Q1 2022 CVB Financial Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the first quarter 2022 C V B Financial Corporation and its subsidiary citizens business Bank earnings Conference call.
My name is Livia and I'm Your conference operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer period. Please note. This call is being recorded.
I'd now like to turn the presentation over to your host for today's call. Christina Carabiner you May proceed.
Thank you Olivia and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 'twenty 'twenty. Two 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 Dot C B bank dot com and click on the investor's tab.
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 .
Remember thirty-first 2021 and in particular, the information set forth in item one a risk factors therein for more complete version of the company's Safe Harbor disclosure. Please see the company's earnings release issued in connection with this call now I will turn the call over to Dave Brager Dave.
Thank you Christina good morning, everyone.
For the first quarter of 2022, we reported net earnings of $45 $6 million or <unk> 31 per share representing a 188th consecutive quarter of profitability. We previously declared an <unk> 18 per share dividend for the first quarter of 2022, which represented our 130.
<unk> consecutive quarter of paying a cash dividend to our shareholders.
First quarter net earnings of $45 $6 million or <unk> 31 per share compared with $47 $7 million for the fourth quarter of 2021, or <unk> 35 cents, a share and $63 $9 million for the year ago quarter or <unk> 47 per share.
On January 7th we announced the completion of our acquisition of Suntrust Bank.
Our financials for the first quarter of 2022 included 83 days of Sunquest, the operating results as well as the acquisition related expenses of $5 $6 million.
At close citizens business Bank acquired $766 million of net loans assumed $513 million of noninterest bearing deposits and $670 million of interest bearing deposits from sunquest for.
For the first quarter of 2022, our pre tax pre provision income was $65 $9 million compared with $66 $8 million for the prior quarter and $70 million for the year ago quarter.
Acquisition expenses excluded pre tax pre provision income would have been $71 $5 million, a $4 7 million increase from the fourth quarter of 2021.
Of particular note this quarter, we had strong core loan growth represented by 5% growth from the end of the first quarter of 2021, an 8% annualized growth from the end of 2021.
We also expanded our net interest margin by 11 basis points when compared to the fourth quarter of 2021.
We recorded a loan loss provision of $2 $5 million for the first quarter in comparison, we did not have a provision in the fourth quarter of 2021 and recorded a recapture provision for credit losses of $19 $5 million in the first quarter of 2021.
As previously announced we executed on $70 million accelerated share repurchase program at the beginning of February that had the effect of reducing our share count by approximately two 5 million shares. In addition, we repurchased 536000 shares under our <unk> one share repurchase program.
That became effective at the beginning of March.
Now, let's discuss loans in more detail our.
Our new loan production was very strong in the first quarter, new loan commitments were approximately $439 million, which is higher than the same period of last year by approximately 14%.
Total loans at quarter end were $8 6 billion, a $704 million increase from the end of the fourth quarter.
Total loans included $766 million of net loans acquired from Suntrust bank or $775 million when excluding the $8 6 million dollar allowance for credit losses from Sunquest PCB loans.
Excluding the loans acquired from Sunquest loans declined by $75 million.
After excluding PPP loan forgiveness, the loans acquired from Sunquest and the seasonal decrease in dairy and livestock loans first quarter loan growth was $144 million or approximately 8% annualized.
The core loan growth in the first quarter was led by continued growth growth in commercial real estate loans, which grew by $100 million in C&I loans, which increased by $27 million when compared with the end of the fourth quarter.
The line utilization rate for C&I loans was 31% at the end of the first quarter compared with 29% for the fourth quarter and 26% for the year ago quarter.
Single family mortgage loans also grew by $14 million from the end of 2021.
Dairy and livestock loans decreased by approximately $110 million from the prior quarter as we experienced paydowns in the first quarter of each calendar year as a result of the temporary increase we experienced in the fourth quarter of each year.
PPP loans declined by $105 million compared with the fourth quarter due to the continued forgiveness of these loans.
At quarter end nonperforming assets defined as nonaccrual loans, plus other real estate owned were $13 $3 million compared with $6 9 million for the prior quarter and $15 3 million for the year ago quarter at quarter end, we had no Oreo properties and the third.
$14 $3 million in nonperforming loans represented 15 basis points of total loans.
