Q1 2025 CVB Financial Corp Earnings Call
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Unknown Executive: Good day and welcome to the CVB Financial First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After 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 is raised. To withdraw your question, press star one one again.
Speaker Change: Good day and welcome to the C V B financial first quarter 2025 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
Speaker Change: Ask a question during the session you will need to press star one on your telephone.
Speaker Change: Then youre an automated message advising your hand is right.
Speaker Change: To withdraw your question Press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Mr. Allen Nicholson Executive Vice President and Chief Financial Officer. Please go ahead.
Unknown Executive: Please be advised that today's conference is being recorded.
Unknown Executive: I would now like to hand the conference over to your speaker, Mr. Alan Nicholson, Executive Vice President and Chief Financial Officer. Please go ahead. Thank you, Sheree. And good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 2025.
Allen Nicholson: Thank you Sherry and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 2025 join.
Unknown Executive: Joining me this morning is Dave Brager, President and Chief Executive 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.
Speaker Change: Joining me this morning are Dave Brager, President and Chief Executive Officer.
Speaker Change: Our comments today will refer to the financial information that was included in the earnings announcement released yesterday.
Speaker Change: To obtain a copy please visit our website at Www Dot CEB bank Dot com and click on the investor's tab.
Unknown Executive: Speakers on this call claim the protection of the safe harbor provisions contained in the Private Security 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, 2024. 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.
Speaker Change: Occurs 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.
Speaker Change: 2024.
Speaker Change: And in particular, the information set forth in item one.
Risk factors there yet.
Speaker Change: For more complete version of the company's Safe Harbor disclosure. Please see the company's earnings release issued in connection with this call.
David Brager: I'll now turn the call over to Dave Brager. Dave, thank you, Alan. Good morning, everyone. For the first quarter of 2025, we reported net earnings of $51.1 million, or $0.36 per share, representing our 192nd consecutive quarter of profitability, which equates to 48 years. We previously declared a $0.20 per share dividend for the first quarter of 2025, representing our 142nd consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.51% and a return on average assets of 1.37% for the first quarter of 2025. We announced in November of 2024 that our Board of Directors authorized a new 10 million share repurchase program and approved a 10B51 plan.
Speaker Change: I'll now turn the call over to Dave Brager, Dave. Thank you Alan and good morning, everyone for the first quarter of 2025, we reported net earnings of $51 $1 million or 36 per share representing our 192nd consecutive quarter of profitability, which equates to 48 years.
Speaker Change: We previously declared a <unk> 20 per share dividend for the first quarter of 2025, representing our 142nd consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of $14 five 1% and our return on average assets of 137.
Speaker Change: Percent for the first quarter of 2025.
Speaker Change: We announced in November of 2024 that our board of directors authorized a new 10 million share repurchase program and approved a <unk> one plan.
David Brager: Year-to-date, as of yesterday, we have repurchased 2.05 million shares at an average share price of $18.13. Our net earnings of $51.1 million or $0.36 per share compares with $50.9 million for the fourth quarter of 2024 or $0.36 per share and $48.6 million or $0.35 per share for the prior year quarter. Pre-tax income in the first quarter of 2025 was $69.5 million, which was $1.5 million higher than the fourth quarter of 2024, and $2.7 million higher than the first quarter of 2024. Our net interest margin expanded by 13 basis points in the first quarter of 2025, primarily due to the actions we took towards the end of 2024, in which we deleveraged our balance sheet by reducing borrowings and other wholesale funds.
Speaker Change: Year to date.
Speaker Change: Yesterday, we have repurchased 2.05 million shares at an average share price of $18 and 13th.
Speaker Change: Our net earnings of $51 $1 million or <unk> 36 per share compares with $59 million for the fourth quarter of 2024, or 36 cents per share and $48 $6 million or 35 per share for the prior year quarter.
Speaker Change: Pre tax income in the first quarter of 2025 was $69 $5 million, which was $1 $5 million higher than the fourth quarter of 2024, and $2 $7 million higher than the first quarter of 2024.
Speaker Change: Our net interest margin expanded by 13 basis points in the first quarter of 2025, primarily due to the actions we took towards the end of 2024, and which we deleverage our balance sheet by reducing borrowings and other wholesale funds. Our net interest margin for the first quarter of 2025 was 331%.
David Brager: Our net interest margin for the first quarter of 2025 was 3.31%, compared to 3.18% for the fourth quarter of 2024, and 3.10% for the first quarter of 2024. In the first quarter, we sold $19.3 million of OREO that was reflected on our December 31st, 2024 balance sheet, generating a $2.2 million net gain on sale, Primarily due to reduction in outstanding dairy and livestock loans, we had a recapture of allowance for credit losses of $2 million in the first quarter of 2025, and a $500,000 provision for off-balance sheet reserves. This compares to a $3 million recapture of allowance for credit losses in the fourth quarter of 2024.
Speaker Change: Compared to $3, one 8% for the fourth quarter of 2024, and three 1% for the first quarter of 2024 in the first quarter. We sold $19 3 million of Oreo that was reflected on our December 31, 2020 for balance sheet generating a $2 2 million.
Speaker Change: Our net gain on sale.
Speaker Change: Primarily due to a reduction in outstanding dairy and livestock loans, we had a recapture of allowance for credit losses of $2 million in the first quarter of 2025, and a $500000 provision for off balance sheet reserves. This compares to a $3 million recapture of allowance for credit losses in the fourth quarter of 2010.
David Brager: At March 31st, 2025, our total deposits and customer repurchase agreements totaled $12.3 billion, a $56 million increase from December 31st, 2024, and $95 million higher than March 31st, 2024. Our non-interest bearing deposits grew by $147 million, or 2%, compared to the end of 2024, and were $71 million higher than the end of the first quarter of 2024. We generally experience a decrease in deposits at the end of the fourth quarter and beginning of the first quarter each year, and then a buildup of deposits starts after the April tax season. This seasonal pattern contributed to the $380 million decline in average deposits and repos from the fourth quarter of 2024 to the first quarter of 2025.
Speaker Change: 24.
Speaker Change: At March 31, 2025, our total deposits and customer repurchase agreements totaled $12 $3 billion, a $56 million increase from December 31, 2024, and a $95 million and $95 million higher than March 31, 2024.
Speaker Change: Our noninterest bearing deposits grew by $147 million or 2% compared to the end of 2024 and were $71 million higher than the end of the first quarter of 2024.
Speaker Change: We generally experience a decrease in deposits at the end of the fourth quarter and beginning of the first quarter each year and then a buildup of deposits starts after the April tax season.
Speaker Change: Seasonal pattern contributed to the $380 million decline in average deposits and repos from the fourth quarter of 2024 to the first quarter of 2025.
David Brager: Total deposits and customer repos grew on average by $244 million over the first quarter of 2024, including $139 million in average growth and brokered On average, non-interest bearing deposits were 59% of total deposits for the first quarter of 2025, which compares to 58.7% for the fourth quarter of 2024, but lower than the 61.7% average in the first quarter of 2024. Our cost of deposits and repos was 87 basis points for the first quarter of 2025, which compares to 97 basis points for the fourth quarter of 2024 and 73 basis points for the year ago quarter.
Speaker Change: Total deposits and customer repos grew on average by $244 million over the first quarter of 2024, including $139 million and average growth in brokerage Cds.
Speaker Change: On average noninterest bearing deposits were 59% of total deposits for the first quarter of 2025, which compares to $58 seven for the fourth quarter of 2024, but lower than the 61, 7% average in the first quarter of 2024.
Speaker Change: Our cost of deposits and repos was 87 basis points for the first quarter of 2025, which compares to 97 basis points for the fourth quarter of 2024, and 73 basis points for the year ago quarter.
David Brager: Our cost of non-maturity deposits, which represents more than 95% of our deposits, has grown from 70 basis points in April of 2024 to 76 basis points in March of 2025. Our current deposit pipelines are strong and focused on operating companies. In addition, the deposit pipeline in our specialty banking group, which is focused on title escrow, property management, and fiduciaries, continues to be strong.
Speaker Change: Our cost of non maturity deposits, which represents more than 95% of our deposits has grown from 70 basis points in April of 2024 to 76 basis points in March of 2025.
Speaker Change: Our current deposit pipelines are strong and focused on operating companies. In addition, the deposit pipeline in our specialty banking group, which is focused on title escrow property management and fiduciary continues to be strong.
