Q4 2020 CVB Financial Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the fourth quarter of 2020, CBB Financial Corp, and its subsidiaries of citizens business Bank earnings Conference call. My name is climbing and I on your operator for today at this time all participants are in a listen only mode. Later, we will conduct a quest.
And on say period. Please note that this call is being recorded I would now like to turn the presentations all of the two young hosts for today's call Christine on Caribbean You May proceed.
Thank you Carmen and good morning, everyone. Thank you for joining us today to review our financial results for the fourth quarter and year ended 2020, joining me. This morning, our day Brager, Chief Executive Officer, and Allen Nicholson Executive Vice President and Chief Financial Officer.
Our comments today will refer to the financial information that was included in the earnings announcement released yesterday two of.
Obtain a copy please visit our website at Www Dot C D Bank dot com and click on the investors' tab.
Before we get started let me remind you that today's conference call will include some forward looking statements. These forward looking statements relate to among other things current plans expectations events and industry trends the mix that may affect the company's future operating results and financial position.
Such statements involve risks and uncertainties and future activities and results may differ materially from these expectations. Among other risk the ongoing COVID-19 pandemic may significantly affect the banking industry and the company's business prospects the ultimate impact on our business from financial results well.
It depend on future developments, which are highly uncertain and cannot be predicted.
The scope and duration of the pandemic the impact on the economy, our customers on our business partners and actions taken by governmental authorities in response to the pandemic the.
The speakers on this call claim the protection of the Safe Harbor provisions contained in the private Securities Litigation Reform Act of 1995.
For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward looking statements. Please see the company's annual report on form 10-K for the year ended December 31, 2019, and in particular, the information set forth in item one a risk factors therein.
Now I will turn the call over to Dave Brager, Dave.
Thank you Christina good morning, everyone happy new year, and thank you for joining us again this quarter.
We reported net earnings of $51 million for the fourth quarter of 2020, or 37 per share representing a 175th consecutive quarter of profitability and our highest level of quarterly income in 2020.
We previously declared an <unk> 18 per share dividend for the fourth quarter of 2020, which represented our 125th consecutive quarter of paying the cash dividend to our shareholders.
Fourth quarter net earnings of $50 $1 million compared with $47 $5 million for the third quarter of 2020, and $51 $3 million for the year ago quarter.
Earnings per share of <unk> 37 for the fourth quarter compared with 35 for the third quarter and 37 cents for the year ago quarter.
Net earnings were $177 $2 million for the year ended 2020, compared with $207 $8 million for the year ended 2019.
Diluted earnings per share per $1 and <unk> 30 for 2020, compared with $1 48 for 2019.
We did not have a provision for credit losses in the fourth quarter as our forecast of macroeconomic variables at quarter end change modestly from the prior quarter and the asset quality of our loan portfolio did not materially changed from the third quarter, we will discuss our allowance on our economic forecast in more detail later on this call.
Now I'd like to discuss our deposits and loans at December 31, 2020, our noninterest bearing deposits totaled $7 $4 $6 billion compared with $6 $92 billion from the prior quarter and $525 billion for the year ago quarter.
Non interest bearing deposits were 63, 5% of total deposits at the end of the fourth quarter compared with 62% from the prior quarter and 63% per the year ago quarter.
At December 31, 2020, our total deposits and customer repurchase agreements were $12 $2 billion compared with 11 7 billion at September 32020 at $913 billion for the same period a year ago.
Average noninterest bearing deposits were $6 $9 billion for the fourth quarter of 2020, compared with $6 $7 billion from the prior quarter and $5 3 billion for the year ago quarter.
Our average total deposits and customer repurchase agreements of 11 $8 billion for the fourth quarter grew by $376 million or three 3% from the third quarter.
Now moving onto the lungs.
After adjusting for seasonal loan growth and forgiveness of the paycheck protection program loans in the fourth quarter, our loans grew by $51 million or approximately 1%. Our loan production was relatively strong in the fourth quarter as is our current loan pipeline. We are optimistic that we can grow loans in 2021.
<unk> of of the forgiveness of round, one PPP loans and the origination of the second round PPP loans.
