Q1 2024 CVB Financial Corp Earnings Call

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Operator: Good morning, ladies and gentlemen, and welcome to the CVB Financial Corporation and its subsidiary Citizens Business Bank earnings conference call. My name is Cherie, and I'm your operator for today. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone; you will then hear an automated message advising that your hand is raised. To withdraw your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the presentation over to your host for today's call, Christina Carrabino. You may proceed.

Sherry: Good morning, ladies and gentlemen, and welcome to the first quarter 2024, CBB Financial Corporation and its subsidiary citizens business Bank Earnings Conference call. My name is Sherry and I'm. Your operator for today at this time all participants are in a listen only mode. After it.

The speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand as rate. So what J. Your question Press Star. One again, please be advised that today's conference is being recorded I would now like to turn the presentation.

Christina: Over to your host for today's call Christina Caribbean You May proceed. Thank.

Christina L. Carrabino: Thank you, Cherie, and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 2024. Joining me this morning are Dave Brager, President and Chief Executive Officer, and Alan 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.

Christina L. Carrabino: Thank you Shari and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 2020 for joining me. This morning are Dave Brager, President and 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.

Christina L. Carrabino: [noise] 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.

Christina L. Carrabino: 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, 2023, and in particular, the information set forth in Item 1A, Risk Factors Therein. For a 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.

Christina L. Carrabino: 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.

Christina L. Carrabino: For the year ended December 31, 2023, and in particular, the information set forth in item one a risk factors therein for a 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.

David A. Brager: Thank you, Christina, and good morning, everyone. For the first quarter of 2024, we reported net earnings of $48.6 million, or $0.35 per share, representing our 188th consecutive quarter of profitability. We previously declared a $0.20 per share dividend for the first quarter of 2024, representing our 138th consecutive quarter of paying a cash dividend to our shareholders. Our net earnings of $48.6 million, or $0.35 per share, compared to $48.5 million for the fourth quarter of 2023, or $0.35 per share, and $59.3 million for the year-ago quarter, or $0.42 per share.

David A. Brager: Thank you Christina and good morning, everyone for the first quarter of 2024, we reported net earnings of $48 $6 million or <unk> 35 per share representing a 188th consecutive quarter of profitability. We previously declared a <unk> 20 per share dividend for the first quarter of 2024.

David A. Brager: <unk>, representing a 138th consecutive quarter of paying a cash dividend to our shareholders. Our net earnings of $48 6 million or <unk> 35 per share compared to a $48 $5 million for the fourth quarter of 2023, or <unk> 35 per share and $59 3 million.

David A. Brager: For the year ago quarter, or <unk> 42 per share we produced a return on average tangible common equity of $15, one 3% and our return on average assets of one point to 1% for the first quarter of 2024.

David A. Brager: We produced a return on average tangible common equity of 15.13% and a return on average assets of 1.21% for the first quarter of 2024. Our net income in the first quarter was impacted by the addition of $2.3 million of accrued expense for the FDIC special assessment, this is in addition to the $9.2 million accrued in the fourth quarter of 2023.

David A. Brager: Our net income in the first quarter was impacted by the addition of $2 $3 million of accrued expense for the FDIC Special assessment.

David A. Brager: This is in addition to the $9 $2 million of crude in the fourth quarter of 2023.

David A. Brager: The increase in the accrual was the result of the FDIC revising its initial estimate of losses from last year's bank failures by 25%. However, net interest income declined by $6.9 million when compared to the fourth quarter of 2023. Our earning assets were stable over the past two quarters, but our net interest margin declined by 16 basis points from the fourth quarter to 3.1 percent for the first quarter of this year. The decrease in our net interest margin resulted primarily from a 22 basis point increase in our cost of funds.

David A. Brager: The increase in the accrual as a result of the FDIC revising its initial estimate of losses from last year's bank failures by 25%.

David A. Brager: Net interest income declined by $6 $9 million when compared to the fourth quarter of 2023.

David A. Brager: Our earning assets were stable over the past few quarters, but our net interest margin declined by 16 basis points from the fourth quarter to three 1% for the first quarter of this year. The decrease in our net interest margin resulted primarily from a 22 basis point increase in our cost of funds.

David A. Brager: Cost funds increased primarily due to higher average borrowings, which had a cost of 4.75%, and the addition of broker deposits that had a cost of approximately 4.2%. Average total deposits for the first quarter decreased by approximately $517 million compared to the fourth quarter of 2023, while average borrowings grew by $407 million. Our average non-interest-bearing deposits continued to be greater than 61% of our average total deposits for the first quarter of 2024.

David A. Brager: Cost of funds increased primarily due to higher average borrowings, which had a cost of $4 seven 5% and the addition of broker deposits that had a cost of approximately four 2%.

David A. Brager: Average total deposits for the first quarter decreased by approximately $517 million compared to the fourth quarter of 2023, while average borrowings grew by $407 million, our average noninterest bearing deposits continued to be greater than 61% of our average total deposits for the firm.

David A. Brager: First quarter of 2024.

David A. Brager: As we highlighted in our last earnings call, we experienced an outflow of deposits from the bank's largest depositor of more than $400 million, which occurred during December of 2023. As of March 31, 2024, our total deposits were $11.9 billion, a $461 million increase from December 31, 2023. This increase included growth in non-maturity deposits of approximately $180 million, as our seasonally low level was reached in January, followed by growth in February and March. The increase in total deposits at March 31, 2024 also included the addition of $300 million in broker deposits we added between the end of February and the end of March.

David A. Brager: As we highlighted in our last earnings call, we experienced an outflow of deposits from the bank's largest depositor more than $400 million, which occurred during December of 2023.

David A. Brager: At March 31, 2024, our total deposits were $11 9 billion a $461 million increase from December 31 2023.

David A. Brager: This increase included growth in non maturity deposits of approximately $180 million as our seasonally low level was reached in January followed by growth in February and March the increase in total deposits at March 31, 2024 also included the addition of $300 million in broker deposit.

David A. Brager: We added between the end of February at the end of March.

David A. Brager: Although non-interest-bearing deposits declined by $93 million from the end of the fourth quarter, non-interest-bearing deposits still represented approximately 60% of total deposits at the end of the first quarter. Our cost of deposits was 74 basis points on average for the first quarter of 2024, which compares to 62 basis points for the fourth quarter of 2023 and 17 basis points for the first quarter of last year. From the first quarter of 2022 through the first quarter of 2024, our cost of deposits has increased by 71 basis points, representing a deposit beta of 14% compared to the 525 basis point increase in the Fed funds rate during the Federal Reserve's tightening cycle.

David A. Brager: Noninterest bearing deposits declined by $93 million from the end of the FERC fourth quarter non interest bearing deposits still represented approximately 60% of total deposits at the end of the first quarter.

David A. Brager: Our cost of deposits was 74 basis points on average for the first quarter of 2024, which compares to 62 basis points for the fourth quarter of 2023, and 17 basis points for the first quarter of last year from.

David A. Brager: From the first quarter of 2022 during the first quarter of 2020 for our cost of deposits has increased by 71 basis points, representing a deposit beta of 14% compared to the 525 basis point increase in the fed funds rate during the federal reserve's tightening cycle.

David A. Brager: Now let's discuss loans. Total loans at March 31st, 2024 were $8.8 billion, a $134 million decline from December 31, 2023, and a $172 million, or 1.9%, decrease from March 31st, 2023. The quarter-over-quarter decrease included a $66 million decrease in dairy and livestock quality.

David A. Brager: Now, let's discuss loans.

David A. Brager: Total loans at March 31, 2024, or $8 $8 billion, a $134 million decline from December 31, 2023, and a $172 million or one 9% decrease from March 31 2023.

David A. Brager: The quarter over quarter decrease included a $66 million decrease in dairy and livestock loans.

David A. Brager: Darien Livestock Loans see higher line utilization at year end, which is reflected in the 80% utilization rate at the end of the fourth quarter. The utilization rate on Darien Livestock Loans declined to 75% at March 31, 2024. C&I loans remain relatively flat when comparing period end balances of March 31, 2024 to December 31, 2023, but we have generally seen growth in average balances over the last four quarters. This reflects the growth in new relationships as C&I line utilization continues to be at a rate of less than 30%.

