Q3 2021 CVB Financial Corp Earnings Call
Good.
Ladies and gentlemen, and welcome to the third quarter 2021 C V B Financial Corporation and its subsidiary citizens business Bank Earnings Conference call. My name is Catherine and I'll be 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.
[music] recorded I would now like to turn the presentation over to your host for today's call Christina Carabiner. Please proceed.
Thank you Catherine and good morning, everyone. Thank you for joining us today to review our financial results for the third quarter of 'twenty or 'twenty one.
Joining me this morning are Dave Brager, Chief Executive Officer and Allen.
Being Richardson 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 to obtain a copy. Please visit our website at Www Dot C B bank.
While the Covid.
Over 19 pandemic has receded from peak peak level since over seen over the past year and business conditions continue to improve as the U S economy reopens. The pandemic is still ongoing and more contagious and virulent variance of the COVID-19 virus have surfaced and spread throughout the U S, including in the company's markets in California.
Allan Nichols as a result, the COVID-19 pandemic may still carry the potential to significantly affect the banking industry in California, and the company's business prospects.
Ultimate impact on our business and financial results and on the health and safety of our employees will depend on future developments, which are uncertain.
Before and you ought be predicted including the infectious and pathogenic properties of COVID-19 variances. They develop the safety effectiveness distribution and public acceptance of vaccines developed to mitigate the pandemic and actions taken by governmental authorities in response to the pandemic.
Speakers on this call claim the protection of.
And can the 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-Q for the year ended December 31.
Save 20 and in particular, the information set forth in item one a risk factors there and now I will turn the call over to Dave Brager Dave.
Thank you Christina good morning, everyone and thank you for joining us.
We reported net earnings of $49 $8 million for the third quarter.
2021 or <unk> 37 per share representing a 178th consecutive quarter of profitability. We previously declared an <unk> 18 per share dividend for the third quarter of 2021, which represented our 128th consecutive quarter of paying a cash dividend to our shareholders.
Third.
Net earnings of $49 $8 million or <unk> 37 per share compares with $51 $2 million for the second quarter of 2021, or <unk> 38 cents per share and <unk> $47 $5 million for the year ago quarter or <unk> 35 per share.
Through the first nine months of 2021, we earned 164.
Quarter to $8 million or $1 21 per share compared with $127 $1 million or <unk> 93 per share for the first nine months of 2020.
For the third quarter of 2021, our pretax pre provision income was $65 $7 million.
Four point or was $69 $7 million for the prior quarter and $66 $9 million for the year ago quarter.
The third quarter included relatively strong core loan growth as well as strong credit metrics and a declining allowance for credit losses. In addition, greater than 99% of our customers $1 1 billion.
Could be P. P round, one loans were forgiven as of quarter end.
We recorded a recapture provision for credit losses of $4 million for the third quarter of 2021.
And in comparison, we recorded a recapture of provision for credit losses of $2 million for the second quarter of 2021.
The recapture provision was primarily.
<unk> and <unk> of our forecast of continuing improvements in macroeconomic variables, including GDP growth and decreasing unemployment.
For the nine months ended September 32021, we recaptured $25 $5 million of provision for credit losses, which reverses the $23 $5 million of provision expense.
<unk> recorded during the first nine months of 2020.
During the third quarter, we had net loan recoveries of $22000 compared with net charge offs of $463000 for the second quarter of 2021 and $114000 for the year ago quarter.
At quarter end.
Nonperforming assets defined as nonaccrual loans, plus other real estate owned were $8 $4 million equal to the prior quarter and approximately $9 million lower than year end 2020.
At quarter end, we had no oreo properties and the $8 $4 million in nonperforming loans represented 11 basis.
Total loans.
At September 32021, we had loans delinquent 30 to 89 days of $1 $1 million compared with $415000 at June 32021.
Classified loans for the third quarter were $49 8 million equal to the.
The prior quarter and approximately $23 million lower than year end 2020.
Now moving on to loans, our loan production continued to be strong in the third quarter and our current loan pipeline remains robust total loans at quarter end were 785 billion core loans, excluding PPP loans.
