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CVB Financial Corp (NASDAQ:CVBF)
Q1 2021 Earnings Call
Apr 22, 2021, 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 First Quarter of 2021 CVB Financial Corporation and its subsidiary, Citizens Business Bank, Earnings Conference Call. My name is Samantha, and I am your operator for today. [Operator Instructions]

I would now like to turn the presentation over to your host for today's call, Christina Carrabino. You may proceed.

Christina L. Carrabino -- Principal

Thank you, Samantha, and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 2021. 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 meeting will include some forward-looking statements. These forward-looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially 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; the effectiveness and distribution of COVID-19 vaccines; and actions taken by government 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, 2020, 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, CVB Finacial Corp

Thank you, Christina. Good morning, everyone. Thank you for joining us again this quarter. We reported net earnings of $63.9 million for the first quarter of 2021 or $0.47 per share, representing our 176th consecutive quarter of profitability. We previously declared an $0.18 per share dividend for the first quarter of 2021, which represented our 126th consecutive quarter of paying a cash dividend to our shareholders.

First quarter net earnings of $63.9 million compares with $50.1 million for the fourth quarter of 2020 and $38 million for the year-ago quarter. Earnings per share of $0.47 for the first quarter compares with $0.37 for the fourth quarter and $0.27 for the year-ago quarter. We recorded a recapture of provision for credit losses of $19.5 million for the first quarter of 2021. In comparison, we did not have a provision for credit losses in the fourth quarter of 2020 and recorded a provision for credit losses of $12 million for the first quarter of 2020. The recapture of provision was primarily the result of our forecast of improving macroeconomic variables, including GDP growth and decreasing unemployment. Now I would like to discuss our deposits and loans.

At March 31, 2021, our net interest-bearing deposits -- excuse me, our noninterest-bearing deposits totaled $7.58 billion compared with $7.46 billion for the prior quarter and $5.57 billion for the year-ago quarter. Non interest-bearing deposits were 62.7% of total deposits at the end of the first quarter compared with 63.5% for the prior quarter and 61.2% for the year-ago quarter. We continue to see strong deposit growth for the first quarter as total deposits and customer repurchase agreements increased by $409 million or 3.4% from the end of 2020.

At March 31, 2021, our total deposits and customer repurchase agreements were $12.6 billion compared with $12.2 billion at December 31, 2020, and $9.5 billion for the same period a year ago. Average noninterest-bearing deposits were $7.2 billion for the first quarter of 2021 compared with $6.9 billion for the prior quarter and $5.2 billion for the year-ago quarter. Our average total deposits and customer repurchase agreements of $12.2 billion for the first quarter grew by $438 million or 3.7% from the fourth quarter.

Now moving on to loans. Total loans decreased by $56 million from the end of 2020. However, when adjusting for dairy and livestock and agribusiness loans, which have seasonal loan growth during the fourth quarter; and the increase in the Paycheck Protection Program loans, our loans grew by $30 million or nearly 2% annualized rate in the first quarter. Our loan production was relatively strong in the first quarter, as is our current loan pipeline. We continue to remain optimistic that we can grow loans in 2021, exclusive of the impact related to PPP loans.

The decline in agribusiness and dairy and livestock loans from the end of the fourth quarter of 2020 was $100 million. This decline was mostly seasonal as we experience paydowns in the first quarter of each calendar year as a result of the temporary increase we experience in the fourth quarter of each year. As a result, line usage for agribusiness and dairy and livestock loans declined from its peak level at year-end. PPP loans increased by $15 million from the end of the fourth quarter as new PPP loan originations were partially offset by forgiveness from the SBA for loans originated during the first round of PPP. Commercial real estate loans grew by $95 million from the end of 2020, which is almost a 7% annualized rate.

Additionally, construction loans grew by $11 million from the prior quarter. Commercial and industrial loans declined by $58 million, and single-family mortgage loans declined by $15 million from the end of the fourth quarter. Overall line utilization rates declined from 52% at 3/31/2020 to 41% at 3/31/2021. The decline in overall utilization rate was primarily due to C&I loan utilization that declined from 39% to 26% compared to the year-ago quarter.

