Good day, everyone. Welcome to the earnings call for Western Alliance Bancorporation for the second quarter 2020. Our speakers today are Ken Vecchione, President and Chief Executive Officer, and Dale Gibbons, Chief Financial Officer. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com. The call will be recorded and made available for replay after 2:00 P.M. Eastern Time, July 17th, 2020, through August 17th, 2020 at 9:00 A.M. Eastern Time by dialing 1-877-344-7599, using pass code 10146019. The discussion during this call may contain forward-looking statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts.
The forward-looking statements contained herein reflect our current views about future events and financial performance, are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement. Factors that could cause actual results to differ materially from historical or expected results are included in this presentation, the related earnings release, and our filings with the Securities and Exchange Commission. Except as required by law, the company does not undertake any obligation to update any forward-looking statements. For the opening remarks, I would like to turn the call over to Ken Vecchione. Please go ahead.
Good afternoon, and welcome to Western Alliance's second quarter earnings call. Joining me on the call today are Dale Gibbons and Tim Bruckner, our Chief Financial Officer and Chief Credit Officer. I will first provide an overview of our quarterly results and how we are managing the business in this current economic environment, and then Dale will walk you through the bank's financial performance. Afterwards, we will open the line to take your questions. I'd like to focus on three trends that were present this quarter and will continue throughout the year: PPNR strength, credit provisioning expense, and balance sheet growth. Combined, these trends will support earnings and capital growth and dividend distribution throughout 2020 and 2021. Starting with our second quarter results, Western Alliance generated net income of $93.3 million, an EPS of $0.93, which was up 12% over the previous quarter.
Tangible book value per share of $27.84 was an increase of 4.2% over the previous quarter and 12.9% year-over-year. Driving these results was record operating pre-provision net revenue of $194.7 million, up 27.7% year-over-year and 19.1% quarter-over-quarter, with strong operating PPNR ROA growth of 18 basis points to 2.56%, which benefited from recognition of $13.9 million in Paycheck Protection Program net fees. These results demonstrate that the long-term earnings power of Western Alliance core business remains strong amid the current economic and market volatility and will support significant ongoing capital accumulation, provide financial flexibility to fund balance sheet growth, and accommodate changes to the allowance for credit losses for revisions to the economic outlook.
In the quarter, we recorded provision for credit losses of $92 million versus $51.2 million in Q1, which was primarily attributable to changes in macroeconomic forecast assumptions and net charge-offs of $5.5 million. Dale will go into more detail in a bit on the specific drivers of our provisions, but our total loan ACL to funded loan ratio now stands at 1.39%, or $347 million. Continuing our strong balance sheet momentum from 2019, loans increased $1.9 billion this quarter to $25 billion, and deposits grew $2.7 billion to $27.5 billion. Without the inclusion of PPP, loans grew a more modest $117 million, and deposits demonstrated strong growth of approximately $1.6 billion. The lower adjusted loan growth reflects muted demand for which we held back on marketing activities and directed our focus to low-loss, high-quality loan segments, in addition to assisting our clients with their PPP applications.
We are encouraged by our pipeline and our opportunity to continue to grow in low-risk asset classes. Throughout the crisis, we have continued to attract new, high-quality relationships to our bank at pricing and terms that would not have been available to us in other circumstances. Furthermore, this quarter's positive operating leverage supported our expanding PPNR as our strong efficiency ratio improved sharply to 36.3% compared to prior year. Becoming more efficient during this economic uncertainty provides the incremental flexibility to maintain PPNR. Looking ahead, we will continue to invest in new product offerings and infrastructure to maintain operational efficiency, but Q2 levels are temporary and will eventually rise back to a sustainable level in the low 40s. Our branch-lite business model and our national business line strategy continue to give us a competitive advantage.
Finally, supported by our healthy PPNR generation, Western Alliance remains well-capitalized with a CET1 ratio of 10.2%, which puts us in position of strength, uniquely prepared to address what's ahead in this uncertain environment. Let's take a moment to provide an update on Western Alliance response to the COVID pandemic. First and foremost, I want to acknowledge the health and safety of our people and clients are of our utmost concern. We continue to follow CDC protocol and state-by-state return to work guidance as our organization returns to the office. Our business continuity plans have been working as anticipated, and I want to thank all of our people who continue to go above the call of duty to get the job done and serve our clients in this unique environment.
As I initially described on our Q1 earnings call, WAL's unique credit risk management strategy is focused on establishing individual borrower-level strategies and direct customer dialogue to develop long-term financial plans. Our approach to payment deferral requests is to look for resourceful ways to partner with our clients, along with assessing their willingness and capacity to support their business interests. We ask our clients to work hand in hand with us, whereby our clients contribute liquidity, capital or equity as an integral component to modified payment plans. Our approach collectively uses the resources of the borrower, government, and bank's balance sheet to develop solutions that extend beyond the six-month window provided for in the CARES Act. Since April 1, WAL has funded $1.9 billion in PPP loans, which provided expedient liquidity to over 4,700 clients and benefited more than 150,000 employees.
At quarter end, $2.9 billion or 11.5% of loans have been modified, with the bulk of these loans receiving principal and interest deferrals. Excluding the hotel franchise finance segment in which we executed a unique sector deferral strategy, the bank-wide deferral rate is approximately 5%. The vast majority of our borrowers elect to utilize their own resources or PPP funds to bridge their business through the COVID crisis. I will provide an update on the portfolios most impacted by COVID later on, but I did want to highlight in our hotel franchise finance portfolio, our sophisticated hotel sponsors continue to see value in and support their properties with 92% of deferrals achieved by posting additional liquidity as a component of future payment deferrals. Our differentiated deferral strategy provides our customers the runway to resolve their liquidity issues and allow the appropriate time to recover.
Unlike the cookie-cutter big bank approach, we established the expectation that the burden of responsibility of solving the long-term cash flow problems remains with our client base. In our gaming book, all borrowers continue to make interest payments as 90-day principal only deferrals were approved for 37% of the portfolio. Today, 95% of our clients are open for business and are experiencing a strong rebound of demand. These facts and the daily conversations with our people and clients help me feel confident that our credit mitigation strategy and early approach to proactively managing our risk segments is bearing fruit and puts Western Alliance in a strong position to come out on the other side of the pandemic in better shape than our peers. Dale will now take you through our financial performance.