<unk> grew by $105 million or approximately 6% annualized when compared to the second quarter, when including PPP loan forgiveness or loans decreased by $222 million.
Loan growth in the third quarter was led by continued growth in commercial real estate loans, which grew by $64 million compared.
Compared to the end of the second quarter and by $233 million year to date.
Ni loans, and dairy and livestock loans also grew by approximately $20 million each compared to the second quarter.
As we look at core loan trends over the past year CRE loan growth has continued to be strong with an increase of 306.
<unk> million dollars or almost 6% from the third quarter of 2020 to the third quarter of 2021 in.
In addition, our dairy and livestock loans have grown by $32 million or 15% over the past year.
C&I loans, however continue to be impacted by low utilization rates, which is the primary driver of that.
In C&I loans, which declined $47 million in comparison to the third quarter of 2020.
C&I utilization rates were 27% on average in the third quarter, which compares to the pre pandemic level of 39% in the first quarter of 2020 and 28% for the third quarter of 2020.
A decline single family mortgage loans have been declining due to high refinance activity from the low rate environment, resulting in a year over year decrease of $43 million.
Construction loans were $77 million at the end of the quarter, which is lower than recent quarters, and almost $25 million lower than a year ago.
We.
We remain optimistic that we can grow loans during the first fourth quarter of 2021, excluding the impact of PPP loan forgiveness in the seasonal dairy and livestock advances as we strive to overcome headwinds from low lying utilization rates and continued higher prepayment activity.
Through September 32000.
21 of the over 4000 PPP loans, we originated during round one more than 99% of our borrowers representing more than $1 billion in loans have receive forgiveness from the SBA.
Of the $420 million of loans originated and PPP round, two we had remaining loans outstanding of 200.
<unk> $7 million as of September 32021, now.
Now I would like to discuss our deposits at September 32021, our noninterest bearing deposits were $8 $3 billion compared with eight point or.
It was $7 billion for the prior quarter and $6 nine $2 billion for the year ago.
Go quarter noninterest bearing deposits remain a key differentiator for the bank with over 64% of our deposits being noninterest bearing at the end of the quarter. Furthermore, by executing on our long our long term strategy of banking the best small to medium sized businesses and their owners in our markets. The bank is completely funded by core deposits.
We continued to see strong deposit growth for the third quarter as total deposits and customer repurchase agreements increased by $343 million or 3% from the second quarter of 2021, and $1 9 billion or 17% higher than the prior year.
At September 32021.
Our total deposits and customer repurchase agreements were $13 $6 billion compared with $13 2 billion.
At June 32021, and $11 7 billion for the same period, a year ago average noninterest.
Noninterest bearing deposits were $8 billion for the third quarter of 2021 compared with seven seven.
For the prior quarter and $6 7 billion for the year ago quarter.
Our average total deposits and customer repurchase agreements at $13 $3 billion for the third quarter grew by $417 million.
Or 3% from the second quarter.
Our net interest income declined this quarter as.
As our net interest margin declined to 289% net interest income before a recapture of provision for credit losses was $103 3 million for the third quarter compared with $105 4 million for the second quarter and $103 $3 million from the year ago quarter.
Our earning assets grew by four.
$71 million on average from the second quarter, including a $187 million increase in investment securities.
And more than $600 million increase in average funds on deposit at the Federal reserve.
Average loans for the third quarter decreased by $333 million compared with the second quarter.
2021, while decreasing by $466 million compared with a year ago quarter. During the third quarter of 2021, PPP loans had an average balance of $502 million compared with $838 million for the second quarter of 2021.
Our earning asset yield decreased by 19 basis.
400 compared to the prior quarter.
45% of our earning assets are and the combination of liquid investments and cash on deposit at the federal reserve.
Our tax equivalent net interest margin was 289% for the third quarter of 2021, compared with three points year of 6% for the second quarter.
And 334% for the third quarter of 2020, when the impact of PPP loans discount accretion on acquired loans and nonaccrual interest paid is excluded our adjusted tax equivalent net interest margin was 268% for the third quarter down from 289% for the prior quarter and 318.
<unk> points for the year ago quarter, our net interest margin continued to be negatively impacted by excess liquidity.
