In late 2019, Bank of Marin announced it had hired executive search firm Korn Ferry to find a successor for Russ Colombo, its president and CEO.
But just a few months later, the world turned upside down.
"It was moving along, but then all this hit," Colombo said of the coronavirus pandemic. "During a time of instability in the country, it's probably a good time to sit tight and not make drastic changes."
Colombo, 68, joined the $3.2 billion-asset company in 2004 and has been its president and CEO since 2006. He had planned to retire by now, but said the search for his replacement has been put on hold, and he will stay at the helm for "as long as the bank needs."
During Colombo's tenure, the Novato, California-based bank's earnings per share grew from 29 cents in the final quarter of 2006 to 55 cents the second quarter of 2020. Bank of Marin has grown to 22 branches, five commercial banking offices and a loan production office.
Colombo spoke to Banking Dive about the bank's plans for growth, COVID-19's impact on commercial real-estate lending and potential M&A deals.
This interview has been edited for clarity and brevity.
BANKING DIVE: The bank is a relatively small fish in a giant pond. What has helped Bank of Marin succeed in the San Francisco Bay Area?
RUSS COLOMBO: We're really focused on small-business owners. I think bigger banks often forget about them, but that's kind of our bread and butter. And I think we've done well because we do that. During the financial crisis, we didn't foreclose on a single property. We worked through that time with our clients. Customers look for the kind of relationship that we bring.
How has Marin dealt with the challenges associated with the pandemic, and what lessons has it learned that might benefit it in the long term?
COLOMBO: Everybody is suffering now, and we try to make sure we know how our clients are doing. We've been proactive in granting loan deferrals.
We've also installed some pretty significant protocols internally in terms of keeping people healthy. We have a lot of people working from home. About 130 of our 300 employees are either working from home or remotely. So, going forward, we may have less need for real estate, and we can be more efficient. I've been working from home for five months and it's frankly not that much fun. I've heard from many employees that they can't wait to come back to work because it wears on you mentally being at home all the time. But we've found that some of our functions can be done remotely.
How will branching be impacted, when all is said and done? I noticed you recently opened a commercial office in San Mateo.
COLOMBO: Some customers were afraid of technology and really didn't want to use it, but now they've been forced into it even though it was uncomfortable for them. So the size of branches will continue to diminish and the number of branches will, as well.
In San Mateo, we're interested in using the office as a way to tap into the commercial space in the Peninsula and the South Bay areas.
How will remote work affect commercial real-estate lending in your markets?
COLOMBO: The technology sector is what really drives real estate in the Bay Area. And a number of those companies have announced plans to have a great percentage of jobs done remotely. So if they have a lot of real estate, and that real estate is going to go back on the market as a sublet, it's clearly going to have an impact on valuations.
And we've seen it over the years. After the dot-com bust in the late 1990s, real-estate prices went from about $70 a foot to $35 a foot — they were basically cut in half. I'm not saying that's going to happen again, but it might. The good news for us is that our commercial real-estate portfolio has a loan-to-value rate in the low 40s, and in the industries that are most affected, we're in the high 30s. So we have room for declines and still have a situation where we're in good shape.
In retrospect, what one change would you have suggested for the Paycheck Protection Program (PPP)? And have you heard anything specific on plans for forgiveness?
COLOMBO: The rules were pretty vague, and it set up a situation where people could really take advantage of taking the loans. The whole point of the program was to get money to companies so that they could pay employees. And I think a lot of companies used it to sustain their business. The rules should have been better defined.
We had about $300 million in 1,800 PPP loans, and we took care of our clients first. On forgiveness, we are waiting to hear, like everybody else.
Where do you see the strongest lending opportunities for Bank of Marin going forward?
COLOMBO: We have different strengths in different offices. The East Bay, for example, is very strong for [commercial and industrial] loans. In Napa, the wine industry has done pretty well through this. They have the advantage of multiple points of distribution.
Throughout our footprint, I see opportunities because of what we do and how we do it. Companies have learned through the pandemic how important it is to have a good relationship with their banker.
The bank has completed three acquisitions — Charter Oak Bank, Bank of Alameda and Bank of Napa — since you took over. But the industry has seen deals really dry up this year. How are you looking at mergers and acquisitions now?
COLOMBO: It's pretty tough right now, and not much is getting done. But, that said, we're in a great position. If you look at our stock price, we're trading at over 14 times earnings, which is off compared to where we were at 18 times earnings. But relative to our peers, we're still trading at a premium. Our currency is strong.
Coming out of this, our credit quality will be solid, and that puts us in a great position. I'm sure not all banks will be in that position, and when we start seeing stress, it will give us opportunities to potentially acquire other banks.