Thanks, Ken. Over the last three months, Western Alliance generated net income of $93.3 million or $0.93 per share. As mentioned, net income was impacted by elevated provision expense for credit losses driven by the adoption of CECL in Q1 and changes in the economic outlook during the quarter. Net interest income increased $29.4 million, primarily as a result of loan growth and lower rates on liabilities as interest expense was cut in half. Operating non-interest income fell $5.2 million to $11.1 from the prior quarter, as lower levels of financial activity generated lower, fewer fees. We also benefited from several non-operating items during the period, including a recovery of approximately 40% or $4.4 million of the mark-to-market loss on preferred stock holdings we recognized in Q1. Bank-owned life insurance was restructured, resulting in an increase of $5.6 million as we surrendered and reinvested lower-yielding policies.
In addition to this gain, this should moderately increase BOLI revenue prospectively. Non-interest expense declined $5.7 million, primarily from an increase in deferred compensation expense of $3.3 million related to PPP loan originations, plus a 52% decrease in deposit costs and a 64% decline in business development and travel expenses. Strong ongoing balance sheet momentum coupled with diligent expense management drove operating pre-provision net revenue of $194.7 million, which was up 27.7% year-over-year. We believe it's the most relevant metric to evaluate the ongoing earnings power of the bank. Our strong PPNR covered an 80% increase in provision costs from Q1 to $92 million while driving EPS up 12% to $0.93 on a linked quarter basis. Turning now to our interest drivers. Investment yields increased four basis points from the prior quarter to 3.02.
However, the overall quarterly portfolio yield decreased by 32 basis points from the prior year due to the lower rate environment. Loan yields decreased 45 basis points following declines across most loan types, mainly driven by the 83 basis point reduction in one-month LIBOR during the quarter. Yield reductions were partly offset by an average yield on our PPP loans of 5.02%. Prospectively, we expect loan yields to trend toward the end-of-quarter spot rate shown of 466. Interest-bearing deposit costs fell by 50 basis points in Q2 to 40 basis points, as this quarter received the full benefit of our proactive steps taken to reduce deposit rates immediately after the FOMC cut rates twice in March. The spot rate of total deposits at quarter end was 20 basis points. Total funding costs declined by 34 basis points when all of the company's funding sources are considered, including non-interest-bearing deposits and borrowings.
The spot rate on total funding costs of 31 basis points is higher than the quarterly average due to the issuance of subordinated debt mid-quarter at 5.25%. We expect funding costs to have stabilized at these levels as no further Fed actions are anticipated. Demonstrating the flexibility of our business model, despite a transition to a substantially lower rate environment during the quarter, net interest income rose 10.9%, or $29 million during Q1 to $298.4 million, up 17% year-over-year. Our origination of PPP loans, coupled with strong balance sheet growth and immediate steps taken to reduce the cost of interest-bearing deposits, counteracted the decline in prime and LIBOR. PPP lending supported our net interest margin during Q2 as SBA fees were recognized, resulting in a loan yield of 5.02% in this sector. We estimate most of PPP loans will be forgiven within eight months from origination.
Of the $43 million in PPP loan fees we received from the SBA net of origination costs, one third, or $13.9 million, was recognized in the second quarter. Net interest margin contracted three basis points to 419 during the quarter as our earning asset yield fell 34 basis points but was offset by an equal improvement in funding costs. Our outsized deposit growth and mounting cash reserves will continue to place downward pressure on the NIM until excess liquidity can be deployed, which we expect will take two to three quarters. With regards with our asset sensitivity, our rate risk profile has declined notably over last year, and we are now asymmetrically positioned to benefit from any future rate increases as 70% of our loan portfolio is behaving as if fixed rate since floors on variable rate loans have largely been triggered.
Our estimated net change of net interest income in a 100 basis point parallel shock higher is 4.2% over the next year, and we now project zero net interest income at risk if rates move lower. Turning now to operating efficiency. On a linked quarter basis, our efficiency ratio improved 550 basis points to 36.3%, which continues to demonstrate our industry-leading operating leverage. As mentioned earlier, the non-interest expense improvement is related to an increase in deferred compensation expense of $3.3 million on related PPP loan originations, plus a 52% reduction in deposit costs and a 64% decrease in development and travel costs. Normalizing for PPP net loan fees and interest, the efficiency ratio for Q2 would've been 38.4%. Additionally, our branch lite model has given us the flexibility to identify two locations that we are transitioning from full-service offices to loan production facilities.
Our core underlying earning power remains strong as PPNR ROA increased 18 basis points from the prior quarter to 2.56%, and return on assets was flat at 1.22%. While we expect the 2.56% as a high watermark as elevated liquidity will hold down the margin, we believe we'll continue to maintain industry-leading performance. This provides us significant flexibility to fund ongoing balance sheet growth, capital management actions, or any credit demand. Our balance sheet momentum continued during the quarter as loans increased $1.9 billion to $25 billion, and this deposit growth of $2.7 billion brought our deposit balances to $27.5 billion at quarter end. The loan deposit ratio fell to 90.9% from 93.3% in Q1 as our strong liquidity position continues to provide us with balance sheet capacity to meet all funding needs. Our cash position increased to $1.5 billion as deposit growth continues to outpace credit expansion.
While this impairs the margin near term, we believe it provides us with inventory for good credit growth as demand resumes. Of note, during the quarter, we issued $225 million of bank-level subordinated debt to ensure ample capacity to support our growth trajectory by bolstering our total capital ratio. Finally, tangible book value per share increased to $1.11 over the prior quarter to $27.84, an increase of $3.19 or 13% over the prior year. The vast majority of the $1.9 billion in loan growth was driven by increases in C&I loans of $1.6 billion, residential loans of $154 million, and construction loans of $138 million. Residential and consumer loans now comprise 9.8% of our loan portfolio, while our construction loan concentration continues to trend downward and is now at 8.8% of total loans.
Excluding PPP loans, loan growth was $117 million, which was affected by line paydowns from draws during Q1 and offset by growth in residential and construction. Highlighting our continued focus on growth in low-risk assets, tech and innovation loans were flat in total, while within the category, capital call and subscription lines grew $35 million. Mortgage warehouse loans grew $325 million, and residential mortgages grew $165 million. Corporate finance loans decreased $233 million compared to the increase we saw in Q1 as borrowers repaid their line draws, reducing utilization rates down from 38% to 17%. In all, loan growth was fully funded by deposit growth. We continue to believe our ability to profitably grow deposits is both a key differentiator and a core value driver to our firm's long-term value creation.