During the third quarter, we had approximately $2 $3 billion on average on deposit at the Federal reserve, earning 15 basis points. The net interest margin in the third quarter would have been approximately 56 basis points higher.
8% without the $2 $3 billion on average on deposit at the Federal Reserve.
We continue to be asset sensitive as noted in our June 30 June 30 Form 10-Q.
If rates were to ramp up over 200 basis points over a 12 month time horizon, our net interest income would grow by approximately 21%.
Loan yields were $4 four 3% in the third quarter of 2021, compared with $4 four 6% for the second quarter of 2021, and 447% for the year ago quarter.
Total interest and fee income from PPP loans was $7 $9 million in the third quarter compared to $8 1 million.
Here in the second quarter.
The decrease in loan yields from the year ago quarter was partly due to the impact of the federal reserve rate decreases on our core loan yields the impact of PPP loans as well as a decline in discount accretion income on acquired loans, excluding the impact of PPP loans interest income.
Related to purchase discount accretion and non accrual interest paid loan yields were $4 one 4% for the third quarter of 2021 four.
Four 3% for the second quarter of 2021, and 437% for the third quarter of 2020 pre.
Prepayment penalty income decreased by $1 4 million.
Quarter over quarter, while increasing by $243000 compared with the year ago quarter.
Our cost of deposits and customer repos as well as our cost of funds for the third quarter was four basis points interest bearing deposits and customer repos increased on average by 124.
$4 million from the second quarter, but interest expense declined as the cost of interest bearing deposits and customer repurchase agreements decreased from 12 basis points in the second quarter to nine basis points in the third quarter, our cost of funds declined by one basis point from the prior quarter and seven basis points compared to the third quarter of 2020.
Moving to noninterest or excuse me moving to noninterest income.
Noninterest income was $10 5 million for the third quarter of 2021, compared with $10 8 million for the prior quarter and $13 2 million for the year ago quarter.
The third quarter of 2020 included a $1 $7 million gain.
On the sale of a bank owned building our trust and investment service income decreased by approximately $500000 or more than 15% compared with the prior quarter, while being $276000 or approximately 12% higher when compared with the year ago quarter.
Deposit service charges increased.
And by 8% or $344000 from the second quarter and were higher than the third quarter of 2020 by 14% or $543000.
Fees from interest rate swaps were $167000 for the third quarter, which was $1 $4 million lower than a year ago.
In.
We announced that we entered into a merger agreement with Suntrust Bank pursuant to which Suntrust Bank will merge into citizens business Bank. We're excited to be joining forces with a successful bank that serves California Central Valley as well as Sacramento, a sizable and important new market for our bank that presents additional growth opportunities.
In July closing of the merger is expected to.
To occur at the end of the current quarter or the first quarter of 2022.
Now on to expenses noninterest expense for the third quarter was $48 $1 million compared with $46 5 million for the second quarter of 2021 and 40.
$9 6 million for the year ago quarter, we incurred $809000 in acquisition related expenses.
Salary and benefit expenses decreased by $905000 compared to the second quarter the.
Second quarter benefited from a onetime adjustment to the benefit expense of approximately $1 million.
Marketing and promotion expense decreased by $942000 compared to the second quarter of 2021, primarily due to the timing of donations made during the second quarter to community groups throughout our geographic footprint.
Noninterest expense also increased by $1 million as we recaptured provision for unfunded loan.
Loan commitments of $1 million in the second quarter of 2021.
No no.
Noninterest expense totaled $1, two 2% of average assets for the third quarter of 2021, compared with 123% for the second quarter of 2021, and 144% for the third quarter of 2020.
Our efficiency.
<unk> ratio was 42, 7% for the third quarter of 2021, compared with 40.05% for the prior quarter and 40% to 57% for the third quarter of 2020.
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.
Alan.
Dave.
Everyone. Our effective tax rate was unchanged at 28, 6% when compared to the second quarter of 2021, and 29% for the year ago quarter.
The tax rate can vary depending on the level of tax advantaged income as well as available tax credits.
Our allowance for credit losses decreased by $4 million from the second quarter of 2021.
As a result of a $4 million recapture provision for credit losses.
