Q2 2025 CVB Financial Corp Earnings Call
1.
Operator: Good morning, ladies and gentlemen, and welcome to the second quarter of 2025 CVB Financial Corporation and its subsidiary, Citizens Business Bank Earnings Conference Call. My name is Cherie, and I am your operator for today. At this time, all participants are in a listen-only mode.
Operator: Later, we will conduct a question and answer period. Please note, this call is being recorded.
Good morning, ladies and gentlemen, and welcome to the second quarter of 2025 CVB Financial Corporation and its subsidiary Citizens, Business Bank earnings conference call. My Name Is Sheree and I am your operator for today. At this time. All participants are in a listen-only mode. Later, we will conduct a question and answer period.
Operator: I would now like to turn the presentation over to your host for today's call, Alan Nicholson. Executive Vice President and Chief Financial Officer. You may proceed.
Please note this call is being recorded.
Speaker Change: I would now like to turn the presentation over to your host. For today's call, Alan Nicholson.
Alan Nicholson: Thank you, Sri, and good morning, everyone. Thank you for joining us today to review our financial results for the second quarter of 2025.
Alan Nicholson: Executive Vice President and Chief Financial Officer. You may proceed.
Speaker Change: Uh, thank you Sheree and good morning everyone.
Alan Nicholson: 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: Thank you for joining us today to review our financial results for the second quarter of 2025.
Speaker Change: Joining me this morning is Dave, Burger president and chief executive officer.
Our comments today will refer to the financial information that was included in the earnings announcement released yesterday.
Alan Nicholson: 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 statement.
Speaker Change: To obtain a copy. Please visit our website at www.cbank.com and click on the investors table.
The speakers on this, call claim the protection of the Safe Harbor. Provisions contained in the private Securities. Litigation Reform Act.
Of 1995.
Alan Nicholson: 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: for more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements,
Speaker Change: Please see the companies annual report on form 10K for the year. Ended December 31st 2024. And in particular, the information set forth in item 1A risk factors therein
Dave Brager: I'll now turn the call over to Dave Brager. Thank you, Alan. Good morning, everyone.
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.
I'll now turn the call over to Dave Burger.
Dave Brager: For the second quarter of 2025, we reported net earnings of $50.6 million, or 36 cents per share, representing our 193rd consecutive quarter of profitability, which equates to more than 48 years of consecutive quarters of profitability. We previously declared a 20 cents per share dividend for the second quarter of 2025, representing our 143rd consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.08% and a return on average assets of 1.34% for the second quarter of 2025. Our net earnings of $50.6 million, or $0.36 per share, compares with $51.1 million for the first quarter of 2025, or $0.36 per share, and $50 million, or $0.36 per share for the prior year quarter.
Thank you, Alan, good morning everyone for the second quarter of 2025, we reported a net, earnings of 50.6 million or 36 cents per share representing, our 193rd consecutive quarter of profitability, which equates to more than 48 years of consecutive quarters of profitability.
Speaker Change: We previously declared a 20 cents per share dividend for the second quarter of 2025 representing, our 143rd consecutive quarter of paying a cash dividend to our shareholders.
Speaker Change: We produced a return on average tangible, common Equity of 14.08% and a return on average assets of 1.34% for the second quarter of 2025.
Dave Brager: The $540,000 decline in net income in the first quarter, excuse me, in the second quarter compared to the prior quarter was a result of the first quarter, including both a $2.2 million gain from the sale of OREO properties, and a recapture of allowance of credit losses of $2 million. Pre-tax, pre-provisioned income in the second quarter of 2025 was $68.8 million, which was $1.3 million higher than the first quarter of 2025, and remained flat compared to the second quarter of 2024. Net interest income for the second quarter of 2025 was $1.2 million higher than the prior quarter and $760,000 higher than the second quarter of 2024.
Speaker Change: Our net earnings of 50.6 million or 36 cents per share Compares with 51.1 million. For the first quarter of 2025, or 36 cents per share and $50 million or 36 cents per share for the prior year quarter.
Speaker Change: The 540,000 decline in net income in the first quarter, excuse me, in the second quarter compared to the prior quarter was a result of the first quarter, including both a 2.2 million gain from the sale of Oreo properties, and a recapture of allowance of credit losses of $2 million.
