CVB Financial Corp. (CVBF) Q4 2020 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen and welcome to the Fourth Quarter of 2020 CVB Financial Corp. and its subsidiary Citizens Business Bank earnings conference call. My name is Carmen and I am your operator for today. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the presentation over to your host for today's call Christina Carrabino. You may proceed.

Thank you Carmen and good morning everyone. Thank you for joining us today to review our financial results for the fourth quarter and year ended 2020. Joining me this morning are: 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 released yesterday. To obtain a copy please visit our website at www.cbbank.com and click on the Investors tab. Before we get started let me remind you that today's conference call will include some forward-looking statements. These forward-looking statements relate to among other things current plans expectations events and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties and future activities and results may differ materially from these excitations. Among other risks 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 and actions taken by governmental authorities in response 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 a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2019 and in particular the information set forth in Item 1A Risk Factors therein. Now I will turn the call over to Dave Brager. Dave?

Thank you, Christina. Good morning everyone. Happy New Year and thank you for joining us again this quarter. We reported net earnings of $50.1 million for the fourth quarter of 2020 or $0.37 per share representing our 175th consecutive quarter of profitability and our highest level of quarterly income in 2020. We previously declared $0.18 per share dividend for the fourth quarter of 2020 which represented our 125th consecutive quarter of paying a cash dividend to our shareholders. Fourth quarter net earnings of $50.1 million compared with $47.5 million for the third quarter of 2020 and $51.3 million for the year ago quarter. Earnings per share of $0.37 for the fourth quarter compared with $0.35 for the third quarter and $0.37 for the year ago quarter. Net earnings were $177.2 million for the year ended 2020 compared with $207.8 million for the year ended 2019. Diluted earnings per share were $1.30 for 2020 compared with $1.48 for 2019. We did not have a provision for credit losses in the fourth quarter as our forecast of macroeconomic variables at quarter end changed modestly from the prior quarter and the asset quality of our loan portfolio did not materially change from the third quarter. We will discuss our allowance and our economic forecast in more detail later in this call. Now I'd like to discuss our deposits and loans. At December 31, 2020 our non-interest-bearing deposits totaled $7.46 billion compared with $6.92 billion for the prior quarter and $5.25 billion for the year ago quarter. Non-interest-bearing deposits were 63.5% of total deposits at the end of the fourth quarter compared with 62% for the prior quarter and 60.3% for the year ago quarter. At December 31, 2020 our total deposits and customer repurchase agreements were $12.2 billion compared with $11.7 billion at September 30, 2020 and $9.13 billion for the same period a year ago. Average non-interest-bearing deposits were $6.9 billion for the fourth quarter of 2020 compared with $6.7 billion for the prior quarter and $5.3 billion for the year ago quarter. Our average total deposits and customer repurchase agreements of $11.8 billion for the fourth quarter grew by $376 million or 3.3% from the third quarter. Now moving on to loans. After adjusting for seasonal loan growth and forgiveness of Paycheck Protection Program loans in the fourth quarter, our loans grew by $51 million or approximately 1%. Our loan production was relatively strong in the fourth quarter as is our current loan pipeline. We're optimistic that we can grow loans in 2021 exclusive of the forgiveness of round one PPP loans and the origination of second round PPP loans. Total loans decreased by $59 million from the end of the prior quarter when including the impact of the PPP loans. PPP loans decreased by $218 million from the end of the third quarter as our borrowers started to receive forgiveness from the SBA. Excluding the decline in PPP loans our remaining loans increased by $159 million. The increase was primarily due to a $108 million increase in dairy and livestock and agricultural loans and a $73 million increase in commercial real estate loans. The majority of the increase in dairy and livestock loans was seasonal and occurred near the end of the quarter as many of our dairy owners choose to defer their milk checks into the first quarter of the following year and/or prepay their feed expenses. The increases in loans were offset by a $17 million decrease in construction loans with the remaining loan segments declining by a net amount of $5 million. Compared to December 31, 2019 total loans were $784 million higher. But when the PPP loans are excluded, total loans declined by $99 million or 1.3% over the prior year. This decrease in loans was generally across all loan segments with the exception of a $127 million increase in commercial real estate loans. Average loans for the fourth quarter decreased by $35 million compared with the third quarter of 2020, while increasing by $851 million compared with the year ago quarter. During the fourth quarter of 2020, PPP loans had an average balance of $1 billion compared to $1.1 billion for the third quarter. As of January 15, 2021 of the more than 4000 PPP loans we originated in 2020, approximately 1100 of our borrowers representing $260 million in loans have received forgiveness from the SBA. To-date our borrowers' PPP forgiveness requests that have been completely processed by the SBA have been 100% forgiven based on the customer's forgiveness application. We've not processed forgiveness requests on any of the approximately 1,200 loans originated in the amounts that exceed $50,000 and are equal or less than $150,000 in anticipation of new guidance from the FDA. We will be making our forgiveness process available to these borrowers in early February as the updated guidance was just received. Recently, the bank began accepting applications for the second round of PPP loans. As of January 25, 2021 we have received approximately 1,400 applications totaling $340 million. Net interest income was $105.9 million for the fourth quarter compared with $103.3 million for the third quarter and $107 million from the year ago quarter. The $2.5 million increase in net interest income from the third quarter was due to the combination of a $2 million increase in the interest income including a $1.5 million increase in loan interest