Average loans for the first quarter decreased by $77 million compared with the fourth quarter of 2020, while increasing by $787 million compared with the year-ago quarter. During the first quarter of 2021, PPP loans had an average balance of $881 million compared to $1 billion for the fourth quarter of 2020. As of March 31, 2021, of the more than 4,000 PPP loans we originated during round 1, approximately 2,400 of our borrowers, representing $544 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 received greater than 99% forgiveness based on the customers' forgiveness application.

As of March 31, 2021, we have originated approximately 1,500 PPP loans in round two for $325 million in outstanding balances at quarter end. Net interest income before recapture or provision for credit losses was $103.5 million for the first quarter compared with $105.9 million for the fourth quarter and $102.3 million from the year-ago quarter. Earning assets grew by $560 million on average from the fourth quarter, with more than $523 million of the growth coming from an increase in investment securities. Our earning asset yield decreased by 17 basis points compared to the prior quarter.

Interest-bearing deposits and customer repos increased on average by $130 million from the fourth quarter. But interest expense declined as the cost of interest-bearing deposits and customer repurchase agreements decreased by six basis points. Our tax equivalent net interest margin was 3.18% for the first quarter of 2021 compared with 3.33% for the fourth quarter and 4.08% for the first quarter of 2020. When the impact of PPP loans, discount accretion on acquired loans and nonaccrual interest paid is excluded, our adjusted tax equivalent net interest margin was 2.93% for the first quarter, down from 3.11% for the prior quarter and 3.87% for the year-ago quarter. Our net interest margin continued to be negatively impacted by excess liquidity.

During the first quarter, we had approximately $1.6 billion on average on deposit at the Federal Reserve earning 10 basis points. The net interest margin for the first quarter would have been approximately 35 basis points higher without the $1.4 billion year-over-year average increase in deposits at the Federal Reserve.

Loan yields were 4.5% for the first quarter of 2021 compared with 4.56% for the fourth quarter of 2020 and 4.95% for the year-ago quarter. The decrease in yield from the prior quarter was due to lower prepayment penalties and rates on new originations that are below the overall portfolio yields. Total interest and fee income from PPP loans was $10.4 million in the first quarter compared to $10.5 million in the fourth quarter. PPP loan yields increased from 4.08% in the fourth quarter of 2020 to 4.78% in the current quarter due to the accelerated recognition of fees from loan forgiveness. The decrease in loan yields from the prior year-ago quarter was primarily due to the impact of the Federal Reserve rate decreases as well as decline in discount accretion income for acquired loans. Excluding the impact of PPP loans, interest income related to purchase discount accretion and nonaccrual interest paid, loan yields were 4.23% for the first quarter of 2021, 4.38% for the fourth quarter of 2020 and 4.67% the first quarter of 2020.

Our cost of deposits and customer repos for the first quarter was six basis points, and our cost of funds was seven basis points. Our cost of funds has declined by 14 basis points over the last year. We plan to redeem our $25.8 million junior subordinated debentures, which had a cost of 1.6% during the current quarter, by the end of the second quarter of this year.

Moving to noninterest income. Noninterest income was $13.7 million for the first quarter of 2021 compared with $12.9 million for the prior quarter and $11.6 million for the year-ago quarter. The first quarter of 2021 included $3.5 million in death benefits that exceeded the asset value of certain BOLI policies and a $400,000 net gain on the sale of an OREO property. In comparison, the prior quarter included $1.6 million in death benefits income from the BOLI policies and a $365,000 net gain on the sale of two OREO properties.

We generated approximately $200,000 in fees from interest rate swaps during the first quarter, which was $660,000 lower than the prior quarter and $160,000 less than the first quarter of 2020. The steepening of the yield curve has made it less attractive for our customers to enter into interest rate swaps that convert floating rate loans to fixed rate instruments compared to a conventionally fixed rate loan.

Deposit service charges were essentially unchanged from the fourth quarter but were lower than the first quarter of 2020 by almost $800,000 due to the higher earnings credits generated by the significant increases in our customers' noninterest-bearing checking account balances.