Speaker Change: Pre-tax pre-provision income in the second quarter of 2025 with 68.8 million, which was 1.3 million higher than the first quarter of 2025 and remained flat. Compared to the second quarter of 2024
Dave Brager: Our earning assets remained stable between the first and second quarters of 2025. And our net interest margin remained at 3.31%. The increase in net interest income was primarily due to an additional day of interest income in the second quarter compared to the first quarter of the year. As a result of our deleveraging strategy executed during the second half of 2024, our net interest margin increased by 26 basis points from 3.05% in the second quarter of 2024, while earning assets declined by $1.1 billion from the prior year quarter. Non-interest income was $14.7 million in the second quarter, which was $1.5 million lower than the first quarter.
That interesting come for the second quarter of 2025, was 1.2 million higher than the prior quarter and 760,000 higher than the second quarter of 2024.
Our earning assets remain stable between the first and second quarters of 2025 and our net interest margin remained at 3.31%.
Speaker Change: The increase in net interest income was primarily due to an additional day of interest income in the second quarter compared to the first quarter of the year.
Speaker Change: As a result of our deleveraging strategy, executed during the second half of 2024, our net interest margin increased by 26 basis points from 3.05%. In the second quarter of 2024 while earning assets declined by 1.1 billion dollars from the prior year quarter,
Dave Brager: We realized a $2.2 million net gain from the sale of $19.3 million of OREO in the first quarter of this year. Excluding this gain, second quarter non-interest income increased by $700,000 from the prior quarter driven by higher trust and international fee income. Non-interest expense was $57 million in the second quarter, which was $1.6 million lower than the first quarter. Salary and benefits were lower by $1.5 million, and there was a $500,000 provision for off-balance sheet reserves in the first quarter. This improved the efficiency ratio to 45.6% in the second quarter, compared to 46.9% in the first quarter.
Speaker Change: Not interesting. Come was 14.7 million in the second quarter which was 1.5 million lower than the first quarter. We realized a 2.2 million net gain from the sale of 19.3 million of o in the first quarter of this year.
700000 from the prior quarter driven by higher trust and international fee income.
Dave Brager: At June 30, 2025, our total deposits and customer repurchase agreements totaled $12.4 billion, a $123 million increase from March 31, 2025, and a $330 million higher than June 30, 2024. The year-over-year net growth was net of a $200 million decrease in brokered Our non-interest bearing deposits grew by $63 million compared to the first quarter and were $157 million, or 2.2% higher than the end of the second quarter of 2024. On average, non-interest bearing deposits were 60.5% of total deposits for the second quarter of 2025, compared to 59.9% for the first quarter of 2025. Second quarter average deposits and customer repos were basically flat from both the prior quarter and the same quarter of last year.
Non-interest expense was 57 million in the second quarter which was 1.6 million lower than the first quarter salary and benefits were lower by 1.5 million. And there was a $500,000 provision for off-balance sheet reserves in the first quarter. This improved, the efficiency ratio to 45.6% in the second quarter compared to 46.9 in the first quarter.
Speaker Change: At June 30th 2025 our total deposits and customer repurchase agreements total, 12.4 billion. A 123 million increase from March 31st 2025, and a 330 million.
Speaker Change: Higher than June 30th 2024.
Speaker Change: The year-over-year, net growth was net of a hundred million dollar decrease in brokerage TVs.
Our non-interest bearing, deposits, grew by 63 million, compared to the first quarter, and were 157 million, or 2.2% higher than the end of the second quarter of 2024.
On average, non-interest bearing deposits were 60.5% of total deposits for the second quarter of 2025 compared to 59.9% for the first quarter of 2025.
Dave Brager: However, core deposits, excluding brokered CDs, grew on average by $173 million over the prior year. Our cost of deposits and repos remained at 87 basis points for the second quarter, which is the same as the first quarter of 2025 and the year ago quarter. 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.
Second quarter averaged deposits and customer. Repos were basically flat from both the prior quarter and the same quarter of last year, however, core deposits. Excluding brokerage CDs, grew on average by 173 million over the prior year.
Speaker Change: our cost of deposits and repos remained at 87 basis points for the second quarter, which is the same as the first quarter of 2025 and the year ago quarter
Dave Brager: Now, let's discuss one. Total loans at June 30, 2025, were $8.36 billion, a $5 million decline from the end of the first quarter of 2025, and a $178 million or 2.1% decline from December 31, 2024. Commercial real estate and single family loans grew by $27 million and $19 million, respectively, from the end of the first quarter. The quarter-over-quarter decrease in total loans was largely due to reductions in line utilization for C&I and dairy and livestock lines of credit. A quarter-over-quarter decrease of $30 million in C&I reflects a decrease in line utilization from 29% at March 31, 2025, to 26% at June 30.
