Q1 2020 Earnings Call
Call over today breaker Dave. Thank you, Christina and good morning everyone. Thank you for joining us again this quarter. First of all, I just want to let you know that I'm pleased to be joining a day for my first earnings conference call is the new Chief Executive Officer of CVB Financial Corporation. I assume the role last month and I am truly honored that are or chose me to leave this outstanding organization. I see it as a terrific opportunity to leverage my more than Seventeen years and Citizens Business Bank and share my deep understanding of our bank strategies and local Geographic markets to agent in you delivering strong financial results.
As we discuss our first quarter earnings today the entire world and our nation is being affected by the covid-19 pandemic while all of us are still coming to grips with its impact. It's clear that took effect on many Industries including the financial services sector will be felt in a significant way and twenty twenty before we provide more details on how we are responding to this crisis off and I will report on our first quarter 2020 Financial results yesterday. We reported net earnings of $38 for the first quarter of 2020 or $0.27 per share represented are a hundred and seventy second consecutive quarter of profitability. We also declared an $0.18 per share dividend for the first quarter of 2020 which represented are a hundred and twenty six consecutive quarter of pain a cash dividend to our shareholders.
Barnett or names of $30
Million dollars compares with 51.3 million dollars for the fourth quarter of 2019 and fifty one point six million dollars for the year ago quarter earnings per share of $0.27 for the first quarter Compares with $0.37 for the fourth quarter and $0.37 for the year-ago quarter.
We recorded a credit loss provision of $12 for the first quarter of 2020 after adopting and implementing Cecil in comparison. We had no loan loss provision in the fourth quarter of 2019 and a loan loss provision of 1.5 million dollars for the first quarter of 2019. The increase in our provision was primarily the result of a forecasted of the forecasted impact of the pandemic on our economy, which we will discuss later in more detail. Our pretax pre-provision income was 65.3 million dollars for the first quarter, which was six point three million dollars lower than the prior quarter and eight point nine million dollars lower than the first quarter of 2019.
The decline in pre-tax provisioned income was primarily the result of lower net interest income due to the significant decline in interest rates the Federal Reserve lower short-term interest rates by 1050 basis points in the first quarter of 2020 after having lower them by 75 basis points in the second half of 2019 net interest income before provision for credit losses was a hundred and two point three million dollars for the first quarter down four point seven million dollars from the fourth quarter and down 7.2 million dollars from the year-ago quarter.
Now I would like to discuss deposit and mofro at March 31st, 2020 are not expanding demand deposits total 5.5 seven billion dollars compared with a five point two five billion dollars for the prior quarter and five point 1 billion dollars for the year ago quarter, non-interest-bearing deposits were 61.2% of total deposits at the end of the first quarter compared with 60.3% for the prior quarter and 59% for the year ago quarter. We had strong deposit growth for the first quarter given what what is typically a Sea Shack for us? Although a portion of the growth was inflated by approximately a hundred million dollars of short-term non-interest deposits at the end of the first quarter.
average non interest-bearing deposits were five point two five billion dollars for the first quarter of 2020 compared with 5.3 billion dollars for the prior quarter and 5.09 billion dollars for the year ago quarter our average total deposits and customer repurchase agreements of nine point three billion dollars for the first quarter grew by $18 or 2% from the fourth quarter of
At March 31st 2020 our total deposits and customer repurchase agreements were 9.48 billion compared with nine point one three billion dollars at December 31st 29th and 9.1 to billion dollars for the same period a year ago now moving on the loans.
total
Phones decreased by $98 at the end of the first quarter of 2020 or about 1.3% to 7.47 billion dollars the decrease in loans included $112,000 declined and agribusiness and dairy livestock clumps. This decline was mostly seasonal as we experience pay Downs in the first quarter of each calendar year as a result of the temporary increase we experience in the fourth quarter of each calendar year as a result line usage for agribusiness and dairy life Cyclones declines from its peak level is your end of approximately 75% The Club at 50% at the end of the first quarter excluding agribusiness in Dairy livestock clones total loans grew by Thirteen point two million dollars or .18%
B & Islands increased twenty six million dollars or 2.7% from the fourth quarter partially due to a modest increase in credit line utilization construction loans increased $5 will see re-launch decreased $27 commercial lines of credit saw a modest increase in line usage from roughly 55% at the end of 2019 month to approximately 60% at the end of the first quarter construction loan growth was also reflection of higher line usage which Grew From approximately 60% a year end to slightly more than 70,000 at the end of the first quarter.