During the first quarter, we had net loan charge offs of $5000 compared with net loan charge offs of $345000 for the fourth quarter of 2021.
At March 31, 2022, we have loans delinquent 30 to 89 days of $2 $6 million compared with $2 $5 million at December 31, 2021.
Classified loans for the first quarter were $64 $1 million compared with $56 1 million for the prior quarter and $69 $7 million for the year ago quarter.
Modified loans declined by $9 $5 million, when excluding the $17 $5 million in classified loans acquired from Suntrust.
Now I'd like to discuss our deposits at March 31, 2022, our total deposits and customer repurchase agreements were $15 1 billion compared with $13 6 billion at December 31, 2021, and $12 $6 billion for the same period a year ago.
Excluding the approximately $1 2 billion in deposits acquired from Sunquest total deposits and customer repos increased by $285 million from the end of 2021 and by $1 3 billion from March 31 2021.
At March 31, 2022, our noninterest bearing deposits were $9 $1 billion compared with $8 1 billion for the prior quarter and seven 6 billion for the year ago quarter.
The ending balance at March 31, 2022 included $513 million in noninterest bearing deposits acquired from Suntrust.
Excluding the acquired deposits are noninterest bearing deposits grew by $490 million.
During the first quarter noninterest bearing deposits averaged $8 72 billion, a $395 million increase from the average balance in the fourth quarter of.
A key differentiator for our bank is the level of noninterest bearing deposits non interest bearing deposits were greater than 61% of our average deposits for the first quarter and 62, 9% as of.
At March 31 2022.
The bank's funding is entirely core customer deposits and customer repos, which combined had a cost of just three basis points in the first quarter.
This three basis point cost of funds compares with three basis points in the prior quarter and seven basis points for the year ago quarter I will now turn the call over to Alan to discuss our investments acquisition accounting allowance for credit losses and capital Alan.
Thanks, Dave Good morning, everyone.
We deployed some of our excess liquidity during the first quarter into additional securities by purchasing more than $1 billion of new securities with.
With yields on average of approximately two 4%.
Including the $130 million in Securities acquired from Sunquest, Our total investment securities increased by $900 million from the end of the fourth quarter to $6 billion as of March 31 2022.
Investment Securities available for sale Securities totaled $3 $65 billion.
<unk> of a pre tax unrealized loss of $203 million.
Investment securities held to maturity or HTM securities totaled approximately $2 $36 billion at.
At March 31.
The growth in our investments resulted in the investment portfolio, increasing from 33% of earning assets in the fourth quarter to 36% on average in the first quarter.
In addition to the increase in the size of our securities portfolio. The tax equivalent yield on the portfolio grew from 152% in the fourth quarter of 2021 to one 7% in the fourth quarter first quarter of 2022.
Although we grew the investment portfolio, we continue to maintain a significant amount of funds at the federal reserve or fed balance averaged more than $1 6 billion for the first quarter compared to $2 billion in the prior quarter.
The acquisition of Sunquest with consummated utilizing a combination of $8 6 million shares of the CVV stock and $40 million in cash for total consideration of $237 million.
Upon the close of the merger citizens business Bank acquired approximately $1 $4 billion in total assets <unk>.
Including the $130 million of investment securities $330 million in cash and $766 million in net loans.
We recorded a core deposit intangible of $4 million in goodwill of $102 million.
The acquired loans were recorded at fair value, which was a net discount of one 5% on the entire loan portfolio.
Approximately 30% of the acquired loans are considered PPD labs and allowance for credit loss of $8 $6 million was.
Tablet for these loans at acquisition.
In addition, these loans were further discounted by almost 2% to adjust them to fair value.
Non PCI loans were valued at a total premium of 3%, which was a net of a credit credit discount of one 5%.
We recorded a loan loss provision to establish a day one allowance for credit losses of $4 9 million on the non PCI loans.
At March 31 2022.
Our ending allowance for credit losses was $76 1 million or eight 9% of total loans.
When excluding PPP loans, our allowance as a percentage of the remaining loans was nine zero percent.
Which compares to eight 4% at December 31 2021.
In addition to the allowance for credit losses, we had $18 6 million in remaining fair value credit discounts from all acquisitions as of March 31 2022.
For the quarter ended March 31, 2022, we recorded a total loan loss provision for credit losses of $2 5 million.