David A. Brager: In livestock loans see higher line utilization at year end, which is reflected in the 80% utilization rate at the end of the fourth quarter the utilization rate on dairy and livestock loans declined to 75% at March 31 2024.

David A. Brager: C&I loans remained relatively flat when comparing period end balances at March 31, 2024 to December 31, 2023, but we are generally seeing growth in average balances over the last four quarters.

David A. Brager: This reflects the growth in new relationships as see C&I line utilization continues to be at a rate of less than 30%.

David A. Brager: Commercial real estate loans declined by $64 million from December 31st, 2023, a continuation of the trend that we have experienced for multiple quarters. In comparison to March 31, 2023, loans declined by $172 million. The majority of the decline was in commercial real estate loans, which decreased by $230 million from March 31, 2023. Over this period, we also experienced declines in both construction and consumer loans of $25 million and $13 million, respectively.

David A. Brager: Commercial real estate loans declined by $64 million from December 31, 2023, a continuation of the trend that we've experienced for multiple quarters.

David A. Brager: In comparison to March 31, 2023 loans declined by $172 million. The majority of the decline was in commercial real estate loans, which decreased by $230 million from March 31 2023.

David A. Brager: Over this period, we also experienced a decline in both construction and consumer loans of $25 million and $13 million respectively.

David A. Brager: C&I loans increased by approximately $65 million over the same period, although line utilization remained flat at 28%. Our strategy of banking the best small to medium-sized businesses and their owners and our focus on sourcing new relationships that use our full suite of products has resulted in a higher percentage of new loans that are either owner-occupied or C&I loans. We've seen a modest change in our mix of loans over the last year, with C&I growing from 10 to 11 percent, and investor real estate loans declining from 50 to 49 percent.

David A. Brager: C&I loans increased by approximately $65 million over the same period, although line utilization remained flat at 28%.

David A. Brager: Our strategy of banking, the best small to medium sized businesses and their owners and our focus on sourcing new relationships. They use our full suite of products has resulted in a higher percentage of new loans that are either owner occupied or C&I loans, we've seen a modest change in our mix of loans over the last year with C&I growing from 10% to <unk>.

David A. Brager: 7% and Investor real estate loans declining from 50% to 49%.

David A. Brager: Although loan demand is slower than in past years, we are optimistic about growth from our pipeline of C&I loans. We compete for loans very selectively, which has also impacted new loan production. Yields on new loans have been well over 7%.

David A. Brager: Although loan demand is slower than past years, we are optimistic about growth from our pipeline of C&I loans.

David A. Brager: We compete on loans very selectively which has also impacted new loan production.

David A. Brager: Yields on new loans have been well over 7%.

David A. Brager: We believe our asset quality remains strong, even though we experienced greater net charge-offs this quarter than we have since the great financial crisis. Our allowance for credit losses decreased to approximately $83 million on March 31 due to the net charge-offs of $4 million. The vast majority of the loan charge-offs during the first quarter were related to two borrowers for which we have previously established specific loan loss reserves in 2023. The largest write-down was for a commercial real estate participation loan that was acquired in the Suncrest merger. We're aggressively pursuing recovery from these borrowers and are optimistic we will be successful.

David A. Brager: We believe our asset quality remains strong even though we experienced greater net charge offs. This quarter than we have since the great financial crisis, our allowance for credit losses decreased to approximately $83 million on March 31 due.

David A. Brager: Due to the net charge offs of $4 million.

David A. Brager: The majority of the loan charge offs during the first quarter related to two borrowers and which we have previously established specific loan loss reserves in 2023.

David A. Brager: The largest write down was for a commercial real estate participation loan that was acquired in the Suntrust merger.

David A. Brager: We're aggressively pursuing recovery from these borrowers and optimistic we will be successful.

David A. Brager: The net charge-offs of $4 million in the first quarter compare with net charge-offs of $153,000 for the fourth quarter of 2023 and net charge-offs of $77,000 for the first quarter of 2023. At quarter end, non-performing assets, defined as non-accrual loans plus other real estate owned, were $13.8 million, or nine basis points of total assets. The $13.8 million in non-performing loans compares with $21 million for the prior quarter and $6 million for the year-ago quarter.

David A. Brager: The net charge offs of $4 million in the first quarter compares with net charge offs of $153000 for the fourth quarter of 2023, and net charge offs of $77000 for the first quarter of 2023.

David A. Brager: At quarter end nonperforming assets defined as nonaccrual loans plus other real estate owned were $13 8 million or nine basis points of total assets of $13 $8 million in nonperforming loans compares with $21 million for the prior quarter and $6 million for the year ago quarter.

David A. Brager: Classified loans for the first quarter were $103 million, compared with $102 million for the prior quarter and $67 million for the year-ago quarter. Classified loans as a percentage of total loans was 1.18% at quarter end. I will now turn the call over to Alan to discuss the allowance for credit losses and additional aspects of our balance sheet.

David A. Brager: Classified loans for the first quarter were $103 million compared with $102 million for the prior quarter and $67 million for the year ago quarter classified loans as a percentage of total loans with one 1% to 8% at quarter end.

David A. Brager: I will now turn the call over to Alan to discuss the allowance for credit losses, and additional aspects of our balance sheet Alan.

Alan: Thanks, Dave. Good morning, everyone.

Alan: Thanks, Dave and good morning, everyone.

Alan: As of March 31, 2024, our allowance for credit losses was $82.8 million, for 0.94% of total loans, which compares to $86.8 million or 0.98% of total loans at December 31, 2023, and $86.5 million or 0.97% of total loans at March 31st, 2023. Our allowance for credit losses, which is established on a collective pool basis for performing loans, grew from $80.9 million at December 31, 2023 to $82.8 The changes in our allowance over the last few quarters have been primarily due to changes in our economic forecast, as well as reserves established on specific loans.

Alan: As of March 31, 2024, our allowance for credit losses was $82 8 million.

Alan: Or 94% of total loans.

Alan: Which compares to $86 8 million or nine 8% of total loans at December 31 2023.

Alan: And $86 $5 million or 97% of total loans at March 31, 2023.

Alan: Our allowance for credit losses that is established on a collective pool basis for performing loans grew from $889 million at December 31, 2023.

Alan: The $82 8 million at March 31, 2024.

Alan: The changes in our allowance over the last few quarters have been primarily due to changes in our economic forecast as well as reserves established on specific loans.

Alan: We did not record a provision in the first quarter of 2024, as the $1.9 million increase in allowance for those loans that are evaluated on a collective pool basis was offset by the net impact from the $5.9 million reduction in specific reserves and the $4 million net charge-off. For the quarter ended December 31, 2023, we recorded a $2 million recapture provision for credit losses, while the first quarter of 2023 included a $1.5 million provision. Our economic forecast continues to be a blend of multiple forecasts produced by Moody's.

Alan: We did not record a provision in the first quarter of 2024 as the $1 $9 million increase in the allowance for those loans that are evaluated on a collective pool basis were offset by the net impact from the $5 $9 million reduction in specific reserves and the $4 million and net charge offs for the.

Alan: Quarter ended December 31, 2023.

Alan: We have recorded a $2 million recapture provision for credit losses, while the first quarter of 2023 included a $1 $5 million provision.

Alan: Our economic forecast continues to be a blend of multiple forecasts produced by Moody's.

Alan: We continue to have the largest individual scenario waiting on Moody's Baseline Forecast with downside risks weighted among multiple forecasts. The resulting economic forecast resulted in real GDP declining in the third and fourth quarters of 2024. GDP growth is forecast to be below 2% for 2025 before returning to growth between 2 and 2.5% in 2026. Unemployment is forecasted to rise in 2024, peaking around 6% in the first quarter of 2025. The unemployment rate is forecasted to stay elevated through 2026.

Alan: We continue to have the largest individual scenario waiting on Moody's baseline forecast with downside risks weighted among multiple forecast.

Alan: The resulting economic forecast resulted in real GDP declining in the third and fourth quarters of 2024.