Average lungs for the first quarter to climb by $13 compared to the fourth quarter of 2019 and declined by $180 or 2.4% compared to the year ago quarter home net interest income before provision for credit losses was 102.3 million dollars for the first quarter compared to $107 for the fourth quarter and 109.5 million dollars from the year-ago quarter the decrease in net interest income was primarily due to the decline in interest income from lower-level O'Neill's our tax equivalent net interest margin was 4.08% for the first quarter of 2020 compared with 4.24% for the fourth quarter and 4.39% for the first quarter of 2019. Chef impact of discount accretion on acquired loans and non-accrual interest paid is excluded. The adjusted tax-equivalent net interest margin was 3.87% for the first quarter down from 3.
Nine 5% for the prior quarter and 4.07% for the year ago quarter loan yields were 4.95% for the first quarter of 2020 compared with 5.15% for the fourth quarter of 2019 and 5.27% for the year ago quarter. This decline was primarily due to the impact of the Federal Reserve rate decreases and the decline a discount appreciate income for the acquired loans.
Excluding interest income related to purchase discount accretion and non-accrual interest paid low yields were nine basis points lower than the fourth quarter of 2019 and 18 basis points lower than the fourth quarter 2019 our cost of deposits and customer repurchase agreements for the first quarter were twenty basis points and our total cost of funds was 21 basis points both slightly off from the prior quarter and prior year.
moving on tonight
Interesting. Interesting, was eleven point six million dollars for the first quarter of 2020 compared with twelve point six million dollars for the prior quarter and 16.3 million dollars for the month ago for the first quarter of 2019 benefited from a four point five million dollar gain on the sale of a building which tells a banking center that was relocated now expensive or not interest expense for the first quarter was forty eight point six million dollars compared with forty nine point 1 million dollars for the fourth quarter of 2019 and fifty one point six million dollars for the month when it just it for acquisition expense related to the Community Bank merger not interest expense for the first quarter of 2020 was relatively flat compared to both the prior quarter and the wage order.
Not interest expense totaled 1.72% of average assets for the first quarter compared with 1.71% for the fourth quarter and 1.83% for the first quarter of 2019 off. Our efficiency ratio is 42.7% for the first quarter of 2020 compared with 41% for both the prior quarter and the first quarter of 2019.
Now turning to our asset quality metrics at quarter in non-performing assets defined as not a cruel loans plus other real estate owned or eleven point three million dollars compared with ten point two million dollars for the prior quarter and 19.3 million dollars at March 31st, 2019.
As of March 31st 2020 we had other real estate owned a four point nine million dollars the same as the prior quarter.
At March Thirty 12020 we have loan still linked with 3289 days a four point four million dollars or .06% of loans classified loans for the first quarter were eighty three point six million dollars a 10.1 million dollar increase from the prior quarter. The increase was due to ten point two billion dollars in commercial loans acquired from Community Bank. We will have more detailed information on classified loans available on our first order our first quarter form 10-q.
at March 31st 2020 loans to customers in the hotel Restaurant entertainment and Recreation Industries represented approximately 3% of our loan portfolio to customers in Educational Services were only 1% of the overall portfolio other retail related loans primarily loans collateralized by commercial real estate wage is approximately 12% of our loan portfolio at March $31 20
origination the retail these loans were under written with Londa values averaging approximately 53% our exposure to the oil and gas industry is minimal wage.
