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CVB Financial Corp (CVBF -3.39%)
Q3Â 2020 Earnings Call
Oct 22, 2020, 10:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen, and welcome to the Third Quarter 2020 CVB Financial Corporation and its subsidiary, Citizens Business Bank Earnings Conference Call. My name is Kate and I'll be your operator today. [Operator Instructions] Later we will conduct the question-and-answer period. [Operator Instructions]
I would now like to turn the presentation over to your host for today's call Christina Carrabino. You may proceed.
Christina Carrabino -- Investor Relations
Thank you, Kate, and good morning everyone. Thank you for joining us today to review our financial results for the third quarter of 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 expectations. 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?
David A. Brager -- Chief Executive Officer
Thank you, Christina. And good morning everyone, and thank you for joining us again this quarter. We reported net earnings of $47.5 million for the third quarter of 2020 or $0.35 per share, which represented our 174th consecutive quarter of profitability. We also declared an $0.18 per share dividend for the third quarter of 2020, which represented our 124th consecutive quarter of paying a cash dividend to our shareholders.
Our net earnings of $47.5 million, compared with $46 million for the second quarter of 2020 and $50.4 million for the year-ago quarter. Earnings per share of $0.35 for the third quarter, compared with $0.31 for the second quarter and $0.36 for the year-ago quarter. Through the first nine months of 2020, we earned $127.1 million, compared with $156.5 million for the first nine months of 2019.
Diluted earnings per share were $0.93 for the nine month period ended September 30, 2020, compared with $1.12 for the same period in 2019. Our pre-tax pre-provision income was $66.9 million for the third quarter, which was $3.4 million lower than the prior quarter and $5.6 million lower than the third quarter of 2019. We did not have a provision for credit losses in the third quarter as our forecast of macroeconomic variables at quarter end was generally consistent with the prior quarter and the asset quality of our loan portfolio did not materially change from the second quarter. We will discuss our allowance and our economic forecast in more detail later in this call.
Now I'd like discuss our deposits and loans. At September 30, 2020, our non-interest-bearing deposits totaled $6.92 billion, compared with $6.9 billion for the prior quarter and $5.39 billion for the year-ago quarter. Non-interest-bearing deposits were 62% of total deposits at the end of our third quarter, compared with 63% for the prior quarter and 61% for the year-ago quarter. At September 30, 2020, our total deposits and customer repurchase agreements were $11.7 billion, compared with $11.5 billion at June 30 2020 and $9.2 billion for the same period a year ago.
Average non-interest-bearing deposits were $6.7 billion for the third quarter of 2020, compared with $6.2 billion for the prior quarter and $5.2 billion for the year-ago quarter. Our average total deposits and customer repurchase agreements of $11.4 billion for the third quarter grew by $930 million or 8.9% from the second quarter.
Now moving onto loans. Total loans increased by $5.3 million from the end of the second quarter. SBA Paycheck Protection Program loans grew by $4 million and excluding PPP loans, loans increased by $1.3 million, as a $63 million increase in commercial real estate loans was offset by a $24 million decrease in construction loans; a $12 million decrease in single-family residential loans; a $12 million decline in municipal financing loans and a $24 million decline in C&I loans.
The C&I loan balances were impacted by a reduction in line utilization from the end of the second quarter. The Bank's total unused loan commitments increased by approximately $72 million from June 30 through September 30, and the overall line utilization rate declined from approximately 48% at June 30, 2020 to 46% at September 30, 2020.
Compared to September 30 2019, total loans were $913 million higher, but when the PPP loans are excluded total loans declined by $188 million or 2.5% over the prior year. This decrease in loans was generally across all loan segments with the exception of a $53 million increase in commercial real estate loans.
Average loans for the third quarter increased by $335 million, compared with the second quarter of 2020 and increased by $887 million, compared with the year ago quarter. During the third quarter of 2020 PPP loans had an average balance of $1.1 billion, compared to $670 million for the second quarter. Of the more than 4,000 PPP loans we originated 387 of our borrowers, representing $439 million in loans have made submissions to the bank in order to request forgiveness, approximately half of those loans requesting forgiveness are between $150,000 and $350,000 in loan size with the remaining 50% comprised of loans that are greater than $350,000. To-date we have not processed forgiveness requests on any of the 1,360 loans originated under the $150,000 level. Of the 387 forgiveness applications only 26 loans, representing $17 million have been submitted to the SBA for review.