income and a $510,000 decrease in interest expense. Earning assets grew by $230 million on average from the third quarter with more than $200 million of the growth coming from investment securities. Our earning asset yield decreased by 4 basis points compared to the prior quarter. Interest-bearing deposits and customer repos increased on average by $174 million from the third quarter, but interest expense declined as the cost of interest-bearing deposits and customer repos decreased by 5 basis points. The $1.2 million decrease in net interest income from the prior year was primarily due to a $3.6 million decline in interest income, partially offset by a $2.4 million decrease in interest expense. Our tax equivalent net interest margin was 3.33% for the fourth quarter of 2020, compared with 3.34% for the third quarter, and 4.24% for the fourth quarter of 2019. When the impact of PPP loans, discount accretion on acquired loans and nonaccrual interest is excluded, the adjusted tax equivalent net interest margin was 3.11% for the fourth quarter, down from 3.18% for the prior quarter and 3.95% from the year ago quarter. Our net interest margin was negatively impacted during the fourth quarter due to our excess liquidity that resulted in approximately $1.5 billion on average on deposit at the Federal Reserve earning just 10 basis points. The net interest margin in the fourth quarter would have been about 35 basis points higher without the $1.2 billion year-over-year average increase in deposits at the Federal Reserve. Loan yields were 4.56% for the fourth quarter of 2020, compared with 4.47% for the third quarter of 2020 and 5.15% for the year ago quarter. The increase in yield from the prior quarter was due to higher levels of fee income on PPP loans, and an increase in prepayment penalty income. Total interest and fee income from PPP loans was $10.5 million in the fourth quarter, compared to $9.5 million in the third quarter. Otherwise loan yields were essentially the same as the prior quarter. The decrease from the year ago quarter was primarily due to the impact of the Federal Reserve rate decreases and the decline in discount accretion income for acquired loans. Excluding the impact of PPP loans, interest income related to the purchase, discount accretion and nonaccrual interest paid, loan yields were 4.38% for the fourth quarter, 4.37% for the third quarter of 2020, and 4.76% for the fourth quarter of 2019. Our cost of deposits and customer repurchase agreements for the fourth quarter were nine basis points as were our cost of funds. Our cost of funds declined by two basis points from the prior quarter, and 13 basis points from the fourth quarter of last year. Moving on to noninterest income. Noninterest income was $12.9 million for the fourth quarter of 2020, compared with $13.2 million for the prior quarter and $12.6 million for the year ago quarter. The fourth quarter of 2020 included a $1.6 million in debt benefits that exceeded the asset value of certain BOLI policies, and a $365,000 net gain on the sale of two OREOs. In comparison, the prior quarter included a $1.7 million net gain on the sale of one of our bank-owned buildings related to a banking center that was closed in September. We generated $876,000 in fees from interest rate swaps during the fourth quarter, which was $715,000 lower than the prior quarter but more than $200,000 greater than the fourth quarter of 2019. Deposit service charges were essentially unchanged from the third quarter, but were lower than the fourth quarter of 2019 by $965,000 due to the higher earnings credits generated from the significant increases in our customers' noninterest-bearing checking account balances. Now expenses. Noninterest expense for the fourth quarter was $48.3 million, compared to $49.6 million for the third quarter of 2020, and $49.1 million for the year ago quarter. Salary and benefit expense decreased from the prior quarter by $2 million. The prior quarter included thank you awards exceeding $1 million paid to all of our eligible associates while the fourth quarter included adjustments to year-end bonus and group insurance benefit liabilities, resulting in a decrease in expense of approximately $700,000. Professional service expense increased by almost $800,000 from the third quarter due to additional audit and regulatory related expenses, as well as customer-facing projects such as the PPP loan forgiveness, and the support for our online banking platform conversion. Noninterest expense totaled 1.37% of average assets for the fourth quarter, compared with 1.44% for the third quarter, and 1.71% for the fourth quarter of 2019. Our efficiency ratio was 40.64% for the fourth quarter of 2020, compared with 42.57% for the prior quarter and 41% for the fourth quarter of 2019. Now turning to our asset quality metrics, during the fourth quarter, we had net loan charge-offs of $177,000. And for all of 2020, our net charge-offs totaled $308,000. At quarter end, non-performing assets, defined as non-accrual loans, plus other real estate owned were $17.7 million, compared with $16 million for the prior quarter and $10.2 million at December 31, 2019. As of December 31, 2020, we had OREO of $3.4 million. At December 31, 2020, we have loans delinquent 30 to 89 days of $3.1 million compared with $3.8 million at September 30, 2020. Classified loans for the fourth quarter were $78.8 million, a $6 million increase from the prior quarter. We'll have more detailed information on classified loans available on our year-end Form 10-K. At December 31, 2020, commercial real estate loans on retail properties totaled $784 million or 9% of total loans. None of these loans are on deferment, and only $5 million of these loans are classified. At origination, the loans on retail properties were underwritten with loan to values averaging approximately 49%. A further note, 51% of these, loans were originated prior to 2017. We also have $65 million of commercial real estate loans for hospitality properties, which is less than 1% of total loans. None of these loans are classified or on deferment. Commercial and SBA loans to customers in the hotel, restaurant, entertainment, retail trade or recreation industries, represented approximately $97 million in loans at December 31, 2020 or approximately 1% of total loans. $2.6 million of these loans are classified and $2.7 million of these SBA loans are on deferment. As of January 15, 2021, we have total remaining temporary payment deferments, primarily in principal and interest for loans, for total -- for loans that totaled less than $10 million or 0.12% of total loans. 85% of these loans are classified as special mention or substandard. I will now turn the call over to Allen Nicholson to discuss our effective tax rate, our allowance for credit losses, capital levels and liquidity. Allen?