17 we have granted temporary payment deferments of Interest or a principal and interest for 508 loans in the amount of $768 million dollars which represents approximately 10% of our total loan portfolio these deferments range from 60 to 90 days. Additionally. We have been an active participant in the sba's paycheck Protection Program. Yes be exhausted the initial funding for this program on April 15th, but through that date we process 911 loans totaling $550 million dollars. I will now turn off all over to Alan Napleton to discuss our effective tax rate adoption of Cecil Capital levels and liquidity Alan.
Good morning, everyone.
Our effective tax rate was 28.75% for the first quarter compared to 27.4% for the fourth quarter of 2019 and 29% for the year ago.
Estimated annual effective tax rate varies depending upon the level of tax-advantaged income as well as available tax credits.
We adopted the Cecil accounting standard for credit losses on January 1st 2020 which resulted in a beginning balance transition adjustment to our allowance for credit losses of 1.9 million off with a cumulative effect adjustment to be getting retained earnings of 1.3 million dollars. No tax. We recorded $12 in provision for credit losses during the course primarily as a result the forecasted economic impact from the coronavirus pandemic including that recovery is of $141,000 in the quarter are ending allowance for month was eighty two point six million dollars or 1.11% of total loans.
At the end of 2019 our allowance was 91 basis points there for increasing the allowance by 20 basis points as a result of the new Cecil accounting standard and the associated with comic recession from the pandemic.
Economic forecast is a blend of multiple forecast produced by movies the resulting forecast assumes a decline in GDP for the second quarter of almost 20% and unemployment rising to 9% in the second quarter and continuing to be inflated through the remainder of 2020.
Now turning to our Capital position shareholders Equity decreased by fifty two point seven million dollars to 1.9 for billion dollars at the end of the first quarter the decrease wage primarily due to the repurchase of approximately 4.9 million shares of common stock for ninety one point seven million dollars under our ten b51 stock repurchase program. We previously announced that we used to spend at this can be five one stock repurchase program due to the uncertainty of the covid-19 pandemic. We had thirty-eight million dollars in earnings during the quarter offset by 24.5 dollars in cash dividends to clear finally our Equity increased by twenty five point eight billion dollars as the result of an increase in other comprehensive income from the increase in our taxes adjusted market value age of our available-for-sale Securities portfolio.
Overall Capital position continues to be very strong are tangible common equity ratio was 11.3% and end of the first quarter and our regulatory Capital ratios are well above regulatory requirements be considered well capitalized at March 31st are common Equity Tier 1 Capital ratio was greater than 14% and our total risk-based Capital ratio was approximately 15.5%
We are well-positioned with a balance sheet. That's highly liquid funded almost entirely with core deposits and the availability of significant off-balance-sheet sources of liquidity at March 31st, 2028 combined available for sale and held-to-maturity investment Securities told a 2.3 billion dollars a $93 decrease from the fourth quarter and an 85 million dollar decrease from March 13th, 2019.
at quarter-end
Security is available for sale total 1.68 billion dollars.
Portfolio had a pre-tax unrealized gain of fifty eight point five million dollars at March 31st, 2020 an increase of 36.6 million dollars from the end of the year.
This portfolio of Securities is comprised primarily of Highly liquid government agency mortgage-backed securities.
In addition, we had $567 and balances at the Federal Reserve it March 31st, which we expect to deploy in the second quarter to fund loans and the sba's paycheck Protection Program.
At quarter-end. We had only twenty-five million dollars and sub debt and no other borrowings. The bank has available lines of credit exceeding four billion dollars. Most of which is secured by pledge loan. I will now turn the call back today for some closing remarks. Thanks Allen. Our main continues to be strong and financially sound and has been a consistent and stable business partner / variety of economic Cycles during the past forty-five years. We've received many accolades for our solid performance and are proud to have been ranked as the best bank in America for 2020 by Forbes magazine for the second time five years. We've represented the best about Community banking a focused approach on our customers and the many ways the bank can assist them achieve more for their businesses their employees their customers and the communities they serve
During these difficult times do the covid-19 pandemic. We're supporting our communities and customers through various methods first. All of our banking channels are open to support them as always make up products and services are already available remotely or in a manner that minimizes person-to-person physical contact when possible we encourage our customers to utilize our customer service line online banking bill pay and other Mobile Solutions currently are 58 Business Financial centres, and three trust offices are open for business with reduced operating hours. We've been Club monitoring the situation and any actions we take with regard to the well-being of our customers and Associates will be consistent with guidelines from the CDC and public health officials. We have programs in place to assist customers with loan forbearance as we have previously discussed.