Speaker Change: Our current deposit pipelines are strong and focused on operating companies. In addition the deposit pipeline in our specially banking Group, which is focused on title, escrow property management and fiduciaries continues to be strong.
Speaker Change: Now, let's discuss loans.
Speaker Change: Total loans to June 30th, 2025 were 8.36 billion of 5 million decline from the end of the first quarter of 2025, and a 178 million, or 2.1% decline from December 31st 2024.
Speaker Change: Commercial real estate and single family, loans grew by 27 million and 19 million respectively from the end of the first quarter.
The quarter of a quarter decrease in total loans was largely due to reductions in line utilization for cni and dairy and livestock lines of credit.
Dave Brager: In addition, dairy livestock loans declined by $18 million dollars compared to the first quarter, driven by a reduction in line utilization from 64% at the end of the first quarter to 62% at the end of the second quarter. The $178 million decrease in loans from the end of 2024 was driven by dairy and livestock loans declining by $186 million dollars, as these lines experience their seasonally high utilization at year end. CNI loans declined over the period by $13 million at line utilization decreased from 30% at the end of 2024 to 26% at June 30. Commercial Real Estate Loans and Single Family Loans increased by $10 million and $19 million respectively from the end of 2024.
A quarter over quarter, decrease of dollars in cni. Reflects a decrease of mine utilization from 29% at March, 31st 2025 to 26% at June 30th.
Speaker Change: In addition, Dairy livestock loans declined by 18 million dollars compared to the first quarter driven by a reduction in line utilization from 64%. At the end of the first quarter, to 62% at the end of the second quarter.
The 178 million decrease in loans from the end of 2024 was driven by Dairy and livestock loans declining by 186 million as these lines, experienced their seasonally High utilization at year end.
Cni loans declined over the period by 13 million, as line utilization, decreased from 30% at the end of 2024 to 26% at June 30th.
Dave Brager: Although we have seen a relative increase in loan origination so far in 2025, we also experienced a higher level of unscheduled loan payoffs in addition to the line, the reduced line utilization. We've experienced an uptick in recent loan originations, and our loan pipelines remain strong, although rate competition for the quality of loans we focus on has been intense. Loan originations in the second quarter of 2025 were approximately 58% higher than the first quarter of 2025, and 79% higher than the second quarter of 2024. The increase in loan originations was across both C&I and commercial real estate loans, with a notable increase in investor commercial real We average yields of 6.6% on new originations during the second quarter.
commercial real estate loans and single family loans increased by 10 million in 19 million respectively, from the end of 2024
Speaker Change: although we have seen a relative increase in loan origination so far in 2025, we also experienced a higher higher level of unscheduled loan payoffs in addition to the line, uh, the reduced line utilization
Speaker Change: We've experienced an uptick in recent loan, originations and our loan pipeline remains strong, although rate competition for the quality of loans. We focus on has been intense.
Speaker Change: Loan, originations, in the second quarter of 2025 were approximately 58% higher than the first quarter of 2025 and 79% higher than the second quarter of 2024.
Speaker Change: The increase in loan, originations was across both cni and commercial, real estate loans.
Speaker Change: With a notable increase in investor commercial real estate.
Dave Brager: Although loan yields were 5.22% in both the second and first quarters of 2025, the yield on our loan portfolio would have expanded by five basis points, if not for lower line utilization during the second quarter of higher yielding ABL and dairy and livestock loans, as well as lower prepayment penalty income in the second quarter of this year. We experienced $249,000 of net charge-offs for the second quarter of 2025 compared to net recoveries in the first quarter of $180,000. Total non-performing and delinquent loans increased by $3.2 million to $30 million at June 30, 2025. This increase was primarily due to an SBA loan that was greater than 30 days past due on June 30.
Speaker Change: We average yields up 6.6% on new originations during the second quarter.
The yield on our loan portfolio, would have expanded by 5 basis points if not for lower line utilization during the second quarter of higher yielding, Al and dairy, and livestock loans, as well as lower prepayment penalty income. In the second quarter of this year.
Speaker Change: we experienced 249,000 of net charge offs for the second quarter of 2025 compared to net, recoveries in the first quarter of 180,000,
Speaker Change: Total non-performing and Linkedin, loans increased by 3.2 million to 30 million at June 30th 2025.
