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Edited Transcript of AMRB earnings conference call or presentation 16-Apr-20 8:30pm GMT

·36 mins read

Q1 2020 American River Bankshares Earnings Call Roncho Cordova Jun 11, 2020 (Thomson StreetEvents) -- Edited Transcript of American River Bankshares earnings conference call or presentation Thursday, April 16, 2020 at 8:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David E. Ritchie American River Bankshares - President, CEO & Director * Mitchell A. Derenzo American River Bankshares - Executive VP & CFO ================================================================================ Conference Call Participants ================================================================================ * Kevin William Swanson Hovde Group, LLC, Research Division - Director & VP * Matthew Timothy Clark Piper Sandler & Co., Research Division - MD & Senior Research Analyst * Timothy Norton Coffey Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to the First Quarter 2020 Earnings Conference Call. My name is Adrian, and I'll be your operator for today's call. (Operator Instructions) Please note, this conference call is being recorded. I'll now turn the call over to David Ritchie. David Ritchie, you may begin. -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [2] -------------------------------------------------------------------------------- Thank you, Adrian. Good afternoon. This is David Ritchie, President and CEO of American River Bankshares, the parent company of American River Bank headquartered in Rancho Cordova, California. This is our first quarter update. Please be aware that our earnings released, which details our quarterly results went out at the market open today as well as our quarterly cash dividend payable next month. We did, as always, include some economic data in our press release. Now I'd like to turn this call over to Mitch Derenzo, Chief Financial Officer. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [3] -------------------------------------------------------------------------------- Thank you, Dave. Of course, thanks to all of you for listening on the call today. Obviously, this is no normal conference call while we're all impacted by this global pandemic, and it's changed our lives, and we respect that, and it -- understand that it has negatively impacted many people. I ask myself, where does AMRB's financial results fit into the priorities these days. But as my role as a publicly traded company CFO, it's my responsibility to report on these financial results. I can only wish for good health to all of you on the call, to your family and friends. With that, I need to remind everyone of our safe harbor disclosures. Certain matters discussed in this presentation may constitute forward-looking statements, the purposes of the federal securities laws and may include risks and uncertainties. Actual results may differ materially from the results in these forward-looking statements. Factors that might cause such a difference are discussed in the company's annual report on Form 10-K for the year ended December 31, 2019, and in subsequent reports filed on Forms 10-Q, and 8-K. We do not undertake any obligation to publicly update or revise any of these forward-looking statements, which would include information or future events, except as required by law. For those who are interested, the link to our annual report is located at our website, americanriverbank.com. As with past calls, I will highlight some of the key areas of our press release that we issued this morning. Trying to provide some additional details and analysis. Then will turn it back over to Dave for some additional comments, and we'll open up the line for questions. This morning, American River Bankshares reported net income for the first quarter 2020 of $1.4 million compared to $1.1 million during the first quarter of 2019. Earnings per share were $0.24 per share compared to $0.20 in the first quarter of 2019. ROA and ROE for the quarter were 80 basis points and 6.77%, respectively, that compares to 68 basis points and 6.17%, respectively, 1 year ago. Net income growth in the year-over-year was 25%. EPS growth was 20% during that same period. On a pretax pre-provision basis, the income in the first quarter of 2020 was $2.4 million, that's an increase of $700,000 or 41% over the $1.7 million reported for 2019. Our margins held up quite nice despite the rate increases. This quarter, we saw some significant drop in the rates basically due to the FLMC actions. But really in the 3 and the 5-year part of the curve, that's been dropping pretty significantly over the past year, and that's the time horizons that we typically make loans and invest in our bonds. Yield on loans actually increased from 4.93% in the first quarter of last year to 5.03% in the first quarter of 2020. While the yield on investments actually dropped a tad from $2.87 in the first quarter of 2019 to $2.63 in the first quarter of 2020. We had a decrease in our cost of deposits. Those decreased from -- there were 34 basis points in the first quarter last year to 29 basis points in the first quarter 2020. This results in a margin of $3.75 for the first quarter this year, up from the $3.59 in the first quarter last year. So move on the balance sheet. Net loans did decrease, $5.8 million in the quarter, so from December 31 balances. New funding