Now expenses. Noninterest expense for the first quarter was $47.2 million compared to $48.3 million from the fourth quarter of 2020 and $48.6 million for the year-ago quarter. Total salary and benefit expenses increased by $564,000 compared to the fourth quarter, including a $1.3 million increase in payroll taxes. Higher payroll taxes are typical for the first quarter of every year.

Salary and benefit expense declined by $1.2 million from the first quarter of 2020 as deferred loan origination costs, which are a contra expense, increased by more than $1 million due primarily to the origination of more than 1,500 PPP loans in the first quarter of 2021. Occupancy and equipment expense and professional service expense decreased by a combined $1.3 million quarter-over-quarter. Additionally, marketing and promotion expense declined by $225,000 and $830,000 compared to the first and fourth quarters of 2020, respectively.

Noninterest expense totaled 1.32% of average assets for the first quarter of 2021 compared with 1.37% for the fourth quarter of 2020 and 1.72% for the first quarter of 2020. Our efficiency ratio was 40.26% for the first quarter of 2021 compared with 40.64% for the prior quarter and 42.7% for the first quarter of 2020. Now turning to our asset quality matrix.

During the quarter, we had net loan charge-offs of $2.4 million compared with $177,000 for the fourth quarter of 2020 and no net loan charge-offs for the year-ago quarter. The current quarter includes a previously substandard-rated commercial industrial loan that was fully charged off for approximately $2.5 million. At quarter end, non-performing assets, defined as non-accrual loans plus other real estate owned, were $15.3 million compared with $17.7 million for the prior quarter and $11.3 million at March 31, 2020.

At March 31, 2021, we had loans delinquent 30 to 89 days of $1.7 million compared with $3.1 million at December 31, 2020. Classified loans for the first quarter were $69.7 million, a $9 million decrease from the prior quarter. We will have more detailed information on classified loans available in our first quarter Form 10-Q.

I will now turn the call over to Allen Nicholson to discuss our effective tax rate, our allowance for credit losses, investments and capital levels. Allen?

E. Allen Nicholson -- Executive VP & CFO

Thanks, Dave. Good morning, everyone. Our effective tax rate was 28.6% for the first quarter compared to 29% for the fourth quarter of 2020 and 28.75% for the year-ago quarter. Our effective tax rate can vary depending on the level of tax-advantaged income as well as the available tax credits. Our allowance for credit losses decreased by $21.9 million from the fourth quarter of 2020 as a result of the $19.5 million recapture of provision for credit losses and net loan charge-offs of $2.4 million.

We previously recorded a provision for credit losses of $23.5 million in the first half of 2020 due to the estimated impact on the losses from the economic forecast of a significant downturn in the economy resulting from the COVID-19 pandemic. Based on the magnitude of government economic stimulus and the wide availability of vaccines, our latest economic forecast reflects improvements in key macroeconomic variables and therefore, lower projected loan losses, which resulted in a decrease in our allowance for credit losses.

At March 31, 2021, our ending allowance for credit losses was $71.8 million or 0.87% of total loans. When excluding the $898 million in PPP loans, our allowance as a percentage of the remaining loans is 0.97%, which compares to 0.91% at the pre-pandemic period end of December 31, 2019. In addition to the allowance for credit losses, we have $27 million in remaining fair value discounts from acquisitions.

Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. These U.S. economic forecasts include a baseline forecast as well as upside and downside forecasts. With California's unemployment rate of 8.5% being significantly higher than the national average, our forecast included a greater weighting on the downside economic forecast in comparison to the weighting for the upside forecast. Our weighted forecast assumes GDP will increase by more than 4% in 2021 and then grow at approximately 3% in both 2022 and 2023. The unemployment rate is forecasted to be higher than 6% in both 2021 and 2022 before declining to 5.5% in 2023.

Our total investment securities increased by approximately $920 million from the end of 2020. As of March 31, 2021, investment securities available-for-sale, or AFS securities, totaled $2.81 billion, inclusive of a pre-tax net unrealized gain of $14.4 million. AFS securities increased by approximately $400 million from December 31, 2020. Investment securities held-to-maturity, or HTM securities, totaled $1.09 billion, a $500 million increase from December 31, 2020.