Dave Brager: Non-performing and delinquent loans were $17.6 million lower than the $47.6 million at the end of 2024. Classified loans were $73.42 million at June 30, 2025, compared to $94.2 million at March 31, 2025, and $89.5 million at December 31, 2024. Classified loans as percentage of total loans was 0.9% at June 30, 2025. The decrease from the first quarter of 2025 was primarily due to a $17 million decline in classified owner-occupied commercial real estate loans, resulting from these loans being upgraded.
Speaker Change: This increase was primarily due to an SBA loan that was greater than 30 days past due on June 30th.
Speaker Change: Non-performing in delinquent loans were 17.6 million lower than the 47.6 million at the end of 2024.
classified loans, were 73.42 million at June 30th 2025, compared to 94.2 million at March, 31st 2025 and 89.5 million at December 31st 2024,
Speaker Change: Classified loans as a percentage of total loans was 0.9% at June 30th 2025.
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. Thanks, Dave. Net interest income was $111.6 million in the second quarter of 2025. This compares to $110.4 million in the first quarter of 2025 and $110.8 million in the second quarter of 2024. Interest income was $144.2 million in the second quarter of 2025, compared to $143 million in the first quarter, and $159.1 million in the second quarter of last year. Average earning assets increased by a modest $1.7 million in the second quarter in comparison to the first quarter, while the earning asset yield remained constant at 4.28%.
The decrease from the first quarter of 2025 was primarily due to a 17 million decline in classified owner, occupied commercial real estate loans resulting from these loans being upgraded.
Speaker Change: I will now turn the call over to Alan to further discuss additional aspects of our balance sheet and our net interest income Alan.
Alan Nicholson: Thanks Dave. Not interesting. Come was 111.6 million in the second quarter of 2025.
Alan Nicholson: This compares to 110.44%, 2025 and 110.8 million in the second quarter of 2024.
Alan Nicholson: Interesting income was 144.2 million in the second quarter of 2025 compared to 143 million in the first quarter, and 159.1 million in the second quarter of last year.
Alan Nicholson: Compared to the second quarter of 2024, our earning assets decreased by $1.1 billion and the earning asset yield declined by nine basis points. Interest expense was $32.6 million in both the second and first quarters. Our cost of funds decreased from 1.04% for the first quarter of 2025 to 1.03% in the second quarter of 2025. The average balances of deposits and repos decreased slightly by $6 million over the prior quarter, while increasing by $15 million over the second quarter of 2024. Interest expense decreased from the second quarter of 2024 by $15.6 million, primarily due to a $1.34 billion decline in average borrowings.
Alan Nicholson: Average earning assets increased by a modest 1.7 million in the second quarter in comparison to the first quarter, while the earning apps that yield remain constant at 4.28%.
Compared to the second quarter of 2024 our earning assets decreased by 1.1 billion dollars and the earning asset yield to declined by 9 basis points.
Alan Nicholson: Interest expense was 32.6 million in both the second and first quarters.
Our cost of funds decreased from 1.04% for the first quarter of 2025 to 1.03% in the second quarter of 2025.
Alan Nicholson: The average balance is the deposits and Repose decreased slightly by 6 million over the prior quarter while increasing by 15 million over the second quarter of 2024.
Alan Nicholson: With this reduction in borrowings, our cost of funds decreased by 35 basis points from the second quarter of last year. Our allowance for credit loss was $78 million at June 30, 2025, or 0.93% of gross loan. In comparison, our allowance for credit losses as of March 31, 2025 was $78.3 million, or 0.94% of gross loan. The decrease was due to net charge of $249,000. Comparatively, we had a $2 million recapture provision for credit losses during the first quarter of the year.
Alan Nicholson: interest expense decreased from the second quarter of 2024 by 15.6 million, primarily due to a 1.34 billion dollar decline in average borrowings
Alan Nicholson: With this reduction in borrowings our cost of funds decreased by 35 basis points from the second quarter of last year.
Alan Nicholson: Our allowance for credit loss, was 78 million at June 30th 2025 or 0.93% of gross loans.
Alan Nicholson: Comparison, our allowance for credit losses, as of March, 31st, 2025 with 78.3 million or 0.94% of gross loans.
Alan Nicholson: The decrease was due to net charge offs of 249,000.