slowed. Slowed quite a bit in the first quarter. Payouts were up a little bit compared to last quarter, but really in line with the 2 previous quarters. Comparing March 2020 loan holds 1 year ago, net loans were still up $52 million or 15.5%. For the first quarter, we did fund $18 million in new loans, that compares to $31 million in the first quarter of last year. And then $43 million that we funded in the fourth quarter of 2019. The trailing 4-quarter loan totaled probably $34 million. Our loan payoffs, I mentioned a minute ago here, they were $13 million up from $7 million in the fourth quarter of 2019, but really the same as the $13 million that we had payoff in the second and third quarters of 2019. Prepayment penalties, some fees here for $182,000 in the first quarter of 2020. However, one of those loans that paid off also had a premium associated with it. It had a $71,000 premium. That was written off as well. That write-off goes to interest income. So really the net prepayment fees would be about $111,000. I guess the good news, the prepayment penalty -- prepayment fee on that loan that did pay off was $82,500. So we did come out ahead on that loan. For comparison, in the first quarter last year, prepayment fees were $93,000. In the fourth quarter of 2019, they were $70,000. As far as our commitments goes, total unused commitments were $31 million at the end of March. About $11 million of that is in commercial. So those have the ability to revolve. But most of the rest of that $31 million is real estate, which should fund over the next year or so. We haven't really seen much activity in the draws on those commitments that you might expect during a pandemic like this. For comparison, at December 31, 2019, total unused commitments were $40 million and about $13 million of that was commercial. So commercial commitments are really down $2 million. That's a $13 million at year-end to $11 million now. Although, of that $2 million, we had 1 loan that advance $1.7 million that was more of a commercial project. So that was kind of expected. So other than that, we haven't seen a lot of our folks drawing on their unused lines. A little bit of exposure here or what I would say, lack thereof. Our exposure to hospitality is 0. So I guess that's no exposure. We don't have any loans in the hospitality area. Exposure to restaurants, we have $5.8 million; elder care, $6.8 million; school /childcare, $4.6 million; and then recreation, call that golf and sports types clubs, just a minute, $1.9 million. So again, not a lot of exposure. We could talk all day about what sectors would be exposed. I don't think there's too many of our loans that are somewhat impacted by the pandemic, but those are really the hot areas that I think people want to hear about. Decrease in loans in the quarter was primarily in real estate loans that's decreased $5.4 million. Commercial loans were down $132,000 and other category was actually up $200,000. The decrease in the real estate primarily is multifamily that is down $4.7 million. Construction was down $3.2 million. So we perhaps -- we had a couple of projects that were completed and paid down. We did actually see a little bit of growth in CRE, that was up $1.7 million. The other line item, the $200,000 growth there, that's primarily our consumer, and that's our specialty auto portfolio. We did 43 of those loans during the quarter. Average of those was $66,000 that compares pretty close to what they were in the fourth quarter. We did 49 of those loans, average of $67,000. One small piece, the ag in there. We did have a decrease of ag during the quarter, a $68,000 decrease were at $6.4 million in ag at the end of March. About $13 million of new loan commitments during the quarter, our average rate on those of $4.69 million, so those are holding up. We also renewed $21.6 million in existing loans during the first quarter, and the rate on those average revenue was $5.7 million might be skewed by a couple of larger projects that were extended. Credit quality, again, this is as of March 31, 0 nonaccrual loans. We had 3 loans that were past the 30 days, but less than 60. Those totaled $5.7 million. Those 3 loans, one loan was a $37,000 consumer loan. They made a payment early April. One commercial loan, large one of $4.8 million. They were seeking a deferral arrangement, and that has occurred. And the other $810,000 is a CRE loan that was paid in full in April. Last quarter, we reported that we repossessed the Lamborghini. I guess, fortunately, we sold it. I was hoping to get to drive it, but never did. And then at a book value of $517,000. We did sell it in the first quarter, and we recovered 100% of the principal. So no off there. Dave will get into, in his report, a little bit more on our balances of PPP loans and other deferrals. I'll skip that. Continue on credit quality. We did add $495,000 in provision for loan lease losses. And really, that's due to the -- that's up due to the anticipated impact of COVID-19. Again, although the credit quality was sound at $3.31, we really don't know the definitely the economic impact of COVID-19, so we think that the 9.7% increase in the allowance during the quarter is prudent, and we'll continue to monitor the impact of the pandemic and our borrowers stay in front of them. And then if need be, we'll adjust the ALLL accordingly. The ALLL for loans was 1.43% at March 31, 2020, compared to 