Notably, year-to-date deposit growth of $6.1 billion is higher than the annual deposit growth of the company in any previous calendar year. Deposits grew $2.7 billion or 10.9% in the second quarter, driven by increases in non-interest-bearing DDAs of $2.3 billion, which now comprise over 44% of our deposit base. PPP loan-related deposits grew $1.1 billion in savings and money market accounts were up $845 million. HOAs contributed to total deposit growth by adding $136 million, and tech and innovation increased $262 million as capital-raising activity during the quarter was active. Excluding PPP-related deposits, growth would've been $1.6 billion or 6.5%. Regarding asset quality, special mention loans increased $292 million, and non-performing loans rose $53 million during the quarter. One half of the increase in SM loans are from the hotel portfolio.
Generally consistent with our previously discussed tech and innovation rating guidelines, these loans were downgraded as we do not have clear line of sight to more than six months of remaining operating liquidity. These borrowers are current, however, as they made loan prepayments that we required for us to consent to a deferral modification. Our other borrowers in this segment are also paying as agreed or provided cash payments that when coupled with the payment deferral, have no additional debt service requirement until sometime in 2021. Second, we've aggregated an event planning and leisure sub-segment in which the business models are essentially dependent on social distancing relief and in some cases, the resumption of group events. Of the $150 million total exposure to this sector, $60 million has been moved to special mention and $40 million to non-performing.
While the portion moved to SM has over a year of current liquidity, it was downgraded as the revenue models have been sharply impaired. The loan moved to non-performing now has limited remaining liquidity. The remainder of the migration to Special Mention is fairly granular from our client spread throughout our metropolitan markets where liquidity has been tightened. These loans are generally collateralized by an array of assets that include real property. Frequently, a loan may be downgraded to SM because of liquidity concerns, even though collateral coverage may be considerable. For this reason, migration to Special Mention has a low correlation to ultimate credit losses, as over the past five years, less than 1% has moved through to charge-off.
Our allowance for credit losses rose $86 million during the quarter as the change in mix of the balance sheet released $4.2 million of reserves, changes to the outlook accounted for $96.2 million, including covering $5.5 million of net charge-offs. Revisions to the CECL macroeconomic outlook assumptions which have declined since March 31st but have generally stabilized since April, accounted for the entire net reserve bill. The funding allowance related to loan losses was $347 million, excluding held to maturity securities, or 1.39% of funded loans, an increase of 25 basis points. The current reserve bill reflects our best estimate of the future economic environment as of quarter end, including the impact of government stimulus programs and credit migration actions. We have migrated to a consensus economic outlook of Blue Chip Economic Indicators as it tracks largely management's view of the recession and recovery.
Net credit losses of $5.5 million were recognized during the quarter, which were mainly attributable to small business and C&I borrowers. In all, total loan ACL to funded loans increased 25 basis points to 1.39% in Q2, as provision expense for loan losses of $87.3 million significantly outpaced net loan charge-offs. Relative to most other banking companies, our lower consumer exposure continues to result in lower total loan losses. I'll now turn the call back to Ken.
Thanks, Dale. I would now like to briefly update you on the current status of a few exposures to the industries generally considered to be the most impacted by the COVID-19 pandemic. During the last two weeks of the quarter, Tim Bruckner, the credit administration team, and I conducted the most extensive quarterly portfolio review process in the bank's history. The review covered 95% of WAL's outstanding loan balances, excluding purchase residential mortgages. Our $2 billion hotel franchise finance business, focused on select service hotels, represents approximately 8.2% of the loan portfolio. The financial flexibility of these borrowers is maximized by working with financially strong institutional operating partners with deep industry experience, expertise, and conservative underwriting structures focused on loan-to-cost.
Occupancy rates are tracking national averages currently around 46%, which have tripled compared to the lows in April of around 15%, and are now only a few percentage points short of fully covering estimated operating expenses. At approximately 55% occupancy, select service hotels are also estimated to cover amortizing debt service. As a testament to the operating models of the select service hotels, revenue per available room has fallen 55%, but they have been able to shrink their cost structure by over 40%, and as a result, the typical hotel is operating at breakeven. Nearly 85% of our hotel portfolio is either paying as originally agreed or on a proactive payment deferral plans that bridge into 2021.
We feel positive about the trajectory of the portfolio and that our proactive deferral strategy will produce relatively stronger credit performance given the active support of our sponsors have demonstrated through the material upfront payments made to receive deferral plans. To augment the strategy, we nearly doubled the reserve of the portfolio this quarter and increased the ACL to loans ratio by 93 basis points to 1.95%. The investor-dependent portion of our technology and innovation segment is primarily focused on lending to established growth companies with successful products and strong investor support, which provides greater operating and financial flexibility in this environment. Overall, significant sponsor support and an active fundraising environment continue for these growth firms. 81% of loans have greater than six months remaining month liquidity, up from 77% in Q1. Additionally, we have had over 50 clients successfully raise over $1.4 billion in new capital since March 1st.
Our $509 million gaming book is focused on off-strip middle-market gaming linked companies whose revenue is driven by local demand factors. 37% of the portfolio is on 90-day principal-only payment deferral as they continue to cover interest payments. Additionally, these clients benefited from $28.4 million of PPP loans. Inclusive of our recent closure mandates in Nevada to limit certain business activities, businesses representing 95% of the portfolio are open for operations. Upon reopening all casinos, borrowers are performing at or above their COVID operating plan, and no loans were downgraded to criticize or classified at quarter end. Lastly, our commercial real estate portfolio continues to perform as 99% of our industrial leases are current. 90% of our office rents are paid on par with the national average. The sub-segment of CRE that is showing signs of stress for the industry is retail.
WAL CRE retail exposure of $676 million is focused on local personnel service-based retail strip centers with limited merchandise retail exposure. Similar to HFF, we are utilizing deferrals to support a path to recovery for these borrowers while requiring demonstrated sponsor support with high level of additional payment reserves. Of note, 67% of WAL's investor CRE retail tenants paid May's rent payments compared to 50% nationally. We continue to generate significant capital and maintain strong regulatory capital ratios with tangible common equity to total assets of 8.9% and a common Tier 1 ratio of 10.2%, an increase of 20 basis points during the quarter. Excluding PPP loans, TCE to tangible assets is flat from Q1 at 9.4%. Inclusive of our quarterly cash dividend payment of $0.25 per share, our tangible book value per share rose $1.11 in the quarter to $27.84, an increase of 12.9% in the past year.