Thanks Dave. Good morning everyone. Our effective tax rate was 29% for the fourth quarter and full year. Our allowance for credit losses decreased by approximately $200,000 in the fourth quarter, as a result of the net loan charge-offs. Our economic forecast, as it relates to the key macroeconomic variables that we model for our allowance, remained mostly stable from the end of the prior quarter. Our ending allowance for credit losses was $93.7 million or 1.25% of total loans when excluding the $883 million in PPP loans. In addition to the allowance for credit losses we have $31 million in remaining fair value discounts from acquisitions. As a result of the decline in economic activity due to the pandemic, we recorded $23.5 million in provision for credit losses during the first two quarters of 2020. Our economic forecast continues to be a blend of multiple forecasts, produced by Moody's. These forecasts, included baseline forecast, as well as an upside and downside forecast. This U.S. baseline forecast assumes GDP, will increase by 4.1% in 2021, 4.7% in 2022, and 3.2% in 2023. The unemployment rate is forecasted to be 6.9% in 2021, declining to 6% in 2022, and then dropping to 4.6% in 2023. California having to shut down parts of the economy again starting in December, and having an unemployment rate greater than 8%, our blended forecast year-end included a greater weighting on the downside economic forecast, as compared to the weighting on the upside forecast. Now, turning to our capital position shareholders' equity, increased by $14 million to $2 billion end of 2020. The increase was primarily due to net earnings of $177 million and a $23 million increase in other comprehensive income from the tax-effected impact of the increase in market value of available for sale securities, offset by $92 million in stock repurchases during the first quarter and $98 million in cash dividends. Our overall capital position continues to be very strong. Our tangible common equity ratio was 9.6% at the end of the fourth quarter and our regulatory capital ratios are well above regulatory requirements to be considered well capitalized. At December 31, our common equity Tier 1 capital ratio was 14.8% and our total risk-based capital ratio was 16.2%. At December 31, 2020, we had $1.8 billion on deposit to Federal Reserve. During the fourth quarter, we started to deploy some of the excess funds into security purchases, which totaled $462 million. These securities are expected to yield interest income at approximately 1.1%. In the current low rate environment with Federal Reserve purchasing a significant amount of mortgage-backed securities, we will continue to limit how much of our excess liquidity we invest in such low-yielding securities. At December 31, 2020, our combined available-for-sale and held-to-maturity investment securities totaled $2.98 billion, a $194 million increase from the third quarter and the $563 million increase from December 31, 2019. I'll now turn the call back to Dave for some closing remarks.