Alan: GDP growth is forecasted to be below 2% for 2025 before returning to growth between two and two 5% in 2026.

Alan: Unemployment is forecasted to rise in 2024, peaking around 6% in the first quarter of 2025.

Alan: The unemployment rate is forecasted state elevated through 2026.

Alan: Commercial real estate values are forecasted to continue their decline until reaching their lowest level in the third quarter of 2024 before slowly rising in 2025. Our total investment portfolio declined by $129 million from December 31, 2023 to $5.3 billion as of March 31, 2024, as cash flows generated from the portfolio were not reinvested during the first quarter, and the unrealized loss in AFS securities increased by $36 million. The $36 million increase in the fair value of our AFS securities was partially offset by a $19 million increase in the fair value of our derivatives that hedged the change in value in our AFS portfolio.

Alan: Commercial real estate values are forecasted to continue their decline until reaching their lowest level in the third quarter of 2024 before slowly rising in 2025.

Alan: Our total investment portfolio declined by $129 million from December 31, 2023 to five three.

Alan: <unk> 3 billion as of March 31, 2024.

Alan: As cash flows generated from the portfolio, we're not reinvested during the first quarter and the unrealized loss in <unk> securities increased by $36 million.

Alan: The $36 million increase in fair value of our <unk> securities.

Alan: Was partially offset by a $19 million increase in the fair value of our derivatives that hedged the change in value in our portfolio.

Alan: The $450 million decrease in our investment portfolio from the prior year quarter was primarily due to a $367 million decline in investment securities available for sale, or AFS securities. AFS securities totaled $2.84 billion at the end of the first quarter, inclusive of a pre-tax net unrealized loss of $486 million. Investment Securities Held to Maturity, or HTM Securities, totaled approximately $2.4 billion at March 31, 2023. The HTM portfolio declined by approximately $81 million from March 31, 2023.

Alan: The $450 million decrease in our investment portfolio from the prior year quarter was primarily due to a 367 million dollar decline in investment securities available for sale or <unk> securities.

Alan: <unk> Securities totaled $2 $84 billion at the end of the first quarter inclusive of our pre tax net unrealized loss of $486 million.

Alan: Investment Securities held to maturity or HTM securities totaled approximately $2 4 billion at March 31 2023.

Alan: The HTM portfolio declined by approximately $81 million from March 31, 2023.

Alan: The tax equivalent yield on the entire investment portfolio was 2.64% for the first quarter of 2024, compared to 2.71% for the prior quarter. We continue to have positive carry on the fair value hedges we executed in late June of 2023. We receive daily SOFR on the fixed swaps, which have a weighted average fixed rate of approximately 3.8%. Our cash on deposit at the Federal Reserve grew by more than $700 million from the end of 2023 to March 31, 2024.

Alan: The tax equivalent yield on the entire investment portfolio was 264% for the first quarter of 2024 compared to $2 seven 1% for the prior quarter.

Alan: We continue to have positive carry on the fair value hedges, we executed in late June of 2023.

Alan: We receive daily sofa fixed swaps, which have a weighted average fixed rate of approximately three 8%.

Alan: Our cash on deposit at the Federal reserve grew by more than $700 million from the end of 2023 to March 31 2020 for.

Alan: This growth in cash was partly attributable to the issuance of $300 million in brokered deposits. These deposits, which mature every 90 days, were combined with cash flow hedges, which resulted in a fixed rate of approximately 4.2 percent. Borrowings from the bank's term funding program at the end of the first quarter included $695 million of advances that mature in May of this year and $1.3 billion of advances that mature in January of 2025.

Alan: This growth in cash was partly attributable to the issuance of $300 million and brokered deposits.

Alan: These deposits, which mature every 90 days, we're combined with cash flow hedges, which resulted in a fixed rate of approximately four 2%.

Alan: Borrowings from the bank term funding program at the end of the first quarter included $695 million of advances that mature in may of this year at $1 $3 billion of advances that mature in January of 2025.

Alan: Our bank term funding program borrowings had a weighted average borrowing rate of approximately 4.75 percent. We anticipate that the bank term funding program borrowing will be repaid through a combination of existing cash, future principal and interest payments from our security portfolio, core deposit growth, and additional wholesale funding sources, which may consist of new borrowings and or additional broker deposits.

Alan: Our bank term funding program borrowings had a weighted average borrowing rate of approximately 475%.

Alan: We anticipate that the bank term funding program borrowings will.

Alan: We will be repaid through a combination of existing cash future principal and interest payments from our security portfolio core deposit growth and additional wholesale funding sources, which may consist of new borrowings <unk> additional broker deposits.

Alan: Now turning to our capital position, the company's tangible common equity ratio at March 31, 2024 was 8.33%, compared with December 31, 2023's 8.51%. At March 31, 2024, our shareholders' equity increased from the fourth quarter of 2023 by $8.9 million to $2.09 billion, retained earnings increased in 2024, and his year-to-date income of $49 million was offset by $28 million in dividends. The resulting year-to-date dividend payout ratio was approximately 57%.

Alan: Now turning to our capital position the company's tangible common equity ratio at March 31, 2024 was 833% compared with December 31, 2020, three's ratio of 851%.

Alan: At March 31, 2024, our shareholders equity increased from the fourth quarter of 2023 by $8 9 million to $2.09 billion.

Alan: Retained earnings increased in 2024 as year to date income of $49 million was offset by $28 million in dividends, the resulting year to date dividend payout ratio was approximately 57%.

Alan: Our OCI decreased by $12 million from the end of 2023. Our regulatory capital ratios continue to be above the majority of our peers. At March 31st, 2024, our common equity tier one capital ratio was 14.9 percent, and our total risk-based capital ratio was 15.8 percent. I'll now turn the call back to Dave for further discussion of our first quarter. Thank you, Alan.

Alan: Our OCI decreased by $12 million from the end of 2023.

Alan: Our regulatory capital ratios can be continued to be above the majority of our peers at March 31, 2024, our common equity tier one capital ratio was 14, 9% and our total risk based capital ratio was 15, 8%.

Alan: I'll now turn the call back to Dave for further discussion of our first quarter earnings. Thank you Allen net interest income before provision for credit losses was $112 $5 million for the first quarter compared with $119 $4 million for the fourth quarter and $125 $7 million for the year ago quarter.

David A. Brager: Thank you, Alan. Net interest income before provision for credit losses was $112.5 million for the first quarter, compared with $119.4 million for the fourth quarter and $125.7 million for the year-ago quarter. The tax equivalent net interest margin was 3.1% for the first quarter of 2024, compared with 3.26% for the fourth quarter of 2023. Interest income declined by $389,000 over the prior quarter, as interest income on investment securities decreased by more than $800,000, while interest revenue on loans increased by more than $600,000.

David A. Brager: Our tax equivalent net interest margin was three 1% for the first quarter of 2024, compared with $3 two 6% for the fourth quarter of 2023 inter.

Alan: Interest income declined by $389000 over the prior quarter as interest income on investment securities decreased by more than $800000.

Alan: While interest revenue on loans increased by more than $600000 or earning asset shielded for three 4% for the first quarter of 2024 compared to four 3% in the fourth quarter of 2023.

David A. Brager: Our earning assets yielded 4.34% for the first quarter of 2024 compared to 4.3% in the fourth quarter of 2023. Interest expense increased by $6.5 million over the prior quarter, as our cost of funds increased by 22 basis points from the fourth quarter of 2023. Interest expense on deposits increased by $2.5 million. Average interest-bearing deposits declined by $249 million quarter over quarter, while the cost of interest-bearing deposits increased from 1.59% in the prior quarter to 1.93% in the first quarter of 2024. Interest expense on borrowings increased from the prior quarter by $4 million, as average borrowings in the first quarter increased by $407 million. The cost of borrowings, however, declined by approximately 15 basis points.

Alan: Interest expense increased by $6 $5 million over the prior quarter as our cost of funds increased by 22 basis points from the fourth quarter of 2023.

Alan: Interest expense on deposits increased by $2 $5 million average interest bearing deposits declined by $249 million quarter over quarter, while the cost of interest bearing deposits increased from 159% in the prior quarter to $1, 93% in the first quarter of 2020 for interest expense.