Net interest income before provision for credit losses was $103.3 million for the third quarter, compared with $104.6 million for the second quarter and $108.2 million from the year ago quarter. The $1.2 million decrease in net interest income from the second quarter was due to the $1.2 million decrease in loan interest income. The $4.8 million decrease in net interest income from the prior year was primarily due to a $4.6 million decline in loan interest income.
Our tax equivalent net interest margin was 3.34% for the third quarter of 2020, compared with 3.7% for the second quarter and 4.34% for the third quarter of 2019, when the impact of PPP loans discount accretion on acquired loans and non-accrual interest paid is excluded, the adjusted tax equivalent net interest margin was 3.18% for the third quarter, down from 3.42% from the prior quarter and 4.02% for the year-ago quarter.
Our net interest margin was negatively impacted during the third quarter due to the 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 third quarter would have been about 45 basis points higher without the $1.5 billion on deposit at the Federal Reserve.
Loan yields were 4.47% for the third quarter of 2020, compared with 4.77% for the second quarter of 2020 and 5.23% for the year-ago quarter. This decline was primarily due to the impact of the Federal Reserve's rate decreases and the decline in discount accretion income for acquired loans.
Total interest and fee income from PPP loans was $9.5 million in the third quarter, compared to $8.5 million in the second quarter. Excluding the impact of PPP loans, interest income related to purchase discount accretion and non-accrual interest paid, loan yields were 4.37% for the third quarter, 7 basis points lower than the second quarter of 2020 and 44 basis points lower than the third quarter of 2019.
Our cost of deposits and customer repurchase agreements for the third quarter were 11 basis points and our total cost of funds was also 11 basis points. Our cost of funds declined by 2 basis points from the prior quarter and by 12 basis points from the third quarter of last year.
Now moving onto non-interest income. Non-interest income was $13.2 million for the third quarter of 2020, compared with $12.2 million for the prior quarter and $11.9 million for the year-ago quarter. The third quarter of 2020 included a $1.7 million gain from the sale of a bank-owned building related to a banking center that we closed and consolidated during September. We generated $1.6 million in fees from interest rate swaps during the third quarter, which was our second highest quarter in history. The highest quarter in history was a $2.2 million of fees in the second quarter of this year.
Deposit service charges grew modestly from the prior quarter by $161,000, but were down by $863,000 from the prior year, due to the higher earnings credits generated by the significant increase in our customers non-interest-bearing checking account balances.
Now to expenses. Non-interest expense for the third quarter was $49.6 million, compared to $46.4 million for the second quarter of 2020 and $47.5 million for the year-ago quarter. Non-interest expense for the third quarter of 2020 included a $1.1 million -- included $1.1 million for a special thank you award paid in the third quarter to qualifying associates for their commitment and effort during these unprecedented times.
Salary and benefit expense also increased over the prior quarter by an additional $900,000, due to the lower net deferred loan costs related to loan originations that were elevated in the second quarter from the origination of PPP loans.
The quarter also included a $700,000 writedown in value for one OREO property. Assessment expense increased by approximately $800,000, compared to both the prior quarter and the third quarter of 2019, as the bank fully utilized its FDIC assessment credits from the third quarter of 2019, during the second quarter of 2020.
Non-interest expense totaled 1.44% of average assets for the third quarter, compared with 1.48% for the second quarter and 1.68% for the third quarter of 2019. Our efficiency ratio was 42.57% for the third quarter of 2020, compared with 39.75% for the prior quarter and 39.6% for the third quarter of 2019.
Now turning to our asset quality metrics. At quarter end, non-performing assets defined as non-accrual loans plus other real estate owned were $16 million, compared to $11.7 million for the prior quarter and $16.1 million at September 30, 2019. As of September 30, 2020, we had OREO of $4.2 million.
At September 30, 2020 we had loans delinquent 30 to 89 days of $3.8 million, compared with $2.6 million at June 30, 2020. Classified loans for the third quarter were $72.7 million, a $13.6 million decrease from the prior quarter. We will have more detailed information on classified loans available in our third quarter Form 10-Q.
Through October 9 2020, we have granted temporary payment deferments, primarily a principal and interest for loans in the amount of $69 million for 33 borrowers. Deep deferments were primarily for 90 days with 89% of these loans being pass rated; 27 of these loans have received a second deferment and the remaining six loans are first deferments. At September 30, 2020 commercial real estate loans on retail properties totaled $771 million or 9% of total loans; 1% of these loans were deferment and only $7 million of these loans are classified.