Comparatively there was no loan loss provision or recapture of credit losses in the fourth quarter of 2021, while in the first quarter of 2000 2021, we had a recapture of loan loss provision of $19 $5 million.
Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. These U S. Economic forecast include a baseline forecast as well as downside forecast.
We continue to have the largest weighting on the baseline forecast with downside risks weighted among multiple forecast.
Our weighted forecast assumes GDP will increase by two 6% in 2022 one.
One 3% for 2023, and then grow by 3% in 2024.
The unemployment rate is forecasted to be four 3% for 2020, 252% in 2023, and then it declines of four 7% in 2024.
Now turning to our capital position.
Shareholders' equity decreased by $6 5 million to $2 1 billion at the end of the first quarter.
Equity increased from the end of 2021.
$197 million for the issuance of eight 6 million shares to the former shareholders of Sunquest.
As interest rates increased during the first quarter equity decreased due to a $142 million decrease in other comprehensive income as a result of about a $200 million increase in the unrealized loss on our available for sale securities.
On February one we announced that our board of directors authorized a share repurchase plan to repurchase up to 10 million shares of the company's common stock and the execution of a $70 million accelerated share repurchase or ASR plan.
Under the ASR, we were initially able to retire approximately $2 5 million shares.
In addition, we repurchased more than 500000 shares under our <unk> can be five one stock repurchase plan in March and total equity was reduced by $83 million in conjunction with the repurchase of approximately 3 million shares of common stock.
Our overall capital position continues to be very strong our regulatory capital ratios are well above regulatory requirements to be considered well capitalized and above the majority of our peers at March 31, our common equity tier one capital ratio was 13, 6%.
And our total risk based capital ratio was 14, 4%.
I'll now turn the call back to Dave for some further discussion of our first quarter earnings.
Net interest income before provision for credit losses was $112 8 million for the first quarter compared with $102 4 million for the fourth quarter and $103 $5 million for the year ago quarter. The increase in net interest income includes the impact of Sunquest acquired.
Assets and deposits for 83 days in the first quarter.
First quarter, earning assets increased by $1 $2 billion on average from the fourth quarter as a $930 million average increase in the investment portfolio combined with a $670 million increase in average loans were offset by a $365 million decrease in average funds on deposit at the federal reserve.
Yeah.
During the first quarter of 2022, PPP loans had an average balance of $160 million compared with $244 million for the fourth quarter of 2021.
Our earning asset yield increased by 11 basis points compared to the prior quarter.
The increase in our earning asset yield was a result of a 17 basis point increase in investment yields and a shift in the composition of earning assets with investments growing from 33% of earning assets to 36%, while our average amount of funds at the fed declined from 14% to 10% of earning assets our balance sheet.
<unk> continues to be well positioned for rising interest rates with significant liquidity, including $1 $5 billion on deposit with the fed at quarter end and approximately $200 million of expected quarterly cash flows from our securities portfolio.
Our tax equivalent net interest margin was two 9% for the first quarter of 2022, compared with $2, 79% for the fourth quarter and 318% for the first quarter of 2021.
The increase in our net interest margin was the result of an increase in our earning asset yield while maintaining our very low cost of funds at three basis points 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 two 8% for the first quarter, an increase from $2 six 5% for the prior quarter, but lower than the 293% for the year ago quarter.
Our net interest margin continued to be negatively impacted by our excess liquidity during the first quarter, we had approximately $1 $6 billion on average on deposit at the federal reserve, earning on average less than 20 basis points. Our net interest margin in the first quarter would have been approximately 31 basis points higher without the $1 6 billion.
On average on deposit at the Federal Reserve.
Loan yields were $4 two 7% for the first quarter of 2022, compared with $4 two 9% for the fourth quarter of 2021, and four 5% for the year ago quarter.
Total interest and fee income from PPP.
<unk> loans was approximately $3 million in the first quarter compared with $4 2 million in the fourth quarter.
Excluding the impact of PPP loans interest income related to purchase discount accretion and nonaccrual interest paid loan yields were $4 one 1% for the first quarter of 2022, 4% for the fourth quarter of 2021 and for two 3% for the first quarter of 2021.
New loan production has generally moved to yields that exceed 4%.