We continue to grow our tangible book value per share at a rate significantly faster than our peers, as it has increased three times that of our peers over the last five and a half years. In conclusion, we expect loan growth to be fairly flat in Q3 as PPP payoffs and forgivenesses are largely offset by the organic growth in low-risk asset classes. Depending on the timing of the realized PPP forgiveness, organic loan growth should offset PPP runoff, resulting in net loan growth being relatively stable. We anticipate another strong quarter of deposit growth in Q3, primarily by executing on our deposit initiatives and achieving our market share gains in mortgage warehouse. The anticipated deposit growth and resulting liquidity will primarily be deployed into residential mortgage assets to improve returns on cash over the next several quarters.
However, as PPP loans roll off and liquidity continues to rise, pressure on NIM will also continue until it can be fully deployed into productive assets. While we are pleased with our deposit growth, the pace is exceeding loan growth, and as Dale mentioned, it will take several quarters to redeploy this liquidity into low-risk loans or assets providing yields greater than the Fed's current offering. Operating PPNR is expected to decline modestly as PPP income begins to abate, loan balance growth begins to reignite, and the deployment of excess liquidity continues and deferred loan origination costs return to normal levels. Our long-term asset quality and loan loss reserves are informed by the economic consensus forecast, which, if consistent going forward, should preclude material increases in reserve levels from this point.
The pace, timing, and size of future net charge-offs are uncertain to us, as we have not seen a material increase in delinquencies or substandard migration. Finally, our strong capital base and access to ample liquidity will allow us to both take advantage of any market dislocations to grow in low-risk areas and to address any credit demands in the future. At this time, Dale, Tim, and I are happy to take your questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question today comes from Casey Haire of Jefferies. Please go ahead.
Yeah, thanks. Good morning, guys. First question on the hotel book. The deferral strategy you guys there looks it's more than 6 months. Can you just give us some color on what the average term is and how far in advance have you guys deferred these? Then, the occupancy sounds like it is near sort of breakeven levels. What is in your reserve build forecast going forward? Do you have it reaching that 55% level? Just some color there, given that this obviously is of concern.
I think the hotel franchise finance book of business is the most misunderstood, and our approach is not fully understood as well. Let me take a half a step backwards and give you a larger picture as to what we're doing and why we're doing it, and then get directly to your questions there, Casey. One, first misconception is deferrals are a good thing, okay? Payment deferrals require cash collateral or paid out of debt upfront. They prove or provide liquidity to the project. They show from the borrower's point of view, project commitment, which is very important, or they flush out any early problems we need to deal with.
When we say we have a six plus six program, what that means is our borrower gave us 6 months of payments upfront that we deposited into a bank account which we pull out on a monthly basis as debt service coverage is due. Principal and interest, I should say, is due. They don't get to their 6-month deferral process until 6 months from today. That's what six plus six means. All right. What we're trying to do here as we look for people who provide the liquidity and commit to the projects, again, it helps us understand if they do not want to do those things, then we need to take fast action to preserve the 40% of equity that's sitting in front of our debt. That is the philosophy around our approach.
A specific answer to your question today, about 51% of our portfolio is in the six plus six deferral bucket. 19% is in the three plus three bucket. About 9% is paying as agreed, and another 3% is in the three plus six bucket. We've got a whole bunch of other plans, five plus five, two plus two, all those types of plans, depending on the particular borrower, and that amounts to about 10%. All in, about 92% of our hotel book is paying as agreed or is on a deferral program. Now, we still have about 6% that we're in the process of documenting, and we expect that to fall into any one of the buckets I just described.
All in, overall, 99% of our hotel book is paying as agreed, even if they're on a deferral, because we are attaching those funds that are sitting in a bank account where they provided the liquidity upfront. The other specific question you asked, let me just give you some of the numbers here. For us, the current occupancy is about 43%, 44%. That is three times higher than the lows in March. The ADR is $44. That, too, is three times higher than March. We did say at 45%, based on our book of business here, that the company is breakeven on an operating basis. At 55%, the company does begin, or the book of business does begin to cash flow on a one-to-one ratio inclusive of amortization. Okay? I think that addressed all of your questions.
I would add a couple of things. Tim Bruckner. First, I'd say this was not the easiest thing to execute. I don't want to downplay that. This took a concerted effort of our people
Initial discussions with borrowers were difficult because we're solving for a period significantly longer than most viewed COVID in the first 90 days of the crisis. So we went out from the start and said, "Let's solve for periods sufficient to return to stabilization." That's what we did. We solved that not just with our money and our deferral, but with contributions from our very significant sponsorship in the space. We did it because it was the right thing to do. Our borrowers did it because they could do it. I think that's a very important point on this. We have so many now that come back and say, "I'm so glad that we took this approach.
50% of our portfolio, slightly more, will have to deal with these issues again in middle of 2022. All right? 2021, sorry. Another 20% or so we'll deal with towards the end of the year. Okay? We've given enough of a runway here. This was the most important thing that we can do to help our clients, is to give them a long runway to come back up to operating levels that they previously experienced. Initially, as Tim said, they resisted, but once they talked to us, once they saw what was happening, they saw some of the wisdom in the approach that we deployed. Casey, did I answer your questions there?
Yeah. No, that was pretty comprehensive. I'll have to go back and re-read it myself. That was very good. Dale, question for you on the NIM. Slide six. By my math on the spot rates, it looks like it exited the quarter at 390. Does that sound about right, number one? Number two, what is that loan yield spot rate of 466? What does that presume for the PPP loans? At 502 in the quarter, in 2Q, that's a lot higher than what we've seen from peers. Just some color there.
That assumes 502 for the quarter as well. What we did in terms of recognizing PPP revenue is we've estimated doing the effective interest method in GAAP, how long are these loans going to last? From information, what we have and what our borrowers are thinking and how they're behaving, we think that the average life of these is going to be about eight months. We're taking the PPP average loan fee, which is about 2.7%, and we're recognizing two-thirds of that really over this eight months, and then there's a tail for the part that might not pay off. You should expect us to show something of a level loan yield on the PPP. I think some others are doing maybe a little different approach.
I would hope that our number would be on the higher side of where you are in the higher threes for the quarter. Frankly, it kind of remains to be seen a bit. We've had this massive increase in core deposits. We think that we're on track for another strong quarter of core deposit growth in the third quarter, while the loan balances won't be moving as much because we'll be dealing with the pay downs on Triple P as we originate credit in other high quality categories. That's going to help us in terms of inventory build, but it doesn't help us in terms of the NIM. We think that's going to be really important in 2021.