During the first quarter, we purchased approximately $1.2 billion in new securities with an expected tax equivalent yield of 1.6%. These purchases included approximately $680 million in AFS securities that were comprised of mortgage-backed securities with an average lives of less than five years, which are expected to yield 1.4%. Additionally, we purchased approximately $550 million in HTM securities that were comprised of fixed rate agency and municipal bonds with longer maturities that, on average, exceed 10 years. On a nontax equivalent basis, these securities will generate a yield of 1.8%.

Now turning to our capital position. Shareholders' equity increased by $12.7 million to $2.02 billion at the end of the first quarter. The increase was primarily due to net earnings of $63.9 million, offset by a $28 million decrease in other comprehensive income from the tax-affected impact of the decrease in market value of available-for-sale securities and $24.5 million in cash dividends.

Our overall capital position continues to be very strong. Our tangible common equity ratio was 9.4% at the end of the first quarter, and our regulatory capital ratios are well above regulatory requirements to be considered well capitalized. At March 31, our common equity Tier one capital ratio was 14.9%, and our total risk-based capital ratio was 16.1%. I'll now turn the call back to Dave for some closing remarks.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Thanks, Allen. As we have discussed today, the bank continues to produce consistent earnings, maintain strong capital levels, solid credit quality and excellent liquidity. We are proud to have remained focused on our commitment to our associates, customers and shareholders during the challenges caused by the COVID-19 pandemic over the past year. We continue to prioritize the health and safety of our associates, customers and our other business relationships.

We're beginning to see more positive trends on the COVID-19 front, such as lower positivity rates and lower average daily cases. Most of the markets that we serve in California have moved into Tier three in the blueprint for a safer economy, meaning that some indoor business operations can open up with up to 50% occupancy. Vaccine distribution continues to increase throughout the state. And our governor announced that on June 15, California will fully reopen its economy if two criteria are met: Number one, if vaccine supply is sufficient for Californians 16 years and older who wish to be inoculated; and number two, if hospitalization rates are stable and low. We remain cautiously optimistic as we continue to see vaccine supplies increase and vaccination appointments become more available.

As one of the most disruptive periods in U.S. economic history starts to abate, good news on multiple fronts suggest better times are ahead. The California economy appears poised for a rebound, and we are cautiously optimistic that our customers will regain their confidence to reinvest in their businesses.

Also, I would like to welcome Brian Mauntel as our new President effective April 26. Brian will be responsible for overseeing the sales division of the bank, including our 57 business financial centers, specialty lending groups, sales support groups and our wealth management division, CitizensTrust. He has over 29 years of banking experience focused on commercial and business banking. We welcome Brian and look forward to his contributions to the success of Citizens Business Bank.

In closing, we are successfully navigating through the COVID-19 pandemic, and we believe we are well positioned for quality growth in 2021. We remain committed to growing the bank in a balanced way, utilizing all three of our growth initiatives: Increasing same-store sales, opening de novo centers and seeking strategic and financially sound acquisitions. Please stay healthy and safe. And that concludes today's presentation. Now Allen and I will be happy to take any questions that you might have.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from the line of Brett Rabatin with Hovde Group.

Brett Rabatin -- Hovde Group -- Analyst

Hi, good morning everyone.

E. Allen Nicholson -- Executive VP & CFO

Hi Brett.

Brett Rabatin -- Hovde Group -- Analyst

I wanted to first ask just around on the margin. It seems like with the investments that you've made here in the securities book, that you've going to reach to, hopefully, an inflection point on the margin. And it would seem like both NII and the margin should move up at least a little bit going forward. Can you just give us some color on the moving pieces there and how you see NII unfolding this year, maybe excluding the PPP noise?

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Yes, I'll start on that, and then Allen can add any thoughts he has. So I think we've reached maybe the inflection point on the investment securities, but loans were still challenged. We're still originating loans at lower than the overall loan yield. So I do think that there might be some more headwinds there.

The opportunity for us is, obviously, to continue to try and make quality loans, to have loans in a higher percentage of our total earning assets. That's been challenged with the remaining excess liquidity that's on the balance sheet. And every time we think we're making positive gains there, our deposits keep growing. And so we did invest a significant amount in the last quarter, but where we really need to focus is in that quality loan growth and originating loans to grow that at a higher amount.