Our cost of deposits and customer repos as well as our total cost of funds for the first quarter was three basis points interest bearing deposits and customer repos increased on average by $760 million from the fourth quarter, including the deposits acquired from Sunquest, which resulted in a $125000 increase in <unk>.
Interest expense our cost of funds declined by four basis points compared with the first quarter of 2021 to.
To date, we've experienced a little pressure to increase deposit rates. Despite the recent increase in market interest rates as well as potential customer expectations.
I would note that during the last cycle of rising short term rates from 2014 through the end of 2018, when the fed increased rates by 225 basis points, our cost of funds increased by only eight basis points. We believe that our low cost of funds will remain relatively stable, even if short term rates continue to rise in 2012.
<unk>.
Moving on to noninterest income.
Noninterest income was $11 3 million for the first quarter of 2022, compared with $12 4 million for the prior quarter and $13 $7 million for the year ago quarter.
The fourth quarter of 2021 included a $700000 gain on sale of an Oreo property and $890000 from the collection of a previously acquired loans that had been charged off prior to our acquisition of San Joaquin Bank.
The first quarter of 2021 benefited from $3 $5 billion of insurance proceeds from death benefits that exceeded the cash surrender value on bank owned life insurance.
Deposit service charges exceeded $5 million during the current quarter, which is an increase of $575000 compared with the fourth quarter and were higher than the first quarter of 2021 by 27% or $1 $1 million.
Our trust and investment services fee income decreased by approximately $290000 compared with the prior quarter will be $211000 or approximately 8% higher when compared with the year ago quarter.
As previously discussed our trust business anticipates, losing a significant relationship in 2022 due to the relocation of our customer out of state the impact will be primarily to assets under management. However, the revenue impact will represent less than 4% of the 2021 Trust and investment services revenue.
We expect these assets to start migrating next quarter and to be fully gone by year end.
We did not have any fees from interest rate swaps during the first quarter of 'twenty two for the fourth quarter of 2021.
Generally speaking our volume of interest rate swaps is impacted.
Excuse me by the shape of the yield curve with a relatively flat yield curve being more conducive to a higher volume of swaps. Overall, we are optimistic that the addition of Suntrust customers and the extension of our geographic footprint will allow us to grow fee income through a wider array of products and services not previously offered by Suntrust, including.
Wealth and investment management foreign exchange and more sophisticated treasury management products now expenses.
Noninterest expense for the first quarter was $58 $2 million compared with $48 million for the fourth quarter of 2021, and $47 $2 million for the year ago quarter. The growth in expenses was primarily the result of the acquisition of Sunquest at the beginning of January .
The systems conversion from Suntrust blanket legacy banking system was completed in February which comprise a meaningful percentage of the $5 6 million in acquisition expense for the first quarter of 2022.
Excluding acquisition expense noninterest expense increased by $4 $8 million over the fourth quarter of 2021 and $5 $4 million over the first quarter of 2021.
We will consolidate two banking centers in the second quarter and by the end of the second quarter. We expect to have completed the integration and consolidations. The third quarter of 2022 should reflect the full benefit of our expense savings non.
Noninterest expense totaled 136% of average assets for the first quarter of 2022 or one 3% when acquisition expenses excluded. This compares with $1 one 9% for the fourth quarter of 2021 and 132% for the first quarter of 2021.
Our efficiency ratio was 46, 9% for the first quarter of 2022 or 42, 4% when acquisition expenses excluded. This compares with 41, 8% for the prior quarter and 43% for the first quarter of 2021. According.
According to various economic reports, the California economy continues to improve but challenges remain.
Supply constraints inflation and labor shortages continue to negatively impact the businesses and the industries we serve.
Our bank has experienced similar impacts on our staffing and labor costs, along with inflationary pressures that could begin to reduce the excess liquidity our customers maintain and their deposit accounts.
Although these issues are concerning we continue to remain disciplined in our approach and continue to produce consistent earnings maintained strong capital levels solid credit quality and excellent liquidity.
I am pleased I am pleased that we were recently ranked the 17th best publicly traded bank in 2021 by S&P Global market intelligence, along with being the fourth ranked bank by Forbes out of the largest 100 publicly traded banks and asset size. This recognition marks the sixth time since 2016 that our bank is placed in the.
Top four position on Forbes' annual rankings, including three number one rankings in.
