Q1 2021 CVB Financial Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the first quarter of 'twenty 'twenty. One C V B Financial Corp, and its subsidiary citizens business Bank earnings Conference call My.
My name is Samantha and I am your operator for today.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer period.
Please note this call is being recorded.
I would now like to turn the presentation over to your host for today's call. Christina Carabiner you May proceed.
Thank you Samantha and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 'twenty 'twenty. One joining me. This morning of Dave 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.
At least yesterday to obtain a copy please visit our website at Www Dot C V Bank Dot com and click on the investor's tab.
Yeah.
Before we get started let me remind you that today's meeting will include some forward looking statements. These forward looking statements relate to among other things current plans expectations events and industry trends 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.
<unk> 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 and financial results will depend on future developments, which are highly uncertain and cannot be predicted including the scope and duration of the pandemic the impact on the economy, our customers and our business partners the effectiveness and distribution of COVID-19, vaccines and actions taken by government authorities in.
To the pandemic the speakers on this call claim the protection of the Safe Harbor provisions contained in the private Securities Litigation Reform Act of 1995 for.
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 31st 2020, 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 and good morning, everyone. Thank you for joining us again this quarter.
We reported net earnings of $63 $9 million for the first quarter of 2021, or <unk> 47 per share representing a 176th consecutive quarter of profitability with previously declared an <unk> 18 per share dividend for the first quarter of 2021, which represented our 100 <unk>.
On the sixth consecutive quarter of paying a cash dividend to our shareholders.
First quarter net earnings of $63 $9 million compared with $50 $1 million for the fourth quarter of 2020 and $38 million for the year ago quarter.
Earnings per share of <unk> 47 for the first quarter compared with 37 for the fourth quarter and 27 for the year ago quarter.
We recorded of recapture provision for credit losses of $19 $5 million for the first quarter of 2021 in comparison, we did not have the provision for credit losses in the fourth quarter of 2020 and recorded a provision for credit losses of $12 million for the first quarter of 2020.
The recapture of provision was primarily the result of our forecast of improving macroeconomic variables, including GDP growth and decreasing unemployment.
Now I would like to discuss our deposits and loans at March 31, 2021, our net interest bearing deposits excuse me, our noninterest bearing deposits totaled $758 million compared with $7 $46 billion for the prior quarter and $5 $57 billion for the year ago quarter.
Noninterest bearing deposits were 62, 7% of total deposits at the end of the first quarter compared with 63, 5% for the prior quarter and 61, 2% for the year ago quarter. We continued to see strong deposit growth for the first quarter as total deposits and customer repurchase.
Agreements increased by 400 of $9 million or three 4% from the end of 2020.
At March 31, 2021, our total deposits and customer repurchase agreements were $12 $6 billion compared with $12 2 billion at December 31, 2020, and $9 $5 billion for the same period a year ago.
Average noninterest bearing deposits were $7 2 billion for the first quarter of 2021, compared with $6 $9 billion for the prior quarter and $5 $2 billion for the year ago quarter.
Our average total deposits and customer repurchase agreements of $12 $2 billion for the first quarter grew by $438 million or three 7% from the fourth quarter.
Now moving on to loans tow.
It'll loans decreased by $56 million from the end of 2020.
However, when adjusting for dairy and livestock and agribusiness loans, which have seasonal loan growth during the fourth quarter and the increase in the paycheck protection program loans, our loans grew by $30 million or nearly 2% annualized rate in the first quarter.
Our loan production was relatively strong in the first quarter added as our current loan pipeline. We continue to remain optimistic that we can grow loans in 2021 exclusive of the impact related to PPP loans.
The decline in agribusiness and dairy and livestock loans from the end of the fourth quarter of 2020 was $100 million. This decline was mostly seasonal as we experienced paydowns in the first quarter of each calendar year as a result of the temporary increase we experienced in the fourth quarter of each year.
As a result line usage for agribusiness and dairy and livestock loans declined from its peak level at year end.
PPP loans increased by $15 million from the end of the fourth quarter as new PPP loan originations were partially offset by forgiveness from the SBA for loans originated during the first round of the PPP.