Great. Thank you. I'll step back.
The next question comes from Brad Milsaps of Piper Sandler. Please go ahead.
Hey, good morning, guys.
Morning.
Morning.
Dale, just wanted to make sure I understand the PPP fees on a go-forward basis. 1.9 billion of loans would imply $57 million in gross fees. I think you mentioned that net of origination costs, you had about $43 left. You recognized about $14 this quarter. Can you help me understand sort of the geography of where some of those fees will show up in terms of NII versus a reduction in operating expenses going forward? I think you get to the same place overall, but maybe starting from a little lower point than I thought.
I think that's probably the biggest delta. We did just under $1.9 billion, $1.86 billion in loans. We had some people surrender, had a couple of early pays, that number is down to about $1.7 billion today. We received fees of $49 million from the SBA, not $57 million. We netted certain costs against that, and that's how we get to the $43 million. Going forward, I'm not looking for any cost relief, obviously, because the origination process has ended. The $3.3 million that we've highlighted in the release, I think that's going to come back up in compensation expense. That is going to rise again. That gets to a net $43 million, where we took a third of that in the second quarter.
We're probably going to take another third of that in the third quarter, and then we're going to have a tail into the fourth and maybe a dribble down a little bit into the first of next year in terms of recognition. I think two things. One is maybe the dollar amount was a little bit higher because some of these were very short-term or refunded. Two, the average loan fee was shy of 3%. It was about 2.7%.
Okay. Yeah. Bottom line, you've still got $29 million to recognize. Most of that's going to come through net interest income.
That'll all come through net interest income.
Got it. Understood. Just to follow up on the margin. You note in the deck, you've got 78% of the loan book essentially acting as a fixed rate. Thus far, I know it's early, but how challenging has it been able to defend some of those floors? Obviously, there's probably not a lot of loans moving from bank to bank right now. Just kind of curious, your thoughts on being able to defend those loan floors as we kind of move through the year.
Actually, it has been less challenging than it has been in other downward environments. I would tell you that today, and this is unusual. Two or three years ago, when we put on a loan with the floor, we'd have the loan docs are in there. Of course, it's disclosed and discussed with the borrower, but it triggers 25 to 50 basis points below the variable rate. It's like, "Oh, it's a little bit of an afterthought. It's probably not going to hit me." Most people don't think loans or rates are going to plummet as they did. Today, that's not the case. Today, how these are written is it's usually as a LIBOR floor assumption of 1%. Well, LIBOR is under 20 basis points today.
They go in knowing, okay, this loan is priced at L plus 325, and L is never considered to be below 1. Out of the gate, the floor is what's active, and it's going to be active until LIBOR gets above 1, and then we can go to a variable rate structure.
Surprisingly, we're not losing business because of the floors.
Got it. Then final question, just looking through some of the segment data. I did notice there was what looked like a negative provision in the other NBL category. In the quarter, that reserve actually went down. Any color there, kind of relative to kind of what you did with the rest of the portfolio?
Yeah. It's not so much a portfolio thing. It's that when we updated for the CECL outlook and the migration from Mark Zandi's analysis to a consensus forecast, it resulted in different allocations for certain sectors. C&I loans in particular kind of came down in part in that regard.
Okay, great. Thank you.
The next question today comes from Timur Braziler of Wells Fargo. Please go ahead.
Hi. Good morning, guys.
Morning.
Maybe we can start on the credit migration into Special Mention this quarter. It certainly didn't seem like that was the primary reason for the second quarter provision. I guess looking ahead, how should we think about future credit migration relative to the current allowance? If there's future migration in the Special Mention, is that already pretty much included in the existing expectations? I guess more specifically, if there's migration out of Special Mention and into classified, would that drive an incremental necessity to build allowance from here?
As I kind of alluded to, the loss rates from SM loans does not have a high correlation in terms of migration. That's reflected in our formulas. We don't see that in the math, in the emergence of loss. Migration to SM is usually driven by a liquidity question. Even if we had a loan that was at a 20% loan-to-value, but there's a liquidity tightening going on at that borrower, that's going to go to SM, even though the risk of loss, most people would say, would be essentially zero. In terms of what could migrate to SM, I think we kind of highlighted that we thought we'd see some SM migration in the hotel book because they're under liquidity stress as occupancy rates really dropped in that quarter.
If you go from there to classified or to non-performing, it has become a different category, and those loss assumptions do generally climb. When we move to a classified asset, we're going to look at the collateral behind it, and we're going to recognize a reserve based upon are we underwater or not relative to expectations. That could be a different result. SM migration really has almost no effect on provisioning.
Okay. That's helpful. Thank you. Maybe switching to the technology portfolio. Certainly encouraging to see that over 50 clients, over $1 billion was raised in the quarter. I'm looking specifically at the 14% of tech loans last quarter that had under six months of liquidity. Were those included in that $1.4 billion of capital raising activity? I guess those companies that are coming up to that kind of deadline, are they having as easy success raising incremental rounds? What's happening to the valuations if they are?
Yeah. Some of that money was raised for those customers that were in SM last quarter that were able to raise liquidity and then move out. That's a constant number that kind of moves in and moves out. Relatively speaking, the tech and innovation book stayed relatively flat in terms of the SM movement. That was very encouraging to me because it means that the investors are continuing to be confident in the projects or investments they've made and are continuing to put capital into their companies. I hope that answers.
I would add just, Tim Bruckner, quarter-over-quarter, we actually saw improvements.
In businesses with RML less than six months. If you look quarter one to quarter two. What we're seeing is a high level of activity. In some cases, the rounds are smaller, but we're seeing sustained sponsor support and really strong activity in the sector. Quarter-over-quarter RML less than six improved Q1 to Q2.
Yeah. I'll give you two pieces of interesting facts about our book for the tech and innovation. The median equity invested in our portfolios is six times our loan commitment today, and it is 10.6 times the current outstanding loan balance. It gives you a sense of how much equity is going into the companies. Also the fact that even though we give a commitment, about half of that commitment is not drawn down on at all because they have so much equity. That leads us to why we have two to two and a half times, depending on what time of year you look at, deposit to loans in the tech and innovation business.
Got it. In the gaming book, I guess I'm kind of surprised to see the level of allowance allocated to that portfolio relative to currently adversely graded loans. Is that an indication that things could still get choppy in the future, or is that formulaic? Because it didn't seem like there was much expected loss content from your prepared remarks.