I think there's some headwinds. I think that we do have -- we're getting to the inflection point. I just don't know if we're there yet. I don't know, Allen, if you have anything to add to that.

E. Allen Nicholson -- Executive VP & CFO

Yes. I mean, earning asset mix could continue to be somewhat of a drag. Certainly, if we see better utilization on lines, that could certainly help us. And for the security portfolio, you're right, I think we may have reached sort of an equilibrium. But we did take advantage of, I would say, better market conditions in the latter half of the first quarter.

Currently, where bonds are is a little bit below there. So we'll continue to be very opportunistic when we buy securities, and try to buy them at -- when yields are popping up.

Brett Rabatin -- Hovde Group -- Analyst

Okay. And then to the loan growth point, I know last quarter, I tried to get you guys to use your crystal ball to talk about growth this year, including what the PP -- including PPP. i.e., can you grow the loan portfolio even as PPP comes down? And it would seem like you could have some optimism around that although, obviously, the utilization rates are pretty low. Would you expect a pickup in the next few quarters around loan growth? Obviously, 1Q was better than many in the industry that had some atrophy this quarter.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Yes. As we mentioned, we still have a little over $500 million in remaining PPP round 1. We've only boarded around $350 million of PPP round 2. We continue to see forgiveness on the PPP round 1. So that's going to be a headwind. If you wanted to include it all together, that's going to be a pretty significant headwind to overall loan growth.

I do think that with the utilization on the lines, I am -- again, thinking that that will start to pick up. As I mentioned, as the economy reopens, our customers start to believe that they're going to be able to invest in their business, and it's going to make sense, I do think that we'll see utilization tick up again. But right now, everybody is sitting on so much liquidity that they're not having to use their lines. And when you're down at 26% utilization on C&I loans compared to 39% in the year-ago quarter, that available line utilization is about $240 million.

So if we can get that, if our customers start to believe that they can invest and that they start using that money again, we continue to grow commercial real estate the way we've grown it in the first quarter, and I think we'll be better off. But it's still a question as to when that's going to start.

Our loan growth -- I mean, our loan production has been outstanding in the first quarter. We beat our first quarter of last year, so I think that, that's a positive. The pipelines are strong. We're just going to have to wait and see about utilization and that excess liquidity that's on everybody's balance sheets.

Brett Rabatin -- Hovde Group -- Analyst

Okay. Good color. And Dave, if I could sneak in one last one. We've seen a few California deals here so far this year. And obviously, with your currency, you'd be able to do whatever you want, so to speak. Are you thinking more about M&A as a potential growth effort for you guys? And how do you just feel generally about what you're seeing out there from an M&A perspective?

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Yes. I mean, we always have utilized M&A as one of our areas of growth. There are a lot of conversations. There's nothing imminent, but there are a lot of conversations that are happening. I do believe that we will have opportunities to take a look at potential targets. They're -- right now, I think most of the people that we've been talking with are considering a strategic option of selling, but you have to agree on price. We want to make sure it's a good bank. We want to make sure that there's some value, whether it's strategic and financial value, in a deal. There's a lot of criteria we utilize. But yes, with our currency, we're hoping that we'll be able to find the right partner going forward.

Brett Rabatin -- Hovde Group -- Analyst

Okay, appreciate all the color.

Operator

Your next question comes from the line of Jackie Bohlen with KBW.

Jackie Bohlen -- KBW -- Analyst

Hi, good morning everyone

E. Allen Nicholson -- Executive VP & CFO

Good morning, Jackie.

Jackie Bohlen -- KBW -- Analyst

I wanted to dive into the reserve just a little bit. And I'm looking at it, that 97 basis points, excluding PPP. So if I understand the prepared remarks correctly, it sounds like just based on the weightings that you used for the Moody's forecast, you more heavily weighted the adverse scenario, which I think you did in the past as well. So just in that framework, there's obviously still a good amount of conservative within that ratio. And if I look at my calculations, you started at 93 basis points on January 1.

So my, I apologize, long-winded question is basically, how do you think about where you could wind up once we're at the end of the pandemic? Could it be lower than that starting point at January 1, 2020?