David Brager: Now, let's discuss long. Total loans at March 31, 2025, were $8.36 billion, a $173 million decrease from the end of the fourth quarter of 2024, and a $407 million or 4.6% decline from March 31, 2024. The quarter-over-quarter decrease was largely due to a $168 million decline in dairy and livestock loans. In addition, commercial real estate loans declined by $17 million compared to the end of 2024, but C&I loans grew by $17 million.
Speaker Change: Now, let's discuss lungs.
Speaker Change: Loans at March 31, 2025 were $8 three 6 billion, a 173 million dollar decrease from the end of the fourth quarter of 2024, and a $407 million or four 6% decline from March 31 2024.
Speaker Change: The quarter over quarter decrease was largely due to a $168 million decline in dairy and livestock loans.
Speaker Change: In addition, commercial real estate loans declined by $17 million compared to the end of 2024, but C&I loans grew by $17 million.
David Brager: We typically experience a seasonal decline in dairy and livestock loans during the first quarter every year, as our customers increased line utilization at year end per tax planning purpose. The reduction in dairy and livestock loans during the first quarter of 2025 included a decrease in line borrowings of approximately $40 million due to the final distributions received by some of our dairies from the Fair Life sale to Coca-Cola. These reductions contributed to the low utilization rate of 64% at March 31st, 2025, compared to 81% at December 31st, 2024, and 75% at March 31st, 2024. The decrease in loans from the end of the first quarter of 2024 included commercial real estate loans declining by $230 million and construction loans declining by $43 million.
Speaker Change: We typically experience a seasonal decline in dairy and livestock loans during the first quarter every year as our customers' increased line utilization at year end for tax planning purposes, the reduction in dairy and livestock loans. During the first quarter of 2025 included a decrease in line borrowings of approximately $40 million.
Speaker Change: Due to the final distributions received by some of our dairies from the <unk> sale to Coca Cola.
Speaker Change: These reductions contributed to the lie to the low utilization rate of 64% at March 31, 2025% compared to 81% at December 31, 2024, and 75% at March 31 2024.
The decrease in loans from the end of the first quarter of 2024 included commercial real estate loans declining by $230 million and construction loans declining by $43 million, while $43 million dairy and livestock loans were down year over year by $91 million, while C&I loans also declined by 21.
David Brager: Dairy and livestock loans were down year-over-year by $91 million while C&I loans also declined by $21 million.
David Brager: We have experienced an uptick in demand for commercial real estate loans, but rate competition for the quality of loans we focus on has been intense. Loan originations in the first quarter of 2025 were approximately 13 percent higher than 2024. The increase in originations was across both C&I and commercial real estate loans, with a notable increase in investor commercial real estate. We average yields of 6.5% on new originations during the first quarter. GNI line utilization continues to be low, declining from 30% at December 31, 2024 to 29% at the end of the first quarter of 2025.
Speaker Change: <unk>.
Speaker Change: We have experienced an uptick in demand for commercial real estate loans, but rate competition for the quality of loans. We focus on has been intense loan originations in the first quarter of 2025 were approximately 13% higher than 2024, the increase in originations was cross both C&I and.
Speaker Change: <unk> real estate loans with a notable increase in investor commercial real estate.
Speaker Change: We average yields of six 5% on new originations during the first quarter.
C&I line utilization continues to be low declining from 30% at December 31, 2024% to 29% at the end of the first quarter of 2025.
David Brager: Our current loan pipelines remain strong as we are seeing more activity in commercial real estate. Total non-performing and delinquent loans decreased to $26.8 million at March 31, 2025 from $47.6 million at December 31, 2024. We ended 2024 with $19.3 million in OREO assets. All of these assets were sold during the first quarter of 2025 at a net gain of $2.2 million. Net recoveries in the first quarter were $130,000, which compares to $180,000 in net recoveries for the fourth quarter of 2024. Classified loans were $94.2 million at March 31, 2025, compared to $89.5 million at December 31, 2024.
Speaker Change: Our current loan pipelines remained strong as we are seeing more activity in commercial real estate.
Speaker Change: Total non performing and delinquent loans decreased to $26 8 million at March 31, 2025 from $47 $6 million at December 31, 2024.
Speaker Change: We ended 2024 with $19 $3 million and Oreo.
Speaker Change: Assets all of these assets were sold during the first quarter of 2025 at a net gain of $2 $2 million.
Speaker Change: Net recoveries in the first quarter were $130000, which compares to $180000 in net recoveries for the fourth quarter of 2024.
Speaker Change: Five loans were $94 2 million at March 31, 2025, compared to $89 $5 million at December 31, 2024.
David Brager: Classified loans as percentage of total loans was 1.13% at March 31, 2025. The increase from the end of 2024 was primarily due to a downgrade of $6.5 million of loans to a single dairy. Overall, the credit matrix for our dairy and livestock loan portfolio improved with a $51 million decline in criticized loans from the end of 2024.
Speaker Change: Classified loans as a percentage of total loans was 113% at March 31 2025.
Speaker Change: The increase from the end of 2024 was primarily due to a downgrade of $6 $5 million of loans to a single dairy overall, the credit metrics for our dairy and livestock bond portfolio improved with a $51 million decline in criticized loans from the end of 2024 I will now turn the.
Alan Nicholson: I will now turn the call over to Alan to further discuss additional aspects of our balance sheet and our net interest income. Alan? Thanks, Dave. Our allowance for credit loss was $78.2 million at March 31, 2025. for 0.94% of growth loan. For the first quarter of 2025, we recaptured $2 million in provision for credit losses while increasing our off-balance sheet reserves by $500,000. In comparison, our allowance for credit losses as of December 31st, 2024, was $80 million, or 0.94% of gross. Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. We continue to have the largest individual scenario weighting on Moody's baseline forecast with both upside and downside risk weighted among multiple forecasts.
Speaker Change: Call over to Alan to further discuss additional aspects of our balance sheet and our net interest income Alan.
Alan: Thanks, Dave our allowance for credit loss was $78 2 million at March 31, 2025.
Speaker Change: Or 94% of gross loans.
Speaker Change: For the first quarter of 2025, we recaptured 2 million provision for credit losses, while increasing our off balance sheet reserves by $500000.
Speaker Change: In comparison, our allowance for credit losses as of December 31, 2024 was $80 million or <unk>, 94% of gross loans.
Speaker Change: Our economic forecast continues to be a blend of multiple forecasts produced by Moody's.
Speaker Change: We continue to have the largest individual scenario waiting on Moody's baseline forecast with both upside and downside risk weighted among multiple forecasts.
Alan Nicholson: The resulting economic forecast at March 31st, 2025, was marginally different from our forecast at the end of 2024, as a result in real GDP growing at a slower rate for the remainder of 2025, and only reaching a 2% growth rate in the second half of 2026. The unemployment rate is forecasted to reach 5% by the beginning of 2026 and remain above 5% until 2028. Commercial real estate prices are also forecasted to continue their decline through the first half of 2026.
Speaker Change: The resulting economic forecast at March 31, 2025 was marginally different from our forecast at the end of 2024 as a result in real GDP growing at a slower rate for the remainder of 2025 and only reaching a 2% growth rate in the second half of 2026.
Speaker Change: The unemployment rate is forecasted to reach 5% by the beginning of 2026 and remain above 5% until 2028 commercial real estate prices are also forecasted to continue their decline through the first half of 2026.
Alan Nicholson: Switching to our investment portfolio, available-for-sale, or AFS, investment securities were approximately $2.54 billion at March 31, 2025. The unrealized loss on AFS securities decreased by $59 million, from $448 million at December 31, 2024, to $388 million on March 31, 2025. Hedging the market risk of our AFS portfolio, we had $700 million of fair value hedges at the end of the first quarter. These 3.75% pay pick swaps declined in value from the end of 2024 by $8 million. The net after-tax impact of changes in both fair value of our AFS securities and our derivatives resulted in a $35 million increase in other comprehensive income for the first quarter.
Speaker Change: Switching to our investment portfolio available for sale or investment Securities were approximately $2 $5 4 billion at March 31 2025.
Speaker Change: The unrealized loss on securities decreased by $59 million from $448 million at December 31, 2000, $24 million to $388 million on March 31 2025.
Speaker Change: The market risk of our <unk> portfolio, we had $700 million of fair value hedges at the end of the first quarter.
Speaker Change: <unk>, 375% pay fixed swaps declined in value from the end of 2024 by $8 million.