Commercial real estate loans loans grew by $95 million from the end of 2020, which is almost a 7% annualized rate.
Additionally, construction loans grew by $11 million from the prior quarter.
Commercial and industrial loans declined by $58 million and single family mortgage loans declined by $15 million from the end of the fourth quarter.
Overall line utilization rates declined from 52% at $3 31, 2020% to 41% at $3 31 2021.
The decline in overall utilization rate was primarily due to C&I loan utilization the decline from 39% to 26% compared to the year ago quarter.
Average loans for the first quarter decreased by $77 million compared with the fourth quarter of 2020.
While increasing by $787 million compared with the year ago quarter during.
During the first quarter of 2021, PPP loans had an average balance of $881 million compared to $1 billion for the fourth quarter of 2020.
As of March 31, 2021 of the more than 4000 PPP loans, we originated during round one approximately 2400 of our borrowers representing $544 million in loans have received for getting us from the SBA.
To date, our borrowers PPP forgiveness requests that have been completely processed by the SBA have received greater than 99% forgiveness based on the customer's forgiveness application.
As of March 31, 2021, we have originated approximately 1500 PPP loans in round, two or $325 million, an ounce out outstanding balances at quarter end.
Net interest income before recapture or provision for credit losses was $103 5 million for the first quarter compared with $105 9 million for the fourth quarter and $102 $3 million from the year ago quarter, earning.
Earning <expletive>ets grew by $560 million on average from the fourth quarter with more than $523 million of the growth coming from an increase in investment securities.
Our earning <expletive>et yield decreased by 17 basis points compared to the prior quarter.
Interest bearing deposits and customer repos increased on average by $130 million from the fourth quarter, but interest expense declined as the cost of interest bearing deposits and customer repurchase agreements decreased by six basis points.
Our tax equivalent net interest margin was $3 one 8% for the first quarter of 2021, compared with 333% for the fourth quarter and 4.08% for the first quarter of 2020.
When the impact of PPP loans discount accretion on acquired loans and non accrual interest paid is excluded our adjusted tax equivalent net interest margin was 293% for the first quarter down from 311% for the prior quarter and $3, 87% for the year ago quarter.
Our net interest margin continued to be negatively impacted by excess liquidity.
During the first quarter, we had approximately $1 $6 billion on average on the positive for the federal reserve, earning 10 basis points the.
The net interest margin for the first quarter would've been approximately 35 basis points higher without the $1 $4 billion year over year average increase in deposits of the federal reserve.
Loan yields for four 5% for the first quarter of 2021, compared with 456% for the fourth quarter of 2020 and for 95% for the year ago quarter.
The decrease in yield from the prior quarter was due to lower prepayment penalties and rates on new originations that are below the overall portfolio yields.
Total interest and fee income from PPP loans was $10 4 million in the first quarter compared to $10 5 million in the fourth quarter.
PPP loan yields increased from four 8% in the fourth quarter of 2020 to $4 seven 8% in the current quarter due to the accelerated recognition of fees from loan forgiveness of.
The decrease in loan yields from the prior year ago quarter was primarily due to the impact of the federal reserve's rate decreases as.
As well as the decline in discount accretion income for acquired loans.
Excluding the impact of PPP loans interest income related to purchase discount accretion and nonaccrual interest paid loan yields were for two 3% for the first quarter of 2021 for 3% for the fourth quarter of 2020 and for 67%.
The first quarter of 2020.
Our cost of deposits and customer repos for the first quarter was six basis points and our cost of funds was seven basis points. Our cost of funds has declined by 14 basis points over the last year.
We plan to redeem our $25 $8 million junior subordinated debentures, which had a cost of one 6% during the current quarter by the end of the second quarter of this year.
Moving to noninterest income.
Noninterest income was $13 7 million for the first quarter of 2021, compared with $12 9 million for the prior quarter and $11 $6 million for the year ago quarter.
The first quarter of 2021 included $3 $5 million on death benefits that exceeded the <expletive>et value of certain bully policies and a $400000 net gain on the sale of an Oreo property and.
In comparison, the prior quarter included $1 $6 million in death benefits income from the bully policies and a $365000 net gain on the sale of <unk> properties.