Thanks, Allen. 2020 was a very eventful year to say the least. The worldwide pandemic, stay-at-home orders, business shutdowns, social unrest and a near zero interest rate environment all combined to create a very challenging environment for financial institutions to operate and succeed in. I'm proud to say that Citizens Business Bank not only remained open to service our customers and communities but also excels in many areas. This is due in large part to the dedication and focus of our associates throughout the bank and the long and loyal relationships we have developed with our customers. The bank has continued to produce consistent earnings, maintain strong capital levels, solid credit quality and excellent liquidity. Our customers and loan portfolio performed favorably during the past nine months despite the many challenges we have all faced. We believe that there is a light at the end of the pandemic tunnel, as the manufacturer and distribution of the new COVID vaccine hopefully continues to progress and increase. We remain committed to the core values that have allowed our bank to succeed through the many economic cycles we've encountered over our past 46 years of business. Looking forward, we are encouraged by the improving economic conditions we are seeing throughout the various markets that we serve. Despite the recent spike in COVID cases in California and elsewhere, along with the accompanying anxiety and systematic stresses that this spike has created, our customers have thus far continued to perform relatively well through their entrepreneurial spirit and sheer force of will. We're proud to be their partners in helping them persevere and hopefully come out stronger on the other side. Additionally, as of Monday, the Governor of California listed the more stringent stay-at-home order allowing some businesses to resume limited reopening. In terms of specific responses, our bank provided needed support to our communities through targeted charitable giving to assist those most impacted by COVID. We provided over 4000 paycheck protection loans to our customers totaling $1.1 billion. We generated record new loan volume outside of the PPP lending. And we invested in our future by beginning an online banking platform conversion that will allow us to better compete in an ever-changing banking environment. In addition, as was the case in the first round of PPP, we are committed to being an active participant in both the loan programs provided in the second round of PPP recently enacted by Congress. The new first drop program for those businesses that did not receive a previous PPP loan and the new second drop program for those eligible businesses that did receive a previous PPP loan. In closing, we are proud of our accomplishments in 2020, as we successfully navigated through the COVID pandemic and I believe we are well positioned for future growth in 2021. We remain committed to growing the bank in a balanced way, utilizing all three of our growth initiatives increasing same-store sales, opening de novo centers and seeking strategic and financially sound acquisitions. And a late hour at this morning, I'm proud to say that the bank was once again made the top-ranked bank in America by Forbes Magazine for 2021. Please stay healthy and safe. And that concludes our presentation today. Now Allen and I will be happy to take any questions that you might have.