Yeah. First, we have no Las Vegas Strip exposure, okay? We mostly have drive to and local markets. What's interesting here is they are outperforming the same period of 2019 in their initial reopenings. May 2020 was better than May 2019. All right. We do have one or two properties where they're just performing at COVID plan. If that's the worst that we can say, then we're pretty happy about that. Some of our gaming establishments are posting win per day at their slot machines that are three times the normal average level. All right. In this book, we have 36% of the book has had an interest-only deferral. We have not had any principal deferrals. Part of what you see in our calculation is manually driven by the model.
Of course, there is some subjective input put in on top overlays for what we think is occurring in our book of business. Our book has a fairly strong, or I should say lower leverage than you'd think. Generally, the leverage in our book is just under three times debt to EBITDA. You go back to the last crisis and anything over a, or under a four and a half to five times debt to EBITDA had a 90% survival rate. Right now we like our book. It's doing well. We are encouraged that there is a return here by our gaming clients' customers. I also think it shows well for that when the economy opens up again, how quickly people want to come back out and socialize and be in settings with other people.
Yeah, I think part of what you're referring to, Timur, is basically the process of using formulas that were developed during the financial crisis and extrapolating them to today, which has a different circumstance and a different underwriting and a different kind of risk profile entirely. With 95% of our properties open and what we're seeing in the low LTV we are in this sector, I would put my bet that when we're done with this pandemic and we look backward in terms of what happened, the ACL in this sector will have been shown to be higher than it needed to be.
Yeah, I might add.
Sorry, go ahead.
Tim Bruckner. I just add the pace of all these things and the currency of these events we're seeing in late May and then in June this very robust response to the industry, the high volumes. Though very positive as Dale was saying, the ACL is based on historical. We're seeing results that are outperforming what we have seen historically. That's another way to look at it.
Understood. Thank you. just, sorry, one more modeling question for Dale. Just average PPP loans for the quarter?
I'm sorry, what was that? The average PPP?
Average PPP balances for the quarter.
$1.8 billion.
Great. Thank you.
Thank you.
The next question comes from Christopher McGratty of KBW. Please go ahead.
Great. Thanks for the question. Dale or Ken, just wanted to go back to loan growth for a second. Completely understand the near term low risk growth strategy and PPP dynamics. Perhaps it lasts a couple quarters. I'm wondering your thoughts on how we should be thinking about loan growth beyond maybe the next couple quarters. Remind us the targets that you're setting forth for growth.
Yeah. I think, as I said in my prepared remarks, it'll be somewhat stable to where we are now when you consider the runoff of the PPP, as Dale talked about, being replaced by our traditional organic loan growth. As we emerge out of Q4, we haven't done our full planning yet, but I would think that it's going to be no less than what we normally do, which is $600 million-$800 million per quarter. Right now, I am encouraged that our pipeline is beginning to build, and I arrive at that conclusion by looking at the number of loans that come into our senior loan committee. All right? Those are the largest loans in the bank. They're coming in from what I'll call brand name companies that you would know very well, at better terms, okay? And at better pricing.
We are encouraged by that right now that we have to wait for those loans to be approved, and we have to, of course, wait for them to be drawn down. As we emerge out of Q4, I would think we're back to our normal run rate of $600 million-$800 million a quarter, and we'll update you as we get closer into Q4, as we normally do, for the next year out.
I think this is going to partially depend upon what happens to the situation. I've been encouraged by what seems to be a number of firms worldwide that claim to have an efficacious vaccine. If that's the case, and if that is a rollout around the end of this year, maybe into Q1, I think that puts confidence in a different level. I think we'd have the background, and we're ready with the infrastructure, and we've got the deposit capacity that we'll be able to take advantage of an increase in demand as confidence resumes.
That's great. Dale, in terms of deposits, it sounds like loan growth treading water until the end of the year and then resumption. The comments about deposit growth just coming in. If I take out the PPP of $1.1 billion, you still grew $1.5 billion or so in the quarter. Can you just help us with the magnitude of what you're likely to see in Q3 and Q4? Just how big are the balance sheets going to be? I guess I'm trying to get my arms around it.
Well, it's not going to replicate what we did in the first half of the year. We're getting traction in our specialty business lines. We're getting traction in mortgage warehouse. We're getting traction in Homeowner Associations, and we're getting traction in tech plays. All of those have demonstrated historical momentum, and the queue is good for what we're seeing coming in.
Great. If I could sneak one last one in. Just want to make sure I got the expense outlook right. The deposit cost came down to three and a half. Is that the right run rate that we should be using from here?
I think that's fair.
Okay. The moving pieces with the PPP comp. How do we think about just overall expenses? You were kind of flat quarter-on-quarter, I know you're making some investments. Any kind of direction on expenses?
We're at 115. That included a credit for PPP originations. Of course, we're not doing any more PPP originations. As you mentioned, we're going to be fairly flattish with pay downs from that program and expectation of offsets at development elsewhere. I don't think we're going to be below 40% on efficiency for long. I'm not sure we're going to go right back to 42%. I think that that may be a little bit. I don't think we're going to have many quarters that begin with a three. As we see that come back, some of the expenses we saved, travel expenses, business development, that's really kind of the circumstance that we're in today. We do think that travel helps. We think it helps close deals.
We're going to get back into that when that's feasible from a social distancing and state regulation scenario allows. Yeah, we're going to be back. I wouldn't look at the 115. I'd look more at the 120, where we were before, in terms of something closer to a run rate.
That's perfect. Thanks, Dale.
The next question comes from Michael Young of SunTrust. Please go ahead.
Hey, thanks for the question. Wanted to follow up first on the reserve. I think that's gotten a lot of attention. I've had a lot of questions about it. I'm trying to get to a more comparable figure to maybe other banks. If we kind of backed out mortgage warehouse and maybe the large resi mortgage purchase portfolio and PPP loans. I think you guys might be more on par with other banks. I didn't know if there was a way to kind of disaggregate that where we could maybe see it on a more comparable basis.
Yeah, this is talking our own book a little bit, but when you think through our loan loss reserve and compare it to other banks, first, always recognize that we don't have a consumer franchise, and that's where a lot of the losses will begin to mount. That's number one. Number two, I break our book into loan categories where we've had no losses. Resort finance for $900 million, capital call lines, $500 million, HOA services, $300 million, warehouse lending, $2.9 billion. That's $4.5 billion that we've never had a loss in. We've got another $4 billion where we've had limited losses in residential loans for our consumer muni loans and nonprofit. That too adds up to about $4 billion. As you think about our funnel of $25 billion, you can take roughly $8 billion almost off the top for either no or low losses.
