Q4 2023 CVB Financial Corp Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the fourth quarter and year ended 2023, <unk> Financial Corporation and its subsidiary citizens business Bank Earnings Conference call. My name is Sherry and I'm. Your operator for today at this time all participants are in a listen.
Only mode. After the speaker presentation, there will be a question and answer session to ask a question during the session you will need to be.
My Star one one on your telephone you will then hear an automated message advising your hand is raised so withdraw your question Press Star. One again, please be advised that today's 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.
Christina L. Carrabino: Thank you Shari and good morning, everyone. Thank you for joining us today to review our financial results for the fourth quarter and year ended 2023. Joining me. This morning are Dave Brager, President and Chief Executive Officer, and Allen Nicholson Executive Vice President and Chief Financial Officer, our comments today will refer to the financial information that was incurred.
Christina L. Carrabino: The earnings announcement released yesterday.
Christina L. Carrabino: A copy please visit our website at Www Dot C V Bank Dot com and click on the investor's tab.
Christina L. Carrabino: The speakers on this call claim the protection of the Safe Harbor provisions.
Allen Nicholson: 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 31st.
Allen Nicholson: 2022, and in particular, the information set forth in item one a risk factors therein for more complete version of the company's Safe Harbor disclosure. Please see the company's earnings release issued in connection with this call.
Allen Nicholson: Now I will turn the call over to Dave Brager, Dave.
Dave Brager: Thank you Christina and good morning, everyone for the fourth quarter of 2023, we reported net earnings of $48 $5 million or <unk> 35 per share representing a 187th consecutive quarter of profitability. We previously declared <unk> 20 per share dividend.
Dave Brager: The fourth quarter of 2023, representing our 137th consecutive quarter of paying a cash dividend to our shareholders. Our net earnings of $48 $5 million or <unk> 35 per share compared to $57 9 million for the third quarter of 2023, or <unk> 42 per share and <unk>.
Dave Brager: <unk> $6 $2 million for the year ago quarter, or 47 per share fourth quarter earnings would have been 39 cents per share excluding the $9 million expense related to the FDIC Special assessment, we produced a return on average tangible common equity of $16 two 1%.
Dave Brager: And our return on average assets of $1, one 9% for the fourth quarter that.
Dave Brager: Net income was 221 $4 million for the year ended 2023, a $14 million decrease compared to 2022, when excluding the $9 $2 million FDIC special assessment, the decrease would have been $7 $6 million.
Dave Brager: Diluted earnings per share were $1 59.
Dave Brager: For 2023 compared to $1 67 for 2022.
Dave Brager: Our fourth quarter pretax pre provision income decreased $10 million from the third quarter of 2023, primarily due to the expense accrual for the FDIC Special assessment.
Dave Brager: We continue to be among the industry leaders with respect to expense control as our efficiency ratio for the fourth quarter and full year 2023 was 49, 8% and 43% respectively. After excluding the FDIC special assessment.
Dave Brager: Our net interest margin declined by five basis points from the third quarter of 2023 to $3 two 6% for the fourth quarter. The decrease in our net interest margin was the net result of a 17 basis point increase in our cost of funds, which offset a 12 basis point increase in our earning asset yield.
Dave Brager: Net interest margin for all of 2023 was 331% essentially the same as our 2022 net interest margin of three 3%.
Dave Brager: Total loans outstanding at the end of 2023 increase from the end of the third quarter of 2023 by approximately $30 million to $8 $9 billion, our allowance for credit losses decreased to approximately $87 million on December 31.
On net charge offs of $153000 and a $2 million recapture provision for credit losses in the fourth quarter of 2023.
Dave Brager: Average total deposits for the fourth quarter decreased by approximately $429 million compared to the third quarter of 2023 or.
Our average noninterest bearing deposits continued to be greater than 61% of our average total deposits.
Dave Brager: At December 31, 2023, our total deposits were $11 4 billion a $925 million decrease from September 32023.