Alan Nicholson: Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. We continue to have the largest individual scenario waiting on Moody's baseline forecast with both upside and downside ribs weighted among multiple forecasts. The resulting economic forecast of June 30, 2025, was marginally different from our forecast at the end of the first quarter of 2025. The updated economic forecast reflects lower GDP growth, higher unemployment, and lower commercial real estate prices. Real GDP is forecasted to stay below 1% until the second half of 2026, and not reach 2% until the end of 2027. The unemployment rate is forecasted to reach 5% by the beginning of 2026 and remain above 5% until 2028.
Alan Nicholson: Comparatively, we added 2 million recapture provision for credit losses during the first quarter of the year.
Alan Nicholson: Our economic forecasts continues to be a blend of multiple forecasts produced by Moody's.
Alan Nicholson: We continue to have the largest individual scenario, waiting on Moody's. Baseline forecast, with both upside and downside risks. Weighted among multiple forecasts
Alan Nicholson: The resulting economic forecasts is June 30th. 2025 was marginally different from our forecast. At the end of the first quarter of 2025,
Alan Nicholson: the updated economic forecasts reflects lower GDP, growth higher unemployment, and lower commercial, real estate prices
Alan Nicholson: Real GDP is forecasted to stay below 1% until the second half of 2026 and not reach 2% until the end of 2027.
The unemployment rate is forecasted to reach 5% by the beginning of 2026.
Alan Nicholson: Commercial real estate prices are forecasted to continue their decline through the second half of 2026 before experiencing growth through the year 2028.
Alan Nicholson: Switching to our investment portfolio. Available for sale, or AFS Investment Securities, were approximately $2.49 billion at June 30, 2025. The unrealized loss on AFS securities decreased by $24.7 million, from $388 million as of March 31, 2025, to $364 million on June 30, 2025. Hedging the market risk of our AFS portfolio, we have $700 million of fair value hedging. The net after-tax impact of changes in both the fair value of our AFS securities and our derivatives resulted in a $9.7 million increase in other comprehensive income for the second quarter. In May of this year, we terminated payfix swaps with a total nominal value of $700 million that was issued in June of 2023 and were scheduled to mature in June of 2028, and replaced them for the same $700 million nominal value with new payfix swaps that mature in May of 2029, 2030, and 2031.
Alan Nicholson: Commercial real estate prices are forecasted to continue their decline, through the second half of 2026, before experiencing growth, through the year 2028.
Switching to our Investment Portfolio.
Alan Nicholson: available for sale or AFS investment Securities or approximately 2.49 billion dollars at June 30th 2025,
Alan Nicholson: the unrealized loss on AFS Securities decreased by 24.7 million from 30088 million as of March. 31st, 2025 to 364 million on June 30th 2025.
Alan Nicholson: Hedging, the market risk of our AFS portfolio, we have 700 million dollars of fair value, hedges.
Alan Nicholson: The net, after tax impact of changes in both, the fair value of our AFS Securities and our derivatives resulted in a 9.7 million increase in other comprehensive, income, for the second quarter.
Alan Nicholson: Swap replacement resulted in a three basis point lower weighted average fixed rate. The positive carry on receiving daily SOFR compared to the fixed rate paid on the swaps generated $1.3 million of interest income in the second quarter of 2025. Our health and maturity investments totaled $2.33 billion at June 30, 2025, which is a $31.9 million lower balance than the end of the first quarter. Our level of wholesale funding at June 30, 2025, did not change from the end of the first quarter. Our wholesale funds consisted of $300 million of brokered CDs that have been swapped as cash flow hedges and $500 million of federal home loan bank advances.
In May of this year. We terminated payfix swaps with a total nominal value of 700 million that was issued in June of 2023 and we're scheduled to mature in June of 2028 and replace them for the same. 700 million nominal value with new paid, thick swaps that mature in May of 2029 2030 and 2031.
The swap replacement, resulted. In a 3 basis, point lower weighted average fixed rate.
Alan Nicholson: The positive carry on receiving daily. So for compared to the fixed rate paid on the swaps generated 1.3 million of interesting, come in the second quarter of 2025,
Alan Nicholson: Our held to maturity Investments total 2.33 billion dollars at June 30th 2025, which is a 31.9 million lower balance than the end of the first quarter.
Our level of wholesale funding at June 30th, 2025 did not change. From the end of the first quarter,
Alan Nicholson: As of June 30, 2025, the $500 million of federal home loan bank advances had a weighted average rate of 4.55%, and the $300 million of brokered CDs had an average rate of 4.4%.
Alan Nicholson: our wholesale funds, consisted of $300 million of brokerage CDs that have been swapped as cash flow, Hedges and $500 million of federal Home Loan Bank advances.