Total loans decreased by $59 million from the end of the prior quarter, when including the impact of the PPP loans.
PPP loans decreased by $218 million from the end of the third quarter as our borrowers started to receive per gives us from the SBA excluding.
Excluding the decline of PPP loans are remaining loans increased by $159 million the.
The increase was primarily due to a $108 million increase in dairy and livestock and agricultural loans and a $73 million increase in commercial real estate loans from.
The majority of the increase in dairy and livestock loans was seasonal and occurred near the end of the quarter as many of our dairy owners choose to defer their milk checks into the first quarter of the following year <unk> prepay their feed expenses.
The increases in loans were offset by a 17 million dollar decrease in construction loans with the remaining loan segments declining by a net amount of $5 million.
Compared to December 31, 2019, total loans were $784 million higher but when the PPP loans are excluded total loans declined by $99 million or one 3% over the prior year.
This decrease in loans was January generally across all loan segments with the exception of a $127 million increase in commercial real estate loans.
Average loans for the fourth quarter decreased by $35 million compared with the third quarter of 2020.
While increasing by $851 million compared with the year ago quarter.
During the fourth quarter of 2020, PPP loans had an average balance of $1 billion compared to $1 1 billion for the third quarter.
As of January 15, 2021 of the more than 4000 PPP loans. We originated in 2020, approximately 1100 of our borrowers representing $260 million in loans have received forgiveness from the SBA.
To date, our borrowers PPP forgiveness requests that have been completely processed by the SBA had been 100% per given based on the the <unk>.
Customers forgiveness application.
We have non processed forgiveness requests on any of the approximately 200 loans originated in the amounts that exceed $50000 and are equal or less than $150000 in anticipation of new guidance from the SBA we.
We will be making our forgiveness process available of these borrowers in early February as the updated guidance, which just received.
Recently, the bank began accepting applications for the second round of PPP loans.
As of January of 'twenty, five 'twenty 'twenty, one we have received approximately 1400 applications totaling $340 million.
Net interest income was 105 $9 million for the fourth quarter compared with $103 $3 million for the third quarter, and 107 and $107 million from the year ago quarter. The.
$2 $5 million increase of net interest income from the third quarter was due to the combination of of $2 million increase in the interest income, including the one $5 million increase in loan interest income and of $510000 decrease in interest expense, earning assets grew by $230 million on average from the.
Third quarter with more than $200 million of the growth coming from investment securities, our earning asset yield decreased by four basis points compared to the prior quarter.
Interest bearing deposits and customer repos increased on average by $174 million from the third quarter, but interest expense declined as the cost of interest bearing deposits and customer repos decreased by five basis points.
The $1 $2 million decrease in net interest income from the prior year was primarily due to a $3 $6 million decline in interest income, partially offset by a $2 $4 million decrease in interest expense.
Our tax equivalent net interest margin was 333% for the fourth quarter of 2020, compared with $3 three 4% for the third quarter and $4 two 4% for the fourth quarter of 2019.
When the impact of PPP loans discount accretion on acquired loans and non accrual interest is excluded.
Adjusted tax equivalent net interest margin was three 1% for the fourth quarter.
Down from three 1% to 8% from the prior quarter and 395% from the year ago quarter. Our net interest margin was negatively impacted during the fourth quarter due to our excess liquidity that resulted in approximately $1 $5 billion on average on deposits at the federal reserve, earning just 10 basis points.
On the net interest.
Chris margin in the fourth quarter would have been about 35 basis points higher without the $1 2 billion year over year average increase in deposits at the federal reserve.
Loan yields were four 5%, 6% for the fourth quarter of 2020, compared with $4 four 7% for the third quarter of 2020, and 515% for the year ago quarter.
The increase in yield from the prior quarter was due to higher levels of fee income on PPP loans, and an increase of prepayment penalty income.
Total interest and fee income from PPP loans was $10 5 million in the fourth quarter compared to $9 5 million in the third quarter otherwise loan yields were essentially the same as the prior quarter.
The decrease from the year ago quarter was primarily due to the impact of the federal reserve's rate decreases and the decline in discount accretion income for acquired loans.