Alan: <unk> borrowings increased from the prior quarter by $4 million as average borrowings in the first quarter increased by $407 million the cost of borrowings however declined by approximately 15 basis points.

David A. Brager: The $13 million decline in net interest income from the year-ago quarter resulted from a 35 basis point decrease in net interest margin and a $158 million decline in average earning asset. The year-over-year net interest margin decline was due to an 82-basis-point increase in our cost of funds, offsetting a 43-basis-point increase in earning asset yield. The increase in earnings asset yields was the result of higher loan and investment yields in the first quarter of 2024 compared to the first quarter of 2023.

Alan: The $13 million decline in net interest income from the year ago quarter resulted from a 35 basis point decrease in net interest margin and a $158 million decline in average earning assets.

Alan: The year over year net interest margin decline was due to an 82 basis point increase in our cost of funds offsetting a 43 basis point increase in earning asset yields.

Alan: The increase in earning asset yield was the result of higher loan and investment yields in the first quarter of 2024 compared to the first quarter of 2023.

David A. Brager: Loan yields were 5.3% for the first quarter of 2024 compared with 4.9% for the year-ago quarter. Investment security yields increased by 27 basis points from a yield of 2.37 in the prior year quarter to 2.64 in the first quarter of 2024, including a positive carry on the payfix swaps of $3.7 million. Moving on to non-interest income.

Alan: Loan yields were five 3% for the first quarter of 2024, compared with four 9% for the year ago quarter.

Alan: Investment security yields increased by 27 basis points from a yield of 237 in the prior year quarter to $2 64 in the first quarter of 2024, including the positive carry on the pay fixed swaps at $3 $7 million.

Speaker Change: Moving on to noninterest income.

Speaker Change: Noninterest income was $14 1 million for the first quarter of 2024, compared with $19 2 million for the prior quarter and $13 $2 million for the year ago quarter, our customer related banking fees, including deposit services International and merchant Bank card were essentially the same compared to the fourth quarter of 2000.

David A. Brager: Non-interest income was $14.1 million for the first quarter of 2024, compared with $19.2 million for the prior quarter and $13.2 million for the year-ago quarter. Our customer-related banking fees, including deposit services, international, and merchant bank cards, were essentially the same compared to the fourth quarter of 2023, but declined by $308,000 when compared to the first quarter of 2023. Our trust and wealth management fees increased by $143,000 compared to the prior quarter, and year over year, these fees grew by $310,000.

Speaker Change: 'twenty, three but declined by $308000 when compared to the first quarter of 2023.

Speaker Change: Our trust and wealth management fees increased by $143000 compared to the prior quarter.

Speaker Change: And year over year. These fees grew by $310000 first quarter bully income decreased by $4 $3 million from the fourth quarter of 2023 and increased by $2 4 million compared to the first quarter of 2023, primarily due to the restructuring and enhancements and bully policies and the <unk>.

David A. Brager: First quarter bully income decreased by $4.3 million from the fourth quarter of 2023 and increased by $2.4 million compared to the first quarter of 2023, primarily due to the restructuring and enhancements in bullying policies in the fourth quarter of 2023. Now on to expenses.

Speaker Change: Fourth quarter of 2023 now.

Speaker Change: Now on to expenses noninterest expense for the first quarter was $59 $8 million compared with $66 million for the fourth quarter of 2023, and $54 $9 million for the year ago quarter.

Speaker Change: The $6 $2 million quarter over quarter decrease was primarily due to the expense associated with the FDIC special assessment.

David A. Brager: Non-interest expense for the first quarter was $59.8 million compared with $66 million for the fourth quarter of 2023 and $54.9 million for the year-ago quarter. The $6.2 million quarter-over-quarter decrease was primarily due to the expense associated with the FDIC Special Assessment. The first quarter of 2024 reflected an additional accrual of $2.3 million for the FDIC Special Assessment, resulting from a 25% increase in the FDIC's initial loss estimate, which was $9.2 million, as reflected in the fourth quarter of 2023.

Speaker Change: The first quarter of 2024 reflected an additional accrual of $2 $3 million for the FDIC special assessment, resulting from a 25% increase in the Fdic's initial loss estimate, which was $9 $2 million as reflected in the fourth quarter of 2023.

Speaker Change: In total regulatory assessment expense was $4 4 million for the first quarter of 2020 for a $6 $8 million decrease from the fourth quarter of 2023, and a $2 4 million increase from the first quarter of 2023.

Speaker Change: Salaries and employee benefit costs increased $749000 quarter over quarter. This increase includes $1 $7 million and higher payroll taxes paid in the first quarter as a result of the annual reset of salary caps on payroll taxes and the payment of annual bonuses.

David A. Brager: In total, regulatory assessment expense was $4.4 million for the first quarter of 2024, a $6.8 million decrease from the fourth quarter of 2023 and a $2.4 million increase from the first quarter of 2020. Salaries and employee benefit costs increased $749,000 quarter-over-quarter. This increase includes $1.7 million in higher payroll taxes paid in the first quarter as a result of the annual reset of salary caps on payroll taxes and the payment of an annual bonus.

Speaker Change: The increase in payroll taxes was offset by a $900000 decrease in bonus accruals compared to the fourth quarter of 2023.

Speaker Change: Total salaries and employee benefits increased by $1 $2 million compared with the prior year quarter as salary expense grew year over year by $1 1 million or four 5%.

David A. Brager: The increase in payroll taxes was offset by a $900,000 decrease in bonus accruals compared to the fourth quarter of 2023. Total salaries and employee benefits increased by $1.2 million compared with the prior year quarter as salary expense grew year over year by $1.1 million or 4.5%. There was no provision or recapture for unfunded loan commitments for the first quarter of 2024.

Speaker Change: There was no provision or recapture for unfunded loan commitments for the first quarter of 2020 for the fourth quarter of 2023 included $500000 in recapture provision for unfunded loan commitments compared to $500000 in provision for the first quarter of 2023.

Speaker Change: Noninterest expense totaled $1 four 8% of average assets compared with $1 six 2% for the prior quarter and 136% for the first quarter of 2023, our efficiency ratio was 40, 722% for the first quarter of 2024 or 45, 4% when the special Fda's.

David A. Brager: The fourth quarter of 2023 included $500,000 in recapture provision for unfunded loan commitments compared to $500,000 in provision for the first quarter of 2023. Non-interest expense totaled 1.48% of average assets compared with 1.62% for the prior quarter and 1.36% for the first quarter of 2023. Our efficiency ratio was 47.22% for the first quarter of 2024 or 45.4% when the special FDIC assessment expenses were excluded. This compares with 47.6% for the prior quarter or 41% excluding the special FDIC assessment and 39.5% for the first quarter of 2023.

Speaker Change: FDIC assessment expenses excluded.

Speaker Change: This compares with 47, 6% for the prior quarter or 41%, excluding the special FDIC assessment and 39 five for the first quarter of 2023.

Speaker Change: This concludes today's presentation now Alan and I will be happy to take any questions you might have.

Alan: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Speaker Change: <unk>. Your question. Please press star one again, one moment, while we compile the Q&A roster.

Speaker Change: And our first question will come from the line of Kelly Motta with <unk>. Your line is open.

Operator: This concludes today's presentation. Now, Alan and I will be happy to take any questions you might have. Thank you. As a reminder, to ask...............

Kelly Ann Motta: Hi, Thank you so much further question.

Kelly Ann Motta: Good morning.

Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile the Q&A roster, and our first question will come from the line of Kelly Motta with KBW. Your line is open.

Kelly Ann Motta: Yeah.

Kelly Ann Motta: I was hoping we could start.

Kelly Ann Motta: How youre thinking about the funding base I appreciate all the.

Kelly Ann Motta: Around the broker.

Kelly Ann Motta: Took on it seems like you might take on a slug more too.

Kelly Ann Motta:

Kelly Ann Motta: Payoff that chunk of BT FTE that comes due in May just wondering how we should be thinking about.

Kelly Ann Motta: Hi, thank you so much for the question. Good morning.