We generated approximately $200000 of fees from interest rate swaps during the first quarter, which was $660000 lower than the prior quarter and $160000 less than the first quarter of 2020.
The steepening of the yield curve has made it less attractive for our customers to entered into interest rate swaps of convert floating rate loans to fixed rate instruments compared to a conventionally fixed rate loans.
Deposit service charges were essentially unchanged from the fourth quarter, but were lower than the first quarter of 2020 by almost $800000 due to the higher earnings credits generated by the significant increases in our customers' noninterest bearing checking account balances.
Now expenses.
Noninterest expense for the first quarter was $47 2 million compared to $48 $3 million from the fourth quarter of 2020, and $48 $6 million for the year ago quarter total salary and benefit expenses increased by $564000 compared to the fourth quarter, including a $1 <unk>.
$3 million increase in payroll taxes.
For payroll taxes are typical for the first quarter of every year.
Salary and benefit expense declined by $1 $2 million from the first quarter of 2020 as deferred loan origination costs, which are a contra expense increased by more than $1 million due primarily to the origination of more than 500 PPP loans in the first quarter of 2021.
Occupancy and equipment expense and professional service expense.
<unk> by a combined $1 $3 million quarter over quarter. Additionally, marketing and promotion expense declined by $225000 and $830000 compared to the first and fourth quarters of 2020, respectively.
Noninterest expense totaled $1 three 2% of average <expletive>ets for the first quarter of 2021, compared with $1 three 7% for the fourth quarter of 2020 and 172% for the first quarter of 2020.
Our efficiency ratio was 42, 6% for the first quarter of 2021, compared with 46, 4% for the prior quarter and 42, 7% for the first quarter of 2020.
Now turning to our <expletive>et quality metrics during the quarter, we had net loan charge offs of $2 4 million compared with $177000 for the fourth quarter of 2020 and no net loan charge offs for the year ago quarter. The current quarter includes the previously sub standard grade commercial and <unk>.
Just real loan that was fully charged off for approximately $2 5 million.
At quarter end nonperforming <expletive>ets defined as non accrual loans plus other real estate owned were $15 five <unk>.
$15 3 million compared with $17 7 million for the prior quarter and $11 3 million at March 31 2020.
At March 31, 2021, we had loans delinquent 30 to 89 days of $1 7 million.
Compared with $3 1 million at December 31, 2020.
Cl<expletive>ified loans for the first quarter were $69 $7 million of $9 million decrease from the prior quarter.
We will have more detailed information on cl<expletive>ified loans available on our first quarter form 10-Q.
I will now turn the call over to Allen Nicholson to discuss our effective tax rate, our allowance for credit losses investments and capital levels Alan.
Thanks, Thanks, Dave and good morning, everyone.
Our effective tax rate was 28, 6% for the first quarter compared to 29% for the fourth quarter of 2020.
And 28, 75% for the year ago quarter.
Our effective tax rate can vary depending on the level of tax advantaged income as well as the available tax credits.
Our allowance for credit losses decreased by $21 $9 million from the fourth quarter of 2020.
As a result of the $19 5 million recapture of provision for credit losses, and net loan charge offs $2 4 million.
We previously recorded a provision for credit losses of $23 5 million in the first half of 2020.
Due to the estimated impact on loan losses from the economic forecast of a significant downturn in the economy, resulting from the COVID-19 pandemic.
Based on the magnitude of government economic stimulus and the wide availability of vaccines, our latest economic forecast reflects improvements in key macroeconomic variables and therefore, a lower projected loan losses, which resulted in a decrease on our allowance for credit losses.
At March 31, 2021, our ending allowance for credit losses was $71 $8 million or eight 7% of total loans.
When excluding the $898 million in PPP loans, our allowance as a percentage of the remaining loans as of <unk>, 97%, which compares to <unk>, 91% at the pre pandemic period end of December 31 2019.
In addition to the allowance for credit losses, we have $27 million of remaining fair value discounts from acquisitions.
Our economic forecast continues to be a blend of multiple forecasts produced by Moodys <unk>.
These U S. Economic forecasts include of baseline forecast as well as upside and downside forecasts with California's unemployment rate of eight 5% being significantly higher than the national average our forecast included a greater weighting on the downside economic forecasts and comparisons of the waiting for the upside forecast.