As of June 30th, 2025 the 500 million of federal Home Loan Bank advances had a weighted average rate of 4.55%.
Alan Nicholson: Now I'm going to turn to the capital position. At June 30, 2025, our shareholders equity was $2.24 billion, an $11 million increase from the end of March 2025. Including a $9 million increase in other comprehensive income. Retained earnings was $23 million for the second quarter.
Alan Nicholson: And the million dollars of brokerage CDs, had an average rate of 4.4%.
Now, I'm going to turn to the capital position at June 30th 2025, our shareholders Equity was 2.24 billion dollars and 11 million dollar increase from the end of March 2025.
Alan Nicholson: Including a 9 million dollar increase in other uh, other comprehensive income.
Alan Nicholson: Our Board of Directors authorized a new $10 million share repurchase plan in November of 2024. In conjunction with the share repurchase, we also approved the 10B51 plan. There were 1.28 million shares repurchased during the second quarter of 2025 at an average purchase price of $17 and $32. Year-to-date, we've repurchased 2.06 million shares at an average share price of $18.50. The company's tangible common equity ratio remained at 10% at June 30, 2025, the same as March 31, 2025. At June 30, 2025, our common equity Tier 1 capital ratio was 16.5%, and our total risk-based capital ratio was 17.3%.
Alan Nicholson: Retained earnings was 23 million for the second quarter.
Alan Nicholson: A new 10 million share repurchase plan in November of 2024.
Alan Nicholson: In conjunction with the share repurchase. We also approved the 10B 51 plan
There were 1.28 million shares. Repurchased, during the second quarter of 2025 at an average purchase price of 17.30,
Alan Nicholson: Year to date. We repurchased 2.06 million shares at an average share price of $18.15.
Alan Nicholson: the company's tangible common equity ratio remained at 10% at June 30th 2025 the same as March 31st, 2025
Dave Brager: I'll now turn the call back to Dave for some further discussion of our second quarter earnings. Thanks, Alan. Moving on to non interest income, our non interest income was $14.7 million for the second quarter of 2025, compared to $16.2 million for the first quarter and $14.4 million in the second quarter of 2024. The first quarter of 2025 included the $2.2 million gain on sale of OREO. Foley income increased by $397,000 from the first quarter of 2025 and increased by $285,000 compared to the second quarter of 2024. Our trust and wealth management fees increased by $304,000 or 8.9% and $287,000 or 8.4% from the first quarter of 2025 and the second quarter of 2024 respectively.
Alan Nicholson: at June 30th 2025, our common Equity Tier 1, Capital ratio was 16.5%, and our total risc-based Capital ratio was 17.3%.
I'll now turn the call back to Dave for some further discussion of our second quarter earnings.
Alan Nicholson: Moving on to non-interest income, our non-interest income was 14.7 Million for the second quarter of 2025 compared to 16.2 million, for the first quarter and 14.4 million in the second quarter of 2024.
The first quarter of 2025 included, the 2.2 million gain on sale of Oreo.
Fully income increased by 397,000 from the first quarter of 2025 and increased by 285,000 compared to the second quarter of 2024.
Dave Brager: International fees also increased from the first quarter by more than $150,000.
Alan Nicholson: Our trust and wealth management fees increased by 304,000 or 8.9% and 287,000 or 8.4% from the first quarter of 2025 and the second quarter of 2024 respectively.
Dave Brager: Now it's been Non-interest expense for the second quarter of 2025 was $57.6 million, compared to $59.1 million in the first quarter of 2025 and $56.5 million in the second quarter of 2024. 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 second quarter of 2025. The second quarter of 2024 also included approximately $700,000 of lower expense related to an accrual adjustment for the estimated cost of the FDIC special assessment. Staff-related expenses decreased by $1.5 million, or 4.05 percent, over the first quarter of 2025, primarily due to higher payroll taxes that occur at the beginning of each calendar year.
International fees, also increase from the first quarter by more than 150,000 dollars.
Now expenses.
Alan Nicholson: Million dollars in the second quarter of 2024.
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 second quarter of 2025.
Alan Nicholson: The second quarter of 2024 also included approximately 700,000 of lower expense related to an acral adjustment for the estimated cost of the FDIC special assessment.
