Bank of Marin Bancorp(BMRC) - 2020 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion for Bank of Marin Bancorp, covering Q1 2020 performance and financial condition ITEM 1. Financial Statements This section presents Bank of Marin Bancorp's unaudited consolidated financial statements, including Statements of Condition, Comprehensive Income, Equity, and Cash Flows, with detailed notes on accounting policies and financial instruments Consolidated Statements of Condition Total assets and deposits slightly decreased from December 31, 2019, to March 31, 2020, while stockholders' equity experienced an increase Consolidated Statements of Condition (in thousands) | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :----------------------------- | :---------------------------- | :------------------------------- | | Total assets | $2,697,738 | $2,707,280 | | Total deposits | $2,307,110 | $2,336,489 | | Total stockholders' equity | $345,940 | $336,788 | | Loans, net | $1,824,976 | $1,826,609 | Consolidated Statements of Comprehensive Income Net income slightly decreased in Q1 2020 due to a significant provision for loan losses, partially offset by increased non-interest income Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three months ended March 31, 2020 (in thousands) | Three months ended March 31, 2019 (in thousands) | | :---------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income | $7,228 | $7,479 | | Provision for loan losses | $2,200 | $0 | | Total non-interest income | $3,120 | $1,771 | | Basic EPS | $0.53 | $0.54 | | Diluted EPS | $0.53 | $0.54 | Consolidated Statements of Changes in Stockholders' Equity Total equity increased from January 1 to March 31, 2020, driven by net income and other comprehensive income, partially offset by dividends and stock repurchases Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric | Three months ended March 31, 2020 (in thousands) | | :------------------------------------------------- | :--------------------------------------------- | | Balance at January 1, 2020 | $336,788 | | Net income | $7,228 | | Other comprehensive income | $6,425 | | Cash dividends paid on common stock ($0.23 per share) | ($3,127) | | Stock repurchased, net of commissions | ($3,230) | | Balance at March 31, 2020 | $345,940 | Consolidated Statements of Cash Flows Cash flows for Q1 2020 show a net decrease in cash, cash equivalents, and restricted cash, primarily due to significant cash used in financing activities Consolidated Statements of Cash Flows (in thousands) | Metric | Three months ended March 31, 2020 (in thousands) | | :---------------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | $9,525 | | Net cash (used in) provided by investing activities | ($1,540) | | Net cash used in financing activities | ($35,099) | | Net (decrease) increase in cash, cash equivalents and restricted cash | ($27,114) | | Cash, cash equivalents and restricted cash at end of period | $156,274 | Notes to Consolidated Financial Statements These notes provide essential context for the consolidated financial statements, detailing accounting policies, fair value measurements, investment securities, loan quality, and commitments Note 1: Basis of Presentation This note clarifies the consolidated financial statements include Bank of Marin Bancorp and its subsidiary, prepared under SEC rules and GAAP, detailing EPS calculation - The consolidated financial statements include Bank of Marin Bancorp and its wholly-owned bank subsidiary, Bank of Marin, prepared pursuant to SEC rules and GAAP[22] - The NorCal Community Bancorp Trust II is not consolidated in the financial statements; the subordinated debenture is shown as a liability[23] Basic and Diluted EPS | Metric | March 31, 2020 | March 31, 2019 | | :-------------------- | :------------- | :------------- | | Basic EPS | $0.53 | $0.54 | | Diluted EPS | $0.53 | $0.54 | Note 2: Recently Adopted and Issued Accounting Standards ASU 2018-13 and 2018-15 were adopted with no material impact, while CECL adoption was postponed due to the CARES Act and COVID-19 uncertainties - ASU 2018-13 (Fair Value Measurement) and ASU 2018-15 (Cloud Computing Arrangement) were adopted effective January 1, 2020, with no impact on financial condition or results of operations[27][28] - Adoption of ASU 2016-13 (CECL standard) was postponed under the CARES Act due to the COVID-19 pandemic, with an estimated 5% to 15% increase to the allowance for loan losses if adopted earlier[29][30] - Other accounting standards (ASU 2019-04, 2019-05, 2019-11, 2019-12, 2020-01, 2020-04) are not expected to have a material impact or are still being assessed[34][35][36][37][38][39][41] Note 3: Fair Value of Assets and Liabilities Assets and liabilities measured at fair value are categorized into a three-level hierarchy, with most available-for-sale securities and derivatives classified as Level 2 - The fair value hierarchy classifies