Our weighted forecast <expletive>umes GDP will increase by more than 4% in 2021, and then grow at approximately 3% in both 2022 and 2023 on.
Unemployment rate is forecasted to be higher than 6% in both 2021 and 2022 before declining to five 5% in 2023.
Our total investment securities increased by approximately $920 million from the end of 2020 as.
As of March 31, 2021 investment securities available for sale or <unk> Securities totaled $2 eight 1 billion.
<unk> of of pretax net unrealized gain of $14 $4 million.
<unk> Securities increased by approximately $400 million from December 31, 2020.
Investment Securities held to maturity or HTM Securities totaled 1.09 billion, a $500 million increase from December 31 2020.
During the first quarter, we purchased approximately $1 $2 billion of new securities with an expected tax equivalent yield of one 6%. These.
These purchases included approximately $680 million of <unk> Securities. There were comprised of mortgage backed securities with an average lives of less than five years.
Which are expected to yield one 4%.
Additionally, we purchased approximately $550 million in HTM securities. They are comprised of fixed rate agency of municipal bonds with longer maturities that on average exceed 10 years.
On a non tax equivalent basis fees curious will generate a yield of one 8%.
Now turning to our capital position shareholders' equity increased by $12 7 million to $2.02 billion at the end of the first quarter the.
The increase was primarily due to net earnings of $63 9 million offset by a $28 million decrease in other comprehensive income from the tax affected impact of the decrease in market value of available for sales securities.
And two for $5 million in cash dividends.
Our overall capital position continues to be very strong our tangible common.
Common equity ratio was <unk> 99, 4% at the end of the first quarter and our regulatory capital ratios are well above regulatory requirements to be considered well capitalized.
At the March 31 of our common equity tier one capital ratio was 14, 9% and our total risk based capital ratio was 16, 1%.
I'll now turn the call back debt for some closing remarks.
Thanks, Alan as we have discussed today. The bank continues to produce consistent earnings maintained strong capital levels solid credit quality and excellent liquidity.
We are proud to have remained focused on our commitment to our associates customers and shareholders. During the challenges caused by the COVID-19 pandemic over the past year, we continue to prioritize the health and safety of our associates customers and our other business relationships.
We're beginning to see more positive trends on the COVID-19 front, such as lower positivity rates and lower average daily cases, most of the markets that we serve in California have moved into the tier three and the blueprint for our save for our economy, meaning that some indoor business operations can open up with up to 50.
The percent occupancy.
Vaccine distribution continues to increase throughout the state and our Governor announced on June 15th, California will fully reopened its economy. If two criteria are met number one in fact hain supply of sufficient for Californians 16 years on older who wish to be inoculated and number two if hospitalization risk rates are stable.
On LOE, we remain cautiously optimistic because we continue to see vaccine supplies increase and vaccination of appointments become more available.
As one of the most disruptive periods in U S. Economic history starts to abate. Good news on multiple fronts suggests better times are ahead of the California economy appears poised for a rebound and we are cautiously optimistic that our customers will regain regain their confidence to reinvest in their businesses.
Also I would like to welcome Brian Montel as our new President effective April 26, Brian will be responsible for overseeing the sales division of the bank, including our 57 business financial centers specialty lending groups sales support groups and our wealth management Division citizens Trust.
Over 29 years of banking experience focused on commercial and business banking, we welcome Brian and look forward to his contributions to the success of citizens business Bank.
In closing we are successfully navigating through the COVID-19 pandemic and we believe we are well positioned for quality 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 and seeking strategic.
And financially sound acquisitions.
Please stay healthy and safe and that concludes today's presentation now Alan and I will be happy to take any questions that you might have.
Ladies and gentlemen, as a reminder, if you would like to asking of audio question. Please press Star then the number one on your telephone keypad again that is star one to ask the question.
The first question comes from the line of Brett Robinson with.
The group.
Hey, good morning, everyone.
Right.
One of the first ask just around the on the margin it seems like with the investments that you've made here in the securities book that you've kind of reached a hopefully an inflection point on the margin on it would seem like both NII and the margin should move up of at least a little bit going forward can you just give us some color on the moving pieces there.