In closing we are pleased to have finalized our acquisition of Sunquest and we welcome. The addition of their customers associates and shareholders to our growing organization I would like to thank our associates for their hard work and dedication through this acquisition and ongoing integration.
We are very excited to have combined forces within institution that will price with the deep bullet talent.
<unk> diverse customer base and our platform expansion into the greater a platform for expansion into the greater Sacramento market as well as solidifying our position in the Central Valley, we remain committed to our five core values of financial strength superior people customer focus cost effective operations and having fun.
John .
Please stay healthy and safe that concludes today's presentation now Alan and I will be happy to take any questions that you might have.
Ladies and gentlemen, I'd like to ask a question at this time, you will need two questions tied into one.
No.
Please standby, while we compile the Q&A roster.
No first question coming from the line of Matthew Clark with Piper Sandler Your line is open.
Hey, good morning, guys good morning, Matthew.
Wanted to start on the loan yields up a few basis points on a core basis, new production now above 4% sounds like.
We may have started to see some lift in.
And those yields can you just give us a sense for your outlook on loan yields.
Evan.
Fed rate.
Rate hikes, and and just new business.
Yes, so as I mentioned.
The prepared remarks, the loan yields that we are originating loans out today are definitely above 4%. There are still some things that we'll book that are a little bit lower than that but overall I think it's definitely a tailwind for us and I think that rates have turn the key to that obviously, we still want to win them.
<unk> deals you have to compete but at the end of the day I do believe that we will we will be able to see that sort of start to turnaround.
Okay.
And then on the loan pipeline can you give us a sense for where that stood coming out of the quarter relative to the peer and maybe even year over year.
And your outlook for growth.
I think you had previously suggested mid.
Mid single digits was doable it did better than that on a core basis here. So just wanted your updated thoughts on that front.
I don't really have any changes to what I've been saying that we had a good quarter. This quarter, we did close a number of things some of that production.
Was the result of the acquired Sunquest.
Offices as well, but overall the majority of it was our legacy offices sunquest accounted for about $25 million to $30 million of our total loan production in the first quarter. Our pipelines remain strong right now I will say that there are some some headwinds with respect to.
The pipelines, especially depending on where rates go specifically 510 year treasury rates.
That could have an impact.
So things down obviously the refinance.
Takeaway game is going to slow down a little bit I think for everybody, but for US we focus on owner occupied or excuse me, our operating businesses and the real estate in the C&I lines in and I think we still have room, obviously on our utilization on our C&I loans that was also a benefit to us but the pipeline.
<unk> remains strong as of now.
Okay, and then just shifting gears to the share buyback.
Pretty active this quarter.
Does the growing macro uncertainty give you some pause from here do you think youll remain active.
Well I mean, the ASR has not concluded yet.
And I think we'll see how things go but I would anticipate us to not be the certainly the extent in the first quarter, but I think we'll still be modestly active.
Okay. Thank you.
Thank you.
And our next question coming from the line of David Feaster with Raymond James Your line is open.
Hey, good morning, everybody.
Morning, David David I, just wanted to follow up kind of on the loan side. It was really good to see the increase in C&I utilization in the quarter in the strength and the growth. There just curious what you're hearing from those borrowers and their plans on whether looking to draw on lines to manage supply chain and how.
So the growth that you saw was from drawings on existing lines versus new commitments.
Yes, I don't have the specific breakdown.
Of that but I can tell you that just generally speaking it was mostly from existing lines. There were some new larger C&I relationships that we put on the books in the first quarter, but most of most of it was from existing customers I do believe that with inflation with everything going on in the supply chain disruption.
I do think that some of the excess liquidity that borrowers being carrying on their books will translate and start to burn burn off and then that.
Ultimately will translate to a little bit more borrowings. So I do think thats something that is definitely a tailwind for us, especially the opinion on how long. These inflationary pressures persist I think we're about a year and to the transitory nature of these now so.
We'll probably see it goes a little bit longer I would think so.
I think there is opportunity for us there.
Okay, and then just touching on the deposit front and I appreciate all the commentary in the prepared remarks.
Core deposit growth continued to remain strong you guys have a phenomenal core deposit base just curious your expectations going forward I know youre not going to have to increase rates just given the strength of your portfolio, but just hear the commentary it almost sounds like maybe you would expect deposit flows to at least slow.