Dave Brager: During the latter half of the fourth quarter, we experienced both the normal year end seasonal deposit outflows as well as some unexpected deposit withdrawals that were directed to an external trust company for state planning.
Dave Brager: Although noninterest bearing deposits declined by $380 million from the end of the third quarter noninterest bearing deposits represented 63% of total deposits and.
Dave Brager: Customer repos were $271 million at the end of the fourth quarter, which was consistent with the balance at September 32023.
Dave Brager: We have experienced a $1 7 billion decline in deposits and customer repos from the end of 2022, which includes approximately $800 million that was moved to citizens Trust, where these funds were invested in higher yielding assets such as Treasury notes overall, we've experienced a decline in deposit levels due to the cash burn on customer.
Dave Brager: Counts, resulting from inflationary pressures as well as the impact of higher interest rates has led to deposits moving to higher yielding alternatives such as money market funds in short term Treasury notes.
Dave Brager: Our cost of deposits was 62 basis points on average for the fourth quarter of 2023, which compares to 52 basis points for the third quarter of 2023, and eight basis points for the fourth quarter of 2022.
Dave Brager: From the first quarter of 2022 during the fourth quarter of 2023.
Dave Brager: Our cost of deposits has increased by 59 basis points, representing a deposit beta of less than 12%.
Dave Brager: Compared to the recent federal reserve tightening cycle of increasing the fed funds rate by 525 basis points now let's discuss loans.
Dave Brager: Total loans at December 31, 2023 were $8 9 billion, a $27 million increase from September 32023, and a $174 million or one 9% decrease from the end of 2022.
Dave Brager: Quarter over quarter increase included $73 million increase in dairy and livestock loans utilization.
Dave Brager: Utilization on dairy and livestock loans was at 80% at December 31, 2023, which compares to 73% at the end of the third quarter.
Dave Brager: C&I loans also increased by $32 million of line utilization increased from 27% at the end of third quarter to 29% at the end of December 2023.
Dave Brager: These increases were partially offset by a $58 million decline in commercial real estate loans.
Dave Brager: In comparison to December 31, 2022 loans declined by $168 million after excluding PPP loans. The majority of the decline was in commercial real estate loans, which decreased by $100 million from the end of 2022 to December 31 2023.
We saw a decline in both construction and consumer loans of $22 million and $23 million respectively.
Dave Brager: C&I loans increased by approximately $21 million over the same period, although line utilization decreased from 33% to 29%.
Dave Brager: This aligns with our strategy of making the best small to medium sized businesses and their owners loan growth continues to be impacted by a slowdown in loan demand our new loan production decreased throughout the second half of 2023.
Dave Brager: And new loan production for the fourth quarter of 2023 was generated at average yields exceeding 7%.
Dave Brager: Although loans modestly increased at quarter end from the end of the third quarter, we recorded a $2 million recapture provision for credit losses for the fourth quarter of 2023 due to an improving economic forecast.
Dave Brager: Asset quality remains strong at the end of the quarter nonperforming assets defined as nonaccrual loans plus other real estate owned were $21 million or 13 basis points of total assets for.
Dave Brager: The $21 million in nonperforming loans compares with $10 million from the prior quarter and $4 $9 million for the year ago quarter.
Dave Brager: The increase from the prior quarter was primarily due to a CRE loan that has a loan participation acquired in the Suntrust merger that was placed on non accrual at the end of the fourth quarter.
Dave Brager: During the fourth quarter, we experienced credit charge offs of $181000 and total recoveries of $28000, resulting in net charge offs of $153000 compared with net recoveries of $28000 for the third quarter of 2023.
Dave Brager: Year to date net charge offs were $275000.
Dave Brager: Classified loans for the third quarter were $102 million compared with $92 million for the prior quarter and $79 million for the year ago quarter classified loans as a percentage of total loans was 115% at quarter end.