There and you see NII unfolding this year, maybe excluding the PPP noise.
Yes, I'll start on that and then Allen kinetic any thoughts he has so.
We have reached the inflection point on the investment securities, but loans were still challenged we're still originating loans at lower than the overall loan yield.
So I do think that there might be some more headwinds there the opportunity for US is obviously to continue to try and make quality loans to have loans at a higher percentage of our total earning <expletive>ets. That's been challenged with the remaining excess liquidity that's on the balance sheet and every day.
We think we're making positive gains there are deposits keep growing.
And so we did invest a significant amount in the last quarter, but.
But where we really need to focus is in that quality loan growth and originating loans to to grow that as the higher higher amount I think there is some headwinds I think that we do have we're getting to the inflection point I just don't know if we're there yet I don't know island, if you have anything to add to that earning.
Turning <expletive>et mix continue to be somewhat of a drag.
Certainly if we see better utilization on line that could certainly help us.
And for the security portfolio Youre right I think we may have reached sort of it on the equilibrium, but we did take advantage of of <unk>.
I would say of better market conditions in the latter half of the first quarter.
Currently.
Where bonds are the little bit below there. So we will continue to be very opportunistic when we buy securities and try to try to buy the met when yields are popping up.
Okay, and then to the loan growth point I know last quarter, you know I tried to get you guys to to use your crystal ball to talk about growth this year, including what the PPE, including PPP I E can you grow.
The loan portfolio, you know, even as PPP comes down.
It would seem like.
You could have some optimism around that although the the obviously the.
Utilization.
Rates are pretty low.
Do you expect to pick up in the next.
Two quarters around loan growth you know, obviously <unk> was better than many in the industry that that had some match for you this quarter.
Yes.
As we mentioned, we still have a little.
The over $500 million in remaining PPP round, one we've only bought at around $350 million of PPP round. Two we continue to see forgiveness on the PPP round. One so that's going to be of headwind. If you. If you wanted to include it all together that's going to be of pretty significant headwind to overall loan growth I do.
Thank debt with the utilization on the lines I am.
Again thinking that that will start to pick up as I mentioned as the economy reopens, our customers start to believe that they're going to be able to invest in their business and it's going to make sense I do think that we will see utilization tick up again, but right now everybody is sitting on so much liquidity that theyre not having to use the airlines and when you're down at.
26% utilization on C&I loans compared to 39% in the year ago quarter.
Got that available.
Line utilization of about $240 million. So if we can get that if our customers start to believe that they can invest in that they start using that money again, we continue to to grow commercial real estate the way we've grown it in the first quarter and.
I think we'll be better off but it's still.
A question as to when that's going to start our loan growth.
Our loan production has been outstanding in the first quarter, we beat our first quarter of last year.
I think that that's a positive the pipelines are strong.
We're just going to have the wait and see about utilization and that excess liquidity. That's that's on everybody's balance sheets.
Okay. Good color, Dave if I could sneak in one last one we've seen a few California deals here.
Here, so far this year and you know obviously with your currency.
You'd be able to do whatever you want so to speak of.
Are you thinking more about M&A as a potential growth for.
For for you guys.
How do you just feel on generally about.
What youre seeing out there from an M&A perspective.
Yes, I mean, we always have utilized M&A is one of our areas of growth.
There are a lot of conversations there is nothing eminent but there are a lot of commerce conversations that are happening I do believe that we will have opportunities to take a look at.
The potential targets.
They are there right now I think most of the people that we've been talking with.
Our considering of strategic option of selling but you have to agree on price we want to make sure. It's a good bank we want to make sure that there is some value whether its strategic and financial value in a deal. There's a lot of criteria, we utilized but yes with our currency where we.
We're hoping that we'll be able to.
To find the right partner going forward.
Okay I appreciate all the color.
Your next question comes from the line of Jackie Bohlen with K B W.
Hi, good morning, everyone.
Jack.
The Diovan Q.
The reserve just a little bit my net.
At at that 97 basis points, excluding PPP.
So if I understand the prepared remarks correctly it sounds like just based on the weighting the use for the Moody's forecast for Hep.