If not begin to flow out and then just any other comments on the deposit trends that youre seeing.
Well as you know our focus is on operating companies and noninterest bearing deposits. So we're going to continue to drive that that is something that I think is important there could be some impact as I made in my previous comments, just with people utilizing the excess cash they have but the real advantage. We have I mean, a 100% of our loans more than 100% of our loans are funded with our <unk>.
Noninterest bearing deposits so the interest bearing deposits on the on the books, we can be a little more disciplined about rising rates or customers' expectations.
We're still sitting with enormous amount at the fed so all of those things combined I think are our strategy is to continue to go after operating company as non interest bearing deposits will be able to do that we've been able to do that and I think we should.
Probably see a little bit of a slowdown, but I think that we can still grow the noninterest bearing side.
I think where youll see some of that decline is more on the interest bearing side.
One thing with Sunquest, we did is we put them into our pricing structure pretty much right away.
That obviously helped us on the funding side this quarter, but we will see the reaction from as rates start to go up there will be some some opportunities for people to get higher rates, but the great thing that we have there is that we can also.
We look to our citizens Trust group in and.
Look to investments I mean, right now they can get.
They can get a liquidity accounted citizens trust just by buying treasuries, if they don't need to use that excess funds and they can they can get pretty close to 2% and we make.
Decent fee on that as well, so theres opportunity for us if it starts to move away to push it towards our citizens Trust group, which is something that we've had a lot of conversation about in this rising rate environment. Okay. And then that's helpful. Thank you and then just.
Switching gears to asset quality, I mean credit remains phenomenal you've already got a great track record, obviously, but kind of listening to the commentary about what you guys are including in your seasonal forecasts.
A deceleration in GDP growth and increase in unemployment rate. Just curious you know what keeps you up at night, what you're watching as you're managing your credit and whether you've begun tightening the credit box at all.
We haven't really tightened the credit box I'll start there Alan can jump in as well, but we haven't tightened the credit box and we've always remained very disciplined in our underwriting guidelines or standards nothing has changed throughout the pandemic.
We remain very consistent and disciplined in how we look at credit so I feel pretty good overall.
There is obviously the ones that everybody talks about office is something that everybody is talking about things are starting to.
We're starting to see some of these leases expire and maybe people moving out but most of our office.
Mentioned this before is more suburban and rural office, it's not money Center Big City type stuff and the average granularity the average loan size in the granularity of that.
<unk> portfolio are very strong so I feel pretty good about that I've mentioned to you in the past I still believe that C&I could be an area. Obviously my favorite SBA, that's always something we <unk> loans, we look at that but I think just generally speaking I feel pretty good.
Fuel.
There is more potential for loss content in the C&I and the real estate just based on how we underwrite deals at the beginning.
But I still feel very good about our C&I loan portfolio.
And gosh way at 31%.
The utilization rate is still pretty pretty low so our customers are strong I feel pretty good about it but I think inflation wage issues.
Fly chain issues all of these things can definitely have an impact on that so we're keeping a close eye on it.
Do you have anything to add to that David as you noted certainly at a macro level, we're concerned about a recession next year.
And our forecast sort of rift.
Flex that.
Okay.
One other comment I'll make to that just real fast.
Is.
That's a nationwide.
Forecast and California is still a little bit behind the nation and some of these things.
Unemployment specifically.
Yeah. Good point thanks, everybody.
And our next question coming from the line of Ben <unk> with Telsey Group. Your line is open.
Hey, good morning, everyone. Good morning, Ben Congratulations.
Thanks I appreciate it.
I'm curious if you could just take a moment here to kind of talk about the expense base I know theres, a little bit of noise, especially.
A recent deal with branches.
I think you said it prepared remark for next quarter. So <unk> is really kind of the core just curious on what like a core level might be concerned with total expenses and then if you guys are kind of adding to any sort of investment.
The cost savings you might be getting.
Okay.
How we would answer that is I think in the second quarter it'll be close to a good run rate in the third quarter of being completely clean.
We're still planning on investing in technology as we've noted before.
About $3 million in 2022.
Some of the drivers of expenses as we go forward.
Going to be inflationary pressures as Dave mentioned.