Dave Brager: The $10 million increase in classified loans quarter over quarter was primarily due to a $9 $8 million increase in classified commercial real estate loans I will now turn the call over to Alan to discuss the allowance for credit losses, and additional aspects of our balance sheet Alan.
Alan: Thanks, Dave and good morning, everyone.
Alan: As of December 31, 2023, our allowance for credit losses was $86 8 million or <unk>, 98% of total hours.
Alan: Which compares to $89 million or 1% of total loans at September 32023.
Alan: And $85 $1 million or <unk>, 94% of total loans at December 31, 2022.
Allen Nicholson: From the end of 2022 to the end of 2023, our allowance for credit losses increased by $1 $7 million, while loans declined by $174 million over that same period.
Allen Nicholson: The changes in our allowance over the last few quarters have been primarily due to changes in our economic forecast for.
Allen Nicholson: For the quarter ended December 31, 2023, we recorded a $2 million recapture provision for credit losses. This.
Allen Nicholson: This compares to $2 million and provision for the third quarter of 2023, and $2 $5 million and provision for the fourth quarter of 2022.
Allen Nicholson: Our economic forecast continues to be a blend of multiple forecasts produced by Moody's.
Allen Nicholson: We continue to have the largest individual scenario waiting on Moody's baseline forecast.
Allen Nicholson: Downside risk weighted among multiple forecast.
Allen Nicholson: The resulting economic forecast reflects a modest decline in GDP for the first three quarters of 2024 with a return to positive GDP growth in the fourth quarter of 2024.
Allen Nicholson: GDP is forecasted to increase by 92% in 2025 before reaching a more robust growth rate of two 6% in 2026.
Allen Nicholson: Commercial real estate values are forecasted to continue their decline until reaching their lowest level in the third quarter of 2024.
Allen Nicholson: Yeah.
Allen Nicholson: Unemployment is forecasted to rise in 2024 and throughout 2025, the unemployment rate is forecasted to exceed 5% in 2024, and then peak at five 7% in the first quarter of 2025.
Allen Nicholson: The unemployment rate is forecasted to then declined to less than 5% by the third quarter of 2026.
Allen Nicholson: Total borrowings at the end of the fourth quarter were approximately $2 billion, including $1 $9 billion of advances from the bank term funding program.
Allen Nicholson: Our borrowings increased by $950 million from September 32023, and by approximately $1 $1 billion from the end of 2022.
Dave Brager: The $1 9 billion of bank term funding program borrowings, which had a weighted average borrowing rate for seven 8% at the end of 2023.
Dave Brager: Mature in May and December of 2024.
Dave Brager: Our total investment portfolio declined by $389 million from December 31, 2022 to $5 4 billion as of December 31, 2023, as the majority of our cash flows generated from the portfolio, we're not reinvested during the year.
Dave Brager: The overall decrease in our investment portfolio from December 31, 2022 was primarily due to a $299 million decline in investment securities available for sale or <unk> securities.
Dave Brager: Asset Securities totaled $2 96 billion at the end of the fourth quarter inclusive of a pretax net unrealized loss of <unk>.
Dave Brager: $450 million.
Dave Brager: A decrease in the unrealized loss from September 30 to December 31 of 2023 of $179 million resulted in a net increase in <unk> securities of $58 million.
Dave Brager: Investment Securities held to maturity or HTM securities totaled approximately $2 $4 6 billion at December 31, 2023.
Dave Brager: The HTM portfolio declined by approximately $25 million from September 30, and by $90 million from the end of 2022.
Dave Brager: Cash flows were not reinvested throughout 2023.
Dave Brager: The tax equivalent yield on the entire investment portfolio was 271% for the fourth quarter of 2023 compared to $2 six 4% for the prior quarter and $2, 36% for the fourth quarter of 2022.
Dave Brager: The increase in the yield has been the result of the positive carry on fair value hedges, we executed on in late June of 2023.