valuations into Level 1 (quoted prices in active markets), Level 2 (observable market data), and Level 3 (unobservable inputs with significant management judgment)[43][44][45] Fair Value of Assets and Liabilities Measured on a Recurring Basis (in thousands) | Instrument Type | March 31, 2020 (in thousands) | Fair Value Level | | :---------------------------------------------------- | :---------------------------- | :--------------- | | Securities available-for-sale | $448,868 | Level 2 | | Derivative financial liabilities (interest rate contracts) | $2,618 | Level 2 | Fair Value of Financial Instruments Recorded at Amortized Cost (in thousands) | Financial Instrument (Amortized Cost) | Carrying Amount (Mar 31, 2020, in thousands) | Fair Value (Mar 31, 2020, in thousands) | Fair Value Level | | :------------------------------------ | :------------------------------------------- | :-------------------------------------- | :--------------- | | Cash and cash equivalents | $156,274 | $156,274 | Level 1 | | Investment securities held-to-maturity | $131,140 | $137,501 | Level 2 | | Loans, net | $1,824,976 | $1,816,190 | Level 3 | Note 4: Investment Securities The investment securities portfolio increased to $580.0 million by March 31, 2020, with $800 thousand in sales gains and no other-than-temporarily impaired debt securities Investment Securities Summary (in thousands) | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :---------------------------- | :------------------------------- | | Total investment securities | $580,008 | $569,673 | | Sales proceeds (Q1) | $27,442 | $4,229 | | Gross realized gains (Q1) | $800 | $3 | - At March 31, 2020, there were 13 securities in unrealized loss positions, but management determined no other-than-temporarily impairment (OTTI) as declines were primarily non-credit related and there was no intent to sell before recovery[61][64] - Non-marketable securities include $11.7 million in FHLB stock and Visa Inc. Class B common stock with a carrying value of zero, but a converted value of $2.7 million at March 31, 2020[65][66][67] Note 5: Loans and Allowance for Loan Losses The loan portfolio totaled $1,843.9 million, with a $2.2 million provision for loan losses in Q1 2020 due to COVID-19, and $358 million in CARES Act loan modifications Loan Portfolio and Credit Quality (in thousands) | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------------- | :---------------------------- | :------------------------------- | | Total loans | $1,843,860 | $1,843,286 | | Total past due (30+ days) | $2,732 | $1,648 | | Non-accrual loans | $1,632 | $226 | | Recorded Investment in TDRs | $11,159 | $11,333 | Credit Risk Grade (in thousands) | Credit Risk Grade | March 31, 2020 (in thousands) | | :---------------- | :---------------------------- | | Pass | $1,756,128 | | Special Mention | $75,676 | | Substandard | $12,056 | - In Q1 2020, a $2.2 million provision for loan losses was recorded due to economic uncertainties from the COVID-19 pandemic, with the company postponing CECL adoption under the CARES Act[100][180] - By April 30, 2020, 253 loan modifications for principal and/or interest deferrals totaling $358 million were approved, which were not evaluated for TDR designation due to the CARES Act[89] Allowance for Loan Losses (in thousands) | Metric | March 31, 2020 (in thousands) | | :----------------------------------- | :------------- | | Allowance for loan losses (ALLL) | $18,884 | | Ratio of ALLL to total loans | 1.02% | | Ratio of ALLL to non-accrual loans | 1,157% | Note 6: Borrowings and Other Obligations The company maintains $92.0 million in unsecured lines, $676.8 million in FHLB, and $79.3 million in FRB lines, with no outstanding borrowings, plus a $2.725 million subordinated debenture - The Bank had unsecured lines of credit totaling $92.0 million with correspondent banks, FHLB lines of credit totaling $676.8 million, and an FRB line of credit totaling $79.3 million at March 31, 2020, with no outstanding borrowings under these facilities[104][105][106] - A subordinated debenture due to NorCal Community Bancorp Trust II, with a balance of $2.725 million at March 31, 2020, was assumed as part of a 2013 acquisition[107] Note 7: Stockholders' Equity A $0.23 per share cash dividend was declared, and the $25.0 million share repurchase program was suspended due to COVID-19 after $3.2 million in Q1 2020 repurchases - A $0.23 per share cash dividend was declared on April 17, 2020[109] - A new $25.0 million Share Repurchase Program was approved on January 24, 2020, but was indefinitely suspended on March 20, 2020, to focus resources on customer needs during the COVID-19 pandemic[116] - During the three months ended March 31, 2020, 92,664 shares were repurchased for a total of $3.2 million[119] Note 8: Commitments and Contingencies Off-balance sheet commitments totaled $488.9 million, with $294 million in approved PPP loans, and