At September 32021, our ending allowance for credit losses was $65 4 million or 83% of total loans when excluding PPP loans.
Our allowance as a percentage of the remaining loans was <unk>, 87%.
Which compares to <unk>, 91% at the pre pandemic period ended December 31 2019.
In addition to the allowance for credit losses, we had $21 million in remaining fair value discounts from acquisitions at September 32020.
Yeah.
The recapture provision for credit loss was primarily the result of continued improvement in our forecast of certain macroeconomic variables, including the unemployment rate and GDP growth.
For the nine months ended September 32021, we have recorded a recapture of provision for credit losses of 20.
$1 5 million. This compares to the provision for credit losses of $23 $5 million, we recorded in the first half of 2020.
Due to the estimated impact on loan losses from the economic forecast.
With a significant downturn in the economy.
<unk> from COVID-19 pandemic.
Based on the magnitude.
<unk> economic stimulus from the wide availability of vaccines, our latest economic forecast continues to reflect improvements in key macro macroeconomic variables and therefore lower projected loan losses.
Which resulted in a decrease in our allowance for credit losses to $65 4 million.
Yes.
Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. These U S. Economic forecast include a baseline forecast as well as upside and downside forecast, but the largest weighted on the baseline.
Our weighted forecast assumes GDP.
Increased by five 7%.
Governmental done in 'twenty, one and then grows by more than 2% in both 2022 and 2023.
The unemployment rate is forecasted to be five 7% in 2021, and then five 6% in 2022 before declining to five 3% in 2000.
In 2003.
Looking at our investment portfolio, our total investment securities increased by approximately $667 million from the end of the second quarter as of September 32021 investment securities available for sale or <unk> Securities totaled $2 9 billion.
And 'twenty inclusive of a pretax net unrealized gain of $8 8 million.
<unk> securities held to maturity or HTM securities totaled approximately $1 7 billion at September 30th.
During the third quarter, we purchased approximately $187 million.
And new <unk> securities with an expected tax equivalent yield of 149% and.
$705 million in new HTM securities with an expected tax equivalent yield of 175%.
Now turning to our capital position for the first nine months shareholders.
Equity increased by $55 9 million to $2.06 billion.
The increase was primarily due to net earnings of $164 $8 million.
A $32 $3 million decrease in other comprehensive income from the tax effected impact of the decrease in market value.
Of available for sale Securities.
$73 $4 million in cash dividends.
During the third quarter, we repurchased 390000 shares of common stock at an average price of $18 97.
We terminated our <unk> one stock buyback plan on September 20.
<unk> as a result of the company's prospective issuance of common stock related to the acquisition of Suntrust Bank.
Our overall capital position continues to be very strong our tangible common equity ratio was eight 9% at the end of the third quarter and our regulatory capital ratios are well above regulatory requirements to be considered well capitalized.
At September 30, our common equity tier one capital ratio was 14, 9% and our total risk based capital ratio was 15, 7%.
I'll now turn the call back to Dave for some closing remarks.
Alan citizens business Bank remains well positioned to take advantage of the improving economic environment.
California. According to various economic reports many parts of the California economy have recovered to their pre pandemic levels. However over the past three to six months supply chain interruptions and labor shortages have impacted many of the businesses and industries that we serve we continue to remain focused on assisting our customers.
<unk> with any negative impact of these issues on their businesses our pretax pre provision earnings remained strong despite the impact of the low interest rate environment and prevailing lower line utilization rates due to the strong customer liquidity, we believe that our net interest margin will increase in a rising rate environment and we are seeing the steady improvement in our.
Hi pipeline from previous quarters translate into solid loan growth.
We are excited about our announced acquisition of Suntrust Bank and the opportunities. It provides to expand in the Sacramento market as well as to solidify our significant position in the Central Valley.
Please stay healthy and safe that concludes today's presentation.
Mentation now Alan and I will be happy to take any questions that you might have.
Thank you as a reminder to ask a question you need to press star one on your telephone to withdraw.
All your question press the pound key.
If you would like to ask a question press star.
One on your telephone.
Our first question comes from.
Right Rob.
<unk> with <unk> Your line is open.