David A. Brager: I was hoping we could start with how you're thinking about the funding base. I appreciate all the cover around the broker you took on. It seems like you might take on a thug more to, [inaudible] Unknown Speaker I saw the EOP cash build quite a bit this quarter. I'm assuming some of that is to pre-fund that BTFP payoff, but any color as to how you're approaching it would be helpful.

Kelly Ann Motta: The overall contribution of borrowings as well as.

Kelly Ann Motta: Liquidity levels I saw the ERP cash built quite a bit this quarter I'm, assuming some of that is to pre fund that bts P payoff, but any color as to how you're approaching it would be helpful.

Alan: Unknown Speaker Sure, Kelly.

Alan: Sure, Kelly, you're correct. We did some broker CDs to start to support the pay down of that VTFP that comes in May. I think cash levels, you know, may be elevated at the end of the first quarter. So they may come down a little bit as the year goes on. But yeah, I don't think it's going to be dramatically different.

Speaker Change: Sure Kelly.

Speaker Change: You are correct, we did do some brokerage Cds.

Kelly Ann Motta: Start to support the pay down of that <unk> that comes in May.

Speaker Change: Think cash levels.

Speaker Change: Maybe elevated at the end of the first quarter. So they may come down a little bit as year goes on but.

Kelly: Yes, I don't think it's going to be dramatically different we always want to keep some cash on the balance sheet.

Alan: We always want to keep some cash on the balance sheet. You know, I think the biggest thing for us as we go through the rest of the year is how we balance the funding. You know, our pipelines, as Dave can allude to on core deposits, are pretty good right now. So we feel optimistic about that. But we do anticipate that we'll need to mix in some wholesale deposits to replace that overall $2 billion in bank term funding program. So we'll manage it both from an interest rate risk perspective, as well as trying to get the lowest cost funding.

Speaker Change: I think the biggest thing for us as we go through the rest of the year is how we mix the funding.

Speaker Change: Our pipelines as Dave alluded to an on core deposits are pretty good right now until we feel optimistic about that but we do anticipate that we will need to mix in some wholesale deposits to replace that overall $2 billion.

Speaker Change: Bank term funding program so.

Speaker Change: We'll manage it both from an interest rate risk perspective, as well as trying to get the lowest cost debt funding.

Unknown Speaker: Unknown Speaker

Speaker Change: That's good.

Operator: Go ahead, Kelly. Oh, I was gonna say that was really helpful. Maybe maybe we could talk about that pipeline you just spoke of, of core deposits. That's Unknown Speaker pretty strong now.

Kelly: Go ahead Kelly.

Kelly Ann Motta: I was going to say that was really helpful. Maybe maybe if you could talk about that that pipeline could you just.

Kelly Ann Motta: Spoke of.

Kelly: Core deposits.

David A. Brager: Just wondering, you know, it's such a competitive environment for deposits. Is that from, you know, penetration of your, you know, existing client base? I know you guys already do a fantastic job with the customers you support, new prospects. Just wondering kind of what's driving that pipeline, any change in incentives, and any color you could provide there.

Kelly Ann Motta: Pretty strong now just wondering.

Kelly: Competitive environment for deposits is that from.

Kelly: Penetration of your existing client base I know you guys already do a fantastic job with the customer support.

Kelly: New prospects, just wondering kind of what what's driving that pipeline any change in incentives any color you can provide there.

David A. Brager: Yeah, there really isn't any change in incentives. We changed that back in December of 2022 to really make non-interest bearing deposits, operating deposits, pretty much the equivalent of three times the amount of doing the same size loan as far as the incentive is concerned.

Speaker Change: Yes, there really isn't any change in incentives we changed that back in December of 2022 to really make noninterest bearing deposits operating deposits.

Speaker Change: Pretty much.

Speaker Change: I mean, the equivalent of three times of doing the same sized loan is.

Speaker Change: As far as the incentive is concerned so thats been in place for all of 'twenty, three and obviously continuing into 'twenty four with the focus on really calling on those operating companies and driving that I think there's a few pieces of the puzzle here and I'll talk about all of them. So the pipeline is strong we have higher.

David A. Brager: I think there are a few pieces to the puzzle here, and I'll talk about all of them. So the pipeline's strong. We have hired some good people from other organizations that are driving some of that. I think, you know, we've always been focused on the operating company, but I think there's sort of a renewed enthusiasm from the salespeople for going after those full relationships, as evidenced by the sort of modest mix in the C&I loans relative to the investor commercial real estate loans.

Speaker Change: <unk>.

Speaker Change: Some good people.

Speaker Change: From other organizations that are driving some of that.

Speaker Change: We've always been focused on the operating company, but I think theres sort of a renewed enthusiasm from the salespeople of going after those full relationships as evidenced by the sort of the modest makes sense in the C&I loans relative to the investor commercial real estate loans and I think.

David A. Brager: And I think right now, for those that lead with lending, there's just not a lot of investor commercial real estate deals out there that we are interested in doing from either a credit perspective or a pricing perspective.

Speaker Change: Right now from the lending side for those that lead with lending.

Speaker Change: There's just not a lot of investor commercial real estate deals out there that we're interested in doing.

Speaker Change: Either a credit perspective, or a pricing perspective, and so they really have had to focus on those operating companies.

David A. Brager: And so they really have had to focus on those operating companies. But excluding 2020, we normally have about a four to 6% decline in the fourth quarter. And then we sort of build it back towards the end of the first quarter, and then we really see that sort of start to build more in the second and third quarters. So I think just naturally, you know, if things hold true as they have for a long time, we'll see some growth in our existing relationships, coupled with a stronger pipeline.

Speaker Change: Second part of it I would say is just the normal seasonality in our deposit base and we've talked about this in the past the fourth and first quarter sort of our.

Speaker Change: The down quarters, historically, excluding 2020.

David A. Brager: Because everybody was growing deposits in the first quarter and second quarter of 2020, but excluding 2020, we normally have about a 4% to 6% decline in the fourth quarter and then we sort of build it back towards the end of the first quarter and then we really see that sort of start to build more in the second and third quarter. So I think just naturally.

Speaker Change: Thanks hold true as they have for a long time, we will see some growth in our existing relationships coupled with a stronger pipeline.

David A. Brager: I think, you know, we'll, we'll, should, I should say, create, you know, sort of that build-up on the deposit side as we go through the next couple of quarters, at least. I hope that helped. Unknown Speaker Yes, thanks.

Speaker Change: I think.

David A. Brager: Will.

Speaker Change: Should I should say create sort of that buildup on the deposit side as we go through the next couple of quarters at least I hope that helps.

Unknown Speaker: Yeah, thanks. Thanks so much, Dave. That was super helpful. I will step back.

Speaker Change: Yes. Thanks, Thanks, so much Dave that was super helpful. I will step back.

Operator: Thank you. One moment for our next question, and that will come from the line of David Feaster with Raymond James. Your line is open.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: And that will come from the line of David Feaster with Raymond James Your line is open.

David Pipkin Feaster: Hey, morning, everybody. Maybe I just want to start out on the competitive landscape from your perspective for both. I mean, you just touched a little bit on the deposit side, but maybe touching on the loan side, I'm curious, how is the competitive landscape? And then how is demand trending? And what are you hearing from your clients, and just kind of how do you think about loan growth? What's your appetite? Yeah.

David Pipkin Feaster: Hey, good morning, everybody good morning, David.

David Pipkin Feaster: Maybe I just wanted to start out on the competitive landscape from your perspective for both I mean, you talked you just touched a little bit on the deposit side, but maybe touching on the loan side I'm curious how is the competitive landscape and then how is demand trending and what are you hearing from your clients and just kind of how do you think about loan growth at this.

David A. Brager: Yeah, so look, we're interested in doing quality loans; we always are. And, you know, whether that's a real estate loan or a CNI loan, we're interested in both.

Speaker Change: What's your appetite.

Speaker Change: So look we're interested in doing quality loans, we always are.

Speaker Change: And whether that's a real estate loan or C&I loan we're interested in both we do have.