We participated in the paycheck Protection Program and hope the Congress will soon authorize additional funds for small businesses that are struggling.
Recently, we announced over $350,000 in donations to community benefit organizations in need of assistance due to this pandemic at the beginning of 2020. We were optimistic about meeting a deposit growth objectives for the year. However, this pandemic has left us with uncertainty as to what will transpire in the future currently. We have experienced limited increase on home draws online credit by our customers and our deposit growth remains strong. We are monitoring these metrics on a daily basis our business continuity task force comprised of members from our executive and Senior Management teams has been meeting twice a week to discuss the best ways to work with our customers and Associates to keep themselves them safe while providing essential Financial Services. I want to assure you that our customers and Associates are always our top priority. Our Associates have been truly amazing during this difficult time and I would like to acknowledge their dedication and hard work. I'd also like to age
our customers for their ongoing loyalty
And our shareholders for their continued support and Trust we believe these attributes will be even more important to our bank as we navigate the uncertain financial and business environment created by this pandemic. Please stay safe and healthy that concludes today's presentation now and I will be happy to take any questions that you might have.
Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. So if I ask a question, please press * then two. We will ask the participants to please limit their initial question to a single question and a potential follow-up. Then you can go back into the queue. If you have additional questions at this time. We'll pause to assemble our roster.
And our first question will come from Gary tenor of d a Davidson, please go ahead good morning had a couple of questions. Hey, you talked about some level of draw Downs in the see my portfolio though. It sounds like your kind of wrap-up comments said they were somewhat limited has those drugs been repaid in early in the second quarter and did that impact that kind of seasonal or the late quarter Spike. You said you saw on the deposit side.
Yeah it in Gary. It's it's been relatively stable. They haven't necessarily paid down. I mean it's a very granular list of customers. So if you know, it's kind of all over the board, but on average at State prep table.
Okay, so you're saying but okay and the late quarter spike in deposits, I think said about a hundred million dollars. Is that related to hydras or was that just a customer transaction with the temporary kind of deposit? Yeah, that was more of a temporary deposit that was there at the end of 331.
Okay. Thank you. You're welcome.
Our next question will come from David feaster of Raymond James, please go ahead. Hey, good morning guys, you know, I just wanted to talk about some of the factors that drove the twelve million in provision increase for the ongoing pandemic and and maybe just you know, given updated economic forecasts that may be a bit worse than what you correctly modeled. How do you think about additional Reserve Bills going forward?
So David, you know, you can probably tell from our our prepared remarks of the weightings of our forecasts, you know, there was a significant waiting to move these Baseline forecast, June 27th. So, you know that GDP declining by about 20% and you to unemployment Rising by approximately 9% So certainly off some of the forecast data that's come out more recently possibly could suggest that that we could see a bigger effect on the economy and certainly wage because that's a big part of the Cecil accounting. We potentially could see some additional Reserve build in the second quarter, but you know, a lot of things will go into that office is one component of it and certainly early in the quarter. So it's it's we have a lot of uncertainty when we really don't have any guidance are really know where that's going to be through.
Okay.
That's helpful. And you know, I appreciate the color on the at-risk portfolio. You know, one one area that you didn't comment on that. We you know read some negative headlines is the dairy in the livestock segment. Just curious. What's your hearing their? What are you hearing from? Your your producers, especially on the very front and just house asset-quality trended and how active that they found in in the deferrals and PPP program.