Excluding the impact of PPP loans interest income related to the purchase discount accretion and nonaccrual interest paid loan yields from 438% for the fourth quarter for 37% for the third quarter of 2020 at 476% the fourth quarter of 2019.
Our cost of deposits and customer repurchase agreements for the fourth quarter were nine basis points as were our cost of funds.
Our cost of funds declined by two basis points from the prior quarter and 13 basis points from the fourth quarter of last year.
Moving on to noninterest income noninterest income was $12 $9 million from the fourth quarter of 2020, compared with $13 $2 million from the prior quarter and $12 $6 million from the year ago quarter.
The fourth quarter of 2020 included of one $6 million in death benefits that exceeded the asset value of certain bully policies and the $365000 net gain on the sale of <unk>.
In comparison the prior quarter included the one 7 million net gain on the sale of one of our bank on buildings related to our banking center that was closed in September.
We generated $876000 in fees from interest rate swaps during the fourth quarter, which was $715000 lower than the prior quarter, but more than $200000 greater than the fourth quarter of 2019 the PA.
Service charges were essentially unchanged from the third quarter, but were lower than the fourth quarter of 2019 by $965000 due to the higher earnings credits generated from the significant increases in our customers' noninterest bearing checking account balances.
Now expenses noninterest expense for the fourth quarter was $48 $3 million compared with $49 6 million for the third quarter of 2020.
The $49 1 million for the year ago quarter.
Salary and benefit expense decreased from the prior quarter by $2 million. The prior quarter included Thank you awards exceeding $1 million paid to all of our eligible associates for the fourth quarter include adjustments to year end bonus and group insurance benefit liabilities, resulting in a decrease in expense of approximately $700000.
Professional service expense increased by almost $800000 from the third quarter due to additional audit and regulatory related expenses as well as customer facing projects such as the PPP loan forgiveness and the support for online banking platform conversion.
Noninterest expense totaled 137% of average assets for the fourth quarter compared with 144% from the third quarter at 171% for the fourth quarter of 2019 our efficiency.
The ratio was 46, 4% for the fourth quarter of 2020, compared with 42, 57% per the prior quarter and 41% for the fourth quarter of 2019, now turning to our asset quality metrics.
During the fourth quarter, we had net loan charge offs of $177000 and for all of 2020 are not our net charge offs totaled $308000 at quarter end nonperforming assets defined as non accrual loans plus other real estate owned were $17 7 million compared with 16 million.
As of the prior quarter of $10 2 million at December 31, 2019.
As of December 31, 2020, we had Oreo of $3 4 billion.
At December 31, 2020, we had loans delinquent 30 to 89 days of $3 $1 million compared with $3 8 million at September 32020.
Classified loans for the fourth quarter were $78 $8 million.
The $6 million increase from the prior quarter, we will have more detailed information on classified loans available on our year end form 10-K.
At December 31, 2020, commercial real estate loans on retail properties totaled $784 million or 9% of total loans. None of these loans are on the permit and only $5 million of these loans are classified.
At origination the loan on retail properties were underwritten with loan to values, averaging approximately 49% of further note 51% of these loans were originated prior to 2017.
We also have $65 million of commercial real estate loans for hospitality properties, which is less of 1% of total loans. None of these loans are classified for on the permit.
Commercial and SBA loans to customers in the hotel restaurant Entertainment retail trade of recreation of industries represented approximately $97 million.
In loans at December 31, 2020, or approximately 1% of total loans too.
$2 $6 million of these loans were classified in $2 $7 million of these SBA loans are on the Permian.
As of January 15, 2021, we have total remaining temporary payment deferments, primarily of principal and interest for loans.
For total.
Per loans in total less than $10 million or one 2% of total loans.
85% of these loans are classified as special mention or sub standard.
Now I'll turn the call over to Allen Nicholson to discuss our effective tax rate, our allowance for credit losses capital levels and liquidity Alan.
Thanks, Dave and good morning, everyone.
Our effective tax rates of 29% from the fourth quarter and full year.
Our allowance for credit losses decreased by approximately $200000 on the fourth quarter as.
As a result of the net loan charge offs.
