the forgiveness timing will be, what will probably happen is that we will run them through net interest income the same way we do other fees with the life of two years because that’s the maximum maturity on these loans. And then, if they get forgiven, we would accelerate those fees at the time of forgiveness.

Got it, okay. And then, just last one for me on the loan floors as I mentioned of lowering floors, I guess can you give us a sense for the magnitude of floors that you have and I guess the percentage that might, you know, move lower, if not all?

Sure. Tani, do you want to answer it?

Sure. We have – the floor reduction apply to prime business loans mostly because the floors on the home equity loans were already at the lower level, so that’s, you know, somewhere between 10% and 15% of the portfolio, but some of those loans were at higher floors that we reduced and some were not. So, I can't tell you what the impact on net interest margin would be, but what I can say is that it looks like – you know if we applied it for a full year, it could be, you know, somewhere between $750,000 and $1 million in terms of net interest income.

Okay, thank you.

And your next question comes from the line of Jackie Bohlen with KBW. Please go ahead.

Hi, good morning, everyone.

Hi, Jackie.

Curious about premium amortization, expectations for next quarter, I know you did a little bit of portfolio positioning to avoid some of that coming through, but do you have just a sense on what you would expect in 2Q and how you’re thinking about security yield overall next quarter in light of the rate environment and then the purchases you made this quarter?

Sure. I’ll ask Tani to answer that question.

Yes. So – yes, the 7 basis points related to the – I’d say that the security yields are pretty much stable other than that 7 basis points for the accretion. You know it wasn't too significant as a portion of the portfolio that we sold and redeployed, you know, maybe a eighth of the portfolio or even less than that, but I think what it does is more flows the decline of the yields on the portfolio as opposed to actually pumping [them up].

Okay. And do you have a sense for any amortization expectations, just that delta between maybe what happened in the first quarter and what your expectations would be for the second quarter?

I don't know the answer to that question. You mean the delta between the portfolio pre-transactions and post transactions on premium amortization?

Or just in general, you know, do you expect given the rate movement that happened, you know, somewhat later towards the end of the quarter? Do you expect premium amortization to pick up in 2Q with pay-offs some things like that? Or is it just, you know, too soon to know?

Yes, I think it's a little too soon to know. I mean I think we have noticed that there were – before things got – you know before the shelter in place orders were in place and people started to realize the full impacts of what's going on, we did see some increase in pre-payments on the mortgage side, but that seems to be anecdotally slowing a little bit, so it's really hard to make a projection on that, but I’ll look at it, Jackie, and if there's something that we can share with you all, we will.

Okay. Okay, and then in terms just of loan yields, in realizing, you know, that activity is impacted by the, you know, the shelter in place orders that are ongoing how are you seeing new loans booking yield versus the portfolio?

That’s a good question. I'm actually going to ask Tim Myers because he’s on the line so to answer that question.

Yes, thank you, Russ. [I believe] they come down somewhat although not as much I think overall as we expect it potentially this last quarter, so I think, you know, we’re doing our best to, you know, maintain the relationship banking approach and get as much as we can. We’re fair for both parties, but there's no question there are banks taking advantages of the environment offering rates that I would, you know, deem beyond competitive, and so, you know, we’ll continue to do our best, but there's no question, rates have dropped below the portfolio averages.

Okay. Do you have a sense for how much below the averages are dropping?

I don't have an arrogant number for you, but I can work with Tani to get that for you.

Okay. Thank you. And then just one last one, related to incurred loss versus CECL, you know, Beth, you made comments about looking at the provision and you said whichever model your operating under, is there a possibility that you would look to adopt CECL prior to the end of the national emergency or December 31 whichever one of those comes first?

Russ, is it alright if I answer?

Yes, go ahead Beth.

I doubt we’d adopt it before the end of the national emergency. We, I would believe, would stay under the incurred loss model, but that’s something we will discuss internally to just really depend. It was so difficult to try to implement CECL for, you know, the first quarter because it was very, very difficult to forecast. The variables just kept changing almost daily, and so that’s what makes it very, very difficult as well as we deployed our resources really to focus on our client. So, not a perfect answer, but, you know, we’ll see.