I'll take that one David so, you know, obviously beginning in 2019 or at the end of 2019 beginning and 20/20 Dairy actually had a a very profitable profitable 2019 and life, you know, there was a positive outlook with the twenty-twenty changes that are occurring there. There is a little more concern, you know our dairies at this point are are doing okay, but no prices and forward-looking milk prices are are down slightly So that obviously will have an impact on the dairy portfolio. We're working with our customers through all the variety of programs that we offer at this point. You know, everything is is okay. But demand is down a little bit and prices are down a little bit conversely feed and and Costco so down a little bit but not as much as the as the prices down the forward-looking price and and and some of our customers also had a price protection built-in. So, you know, we're we're very close to that. We're staying very close.
Close to that. It's it's important portfolio for us and and we'll continue to monitor that on a on a weekly daily basis.
Okay, that's helpful. And last one from me just on the PPP program. I mean you guys have been very active just curious how that's progressed how how you know inbound calls have progressed since April 16th, when when the data that you provided was as of any thoughts on fees coming in and just whether you're still accepting new applications and are taking new customers or just existing clients only God. Yeah, so all so just a couple of quick comments on that. We're we're accepting applications from existing customers only we have a queue of applications that we were unable to satisfy in the first round of funding. We're going to be working on that list for the second round of funding. I don't know if they voted yet today, but I know that's that's close and you know, we're going to be active in the second round of that as well. But we are technically accepting applications, but we have a queue of people that have already applied that we're going to focus on first month.
Okay, how how big is that q and do you have any any idea of you know fees generated from that program? Yeah. So the the Q we had approximately thousand applications we were able to to to process 911 up them a significant number of those were ready to go and and move forward with so just based on the phone 911 applications at the dollar amount, you know, our average will probably be slightly below 3% We haven't done a full analysis of that. We just kind of estimated at this point. So somewhere around, you know below 3% a little bit below 3% on the the loans the amount outstanding. Okay. That's helpful. Thank you.
Our next question will come from Jackie Bowen with KBW, please go ahead.
I just one quick follow on to that. I'll see the roughly four thousand applications that you received are the loan sizes of that similar to what you had in the 911 dead.
I guess that a month.
I guess that a different way that two and half percent. Does it apply to the 4000 or the 911 the number I was saying below 3% applied to the 911 I would imagine that I would be pretty similar moving forward with the additional applications. It might be slightly slightly higher than two and a half percent actually on the additional applications month.
Thank you. And then just one more for me and I'll step back. Do you happen to have the breakdown with the 82.6 million? Do you have the breakdown between what portion of that is attributable to load that standing and what is for unfunded commitments?
Jackie that doesn't include the commitment liability.
Okay, great. It's just pure lug perfect. Thank you.
Again, if you have a question, please press * then 1 hour. Next question will come from Tim coffee with Jenny, please go ahead in the morning, just to kind of round out the questions on the triple P program. What is your what is your preferred kind of holding. For those loans?
Well, the customers have once a loan is funded. They have eight weeks to utilize the funds for payroll and other approved expenses. And so, you know, we're we're still waiting for final guidance on the the evenings aspect of it. So, you know in theory that holding. Could be anywhere from you know, nine weeks to 16 weeks just depending on the process for the Forgiveness month. And so, you know, I think it will, you know, I would believe most of it would be satisfied in the second quarter. Although there may be some that that rolls over to the third quarter. Okay. Yep, and Allan kind of follow up on a comment you made it sounds like you're you're likely to use your own liquidity to fund some of these loans rather than borrowing from the triple P facility. Is that correct?
At this point we we predict that but you know, there is a lot of uncertainty we never know. But right now we would proceed that okay sounds good. And then the deferment. That you mentioned of 60 to 90 days is so much shorter than I've heard from other calls. What's kind of the thinking behind going out just 30 to 90 days. I'm sorry 60 to 90 days. Yeah, the vast majority of them are dead deferments and that's that was sort of our initial take on it and then we'll obviously re-evaluate that and potentially look at the impacts of this virus and and obviously any other credit issues there might be but we're we're taking it ninety days at a time. The reason we said 60 to 90 there was a a few that only asked for 60 our customers and so we satisfied their require. Okay and of the call him at risk in your portfolio that 16% do you have any idea what percentage requested deferment wage?