David A. Brager: We do have a better pipeline at this point this year than we did last year at the same timeframe, but I will say that, you know, it is definitely slower than it was the year before that. And, you know, we're just really focused on the operating company side; the majority of the loans we funded in the last two or three quarters have been either owner-occupied or CNI loans, whereas normally it would, the majority of the loans we would be funding are more investor commercial real estate loans. I do think that the competitive landscape is still there.

Speaker Change: A better pipeline at this point this year than we had last year at the same time frame.

Speaker Change: But I will say that.

Speaker Change: It is.

Speaker Change: Definitely slower than it was the year before that and we're just really focused on the operating company side. The majority of the loans. We funded in the last two or three quarters have been either owner occupied C&I loans, whereas normally it would the majority of the loans, we would be funding are more investor commercial real estate.

David A. Brager: State related loans.

Speaker Change: I do think the competitive landscape is still there I mean, we're still sticking to our low single digit growth I think we can accomplish that throughout the year.

David A. Brager: I mean, we're still sticking to our, you know, lowest single-digit growth rate. I think we can accomplish that throughout the year. You know, we're in a little bit of a lull. We've booked some, some very nice relationships that haven't started to borrow yet on the CNI side on the facilities that we provided them. So I think we're in a little bit of a lull there.

Speaker Change: We're in a little bit of a lull.

Speaker Change: We booked some some very nice relationships that haven't started to borrow yet on the C&I side on the facilities that we provided them. So I think we're in a little bit of a wall there but.

David A. Brager: But I still am sticking to that kind of low single-digit growth objective, not guidance, but objective. And, you know, we're focused on getting the whole relationship. And so I think the bankers have done a really good job at sort of redoubling their efforts and, you know, towards that type of business.

Speaker Change: I'm sticking to that kind of low single digit growth.

Speaker Change: Objective not guidance, but objective and.

Speaker Change: We're focused on getting the whole relationship and so I think the bankers have done a really good job at sort of.

Speaker Change: Redoubling their efforts.

Speaker Change: Towards that type of business.

David A. Brager: But I will tell you, I've been somewhat shocked at some of the pricing that's out there on the loan side, especially given, you know, potentially funding challenges at institutions. You know, we're starting to see stuff get back into the mid-sixes on, you know, five-year rates. And I just think that's probably too low for us. And, you know, normally we want to make sure that credit comes first, making sure we underwrite it, and then we'll be aggressive on pricing if we believe that we're getting the full relationship.

David A. Brager: But I will tell you I've been somewhat shocked at some of the pricing that's out there on the loan side, especially.

David A. Brager: Especially given potentially funding challenges at institutions.

Speaker Change: We're starting to see stuff get back into the mid sixes on <unk>.

Speaker Change: Five year rates and I, just think thats, probably too low for us in <unk>.

Speaker Change: Normally we.

Speaker Change: We want to make sure that credit comes first making sure we underwrite it right and then we will be aggressive on pricing. If we believe that we're getting the full relationship.

David A. Brager: But that, that, competitive landscape for lending out there is driving prices down, even though rates are going up. So we're just not going to compete at that rate, you know. And as I said in the call, we're booking loans, you know, well over 7% recently.

Speaker Change: That.

Speaker Change: That that competitive landscape for lending out there is driving price down even though rates are going up. So we're just not going to compete at that rate.

Speaker Change: And as I said in the call we're booking loans.

Speaker Change: While over 7%.

David A. Brager: That's helpful. And then maybe just touching on agriculture specifically, obviously, there are some challenges in that space, you alluded to that, you know, from commodity prices, input costs, and all that. I'm curious what you're seeing and hearing from your clients, where you're specifically seeing any stresses? And just how do you think about managing that book?

David A. Brager: Recently.

Speaker Change: Okay. That's helpful.

Speaker Change: And then maybe just touching on AG, specifically, obviously there were some challenges in that space you alluded to that from commodity prices input costs and all that.

Speaker Change: Sure.

Speaker Change: Im curious what youre seeing and hearing from your clients, where you're specifically seeing any stresses and just how do you think about managing that book going forward.

David A. Brager: Yeah, I mean, look, it's a smaller part of our overall portfolio, but it's an important part of our portfolio. A lot of our, you know, offices are located in the Central Valley, which is, you know, California, which is the breadbasket of the world. Really, I mean, the largest ag producing counties in the country are in the Central Valley.

David A. Brager: Yeah, I mean look it's a smaller part of our overall portfolio, but it's an important part of our portfolio a lot of our offices are located in the Central Valley, which.

Speaker Change: California, which is the it's the bread basket of the world really I mean, the largest AG producing counties in the country.

David A. Brager: So it's an important part of what we do; we just have to be very cautious when we're looking at it. The dairy and livestock, or the ag production side of things have been, you know, challenged, but things recently have maybe gotten a little bit better; milk prices, futures are starting to pop up a little bit, you know, some of the input costs have stabilized or even gone down in some cases. You know, there's a lot of news that comes out of that area. One thing we shouldn't have to worry about, at least in the foreseeable future, is water. We've had a lot of rain over the last, you know, couple of years.

Speaker Change: Or in the Central Valley.

Speaker Change: So it's an important part of what we do we just have to be very cautious when we're looking at it.

David A. Brager: Dairy and livestock or the AG production side have been challenged but things recently, it maybe gotten a little bit better milk prices futures are starting to pop up a little bit.

Dave Brager: Some of the input costs have stabilized or even gone down in some cases.

Speaker Change: There is a lot of news that comes out of that area. One thing we shouldnt have to worry about at least in the foreseeable future as water. We've had a lot of rain over the last couple of years. So that's a good thing.

David A. Brager: So that's a good thing. But it still remains challenging. I mean, it's a hard business. We, just like everything, want to be the best in each of the specific industries that we do business with. And so we just try and pick and choose the right customers. And as much as they're picking and choosing us, that is, but I would say it's going to remain sort of, you know, in that five-ish or less percent of our total loan portfolio, but it's still an important part of what we do.

David A. Brager: But it remains challenging I mean, it's a hard business.

David A. Brager: We just like everything we want to make the best in each of the specific industries that we do business with and so we just tried to pick and choose the right customers.

David A. Brager: And as much as they are picking and choosing us that is.

Speaker Change: But.

David A. Brager: I would say, it's going to remain sort of in that five ish or less percent of our total loan portfolio, but it's still an important part of what we do.

David Pipkin Feaster: That's great. And then, obviously, there are a lot of moving parts in the balance sheet right now. And we touched on a bit of that with Kelly's question about using cash and cash flows from the securities book to fund the upcoming BTFP maturities. But, you know, I'm just curious, how do you think about managing the balance sheet? Other moves you're considering at this point? I mean, we did the swap, you've, you know, done some restructuring on the bully policies. I'd be kind of curious about the implications of that. But I'm curious, you know, how you think about managing the balance sheet and whether maybe a higher for longer outlook impacts that. Well, David,

David: Okay, that's great.

Speaker Change: And then obviously, there's a lot of moving parts in the balance sheet right now and we touched on a bit of that with Kelly's question.

Speaker Change: <unk>.

Speaker Change: Using cash and cash flows from the Securities book to fund the upcoming <unk> maturities, but I'm just curious how you're thinking about managing the balance sheet. Other moves you are considering at this point I mean, we did the swap you've.

David Pipkin Feaster: Did some restructuring on the bully policies be kind of curious what the implications of that but I'm curious how you think about managing the balance sheet and whether maybe a higher for longer outlook impacts that.

Alan: Well, David, it's definitely a balancing act. I mean, we are balancing, you know, both our interest rate risk, which has become a little more asset sensitive as we put on these derivatives, balancing, obviously, a lot of liquidity measurements we look at, and ultimately trying to fund the bank in the cheapest way possible. So there are a lot of tweaks, and sometimes we make decisions balancing all three of those. So I do agree that interest rates probably will stay elevated for a fairly long time.

David Pipkin Feaster: Well, David it's definitely a balancing act I mean, we are balancing both our interest rate risk, which has become a little more asset sensitive as we put on these derivatives.

Alan: Balancing obviously a lot of liquidity measurements, we look at and ultimately trying to fund the bank.

Speaker Change: Cheapest way possible so.