Hey, good morning, everyone. Good morning, Brad.
Wanted to first ask just you know.
Looking at the balance sheet.
Can you talk maybe about the security purchases during the quarter Windows were done.
And just thinking.
<unk>, how much liquidity you.
Mike deploy and how we should think about the absolute level of NII.
Obviously <unk> was a margin compression story.
Sure. If you look at the point to point from June 30.
About 30% growth.
That was about $667 million, but on an average balance perspective, we only grew by about $187 million. So.
So that obviously reflects that some of those purchases happened later in the quarter.
We were seeing better better attractive yields as the quarter was coming.
Yeah.
So I will continue to buy securities.
We will continue to be very balanced and I think we're we're sort of coming to the expectation that interest rates should be growing next year and then we certainly want to keep some of our powder dry to.
Take advantage of that so we'll.
We will continue to invest but we're not going to turn that.
Coming to a $3 million of $1 billion into securities overnight.
Okay.
Any color on the this besides you might do in the fourth quarter.
And it really will depend on where rates go we try to be very opportunistic.
In the marketplace, when we see rates are rising and.
Two point, but we'll continue to take that approach.
Okay Fair enough and then was curious no trust was a little bit softer. This quarter was there any any fundamental change there or can you maybe comment on trust in <unk>.
There wasn't any fundamental change or is it just a couple of things that happen in the.
Or is it really sort of jump those numbers up but I think.
We have a big focus on trust and the opportunities there, especially with all of this excess liquidity that's on our balance sheet. So we're very focused on continuing to grow that.
No big issue, just some timing and some other things so.
Yes, the fees that are driven off of assets under management, where we're relatively flat I'd say.
And we do have some extra income in the second quarter, when our customers pay for their tax so theres, a little bit of noise, sometimes in the second quarter as well.
Okay.
And then just lastly for me you talked about earlier the lungs.
The second pipeline is strengthening and obviously you had good core growth in <unk> from a couple of different aspects of our loan portfolio.
Obviously, there's some seasonality with with <unk> can you talk maybe about the outlook.
Could you become more of a high single digit story from.
From here and maybe how we should think about the loan growth prospects over the next year maybe.
Yeah, I mean, we as I've said in the past I mean, we actually have had two very strong years in a row of loan production.
Last year was a record year for us this year our loan production is up over last.
Years production, we look to continue to have a strong fourth quarter here our pipeline remains strong so.
We want to bank the best businesses, we banked the top 25% of clients in their respective industries and build long term relationships, so that that pie that.
Of that amount of opportunity there is somewhat limited as evidenced by the credit quality, we have so I.
I think in that in that range, where we've been and where we where we ended the third quarter are probably fair. So the mid range of single digit is probably where we are going to.
Perform going forward.
If we can get the best customers in and grow faster, great, but we're not going to sacrifice credit quality to grow out.
Okay.
Great color appreciate it.
Thank you. Our next question comes from Gary Tenner with D. A Davidson your.
Your line is open.
Thanks, Good morning.
Couple of questions for me in terms of the new loan production yields during the quarter Alan could you give us a sense of where those came in.
I mean, I would say as we've talked about before.
At a call it a coupon level area.
<unk> nothing like that you're still looking at something in the $3 50 to 60 range, it's been fairly consistent.
Okay great.
With regard to the 75 is that just a technical.
The reason that you had suspended given the shares that will be issued.
I guess ultimately my question is post some press it would seem that you'd still be continuing to deploy capital at a pace that outpaces the organic growth needs. So once that deal settles.
Would you expect to be back in the market on buybacks.
So.
It was a regulatory requirement for us to terminate it and if you look back two.
Our history, probably going back the last two acquisitions.
When we've been issuing shares we've had terminated.
We typically put it back in place.
After those mergers have been completed certainly the board will evaluate that after week.
The acquisition with Sunquest so.
But historically, yes, we have put those back in place.
Thanks very much.
Thank you. Our next question comes with comes from Matthew Clark with Piper Sandler Your line is open.
Hey, good morning, guys.
Good morning.
Maybe first one do you happen to have the average P. P T bones in the quarter.
I believe yes.