Thank you. [Operator Instructions] Our first question is from Jackie Bohlen with KBW. Your question please.

Hi. Good morning.

Good morning, Jackie.

First off, thank you for that color about the 35 basis point impact to the margin, if you normalize the liquidity that's really helpful to put it in context. I know about -- I ask about this every quarter, but just as you think about potential deposit growth, I think in the past you mentioned for every dollar of PPP that comes in or goes out it feels like $2 in deposits come in. How are you seeing those trends today and what are your expectations in the coming months with the new round of PPP?

Yes. I mean, I think for the most part that I anticipate our customer deposits to continue to build. I mean that's been our experience. We have fantastic customers. We have customers that prior to this near zero interest rate environment. It was great to have these types of customers. They're so strong. They just continue adding to their deposits. So I do anticipate the balance is going up. I don't think it will be the 2:1 that I've said previously, and primarily because most of the businesses or all of the businesses that we'll be applying and getting second round PPP loans, have to have demonstrated some reduction in revenue. So, those businesses that were most impacted, I don't think we'll maintain the excess deposits that some of our other stronger borrowers and stronger customers have maintained. So, I think that it will be dollar-for-dollar, but it will have a more linear relationship to as the PPP funds are used and those deposits will go away. So I think we're going to -- I hope to see it flatten out, but it still should be determined so.

Okay. And I mean, I know there's a lot of unknowns and variables in there. And then, I guess taking that in context with Allen's comments regarding the disadvantages with the rate environment, for securities purposes, just how you're thinking about managing liquidity obviously loan growth, but just any color you can provide there?

Yes, Jackie. I mean obviously it is loan growth. That's the number one priority. I'm proud to say we had our best year in gross loan production that we've ever had in 2020. And the pipeline going into 2021 is as strong as it's ever been going into a new year. Now we have some seasonality obviously with dairy and livestock. But I do think that we have the opportunity, especially with the disruption in larger banks and potential issues at some other banks that we have the opportunity to net-net gain new customers and gain new lending opportunities. So, I'm very optimistically -- cautiously optimistic about our ability to continue to do that going throughout 2021. And hopefully, the vaccine and businesses reopen, maybe some of our customers will feel a little more confident, start investing some of their excess deposits in equipment and other things that will allow us to reduce some of that excess liquidity while also providing some loan opportunities.

Okay. So, is it fair to say you're looking more towards economic expansion in the latter half of the year as a source of liquidity appointment, just given bad securities rates at the moment?

Yes. I think that's fair. And I mean obviously we're also going to have to continue to look at investment purchases to augment that because $1.8 billion is a lot of money. And we're going to maintain our credit quality, and we're going to do the best loans that we can do. So that's important to us as well.

Okay. Okay, thank you. I’ll step back.

Thank you.

Thank you. Our next question comes from Gary Tenner with D.A. Davidson. Your question please.

Thanks. Good morning.

Good morning.

Hey. With regard to loan growth, I thought the fourth quarter was encouraging, as you pointed out a moment ago great origination strong pipeline. I think in the past you'd kind of talked about a loan growth bogey maybe in the 6% to 8% range given how things look for 2021, and admittedly, it's pretty early. It's kind of low to mid, excluding PPP where you think you would be focused, or do you think you could do better than that?