Speaker Change: The net after tax impact of changes in both the fair value of our <unk> securities and our derivatives resulted in a $35 million increase in other comprehensive income for the first quarter.
Alan Nicholson: Our health and maturity investments totaled $2.36 billion at March 31, 2025, which is a $20.5 million, which is $20.5 million lower than the balance at the end of 2024. Our level of wholesale funding at March 31, 2025 did not change from the end of 2024. Our wholesale funds consisted of $300 million of brokered CDs that have been swapped as cash flow hedges at an average rate of 4.4% and $500 million of federal home loan bank advances at a weighted average rate of 4.55%.
Speaker Change: Our held to maturity investments totaled $2 36 billion at March 31, 2025, which is a $25 million, which is $25 million lower than the balance at the end of 2024.
Speaker Change: Our level of wholesale funding at March 31, 2025 did not change from the end of 2024.
Speaker Change: Our wholesale fundings consisted of $300 million of brokered Cds that have been swapped as cash flow hedges at an average rate of four 4%.
Speaker Change: And $500 million of federal home loan bank advances at a weighted average rate of 455%.
Alan Nicholson: As a result of our balance sheet deleveraging during the second half of 2024, our borrowings declined by $1.5 billion and our brokered CDs declined by $100 million for March 31st, 2024. Now turning to our capital position, at March 31, 2025, our shareholders equity was $2.23 billion, a $42 million increase from the end of 2024, including a $35 million increase in other comprehensive income. retained earnings of $23 million for the first quarter. Our board of directors authorized a new share repurchase plan in November of 2024. There were 782,000 shares repurchased during the first quarter of 2025 at an average purchase price of $19.53.
Speaker Change: As a result of our balance sheet deleveraging during the second half of 2024, our borrowings declined by $1 5 billion and our brokerage Cds declined by $100 million from March 31 2024.
Speaker Change: Now turning to our capital position at March 31, 2025, our shareholders' equity was $2 $2 3 billion.
Speaker Change: A $42 million increase from the end of 2024, including a $35 million increase in other comprehensive income.
Speaker Change: Retained earnings was $23 million for the first quarter.
Speaker Change: Our board of directors authorized a new share repurchase plan in November of 2024.
Speaker Change: There were 782000 shares repurchased during the first quarter of 2025 at an average purchase price of $19 53.
Alan Nicholson: So far in April through yesterday, we have purchased an additional 1.3 million shares at an average purchase price of $17.26. The company's tangible common equity ratio at March 31st, 2025 was 10%, compared with 9.8% at December 31st, 2024. At December 31st, 2025, our common equity Tier 1 capital ratio was 16.5%, and our total risk-based capital ratio was 17.3%. Our capital levels will allow us to continue share repurchases while still having excess capital that can be deployed in an acquisition.
Speaker Change: So far in April through yesterday, we have purchased an additional one 3 million shares at an average purchase price of $17 26.
Speaker Change: The company's tangible common equity ratio at March 31, 2025 was 10% compared with nine 8% at December 31 2024 at.
Speaker Change: At December 31, 2025, our common equity tier one capital ratio was 16, 5% and our total risk based capital ratio was 17, 3%.
Speaker Change: Our capital levels will allow us to continue share repurchases, while still having excess capital that can be deployed in an acquisition.
Alan Nicholson: Now Net Estimate Income was $110.4 million in the first quarter of 2025. This compares to $110.4 million in the fourth quarter of 2024 and $112.5 million in the first quarter of 2024. Compared to the prior quarter, interest income declined by $4.6 million, as our average earning assets decreased by $406 million. The $320 million decline in funds at the Federal Reserve contributed $4 million of the $4.6 million decline. Partially offsetting the impact of lower earning assets was a four basis point increase in our earning assets yield, including a seven basis point increase in average loan yield.
Speaker Change: Now net income was $110 4 million in the first quarter of 2025. This compares to $110 $4 million in the fourth quarter of 2024 and $112 $5 million in the first quarter of 2024.
Speaker Change: Compared to the prior quarter interest income declined by $4 $6 million.
Speaker Change: Our average earning assets decreased by $406 million.
Speaker Change: The $320 million decline in funds at the Federal reserve contributed $4 million of the $4 $6 million decrease.
Speaker Change: Partially offsetting the impact of lower earning assets with a four basis point increase in our earning asset yield, including a seven basis point increase in average loan yields.
Alan Nicholson: Interest income declined by $14.7 million when compared to the first quarter of 2024, as earning assets were $1.1 billion lower in the first quarter of 2025. interest expense decreased by $4.6 million over the prior quarter due to a $270 million decrease in interest-bearing deposits and repos, and a nine basis point decline in our cost of funds. Our cost of funds decreased from 1.13% for the fourth quarter of 2024 to 1.04% in the first quarter of 2025. Interest expense decreased from the first quarter of 2024 by $12.7 million, primarily due to a $1.5 billion decline in borrowings, which was the primary driver of our cost of funds decreasing by 27 basis points from the first quarter of 2020.
Speaker Change: Interest income declined by $14 $7 million when compared to the first quarter of 2024, as earning assets were $1 $1 billion lower than the first quarter of 2025.
Speaker Change: Interest expense decreased by $4 $6 million over the prior quarter due to a $270 million decrease in interest bearing deposits and repos and a nine basis point decline in our cost of funds are.
Speaker Change: Our cost of funds decreased from 113% for the fourth quarter of 2024% to 1.04% in the first quarter of 2025.
Speaker Change: Interest expense decreased from the first quarter of 2024 by $12 $7 million, primarily due to a $1 5 billion decline in borrowings, which was the primary driver of our cost of funds decreasing by 27 basis points from the first quarter of 2024.
David Brager: I'll now turn the call back to Dave for further discussion of our first quarter earnings. Thank you, Alan. Moving on to non-interest income, our non-interest income was $16.2 million for the first quarter of 2025, compared to $13.1 million for the fourth quarter and $14.1 million in the first quarter of 2024. The first quarter included the $2.2 million gain on sale of OREO. Bully income increased by $445,000 from the fourth quarter of 2024, while decreasing by $762,000 from the first quarter of 2024. The year-over-year decrease was primarily due to $530,000 of death benefits received during the first quarter of 2024.
Dave Brager: I'll now turn the call back to Dave for further discussion of our first quarter earnings.
Dave Brager: Moving on to noninterest income our noninterest income was $16 $2 million for the first quarter of 2025% compared to $13 $1 million for the fourth quarter and $14 $1 million in the first quarter of 2020 for the first quarter included the $2 $2 million gain on sale.
Dave Brager: Oreo.
Dave Brager: Moly income increased by $445000 from the fourth quarter of 2024, while decreasing by $762000 from the first quarter of 2020 for the year over year decrease was primarily due to $530000 of death benefits received during the first quarter of 2024.
David Brager: Income from CRA related equity investments was approximately $750,000 higher than the fourth quarter of 2024, and $450,000 higher than the first quarter of 2024. Our trust and wealth management fees decreased by $100,000 from the fourth quarter of 2024, but increased by approximately $200,000 or 6% compared to the first quarter of 2024.
Dave Brager: Income from CRA related equity investments was approximately $750000 higher than the fourth quarter of 2024 and $450000 higher than the first quarter of 2024, our trust and wealth management fees decreased by $100000 from the fourth quarter of 2024, but increased by approximately.
Dave Brager: <unk> $200000 or 6% compared to the first quarter of 2024 now expenses.
David Brager: Now expenses. Non-interest expense for the first quarter of 2025 was $59.1 million, compared to $58.5 million in the fourth quarter of 2024, and $59.8 million in the first quarter of 2024. The first quarter of 2024 included $2.3 million of additional expense related to the initial FDIC special assessment in 2023. The first quarter of 2025 included a $500,000 provision for off-balance sheet reserves. There was no provision or recapture of off-balance sheet reserves in the first or fourth quarters of 2024. Staff-related expenses increased by 1.3 percent over the fourth quarter of 2024, including the impact of higher payroll taxes that occur at the beginning of each calendar year, while staff expense stayed essentially the same as the first quarter of 2024.
Dave Brager: Noninterest expense for the first quarter of 2025 was $59 1 million compared to $58 5 million in the fourth quarter of 2024 and $59 $8 million in the first quarter of 2024.
Dave Brager: The first quarter of 2024 included $2 $3 million of additional expense related to the initial FDIC special assessment in 2023 <unk>.