I want to follow up with another question what will get us here in the second.
Sure.
Yeah, it looks like your earning assets the.
On an end of period basis, well over 15 billion, which bodes well for NII in the upcoming quarter, but your.
NIM I would think we'd take another leg down.
What are your.
Expectations on.
The NIM kind of stabilizing that I would think it would be the second half of next year with the additional P. P.
Enough maybe over the next couple of quarters, but what are your thoughts around the overall NIM.
Yes, I think theres, a couple of different aspects to that number one obviously it depends on what happens with rates.
And the 10 year Treasury is has.
Has gone up a little bit that's one of the you know the.
Indices that we price on a obviously, depending on what happens with the fed in raising rates.
Excess liquidity, we're gonna be cautious and we're going to invest hopefully we invest that in loans, but at the end of the day. We're also not going to just.
Overload on the investment side so.
I think that.
We don't necessarily forecast, where NIM is going to be at least publicly forecast, where we think our NIM is going to be but you know.
I hope that we are in a position as we continue to grow loans and our customers utilize some of that excess liquidity that the NIM stabilizes.
Mentioned.
And I think we had an over 55 basis point difference in our NIM based on just the $2.3 billion, we had overnight at the fed so some of that liquidity our customers' liquidity starts to go away, we should be in a much better position I think we have the number for the average PPP loans for you as well Matthew.
Net of deferred fees.
We had about $502 million on average in the third quarter, which would compare to about $838 million in the second quarter of this year.
Great and then I'm sorry, just one quick addition to that we.
We've done a really outstanding job I mean over 99% of P. P. P.
Yeah.
Balances are gone I think the national average is 70% so.
Our efficiency in getting those.
Those loans forgiven has created some of that excess liquidity to so we were happy that we were able to help our customers and get it done.
Done.
And now we hope that as the economy opens up they'll start to utilize some of that excess liquidity as well. So sorry, I just wanted to add that.
Great and then just on your outlook for hiring.
Additional producers.
What's your outlook, there and how would you say the ones that you've hired over the last.
One months are contributing to loan growth were seeing.
Yeah right now we're focused on the integration and getting the Sunquest steel close which we are acquiring.
A number of producers and we believe that there are great people that we'll be able to contribute to the growth of our bank. So we're really.
<unk> on that right now but to answer the second part of your question. The people that we've hired in the past 12 months I think are doing a very good job they've been a big part of why our loan production is up they've been a big part of why we've grown loans at a 6% clip annualized in the last quarter felt very opportunistic about.
What that looks for what that boats going forward bodes well I believe for us to continue to do.
To see some positive loan growth so they've done a good job.
Okay, and then last one for me just around M&A I guess, how are you or.
How many of your discussions with other.
Banks going would you say, it's been more active since you announced the Suntrust deal or less active.
Really good question I think it's been about the same maybe slightly more active.
We obviously have proven that we can integrate and.
We have a a good currency and people want.
Stock so I get a lot of phone calls there are some that I'm interested in and something that I'm not but at the end of the day I would say those conversations are at or.
At a minimum the same and maybe even slightly higher.
Slightly more conversations.
Great. Thanks, a lot.
Okay.
Thank you.
And as a reminder, if you would like to ask a question press. The Star then the one key on your Touchtone telephone.
Our next question comes from David Feaster with Raymond James Your line is open.
Hi, Good morning, everybody good morning, David.
I just wanted to start on.
On the CRE growth I was pretty impressive just just wanted to get a sense of maybe where you're seeing strength in and whether theres any certain segments or markets. That's driving that and then just on the competitive landscape within CRE from an underwriting perspective are you seeing more non recourse or or more aggressive.
Rest of underwriting that's causing you any concern at this point.
I'll answer your second part of that question first so I don't think we're really seeing any difference over the last couple of quarters on the underwriting I think it's been pretty consistent we obviously have not modified our underwriting guidelines and are still focused on.
On top quality properties.
And as evidenced in our investor deck, we have some information on ltvs at origination and average loan sizes and that tells a pretty good story, but where we're seeing the growth is really across all segments I would say with retail being the lowest but.