Of course, you're not going to do that, but I think you can add a small percentage of basis points to cover your losses against that $8 billion and then recalculate the reserve ratio, and I think you'll find that it'll rise considerably above the 1.24%. Another thing that I think is helpful for you to think through when you look at our book, and this is how we look at it, our construction land and development, which is about $2.2 billion. The book there is looking very strong, and it is responding and acting differently than the prior cycle. First, we have about a third of that book sitting in lot banking. All right? In lot banking, we have a LTV of about 55% with well-capitalized, highly liquid sponsors, i.e. private equity or hedge funds that are our guarantors here.
That book of business is performing very well. We have no deferrals there. In fact, instead of getting deferral requests, we're getting just the opposite. We're getting incoming calls, people saying, "You don't have to worry about me paying my bill. But you have to be there when I see opportunities." That's an easy thing for us to say. If you're making your payments as agreed to, based on the terms that we've usually used, we'll be there to help you. The CLD book is somewhat different, too. On top of this, I know people like to go back and say, "Well, what happened to Western Alliance in 2008 and 2009 and 2010?" Draw from that as some type of regression analysis.
When you look at the prior cycle, the credit physics, if you will, from the prior cycle to where we are today, completely different. Almost a full turn around. In the prior cycle, you had high unemployment. Okay. That stays where we are today. The prior cycle, you had high unemployment, high delinquencies, high charge-offs, low home prices. You had a rising supply of home prices. You had income dropping, and you had demand dropping for these homes as well. In the current cycle, yes, employment is higher than the prior cycle, but you don't see the rise in delinquencies. You're not seeing the rise in charge-offs. Home prices are either flat to rising. Supply has not grown. Income, with the help of fiscal policies by the government, income has risen and demand is higher.
When we look at the appropriate reserve for our construction land and development book, we had to put all these overlays on top of the historic modeling that you would see in order to represent what we see happening in our book of business today. You put that together. You also acknowledge that we have no energy loans. We have limited restaurant loans. We have very few solar loans. All that stuff collectively together got us to our reserve calculation.
That makes sense. Just as we move forward, the main thing that would drive a big delta in the reserve would be losses in some of those historically low loss categories. Is that kind of the right way to think about that? Or would it be the more significant downgrades in other categories that have had historical losses in the past?
Well, effectively, we're in a scenario that you pay losses as incurred, right? Your ACL covers what's still in the book out there. If we had a loss in a category that previously has been zero loss and we expected it to have zero, that would inform the analysis and the expectation of loss in what's still out there. Gosh, maybe you got that wrong. Maybe there's a defect in what you're doing there that is embedded in other loans. In that sense, it could drive a higher provision. For the most part, it's almost pay as you go and sustain your level of reserve based upon your outstanding balance and changes in the outlook of the economy.
Okay. Maybe just one last follow-up. I think you guys have outlined a lot of detail on some of the most in-focus loan segments. Are there any other sort of tangential categories that we should have on our radar screen? Maybe a C&I relationship or something that might be related to one of the underlying categories just that we should be thinking about or that should be addressed?
Yeah, I think that's a fair question. Inside of our CRE book, we have three components to it. We have industrial, there 99% of our borrowers' customers are paying their rent. We feel comfortable there. We have office. There, 90% of our borrowers' customers are paying rent. Great. We have a CRE book for retail, about $700, just a touch over $700 million. There, 66% of our borrowers' customers are paying rent compared to a 50% national average.
I'm not saying there's a problem there, but you asked what are we focusing on? What has our elevated attention today? That is an area that has our elevated attention. We don't have to move quickly on it. We're watching it. It had a very strong debt service coverage ratio coming into the downturn of 1.8 times. It has a very low LTV of 48%. We don't have much speculative loans there at all. I want to make sure I'm clear. Don't run away saying there's a problem. You asked, where are we also watching? That is an area that we're watching.
Okay. Thanks for all the color. I appreciate it.
The next question comes from David Chiaverini with Wedbush Securities. Please go ahead.
Hi. Thanks. My first question is on the mechanics of the deferral program. If we use the six and six program as an example, the first six months, they're accruing interest. You pull the P&I from the accounts that they deposited in. Everything's normal. After this first six months, as we get into 2021, what happens to those loans in terms of the treatment of it? Do they go on non-accrual or do they move to special mention or classified? I'm just curious as to whether or not they'll continue to accrue interest in the second half of the deferral period.
Yeah, no. The loan docs have been modified, and so the contractual payments now allow for that. There's no new payment due until, I'm going to say May of 2021. You're right. We take the six months they paid upfront of P&I, and then we debit that, and we recognize that liability, and we pay the loan down over that six months. For the next six months, what we do is payment regarding principal is deferred and interest payments that otherwise would have been due are now tacked on to principal that due usually at the end of the maturity of the loan. Could be earlier, could be a year out or two years out or something like that where that's going to become due again. We're going to continue to accrue income and increase effectively the balance on that loan for the next six months.
It doesn't move to any classification unless we have information that there's another problem with the situation that has since developed. Otherwise, it would stay like that. Then after that expires, then they're back to their standard P&I payments as originally agreed.
Tim Bruckner. I would add just one thing on the interrelationship of our strategy and risk rating because I don't want this point to be missed. One, that's not a direct relationship. Is the deferral in effect or not does not directly affect the risk rating. The weekly dialogue with our borrower and verification of liquidity to work through that plan. That is the important calculus in our risk rating methodology. All the time, we're in constant and ongoing dialogue with the borrower, ensuring that they're closing the gap and that there's sufficient liquidity through the cycle. If we get to a point where those mechanics change and we feel differently about that's when we would affect the risk rating. I wanted to be clear on that.
That's helpful. Then shifting gears to the provision. As we think about the third quarter, and clearly there's a lot of uncertainty on the macro outlook. If we were to assume the macro outlook is stable from here, you mentioned about how you're expecting flat or low loan growth. What would that translate to in terms of provisioning? Are we thinking back towards I don't want to be too optimistic and think of 2019 levels, but how should we think about provisioning over the next couple quarters?