Dave Brager: staff expense decreased by $430,000 or 1.2% compared to the second quarter of 2024. Occupancy and equipment expenses grew by $108,000 when compared with the first quarter of 2025 and by $335,000 compared to the second quarter of 2024. The increase in occupancy expense includes the impact of the higher rent expense for the four offices involved in the sale-leaseback transactions in the second half of 2024. We continue to invest in technology, infrastructure and automation as reflected in our growth in software expense of 4.5% or $190,000 higher than the first quarter of 2025 and 12% or $460,000 higher than the second quarter of 2024.
Alan Nicholson: Staff related expenses decreased by 1.5 million or 4.05% over the first quarter of 2025 primarily due to higher payroll taxes that occur at the beginning of each calendar year.
Alan Nicholson: Staff expense decreased by 430,000 or 1.2% compared to the second quarter of 2024.
Occupancy and Equipment. Expenses. Grew by 108,000 when compared with
Alan Nicholson: The first quarter of 2025 and by 335,000 compared to the second quarter of 2024.
Alan Nicholson: the increase in occupancy expense includes the impact of the higher rent, expense for the 4 offices involved in the sale lease back transactions in the second half of 2024,
Dave Brager: Non-interest expense totaled 1.52% as a percentage of average assets in the second quarter of 2025, compared to 1.58% for the first quarter of 2025, and 1.4% for the second quarter of 2024. Our efficiency ratio of 45.6% was lower in the second quarter of 2025, compared to 46.7% for the first quarter of 2025, but slightly higher than the 45.1% in the second quarter of 2024.
Alan Nicholson: We continue to invest in technology infrastructure and automation as reflected in our growth and software expense of 4.5% or 190,000 higher than the first quarter of 2025 and 12% or 460,000 higher than the second quarter of 2024.
Alan Nicholson: non-interest expense total 1.52% as a percentage of average Assets in the second quarter of 2025 compared to 1.58% for the first quarter of 2025 and 1.4% for the second quarter of 2024
Dave Brager: This concludes today's presentation.
Operator: Now Alan and I will be happy to take any questions. Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again.
Our efficiency ratio of 45.6% was lower in the second quarter of 2025 compared to 46.7% for the first quarter of 2025. But slightly higher than the 45.1% in the second quarter of 2024,
Speaker Change: This concludes today's presentation now, how and I will be happy to take any questions.
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Matthew Clark: and our first question will come from the line of Matthew Clark from Piper Sandler. Your line is open. Hey, good morning. Unknown Speaker I'm Sounds like the prepays and line utilization weighed on your loan yields this quarter. Can you quantify the prepay income this quarter versus last? You know how that compares to kind of a typical quarter and then the pickup and activity you're seeing in July whether or not you've seen some increase in line utilization today?
And our first question will come from the line of Matthew Clark from Piper Sandler. Your line is open.
Matthew Clark: Hey, good morning. Good morning. Matthew
Speaker Change: um,
Speaker Change: Sounds like the um prepays and line utilization weighed on your loan yields this quarter. Um can you quantify the the prepay income this quarter versus last?
Speaker Change: You know how that compares to kind of a typical quarter and then
Dave Brager: I'll take the first part of it, then Alan can, I'll take your second question, and Alan will take part of the first question there. So we're not seeing any changes in line utilization at this point. You know, in some ways, it's a good thing. It means our customers are doing well, particularly in dairy and livestock. On the C&I side, you know, people have cash. It's, you know, most of those lines are priced at prime or sober plus a spread. And, you know, it's just a better financial decision for them to utilize their cash or pay down the line if they have excess cash.
Speaker Change: Um, the pickup and activity, you're seeing in July, whether or not you've seen some increase in line utilization today.
Dave Brager: So we're not seeing an increase in the line utilization. I do expect that in the fourth quarter, specifically on the dairy and livestock loans. We'll see how everything goes relative to the C&I side of that.
Speaker Change: I, I'll take the first part of it and then Alan can. I'll take your second question and I'll take part of the first question there. So, uh, we're not seeing any changes in line utilization at this point. I, you know, in some ways, it's a good thing. It means our customers are doing well, uh, particularly in Dairy and livestock on the cni side. Um, you know, people have cash. It's, you know, most of those lines are priced at, at prime or so, for plus the spread, uh, and, you know, it's just a better financial decision for them to utilize their cash or pay down the line if they have excess cash. Uh, so we're not seeing an increase in the line. Utilization, I, I do expect that in the fourth quarter or specifically on the dairy and livestock months, uh,
Alan Nicholson: So I think, Alan, you want to take the prepayment penalty vis-a-vis payoffs. Yeah, I mean, Matthew, I guess maybe the best way to answer the beginning of your question is that we did see and really throughout the year, but particularly in the second quarter, we have elevated payoff. That's impacted more the volume than, I would say, the yield. And so, you know, if the yield impact is really our higher-yielding loans, asset-based loans, dairy and livestock, the utilization has dropped quite a bit. And so that's been very impactful on the overall mix of the loans from a yield perspective.