But industrial multifamily and office than retail I'd, probably say in that order as far as where we're seeing the opportunities.
And the values and everything going on I mean, we underwrite to cash flow.
So that's part of the reason why our loan to values are lower because we have to know that.
Cash flow supports the loan amount that we're doing even though the value the market value might be significantly higher so I think we're seeing.
Kind of similar underwriting from most banks I mean, theres always a few out there that do things a little bit differently.
We've probably competed more so in most situations.
<unk> is on on rate.
And that's been something that I.
Think we've.
Sort of.
We asked and done to Alan's point earlier that he made kind of in that $3 50 to $3 60 range.
Whereas maybe a few years back we might not have been as aggressive.
On the pricing, but we want to get the best deals and so we're having to price for those we are still seeing some some very outrageous pricing from some institutions and where there is a relationship as Ive always said we will compete.
If its transaction.
We're less interested in going to.
At the bottom the bottom of the.
The barrel there.
That makes sense.
And then maybe maybe switching gears to the AG portfolio. Obviously, we're in a seasonally stronger quarter, just just wanted to get a sense of what you're seeing.
In the AG book, and whether you've seen any impacts from.
The drought.
How has that impacted demand at all or are there any concerns on the on the credit front as a result of that.
Yes, that's a good question. So again, just a couple of things on the AG.
By AG.
Speaking of dairy and livestock and agribusiness group, which is more production.
From the <unk>.
Livestock group increase.
This combination of new relationships that we brought onboard.
Most of that increase.
And <unk>.
Advances are a small part so we really haven't seen the seasonal uptick in the dairy and livestock that we normally.
Really see yet.
That normally occurs in the fourth quarter, so we still anticipate that to happen.
The third quarter was really us attracting a couple of new relationships to the bank. So that that has been a positive.
The second thing I would say is as far as the drought or any other.
<unk> risks.
Risk that's out there we've always underwritten the same we underwrite for two sources of water to the drought is something that we're very aware of I'm very conscious of our customers or prospects that we're talking to want to make sure that they understand the risk involved with that and so.
Is impacting probably what we.
We potentially might do but it's not impacting our existing customers because when we underwrote them, we made sure that they had.
Appropriate sources of water.
That makes sense and then.
Last one from me just just wanted to touch on kind of the one of the.
Prongs of.
Growth you've got.
Really the organic side, the M&A side, and we've done some de Novo expansion just wanted to get an update on on the Modesto office kind of what's the early read on that how has that contributed to growth and then just any appetite for additional de novo opportunities and if you do where would you be interested.
That's a good question.
So if I Modesto tech.
Technically just opened a couple of months ago.
Although we've had the manager onboard since almost the beginning of the year I believe.
I'm happy with what's happening in Modesto, we're still building out the team.
<unk>.
Think one more positioned to hire there and I believe we're that's going to be filled here very shortly so their pipelines are strong they're starting to book loans. So.
It takes a little bit to get that going but I'm very very opportunistic about modesto.
I've asked.
Brian.
Yes.
Our president to do is meet with each of the regional managers identify de novo opportunity within their market and let's take a look and evaluate which ones we want to prioritize and so.
Or generally within the markets that we serve already but could be adjacent.
And two it just depends on the opportunity to hire talent and so we're going to now that we're getting towards the closure of the Suntrust deal, we're going to be focused on looking at de Novo teams. Our method of operation there as we get the de Novo, making money once their once the last de Novo is making money.
We look to do another one.
So we don't want to have a drag on earnings of more than one at a time, but modesto will be there I believe in the next.
Couple of months and then we'll be ready to do another one.
Okay that makes sense thanks, everybody.
Thank you.
Thank you as a reminder.
To ask a question press the Star then the one key on your Touchtone telephone.
And I'm showing no further questions in the queue I'd like to turn the call back to David.
Brager for closing comments.
Great. Thank you I want to thank.
If you would like for joining us this quarter. We appreciate your interest and look forward to speaking with you in January for our fourth quarter and year end 2021 earnings call. Please let Alan or I know if you have any questions have a great day and thanks for listening.
Yeah.
Yeah.
Thank you. This concludes today's conference.
You may now disconnect.
Yeah.
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