Yes. I don't know that -- we don't typically give guidance on a specific number. But I would say the numbers that you mentioned are probably aggressive and probably on the high end of the best case scenario for us. I do anticipate for us to have loan growth. But I wouldn't say we would get to those numbers. And obviously a lot of it is dependent on what's going on and how we get through this. But I am again cautiously optimistic that we can have some loan growth. Like I said we had our best quarter of loan production in the fourth quarter that we've ever had. We had our best year of production in 2020 despite all the challenges that we've ever had and we're starting off the year in a better position from a pipeline perspective than we have. Now, we have to execute and we have to compete and the rate environment is a little crazy and all that. But I mean I think that we can definitely grow loans outside of PPP and all the noise there and outside of the seasonality in our dairy and livestock.

All right. Thanks for that. And then as it relates to provisioning and your CECL calculation, given the commentary that given -- that since California has been more shutdown than other parts of the country, the weighting was more towards the downside Moody's forecast with the commentary that the governors open this up a little bit more. All else equal would that have a meaningful delta to your kind of CECL forecast at the end of this quarter if that's the only kind of real meaningful change during the quarter?

Gary, this is Allen. I guess to start out with I would direct you to page 20 of our investor presentation and our -- and you'll see the weighted forecast assumptions there. So, that might give you a little more context. Certainly, as I mentioned in my prepared remarks, we are weighting it more on some of the downside forecast for Moody's just because of California's performance has obviously been below par compared to the rest of the country. So, if California starts to trend closer to how the rest of the country has been performing, yes, we would probably see some potentially some releases in 2021 if everything else stays the same.

All right. Thank you.

Thank you. Our next question comes from the line of Brett Rabatin with Hovde Group. Your question please.

Hey, good morning everyone.

Good morning Brett.

Wanted to just talk about expenses for a second. And obviously really strong performance in terms of managing them flat last year. Can you talk maybe about just any need to invest going forward? And I'm just kind of trying to think about like what needs you might have and then just kind of thinking about -- not looking for specific guidance, but maybe just thinking about if we can continue that trend of kind of maintaining that flattish level?

Yes, I mean obviously we've always taken cost-effective operations and cost control very seriously. What we're doing is we're trying to make targeted investments where we can create efficiencies like the online banking platform conversion I mentioned that will allow us hopefully to deliver a more digital experience to those customers that want it, while controlling those expenses. And so those are the types of things that we're doing. We're constantly evaluating the -- our -- we call them centers or branches to determine if that's something that we need to look at. But at this point, our focus is to keep expenses as flat as we can and try and grow the revenue side and get some positive operating leverage and that's the goal and that's what we're managing to. But there are a lot of unknowns in that as well. Some of the expenses that occurred in 2020 depending on how long and how deep the pandemic continues to go, we had increased expenses in cleaning we had increased expenses and a lot of things sort of partially offset by some of the things we weren't able to do. So we'll have to see how it all plays out as we move forward through the year. But that -- the plan is to definitely keep them as flat as possible. Allen, do you have anything to add to that?

No, I mean I think as Dave said, we might see some increases in certain areas but at the same time we look for decreases in others that can try to offset that and keep expenses to a fairly low level of increasing if not flat.

Okay, that's helpful. And then I think everybody is talking more about M&A and obviously with the premium currency, you're in a pretty good spot. If you find something that looks attractive. Maybe just could you provide any color on your appetite for M&A and any optimism that you're interested in doing such?

Yes, I mean we're absolutely interested in the right M&A opportunities. As you mentioned with our premium, and the opportunity out there, I think as we kind of get further along here, there's people that are looking at the future the acquisition, the potential acquisition targets out there that, we're having conversations. I would say, there's nothing that's imminent. We always get a phone call just based on the premium of our stock and how we're trading. But we're definitely interested in looking at doing that. It needs to be the right organization. It needs to be an organization that – from either financial or strategic situations circumstances makes sense for us. But we're definitely open and looking at those types of opportunities, and hopefully, we'll be able to execute on one in the next 12 months.