Dave Brager: The fourth quarter of 2023, when compared to the year ago quarter had $4 million of interest income from the positive carry on the swaps.
Dave Brager: We receive daily silver on these pay fix swaps, which has a weighted average fixed rate of approximately three 8%.
Dave Brager: At the end of the fourth quarter, we executed on a partial restructuring of our bank on life insurance our boy portfolio.
We surrendered $68 million of policies, which resulted in a $4 $5 million of market value write down of the cash surrender value of these policies and approximately $6 $5 million in additional tax expense.
Dave Brager: The purchase of $109 million of newbolt policies at the end of December included an increase of cash render value of approximately $10 million.
Dave Brager: On a net basis noninterest income was positively impacted by $6 5 million offset.
Dave Brager: Offsetting the $6 $5 million increase in tax expense.
Dave Brager: The new policies will have an initial crediting rate that is approximately 300 basis points higher than the policies we surrender.
Dave Brager: Now turning to our capital position the company's tangible common equity ratio at December 31, 2023 was $8 five 1% compared with the prior quarters ratio of 773% and seven 4% at December 31 2022.
Dave Brager: At year end, our shareholders' equity increased from the third quarter of 2023 by $126 6 million.
Dave Brager: 220 $8 billion.
Dave Brager: That increase reflects an increase in our OCI of $103 $6 million due to the impact of lower interest rates decreased the unrealized loss on our <unk> portfolio.
Dave Brager: Equity increased for the 12 months of 2023 by $129 $5 million retained earnings increase in 2023 as year to date income of $221 million was offset by $112 million in dividends, resulting year to date dividend payout ratio was $50.
Dave Brager: 4%.
Dave Brager: Our OCI increased by 31.
Dave Brager: $31 million from the end of 2022.
Dave Brager: The <unk> one stock repurchase plan, we initiated in 2022 expired on March <unk> 2023 during the first quarter of 2023, we repurchased approximately 792000 shares of common stock at an average price of $23 43.
Dave Brager: Totaling $18 $5 million in stock repurchases.
Dave Brager: There are no shares purchased during the remaining quarters of 2023.
Dave Brager: Our regulatory capital ratios are well above regulatory requirements to be considered well capitalized and above the majority of our peers at December 31, 2023, our common equity tier one capital ratio was 14, 6% and our total risk based capital ratio was 15, 5%.
Dave Brager: I'll now turn the call back to Dave for a further discussion of our fourth quarter earnings.
Dave Brager: Thank you Alan net interest income before provision for credit losses was $119 $4 million for the fourth quarter compared with $123 4 million for the third quarter and $137 $4 million for the year ago quarter, our tax equivalent net interest margin was three to six.
Dave Brager: Percent for the fourth quarter of 2023, compared with 331% for the third quarter of 2023, our net interest margin has trended within a somewhat narrow range over the past three quarters with the second quarter at 322% and our full year at 331%.
Dave Brager: Interest income grew by nearly $2 million over the prior quarter as interest income on loans grew by $2 5 million as a result of an 11 basis point increase in loan yields offsetting the growth in loan interest income was a $500000 decline in interest on investment securities due to a two one.
Dave Brager: <unk> hundred $14 million decline in average balance in the average balance of the investment portfolio.
Allen Nicholson: Interest income from our pay fixed swaps increased by approximately $200000 from the prior quarter.
Allen Nicholson: Interest expense increased by $5 $9 million over the prior quarter as our cost of funds decreased by 17 basis increased excuse me by 17 basis points from the third quarter of 2023 inter.
Allen Nicholson: Interest expense on deposits increased by $2 $4 million due to a 22 basis point increase in the cost of interest bearing deposits, while average interest bearing deposits declined by $67 million quarter over quarter.
Allen Nicholson: The cost of interest bearing deposits was 159% in the fourth quarter compared to 137% in the prior quarter.