We don't.
Details on that that specific number know. Okay. All right, and then I mean, I know it's not a big part of your portfolio, but it is in your local geography. So I'm just kind of wondering what kind of is there any kind of color you can give us on what you're seeing from the industrial warehouse space in the Inland Empire right now are their trucks moving through is it slow down anything would be helpful. Thanks. Yeah, so just a couple of comments on that. I mean, obviously the Inland Empire is Distribution Hub and I drive to work everyday takes me about 30 minutes to drive in and took a significant amount of trucks moving on the freeway. There's not a lot of other cars moving but there's a significant amount of trucks. So I think you know Logistics and and the distribution networks from here are are are strong. I mean, obviously it impacted but it's it's probably less impacted than most other Industries.
Okay, great. Thank you. Those are all my questions. Thank you.
again, if you have a question, please press * then 1
Again, that is star been one.
Our next question will come from Jackie bowling with KBW, please go ahead.
Hi, thanks for taking the follow-up. I just wanted to touch base on you know expectations for loan and security yields and how you expect those to move in the coming quarter with the the March rate reductions and down other interest rates are out right now. I mean from a security perspective, you know, we haven't been active and buying Securities this year and you know, I don't foresee a lot of activity there at least in the near-term. So our our security yields will probably be fairly stable where they are going to miss work foil will continue to run down a little bit but overall, we haven't seen any significant change in prepayment speeds off Securities that that would have a difference in terms of what we expect to be able to be there and I would just add as far as far as loans. There's you know a little more head.
And on the loan side, you know a significant amount of our loans are are are priced on 10-year Treasury. And so 10-year treasury is down in the low 60s today. And so that's that's something that I bought a new loan origination. You know, we're we're looking at pricing on that and then there is some pressure although you know, I think it's moderated a little bit with this on our existing loans and and Performing modifications on those. So I expect us, you know, we're trying to hold the line as as best. We can kind of a similar story that we've had in previous quarters and a declining rate environment and we look at the relationship and we want to make sure we're taking care of our customers and and we're evaluating that but there are definitely some headwinds.
Okay, okay.
No. So it I mean just given what I assumed to be limited room in the funding side because you're funding is already so strong and low price. It sounds like anticipation of some more margin pressure just as of the loan yields reprice. Is that fair?
Yeah, and and you know Jack you can go back to a 10K at the end of the year and you know, we talked about a hundred basis point Decline and rates a ramp to change right, you know, and and over 12 months. It's the club up 2% in over 24 months, you know 5% We had a hundred fifty basis point to climb late in the quarter. So I think that gives you you know, some sense caller has to the sensitivity of our life.
Thank you. Our next question will come from Gary dinner with d a Davidson, please go ahead.
Hey guys, this is Jake Stern on for Gary Turner. Just a follow-up question. So you mentioned some detail on discount accretion for the quarter. Could you tell us projected quarterly discount the price for their major twenty-twenty? Thank you. Sure. We don't we we it's a hard it's hard to project because much of it is accelerated as as long as payoff, you know, so, you know, it's obviously coming down and it's it was down approximately 2 million quarter-over-quarter, you know, generally speaking the trend will be down but 1/4 out it's hard to tell if we have that changing prepayment activity the prepayment activity starts to slow down then and that number will also slow down, but but ultimately it's going to be declining.
Wonderful. Thank you guys.
again, if you have a question, please press * then 1
this concludes our question-and-answer session. I would like to turn the conference back over to David Berger for any closing remarks, please go ahead sir.
Great. Thank you. I want to thank everybody for joining us this quarter. We appreciate your interest and look forward to speaking with you in July for a second quarter of 2020 earnings call. Please let Alan or I know if you have any questions. Have a great day and stay safe. Thanks for listening.
The conference has now concluded thank you for attending today's presentation. You may now disconnect.