The weighted the adverse scenario, which I think he did in the past the Wow.
So just in that framework.
There's obviously still a good about of conservative within that ratio and if I look at my calculations. He started at 93 basis points on January 1st for Mike I apologize long winded question is basically how do you think about where you could wind up.
What's where at the end of the pandemic could it be lower than that starting point of January one 2020.
Yes.
It's hard to predict obviously, Jackie but I do think if you see where we began the.
The accounting for seasonal.
And.
Positive economic outlook that existed at that point and the fact that you know excluding PPP loans, which really don't have the reserve the the portfolio Hasnt changed the underlying risk <expletive>ociated of the portfolio has been pretty stable. So.
You could continue to see that debt coverage ratio drift down to where we began.
Beyond that it's hard for us to predict.
And.
The increasing property values had an impact on required reserves.
Meaning low and I'm, <expletive>uming there's lower loan to values because of increasing property values. So I'm wondering what effects of that Kathy on the methodology.
On the methodology looks at original Ltvs.
But there are probably five or six underlying.
Metrics, including debt some of them would theoretically take into current ltvs, but not specifically.
Okay.
Okay.
And then I know you mentioned in the prepared remarks, I was jotting things down too quickly maybe if you could just provide a little bit of background on.
On the the unique charge offs in the quarter.
Yes, it was a single C&I loans to a contractor.
That.
He was unwilling to step up.
We are still obviously going to pursue all of our recovery opportunities, but we just felt it was prudent to take it as of charge offs and deal with it in that fashion.
It's not.
Yeah.
It's not something that is as I think.
Consistent with many of our customers. This was a unique situation that was the.
Impacted by Covid impacted by a lot of different things and.
We don't see this as.
Systematic throughout our contractor portfolio, it's really a one off situation.
Okay.
Great. Thanks for the extra background.
Thanks Jackie.
Your next question comes from the line of Matthew Clark with Piper Sandler.
Hey, good morning, guys good morning.
First on your new production do you have the weighted average rate.
On that I'm trying to get on the incremental margin.
Yes, we're still originating loans.
In the first quarter I would say that the rates went up slightly but it's still a net $3 50 to $3 75 range just depending on the tenure of the loan.
No.
In that in that range.
Okay and is that the ex fees right.
That's excluding fees.
Okay.
And then maybe just the.
Trying to pin you down on core NII that 89 million.
Thinking about the timing of the securities purchases and maybe some additional core.
NIM pressure do you think.
I would <expletive>ume we should see core NII up from here, but.
Correct me if I'm wrong.
Yes, so when you say core NII, excluding PPP from that yes, the $89 million.
Okay.
I mean, if we can execute and grow loans, we still think that there's pressure on the loan yields the investment yields we think of maybe hit the inflection point there is still a little bit of headwind on our core NII, but our goal is to continue to.
To generate loans.
And help offset that as Alan mentioned earlier, just impacting our our overall mix will help and hopefully we can.
Our customers start using some of that excess deposits that they have.
Okay and then.
Your.
<unk> run rate I think I know, there's all of the seasonality in the first quarter, so probably some reliefs going forward.
Efficiency ratio is kind of bouncing around the bottom expense to average <expletive>ets as well, but thats somewhat distorted by the PPP.
What are your thoughts on kind of expense growth this year, and whether or not there might be.
Some of investments that need to be made or additional savings.
I think from an expense standpoint, you know quarter over quarter.
These can be some minor ups and downs, but generally speaking, we're trying to keep our expense growth to be flat or minimum or minimal.
<unk>.
So I think as we find additional efficiencies we are trying to invest that on.
So I would say low single digits to flat expenses, Israeli we're trying to manage too.
Okay.
And then just within fee income some elevated bully benefits, but it does seem like you have a little bit of that.
Each of everywhere.
[laughter].
Yes, I guess I know its tough that's just going on to predict but I guess I'm trying to hone in on the run rate of the fee income.
The puts and takes there.
Our fee income has been impacted on the deposit service fees.
Deposit service charge side, primarily just due to all of the excess balances and that's the largest amount of deposit service charges of our noninterest income and so.