Dave Brager: Interest expense on borrowings increased by $3 $5 million as average borrowings in the fourth quarter increased by $267 million compared to the prior quarter and the cost of borrowings rose by approximately 25 basis points.
Dave Brager: The $18 million decline in net interest income from the year ago quarter resulted from a 43 basis point decrease in net interest margin and a $217 million decline in average earning assets.
Dave Brager: Year over year net interest margin.
Dave Brager: The decline was due to a 96 basis point increase in our cost of funds offsetting a 49 basis point increase in earning asset yields the increase in earning asset yields as a result result of higher loan and investment yields.
Dave Brager: In the fourth quarter of 2023 compared to the fourth quarter of 2022 as well as an improved asset mix in which average loans grew from approximately 59, 7% of earning assets in the fourth quarter of 2022% to 65% in the fourth quarter of 2023.
Dave Brager: Loan yields were $5, one 8% for the fourth quarter of 2023, compared with $4, 7% to 8% for the year ago quarter.
Dave Brager: Investment security yields increased by 35 basis points from a yield of 236% in the prior year quarter to 271% in the fourth quarter of 2023, including the positive carry on the pay fixed swaps.
Dave Brager: The $17 $5 million decline in net interest income from 'twenty to 'twenty, two was driven by a $600 million average decline in interest earning assets.
Dave Brager: As our net interest margin of 331% for 2023 was essentially the same as the three 3% margin in 2022.
Dave Brager: Moving on to noninterest income noninterest income was $19 2 million for the fourth quarter of 2023, compared with $14 $3 million for the prior quarter and $12 $5 million for the year ago quarter, our customer related banking fees, including deposit services International and merchant Bank card.
Dave Brager: <unk> by $87000 compared to the third quarter and declined by $782000 when compared to the fourth quarter of 2022.
Dave Brager: Although our trust and wealth management fees decreased by $165000 compared to the prior quarter year over year Dc's grew by $214000.
Alan Nicholson: Fourth quarter Bully income increased by $6 4 million compared to the third quarter and increased by $6 5 million compared to the fourth quarter of 2022, primarily due to the surrender and redeployment of boy policies. Alan just described.
Alan Nicholson: Fourth quarter CRA investment income increased by $1 $1 million over the third quarter of 2023 and by approximately $700000 over the fourth quarter of 2022, primarily due to underlying asset valuation increases.
Alan Nicholson: In the third quarter also included $2 $6 million of income from an equity fund distribution related to one of our CRA investments.
Alan Nicholson: For the entire year of 2023 noninterest income grew by $9 3 million over 2022, including $7 $4 million of higher bully income.
A $1 $2 million decline in deposit service charges was offset by a $1 million increase in higher trust and higher trust fees and more than $600000 of swap fees in 2023.
Alan Nicholson: See our CRA related investment income was $5 $4 million higher in 2023.
While 2022 included a $2 $4 million gain on the sale of a banking center building.
Alan Nicholson: Now expenses.
Dave Brager: Noninterest expense for the fourth quarter was $66 million compared with $55 million for the third quarter of 2023 and $54 million for the year ago quarter, the $10 $9 million quarter over quarter increase was primarily due to the fourth quarter expense of $9 $2 million, resulting from the FDIC special.
Dave Brager: Assessment.
Dave Brager: Regulatory assessment expense was $11 3 million in the fourth quarter of 2023, a $10 million increase from the fourth quarter of 2022.
Dave Brager: The fourth quarter of 2023 included $500000 in recapture provision for unfunded loan commitments compared to a $900000 in recapture for the third quarter of 2023.
Dave Brager: There was no provision.
Dave Brager: For the fourth quarter of 2022.
Dave Brager: Salaries and employee benefit costs increased $908000 quarter over quarter. This increase includes approximately $400000 associated with year end employee awards.
Alan Nicholson: <unk> expense increased by one 3% or approximately $300000 in bonus and profit sharing increased by another $300000 based on full year earnings.