operating lease liabilities increased, while litigation losses are deemed remote Commitments and Standby Letters of Credit (in thousands) | Commitment Type | March 31, 2020 (in thousands) | | :-------------------------------- | :---------------------------- | | Commercial lines of credit | $259,151 | | Revolving home equity lines | $185,715 | | Undisbursed construction loans | $31,367 | | Total commitments and standby letters of credit | $488,867 | - By April 30, 2020, the company approved 1,452 applications for $294 million under the SBA's Paycheck Protection Program (PPP)[123] Operating Lease Liabilities (in thousands) | Lease Type | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :---------------------------- | :------------------------------- | | Operating lease right-of-use assets | $22,225 | $11,002 | | Operating lease liabilities | $23,726 | $12,615 | - The company is responsible for a proportionate share of litigation indemnifications related to Visa's Covered Litigation, but no contingent liabilities are recorded as the probability of losses is considered remote due to an escrow account[134][135][136] Note 9: Derivative Financial Instruments and Hedging Activities Interest rate swap agreements are used as fair value hedges, with five active contracts totaling $2.618 million in derivative liabilities and $40 thousand in net losses recognized in Q1 interest income - Interest rate swap agreements are used as an asset/liability management strategy to mitigate changes in the fair value of specified long-term fixed-rate loans caused by interest rate fluctuations[137] - As of March 31, 2020, the company had five interest rate swap agreements, all accounted for as fair value hedges[140] Derivative Financial Instruments and Hedging Activities (in thousands) | Metric | March 31, 2020 (in thousands) | | :---------------------------------------------------- | :---------------------------- | | Interest rate contracts fair value (Liability Derivatives) | $2,618 | | Net losses on fair value hedging relationships recognized in interest income | ($40) | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Q1 2020 financial performance, condition, capital, and liquidity, emphasizing COVID-19's impact on earnings, loan loss provisions, and the company's proactive responses Forward-Looking Statements This section cautions readers that forward-looking statements are subject to various risks and uncertainties, including natural disasters, COVID-19, and economic conditions, with no obligation for public updates - Forward-looking statements are based on management's current expectations and are subject to various factors beyond control, including natural disasters (wildfires, earthquakes), pandemics (COVID-19), economic uncertainty, changes in interest rates, real estate values, and regulatory changes[152][153][154] - The company undertakes no obligation to release publicly the result of any revisions to these forward-looking statements[155] Critical Accounting Policies and Estimates No material changes occurred to critical accounting policies, including Allowance for Loan Losses and Fair Value Measurements, with CECL adoption postponed due to the CARES Act and COVID-19 - No material changes to critical accounting policies: Allowance for Loan Losses, Other-than-temporary Impairment of Investment Securities, Accounting for Income Taxes, and Fair Value Measurements[156] - The adoption of the current expected credit losses (CECL) accounting standard was postponed in accordance with the CARES Act due to the COVID-19 pandemic and lack of clarity for forecasting[156] Executive Summary Q1 2020 net income was $7.2 million with $0.53 diluted EPS, impacted by a $2.2 million loan loss provision due to COVID-19, prompting relief measures and share repurchase suspension Executive Summary Financial Highlights (in thousands, except EPS) | Metric | Q1 2020 (in thousands, except EPS) | Q1 2019 (in thousands, except EPS) | | :-------------------- | :------------------------------- | :------------------------------- | | Net income | $7,228 | $7,479 | | Diluted EPS | $0.53 | $0.54 | | Provision for loan losses | $2,200 | $0 | - Q1 2020 net income was negatively impacted by a $2.2 million provision for loan losses related to COVID-19 economic uncertainties, reducing diluted EPS by approximately $0.12, partially offset by gains on investment securities sales and accelerated discount accretion, which positively impacted diluted EPS by approximately $0.07[157] - In response to COVID-19, the company waived ATM and overdraft fees, canceled early withdrawal penalties for time CDs, provided payment relief for up to 120 days to borrowers, reduced interest rate floors on commercial loans, participated in the SBA's Paycheck Protection Program (PPP), and suspended its share repurchase program[159] - As of April 30, 2020, 253 loan modifications for principal and/or interest deferrals totaling $358 