Bank of Marin has temporarily deferred normal payments on 15% of its outstanding loans and is working hard to secure loans for customers through the CARES Act Paycheck Protection Program.
Like banks throughout the country, the Novato-based institution is facing dual hazards due to economic fallout from the coronavirus health emergency: low interest rates that threaten its profit margins and the possibility of soaring loan delinquencies.
Nevertheless, the bank’s CEO Russell Colombo said, “Our biggest challenge right now is working with clients to get them through this. There are so many businesses that are basically dead in the water.”
Last week, Colombo said the bank had received more than 1,000 applications for Paycheck Protection Program (PPP) loans.
“People are applying through the branches and the commercial banking offices,” Colombo said, “They’re even calling me directly.”
He said the size of the loans being sought ranged from $20,000 to $9 million. The bank is prioritizing requests from its existing customers.
Any business with fewer than 500 employees is eligible to apply for the loans, which provide funds for small businesses to pay up to eight weeks payroll costs including benefits. Funds also can be used to pay interest on mortgages, rent and utilities.
Loans will be fully forgiven when used for these purposes as long as 75% of the total is used for payroll. Colombo said the bank will be lucky to break even on the loans, which come with a 1% fixed interest rate.
Bank of Marin had to wait for government approval before beginning to submit applications, since it wasn’t already a Small Business Administrator (SBA) lender. That took until April 9. By Wednesday, after 13 days in operation, the $349 billion allocated for the federal paycheck program had been exhausted.
On Friday, Colombo said the number of paycheck protection loan applications the bank had received had grown to over 1,300 totaling more than $350 million. Colombo said the bank was able to get about 250 of the loans approved by the SBA prior to the funds running out. He expressed optimism that Congress will approve an additional $250 billion for the program.
Kristen Jacobson, executive director of Youth in Arts, a San Rafael-based nonprofit, was able to secure a $78,000 loan through Bank of Marin. Jacobson said she submitted her application to Bank of Marin on April 6, before the bank had even secured SBA approval to make the loans.
“What became very clear to me was that those funds are capped,” Jacobson said, “and if you’re not at the front of the line you may lose out.”
Youth in Arts has four full-time employees and contracts with 35 artists who work with teachers in schools throughout the Bay Area to integrate the arts into their curriculum. Jacobson said school closings due to the pandemic and the necessary cancellation of the organization’s May fundraising gala put it in need of a cash infusion.
“This is bridging the gap for us,” Jacobson said. “It’s allowing us to take a medium-sized breath.”
Colombo said the bank has done loan modifications affecting 15% of its portfolio. In some cases, the bank is requiring lenders to pay only interest for the next 120 days. In other cases, it is deferring all payments for four months.
“This isn’t forgiving those loans,” he said. “It’s just deferring the payment until four months from now. Once we get through the crisis then they’ll catch up.”
According to a report issued by the investment banker Raymond James in January, about 68% of the loans Bank of Marin made in the fourth quarter of 2019 were either for owner-occupied or investor-owned commercial real estate. Some economic analysts are predicting that commercial real estate values may suffer long-term setbacks as more people shift to working from home due to the virus.
“We do have a lot of commercial real estate loans,” Colombo said. “The good news for us is we have extremely low loan to values on the majority of the properties and we have guarantors on all but about a dozen of the properties.”
The loan-to-value ratio (LTV), which lenders use to determine how much risk they’re taking on, measures the relationship between the loan amount and the market value of the asset securing the loan.
Jeffrey Rulis, a research analyst with D.A. Davidson, said, “Bank of Marin is typically lending on lower than peer LTV. They’re effectively asking for more skin in the game than their peers on commercial real estate.”
Rulis said Bank of Marin is “as well positioned as any” to weather the coming economic storm.
“It carries a very, very low current nonperforming asset balance,” he said. “From a capital standpoint they are one of the highest capitalized banks of the banks I cover.”
Rulis said he’s hearing that the customers of smaller, community banks such as Bank of Marin have had an easier time applying for the PPP loans than customers of larger banks.
“It’s just a reminder for some folks that your banking relationships do matter,” Rulis said. “The bells and whistles of a larger bank may be well and good, but at times you need some service.”