Alan Nicholson: The $11 $5 million increase in noninterest expense year over year includes the $10 million increase in assessment expense and an increase of $1 5 million in total salaries and employee benefits compared with the prior year quarter.
Alan Nicholson: Salary expense grew by $1 $1 million or four 8% over the fourth quarter of 2022.
Alan Nicholson: <unk> loan origination costs were also lower than the prior year quarter, resulting in additional employee expense of $550000.
Alan Nicholson: Marketing and promotion expense increased over 2022 by approximately $380000 as these expenses returned to pre pandemic levels.
Alan Nicholson: As we continue to invest in new technology.
Alan Nicholson: <unk> expense increased by more than $300000 or nine 5%.
Alan Nicholson: The increase in technology demonstrates our commitment to improving efficiencies and providing an excellent customer experience.
Alan Nicholson: Noninterest expense totaled $1, six 2% of average assets or 139%, excluding the FDIC special assessment for the fourth quarter of 2023.
Alan Nicholson: This compares with $1 three 3% for the third quarter and 132% for the fourth quarter of 2022.
Alan Nicholson: Our efficiency ratio was 47, 6% or 49, 8%, excluding the FDIC special assessment for the fourth quarter of 2023.
Alan Nicholson: This compares with $39, 99% for the prior quarter and $36 three 1% for the fourth quarter of 2022.
Alan Nicholson: This concludes today's presentation now Alan and I will be happy to take any questions that you might have.
Alan Nicholson: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question Press Star One again, one moment, while we compile the Q&A roster.
Alan Nicholson: Yes.
And our first question will come from the line of Matthew Clark with Piper Sandler Your line is open.
Matthew T. Clark: Hey, good morning, guys.
Matthew T. Clark: Morning.
Matthew T. Clark: No.
Matthew T. Clark: Let me just start with the bully restructuring.
Matthew T. Clark: Can you give us a sense for how we should think about that.
Matthew T. Clark: Run rate going forward.
Matthew T. Clark: Okay.
Matthew T. Clark: Well Matthew I think in the prepared remarks, I noted how much we invested in new boy and the fact that it generates.
Matthew: Initial crediting rates are going to be 300 basis points higher than the prior income so.
Matthew: We bought $109 million.
Matthew: Okay $109 million of total sales.
Matthew: Okay. Thanks.
Matthew: Yes.
Matthew: Yes.
Then just some a couple of questions around the margin.
Matthew: Can you give us the spot rate on deposits at the end of December and if you had the average margin in the month of December.
Matthew: And help us with.
Matthew: I can tell you what we publish so if you look at our IP deck.
The cost of deposits for the month of December was 64 basis points, which compares to I think 62 for the quarter.
Matthew: And we also noted that the.
Matthew: Our our borrowings at an average rate at the end of the period of time of $4 78.
Matthew: And so those are that would give you some good starting points.
Matthew: Okay.
Matthew: Yes.
Matthew: Yes.
Matthew: And then just on deposits.
Matthew: The outflow in noninterest bearing anything unusual there.
Matthew: How is the overall deposit pipeline given all the disruption.
Matthew: Yeah. So.
Alan Nicholson: As you know we have normally and maybe 2020 being the exception, but normally we have about a 4% to 6% deposit outflow in the fourth quarter due to taxes bonuses other things that happened we did call out in the <unk>.
Alan Nicholson: Prepared remarks, we did have one large relationship that move some money to an external trust company.
Alan Nicholson: That was unexpected.
Dave Brager: But outside of that everything has been pretty stable.
Dave Brager: And normally we start to.
Dave Brager: See those deposits start to come back to us towards the end of the first quarter.
Dave Brager: And the deposit pipelines are strong.
Dave Brager: <unk> strong it's just the sales cycle on operating companies is a little bit longer.
Both from implementation perspective, but yes, we continue to open new relationships in and we haven't lost any relationships the relationship that moved the money.
Dave Brager: There is still a very large depositor of the bank.