million were approved, and 1,452 PPP applications for $294 million were approved, supporting 25,412 employees[161] Key Financial Metrics | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------------- | :------------- | :---------------- | | Loans | $1,843.9M | $1,843.3M | | Non-accrual loans (% of total loans) | $1.6M (0.09%) | $226K (0.01%) |\ | Total deposits | $2,307.1M | $2,336.5M | | Non-interest bearing deposits (% of total deposits) | 49% | 48.3% | | Total risk-based capital ratio | 15.3% | 15.1% | | Return on average assets (Q1) | 1.09% | 1.19% | | Return on average equity (Q1) | 8.54% | 9.54% | RESULTS OF OPERATIONS Q1 2020 operating results show a slight increase in net interest income but a decrease in net interest margin, a significant loan loss provision, increased non-interest income, and lower non-interest expense Net Interest Income Net interest income rose to $24.1 million in Q1 2020, but net interest margin declined to 3.88% due to lower rates and higher cash, with further pressure expected from Fed rate cuts Net Interest Income and Margin (in thousands) | Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | | Net interest income | $24,119 | $23,846 | | Tax-equivalent net interest margin | 3.88% | 4.02% | - The decrease in net interest margin was primarily driven by lower interest rates impacting yields on loans and cash balances, higher cash balances, and higher rates on certain deposit categories, partially offset by accelerated accretion on a called investment security contributing 7 basis points to the Q1 2020 net interest margin[174] - The Federal Reserve's two emergency rate cuts totaling 150 basis points in March 2020 are expected to put downward pressure on asset yields and net interest margin in future quarters[176] - The company anticipates an annual reduction of $750 thousand to $1.0 million in net interest income due to reduced interest rate floors from COVID-19 payment relief measures[175] Provision for Loan Losses A $2.2 million loan loss provision was recorded in Q1 2020, a significant increase from Q1 2019, reflecting COVID-19 economic uncertainties and increased impaired loan balances - A $2.2 million loan loss provision was recorded in Q1 2020, compared to no provision in Q1 2019, reflecting adjustments to qualitative factors under the incurred loss model due to COVID-19 economic uncertainty[180] Loan Loss Provision and Credit Quality (in thousands) | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------------- | :---------------------------- | :------------------------------- | | Impaired loan balances | $12,700 | $11,500 | | Classified assets | $12,100 | $9,900 | | Ratio of loan loss reserves to total loans | 1.02% | 0.90% | | Non-accrual loans | $1,600 | $226 | Non-interest Income Total non-interest income surged 76.2% to $3.1 million in Q1 2020, driven by $800 thousand in investment security gains and higher bank-owned life insurance earnings Non-interest Income (in thousands) | Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | Change (in thousands) | Percent Change | | :---------------------------------- | :--------------------- | :--------------------- | :-------------------- | :------------- | | Total non-interest income | $3,120 | $1,771 | $1,349 | 76.2% | | Gains (losses) on sale of investment securities, net | $800 | ($6) | $806 | (13,433.3)% | | Earnings on (cost of) bank-owned life insurance | $275 | ($60) | $335 | (558.3)% | - The increase in non-interest income was primarily due to gains on the sale of short-duration agency residential mortgage-backed investment securities and higher earnings from bank-owned life insurance[185] - Waivers of ATM and overdraft fees and early withdrawal penalties for time CDs, effective March 2020, are expected to have a minimal effect on non-interest income[186] Non-interest Expense Total non-interest expense slightly decreased by $59 thousand (0.4%) to $15.5 million in Q1 2020, mainly due to lower data processing and FDIC insurance costs Non-interest Expense (in thousands) | Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :------------- | | Total non-interest expense | $15,469 | $15,528 | ($59) | (0.4)% | | Federal Deposit Insurance Corporation insurance | $2 | $179 | ($177) | (98.9)% | | Data processing | $786 | $1,015 | ($229) | (22.6)% | | Salaries and related benefits | $9,477 | $9,146 | $331 | 3.6% | | Occupancy and equipment | $1,663 | $1,531 | $132 | 8.6% | - The decrease in non-interest expense was primarily due to costs associated with a new digital banking platform conversion in 2019, the lack of FDIC deposit insurance expense in Q1 2020, and lower accelerated stock-based compensation expense[190] Provision for Income Taxes The provision for income taxes decreased to $2.3 million in Q1 2020, with an effective tax rate of 24.5%, reflecting lower pre-tax income and higher tax-exempt earnings Provision for Income Taxes (in