No, no. But that’s helpful nonetheless, thank you. And what is your understanding of how soon? So, let’s just say the national emergency ends on say I don’t know, September 15, I’m just picking a date, so would you have an adoption then on October 1, is that how it works?

I might defer to Tani on that, but we’re going to be ready for a scenario like that. That’s our intent internally. We don't want to be – you know to have it end and not be ready, so our intended is to be ready because we were basically almost there. We just had to fine tune a couple of things. And again, it was the forecasting that was the real issue with the – just uncertainty in the economy and the constant changing of the projection by various entities.

You know, Jackie, I’m going to add to that too. I don't think you’re going to have a day when the national emergency ends. I think it's a time period and I don't – because I don't think we’re – you know from my understanding, I don’t think we’re going to have a time [when, hey] this is over, we can all get back to normal. This is going to gradually come in, so it’s going to be difficult to pick a date and say okay, now is the day we need to implement this. So, I think that over the next six to nine months, it's going to be a very gradual return to whatever the new normal is. And so, you know, I just don't see this happening – this adoption happening before we get to that new normal, right. It’s just – it's really difficult to project what the markets are during this time frame.

Okay, understood. And I mean that's my assumption as well that the new normal is going to take a very long time to – you know for all of us to figure out what that is.

Sure, sure.

So it sounds like in your mind the more likely scenario is that we get to December 31 before there's any sort of a declaration of the end of the emergency that would trigger CECL's implementation?

Correct.

Okay.

And Jackie, this is Tani. If I can you add, we don't have actually clear guidance out of FASB in terms of how this will be adopted for institutions that chose to delay the adoption of CECL. So, the mechanics of the adoption are still, you know, sort of what's the best we can guess based on what we know now, but they haven't actually come out with clear guidance, and if they do, obviously, that will influence what we need to do going forward.

Okay. Thank you, Tani. That’s helpful and thank you for taking all my questions and everyone please be well.

Thank you. You too.

You too.

And your next question is from the line of Tim Coffey with Janney. Please go ahead.

Thank you. Good morning, everybody.

Good morning, Tim.

Good morning, Tim.

Hey, staying on the provision for a moment, the [Q factors] that you used this quarter, in what ways do they compare to what you experienced during the great recession? Were they comparable? Or I mean do use the loss that you experienced during the Great Recession to help set the Q-factor, cast some color there please?

Beth, would you like to answer that?

Sure. So the two – in the incurred loss model, the historical losses which are based on our history is – that’s a set figure that we can't touch. It’s a calculated figure. Q-factors are used to adjust for what is occurring in the market today or in the economy today that is not shown by our historical losses, and so, that’s what we looked at and we adjusted our Q-factors, qualitative factors for what was occurring due to the pandemic. So, is that helpful?

Yes, it does. So, you didn’t use any of the losses experienced from the Great Recession as kind of a base or a starting point for the Q-factor this quarter?

They are baked into our model.

Okay, okay. I understand.

Historical losses are a calculation in our model.

Okay.

Q factor accounts for what’s occurring kind of outside the historical loss calculation.

Sure, okay.

Tim, I’ll also add – I’ll add one thing and back in the Great Recession, if you look back what our losses that we experienced, which were frankly relatively minimal, most of them were related to, you know, residential development loan, you know, track development. And so, we don't really have that at all anymore and so it’s not comparable at all because it was so tied to the mortgage industry and to the development of residential homes and this is so different that it’s hard to compare.

Okay, of course. And then I appreciate the details on the portfolio that you people have exposed to the COVID situation, what percentage of those loans that you identified have either asked for payment relief or submitted a PPP loan application?

What percentage of the loans that we asked that we got – we made loan modification for as for PPP loans, is that what you [indiscernible]?

No, what percentage of the 17.7% of your portfolio that’s exposed, hotel, retail like that requested deferment?

Oh! I see. I don't know. Let me see, Tim, do you know the answer to that one? I don’t think I have that one.

I don’t have a precise percentage for that. There is a significant crossover between PPP and the payment release, the different modes of payment release, but I don't have an exact number.