Okay and then.
Dave Brager: Just on the hiring side of things.
Dave Brager: What's that activity light again with all the consol.
Consolidation and banks kind of going away yeah.
Dave Brager: Yes, it's actually it's interesting I think it's been very good we've been able to pick up some very good talent I believe.
Dave Brager: There are newer but they're coming in sort of private who you would expect them to come from.
Dave Brager: We have.
Speaker Change: Some people from Western Alliance, we have some people from first Republic, we have some people from city national. So we have there is some disruption there and I do think it's going to be an advantage for us as we continue to.
Speaker Change: Get through this cycle.
Speaker Change: Okay, and then last one for me just around M&A any change in the conversations youre, having with potential targets.
Speaker Change: Not really any change.
Speaker Change: It has.
Speaker Change: Maybe intensified a little bit, but there's still some challenges obviously with marks and other things, but we are definitely having conversations there is nothing eminent.
Speaker Change: But.
Speaker Change: We are definitely looking for opportunities there.
Speaker Change: Okay. Thank you.
Speaker Change: Welcome.
Speaker Change: Thank you one moment for our next question.
And that will come from the line of Tim Coffey with Janney Montgomery Scott Your line is open.
Timothy Coffey: Hey, good morning, gentlemen, good morning, Tim.
Timothy Coffey: Sure.
Timothy Coffey: Yes.
Timothy Coffey: 24.
Timothy Coffey: What do you expect with the balance sheet do you think we can see some additional shrinkage this year.
Timothy Coffey: We anticipate that we're going to be growing the balance sheet. Both from a deposit acquisition perspective, and then continue to move the mix, but it will continue I mean, just based on loan demand and based on pipelines I think it's going to be slow just like it has been in 2023.
Alan Nicholson: The only the only change to that and Alan can jump in here. If he wants to would be just how we manage the borrowings in and how we reinvest the cash flows and if we just pay down debt vis vis the invest in other opportunities I don't know island, if theres anything you want to add to that.
Timothy Coffey: Tim We do anticipate the securities portfolio to continue to roll down and.
Alan Nicholson: That will fund potentially loan growth or paying down debt and I don't really I think.
Timothy Coffey: Really predicated on loan demand as 2020 form continues.
Timothy Coffey: Okay.
Timothy Coffey: If the fed does nothing.
Timothy Coffey: What happens to loan yields on a quarterly basis.
Timothy Coffey: They would most likely.
Timothy Coffey: Kris modestly.
Timothy Coffey: We do have large book of adjustable loans and as those adjust.
Timothy Coffey: Almost all of those.
Timothy Coffey: Just upwards as well as the fact that.
Dave Brager: As Dave alluded to in our comments.
Dave Brager: New business comes on well over 7%.
Dave Brager: As you know a couple of hundred basis points more than the portfolio. So.
Dave Brager: It won't be significant but we would expect modest improvements in loan yields if everything sort of stable.
Dave Brager: Okay.
Alan Nicholson: Just how much of the book re prices this quarter.
Alan Nicholson: We don't get that specific.
Alan Nicholson: We've tried to point out on our IP deck, because we give a lot of clarity around the office CRE portfolio.
Alan Nicholson: And that would tell you, it's probably 2025% of maturities and repricing is as an example.
Alan Nicholson: Generally.
Alan Nicholson: In line with most of the portfolio on the CRE side, yes, it's a good proxy for the it's a good proxy for the rest of the commercial real estate portfolio.
Alan Nicholson: Okay. Okay, that's very helpful.
My questions. Thank you very much for your time. Thank you.
Alan Nicholson: Thank you and as a reminder, if you would like to ask a question. Please press star 111 moment for our next question.
Alan Nicholson: And that will come from the line of Matt <unk> with <unk>. Your line is open.
Alan Nicholson: Hey, good morning, guys good morning.
Alan Nicholson: Just wanted to kind of touch on credit a little bit I. Appreciate the commentary you gave on that.