Right now, we're actually seeing elevated vacancy factors, though because of that and so that might be a benefit to your expense in the near term obviously as we try to fill some of those positions. So I think theres right. Now Q1 has a lot of moving parts I think Q2 will give you a better run rate.
Yes, I just think overall nothing has really changed from what we sort of talked about.
<unk> expenses being sort of flat, but slightly up year over year.
Not including the Sunquest noise.
Got it Okay. That's fair and that is helpful. And then when you look back historically like you guys had a margin that approach.
For in house at the peak or so.
And obviously the margin continues to go up after the fed stops right at Great Lakes due to the lag effect.
The fed likely or at least positioning increase rates.
A 50 basis point clips for the next three meetings.
Does that change how you guys are approaching your budgetary perspective, and then there is there anything that if you have the excess funds through too.
Put that into.
Well I think Ben a couple of things.
The shape of the curve and the velocity of those changes obviously has a lot of impact on where our margins may go.
In terms of investing the liquidity.
I think we're going to continue to take a balanced approach really looking to be opportunistic about putting.
And doing the securities as well as looking at our loan growth and then just making sure we manage where deposits continue to grow. So I think we just want to take a balanced approach not not turnaround and thats the whole of it even though yields might be attractive immediately because we don't want to be in a situation where.
We start to see any type of attrition on interest bearing deposits that was unexpected that we wanted to be prepared for that.
Yes, I mean, obviously the advantage we have here is over 60% of our deposits are noninterest bearing so as the fed is raising rates.
60% of our deposit base at least today, 61% and 2% of our deposit base has a zero beta it's not going to change that mix could change slightly but again, we're going to be very disciplined just as we were in the last fed rising rate environment cycle. So I think we're in pretty good.
Shape, but we should start to see.
As we talked about it in the past, we're very asset sensitive and we continue to be asset sensitive. So we should start to see the benefit of that as we go through the rest of this year.
Got you that's helpful. If I can sneak one more in I know you guys.
Pretty healthy currency, especially relative to the bank today.
I know that you also have open repurchase.
At what point is there kind of diminishing effects because of the higher valuation of the payback period elongate it and there are a lot of banks, California, So kind of what's your appetite for future M&A.
Yes were still interested in looking at M&A, there's nothing that's imminent that we're.
Talking about at this very moment, but I will say it sort of slowed down towards the end of last year and the beginning of the first quarter, but there are conversations that are starting to pick up again and as you mentioned with our currency that creates an opportunity for us, especially if there is something that we really want but we're going to remain disciplined in our approach were low.
And for banks, we just changed our investor presentation.
On the types of deals that we look forward from 1% to $8 billion to $1 to $10 billion.
End market deals within or adjacent to our footprint.
Wanted to be a similar culture as possible. So all of those things are factors that we evaluate when we're looking at potential opportunities, but there are more opportunities and it's part of our growth strategy.
Positions. So we're open to those conversations and we're we're looking and evaluating different deals all the time.
I just have to commence Allen.
Yeah.
That's great color I appreciate it.
Thanks.
And as a reminder, ladies and gentlemen, if you'd like to ask a question. Please press. The Star then one key on your Touchtone telephone.
And our next question coming from the line of Kelly Motta with <unk>. Your line is open.
Hi, good morning, Thanks similar.
Quick question most of mine have been asked and answered already.
I did see.
The M&A range taken up so that one to Scott.
Maybe maybe you could talk since you still have quite a bit of cash on balance sheet, how we should be thinking about a normalized level of cash and you kind of the cadence of the deployment of that.
I'm from securities. Thanks.
Sure I was talking about that a little bit a minute ago, Kelly, but I think.
Yes.
Yes, we're not going to turn $1 5 million in two failure at 151 5 billion.
But.
We continue to look at bond yields are attractive right now we are shortening the duration of some of the securities because.
15 year mortgage backed securities look a lot more attractive than they did a few months ago.
But we still want to maintain a fair amount of liquidity on the balance sheet in this environment. So we'll be cautious, but I do expect us to continue to deploy some of that into securities and as Dave talked about loan growth.
Great. Thank you so much.
Welcome.
And again as a reminder to ask a question. Please press star one.
And at this time there are no further questions I would like to turn the call back over to Mr. Breaker.
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 2022 earnings call. Please let Alan or I know if you have any questions have a great day, and we'll talk to you all soon thanks.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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