E. Allen Nicholson -- Executive VP & CFO

It's hard to predict, obviously, Jackie, but I do think, if you see where we began the accounting for CECL and positive economic outlook that existed at that point; and the fact that excluding PPP loans, which really don't have a reserve, the portfolio hasn't changed. The underlying risk associated with the portfolio has been pretty stable. So you could continue to see that coverage ratio drift down to where we began. And beyond that, it's hard for us to predict.

Jackie Bohlen -- KBW -- Analyst

And have increasing property value had an impact on required reserves? Meaning low -- I'm assuming there's lower loan-to-value because of increasing property value. So I'm wondering what effect that's having on the methodology, if any.

E. Allen Nicholson -- Executive VP & CFO

The methodology looks at original LTVs. But there are probably five or six underlying metrics, including that some of them would theoretically take into current LTVs, but not specifically.

Jackie Bohlen -- KBW -- Analyst

Okay. Okay. And then I know you mentioned it in the prepared remarks, I was jotting things down too quickly. Maybe if you could just provide a little bit of background on the unique charge-off in the quarter.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Yes. It was a single C&I loan to a contractor, that he was unwilling to step up. We are still obviously going to pursue all of our recovery opportunities, but we just felt it was prudent to take it as a charge-off and deal with it in that fashion. It's not something that is, I think, consistent with many of our customers. This was a unique situation that was impacted by COVID, impacted by a lot of different things. And we don't see this as systematic throughout our contractor portfolio. It's really a one-off situation.

Jackie Bohlen -- KBW -- Analyst

Okay. Great, thanks for the extra background.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Thanks, Jackie.

Operator

Your next question comes from the line of Matthew Clark with Piper Sandler.

Matthew Clark -- Piper Sandler -- Analyst

Hi, good morning guys.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Good morning.

Matthew Clark -- Piper Sandler -- Analyst

First, on your new production. Do you have the weighted average rate on that? I'm trying to get at an incremental margin.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Yes. We're still originating loans in the first quarter. I would say that the rates went up slightly, but it's still in that 3.50% to 3.75% range, just depending on the tenure of the loan. So in that range.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And is that -- that's ex fees, right?

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

That's excluding fees.

Matthew Clark -- Piper Sandler -- Analyst

Yes. Okay. And then maybe just to try to pin you down on core NII, that $89 million, thinking about the timing of the securities purchases and maybe some additional core NIM pressure. Do you think you've -- I would assume we should see core NII up from here, but correct me if I'm wrong.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Yes. So when you say core NII, you're excluding PPP from that?

Matthew Clark -- Piper Sandler -- Analyst

Yes, the $89 million.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Okay. I mean, if we can execute and grow loans, we still think that there's pressure on the loan yields. The investment yields, we think, have maybe hit the inflection point. There's still a little bit of headwind on our core NII. But our goal is to continue to generate loans and help offset that. As Allen mentioned earlier, just impacting our overall mix will help. And hopefully, we can -- our customers start using some of that excess deposits that they have.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And then your expense run rate, I think -- I know there's a little bit of seasonality in the first quarter, so probably some relief going forward. Efficiency ratios kind of bouncing around the bottom. Expense to average assets as well, but that's somewhat distorted by PPP. What are your thoughts on kind of expense growth this year? And whether or not there might be some investments that need to be made, or additional savings?

E. Allen Nicholson -- Executive VP & CFO

I think from an expense standpoint, quarter-over-quarter, there always can be some minor ups and downs. But generally speaking, we're trying to keep our expense growth to be flat or minimal. So I think as we find additional efficiencies, we are trying to invest that. So I would say low single digits to flat expenses is really we're trying to manage to.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And then just within fee income, some elevated BOLI benefits, but it does seem like you have a little bit of that each quarter.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Every quarter.

Matthew Clark -- Piper Sandler -- Analyst

Yes. I guess -- I know it's tough, that's a difficult one to predict. But I'm -- I guess I'm trying to honing on the run rate of fee income and the puts and takes there.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Yes. Our fee income has been impacted on the deposit service charge side primarily just due to all the excess balances. And that's the largest amount, the deposit service charges, of our noninterest income. And so we've been managing our earnings credit rates. We've been managing the line item cost of deposit products and services. And we want to make sure that we continue to collect those service charges.