Alan: So there's a lot of tweaks and sometimes we make decisions balancing against all three of those so I do agree that interest rates, probably I'll stay elevated for a fairly long time in some ways, that's not really a bad thing in my mind.

Alan: In some ways, that's not really a bad thing in my mind. And so, long term, as we continue to change the funding mix and put on loans well into the 7%, I think that'll be positive for us for a long time.

Alan: And so I think long term as we continue to change the funding mix and put on loans as well under the 7% I think that will be positive for us long time.

Alan: Okay, and any details on that Bolle restructuring?

Speaker Change: Okay, and any details on that fully.

Alan: Well, we completed it successfully. I think you saw the impact this quarter. You know, significantly more income if you look year over year, and we're happy with it. It's doing what we want it to do.

Alan: Restructuring.

Speaker Change: While we completed successfully I think you saw the impact this quarter.

Alan: Significantly more income if you look year over year, and we're happy with it it's doing what we wanted to do.

David Pipkin Feaster: Okay, so it's fully reflected in this quarter, got it. It is, yeah. Perfect. All right. Thanks, everybody. Thank you, David.

Speaker Change: Okay. So it's fully reflected in this quarter got it yes.

Speaker Change: Perfect Alright, thanks, everybody. Thank.

Operator: Thank you. One moment for our next question, and that will come from the line of Gary Tenner with D.A. Davidson. Your line is open.

Speaker Change: Thank you David.

Speaker Change: Thank you one moment for our next question.

Operator: And that will come from the line of Gary Tenner with D. A Davidson your line is open.

Gary Peter Tenner: Thanks. Good morning, guys. A lot of my questions asked and answered, but just curious from a bigger picture perspective, in terms of M&A, you know, I think the last time we spoke, you kind of suggested maybe post-NYCB, there has been a little bit more discussion or conversation around M&A. Obviously, you're in a great position from a capital and a valuation perspective. So curious, you know, kind of how that trend has gone in terms of conversations. Has it tended to be more on the smaller end of the size spectrum in terms of who might be more willing as a seller today and your broad thoughts on the topic?

Gary Peter Tenner: Thanks, Good morning, guys.

Gary Peter Tenner: A lot of my questions asked and answered, but just curious from a bigger picture perspective.

Gary Peter Tenner: M&A.

Gary Peter Tenner: I think last time, we spoke you kind of suggested maybe post NYSE b there have been a little bit more.

Gary Peter Tenner: Discussion or conversations around M&A, obviously, you are in great position from a capital and a valuation perspective, so curious kind of.

Gary Peter Tenner: How that trend has gone in terms of conversations has tended to be more kind of a smaller end of the size spectrum in terms of who might be more willing as a salary today in your broad thoughts on the topic.

David A. Brager: Yeah, I would say conversations are still active. I mean, there are a lot of conversations. I think, you know, with the recent moving rates and some of the marks and the challenges on the map, it, it always becomes, you know, challenging when you get down to really talking about what you can or or are willing to do, but there's still a lot of conversations going on. And, and look, we're in a good spot.

Gary Peter Tenner: Yes, I would say conversations are still active I mean, theres a lot of conversations I think with the recent move in rates and some of the marks and the challenges on the math that it always becomes.

David A. Brager: Challenging when you get down to really talking about what you can or are willing to do but there is still a lot of conversations going on in and look we're in a good spot.

David A. Brager: Going to be selective like we always are we need to really find somebody that wants to be a partner with us and really look at the combination of whatever base. There are and I think part of your question was sort of the size I mean, theyre all with all the conversations we're having are and again. These are all preliminary nothing eminent but.

David A. Brager: We're going to be selective, like we always are. We need to really find somebody that wants to be a partner with some more factors than there would have been a couple years ago. So you just have to really make sure that you're, you know, you're picking and choosing the right partners. And, you know, you can do it in a way that you don't dilute your existing shareholders too much, and you earn it back relatively quickly.

David A. Brager: All the conversations we're having are are really driven.

David A. Brager: That 1% to 10 billion in asset size Bank I think there could be potentially the larger you get the more regulatory.

David A. Brager: Pushback you might get I mean, theres a lot of factors, maybe some more factors than than there would have been a couple of years ago. Today. So you just have to really make sure that you are.

David A. Brager: You are picking and choosing the right partners and as you.

David A. Brager: You can do it in a way that we.

David A. Brager: We don't dilute your existing shareholders too much and you earn it back relatively quickly so we're still still having conversations.

David A. Brager: So, you know, we're still having conversations. You know, I would love to say that, you know, we want to get something done. But, you know, we don't really buy banks; they sell them. So we're kind of, you know, they have to agree to what we're willing to do. So that's sort of where we are.

David A. Brager: I would love to say that we.

David A. Brager: We want to get something done but.

David A. Brager: We don't really buy banks they sell so we're kind of.

David A. Brager: They have to agree to what were willing to do so that's sort of where we are.

Unknown Speaker: I appreciate that. And since you broached the topic of kind of regulatory pushback potentially on deals, have your regulators, as you've been in communication with them, been able to give you any Unknown Speaker...visibility or guidance on what to expect in the scenario where you announced the deal? I mean, there seems to be a lot of uncertainty out there. I'm curious what has been communicated to you. Unknown Speaker Yeah.

Speaker Change: I appreciate that Ed since you broached the topic of kind of regulatory pushback potentially on deals have your regulators as you've been in communication with them and they've been able to give you any.

Unknown Speaker: Kind of visibility or guidance on what to expect.

Unknown Speaker: I mean, look, we've had a very good relationship with our...

Speaker Change: In the scenario, where you announced the deal I mean, excuse me a lot of uncertainty out there I'm curious what has been communicated to you.

David A. Brager: Yeah, I mean, look, we've had a very good relationship with our regulators historically, and I, we, you know, continue that good relationship today; we're always up front with them if we're looking at something or something sort of, you know, maybe getting closer to, you know, fruition. The only thing I would say is that they haven't given any specifics, and we haven't asked any specific questions around that. But, you know, there's been a number of proposed rules that have come out from the OCC, as well as the FDIC, which, you know, does add some complexity to the process.

David A. Brager: I mean look we've had a very good relationship with our with our regulators historically and.

David A. Brager: <unk>.

David A. Brager: Continued that good relationship today, we're always upfront with them, if we're looking at something or something of the sort of maybe getting closer to.

David A. Brager: Fruition.

David A. Brager: The only thing I would say they haven't given any specific and we haven't announced any specific questions around that but theres been a number of proposed rules that have come out from those <unk> as well as the FDIC, which does add some complexity to the process.

David A. Brager: But outside of that, we haven't really had any specific conversations around, you know, here's an opportunity, what do you guys think? But I do think there's a number of things that have been added to their checklist of what they're looking at. And so we just take that into consideration, you know, we're getting closer to looking at something.

David A. Brager: But outside of that we haven't had really any specific conversations around hey, here's an opportunity what do you guys think.

David A. Brager: But I do think there is a number of things that have been added I'll say to their checklist of what theyre looking at and so we just take that into consideration if we're getting closer to to.

David A. Brager: <unk>.

David A. Brager: Looking at something.

Gary Peter Tenner: Thank you. As a reminder, if you would like to ask a question, please press star 11. One moment for our next question, and that will come from the line of Matthew Clark with Piper Sandler. Your line is open.

Speaker Change: Thank you.

David A. Brager:

Matthew Timothy Clark: Thank you as a reminder, if you would like to ask a question. Please press star 111 moment for our next question.

Gary Peter Tenner: And that will come from the line of Matthew Clark with Piper Sandler Your line is open.

Matthew Timothy Clark: This first one for me on NIM and NAI. Do you have the average margin for the month of March and then the spot rate on deposits at the end of March? And then, as a follow-up to that, you know, what's your expectation for when you think NIM and NAI will bottom and start to inflationize?

Matthew Timothy Clark: Hey, Thank you good morning.

Matthew Timothy Clark: Yeah.

Matthew Timothy Clark: Just first one for me on the NIM and NII do you have the average <unk>.

Matthew Timothy Clark: Margin in the month of March and then the spot rate on deposits at the end of March and then as a follow up to that whats your expectation for when you think the NIM and NII bottom start to inflect.