1.34% 1 year ago. And then at the end of 2019 it was 1.29%. During the first quarter of 2020, we had $4,000 in loan recoveries and no loan losses. We still continue to have the one OREO property. Book value there is about $846,000. Classified equity ratio at the end of March, just 1.35%. Obviously, that cost by asset is the OREO, plus we still have $134,000 commercial real estate loan, too. So there was just totaled $980,000 or less than $1 million. The investment portfolio, really no change in the philosophy there continues to be comprised of well-structured cash flow in mortgages, mixed in with some high credit quality municipal bonds. Portfolio remains relatively short. Average lives of the entire bond portfolio is 4.2 years. Effective duration of the entire portfolio remains quite low at around 2.8 years. As well as the price change in rates up 300 at 9.4%. I know I talked about the average life being short, but we want to make sure that it's not going to be too short and we get all of our cash back here in this low rate environment. So I think it's important to discuss how the bond portfolio will hold up in a down rate environment. So we have -- we look at our rate shock analysis as of March 31, 2020. That's going to project a yield of 2.4% in the entire portfolio an average life of about 4.3 years. With the 50% rate decrease that shock changes to a yield of 2.31%, so it goes from %2.40 to %2.31 and the average life of 4.19 years. So I think we need to round that to 4.3 years in February, so no real change there. So hold up well. 100 basis point rate shock that might be tough looking at where the 3 and 5-year part of the curve are right now, but it's still prudent to do. 100 basis point drop would be -- the yield will drop to 2.2%. And then the average life is going to be 3.8 years. Just for comparison, up to the December 31 numbers out there as well. They're pretty similar. The yield was projected to be 2.65%. So we did see a little bit of a decrease there in the first quarter, but the average life was 4.17 years, call that 4.2 years. So it didn't really change there. At the 50% shock decrease that changed to 2.5% on the yield and the average life was 4.14 years. 100 basis point drop, yield is going to be 2.41% versus 3.7% average life. The yield did drop a little bit, but I think the balances are going to hold up quite well. And primarily because it's filled with bullet type bonds and slow-paying mortgage-related bonds. Those cash flows, again, I think they hold up well. At March 31, the average monthly principal reduction anticipated over the next 12 months is expected to be about $3.2 million a month. If rates would have dropped 50 basis points, that increases by just $38,000 more a month. So pretty negligible. 100 basis points drop, again, that's a pretty big drop, at March 31. Can't figure it out that at February 29, but at March 31, that 100 basis point drop is going to increase the average to $4 million. So it goes from $3.2 million to $4 million. So $800,000, I think that's a pretty minimal amount of increased cash flow on a $256 million bond portfolio. On the liability side, deposits ended the quarter at just over $600 million to $603.1 million, dropped about 1.7% from the roughly $605 million at the end of December. And over the last year, we're up about $31 million or 5.5% from March 31, 2019. We did have an increase in the noninterest bearing balances. Those held up quite well. They were up $2.7 million during the quarter. And we're at just over 38% -- 38.1% of our deposits are in noninterest bearing balances. We also did have an increase in our money market accounts. Those were up $2.9 million during the quarter. Decreases came in interest checking, which were down $2.4 million. Savings were down $3 million, and our time deposits were down $2.9 million. At the end of the quarter, the breakdown of the deposit portfolio and noninterest bearing balances, 38%; money markets were 27%; interest checking is at 11%; and savings and CDS were both at 12% each. That compares pretty much the same as they were at the end of December, percent here on net. Capital levels. Capital is important these days. That has still remained pretty strong. We have about $83 million in capital at the end of December that increased to just under $87 million at the end of March. That's a $3.9 million increase. That came from the $1.4 million in net income. AOCI increased $2.8 million, and we paid out the $400,000 cash dividend to reduce that. Capital ratios continue to grow. Leverage ratio was 9.4%. Total risk base, 16.6% that compares to 9.25% and 15.9%, respectively, at December 31, 2019. And Dave did mention our dividend went out -- early cash dividend announcement that went out earlier this morning, we pay next month. Not a lot on the income statement. Obviously, noninterest income, never been our big as part of our company here, but we actually were up a few thousand dollars in the quarter. No significant change. Gains on sale of securities were $38,000 in the first quarter of this year compared to $41,000 in the fourth quarter of last year and then $36,000 in the first quarter of 2019. However, on expense side, a little bit of a decrease, dropped from $4,345,000 at the end -- in the fourth quarter. It dropped to $4,216,000 in first quarter of this year. Also down from the $4,260,000 in the first quarter of 2019. Yes. Not a big change from