You know, Tim, as you look at the challenging industries, you can guess that most do. I mean potential hotel, motel, retail properties, although we have – you know we have – when we talk about retail properties, typically, is we have a borrower who owns some kind of a center and we have – you know we have one that has a drugstore, which is doing just fine, so we don’t make payment – we didn’t make any modifications on that loan, yet the same borrower has something that has – let’s say a restaurant in it, we might make a modification there. So it’s – every situation is different depending upon the type of property and also the – the strength of the borrower, and you know, the – the liquidity that their borrower has, so it kind of depends.

Okay. And then, just in the current environment, Russ, you mean the pay-offs that you experienced this quarter were elevated, you know, I guess with lower rate you would expect to see more pay-offs, but given the uniqueness of the situation perhaps not, what’s kind of your outlook on that?

Yes, I don’t – you know we had certain pay-offs and I will ask Tim kind of address the – what the pay-offs were because frankly it was more related to construction activity that completed, but, you know, I don’t – this is not an environment we’re going to see a lot of pay-offs right now because I don't think because I think we’re going to – you’re going to see people more focusing on their business as – you know their day-to-day as opposed to the financing side. I could be wrong there, but I just don't think pay-offs are going to be substantial this quarter [indiscernible] start of the third quarter, but Tim, maybe you can give him a little bit of color on the pay-off activity last quarter.

Sure. Yes, if you look at just a quarter, you know, if you pull out HELOC and TIC type pay-offs and just look at the commercial loans that paid off, it was relatively evenly split between assets sold and what we kind of deemed plant or project completion pay-offs, and with an asset sold, you know, fairly a good sized chunk of that is the sale of assets underlying construction loans, others just selling properties. On the planned, a significant chunk of that was – you know we have some large construction clients. We are proposing or entertaining a large construction project to the same borrowers. We had a number of terms loans that we had, and so, to manage our exposure to that group of borrowers, we, you know, just negotiated they would refine some of those term loans elsewhere and we would focus on the construction loan. So that really made, you know, up the bulk of that. There was one material third-party refinance, which I think is more probably what you are aimed out there and we’ve seen a bit of a trend over the last year and a half on mobile home parks and things like that been taken out by non-bank lenders at very aggressive terms that, you know, non-recourse, very low rates, interest-only for many years, just, you now, areas where we're not interested in and participating in with that level of aggression. So that really makes up the bulk of it, sorry go ahead.

You know, I was going to say, Tim, why don’t you give him a little color on pay-offs going forward over the next quarter, not the number, but just what you’re thinking at this point?

Yes, I mean I think that planned number is going to subside. That was a unique situation. I think sales, I'm expecting to decline. You know we will have construction projects get wrapped up successfully, but I – this was an elevated number. I don't expect this level of pay-offs going forward.

Okay, great. Well, I appreciate all the color. Thank you. And then, if we look at kind of the non-interest expenses, are there any investments that you had planned for this year that you might be pulling back from or anything that put downward pressure on that expense number, the core number, of course, not the seasonal stuff?

You know the expenses that we have, you know, we’re – obviously, we have branch that’s moving and that’s going to happen in May, so we have that. Its relatively minor expense frankly because we – the location we had was pretty well built out anyway. You know the expenses for the most part, new projects, we’ve kind of put on hold in terms of anything new whether its technology or otherwise, we’re just kind of focusing on getting through this situation right now. You know in terms of expansion elsewhere, we’ve been very careful about, you know, not doing any big project right now because we want to just see how this goes. You know we do have a branch that’s being built out in Hallsberg. So, that’s going to continue. So, we didn't have a lot on the table in terms of big project, but we’re certainly not entertaining new ideas right now until we get through this crisis.

And Tim, this is Tani. I would add that, you know, due to social distancing and travel restrictions and conference cancellations and any of the events we do, a fair amount of those events that have been canceled or postponed, obviously, those are going to put downward pressure on non-interest expense.

Okay. Well, great. Thank you very much for your time. Those were all my questions.

Thanks Tim.

[Operator Instructions] We have another question from the line of Jackie Bohlen with KBW. Please go ahead.

Hi, thanks for taking my follow-up. Just one quick one, I meant to ask do you expect any noticeable overtime to run through with PPP?