At origination, the loans on retail properties were underwritten with loan to values averaging approximately 53%. It is important to note that 53% of these loans were also originated prior to 2017. We also have $67 million of commercial real estate loans for hospitality properties, which is less than 1% of total loans. None of these loans are classified, but 16% of these loans were on deferment. Commercial and SBA loans to customers in the hotel, restaurant, entertainment, retail trade or recreation industries represented approximately $96 million in loans at September 30, 2020 or approximately 1% of total loans; $1.6 million of these loans are classified and only $1.4 million were on deferment.
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?
E. Allen Nicholson -- Executive Vice President and Chief Financial Officer
Thanks, Dave and good morning everyone. Our effective tax rate was 29% for the third quarter and for the year-to-date. Our allowance for credit losses decreased by $114,000 in the third quarter, as a result of the net loan charge-offs. Our economic forecast as it relates to the key macroeconomic variables that we modeled for our allowance remained mostly stable from the end of the prior quarter.
Our ending allowance for credit losses was $94 million or 1.28% of total loans, when excluding the $1.1 billion in PPP loans. This $94 million reserve represents approximately 130% of our classified loans or 68% of our total net classified and deferred loans. In addition to the allowance for credit losses, we have $35 million and remaining fair value discounts from acquisitions.
As a result, 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 forecast produced by Moody's. With California slowly reopening the economy and having an unemployment rate greater than 11%. Our forecast includes a partial waiting on the downside economic forecast scenarios to Moody's.
However, the baseline forecast continues to represent more than 50% weighting in our multi-weighted forecast scenario. The US baseline forecast assumes GDP will increase by 27% in the third quarter, 2.9% in the fourth quarter and then grow by 3.5% in 2021 and 5% in 2022. The unemployment rate is forecasted to be 8.9% in the third quarter, then stay at an elevated level over 8% through 2021, before declining the 6.4% in 2022.
Now turning to our capital position. For the first nine months shareholders' equity decreased by $12 million to $1.98 billion, decrease was primarily due to a $92 million of stock repurchases during the first quarter and $73.3 million in cash dividend, offset by net earnings of $127.1 million and a $23.5 million increase in other comprehensive income from the tax-effected impact of the increase in market value of available for sale securities.
Our overall capital position continues to be very strong. Our tangible common equity ratio was 9.8% 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 1 capital ratio was 14.6% and our total risk-based capital ratio was 16.1%. We're well positioned with a base balance sheet that is highly liquid funded almost entirely with core deposits and the availability of the significant off balance sheet sources of liquidity.
At September 30, 2020, we had $1.34 billion on deposit at the Federal Reserve. During the third quarter, we started to place some of the excess funds into security purchases, which totaled $721 million. These mortgage-backed securities are expected to yield approximately 1.2%. In the current low rate environment with the Federal Reserve purchasing a significant amount of mortgage-backed securities, we will continue to limit how much of the excess liquidity we invest in such low-yielding securities.
At September 30, 2020, our combined available for sale and held-to-maturity investment securities, totaled $2.78 billion, a $494 million increase from the second quarter and $509 million increase from the September 30, 2019.
At quarter end investment securities available for sales, totaled $2.2 billion. The portfolio had a pre-tax unrealized gain of $55.3 million at September 30, 2020. This portfolio securities comprised primarily of highly liquid government agency mortgage-backed securities.
At quarter end, we had $25.8 million in sub-debt and $10 million in zero interest advances from the FHLB. The Bank has available lines of credit exceeding $4 billion, most of which is secured by pledge loans.
I'll now turn the call back to Dave for some closing remarks.
David A. Brager -- Chief Executive Officer
Thanks, Allen. Our Bank remains strong and financially sound and has been a consistent and stable business partner over a variety of economic cycles during the past 46 years. As previously discussed, we have been supporting our employees, communities and customers during the pandemic through various methods, including providing a Thank You Award to our associates. The funding of over $1.1 billion in Paycheck Protection loans participating in and closing our first Main Street lending program loan and contributing financially to our most impacted communities through charitable donations.
During these difficult times, we continue to prioritize the health and safety of our associates, customers and other business relationships, as well as being a good partner and solid [Phonetic] source of strength to our customers and communities. As a result of the pandemic and in order to further protect the health and safety of our associates, we made the decision to cancel our annual award celebration and holiday party. This party has been a long-standing tradition of our Bank, and it was a difficult decision. Thankfully, the Board agreed to reallocate a portion of the anticipated cost of the event to support our communities. We have identified multiple food banks within our geographic territories and made the decision to donate the money to those that needed the most.