Alan Nicholson: NPL moving but maybe you could just talk a little bit about the CRE portfolio as a whole.
How it is holding up and what you guys are seeing in your markets.
Alan Nicholson: Yes, so I think generally speaking, it's holding up very well, we do put some.
Alan Nicholson: Some good detail in our investor presentation related to classified loans.
Alan Nicholson: In the commercial real estate.
Sure.
Area and.
Alan Nicholson: I think just generally speaking we did have a little bit of movement in classified loans. We did have a little uptick in nonperforming one uptick in nonperforming Theres alone I've discussed before.
Alan Nicholson: Which is the senior living facility that won't yes matured, we moved it to non accrual we're still working.
Alan Nicholson: With the borrower.
Alan Nicholson: We believe that we will get out of that mine just overall, though I think the portfolio has been extremely resilient and we continue to have a lot of early warning signs we do annual term loan reviews, we review.
Alan Nicholson: Our stress testing on the commercial real estate side as well as on the C&I side.
Alan Nicholson: Our scaled loans and that we're out in front of them, but we do get updated information on any loan over $1 billion in our portfolio annually at least.
Alan Nicholson: And then if it fails the stress test we have more.
Alan Nicholson: More frequent conversations with the borrower if theres something that we should be worried about but overall, it's been very very stable.
Alan Nicholson: We feel pretty good about where we are there.
Alan Nicholson: Awesome I appreciate the color on that and then if I could just get one more in here.
Alan Nicholson: I know you said growth for balance sheets, probably pretty slow.
Alan Nicholson: If we were to get a decent amount of.
Alan Nicholson: Cuts this year in the back half of the year would you expect demand to pick up pretty.
Alan Nicholson: Heavily in what are you guys may be seeing.
Alan Nicholson: If rates start to come down there and the pipeline.
Alan Nicholson: Yes, it's interesting.
Alan Nicholson: We generally base the pricing on our loans on treasuries, if it's <unk>.
Alan Nicholson: Term loan if its a C&I loan obviously, it's based on primer or silver, but primarily but as far as commercial real estate is <unk>.
Alan Nicholson: Boeing I think that we're starting to see a little pickup in the pipeline, it's not really material, but I think people are maybe just getting a little more accustom to rates, starting with 7% <unk> in front of them versus.
Alan Nicholson: The shocks that occurred in the last.
Alan Nicholson: 15 to 18 months as rates started going up so people still want to do some people still are looking for opportunities I think they were sort of waiting a little bit just to see if the world broke.
And now that it has and it appears pretty stable.
Alan Nicholson: Today, the economy seems pretty stable I think we'll start to see a little pick up on the loan demand side and.
Alan Nicholson: We will see how it plays out through the year, depending on rates, but I think rates are becoming less and less of a deterrent for people doing things as they get more used to.
Alan Nicholson: The current environment.
Alan Nicholson: Yes, I appreciate the color on that thanks for taking the questions guys.
Alan Nicholson: Course.
Alan Nicholson: Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. David <unk> for any closing remarks.
David <unk>: Thank you.
During the course of 2023 citizens business bank, not only remains safe and sound, but also produced earnings that were the second highest in company history. Despite the difficult operating environment, we remain committed to our strategy of banking the best small to medium sized businesses and their owners, we work hard to earn and maintain the trust of our customer.
David <unk>: And business partners and we want to thank all of our customers and associates for their loyalty and dedication over the past year.
Thank you everybody for joining us this quarter. We appreciate your interest and look forward to speaking with you in April for our first quarter of 2024 earnings call and as always you can let Alan and I know if you have any questions have a great day and thank you for listening.
David <unk>: This concludes today's program. Thank you all for participating you may now disconnect.
David <unk>: Yes.
David <unk>: Okay.
David <unk>: [music].
David <unk>: Okay.
David <unk>: [music].
David <unk>: Okay.
[music].