We will have overtime because we have had a team working on this literally day and night and when we – we did get – it took us a little while to get approved because we were not an SBA lender. So, when – we didn’t get approved until last week and when we got approved, we had to – we are doing all background work to submit as soon as we got that approved, but we couldn't submit anything. So, once we got the approval, the team worked literally till 2:30 in the morning submitting these applications to the SBA and until the well ran drive, so to speak. That being said, we will have the same energy and focus during the next – as soon as the next package is approved, which I understand is getting closer. I haven’t seen recently, but that’s what I heard this morning and if that – once that happens that team is going to be working day and night too. So that’s a long-awaited answer to say, there will be some overtime because not all of these people that are working on it are exempt employees, some are not exact. So, I don't have – I can’t put a number on it right now, but there will be some of it.

Okay. Alright, thanks.

Sure.

And we have no further audio questions at this time.

Okay. I think there are some e-mailing questions for us. So the first question was from David Feaster from Raymond James. How do you think about non-interest expenses going forward? We just talked a little bit about that in light of the revenue headwinds and given low rate environment and a challenging backdrop, what is the good run rate going forward. Tani, do you want to expand on that at all?

So I think, you know, if you take out the first quarter noise that we get all of the time, I think we’re at a pretty decent run rate right now. So, as Russ said, I don't think we have any large new, you know, investments that are either staying on or being canceled and we do have some downward pressure associated with reduced events and social contact, but on the other hand, the overtime associated with the PPP. So, I think in general though, if you take out the first quarter noise, you’ve got a pretty decent base to start from.

You know, we also had – and Tani has mentioned the fact that there is a lot of events that we participate in that we have in terms of customer events, things of that nature, which have gotten put on hold at least for the time being and probably canceled for this year. However, that – those funds – a lot of those funds are what we’re redirecting to donations through non-profits. We’ve made – we’ve committed money to the – to a number of different municipalities who are making grants to customers in the market to help them through this crisis and our bank has taken a pretty active role with a couple of – with a number of municipalities. And so, all-in-all, those things will balance themselves out to certain extent. While we won’t maybe put on an event, we may just give the money to the non-profit rather than sponsoring the table or something like that. So, I think non-interest expenses will, going forward, be pretty consistent. The makeup will be different, but the number of will probably be pretty similar. There's another question from – also from David Feaster. Following up on the PPP question, how do you plan to account for those? Or do you expect to hold those loans for sale and those fees should run though fees or will it be a [loan fear] flow through NII? I think Tani answered that, but Tani, do you have any comment on that?

Well the only other thing I would say is, you know just to remember Tim’s emphasis on the point that these loans can be forgiven if the borrower in fact uses the funds for the intended purpose and so our top priority is to assist our customers with getting forgiveness on those loans. So, when that occurs then the SPA would repay the loan as opposed to the borrower.

There is another question from Elizabeth, Park Capital. And the question is, are any of the TDRs on the book approximately 11.1 million related to the industry’s most effective, most likely effected by the COVID? More detail on the composition of that credit bucket. So, I’ll ask Beth Reizman to comment on that.

So, I took a look at those loans and they are really throughout the various industries. There is one large one that – in one of those industries, but it is well secured and good sponsorship behind it and you know number of our TDRs are actually past credit. It’s just that they are – it is difficult to eliminate that status.

Okay. And then I think there is one more question from David Feaster of Raymond James. Just curious, what you’re hearing from the regulators and auditors in your discussion on the increased provision from [Q factors] given the ongoing pandemic? Given your asset quality, did they think it was too high, I thought it was a good conservative estimate? Just curious what commentary received from the regulators or your Sors on the topic, and I will definitely be desperate to answer that one.

So, we’ve had numerous conversations with our auditors during the process, both myself and Tani and they are in agreement with where our provision was and felt it was appropriate. I have not spoken with the regulators at this point in time, I don’t know if Tani has or Russ.

Okay. I think that maybe all the questions. If there is no other questions from anyone, I really appreciate your time this morning. We will obviously be in communication as – on the next – at the end of the next quarter, hopefully the circumstances would be better, but I appreciate your time again this morning and look forward to talking to you next quarter. Thanks.

And this concludes today’s conference call. You may now disconnect.