While some of our geographic markets remain under lockdowns, there have been positive signs with California's reopening for the COVID-19 guidelines established by our Governor. The Governor's framework for reopening shows each of the California's 58 counties into a Tier, which determines the extent to which business activity in each county can resume. The system is based largely on new daily COVID-19 case numbers per 1,000 residents, as well as positivity rates. It has been challenging to monitor and track and many of the businesses have had to open and reopen more than once. We will continue to assist our customers navigate through this uncertainty and provide appropriate assistance as we have done historically through challenging times.
On the positive side, while the future obviously remains uncertain. We've been pleased to see that our customers and credit portfolio have generally speaking continue to perform favorably, which as we've discussed is appropriately reflected in relevant overall third quarter asset quality metrics and our stable allowance for credit losses.
In closing, as we finish up the year, we remain focused on managing our business and assisting our customers through the pandemic, while maintaining our strong capital levels, consistent earnings, solid credit and excellent liquidity. Our strategy remains focused on continuing to grow the Bank in a disciplined and balanced manner and we will continue to evaluate potential acquisitions and other expansion opportunities as they arise. Please stay healthy and safe. That concludes today's presentation.
Now Allen and I will be happy to take any questions that you might have.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from David Feaster from Raymond James. Go ahead.
David Feaster -- Raymond James -- Analyst
Hey, good morning everybody.
David A. Brager -- Chief Executive Officer
Good morning, David.
E. Allen Nicholson -- Executive Vice President and Chief Financial Officer
Good morning, David.
David Feaster -- Raymond James -- Analyst
I'd just -- I wanted to start off on the loan growth front, I mean, that's obviously the best opportunity to deploy this excess liquidity. Just how -- where are you seeing attractive new opportunities, however originations trended? And what are you seeing on the pay-off and pay down front?
David A. Brager -- Chief Executive Officer
Yes, it's a good question, David and you're right. I mean, it is obviously our best opportunity and actually our loan production in the first nine months of 2020 versus the first nine months of 2019 is up 11%. So we're actually seeing a lot of opportunities and actually closing a significant number of them, that's the opportunity side. On the back end of that, there is continues to be enormous rate pressure when you look at the net interest margins of some of our larger competitors and see that they're, you know, floating below 2%, we're competing for the best customers, we're competing for the best relationships and they generally require the best pricing, and so we've had to be very careful with that and try and get the best rate we can get.
But from a production standpoint, it's been pretty positive. So I'm optimistic that we can continue that trend, our pipelines for the fourth quarter look good. We did grow loans albeit by $1.3 million excluding PPP loans, but we were happy with that and the fourth quarter looks looks relatively good.
David Feaster -- Raymond James -- Analyst
Okay.
David A. Brager -- Chief Executive Officer
And David, either headwind really is the decline in utilization. And so we'd start to see that rebound that could help.
David Feaster -- Raymond James -- Analyst
Okay, that's helpful. And then, kind of, along those same lines how our new loan yields trending in the quarter?
David A. Brager -- Chief Executive Officer
Yes, so I -- it kind of depends on the type of loan, but I'd say in general it's north a little bit of 3.5%, it's somewhere in the 3.5% to 3.75% range on average. Obviously, if we can get something that has a 4% in front of it, we're excited about that, but we, kind of, drawn the line at -- kind of that 3.5% on any loan that has any term to it.
David Feaster -- Raymond James -- Analyst
Okay, that's helpful. You guys have done a tremendous job on the deferral front, I mean, the decrease is staggering. I'm just curious, and I know it's still early, but what are you hearing from your SBA clients? Now that the agencies no longer paying P&I?
David A. Brager -- Chief Executive Officer
Yes, I mean that and as I mentioned previously, I mean, that's one of my one of my larger concerns as far as the credit quality is how that's going to play out. What we did is we created a team, we basically took about 10 associates from our sales group and created a team to really evaluate the SBA 7a loans that are on our books. And so they've been doing some enhanced due diligence on those relationships and just trying to get a feel for that. It is too early to tell September was the last month that a payment was made on behalf of them by the government. So October so far has been good, but I still believe there's going to be some more problems there.
David Feaster -- Raymond James -- Analyst
Okay. And then last one from me, you guys already operated incredibly lien institution extremely efficient. And just in light of the revenue headwinds, I know you guys have already worked on the branches somewhat. But how do you think about opportunities to potentially reduce expenses going forward? Or at least potentially offset inflationary pressures. And on the converse side, I mean, are there any other investments that you need to make to continue to be successful in this environment?