Dave Brager: The first quarter of 2025 included a $500000 provision for off balance sheet reserves, there was no provision or recapture of off balance sheet reserves in the first or fourth quarters of 2024.
Dave Brager: Staff related expenses increased by one 3% over the fourth quarter of 2024, including the impact of higher payroll taxes that occur at the beginning of each calendar year, while staff expense stay at essentially the same as the first quarter of 2024.
David Brager: Occupancy and equipment expenses grew by $132,000 when compared to the fourth quarter of 2024, and by $433,000 compared to the first quarter of 2024. The increase in occupancy expense includes the impact of the higher rent expenses for the four offices involved in the sale-leaseback transactions in the second half of 2024. We continue to invest in our technology infrastructure and automation as reflected in our growth and software expense that was 8% or $300,000 higher than the fourth quarter of 2024 and 20% or $700,000 higher than the first quarter of 2024. Non-interest expense totaled 1.58% of average assets in the first quarter of 2025, compared to 1.49% for the fourth quarter of 2024, and 1.48% for the first quarter of 2024.
Dave Brager: Occupancy and equipment expenses grew by $132000 when compared to the fourth quarter of 2024 and by $433000 compared to the first quarter of 2024. The increase in occupancy expense includes the impact of the higher rent expenses for the four offices involved in the sale leaseback.
Dave Brager: Transactions in the second half of 2024.
Dave Brager: We continue to invest in our technology infrastructure and automation as reflected in our growth in software expense that was 8% or $300000 higher than the fourth quarter of 2024, and 20% or $700000 higher than the first quarter of 2024.
Dave Brager: Noninterest expense totaled $1 five 8% of average assets in the first quarter of 2025 compared to $1 four 9% for the fourth quarter of 2024 and $1 four 8% for the first quarter of 2024.
David Brager: Our efficiency ratio was 46.7% in the first quarter of 2025, compared to 47.3% for the fourth quarter of 2024, and 47.2% in the first quarter of 2024.
Dave Brager: Our efficiency ratio was 46, 7% in the first quarter of 2025% compared to 47, 3% for the fourth quarter of 2024 and 47, 2% in the first quarter of 2024.
Unknown Executive: This concludes today's presentation. Now Alan and I will be happy to take any questions that you might have. Thank you.
Dave Brager: This concludes today's presentation now Alan and I will be happy to take any questions that you might have.
Unknown Executive: As a reminder, to ask questions, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Due to time restraints, we ask that you please limit yourself to one question and one follow up question. Please stand by while we compile the Q&A roster.
Speaker Change: Thank you as a reminder to ask question.
Speaker Change: Star one on your telephone and wait for your name to be announced.
Speaker Change: Your question. Please press star one again due to time Ms. James We ask that you. Please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.
Gary Tenner: And our first question will come from the line of Gary Tenner with T.A. Davidson. Your line is open. Good morning, Gary. Oh, hey, good morning. I apologize. That's okay. Yeah, no problem. We just didn't want it to be on our end. No, no, not at all. Not at all.
Speaker Change: And our first question will come from the line of Gary Tenner with D. A Davidson your line is open.
Speaker Change: Good morning, Gary.
Speaker Change: Hey, good morning, I apologize so Jeremy yes, no problem, we just didn't want it to be on our end.
Speaker Change: No not at all.
Gary Tenner: So I had two quick questions.
Speaker Change: Al.
Speaker Change: So I had two quick questions one.
David Brager: One, in terms of kind of the tariff policies, I know the ag portfolio is not a huge portfolio for you guys at this point, but any thoughts on the potential impacts there on that customer base? Yeah, I mean, look, I think it's a little too early to tell. Overall, there is both on the production ag side and the dairy side, there are exports that go out. And so there could be some impact. But overall, there hasn't been that great of an impact yet. And anecdotally, we're hearing that, you know, the customers feel relatively okay about it still to be determined.
Speaker Change: In terms of kind.
Speaker Change: The tariff policies I know the AG portfolio is not a huge portfolio for you guys at this point, but any thoughts on the potential impacts there.
Speaker Change: On that customer base.
Speaker Change: Yes, I mean look I think it's a little too early to tell overall.
Speaker Change: There is.
Speaker Change: The production AG side, and the dairy side, there are exports that go out and.
And so there could be some impact, but overall there hasnt been that great of an impact yet and anecdotally we're hearing that.
Speaker Change: <unk>.
Speaker Change: The customers feel.
Speaker Change: Relatively okay about it its still to be determined milk prices have remained steady.
David Brager: Milk prices have remained steady. Powder prices have remained steady. So at least so far, the markets aren't showing any impact and our customers aren't reporting any impact. So I think all in all, you know, it's still a little too early to tell, but all in all things appear to be okay. Okay, appreciate that.
Speaker Change: Powder prices have remained steady.
Speaker Change: So at least so far the markets arent showing any impact on our customers arent reporting any impact so I think all in all.
Speaker Change: It's still a little too early to tell but all in all things appear to be okay.
David Brager: And then can you talk a little bit about the pace of commercial real estate payoff activity in the context of your improved first quarter production and, you know, the improved pipelines you commented on in your prepared remarks? Yeah, absolutely. So we did have elevated prepayment penalties in the first quarter, which obviously indicates that that loans did pay off and primarily in commercial real estate where we have prepayment penalties, but the pipelines are strong. Through yesterday, we had closed more loans in the month of April than we have closed in any single month over the last 14 months.
Speaker Change: Okay. I appreciate that and then can you talk a little bit about the pace of commercial real estate payoff activity in the context of your improved first quarter production.
Speaker Change: The improved pipelines you commented on your prepared remarks yeah.
Speaker Change: Yeah.
Speaker Change: Absolutely. So we did have elevated prepayment penalties in the first quarter, which.
Speaker Change: Obviously indicates that debt loans did pay off in primarily in commercial real estate, where we have prepayment penalties, but the pipelines are strong.
Speaker Change: Through yesterday, we had close more loans in the month of April then we have closed in any single month over the last 14 months.
David Brager: So, we are seeing more activity. I think it's a combination of, you know. Getting used to the rate environment. People had money sitting on the sidelines for a while wanted to do something with it. But we are definitely seeing more activity there. Pipelines remain strong. As I mentioned, we did book more loans in the first quarter by about 13% than we did in the first quarter of 2024. And I see that accelerating, you know, over at least over the next couple of quarters. And Gary, if you look at page 40 of the IP, we do show for CRE, maturing loans over the next 24 months, as well as rate resets over the next 24 months.
Speaker Change: So we are seeing more activity I think it's a combination of.
Speaker Change: Getting used to the rate environment people out of money sitting on the sidelines for a while wanted to do something with it but we are definitely seeing more activity there.
Speaker Change: Pipeline remains strong as I mentioned, we did book more loans in the first quarter by about 13% than we did in the first quarter of 2024 and <unk>.
Speaker Change: E that accelerating over at least over the next couple of quarters and Gary If you look at page 40 of the IP, We do show for CRE.
Speaker Change: Maturing loans over the next 24 months as well as rate resets over the next 24 months.
David Brager: And that does accelerate a bit when you get outside of that just based on when we originated a lot of commercial real estate loans during the pandemic. Yeah, appreciate that.
Speaker Change: That does accelerate a bit when you get outside of that just based on when we originated a lot of the commercial real estate loans during the pandemic period.
David Brager: Just as a follow up, Dave, to your response, do you think you're at the point where, you know, those that improvement in production starts to more consistently outpace the payoffs? I do. I think I mean, you know, I, I can forecast out a couple of quarters to be, you know, more accurate. But yes, I do think we are. And look, we had some unique things that happened in the first quarter. You know, our we had five areas that received Fair Life funds that paid off $40 million of loans. I mean, there's just a number of things that have happened.
Speaker Change: Yes, I appreciate that.
David: Just as a follow up David here.
David: The response.
David: You think you're at the point, where.
David: Those debt.
David: Improvement in production starts to more consistently outpace the payoffs.
David: I do I think I mean, yes.
David: Ken.
Speaker Change: Forecast out a couple of quarters to be more accurate, but yes, I do think we are and look we have some unique things that happen in the first quarter.
Speaker Change: We had five areas that receive fair life funds that paid off $40 million of bonds. I mean, theres just a number of things that have happened, but all in all I do foresee us outpacing the payoffs and being able to turn around that trend.
David Brager: But all in all, I do foresee us outpacing the payoffs, and being able to turn our low single digit number by the end of the year, especially if things, you know, remain somewhat calm, and the uncertainty starts to fade. But I do think that we can definitely start to grow loans again. Great, appreciate it. Thank you.