So we have a collection goal, a fee collection goal. But when people are sitting with an extra couple of billion dollars in deposits, earning credits to offset service charges, that's a little bit of a challenge. I do think, again, as balances start to decrease, and I believe that -- I keep saying this. But I believe that at some point, they will, that we'll be in a better position to collect a little bit higher on the deposit service charge side.

We're focused on CitizensTrust and driving revenue in that area as well. Swaps will probably be down just because right now, conventional rate loans are priced in a way with the steeping of the yield curve, although it settled back a little bit, it's still better for us to take the 3.75% rate versus 30-day LIBOR plus 2.75% rate at 3%. So swap fee income will probably be a little bit challenged through the foreseeable future. And then the other stuff, the BOLI and all that is, it's just -- there's a lot of variables in that, obviously.

Matthew Clark -- Piper Sandler -- Analyst

Thank you.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

You're welcome. [Operator Instructions] Your next question comes from the line of David Feaster with Raymond James.

David Feaster -- Raymond James -- Analyst

I appreciate the commentary in the prepared remarks on the origination activity. I'm just curious, how much of that in the quarter was from existing clients that are investing and expanding versus maybe new client acquisition from either new lender hires or the PPP program?

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Yes. I don't have the specific percentage breakdown, but just anecdotally, I can tell you that there's a good amount of it from new hires. That's one of the things I'm most optimistic or cautiously optimistic about is we have been seeing, with some of our new hires, new projects. I mentioned previously -- or we mentioned previously that we opened de novo office in Modesto. We've hired a number of new RMs in different markets.

And I do believe that that production is a big part of why we've had some success in the first quarter of this year over the first quarter last year. If I had to guess, I'd say it's probably about 50/50 expansion of existing relationships and 50% either new loans from new RMs and just new loan generation from our existing legacy RMs.

David Feaster -- Raymond James -- Analyst

That's encouraging. And I guess just kind of on that topic, I mean, if you look out, we've got the Modesto one opening, are there any other de novo markets that you're interested in expanding to, where you're seeing opportunities to hire, find a team and build around it, I guess? Where kind of would be your top priorities?

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Well, I mean, we have a lot of opportunity in Southern California that we don't have huge presence in. It's not so much about the geographic market as much about the team member that you're looking to bring on board. And the opportunity that we had in the Central Valley and Modesto is a good one. We've hired a couple of new people down in San Diego. There are other places in L.A. County that we would be interested in looking at. There's other places in San Diego County we'd be interested in looking at. But it really depends on getting the right person.

David Feaster -- Raymond James -- Analyst

Okay. And then maybe if you could just touch on some capital priorities. Obviously, organic growth is top priority. You touched on M&A and the sub-debt redemption. But just curious how you think about the dividend. It looks like the payout ratio, excluding the reserve release this quarter, is kind of held in that 50% realm. Just curious, your thoughts on capital and opportunities for capital deployment.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Yes. We also have the 10b5-1, but where our stock is trading, obviously, we haven't been -- we haven't repurchased any stock in the last quarter. We also -- I agree with you or I agree with your comment on the -- kind of in that 50% to 60% range is our plan on the dividend payout, and so the dividend right now.

Really, M&A is the opportunity for us if we can find the right opportunity with the right bank. And again, we're having conversations. There's nothing imminent, but we're having conversations with a lot of different people. And hopefully, we'll be able to identify and move forward with something this year.

David Feaster -- Raymond James -- Analyst

Okay. That's helpful. Thanks for the color.

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

Thanks, David.

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, CVB Finacial Corp

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 July for our Second Quarter 2021 Earnings Call. Please let Allen or I know if you have any questions. Have a great day, and thanks for listening.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Christina L. Carrabino -- Principal

David A. Brager -- Chief Executive Officer, CVB Finacial Corp

E. Allen Nicholson -- Executive VP & CFO

Brett Rabatin -- Hovde Group -- Analyst

Jackie Bohlen -- KBW -- Analyst

Matthew Clark -- Piper Sandler -- Analyst

David Feaster -- Raymond James -- Analyst

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