We've been managing our earnings credit rates, we've been managing.
On the line item cost of deposits.
<unk> and services.
And we want to make sure that we.
Continue to collect those service charges. So we have a.
Our collection goal of fee collection goal, but when people are sitting with an extra couple of billion dollars in deposits earnings.
Credits to offset service charges that that's a little bit of a challenge I do think again as balances start to decrease and I believe that.
I keep saying this but I believe that at some point they will.
Debt will be in a better position to collect.
Bit higher on the deposit service charge site.
We're focused on citizens trust and driving revenue in that area as well.
Swaps will probably be down just because right now conventional rate loans or our price in a way.
With the Steepening of the yield curve, although it settled back a little bit it's still better for for us to take the $3 75 rate versus the 30 day 30 day LIBOR plus 275 rate at 3%. So swap fee income will probably be a little bit challenge for the foreseeable future.
And then the other stuff the boy and all of that is just.
A lot of variables in that obviously.
Got it thank you.
Welcome.
Again, ladies and gentlemen, if you would like to ask on audio question. Please press Star then the number one on your telephone keypad again net of star one to ask the question.
Your next question comes from the line of David Feaster with Raymond James.
Hey, good morning, everybody.
Morning, David.
I appreciate the commentary on the prepared remarks on the origination activity I'm just curious how much of that in the quarter was from existing clients that are investing in expanding versus maybe new client acquisition from either new lender hires or the <unk>.
Program.
Yes, I don't have the specific percentage breakdown, but just anecdotally I can tell you that there's a good amount of it from new hires.
One of the things on most of.
Optimistic or cautiously optimistic about as we have been seen with some of our new hires new projects.
<unk> previously or we mentioned previously that we opened the.
I know office in Modesto, we've hired a number of new RMS in different markets and I do believe that the DAP production is a big part of why we've had.
Some success in the first quarter of this year over the first quarter last year.
If I had the guess I would say, it's probably about 50.
50 50.
Spansion of existing relationships.
The 50% either new loans from new Rms and.
New loan generation from our existing legacy Rms.
That's the that's emerging.
And I guess, just kind of on on that topic I mean, if you look out.
Got the Modesto one opening are there any other de novo markets that you're interested in expanding to where youre seeing opportunities the hired by the team.
Build around it I guess, we're kind of what would be your top priorities.
Well I mean, we have a lot of opportunity in southern California.
We don't have huge presence and it's not so much about the geographic market as much about the teen number that you are looking to bring on board.
And the opportunity that we had in the.
The Central Valley and Modesto.
Is a good one we've hired a couple of new people down in San Diego.
There are other places in L. A county that we would be interested in looking at there's other places in San Diego County, we'd be interested in looking at but it really depends on getting the right person.
Okay.
In may.
Maybe if you could just touch on some capital priorities, obviously, the organic growth top priority you touched on M&A and the sub debt redemption can you just curious how you think about the dividend it looks like the payout ratio. Excluding the reserve release. This quarter is just kind of help on that 50% realm I'm just curious your thoughts on capital.
And the opportunities for capital deployment.
Yes, well, we also have the <unk>, one, but where our stock is trading obviously, we haven't been we haven't repurchased any stock in the last quarter.
We also I agree with you or I agree with your comment on the kind of in that 50% to 60% range as our plan on the dividend payout and so the dividend right now.
Really M&A as the opportunity for us if we can find the right opportunity with the right bank.
And again, we're having conversations there is nothing eminent but were having conversations with a lot of different people and.
Hopefully, we'll be able to.
Identify and move forward with something this year.
Okay. That's helpful. Thanks for the color.
David.
Again, if you would like to ask on audio question. Please press Star then the number one on your telephone keypad.
At this time there are no more questions. So I would like to turn the call back over to Mr. Breaker.
Great. Thank you I want to thank everybody for joining us this quarter. We appreciate your interest and look forward to speaking you within Jill.
In July for our second quarter 2021 earnings call. Please on Alan or I know if you have any questions have a great day and thanks for listening.
Ladies and gentlemen, this does conclude today's conference call you may now disconnect your lines.
Okay.
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Yes.
Yes.
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Okay.
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