David A. Brager -- Chief Executive Officer
Yes, I mean, we consistently invest in the bank, I think that's pretty, pretty stable through our expense run rate. This quarter was impacted a little bit by a couple of things as you saw the increase in the loan originations, the Thank You Award, we had a writedown, I mean there's some things that impacted our expenses. But we're constantly looking at that, I mean, that's something we want to operate as efficiently as possible. The consolidation of the one office, while it's not going to have a material impact overall. I mean, it's just something that is part of our process and what we do. We're constantly evaluating our what we call our center network, the branch network and looking at opportunities to operate as efficiently as possible.
So I think that without giving guidance per se, I think that -- it was a little elevated this quarter, but I think it will run a little bit lower, I don't know Allen, if you have anything add to that.
E. Allen Nicholson -- Executive Vice President and Chief Financial Officer
No. And of course, David, you saw the FDIC assessment expense went up, which [Indecipherable] now we're sort back to a normal run rate for that.
David Feaster -- Raymond James -- Analyst
Okay. Alright, that's helpful. Thanks everybody.
David A. Brager -- Chief Executive Officer
Thanks, David.
Operator
Our next question is from Jackie Bohlen from KBW. Go ahead.
Jackie Bohlen -- KBW -- Analyst
Hi, good morning.
David A. Brager -- Chief Executive Officer
Good morning, Jackie.
Jackie Bohlen -- KBW -- Analyst
Wanted to touch on the rather challenging topic of balance sheet size and liquidity. I saw that you have the securities purchase that you talked about happening toward the end of the quarter. So just thinking, I guess, first off, starting with what deposit flows have looked like in October to the extent you're able to comment on that and how you're thinking about balance sheet size over the next several months?
David A. Brager -- Chief Executive Officer
Yes, I'll start and then Allen can jump in, if he has anything to add. But obviously the balance sheet size has been inflated for a variety of reasons, Fed and monetary policy, our customers that have maybe maintained a much more liquid position, maintaining cash. I think in the beginning of this everybody thought that, as the PPP money was used that the balance sheets and your balances would start to decline.
We haven't really seen that, the balances even through here, the first 22 days of the month have remained relatively stable, there hasn't been a big move either way. I do think that at some point, you know, that money will start to go away, but I think it's here for a little bit longer than we anticipate. So our goal is to grow the 67% of earning assets that we have in loans to a higher percentage of our total earning assets. And that's really what we need to focus on. We'll be investing sort of in securities and just kind of replenishing probably our securities that are maturing.
But I think overall, the goal is to grow our loans as a higher percentage of our total earning assets. So it's very challenging but as, you know, in some respects, it's a good problem to have, because our customers are strong and that bodes well on the credit quality front. But it's challenging from the investment side, so we're going to look at all of the tools in our toolbox to manage it, the best we can.
E. Allen Nicholson -- Executive Vice President and Chief Financial Officer
Hey, Jackie, we'll be balanced in our approach, obviously we really just don't want to move a ton of this liquidity into extremely low-yielding securities. We might not like what that looks like in a couple of years, so we really have to balance the impact on short-term earnings versus, you know, preferably our focus is really on long-term.
Jackie Bohlen -- KBW -- Analyst
Okay. And do you have an interest in any shorter duration securities or is the yield pickup maybe not worth the effort at this point?
David A. Brager -- Chief Executive Officer
There is very little yield anywhere.
Jackie Bohlen -- KBW -- Analyst
Understood, understood, OK. So with the excess liquidity weighing on the balance sheet and then you mentioned, if I heard correctly loan yields averaging around 3.50% to 3.75%. I mean, I guess my interpretation of that is, this is just a really challenging net interest margin environment, until we see higher rates, is that fair?
David A. Brager -- Chief Executive Officer
Yes, I think it is challenging, I mean, again, we have some ability to offset that just by changing the mix and that's really what our goal is, but it is a challenging environment that's very fair.
Jackie Bohlen -- KBW -- Analyst
Okay. Okay, thank you.
Operator
[Operator Instructions] Our next question is from Matthew Clark from Piper Sandler. Go ahead.
Matthew Clark -- Piper Sandler -- Analyst
Hey, good morning guys.
David A. Brager -- Chief Executive Officer
Good morning, Matthew.