thousands) | Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | | Provision for income taxes | $2,342 | $2,610 | | Effective tax rate | 24.5% | 25.9% | - The decrease in the provision and effective tax rate reflected lower pre-tax income, higher tax-exempt earnings on bank-owned life insurance (BOLI), and higher discrete tax benefits from stock option exercises[192] FINANCIAL CONDITION SUMMARY Total assets slightly decreased by March 31, 2020, while capital ratios remained strong and liquidity robust, supporting operations and COVID-19 relief efforts Investment Securities Investment securities grew by $10.3 million to $580.0 million by March 31, 2020, with strategic increases in high-credit-quality municipal obligations and minimal COVID-19 sector exposure - The investment securities portfolio totaled $580.0 million at March 31, 2020, an increase of $10.3 million from December 31, 2019[196] - The increase reflects $54.9 million in purchases and an increase in the fair value of available-for-sale securities, partially offset by $53.8 million in calls, paydowns, maturities, and sales[196] - The company strategically increased credit exposure to high-credit-quality municipal issuers in Texas (53.4% of outside California portfolio) and has little to no exposure to municipal sectors vulnerable to COVID-19 (higher education or health care)[199] Loans Total loans increased slightly by $574 thousand to $1,843.9 million at March 31, 2020, with new originations largely offset by payoffs - Loans increased by $574 thousand, totaling $1,843.9 million at March 31, 2020[202] - New loan originations totaled $29.8 million in the first three months of 2020, with line utilization increases of $28.9 million, mostly offset by $51.7 million in payoffs[161][202] Liabilities Total liabilities decreased by $18.7 million to $2,351.8 million, driven by a $29.4 million deposit decrease, while operating lease liabilities significantly increased - Total liabilities decreased by $18.7 million to $2,351.8 million at March 31, 2020[203] - Deposits decreased $29.4 million in the first three months of 2020, mainly due to the cash cycles of large commercial depositors[203] - Non-interest bearing deposits totaled $1,130.5 million at March 31, 2020, representing 49.0% of total deposits[203] - Operating lease liabilities increased $11.1 million to $23.7 million in Q1 2020 due to modified lease terms for the headquarters office and a new retail branch lease[203] Capital Adequacy Both Bancorp and Bank capital ratios exceeded regulatory minimums for 'well capitalized' status at March 31, 2020, despite Bancorp no longer having separate minimums - All capital ratios for both Bancorp and the Bank exceeded regulatory requirements to be considered "well capitalized" at March 31, 2020[161][205] Capital Ratios | Capital Ratio | Bancorp (Mar 31, 2020) | Adequately Capitalized Threshold | | :-------------------------------- | :--------------------- | :------------------------------- | | Total Capital (to risk-weighted assets) | 15.29% | ≥ 10.50% | | Tier 1 Capital (to risk-weighted assets) | 14.35% | ≥ 8.50% | | Tier 1 Capital (to average assets) | 11.66% | ≥ 4.00% | | Common Equity Tier 1 (to risk-weighted assets) | 14.22% | ≥ 7.00% | - Bancorp is no longer subject to separate minimum capital requirements due to the increase in the "Small Bank Holding Company" asset threshold from $1.0 billion to $3.0 billion[206] Liquidity The company maintains strong liquidity with $517.9 million in unencumbered securities and cash, despite a $27.1 million Q1 2020 decrease, supporting operations and COVID-19 relief - The company's liquidity management aims to provide adequate funds by maintaining liquid assets and formal lines of credit with FHLB, FRBSF, and correspondent banks[213] - Unencumbered available-for-sale securities and cash totaled $517.9 million at March 31, 2020, providing substantial contingent and on-balance-sheet liquidity to support programs like loan payment relief and PPP[216] - Cash and cash equivalents decreased $27.1 million in Q1 2020, primarily due to a $29.4 million decrease in deposits, along with $54.9 million in investment securities purchases and $3.3 million in common stock repurchases[217] - Undrawn credit commitments totaled $488.9 million at March 31, 2020, expected to be funded through existing loan repayments, deposit growth, and liquid assets[218] - Bancorp held $18.9 million of cash at March 31, 2020, deemed sufficient to cover operational needs and cash dividends through mid-2021[219] ITEM 3. Quantitative and Qualitative Disclosure about Market Risk Market risk, primarily interest rate risk, is managed via asset/liability strategies and swaps, with simulations showing a 100 bps rate increase yields a (1.0)% net interest income change, and a 100 bps decrease yields a (4.5)% change - Market risk, primarily interest rate risk, is managed through the structure of the Consolidated Statement of Condition