Speaker Change: I don't it's not going to be an enormous growth rate, but I do think that we can sort of hit our low single digit number by the end of the year, especially if things remain somewhat call.
Speaker Change: And the uncertainty starts to fade, but I do think that we can definitely start to grow loans again.
Speaker Change: Great I appreciate it.
Unknown Executive: One moment for our next question.
Speaker Change: Thank you one moment for our next question.
Andrew Terrell: And that will come from the line of Andrew Terrell with Stevens. Your line is open. Hey, morning, Dave. Morning, Alan. Good morning.
Speaker Change: And that will come from the line of Andrew <unk> with Stephens. Your line is open.
Speaker Change: Yes.
Dan: Hey, good morning, Dan Good morning Al Good morning.
Andrew Terrell: Maybe just to start, and I apologize if I missed it, the loan prepayment penalties this quarter, do you have what the impact of that was to loan interest income or maybe in loan yields or margin terms? I can just give you dollar-wise, I mean, quarter over quarter, I think it was up about $300,000-ish. Okay.
Speaker Change: Maybe just to start and I apologize if I missed that.
Dan: Loan prepayment penalties this quarter do you have what the.
Speaker Change: Impact of that was <unk>.
Speaker Change: Loan interest income or May.
Speaker Change: Maybe in loan yields or margin terms.
Speaker Change: I can just give you a dollar wise I mean quarter over quarter I think it was up about 300000 ish.
Speaker Change: Okay.
Andrew Terrell: Um, and then, you know, maybe just sticking on the margin. Um, I appreciate the fun in the deck around the No, I think there's probably a little room to go. That's just primarily based on, you know, the new money market accounts vis-a-vis non-interest bearing deposit accounts we're opening. We are seeing now and again, some rate increase requests, but I do think that there will be some opportunity absent a rate decrease to evaluate where we are with all of our customers. And that's something that we do on a regular basis. We look at the individual relationships and make determinations on where rates are.
Speaker Change: Okay.
Speaker Change: And then maybe just sticking on the margin.
Speaker Change: I appreciate the slide in the deck around me.
Deposit repricing trends on a monthly basis, it looks like if im looking at March trends that.
Speaker Change: The deposit repricing has has already occurred and so.
Speaker Change: Turning to slow towards the end of the quarter just wanted to get a sense from.
Speaker Change: You guys you know you.
Speaker Change: You saw good deposit growth this quarter.
Speaker Change: What's your what's your expectation is around deposit cost reduction or the potential for that absent rate decreases here, whether that's mostly in the rearview or theres more room to go.
Speaker Change: No I think there is probably a little room to go.
Speaker Change: That's just primarily based on the new money market accounts vis vis noninterest bearing deposit accounts, we're opening.
Speaker Change: We are seeing now and again some rate increase request, but I do think that there will be some opportunity absent a rate decreased to.
Speaker Change: To evaluate where we are with all of our customers and Thats something that we do on a regular basis.
Speaker Change: We look at the individual relationships and make determinations on where rates are and some of the mix.
Andrew Terrell: And some of the mixed aspects of it, you know, we're seeing. The new money market accounts coming into the bank are lower in most cases than our current run rate. And so there are exceptions to that, obviously. But I do think that we should be able to continue to move that ever so slightly. I don't think it's going to be a big decrease after a rate cut, but but we should be able to manage that pretty closely. Okay, great. Thanks for the questions. I'll step back. Thank you.
Speaker Change: Aspects of it.
Speaker Change: We're seeing.
Speaker Change: The new money market accounts coming into the bank are lower in most cases than our current run rate.
Speaker Change: And so there are exceptions to that obviously, but I do think that we should be able to continue to move that.
Speaker Change: Ever so slightly I don't think its going to be a big decrease absent a rate cut but.
Speaker Change: But we should be able to manage that pretty closely.
Speaker Change: Okay, alright, great. Thanks for taking the questions I'll step back.
Unknown Executive: One moment for our next question.
Speaker Change: Thank you one moment our next question.
David Feaster: and that will come from the line of David Feaster with Raymond James. Your line is open. Hey, good morning, everybody. Good morning, David. Um, maybe just one high level one. Obviously, there's a lot of uncertainty in the market, a lot of volatility just around doge around, you know, the trade wars and terrorists and all that. You are very disciplined on the credit side, you know, both at initial underwriting and being proactive, you know, managing credit and addressing issues head on. I'm just curious, you know, with this backdrop, I mean, I guess, first off, where are you focused?
Speaker Change: And that will come from the line of David Feaster with Raymond James Your line is open.
Speaker Change: Hey, good morning, everybody good morning, David.
Speaker Change: Maybe just one high level one.
Speaker Change: Do you see there is a lot of uncertainty in the market a lot of volatility around those around.
Speaker Change: The trade wars and tariffs and all that you are very disciplined on the credit side.
Speaker Change: That initial underwriting and being proactive.
Speaker Change: No.
Speaker Change: Managing credit and addressing issues head on I'm just curious.
Speaker Change: With this backdrop I mean, I guess first off where you focus like what are you watching more closely today in and has your approach to either underwriting or.
David Brager: Like, what are you watching more closely today? And, and has your approach to either underwriting or, you know, managing credit and addressing some of these potential issues changed at all, just given the broader economic uncertainty? So the simple answer to your question is really not a lot has changed in our overall underwriting or evaluation of credit. Obviously, there are more questions we ask. You know, how impacted could you be based on the tariff situation, based on other things? I think a little bit of that is overblown. I mean, we had a number of customers that pre-purchased.
Speaker Change: You know managing credit and addressing some of these potential issues changed at all just given the broader economic uncertainty.
Speaker Change: So the simple answer to your question is really not a lot has changed in our overall underwriting or evaluation of credit. Obviously, there are more questions. We ask.
Speaker Change: How impacted could you be a deterrent based on the tariff situation based on other things I think a little bit of that is overblown I mean, we had a number of customers that pre purchased.
David Brager: You know, we had, I think, our best month ever in the month of March in our international, because people were buying stuff prior to tariffs being implemented. So I do think that our customers are smart. They figure it out. But we have not changed our underwriting. We haven't – we don't loosen or tighten based on the environment. We just have a very disciplined approach, regardless of the economic environment we're in. And I think that's served us well over the years. I don't – you know, I don't feel that there's anything different. I mean, one of the things that's happened, you know, the one thing that we do adjust is our debt yields, and that's more based on an interest rate environment.
Speaker Change: I think our best month ever in the month of March and our international because people were buying stock prior to tariffs being implemented.
Speaker Change: So I do think that our customers are smart they figure it out.
Speaker Change: But we have not changed our underwriting we haven't we don't loosen or tighten based on the environment. We just have a very disciplined approach regardless of the economic environment. We're in.
Speaker Change: And I think that served us well over the years.
Speaker Change: Yes.
Speaker Change: I don't feel that there's anything different I mean, one of the things that has happened.
Speaker Change: The one thing that we do adjust as our debt yields.
Speaker Change: And that's more based on an interest rate environment.
David Brager: So debt yields have come down from an underwriting perspective. We reduced the debt yields a couple of times since the Fed started cutting rates. And, you know, there's been a lot of movement in the 5- and 10-year Treasury, you know, kind of going up and down. So that kind of creates some problems, because when we initially underwrite a deal, you know, if rates were lower and then all of a sudden rates went up 50, 60, 70 basis points, we do look at that. But I think all in all, the simple answer to your question is there's not a lot that's changed.
Speaker Change: So that yields have come down from an underwriting perspective, we reduced the debt yields a couple of times since the fed started cutting rates.
Speaker Change: And there's been a lot of movement in the five and 10 year Treasury kind of gone up and down so that that kind of create some problems because when we initially underwrite a deal.
Speaker Change: If rates were lower and then all of a sudden rates went up 50, 60 70 basis points. We do look at that but I think all in all the simple answer. Your question is theres not a lot that's changed.
David Brager: I think that creates an environment for our salespeople of certainty where they know what we can sell and, you know, helps us in the long run get the best customers. I hope that answers your question. Yeah, no, that's great.
Speaker Change: I think that creates an environment for our salespeople have certainty where they know what we can sell.
Speaker Change: Helps us in the long run and get the best customers. So.
Speaker Change: I hope that helps answer your question yes.
Speaker Change: No that's great.