Our economic forecast as it relates to the key macroeconomic variables that we model for our allowance remained mostly stable from the end of the prior quarter.
Our ending allowance for credit losses was $93 $7 million or $1, two 5% of total loans when excluding the $883 million of PPP loans.
In addition to the allowance for credit losses, we have $31 million in remaining fair value discounts from acquisitions.
As a result of the decline in economic activity due to the pandemic, we recorded $23 $5 million and provision for credit losses. During the first two quarters of 2020.
Of our economic forecast continues to be a blend of multiple forecasts produced by Moody's.
These forecasts include of baseline forecast as well as an upside and downside of forecast.
This U S baseline forecast assumes GDP will increase by four 1% in 2020, 147% in 2022 and three 2% in 2023.
The unemployment rate is forecasted to be six 9% in 2021 declining 6% in 2022, and then dropping to four 6% in 2023.
California, having shut down parts of the economy again, starting in December and having on unemployment rate greater than 8%. Our blended forecast year end included a greater weighting on the downside economic forecast as compared to the weighting on the upside forecast.
Now turning to our capital position.
Shareholders' equity increased by $40 million to $2 billion end of 2020 the.
The increase was primarily due to net earnings of $177 million and a $23 million increase in other comprehensive income from the tax effected impact of the increase in market valuable value of available for sale of securities.
Set by $92 million of stock repurchases during the first quarter and $98 million on cash dividends.
Our overall capital position continues to be very strong our tangible common equity ratio was nine 6% at the end of the fourth quarter and our regulatory capital ratios are well above regulatory requirements to be considered well capitalized at.
At December 31, our common equity tier one capital ratio was 14, 8%.
And our total risk based capital ratio was 16, 2%.
At December 31, 2020, we had $1 $8 billion on deposits at the Federal Reserve.
During the fourth quarter, we started to deploy some of the excess funds into security purchases.
Which totaled $462 million.
The securities are expected to yield interest income at approximately one 1%.
In the current low rate environment with the federal reserve purchasing a significant amount of mortgage backed securities. We will continue to limit how much of our excess liquidity, we invest in such low yielding securities.
At December 31, 2020 of our combined available for sale and held the maturity investment securities totaled $2 nine 8 billion.
And $194 million increase from the third quarter and the $563 million increase from December 31, 2019.
I'll now turn the call back to Dave for some closing remarks.
Thanks Al on 2020 was a very eventful year to say the least the worldwide pandemic stay at home orders business shutdowns.
Social unrest in the near zero interest rate environment, all combined to create a very challenging environment for financial institutions to operate and succeed in.
I am proud to say that citizens business bank not only remained open to service our customers and communities, but also excelled in many areas. This is due in large part to the dedication and focus of our associates throughout the bank in the long and loyal relationships. We have developed with our customers. The bank has continued to produce consistent earnings maintained.
<unk> capital level of solid credit quality and excellent liquidity.
Our customers on loan portfolio performed favorably during the past nine months. Despite the many challenges we of all faced.
We believe that there is of light at the end of the pandemic tunnel as the manufacturer and distribution of the new Covid vaccines, hopefully continues to progress and increase.
We remain committed to the core values that have allowed our bank to succeed through the many economic cycles, we have encountered over our past 46 years in business.
Looking forward, we are encouraged by the improving economic conditions, we are seeing throughout the various markets that we serve.
Despite the recent spike in Covid cases in California, and elsewhere, along with the accompanying anxiety and systematic stresses of the Spike has created our customers have thus far of continued to perform relatively well through their entrepreneurial spirit and sheer force of Wil.
We're proud to be their partners and helping them persevere and hopefully come out stronger on the other side.
Additionally, as of Monday of the Governor of California lifted the more stringent stay at home order, allowing some businesses to resume limited reopening.
In terms of specific responses are being provided needed support to our communities through targeted charitable giving to assist those most impacted by Covid. We provided over 4000 paycheck protection loans to our customers totaling $1 $1 billion we.
We generated record new loan volume outside of the PPP lending and we invested in our future by beginning of the online banking platform conversion that will allow us to better compete in an ever changing banking environment.