Alan: Well, we can't answer part of your question. I think the spot rate is in our investor data. In terms of the cost of deposits, we don't have the NIM in there; we don't disclose that. As you know, we don't really provide forward guidance. I would say, Matthew, that the main variable that will continue next quarter is really going to be the funding side and what transpires there between. As Dave alluded to earlier, we typically see deposits naturally grow in the second quarter.

Alan: Well, we can answer part of your question I think the spot rate.

Alan: Our investor deck.

Alan: And in terms of the cost of deposits.

Alan: We don't have the NIM in there we don't disclose that as you know we don't really provide forward guidance.

Alan: Say Matthew that.

Alan: The main variable that will continue next quarter is really going to be the funding side and.

Alan: What transpires there between our as Dave alluded to earlier, we typically see deposit natural naturally grow in the second quarter, we have a good pipeline to the extent, we're able to execute on that and minimize the wholesale funds that will be positive but.

Alan: We have a good pipeline, and to the extent we're able to execute on that and minimize the wholesale funds, that will be positive, but we'll see how that plays out. And Matthew, the spot cost of interest-bearing deposits and repos was 1.95% in March.

Alan: We'll see how that plays out and Matthew the spot cost of interest bearing deposits and repos was 195%.

Matthew Timothy Clark: Got it. Thank you.

Alan: <unk>.

Matthew Timothy Clark: And then just on the securities portfolio, I mean, CT1 is up another 30 fifths to 14.9%. Why not bite the bullet and just restructure the AFS book? You can clearly afford it and move on and improve the profitability from here. Any change in appetite there?

Speaker Change: Got it thank you.

Matthew Timothy Clark: And then just on the securities portfolio I mean, CET one is up another 30 bps to 14, 9% why not bite the bullet just restructure the Spss book, you can clearly afford it and move on and improve the profitability from here.

David A. Brager: Yeah, look, we still continue to evaluate a lot of different options relative to restructuring. You know, there's other things that we could we could look at doing as well.

Matthew Timothy Clark: Any change in appetite there.

Matthew Timothy Clark: Yeah.

David A. Brager: Well continue to evaluate a lot of different options relative to restructuring. There's other there's other things that we could we could look at doing as well.

Alan: At this point, we haven't made the decision to do anything, but I do think we're continuing to evaluate it. Like I said, there are some other things we can do around it, and we've made the decision not to do them yet. But that doesn't mean we won't do it. We'll just continue to evaluate it. So I think as we get through the next couple of quarters, the next couple of quarters, we'll see what rates do, we'll see what happens as far as our deposits go.

David A. Brager: We.

Alan: At this point, we Havent made the decision to do anything but I do think we're continuing to evaluate it like I said there are some other things we can do around it.

Alan: And we've made the decision not to do it yet but that doesn't mean, we never will do it and we'll just continue to evaluate it. So I think as we get through the next couple of quarters.

Alan: The next couple of quarters, we'll see what rates do we will see what what.

Alan: I think, like I said, historically, if we're, you know, we basically have, I'd say, gotten rid of the excess deposits at this point. But we historically have seen some growth. So there are a lot of different things that we can do from the funding side to improve NIMB, and we'll continue to evaluate that. I don't know, Alan, if you have anything you want to add.

Alan: What happens as far as our deposits I think like I said historically if we're.

Alan: We basically have I'd say gotten rid of the excess deposits at this point, but we historically have seen some growth. So there's a lot of different things that we can do from the funding side.

Alan: To improve the NIM.

Alan: And we will continue to evaluate that I don't know island. If you have anything you want to add to that.

David A. Brager: No, no, I don't think we'll. It's something we, you know, we've talked to you about before, and we'll continue to evaluate and we'll Unknown Speaker Yeah, and look, I would say part of that decision-making process isn't all just math, right? I mean, it's the perception of our customers; our customers have been, you know, very satisfied with us. The deposits, the relationships have been stable, albeit, you know, some, some money has moved to higher-yielding stuff, but we haven't lost relationships for fear of anything.

Speaker Change: No I don't think we'll it's something we've talked to you about before and we will continue to evaluate.

David A. Brager: We have nothing imminent that yeah, and look I would say part of that decision, making it's not all just math right I mean, it's the perception.

Speaker Change: Our customers our customers have been.

David A. Brager: Very satisfied with us the deposits the relationships have been stable, albeit some.

David A. Brager: Some money has moved to higher yielding stuff, we haven't lost relationships for the fear of anything but if you. If you did a big restructure and you had a loss in a quarter.

David A. Brager: But if you do a big restructure, and you have a loss in a quarter, you know, that could spark more fears than we need to fear. So that reputational headline risk is something that we also evaluate in that as well.

Speaker Change: That could could spark more peers, then we need to peers. So that reputation will headline risk is something that we also evaluate in that as well.

Matthew Timothy Clark: Got it. And last one for me, just if it's likely you're not able to get an M&A deal this year, is it fair to assume you'll get active buyback stock at some point this year?

Speaker Change: Got it and last one for me just if we could.

Matthew Timothy Clark: It's likely you're.

Matthew Timothy Clark: Youre not able to get an M&A deal. This year is it fair to assume you'll get active buying back stock at some point this year.

David A. Brager: Yeah, I mean, look at it.

David A. Brager: Yeah, I mean, look, we're gonna have to evaluate every situation, but we do have a lot of capital. And, you know, it's really driven, you know, sort of, I'd say one of the limiting factors on that is just the TCE. We want to make sure we maintain a solid TCE that allows us to do a deal if we're going to impact that. So there are a lot of different aspects there.

David A. Brager: Yes, I mean look we're going to have to evaluate every situation, but we do have a lot of capital and it's really driven sort of I'd say one of the limiting factors on that is just the the TCE, we want to make sure we maintain a solid TCE that allows us.

David A. Brager: To do a deal if it were going to impact that so there's a lot of different aspects there, but yes, I mean thats something that we also.

David A. Brager: But yeah, I mean, that's something that we also discuss pretty regularly. And we are building capital. And we do have, you know, close to 15% CT1. So we have good regulatory capital. But we're also sort of managing to that TCE ratio as well. And it went down a little bit because of the movement in interest rates. But as we get through the year, that's definitely something that we'll continue to look at.

David A. Brager: Got it pretty regularly and we are building capital and we do have close to 15% CET. One. So we have good regulatory capital, but we're also sort of managing to that.

David A. Brager: TCE ratio as well and so went down a little bit because of the movement in interest rates, but as we get through the year, that's definitely something that we'll continue to look at.

Operator: You're welcome. Thank you. As a reminder, if you would like to ask a question, please press star 1-1. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Brager for closing remarks.

Speaker Change: Great. Thanks.

David A. Brager: Thank you as a reminder, if you would like to ask a question. Please press star one one.

Brager: I'm showing no further questions in the queue at this time I would now like to turn the call back over to Mr. <unk> for closing remarks.

David A. Brager: Great. Thank you, Cherie. Citizens Business Bank continues to perform consistently in a challenging operating environment. Our solid financial performance is highlighted by our 188 consecutive quarters of profitability and 138 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the best small to medium-sized businesses and their owners through all economic cycles. I'd like to thank our customers and our associates for their commitment and loyalty. Thanks for joining us again this quarter. We appreciate your interest and look forward to speaking with you in July for our second quarter 2024 earnings call. Please let Alan and I know if you have any questions. Have a great day!

David A. Brager: Thank you Sri citizens business Bank continues to perform consistently in a challenging operating environment. Our solid financial performance is highlighted by our 188 consecutive quarters of profitability and 138 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the bed.

David A. Brager: Small and medium sized businesses and their owners through all economic cycles. So I'd like to thank our customers and our associates for their commitment and loyalty. Thanks for joining US again this quarter. We appreciate your interest and look forward to speaking with you in July.

David A. Brager: For our second quarter of 2024 earnings call. Please let Alan and I know if you have any questions have a great day.

Operator: This concludes today's program. Thank you all for participating. You may now disconnect.

Speaker Change: This concludes today's program. Thank you all for participating you may now disconnect.

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