Well, yeah, I wouldn't go back to 2019 either, but I would think that it would fall off fairly significantly. That is, as you saw this quarter, the entire reserve increase in provision resulted from a deterioration in the outlook from March 27th, the last Mark Zandi deal in the first quarter to where we are today. If that's fairly stable, we'll be maybe as a bit of a pay-as-you-go in terms of losses. If we incur losses, we're going to recognize that. If we have migration downward, not into SM, but into substandard and into non-performing, that could trigger additional provisioning requirements and charge-offs. Other than that, if charge-offs don't really materialize, I think that number could drop rather dramatically, actually, over time.
Thanks very much.
The next question will come from Brock Vandervliet of UBS. Please go ahead.
Oh, thanks. Most of my questions have been answered. Dale, how did you kind of thread the needle with the, especially in the hotel book, the restructuring or the deferral that you've structured, especially the longest term ones out to mid 2021. How is that not a TDR?
The kind of the special dispensation that came out from the FRB extended that window a little bit. Prior to that rule change, banks could essentially do a 90-day deferral on anything without having it fall into a restructuring. If there's some temporary hardship, you can basically dole out over the life of a loan, one 90-day push-out. That's been the case, gosh, since I've been doing this for decades. What they allowed is that you could, instead, for credits that have been impaired by the pandemic, you could double that, and you can take it six months. That's all we've done, is we've said, "Okay, well, we can do six months, we will allow the longest you can go and not have it fall into a restructuring situation." They're paying again.
The amount of time that they go on a deferral is within that window and within the guideline that was allowed. Even though it's a year, they've prepaid six months of it.
Yeah. Brock, Ken here. There's a difference between a solution to how we bridge the gap over the next year with them versus the deferral time. The solution is for a year. The deferral is six months of that year, and the other six months, they give us the cash up front.
Got it. Okay. Any more color on that negative provision? You touched on it in one of the earlier questions in one of the national businesses, and I think there's a $2 million one in the HOA business. It seemed just unusual timing this quarter.
Yeah. Again, we go through this process, and when we have all these multivariate regressions, and then you come back and you look at it and say, "Okay, is this helpful? Are we learning something about this, or is something kind of overstated?" Well, the HOA loan portfolio is quite small. It had been in a kind of a separate category caught up in C&I loans. Well, when you look at the HOA loans on a standalone basis, the idea that they're going to have loss behavior, anything like a C&I loan or that kind of risk profile is really overstated. I'm sure there's somebody somewhere. I don't know anyone that's ever lost $1 in an HOA loan.
When you make an HOA loan, if the HOA becomes delinquent, you get to jump in front of the first position lender on whosever house it is in that HOA that's delinquent. If I don't pay my HOA fees and that causes my HOA association to not pay, they can come after me, and they get a lien in front of my first mortgage. Your LTV on that loan is less than 1%. That's just ridiculous. That's just going to sit there forever. You get your money eventually. A loss rate really on HOA loans should be darn near zero. The reason why it wasn't originally is because it was embedded in a larger group of C&I loans because it was so small, highlighted that change, and addressed it with segmenting that particular target.
Got it. Okay. All right. Thanks for the color.
The next question comes from Gary Tenner of D.A. Davidson. Please go ahead.
Thanks. Good morning. I just want to ask a question on the hotel deferral strategy. Ken, I think you mentioned that you had some sponsors basically coming to you and saying, "I'm glad we did it this way," the six plus six. That said, I'm sure they all would have happily taken a six-month deferral without paying six months of accelerated cash. How can you be confident that kind of post-COVID, there's not any negative fallout in terms of business or relationship with some of these sponsors with the bank?
Okay. I think that's a fair question. 66% of our book is with large sponsors, and those are sponsors with 25 or more hotels. They generally deal with about 88% of their book is all connected to the top brands, the Marriott, the Hilton, the Hyatt, right? What they have seen from us is our deep knowledge of the industry. People like working with other folks that have an understanding of the knowledge of the industry. I'm going to move to a different group for a second to highlight this as well. We are gaining a lot of share in warehouse funding.
If I had to pinpoint the most familiar reason why we're getting new customers is because our new customers are telling us that some of their incumbent banks don't understand the space the way we do, and they don't want to be dependent upon a lender that doesn't understand the space and may do something irrational, right? Back to hotel, we didn't do anything that was irrational. We actually started with the relationship very early by saying, "You always need to have a lot of equity in this relationship." That's the first thing. We then work through the models, of course. We make sure there's the right debt service coverage ratio, make sure they have the right NOI margins, make sure they've got a model that works in downtimes. You're seeing that now.
You're seeing the model work in downtimes as our customers are able to lower their ADR and take market share from the lower brands, move that market share to their hotels because people like to go to a nicer hotel for a lower price. All right. Now, all those things connected together indicate that our customers like working with us, and they know that we understand that market. I think what you're going to see here, and this will play out over time. You can ask me this question six months or nine months from now, assuming that the economy's returning to normal. I think you're going to see a lot of our smaller competitors that just do one or two hotels here and there, smaller banks. I think they're going to lose business to us.
Over the long term, I think our clients want to deal with someone that know how to grow. By the way, we're still in business. We're not shutting down lending. Okay? We're not doing any right now because there are no deals. We have told our clients, if you've got a good deal, if you have an opportunity, we're there to finance you if you are working with us and showing commitment to your existing projects. I call this tough love because I don't think they didn't like it to begin with, but I think we've earned some respect with some of them. The large majority of our borrowers have resources and are here for the long haul. Think of it this way. There comes to a certain point where your kids think you're smart, then all of a sudden your kids think you're really dumb.
Then they return to say, "Boy, how did my dad and mom get so smart again?" Well, I think this is what you're going to see with our clients. They're going to say, "Gee, we didn't agree with this approach at first, but you know what? These guys had a smart approach to this," and it was a differentiated approach. What was interesting that people don't understand is it put our clients in front of us to talk to us, right? Before the other banks even had a conversation. A lot of these other banks did a 90-day open-ended deferral, cookie cutter, you got it. I'll see you in 90 days. We came in with a solution. We said, "Wait a minute, you have a bigger problem. We have a bigger problem. The industry has a bigger problem. The economy has a bigger problem.
This is our viewpoint. This is how we see it playing out. Good or bad, at least they can respond to your viewpoint and your vision of tomorrow and how you want to solve for it.
That's great. I appreciate the thoughts.
This concludes our question and answer session. I would like to turn the conference back over to Ken Vecchione for any closing remarks.
Thank you all for your time today. We appreciate it. We went a little bit longer, but we were happy to do so to make sure that all of your questions were answered thoroughly. We'll be in touch. We look forward to seeing you again in person one day. Thank you all.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.