In addition, as.
As was the case from the first round of PPP, we are committed to being an active participant in both the in both of the loan programs provided in the second round of PPP recently enacted by Congress. The new first drop program for those businesses that did not receive a previous PPP loans and the new second drop program for those eligible businesses that did risk.
The previous PPP loans.
In closing we are proud of our accomplishments in 2020, as we successfully navigated through the Covid pandemic and I believe we are well positioned for future growth in 2021, we remain committed to growing the bank in a balanced way utilizing all three of our growth initiatives, increasing same store sales opening de novo centers.
<unk> and seeking strategic and financially sound acquisitions.
And of laid out this morning, I'm proud to say that the bank was once again named the top ranked bank in America by Forbes magazine for.
For 2021.
Please stay healthy and safe and that concludes our presentation today now Alan and I will be happy to take any questions that you might have.
Thank you and ladies and gentlemen, any of you wish to ask a question simply press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
Our first question is from Jackie Bohlen with the K B W. Your question. Please.
Hi, good morning, good morning, Jackie.
First off thank you for that color about the 35 basis point impact on the margin. If you normalize the liquidity that's really helpful to put it in context.
Yeah, I know about the I ask about the recorder, but.
Do you think about potential deposit growth I think in the past you mentioned for every dollar of P. P. P that comes in it goes out it feels like $2 of deposits come in you know how are you seeing those trends.
One of your expectations in the coming months with the new round of P. P. P.
Yeah.
I think for the most part that I anticipate.
Our customer deposits to continue to build I mean, that's been our experience we have fantastic customers, we have customers that.
Prior to this near zero interest rate environment. It was great to have these types of customers that are so strong. They just continue of adding to their deposits. So I do anticipate.
The the balance is going up I don't think it will be the two to one that I said that I have said previously and primarily because most of the businesses of all of the businesses that we will be applying in getting the second round PPP loans have to have demonstrated some reduction in revenue. So those.
Mrs that were most impacted.
I don't think.
<unk> maintained the excess deposits that some of our other stronger borrowers in the stronger customers have maintained so I think that.
It'll be dollar per dollar, but it will have a more linear relationship too as the PPP funds or use of those deposits will go away. So I think we're going to I hope to see it flatten out.
But it's still to be determined so.
Okay.
I know, there's a lot of backend on variables in there and then I guess taking that in context.
With Alan's comments regarding the disadvantages with the rate environment for security purposes.
You know, how youre thinking about managing liquidity.
The low growth, but just any color you can provide there.
Yes, Jackie I mean, obviously it is low growth that's the number one priority on them.
The saying we had our best year in gross loan production that we've ever had in 2020 and the pipeline going into 2021 is as strong as it's ever been going into a new year now we have some seasonality, obviously with dairy and livestock, but I do think that we have the opportunity, especially with the.
<unk> and larger banks and potential issues at some other banks that we have the opportunity to net net gain new customers and gain new lending opportunities. So I'm very optimistically cautiously optimistic about our ability to continue to do that going throughout 2021 and hopefully.
The vaccine in businesses reopen maybe some of our customers will feel a little more confident and start investing in some of their excess deposits and equipment and other things that will allow us to.
Reduce some of that excess liquidity, while also providing some loan opportunities.
Okay. So looking is it fair to say you're looking more towards the economic expansion in the latter half of the year of the source of liquidity appointment and just given.
That securities rates at the moment.
Yes, I think Thats fair and I mean, obviously, we're also going to have to continue to look at investment purchases to augment that because one 8 billion share a lot of money and where we're going to maintain our credit quality and we're going to do with the best loans that we can do so that's important to us as well.
Okay. Okay. Thank you.
Thank you.
Thank you. Our next question comes from Gary Tenner with D. A Davidson on your question. Please.
Thanks, Good morning, good morning.
Okay with regard to loan growth I thought was the fourth quarter was encouraging as you pointed out a moment ago.
Originations from pipeline.
I think in the past you had kind of talked about of.
Loan growth bogey, maybe in the six to eight per cent range, given how things look for 'twenty 'twenty, one and admittedly it's pretty early.