David Brager: And maybe touching on the deposit side, I mean, look, you've got one of the best core deposit franchises in the country, right? And growth this quarter was really strong, NIB driven. Sounds like a lot of the growth came from the specialty business lines.
Speaker Change: And maybe <unk>.
Speaker Change: On the deposit side I mean look you've got one of the best core deposit franchises in the country right in growth. This quarter was really strong in IV driven sounds like a lot of the growth came from the specialty business lines I was hoping you could maybe touch on the competitive landscape for deposits today.
David Brager: I was hoping you could maybe touch on the competitive landscape for deposits today. How much of this growth is from existing clients or new clients to the bank? And just how do you think about your ability to continue to drive core deposit growth? at this point. Yeah, I feel good about core deposit growth, and I feel good about, you know, continuing to grow non-interest bearing. There are obviously things that happen, and we have big fluctuations every day, but the majority of the growth came from new relationships. I would say existing relationships were probably flat to slightly down.
Speaker Change: How much of this growth is from existing clients or new clients to the bank.
Speaker Change: Just how do you think about your ability to continue to drive core deposit growth.
Speaker Change: At this point.
Speaker Change: Yes, I feel good about core deposit growth and I feel good about continuing to grow noninterest bearing there are obviously things that happen and we have big fluctuations every day, but the majority of the growth came from new relationships.
Speaker Change: I would say existing relationships, we're probably flat to slightly down new relationships made up that entire difference.
David Brager: New relationships made up that entire difference. We do have seasonality, so historically we've grown in the second and third quarters, which I anticipate to happen again. The specialty banking group had their best year ever in 2024, and they started off the year very strong, which, you know, I would say from that perspective, those deposits are probably 90 plus percent non-interest bearing deposits when they come to the bank. So I feel good about that, and we still haven't really seen a rebound in the residential market. And when we do and we start to see, you know, more purchase activity, more refinance activity, our specialty banking group has a lot of room with their existing customers to grow even faster.
Speaker Change: You have a seasonality so historically, we've grown in the second and third quarters, which I anticipate to happen again, the specialty banking group had their best year ever in 2024, and they've started off the year very strong.
Speaker Change: Which I would say from that perspective, those deposits are probably 90 plus percent noninterest bearing deposits when they come to the bank.
Speaker Change: So I feel good about that and we still haven't really seen a rebound in the residential market and when we do and we start to see.
Speaker Change: More purchase activity more refinance activity.
Speaker Change: Our specialty banking group has a lot of room with their existing customers to grow even faster.
David Brager: We're down, you know, close to probably $400 billion from our peak in specialty – $400 billion from our peak in specialty banking deposits, and, you know, that's primarily in the escrow business. We've had good success on property management. We've had good success in the fiduciary world. So I think all in all, I feel pretty good about it. You know, we're – we do relationship, and we focus on relationship, and every single new C&I relationship that we brought to the bank and owner-occupied commercial real estate loan, we're getting the full relationship. So I feel good on the deposit side.
Speaker Change: We're down close to probably $400 billion from our peak and specialty $400 million from our speak our pekin.
Speaker Change: Specialty banking deposits.
Speaker Change: And.
Speaker Change: That's primarily in the escrow business.
Speaker Change: We've had good success on property management, we've had good success in the fiduciary world.
Speaker Change: So I think all in all I feel pretty good about it.
Speaker Change: We do relationship and we focus on relationship and every single new C&I relationships that we brought to the bank.
Speaker Change: And owner occupied commercial real estate loan, we're getting the full relationship. So I feel good on the deposit side I mean, if you look at our slide deck I think we've grown if you exclude acquisition and brokered we've grown on average still by three 3%.
David Brager: I mean, you know, if you look in our slide deck, I think we've grown – if you exclude acquisition and broker, we've grown on average still by 3.3 percent. And I think that's probably a good run rate for us.
Speaker Change: I think thats, probably a good run rate for us.
David Brager: Okay, um, and then just maybe last one for me touching on the capital side. I mean, you've got a really strong balance sheet. Obviously, we've been active with the buyback continued repurchasing here in the second quarter.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: And then just maybe last one from me touching on the capital side I mean, you've got a really strong balance sheet. Obviously, we've been active with the buyback continued repurchasing year in the second quarter.
David Brager: I'm just kind of curious, how do you think about capital priorities today? I mean, and you know, balancing, you know, the buyback versus potential M&A? And just how do you get comfortable? You know, with M&A? I guess, how are conversations going? And how do you how do you get comfortable underwriting somebody else's credit today? Yeah, so I think just a couple of points, I would say we have an enormous amount of capital. We recognize that that's, you know, the during the periods of volatility gives us the opportunity to buy back at attractive valuations, which we've done.
Speaker Change: I'm just kind of curious how do you think about capital priorities today I mean.
Speaker Change: And balancing.
Speaker Change: The buyback versus potential M&A and just how do you get comfortable.
Speaker Change: With M&A I guess, how are conversations going and how do you how do you get comfortable underwriting somebody else's credit today.
Speaker Change: Yeah. So I think just a couple of points I would say we have an enormous amount of capital we recognize that that's the during the periods of volatility it gives us the opportunity to buyback at attractive valuations, which we've done.
David Brager: As I as I mentioned, you know, we've purchased as of yesterday, over 2 million shares at an average price of 1813, which is in the, you know, 170 ish range price to tangible book, which, you know, we feel we're undervalued. So we can do both. There are conversations, M&A conversations. I mean, obviously, there was a big announcement yesterday. There are M&A conversations going on. I think that announcement yesterday puts us in a better position, even more so to be the buyer, the acquirer of choice. So I think that's a positive for us. There could be some disruption through that process as well that we take advantage of.
Speaker Change: As I mentioned, we purchased as of yesterday over 2 million shares at an average price of $18 13, which is an.
Speaker Change: 170 ish range price to tangible book, which we feel we are undervalued.
Speaker Change: So we can do both there are conversations M&A conversations I mean, obviously, there was a big announcement yesterday.
Speaker Change: There are.
Speaker Change: M&A conversations going on I think that announcement yesterday puts us in a better position even more so to be the buyer of the acquirer of choice. So I think thats a positive for us there could be some disruption through that process as well that we could take advantage of.
David Brager: So I do think that there's some opportunities for us as we go through this. 1A is still M&A. We still want to do M&A.
Speaker Change: I do think that there are some opportunities for us.
Speaker Change: As we go through this.
Speaker Change: <unk> is still M&A, we still want to do M&A, but absent.
Alan Nicholson: But absent, you know, a seller that is reasonable, we're going to just continue to focus on ourselves and look within. So there are conversations going on. I still feel confident that we can announce something this year. But we'll see how it plays out. And I do think we're in a much better position with, you know, potential buyer or potential sellers that, you know, look to us as their someday acquirer.
Speaker Change: A seller that is reasonable.
Speaker Change: We're going to just continue to focus on ourselves and look with them. So.
Speaker Change: There are conversations going on.
Speaker Change: I still feel confident that we can announce something this year.
Speaker Change: But we'll see how it plays out and I do think we're in a much better position.
Speaker Change: With.
Speaker Change: Potential buyer or potential sellers that look to us as there someday acquirer.
Alan Nicholson: I don't know, Alan, do you have anything to add to that? No, as we mentioned, we feel very comfortable that the capital levels allow us to continue buybacks if prices are attractive and still have plenty of capital for M&A. Terrific.
Speaker Change: I don't know how long do you have anything to add to that.
Speaker Change: No as we mentioned, we feel very comfortable that the capital levels allow us to continue buybacks if prices are attractive and still have plenty of capital for M&A.
Unknown Executive: Thanks, everybody, for the call. Thank you.
Speaker Change: Terrific thanks, everybody for the color.
Adam Butler: One moment for our next question.
Thank you one moment our next question.
Adam Butler: and that will come from the line of Adam Butler with Piper Sandler, your line is open. Hey, good morning, everybody. This is Adam on for Matthew Clark. Good morning.
Speaker Change: And that will come from the line of Adam Butler with Piper Sandler Your line is open.
Adam Butler: Hey, good morning, everybody. This is Adam on for Matthew Clark.
Speaker Change: Good morning.
Adam Butler: Just to start off, I was curious in the income side, I saw other came up a little bit this quarter. I was just curious what drove that increase and if it's sustainable and just trying to get your overall outlook for the for the run rate going forward. Yeah, Adam, I think in our prepared marks, we noted that some of our equity investments we have, for CRA purposes, saw an increase year over year and quarter over quarter. And that's probably what you're seeing in the other income. And those although there are, you know, dividend incomes that are very consistent from some of those, a number of those we have to account for on a net asset value.