Matthew Clark -- Piper Sandler -- Analyst
Just maybe starting on PPP related income, I think last quarter you mentioned you were assuming a 15 month life. It doesn't sound like you've had much in the way of forgiveness to-date, but it looks like you're accruing more than the base rate. I guess, how should we think about that PPP related income coming into the net interest income. Is it -- should we assume kind of a similar pace over the next three quarters, do you think we're going to get some acceleration here?
David A. Brager -- Chief Executive Officer
Matthew, we will start to get some acceleration there, we're still assuming about the 16-month average life, but we would expect by the end of the year we'll have some forgiveness actually, if you look at the data we provided some of those will start coming through, and we expect that we'll probably accelerate in early next year.
Matthew Clark -- Piper Sandler -- Analyst
Okay. And then on the pipeline and when you think about the opportunity for loan growth, if you exclude dairy and exclude the PPP, I assume you should be able to grow, kind of, a low single-digit rate. But I don't know if that's had a liner [Phonetic] of it or whether or not that's more in line with your expectations?
David A. Brager -- Chief Executive Officer
Yes. I mean, we are working toward growing, excluding those things, you know, the dairy seasonal. So in the fourth quarter, we're going to see some growth in the dairy & livestock. As Allen mentioned, and I mentioned in my comments, our utilization rate is down significantly from the end of the year and previous year. So that's the wildcard, if people continue to sit on all this cash and I have to borrow from the C&I loan that's an impact. I do feel confident that we can grow loans organically at what rate is still something that is to be determined.
The one thing I didn't say that, I will say is, there's been a lot of disruption specifically in some of the larger banks and that's created some opportunities for us on the relationship side to go after some large decent credit quality -- good credit quality, but decent relationships that are out there. And we've been getting our fair share if those. Now some of those are C&I relationships, where we're booking commitments, but not necessarily seeing the outstandings on those loans. But I do think that we're still open for business, we've been open for business, we've been -- as I mentioned, we've grown our loan production by about 11% year-over-year. I foresee that continuing through the fourth quarter. So we'll see how it all plays out. But the wildcard is line utilization from the new loans and our existing loans and then what we're doing as far as, you know, more a permanent loans like real estate loans.
Matthew Clark -- Piper Sandler -- Analyst
Okay. And then on the margin 45 basis point drag from the $1.5 billion at the Fed, you've spoken to the remix opportunity. It sounds like it will take a while maybe two, three years to get all that 45 basis points back. But I would assume you'd be able to get some of it over the next six, nine, 12 months to help that 3.18%core NIM, is that fair?
David A. Brager -- Chief Executive Officer
Yes, I mean I think it's fair. I mean a lot of it obviously depends on the Fed's policy, as far as rates and what long-term rates are doing, that everything is low and flat right now. And so this deeper the yield curve, the better it is for most banks and we're in that same boat. But I'm hoping that we can continue to do the rebounds on the asset side of the balance sheet and help protect and drive that NIM.
Matthew Clark -- Piper Sandler -- Analyst
Okay and then just last one from me. On the reserve should we assume that your reserves have peaked at this stage, assuming we don't get a material change in the model and the underlying assumptions that you've used, and you'll just match charge-offs or? And when might do we start to see some reserve release?
David A. Brager -- Chief Executive Officer
I think as we've talked about on the prior quarters. The reserve buildup in the first half of the year was really a reflection of the downturn in the economy. And so our credit metrics, obviously have been very stable, maybe even improving. So that continues to hold up, I think we'll once again future increases or even releases are going to be probably more dependent on the economic outlook than anything in terms of actual losses we might be really looking at those things to be well into next year before we really see the impact of any of that. But right now as you can tell from what we presented our metrics look very strong.
Matthew Clark -- Piper Sandler -- Analyst
Yes. Great, thank you.
David A. Brager -- Chief Executive Officer
You're welcome.
Operator
[Operator Instructions] At this time there are no more questions. So I would like to turn the call back over to Mr. Brager.
David A. Brager -- Chief Executive Officer
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 January for our fourth quarter and year-end 2020 earnings call. Please let Allen and I know if you have any questions. Have a great day. Thank you for listening and stay safe and healthy.
Operator
[Operator Closing Remarks]
Duration: 39 minutes
Call participants:
Christina Carrabino -- Investor Relations
David A. Brager -- Chief Executive Officer
E. Allen Nicholson -- Executive Vice President and Chief Financial Officer
David Feaster -- Raymond James -- Analyst
Jackie Bohlen -- KBW -- Analyst
Matthew Clark -- Piper Sandler -- Analyst
