American River Bankshares
Q4 2020 Earnings Call Transcript

Published: 28 Jan 2021

[Operator:]

Welcome to the Fourth Quarter 2020 Earnings Conference Call. My name is Darryl, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I would now like to turn the call over to David Ritchie. David, you may begin.

[David Ritchie:]

Thank you. Good afternoon, everyone. Nice to be with you. This is Dave Ritchie, President and CEO of American River Bankshares, the parent company of American River Bank, headquartered in Rancho Cordova, California. This is our fourth quarter 2020 update. You should be aware that our earnings release, which details our quarterly and year-end results went out at market opening today. Last week, we also announced our quarterly cash dividend payment for the next month. We did include some economic data in the press release. In general, positive trends continue in our markets with the state reopening and the vaccinations being distributed.

[Mitchell Derenzo:]

Thank you, Dave, and of course, thanks to all of you for taking the time to listen in on the call this afternoon. Before we get started, let me remind everyone of our safe harbor disclosures. Certain matters discussed in this presentation may constitute forward-looking statements, the purposes of the federal securities laws and may involve risks and uncertainties. Actual results may differ materially from the results in these forward-looking statements. Factors that might cause such a difference are discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2019, and our subsequent filed on Form 10-Q and Form 8-K. The Company does not undertake any obligation to publicly update or revise any of these forward-looking statements, which would include information or future events, except as required by law. The links to this annual report and our Form 10-K are located on our website, americanriverbank.com. As with past conference calls, I'm going to highlight some of the key areas from our press release that Dave mentioned that went out this morning, also going to try to provide some additional details and analysis. Then we'll open up the lines for questions. This morning, American River Bank reported net income of $2.1 million for the fourth quarter of 2020. That's up from $1.5 million for the fourth quarter 2019. That's a 40% increase. Earnings per share were $0.36 in the fourth quarter of 2020 compared to 26% in the fourth quarter of 2019. That's a 39% increase. ROA and ROE for the quarter were 96 basis points and 9.12%, respectively. That's up from 82 basis points and 7.22%, respectively, one year-ago. On a year-to-date basis, net income for 2020 was $7.1 million. That's a $1.20 a share that compares to $5.5 million or $0.94 a share in 2019. On a pretax pre-provision basis, net income in 2020 was $11.1 million. That’s an increase of $3 million or about 38% over the $8.1 million reported for 2019. Despite the significant rate drops as a result of the FOMC actions this year, our margin held up fairly well. For the full-year 2020, the yield on loans was 4.8% that compares to 4.95% in 2019. Overall, our cost of deposits decreased from 35 basis points in 2019 to just 18 basis points in 2020. Resulting net interest margin was 3.52% in 2020. That's slightly down from 3.6% in 2019. Of course, the loan yields were somewhat impacted by the Paycheck Protection Program loans, those loans had a yield of 3.86% for 2020. I'll get a little deeper into PPP loans in this next section that I call pandemic response section. The three areas that I’ll cover in this pandemic response section are PPP loans, our loan deferrals, and our exposure to industry segments most impacted by the pandemic.

[Operator:]

And our first question comes from Nick Cucharale. Go ahead, Nick.

[Nicholas Cucharale:]

Good day, gentlemen. Hope you're doing well.

[David Ritchie:]

Hey, Nick.

[Mitchell Derenzo:]

Nick, thanks.

[Nicholas Cucharale:]

So I wanted to start on the strong loan growth this quarter. First, were the new credits coming from newer existing customers? And then secondly, can you give us some color on the competitive dynamics in your markets?

[David Ritchie:]

To your first question, both, I mean, we had some new stuff and then we had some additional loans to existing clients. So that answers that. But yes, I think it's competitive. I mean, I think it's very competitive, especially as you look at – well, I think the way I look at it Nick, is that we're looking at it real hard. The stuff that’s especially coming up and maturing or if you have your prepays are running down to 1% or so, we're attacking those because we want to stay in front of the clients. And hopefully if they would like to stay with us and we'd like them to stay with us, we’re going to renew them. But I think it's just – I mean, I don't see it being uncompetitive. I think it's not just because competitive as always been. I mean the Sacramento market is, despite all the negative out there, I think is still a pretty good market for certain types of loans.

[Mitchell Derenzo:]

And really, to add on to that, we've definitely benefited from the pandemic.

[David Ritchie:]

We're a big bank.

[Mitchell Derenzo:]

There's more people coming to Sacramento. If you can work from home, why live in the Bay area and pay two to three times as much for a place to live. So the real estate market here is just real estate market. The residential real estate market is pretty strong.

[Nicholas Cucharale:]

That's great. And then given the strong close to 2020, I mean, you've got some good momentum headed into this year. Certainly a fluid environment, but what type of loan growth are you targeting in 2021?

[Mitchell Derenzo:]

The last year or so we've been talking about double-digits. It's got to be less than that this year. We've got a decent pipeline, but there's a lot of pressure. Dave, do you want to…

[David Ritchie:]

Yes. I think there's a decent pipeline, but I think the real challenges is, as you have, as I was saying maturities and things like that. We had $45 million in loan payoffs last year. I mean, if you are unable to keep them probably at lower rates, as we all would agree, if you're unable to keep them, it's going to make it very difficult to show real positive growth. So I think it's a little tough to tell you exactly. But I agree with Mitch. We've been on a pretty heavy growth plan here for the last three years and pushing double-digits. I mean, I'd probably be happy to be a little south of 10%, I mean, somewhere in that 6% to 8% range would probably make me feel good.