It is kind of low to mid <unk>, excluding PPP, where you think you would be.
Focused or do you think you can do better than the.
Yeah, I don't know the.
We don't typically give guidance on a specific number but I would say the numbers that you mentioned are probably aggressive and probably on the high end of the best case scenario for us I do anticipate for us to have loan growth.
I wouldn't say, we would get to those numbers and obviously a lot of it is dependent on what's going on in and how we get through this but I am again cautiously optimistic that we can have some loan growth like I said, we had our best quarter of loan production.
In the fourth quarter that we've ever had we had our best year of production in 2020. Despite all of the challenges that we've ever had and we're starting off of the year in a better position from a pipeline perspective than we have now we have to execute and we have to compete and the rate environment is a little crazy.
And all of that but I mean, I think that we can definitely grow loans outside of the PPP and all of the noise, there and outside of the seasonality in our dairy and livestock.
Alright. Thank you thanks for the and then as it relates to.
Provisioning.
On your Schussel calculation you've given.
The commentary the given that since the California has been more shut down.
The other parts of the country the weighted was more towards the downside Moody's forecast with the commentary.
The government of open things up a little bit more all else equal would that have a meaningful.
Delta to your.
Kind of.
Seasonal forecast at the end of this quarter, if that's the only kind of real meaningful change during the quarter.
Gary This is Alan.
Got to start out with the I would direct you to page 20 of our investor presentation on our.
And Youll see the.
Weighted forecast assumptions there.
Of that might give you a little more context on <unk>.
Certainly.
As I mentioned in my prepared remarks, we are waiting on more on some of the downside forecast from Moody's just because of California's performance has obviously been below par compared to the rest of the country. So its california starts to trend closer to how the cost of the rest of the country has been performing.
Yeah, we would probably see some some potentially.
Releases in 2021, if everything else stays the same.
Alright, thank you.
Thank you. Our next question comes from the line of Brett rebate tier with hub. The group your question. Please.
Hey, good morning, everyone. Good morning, Brad.
Wanted to just talk about expenses for a second and you know obviously really strong.
Performance in terms of managing them flat the past year can you talk maybe about just any need to invest going forward.
Just kind of trying to think about like what are what needs you might have and then just kind of thinking about how low.
The first specific guidance, but maybe just thinking about you know.
If we can continue that trend of kind of maintaining the flattish level.
Yes, I mean, obviously, we've always taken.
Cost effect of operations and cost control very seriously.
What we're doing is we're trying to make targeted investments, where we can create efficiencies.
Like the online banking platform conversion I mentioned.
It will allow us hopefully.
To deliver.
A more digital experience to those customers that want it.
The <unk> controlling those expenses and so those of the types of things that we're doing we're constantly evaluating the.
The are we call them centers our branches.
Determinative.
Something that we need to look at but at this point.
Our focus is to keep expenses as flat as we can and try and grow the revenue side and get some positive operating leverage and that's the goal and that's what we're managing to.
But are.
There are a lot of unknowns in that as well.
Some of the expenses that occurred in 2020.
Depending on how long and how deep the pandemic continues to go we had increased expenses in and cleaning we had interest increased expenses and a lot of things sort of partially offset by some of the things we werent able to do so we will have to see how it all plays out as we move forward through the year, but that's the plan is to definitely keep them on.
As possible Alan do you have anything to add to that no I mean, I think as Dave said, we might see some increases in certain areas, but at the same time, we look for decreases and others. The can you try to offset that.
And keep expenses to of a fairly low level of increasing as the not flat.
Okay. That's helpful.
And I think everybody's talking more about M&A, and obviously with the premium currency you're in a pretty good spot if you.
Find something that looks attractive maybe just could you provide any color on your appetite for <unk>.
For M&A.
And the optimism that you're interested in doing such.
Yeah, I mean, we're absolutely interested in the REIT.
M&A opportunities.
As you mentioned with our premium and and the opportunity.
Out there I think as we kind of get further along here Theres people that are looking at the future of the.
The acquisition of the potential acquisition targets out there that.
We're having conversations I would say theres nothing thats imminent.
We always get a phone call of just based on the premium of our.