and interest rate swap contracts to minimize exposure to interest rate changes[220][221][222] - The Asset Liability Management Committee (ALCO) and the Board of Directors review interest rate risk quarterly using simulation models[223] Estimated Change in Net Interest Income | Immediate Changes in Interest Rates (in basis points) | Estimated Change in Net Interest Income in Year 1, as percent of Net Interest Income | | :---------------------------------------------------- | :------------------------------------------------------------------- | | up 100 | (1.0)% | | down 100 | (4.5)% | - Limitations are inherent in simulation models, as assets and liabilities may react differently to market rate changes, and assumptions regarding deposit run-off and prepayment speeds can vary significantly from actual outcomes[225] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no significant changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[226] Changes in Internal Control over Financial Reporting No significant changes materially affected internal control over financial reporting during the quarter ended March 31, 2020 - No significant changes that materially affected, or are reasonably likely to affect, the company's internal control over financial reporting occurred during the quarter ended March 31, 2020[227] PART II OTHER INFORMATION This section provides additional information, including legal proceedings, updated risk factors, equity security sales, and other disclosures ITEM 1. Legal Proceedings This section refers to previous disclosures in the 2019 Form 10-K and Note 8 of the current Form 10-Q for information regarding legal proceedings - Refer to Note 12 to the Consolidated Financial Statements in the 2019 Form 10-K and Note 8 to the Consolidated Financial Statements in this Form 10-Q for information on legal proceedings[229] ITEM 1A. Risk Factors This section updates risk factors, focusing on COVID-19's adverse effects, including increased loan losses, declining collateral, reduced demand, decreased net interest margin, and operational disruptions - The COVID-19 pandemic has negatively impacted the global economy, leading to potential increases in loan delinquencies, problem assets, and foreclosures, which may increase loan losses and necessitate increases in the allowance for loan losses[231] - Other risks include a decline in collateral value, decreased demand for products and services, reduced net interest margin due to federal funds rate cuts, a significant increase in the allowance for credit losses upon CECL adoption, reduced wealth management revenue, and business operation disruptions due to workforce illness or quarantines[231] - Government actions, such as the Paycheck Protection Program, may partially mitigate the financial impact, but their success is unknown, and changes to traditional service delivery channels may negatively impact customer experience and financial results[231][232][234] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds A new $25.0 million Share Repurchase Program was approved but suspended on March 20, 2020, due to COVID-19, after 92,664 shares were repurchased for $3.2 million in Q1 2020 - A new $25.0 million Share Repurchase Program was approved on January 24, 2020, but was indefinitely suspended on March 20, 2020, to focus resources on customer needs during the COVID-19 pandemic[235] Share Repurchase Program (in thousands, except per share) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Cost (in thousands) | | :------------------ | :------------------------------- | :------------------------------------------ | :------------------------ | | January 1-31, 2020 | 13,283 | $44.42 | $2,376 | | February 1-29, 2020 | 20,855 | $42.17 | $1,495 | | March 1-31, 2020 | 58,526 | $30.00 | $1,800 | | Total (Q1 2020) | 92,664 | $38.86 | $3,200 | ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[239] ITEM 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[239] ITEM 5. Other Information No other information was reported for the period - No other information was reported[240] ITEM 6. Exhibits This section lists all exhibits filed as part of the report or incorporated by reference, including organizational documents, equity plans, and various agreements - The exhibits include Articles of Incorporation, Bylaws, Rights Agreement, Employee Stock Ownership Plan, 2017 Equity Plan, Director Stock Plan, Indemnification Agreements, Employment Agreements, Salary Continuation Agreements, and various certifications[243] SIGNATURES The report was signed on May 8, 2020, by Russell A. Colombo (President & CEO), Tani Girton (EVP & CFO), and David A. Merck (VP & Financial Reporting Manager) - The report was signed on May 8, 2020, by Russell A. Colombo (President & Chief Executive Officer), Tani Girton (Executive Vice President & Chief Financial Officer), and David A. Merck (Vice President & Financial Reporting Manager)[245]