quarter-to-quarter. If we look at the different line items. FDIC expense changed a little bit. We were 0 in the fourth quarter last year. We had about $27,000 of expense in the first quarter of this year. That's about half of what would have been had we not had some of the remaining credits left at the end of the year. We've exhausted those credits, so I'd expect a normalized expense in the -- going forward. Obviously, the biggest change in year -- the fourth quarter, we did have the write-down of $110,000 in the fourth quarter on our OREO property, which we did not have a write-down in the first quarter this year. Other than that, we're trying to do our best to protect the expenses, not get crazy. We have obviously reduced business development and advertising due to the shelter in place, so some slight decreases there. I expect that to continue until we are free to socialize again. Taxes have increased. We're up $123,000 from the first quarter this year compared to the first quarter last year. Really that's based on the lower level of tax benefits from tax-exempt interest investments. Those balances have decreased year-over-year and then the lower level of benefits from our equity compensation, in addition to obviously the higher level of taxable income that's going to require more taxes. Our tax benefits from the equity comp has decreased from $44,000 in the first quarter last year, down to $4,000 in the first quarter of this year, so a $40,000 drop. So again, not a big number. The biggest number is really the change is the taxable income that increased $400,000, so that's a 27% increase. So that went from $1.5 million to $1.9 million year-over-year. Thank you, and I'll turn it back over to Dave for some additional comments. -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [4] -------------------------------------------------------------------------------- Great. Thanks, Mitch. Yes. So as far as our plan goes, which we launched 24 months ago, I believe the first quarter shows what we set out to do, and I certainly feel like it's really coming together quite nicely. I would refer you to the trailing 4 quarters -- our trailing 4 quarters as a useful review of our progress. And so -- and now just to kind of give you an update of where we are today. Obviously, with the COVID-19, our focus has temporarily shifted. Our focus is basically on 3 areas: Number one, we're doing all we can to protect the health and well-being of our team members; two, keep the bank operating; and number three, assisting our clients. It's my opinion, we've done very well, especially in around half of our team members working remotely. Obviously, we do have clients that have been negatively impacted from the shelter in place orders. I will say this that our banking team and credit departments have been working really hard with our clients' request for loan payment deferrals and paycheck protection in the Paycheck Protection program. I will say this that in both types of loans, we're following the guidelines set out by the regulators and the SBA. I will say that the release and deferral loan program has been much easier to come up with solutions for the bank and the borrowers. The PPP program was difficult to prepare for because of the limited time frames to get it up and running. We did not truly know the SBA process and how much volume we would see. That said, I believe that our teams -- because of our team's hard work, both of these programs are up and operating and running at this point in time, and we have helped clients every day. Since March 31, I'm happy to share some results for both of the programs, as it relates to the relief and deferral efforts, which we started in late March. We've had 76 requests. We've documented 55 of those requests. I can give you a breakdown of those. And actually, the pipeline of that has slowed down quite substantially. There's very little on the pipeline, at least for the time being. To give you a breakdown of those requests, requests we have a consumer car portfolio. There were 31 -- 32 requests from that area. CRE was 48 requests, and we had 6 requests from C&I type loans. I do think it should be noted that all these loans that we've adjusted have been performing loans. And now let's talk a little bit about the Paycheck protection program. We launched like everyone else on April 3. By about 3 or 4 days into it, we had over 570 requests. We have scrubbed those requests. Unfortunately, for some of the applicants, a lot of the applications, maybe up to 30% of those applications, were incorrect. And frankly, some of the applications really didn't belong. So since that time, to date, we have 150 SBA approvals for about $37 million. We funded 33 of those for about $8.9 million. Our pipeline, assuming that this program gets up and restarted soon, we still have about 250 requests in the pipeline, which we will continue to work hard through this downtime to make sure we're ready to respond as quickly as possible once that program is up and running again, assuming it gets there. As for the referral and the relief -- and deferral loans. Just so you know, the majority of those loans have been 90-day payment holidays, principal and interest. We still do have a pipeline of opportunities with new and existing clients. That's kind of self-managed. So a lot of people wanted to put that on the shelf until things get better if things get back into a normal course of business. So we're still in touch with those people, which is important to us. Because of the COVID-19, many of those requests, I said are on hold or delayed. We will revisit the opportunities when the time is right. And we will work really hard to get back on our plan, which is continuing to increase pretax, net income, ROE, ROA and decrease our efficiency ratio. It's my firm belief that if we do the right things in helping our clients during this period of uncertainty, we will be better off coming out of this. So with that, thank you. And Adrian, if you'd like to open up the line for some questions, that would be great. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And the first question is from Matthew Clark from Piper Sandler. -------------------------------------------------------------------------------- Matthew Timothy Clark, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [2] -------------------------------------------------------------------------------- That's good color on the deferrals, number of requests by type. Could you just give us also the dollar amount that you -- that are -- that you granted forbearance as of 3/31? And it sounds like those requests have slowed, but maybe -- they may have increased a little bit here in April. Just curious about the dollar amounts. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [3] -------------------------------------------------------------------------------- Matthew, we have a pretty good handle on. We have the list on those. I don't have the total dollar amount, and my loan people, I told them, yes, it's important, but I wanted them to continue with the PPP loan. So we'll get that for you. It's just -- there's a stress right now, and I just want to continue to help on the -- take care of the existing clients, but we'll definitely get that for you. -------------------------------------------------------------------------------- Matthew Timothy Clark, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [4] -------------------------------------------------------------------------------- Okay. And then the -- for the PPP loans, the $57 million that you guys have approved, I guess, what was the average loan size? I mean we could divide one by the other, but I'm not sure if that's the... -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [5] -------------------------------------------------------------------------------- Yes. No, it's a -- it's actually $37 million of that. -------------------------------------------------------------------------------- Matthew Timothy Clark, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [6] -------------------------------------------------------------------------------- $37 million, sorry. Okay. And I assume if we just take an average that will be the implied kind of origination fees you might get. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [7] -------------------------------------------------------------------------------- Yes. That's how we're going to manage it. -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [8] -------------------------------------------------------------------------------- Yes. Most of them are around the same. There's a couple of outliers, but most of them are around the same side. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [9] -------------------------------------------------------------------------------- You know, the handful of larger ones, and then you have a plethora of much smaller ones. -------------------------------------------------------------------------------- Matthew Timothy Clark, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [10] -------------------------------------------------------------------------------- Okay. And is your expectation to just -- these things will get dispersed? They kind of -- you get them -- you send those back to the SBA after 7 weeks, and they're pretty much off your balance sheet by the end of the second quarter. Is that the expectation? -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [11] -------------------------------------------------------------------------------- No good reason to hold them. -------------------------------------------------------------------------------- Matthew Timothy Clark, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [12] -------------------------------------------------------------------------------- Okay, okay. Just checking. And then on the exposures, restaurants, so forth. Can you give us a sense for LTVs underlying those exposures and debt service coverage ratios where applicable? -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [13] -------------------------------------------------------------------------------- Yes. Our -- just as a bank, we just ran some numbers on overall loan to values and kind of weighted average on the various areas. And our averages somewhere between around 55% to 60%, which is a good thing. And about over 90% of our debt service coverage ratios are over 1.25%, somewhere between 1.25% and 1.5%. -------------------------------------------------------------------------------- Matthew Timothy Clark, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [14] -------------------------------------------------------------------------------- Okay. And I assume you guys are going through the process of analyzing the exposures that you think might be most at risk. And it seems like nothing is really immune other than grocery stores and some other categories. But can you give us a sense for the provision this quarter and kind of methodology? And if you've done any stress testing and how we should think about the cadence of provisioning going forward in reserves and net charge offs? I assume you might see some additional reserve build here in the second quarter, and then we might start to see some charge-offs later in the year. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [15] -------------------------------------------------------------------------------- That's comes with thought. It feel hard when you look at your credit quality at March 31 and a pretty pristine, our RR runs are out talking, too. We -- all of our clients trying to get a handle on what stresses being created on them. We did the -- we have done some relief for some of them, as they've talked about, but it's really -- time is going to tell how long we go through the cycle. A lot of them are built to handle a month or 2. And then down the road, it starts to hurt. So you're exactly right. We're going to continue to monitor this. The increased provision really is because of the anticipated economic change. But we don't know what that is right now, but we'll definitely be quick to jump on it if we need to. We have -- we believe we have strong capital levels. We're still adding the capital because of our earnings and the allowance, it looks like it's sufficient right now. But... -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [16] -------------------------------------------------------------------------------- Yes. And that's right. And I also think that what's difficult for the banks because a lot of this came down at the end of March. And you had a lot of people that already made their March payments. So I think the next couple of months will -- we made a very educated decision on increasing the reserve. And if we have to do more at the end of the second quarter, we'll certainly do that. -------------------------------------------------------------------------------- Matthew Timothy Clark, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [17] -------------------------------------------------------------------------------- Okay. And then just on the margin, I think you can even back out the recoveries, you still had core margin expansion, up 4 basis points. It looks like the 3.67%. You gave some color on securities portfolio and how that might perform and new loans being below the portfolio, but might have been a couple of larger ones that took that weighted average down. Just your thoughts on the NIM outlook and knowing we also had 150 basis point rate shock in early March, how you think about kind of loan repricing and the overall margin going forward? -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [18] -------------------------------------------------------------------------------- The biggest impact to our margin going forward is going to be putting on CBC loans at 1% because we're not putting on a whole lot of other loans that are going to decrease the yield. The loans that we have on the books are going to hold up well because they're all -- honestly, all -- most of the ones that are adjustable are at the floors. So there was a negative decrease from that. -------------------------------------------------------------------------------- Matthew Timothy Clark, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [19] -------------------------------------------------------------------------------- Okay. And then just overall loan growth, it doesn't sound like you guys are looking to put on much in the way of growth here in the near term. I don't -- I can understand why. But in recent years, you guys have been putting up some decent growth. I'm just curious, should we anticipate some additional shrinkage? Knowing that PPP loans aren't going to be on for very long and kind of transitory just your thoughts on overall net loan growth in the pipeline? -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [20] -------------------------------------------------------------------------------- I would say that it's really hard to determine right this second, but I would -- I think the other side of the coin is, we did have a really strong pipeline, as I said before. And we are staying close to those people, so that I think if this thing turns around, we can, obviously, accommodate those people. And the other piece that we've been finding a little bit evidence, and it's a little early to tell you much more than this, is there are businesses that are doing well right now. And we -- because of what we've been doing for our clients, we've actually been getting referrals to other businesses that are actually still in business, if you will, and looking for a bank. So it's been -- it's really tough to figure out exactly what the loan book is going to look like. Obviously, for this next quarter, I think it's going to be pretty slow. And then I guess we can update as we go after that. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [21] -------------------------------------------------------------------------------- This -- what I would look at it is in a normal situation like this, with rates being so low, we would anticipate a lot of prepayments, refinancing elsewhere. I don't anticipate that to be a real concern because we've put out a lot of loans in the last 1.5 years, and they've all had prepayment penalties and so their prepayment penalties are still pretty heavy. Pretty tough to get over right now. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- Our next question comes from Tim Coffey from Janney Montgomery Scott. -------------------------------------------------------------------------------- Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [23] -------------------------------------------------------------------------------- I was wondering -- I might have missed in your prepared comments, but did you have additional details on the decline in the multifamily loans, i.e., were those loans that were added, say, 5, 6 years ago that just reached the maturity or what was going on there? -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [24] -------------------------------------------------------------------------------- Yes. I know it's $4.7 million. I think it was a couple of larger loans. I don't have the list of the payoff here in front of me. I'm sorry. -------------------------------------------------------------------------------- Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [25] -------------------------------------------------------------------------------- It's okay. I guess my point is that -- I guess what I'm trying to get to is that these loans were yielding less than the overall portfolio average. Is that correct? -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [26] -------------------------------------------------------------------------------- Yes, yes. Yes, you're probably right. Yes. -------------------------------------------------------------------------------- Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [27] -------------------------------------------------------------------------------- Okay. You do a really good job in the press releases of detail in your fixed expenses, but there are some other items within that other line item on the expense side that I think have to do with marketing and may be some other things. I'm wondering how much wiggle room is there in -- within your expenses where those could come down if this shelter-in-place period is extended? -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [28] -------------------------------------------------------------------------------- I mean, those are the big expenses that we have control over right now. If you start dissecting line items will stationary expense low, we going to probably spend more in stationary expense because we got these people out stalking to home offices. But I think that for you, look at FDIC expense, that's going to increase. The advertising business development that's probably going to come down a little bit more than in the quarter, but not a lot because we didn't do a whole lot in the first quarter anyway. We don't have a lot planned, promotion, sponsorships, et cetera. A lot of that happens in the second and third quarter. I would expect incentive to drop as well because as if we're paying these people to do loans and they're not putting on loans, so the salary and benefit line item would drop. A partial offset to that would be the reimbursement of direct costs. We take -- we reduced our payroll expense in essence for new loans where you assign a cost to fund. That's going to -- that will drop, and that's really a reduction of expense. But the incentive piece is going to drop more so than that direct cost reimbursement. -------------------------------------------------------------------------------- Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [29] -------------------------------------------------------------------------------- Okay. And I might have also missed this in your prepared comments, but what was the -- what were the yields on the $13 million in originations this quarter? -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [30] -------------------------------------------------------------------------------- $4.79 million. -------------------------------------------------------------------------------- Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [31] -------------------------------------------------------------------------------- Okay. And then a question on the dividend. How do you feel about the current payout ratio? And would you be -- how would the company feel about if that did get materially higher for a short period of time? Would that cause you to change the dividend rate? -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [32] -------------------------------------------------------------------------------- I'm sorry, what went higher? -------------------------------------------------------------------------------- Timothy Norton Coffey, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [33] -------------------------------------------------------------------------------- Well, the payout ratio. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [34] -------------------------------------------------------------------------------- I don't think we didn't -- at this point, I think we'd increase the payout ratio. I mean, $0.07. I don't think we reduced that unless this thing really got worst and then we had to preserve that capital. It's cost us about $400,000 a quarter. So not a huge number right now. But if this thing continue to drag on, that's the easy thing to think about reducing that dividend. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Our next question comes from Kevin Swanson from Hovde Group. -------------------------------------------------------------------------------- Kevin William Swanson, Hovde Group, LLC, Research Division - Director & VP [36] -------------------------------------------------------------------------------- Prior to everything, you guys had a nice growth plan going that was working well. Obviously, the focus is on sustaining businesses here and kind of helping the community. But how do you guys think about the positioning for offense if kind of this tide starts to turn and you can kind of go back to what the longer-term plan you guys had in place? -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [37] -------------------------------------------------------------------------------- I think we would turn it right back on as quickly as possible. I mean we still have a lot of -- as we were talking. We still have people -- I mean, like I said, the pipeline is still really strong. And it's just kind of slowed down and it's been kind of slowed down because of clients. And not necessarily that we don't still have in there, but I think that's -- that would be our desire, Kevin, just to keep doing what we're doing. I mean I was -- we're really making some great progress, as you know. And I think we're heavily -- very well prepared to just do that back up and keep moving forward. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [38] -------------------------------------------------------------------------------- Our retail side of the branch is going strong here. We got a little dip in the first quarter, but one would anticipate balances going out, pandemics like this, and they have it. We've actually been bringing in new relationships, which is exciting. Other thing, Kevin, and I failed to say, as we look at these PPP loans, it's been -- as you can imagine, there was just a massive amount for all the banks. But our desires are, obviously, to take care of our clients first, to take care of our borrowing clients first. But we've also had a lot of calling efforts going on. And we've had probably of that 570 the number that have, there's probably 80 or 90 in there that people that we know well and that we would like to bank with us when we were soliciting them, and we're going to try to accommodate them through this PPP process as well. And we've had some success already just it's kind of been almost a little bit of a marketing thing, people want to bank with a bank. And so there's some good opportunities there, as Mitch said, on the deposit side as well as on the loan side. -------------------------------------------------------------------------------- Kevin William Swanson, Hovde Group, LLC, Research Division - Director & VP [39] -------------------------------------------------------------------------------- Great. And then maybe just one kind of clarification question. I guess I mean, obviously, the (inaudible), but it sound yet of provisioning, outlook. Obviously, it seems like kind of a before potential of this deterioration. I guess this is (inaudible) and those type of loans still considered pass grade? Or how do you kind of grade on a credit side? -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [40] -------------------------------------------------------------------------------- They were performing and they continue -- they can -- unless they don't follow through with some of the promises they made to us, the relief we've provided them. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [41] -------------------------------------------------------------------------------- They're still performing well. -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [42] -------------------------------------------------------------------------------- Yes. They're all performing. And sure, I couldn't hear your question, Kevin. Sorry, you were cutting in and out. -------------------------------------------------------------------------------- Kevin William Swanson, Hovde Group, LLC, Research Division - Director & VP [43] -------------------------------------------------------------------------------- Sorry. Yes. I think you guys got it. Appreciate it. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [44] -------------------------------------------------------------------------------- Kevin, just to correct, I think I said $4.79 million on the yield on the $13 million. It's $4.69 million. Apologize for that. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- And this concludes the question-and-answer session. I'll now turn the call back over to Mr. Ritchie for final remarks. -------------------------------------------------------------------------------- David E. Ritchie, American River Bankshares - President, CEO & Director [46] -------------------------------------------------------------------------------- I just want to say thank you very much for calling in. We really appreciate it, and we'll talk to you next quarter. -------------------------------------------------------------------------------- Mitchell A. Derenzo, American River Bankshares - Executive VP & CFO [47] -------------------------------------------------------------------------------- Stay healthy, everybody. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating, and you may now disconnect.