Of our stock and how we're trading but.
We are definitely interested in looking at doing that that needs to be the right organization that needs to be an organization that.
From a from either financial or strategic.
Situations circumstance makes sense for us but.
We're definitely open and looking at those types of opportunities and hopefully we'll be able to execute on one.
In the next 12 months.
Okay. Thanks appreciate on the color.
Thank you.
Thank you. Our next question comes from Matthew Clark with Piper Sandler Your question. Please.
Hey, good morning.
Good morning.
Just on the on your core loan yields it looks like the degradation there.
Low to the only about.
Down two basis points of $4 38.
I guess can you speak to.
Low.
Of that outlook on loan yields.
With the.
The pricing environment is like and if they can start to stabilize.
And you were able to put some of that.
Excess liquidity to work even if it's in the securities should we assume that that three of 11 is kind of the trough in the core NIM.
Okay.
Yeah.
I'll start and I'll, let al jump on we're just the kind of speak the part of your question. There were originating loans kind of in that $3 50 to $3 75, or anything thats of long term five 710 year fixed rate loans. Today. So there is pressure there and then obviously with the investment securities that we purchased yielding 119.
There is pressure there. So I think there is still more pressure on the on the asset side.
Obviously, the ability to deploy that excess liquidity impacts out of great deal. If we can move the.
A higher percentage of the earning assets to loans that helps.
These are our plans.
And then we will see how the liquidity of the excess liquidity, how long it takes around and what what happens there but.
I think in the in the fourth quarter. It was pretty good it stayed relatively flat.
Down slightly.
So.
I'm, hoping that we can maintain that level I think theres still some headwinds there, though so allen anything you want to add.
I agree I mean sort of.
We have slowed down, but but the data point, if you look at origination yields versus the core yield of the portfolio.
Yes, there is.
What are the likely so still some game to be played in terms of decline there, but certainly slowing.
Yeah, and I mean.
One just to add on to that one of the thought I had as you know we did decrease our cost of deposits and cost of funds to nine basis points. So.
I'm getting close to the all time record for citizens business Bank, but we're going to we're going to continue to watch outside theres not as much room, obviously on that side, but we're going to do everything we can to manage the interest expense.
And continue to grow loans as the higher percentage of the balance sheet.
Okay.
And then.
Do you happen to have the remaining the net P. P. P fees that you expect to realize per round. One so that we're modeling it we're on the same page.
On general terms.
As we noted on our investor presentation the the.
The total PPP fees were approximately $35 million and I think we've recognized.
$20 million of that I think a little more actually because we had 10 of happened at $9 five and then whatever we did it.
From 'twenty into 'twenty, one 'twenty 1 million yeah. So yeah, we probably half of <unk>.
<unk> $14 million.
The remaining.
Okay, just double checking thank you.
Youre welcome.
Thank you and as a reminder, ladies and gentlemen to ask a question simply press star one on your telephone.
Our next question comes from David Feaster with Raymond James Your question. Please.
Hey, good morning, everybody good morning, David.
I'm just curious if you could give us maybe a pulse of your clients I appreciate the commentary on record originations in 2020 on what was a pretty tough year. Obviously, just curious how much of this is the existing clients investing and expanding their business versus new clients.
Acquisition from new lenders of the PPP program and just maybe the pulse of your clients and their thoughts on willingness to invest in the near term.
Yeah. So I think just overall generally our clients our customers have been.
Have been navigating very very well there obviously.
One <unk>.
Things to get back to more normal circumstances, but we've had some some interesting stories and some great success stories with some of our customers that have had the pivot from their traditional business into other things.
We're more secondary for them that they've been able to grow and do a good job and so I think overall day day as well are cautiously optimistic I mean, I still have been meeting with clients either via zoom or even in some cases face the base.
Appropriately socially distance face to face but.
We we have some some really great customers that are really entrepreneurial as I mentioned in the prepared comments and they've.
<unk> to drive their business and do really good things so.
To go to another part of your question I think that you know.
I would say, it's probably been about.