Speaker Change: Just to start off I was curious.
Speaker Change: This fee income.
Speaker Change: Syed.
Speaker Change: Other came up a little bit this quarter I was just curious what drove that increase and if it is sustainable and just trying to get your overall outlook for the for the run rate going forward.
Dave Brager: Yes, Adam I think in our prepared remarks, we noted that.
Dave Brager: Some of our equity investments, we have for CRA purposes.
Dave Brager: An increase year over year and quarter over quarter, and Thats, probably what youre seeing in the other income.
Dave Brager: And those although there are dividend incomes that are very consistent from some of those.
Dave Brager: A number of those we have to account for on a net asset value. So there is some volatility there that can be impacted by both the equity market and the bond market and so.
Adam Butler: So there is some volatility there that can be impacted by both the equity markets and the bond markets. And so Q1 was a pretty good quarter for those we've had better, but we've had worse. So there is a little bit of volatility there.
Dave Brager: Q1 was a pretty good quarter for those we've had better but we've had worse. So there is a little bit of volatility there.
Unknown Executive: Okay, that's helpful. Thanks.
Unknown Executive: And then just one more for me. On the capital side, most of my questions have been answered there. But I'm just curious what your appetite would be to consider. I know that you guys didn't do it this quarter, but just some securities loss trade going forward. I don't think our appetite has changed. You know, we did some things last year in conjunction with some sale leasebacks. I would only foresee us doing anything more like that if there were some unusual events that happened that that allowed us to harvest some losses, but we don't foresee that in the near term.
Dave Brager: Okay. That's helpful. Thanks, and then just one more from me on the capital side. Most of my questions have been answered there but.
Dave Brager: I'm just curious.
Dave Brager: Your appetite would be to consider I know.
Dave Brager: That you guys didn't do it this quarter, but just some securities loss trade going forward.
Dave Brager: I don't think our appetite has changed.
Dave Brager: We did some things last year in conjunction with some sale leasebacks I would.
Dave Brager: Only foresee us doing anything more like that if there were some unusual events that happened that allowed us to harvest some losses, but we don't foresee that in the near term.
Unknown Executive: Okay, I appreciate that. And that's all I had. I appreciate the time. Thank you.
Speaker Change: Okay I appreciate that and that's all I had I appreciate the time. Thank you.
Speaker Change: Thank you one moment our next question.
Tim Coffey: And that will come from the line of Tim Coffey with Jannie Montgomery. Your line is open. Thank you. Good morning, gentlemen. Good morning, Kevin.
Speaker Change: And that will come from the line of Tim Coffey with Janney Montgomery. Your line is open.
Speaker Change: Thank you good morning, gentlemen, good morning, Ken.
David Brager: Hey, getting back to the CRE discussion, are there property types where you're seeing the most demand? I mean, is it, you know, office in the central business districts or industrial warehouses in the Empire? Can you provide some color? Yeah, I it's pretty broad based across all asset classes. I don't think that there's anything specifically, you know, we still are doing more owner occupied commercial real estate, at least so far this year than than investor commercial real estate. And that's across the board. I mean, that's in office, industrial, multifamily, it really retail, it's really across the board.
Speaker Change: Yes.
Speaker Change: Give us the CRE discussion.
Speaker Change: Other property types, where you're seeing the most demand.
Speaker Change: Is it.
Speaker Change: Office in the central business districts of industrial warehouses in the inland Empire. Congrats some color.
Speaker Change: Yes. It is.
Speaker Change: Broad based across all asset classes I don't think that there is anything specifically, we still are doing more owner occupied commercial real estate.
Speaker Change: So far this year than investor commercial real estate.
Speaker Change: And thats across the board I mean, that's an office industrial and multifamily.
Speaker Change: Retail, it's really across the board.
David Brager: So I wouldn't call out any one specific asset class. And remember, the type of loans we're doing, you know, there, there's been talk, obviously, of industrial or office, and you know, the types of loans we're doing are, are very low loan to values at origination with good debt service coverage, strong guarantors. So we're not afraid to win based on our underwriting guidelines and in any asset class. Okay, appreciate that.
I wouldn't call out any one specific asset class and remember the type of loans, we're doing there.
Speaker Change: There's been talk obviously of industrial or office and the types of loans, we're doing or are very low loan to values at origination with good debt service coverage strong guarantors. So we're not afraid to win based on our underwriting guidelines.
Speaker Change: The asset class.
David Brager: Outside of commercial real estate, what is the sentiment of your customers right now? I'm sorry, you said the sentiment. Yeah, yeah. I mean, this is discussions or in actual applications that you're seeing? Yeah, well, I can tell you most of the discussions I've had, everybody's been relatively positive. There really hasn't been anybody that I've personally had a conversation with that is super concerned. They think it's going to be a little turbulent over the next six months. But many of them, you know, prepared for that. I think everything that is going on from a tariff perspective, from an economic perspective, I think has been candidly somewhat overblown.
Speaker Change: Okay I appreciate that.
Speaker Change: Outside of commercial real estate, what is the sentiment of your.
Speaker Change: Customers right now.
Speaker Change: I'm, sorry, you said the sentiment.
Speaker Change: Yes, yes.
Speaker Change: The discussions are in actual applications that youre seeing yeah, well I can tell you most of the discussions I've had everybody has been relatively positive there really hasn't been anybody that I personally had a conversation with it is super concerned they think it's going to be a little turbulent over the next six months.
Speaker Change: But many of them prepared for that I think everything that is going on from a from a tariff perspective from an economic perspective, I think has been.
David Brager: Now, we'll see if this continues for a longer period of time, that could have some more impact. But I think in the short run, the next quarter or two, I just think there's going to be some volatility. But our customers are prepared. They're ready. As I mentioned, many of them have, you know, pre-purchased prior to tariffs being implemented. And I just think all in all, you know, their mood remains optimistic. You know, there are some that are probably more impacted by others that maybe aren't as optimistic. But I'd say on the whole, it's been pretty positive.
Speaker Change: Candidly somewhat overblown now we'll see if this continues for a longer period of time that could have similar impact, but I think in the short run the next quarter or two.
Speaker Change: Think theres going to be some volatility, but our customers are prepared they are ready.
Speaker Change: As I mentioned many of them have.
Speaker Change: Pre purchase prior to tariffs being implemented.
Speaker Change: And I just think all in all their mood.
Speaker Change: Remains optimistic.
Speaker Change: There are some that are probably more impacted by others that maybe aren't as optimistic but I would say on the whole it's been pretty positive.
David Brager: And they're, you know, as I've mentioned, when things go bad, a lot of our customers take advantage of that opportunity. They're very well healed and have the ability to do so. So in some cases, I wouldn't say they root for bad. But if bad happens, they're ready to take advantage of it. Okay, good.
Speaker Change: Sure.
Speaker Change: As I've mentioned when things go bad a lot of our customers take advantage of that opportunity theyre very well healed and have the ability to do so so in some cases I wouldnt say they route for bad.
Speaker Change: If that happens they are ready to take advantage of it.
David Brager: And then just kind of maybe a little inside baseball question here. As you look at underwriting new construction loans, how are you thinking about the possibility that input costs, whether labor or material, a year from now could be substantially higher? Yeah, well, I think it's already higher. And obviously, with all of the fires, things are are, you know, in Southern California are going to be impacted by, I believe shortages, you know, materials are at least higher demand for the materials. So I do think that that is something that is on our minds. You know, obviously, we do a lot of underwriting around costing the project and determining how the contracts are put together.
Speaker Change: Okay great.
Speaker Change: And then just kind of a maybe a little inside baseball question here.
Speaker Change: If you look at underwriting new construction loans.
Speaker Change: How are you thinking about the possibility of the input costs, whether labor or material a year from now it could be substantially higher.
Speaker Change: Yes, well I think its already higher than obviously with all of the fires things or are.
Speaker Change: In southern California, we're going to be impacted by I believe shortages.
Speaker Change: Materials or at least higher demand for the materials. So I do think that that is something that.
Speaker Change: Is.
Speaker Change: On our minds.
Speaker Change: Obviously, we do a lot of underwriting around costing the project in determining how the contracts are put together. So there is a lot of that that goes on but at the end of the day, we don't have a huge construction lending portfolio is Alex.