Okay. Thanks. Appreciate all the color.

Thank you.

Thank you. Our next question comes from Matthew Clark with Piper Sandler. Your question please.

Good morning.

Good morning.

Just on the – on your core loan yields, it looked like the degradation there slowed to only about down two basis points to 4.38%. I guess, can you speak to that outlook on loan yields and what the pricing environment is like, and if they can start to stabilize and you're able to put some of that excess liquidity to work even, if it's in securities. Should we assume that that 3.11% is kind of a trough in the core NIM?

Yeah. I'll start and I'll let Allen jump on. We're – just to kind of speak to part of your question there. We're originating loans kind of in that 3.50% to 3.75%, or anything that's a long-term 5, 7, 10 year fixed rate loan today. So there is pressure there. And then obviously with the investment securities that we purchased yielding 1.19%, there's pressure there. So I think there is still more pressure on the asset side. Obviously, the ability to deploy that excess liquidity impacts that a great deal. If we can move a higher percentage of the earning assets to loans that helps these are our plans. And then, we'll see how the liquidity the excess liquidity how long it sticks around and what happens there. But I think in the fourth quarter, it was pretty good. It stated relatively flat down slightly. So I'm hoping that, we can maintain that level. I think there's still some headwinds there though. So Allen, anything you want to add?

Yeah, I'd agree. I mean, it certainly has slowed down. But to Dave's point, if you look at origination yields versus the core yield of the portfolio there is more than likely still some game to be played in terms of decline there, but certainly slowing.

Yeah. I mean, I want to just to add on to that one of the thought I had is we did decrease our cost of deposits and cost of funds to nine basis points. So I'm getting close to the all-time record for Citizens Business Bank. But we're going to – we're going to continue to watch outside. There's not as much room obviously on that side, but we're going to do everything we can to manage the interest expense and continue to grow loans in the higher percentage of the balance sheet.

Okay. And then, do you happen to have the remaining net PPP fees that you expect to realize for round one just so that we're modeling it we're on the same page?

Well, in general terms as we noted in our investor presentation the total PPP fees were approximately $35 million. And I think we've recognized about $20 million of that I think.

A little more actually, because we had 10.5 and 9.5 and then whatever we did in the –

Yeah. For 2018 $21 million. Yeah. So we probably have $13 million, $14 million remaining.

Okay. Just double checking. Thank you.

You’re welcome.

Thank you. [Operator Instructions] Our next question comes from David Feaster with Raymond James. Your question, please.

Hey, good morning, everybody.

Good morning, David.

I'm just curious, if you could give us maybe a pulse of your clients. I appreciate the commentary on record originations in 2020, and what was a pretty tough year obviously. Just curious, how much of this is existing clients investing and expanding their business versus new client acquisition from new lenders or the PPP program? And just maybe the pulse of your clients and their thoughts on willingness to invest in the near term.

Yes. So I think just overall, generally our clients our customers have been navigating very, very well. They're obviously wanting things to get back to more normal circumstances. But we've had some interesting stories and some great success stories with some of our customers that have had to pivot from their traditional business into other things that were more secondary for them that they've been able to grow and do a good job. And so I think overall, they as well are cautiously optimistic. I meet -- I still have been meeting with clients either via Zoom or even some cases face-to-face appropriately socially distance face-to-face. But we have some really great customers that are really entrepreneurial, as I mentioned in the prepared comments. And they've continued to drive their business and do really good things. So to go to another part of your question, I think that I would say, it's probably been about 65 -- about two-thirds existing relationships that have been driving that loan growth taking advantage of opportunities. But we've done a much better job on the prospecting side. And I think that has a lot to do with some of the disruption and some of the other -- with some of the other banks, especially larger banks that have allowed us the opportunity to do some things and get into some relationships that we weren't in before. So the one thing we haven't talked about, I mean, our utilization is still way down. And so if things start getting back to normal, utilization goes back to a normal level and we continue to generate the loans that we've been generating that's why I'm cautiously optimistic about the loan growth. But California just on Monday, they announced that they were lifting the more stringent stay-at-home order and now it's back to the counties in the kind of former tier system. And so I think there's a little bit of fatigue on our customers' parts of opening, closing, opening and closing. And so they just want to get back to business. They feel they can do it in a safe manner. And I hope that they'll be able to do that.