65 of about two thirds of existing relationships that have been driving that low growth taking advantage of opportunities, but we've done a much better job on the prospecting side and I think that has a lot to do with some of the disruption in some of the other with the some of the other banks, especially larger banks that have allowed us the opportunity to.
Do some things and get into summary relationships that we we weren't in before so you know the one thing we haven't talked about it I mean, our utilization is still way down and so things start getting back to normal utilization goes back to a normal level and we continue to generate the loans that we've been generating that's why I'm cautious.
Of the optimistic about the loan growth, but California, just on Monday, They announced that they were lifting of the more stringent stay at home order and now it's back to the counties.
And the kind of former tier system in and so I think there's a little bit of fatigue on our customers' parts of opening and closing the opening and closing and so they just they just want to get back to business day. They feel they can do it in a safe manner and.
I I hope that there'll be able to do that.
Okay. That's good color and then just it just maybe your thoughts on fee income how much of the waived fees are still way and maybe when do you think those come back any thoughts on you know additional fee income lines you'd be interested in expanding into and then just any thoughts on the trust business I mean, <unk> done really well just how do you think of.
That business has an opportunity to gain share the air with your existing client base.
I mean, obviously the trust business.
<unk> of the market is the function of the new client acquisition, we had a good year in new client acquisition and trust. It is something that we focus on we actually incent.
Our associates to refer to our trust business, our sales associates. So we work hard to grow that part of the business. That's part of it I think from the biggest challenge of the biggest headwind on the service charge income is more on the deposit side and on the deposit side because of all of the excess balances.
The more of those balances are more of those charges have been offset by the the higher balances and higher earnings credit and so what's happened is we've managed the ECR is down a little bit.
We want the maintained after we get out of this near zero interest rate environment, we want to maintain those relationships. So we probably reduce that slower than we've reduced our.
Interest rates on interest bearing accounts. So we will continue to look at that and evaluate that I mean.
Just give you. An example, we had a relationship with the bank and they made of very large deposits and the relationship manager with asking me. If we can pay a 20 basis points on a money market and I said no you.
You can put it on their noninterest bearing.
So those are the kinds of conversations we're having those individual conversations on relationships every single day.
So.
We're just trying to manage that I think the fee income side as we manage down the <unk> and balances start to maybe decline a little bit I think we have some opportunity there, but we're focused on card card was really down this year, obviously, because there wasn't as much activity. So we're looking to that for that the bounce back.
International had a pretty good year relative to what you would of thought and I think there is a lot of opportunity there with our customers as things start to open back up. So I think there are some some tailwind for us there, but we really just have to continually manage to.
To drive that our goal is to collect 90 per cent of the charges that we that are available on collect we're slightly below that.
But we also have great customers that are demanding so yeah on the balance those two things.
Okay. That's helpful. And then just last one from me just maybe could you just talk about your asset sensitivity I mean, it was a it was a little it was a good run we've had with the rising 10 year yields which have come back, but our internal forecast.
Thinking that rates are going to be higher I was just curious how your assets just given he has changed.
Suspected continuing to increase just in light of the the impact of excess liquidity in the sort of durations of securities. The just curious your thoughts on assets sensitivity, how that might have changed.
How you're planning to manage that going forward.
Yes, David of course, with the excess liquidity on the balance sheet. It has increased the level of asset sensitivity. We are right now we've always been relatively asset sensitive.
And so it's accentuated it I think it gives us opportunities to a certain degree.
You know in terms of going out long on potentially investment purchases, but once again those would be very modest I would say on the context of of whole balance sheet. So yes, if rates do go up and particularly yeah.
<unk>, we would just like to see rates go up on the longer end of the curve more than anything else.
It's the most banks would definitely benefit from that.
Thank you.
Thanks, David.
Thank you and once again, ladies and gentlemen, if you wish to ask the question simply press Star one on your telephone.
At this time there are no more questions. So I would like to turn the call back to Mr. Braga.
Great. Thank you I want to thank everybody for joining us this quarter. We appreciate your interest and look forward to speaking you with with you in April for our first quarter of 2021 earnings call. Please let Alan I know if you of any questions have a great day and thanks for listening.
Goodbye.
Thank you for your participation in today's conference you may now disconnect.
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Yes.
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