[Mitchell Derenzo:]

Yes. Nick, as you would expect, I know you're trying to do – you're trying to figure out what the loan interest income is going to be. It's tough. I think there's going to be more pressure on the rate we're getting mainly through the growth. Even if we are successful in growing 8%, we are going to be at lower rates. There's a lot of – you talked about competition. There's a lot of cash still in the system here. We're getting less than a point on our investment portfolio. So I'm thinking that banks would rather drop that rate to go down to 3.5%. I did report for the quarter, we still have some pretty good yields. Our budgeting processes for 2021 is that those yields. We’re not going to get 4.5% on our loans. Does that helps?

[Nicholas Cucharale:]

Yes. Thanks. I appreciate the additional disclosure on PPP Mitch. If I heard you correctly, you gave the fee impact in the quarter and the year-to-date for 2020. Do you have the NIM impact of PPP in the third and fourth quarters? I'm just trying to ascertain how much of the sequential rise was related to PPP?

[Mitchell Derenzo:]

Nick, I didn't calculate that, but I did calculated the average – the average earnings yield on those were for the year. I didn't calculate that. I didn't pull those out this year.

[Nicholas Cucharale:]

No problem, just to be headed up in. And then, lastly, some typical seasonality in the expense base in the first quarter. Can you just help us think about a run rate and how you're viewing the expense base longer-term?

[Mitchell Derenzo:]

You said the first quarter or during in the fourth quarter?

[Nicholas Cucharale:]

Yes. Typically, you have some seasonality in the first quarter with some seasonal increases and so forth. I'm just trying to kind of in a run rate going forward?

[Mitchell Derenzo:]

Yes. We have salary increases in the first quarter. It is a shorter month and days. So the interest income is down. As far as the – I don't anticipate many new hires in the first quarter. So the salary line should be fairly consistent. Comparing it to the fourth quarter, the fourth quarter, we tend to true up the incentives as we have a better idea what the income is going to be for the year because our – the staff incentive is based on income. So I don't see too many changes in the first quarter compared to the fourth quarter.

[Nicholas Cucharale:]

Thanks for taking my questions.

[Mitchell Derenzo:]

Sure.

[Operator:]

And our next question comes from Tim Coffey. Go ahead, Tim.

[Timothy Coffey:]

Great. Thank you. Good afternoon, gentlemen.

[Mitchell Derenzo:]

Hi, Tim.

[David Ritchie:]

Hi, Tim.

[Timothy Coffey:]

Hey guys. So you guys did a great job growing non-interest bearing deposits this year. I mean, for a variety of reasons, those were up significantly. And the ratio of those looks a lot better. Now what's your expectation that you'll be able to hold on to those?

[Mitchell Derenzo:]

We're pretty optimistic. I spent a lot of time with our Head of Retail Banking, challenging her, saying good thing. Where do these come from? How long are they going to be here? Because I like – I think that some of those are going to run out, but I also thought that the PPP loans would come and go or the deposits that went in from the PPP loans would go out as well. There was taxes involved. While people pay their taxes and the deposits still grew. We grew $15 million in the fourth quarter. So I'm optimistic that that these things will stay. There is some pent-up demand that businesses haven't been investing in their future. So there will some decrease there, but we're still – Dave, we picked up on 1,000 new…

[David Ritchie:]

1,000 new accounts this year. Those aren't necessarily, I can tell you, I mean, some might – Tim been related to PPP, but it's the – something we've talked about first since I've been here is this, I call it this concierge service. I mean, we take great care of the clients. We get referrals. I would – like Mitch said, even in December, I mean, our deposits grew $15 million in one month. And I made a comment earlier in my comments about that, for the year, I mean, 1,000 accounts and the initial deposits were somewhere in the $20 million range and they're up $37.9 million. I don't think that's – I mean I think that's pretty good for us. And I think we've been challenging this deposit thing for three or four months, and we don't – we haven't come up with any reason to feel like they're all going to run out the door.

[Mitchell Derenzo:]

Right. We’re not going to have another 23% growth. We're not running around in here. But we feel pretty good with what we brought in a pretty good relationship.

[David Ritchie:]

Once you get too excited.

[Timothy Coffey:]

No, I remember after the financial crisis, there was expectation that we'd see a dropdown in liquidity that built throughout that period. And there really wasn't. So I think it's possible it's going to stick around as well. And so what does that mean for your margin then? I mean, it seems like you might be having a bit more liquidity on balance sheet.

[Mitchell Derenzo:]

Well, if you look at our year-end balance sheet, we have a ton of – in my opinion, way too much in our investment portfolio, they can very well yield. So really, our challenge is going to be to continue to put that out in loans. We have $55 million of PPP loans in the – at the end of the year. Those are going to be forgiven. We kind of think that those will come back over the next six months. But we also have another PPP loan program going here, which both Dave and I mentioned, we don't think it will be as strong as that. But those loans, despite that 1% yield on them, with the feeds and the quickness of forgiveness, those can create some positive bumps to our NIM. And again, it's how quickly can we get that cash moved into really out of security, so we did – I think we did a pretty good job of moving it into securities by the – in the quarter – in the fourth quarter. I think the portfolio grew by over $40 million in the quarter. But again, the yields we're getting on those are not too exciting. And we're not going to take risks with, going out 15, 20 years to go out on the curve there. We still believe that our bread and butter is the loan portfolio. So we want to keep that available to fund the loans.

[Timothy Coffey:]

Okay. All right. Those are my questions. Thank you very much.

[David Ritchie:]

Thanks, Tim.

[Operator:]

And we have no more questions at this time. I'd like to turn the call over to David Ritchie to close the call.

[David Ritchie:]

Thank you very much, everyone, for listening. We appreciate your support and we'll be talking to you next quarter. Thanks again.

[Mitchell Derenzo:]

Thanks a lot.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.