Okay. That's good color. And then just maybe your thoughts on fee income. How much of the waived fees are still waived? And maybe when you think those come back? Any thoughts on additional fee income lines you'd be interested in expanding into? And then just any thoughts on the trust business. I mean, AUM has done really well. Just how do you think about that business and opportunities to gain share there with your existing client base?

Yes. I mean, obviously, the trust business it's a function of the market. It's a function of the new client acquisition. We had a good year in new client acquisition and trust. It is something that we focus on. We actually incent -- our associates to refer to our trust business, our sales associates. So we work hard to grow that part of the business. That's part of it. I think from the biggest challenge or the biggest headwind on the service charge income is more on the deposit side. And on the deposit side because of all of the excess balances more of those balances -- or more of those charges have been offset by the higher balances and higher earnings credit. And so what's happened is, we've managed the ECRs down a little bit. We want to maintain -- after we get out of this near zero interest rate environment, we want to maintain those relationships. So we probably reduced that slower than we reduced our interest rates on interest-bearing accounts. So we'll continue to look at that and evaluate that. I mean, just to give you an example, we had a relationship with the bank and they made a very large deposit and the relationship manager was asking me, if we could pay them 20 basis points on the money market. And I said, no, you can put it in the non-interest-bearing. So those are the kinds of conversations. We're having those individual conversations on relationships every single day. So we're just trying to manage that. I think the fee income side as we manage down ECRs and balances start to maybe decline a little bit, I think we have some opportunity there. But we're focused on card. Card was really down this year obviously because there wasn't as much activity. So we're looking to that -- for that to bounce back. International had a pretty good year relative to what you would have thought. And I think there's a lot of opportunity there with our customers as things start to open back up. So I think there are some tailwinds for us there, but we really just have to continually manage to drive that. Our goal is to collect 90% of the charges that we -- that are available to collect. We're slightly below that, but we also have great customers that are demanding. So you have to balance those two things.

Okay. That's helpful. And then just last one for me. Just any -- could you just talk about your asset sensitivity? I mean, it was a little -- it was a good run we had with the rising 10-year yields, which have come back. But our internal forecast we're thinking that rates are going to be higher. I'm just curious how your asset sensitivity has changed today? I suspect it's continuing to increase just in light of the impacts of excess liquidity and shorter durations and securities. But just curious your thoughts on asset sensitivity how that might have changed? And how you're planning to manage that going forward?

Yes, David. Of course, with the excess liquidity on the balance sheet it has increased the level of asset sensitivity where we are right now. We've always been relatively asset sensitive. And so it's accentuated it. I think it gives us opportunities to a certain degree in terms of going out long on potentially investment purchases, but once again those will be very modest I would say in the context of our whole balance sheet. So yes, if rates do go up and particularly, frankly, we would just like to see rates go up on the longer end of the curve more than anything as most banks would and it will definitely benefit from that.

Certainly. Thank you.

Thanks, David.

Thank you. [Operator Instructions] At this time, there are no more questions. So I would like to turn the call back to Mr. Brager.

Great. Thank you. I want to thank everybody for joining us this quarter. We appreciate your interest and look forward to speaking with you in April for our first quarter 2021 earnings call. Please let Allen and I know, if you have any questions. Have a great day and thanks for listening. Bye-bye.

Thank you for your participation in today's conference. And you may now disconnect.