David Brager: So there is a lot of that that goes on. But at the end of the day, we don't have a huge construction lending portfolio. Alex is looking at me like we don't have any construction loans. But we do. We are looking at a lot more on the construction lending side. And we think there's a lot of opportunity. And this is one of the tailwinds, I think that can come from the tragedy that occurred during the fires. So I think all in all, it's, again, you know, there's, there's positives and negatives there. But we're open for construction business.
Speaker Change: Just looking at me like we don't have any construction loans.
Speaker Change: Yeah.
Speaker Change: But we do we are looking at a lot more on the construction lending side, and we think Theres a lot of opportunity and this is one of the tailwind I think that can come from.
Speaker Change: The tragedy that occurred during the fires.
Speaker Change: I think all in all it's again.
Speaker Change: There is there is positives and negatives there but.
David Brager: I'll say that. Okay.
Speaker Change: We are open for our construction business I'll say that.
David Brager: And I'm sorry, just one more, just as you're talking about potential opportunities here.
Speaker Change: Okay.
Speaker Change: I'm, sorry, and just one more just because you're talking about good potential opportunities here.
David Brager: What is your appetite for increasing the multifamily portfolio given the amount of dislocation that's happening among lenders in the Southern California market? Yeah. I think that the, you know, and I've said this multiple times in the past, I mean, there is some concern with multifamily, I'd say more politically motivated concern than actual concern, just depending on everything that goes on, but our appetite is the same. Like I said, we don't, we don't get in and out of asset classes or business lines. We underwrite appropriately. We make sure we have the right borrowers and we're open for business for the right borrowers.
Speaker Change: What is your appetite for increasing the multifamily portfolio given the amount of dislocation that's happening among lenders and the southern California market, Yes, I think that.
Speaker Change: And I've said this multiple times in the past I mean, there is some concern with multifamily.
I'd say more politically motivated concern than actual concern just depending on and everything that goes on but our appetite is the same like I said, we don't we don't get in and out of asset classes or business lines, we underwrite appropriately we make sure we have the right borrowers.
Speaker Change: And we're open for business for the right borrowers.
Unknown Executive: Alright, well those are my questions. Thank you very much. You're welcome. Thank you.
Speaker Change: Alright, well those are my questions. Thank you very much youre welcome.
Unknown Executive: As a reminder, if you have, if you would like to ask a question, please press star 11.
Speaker Change: Thank you as a reminder, if you have if you would like to ask a question. Please press star one one and one moment. Our next question that will come from the line of Kelly Motta with <unk>. Your line is open.
Kelly Motta: And one moment for our next question that will come from the line of Kelly Motta with KBW. Your line is open. Hey guys, good morning. Thanks for the question. Good morning. Maybe a lot of mine have been asked and answered. Maybe on just the competitive landscape in California, there's been a lot of disruption these past couple of years. Can you share, are you still seeing good opportunities to gain share from some of these changes that have gone on? And if so, in which areas? Thanks. Yeah, yeah, I mean, the simple answer is yes, we are seeing opportunities.
Kelly Motta: Hey, guys. Good morning, Thanks for the question.
Speaker Change: Good morning.
Kelly Motta: Maybe.
Kelly Motta: A lot of mine have been asked and answered.
Kelly Motta: Maybe on just the competitive landscape in California, there's been a lot of disruption. These past couple of years.
Kelly Motta: Sure.
Speaker Change: Are you seeing good opportunities to gain share from from some of these changes that have gone on and if so in which areas.
Kelly Motta: Yeah.
Kelly Motta: Yes, I mean, the simple answer is yes, we are seeing opportunities I would I would also say that.
David Brager: I would I would also say that, you know, probably the biggest disruption hasn't yet occurred, that will be occurring, just with, obviously, the PAC Premier acquisition or merger with Columbia. So I think that's something that we haven't seen any impact of that, obviously. But just some of the other stuff, I mean, we I've talked about it before. I mean, we've done a good job at, at, you know, sort of using the rightful approach with associates at some of these banks that have been disrupted. We've definitely been active on the customer side. Our specialty banking group, I'd say, has probably benefited the most from some of the disruptions at some of the banks, such as Citi National, you know, and First Republic.
Kelly Motta: Probably the biggest disruption hasn't yet occurred that will be occurring.
Kelly Motta: With <unk>.
Kelly Motta: Obviously, the Pac premiere acquisition are.
Kelly Motta: Merger with Colombia, So I think thats something that we haven't seen any impact of that obviously, but.
Kelly Motta: But just some of the other stuff I mean, we I've talked about it before I mean, we've done a good job at AD.
Kelly Motta: Sort of using the rifle approach with associates at some of these banks that have been disrupted we've definitely been active on the customer side.
Kelly Motta: Our specialty banking group I'd say has probably benefited the most from some of the disruptions at some of the banks such as city National.
Alan Nicholson: So I think, you know, there will continue to be opportunities there. But we're trying to bank the top 25% of clients. So a lot of these clients don't necessarily fit, you know, what we're looking for. But, you know, we'll continue to take a look at that. And it's across the board, Kelly. It's in all industries. It's in, you know, both on the lending side and the deposit side and the fee income side. Kelly, on an average basis, that was really sort of tied to our average deposit decline quarter over quarter. As we noted, you know, we tend to have really strong deposits in the beginning of the fourth quarter, but they declined fairly rapidly towards the end.
Kelly Motta: And first Republic, So I think.
Kelly Motta: There will continue to be opportunities there.
Kelly Motta: We're trying to make the top 25% of clients. So a lot of these clients don't necessarily fit what were looking for but.
Kelly Motta: We will continue to take a look at that and it's across the board Kelly. It's in all industries. It's in both on the lending side and the deposit side and the fee income side.
Kelly Motta: Okay.
Speaker Change: Got it that's really helpful and maybe a question for Alan just from a modeling perspective, it looks like average.
Speaker Change: Interest bearing cash came came down over over the last quarter is this is this a good level or is there any like puts and takes to think about your deposit growth was quite strong so.
Speaker Change: So I'm wondering.
Speaker Change: Is this a good level.
Speaker Change: Managed on a go forward basis.
Kelly Motta: Kelly on an average basis that was really sort of tied to our average deposits declined quarter over quarter as.
Speaker Change: As we noted.
Speaker Change: We tend to have really strong deposits in the beginning of the fourth quarter, but decline fairly rapidly towards the end of that that really continues to some degree all the way through tax season. So that'll rebound here or has started to rebound a bit.
David Brager: And that that really continues to some degree all the way through tax season. So that was that'll rebound here, or has started to rebound a bit here in April. So I think that's mostly tied to that.
Speaker Change: Here in April so I think thats, mostly tied to that so I would say, we will see some growth in that and but modest growth in that as we get into the second quarter.
Unknown Executive: So I would say, you know, we'll see some growth in that in but modest growth in that as we get into the second Got it. Appreciate it. Thank you.
Speaker Change: Got it I appreciate it thank you.
Unknown Executive: I'm showing no further questions in the queue at this time.
Speaker Change: Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call over to Mr. Berger for any closing remarks. Thank.
David Brager: I would now like to turn the call over to Mr. Brager for any closing remarks. Thank you, Cherie. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by the 192 consecutive quarters or 48 years of profitability and 142 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the small to medium sized businesses and their owners through all economic cycles. I would like to thank our customers and associates for their commitment and loyalty. Thank you for joining us this quarter.
Speaker Change: Thank you Sri.
Dave Brager: Citizens business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by the 192 consecutive quarters or 48 years of profitability and 142 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the best small the <unk>.
Dave Brager: <unk> sized businesses and their owners through all economic cycles, I would like to thank our customers and associates for their commitment and loyalty. Thank you for joining us this quarter. We appreciate your interest and look forward to speaking with you in July for our second quarter 2025 earnings call. Please slide Alan or I know if you have any questions.
David Brager: We appreciate your interest and look forward to speaking with you in July for our second quarter 2025 earnings call. Please let Alan or I know if you have any questions. Have a great day.
Dave Brager: Have a great day.
Unknown Executive: This concludes today's program. Thank you all for participating. You may now disconnect.
Dave Brager: This concludes today's program. Thank you all for participating you may now disconnect.
Dave Brager: Okay.
Dave Brager: [music].
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Dave Brager: Yes.
Dave Brager: [music].
Dave Brager: Okay.
Dave Brager: [music].
Dave Brager: Yes.
Dave Brager: [music].