Speaker Change: We'll see how everything goes relative to the cni side of that.
Speaker Change: Um so I think uh Alan you want to take the prepayment penalty Visa V? Payoffs.
Matthew Clark: Yeah, I mean Matthew I guess maybe the best way to answer the beginning of your question is that we did see um and really throughout the year but particularly in the second quarter we have seen elevated um payoff.
Matthew Clark: That's, that's impacted more the volume than I would say the yield.
Alan Nicholson: Without that, and without, and prepayment penalties were down as well, I think they've indicated that we would have been up about five basis points on loan yields. So is everything else equal? And really the The re-pricing of the portfolio, just from the natural payoff and resets of adjustables, is really a couple of basis points a month, so like six basis points is what I would expect. But the mix of the assets and some of the timing of some of the fee income, as I said, for prepayments sort of overset that and did not see that come through in the financials this quarter.
Fields everything else equals and really the
Matthew Clark: the repricing of the portfolio just from the natural payoff. And resets of adjustables is really a couple basis points of a month. So like, 6 basis points is what I would expect, but the mix of the assets and uh, some of the, uh, timing of some of the P income. As I said for prepayment sort of, uh, overset that, and, and did not see that come through in the financials this quarter. So,
Matthew Clark: Okay. Thank you.
Dave Brager: And on the repurchase agreements that were up, I think, on an ended period basis, can you just remind us of the cost of those and the outlook there, whether or not there was anything unusual? Are you referring to our customer repos? Yes. We view those as deposits per se, but, you know, these are basically customers have a peg balance on their checking account and anything over that gets swept into the repos. And so I think on average it was a couple, like $400 million, I think, for the quarter and the cost of that was probably around $170 million-ish.
Okay.
Matthew Clark: And on the repurchase agreements that were up I think on an ended period basis. Can you just remind us of the cost of those and the Outlook there whether or not there was anything unusual
Are you referring?
Matthew Clark: To our customer.
Matthew Clark: Yes.
Dave Brager: Okay, thanks again. Thank you.
We view those as deposits. I would first say, but, um, you know, these are basically customers have a peg balance on their checking account, anything over that, um, gets swept into the repost. And so I think on average it was a couple like 400 million, I think for the quarter and um the cost of that was probably around 170.
Okay, thanks again.
Gary Tenner: And that will come from the line of Gary Tenner with DA Davidson. Your line is open. Thanks. Good morning. I wanted to go back to the C&I comments you made on the non-dairy and livestock loans. You've always talked about how your customers are the best business owners and operators, and you kind of reiterated that in your comments a few minutes ago. I'm just curious. It seems like the headwind there maybe remains a little bit higher than what we've seen through this earnings season. The commentary has generally been a bit more positive. Do you think that some of the lag perhaps is more customer-specific, or do you think it is a little more regional in terms of California business opportunities?
Speaker Change: Thank you. 1 moment for our next question.
And that will come from.
Speaker Change: FDA Davidson your line is open.
Uh, thanks, good morning. Good morning, wanted to go back to the, uh, cni comments, you made on, on the non-dairy and livestock loans, you've always talked about, uh, you know, how your customers are are, you know, the best business owners and operators and you kind of reiterated that in your comments a few minutes ago.
I'm I'm just curious, you know, it seems like the headwind there. Uh, maybe remains a little bit higher than what we've seen through this earnings season, uh, you know, in the commentaries generally been a bit more positive. Do you, do you think that some of
Dave Brager: Yeah, I don't think it's a regional impact. I think, you know, we have, obviously, high credit quality customers that have low balance sheet leverage, and have a lot of excess deposits. I think that's probably been, you know, the headwind for us relative to the utilization on the lines. It doesn't mean that they, they, you know, won't take advantage of opportunities, or there aren't opportunities in California. So I do think that, you know, that's, I think it's just a little bit of a, I'll say temporary, I mean, we've never had a high utilization rate. But that point to point $5 million decrease in loans, if we would have just kept the same utilization rate that we had in the first quarter, we would have grown loans from point to point.
Kind of the lag perhaps. Um, is more customer specific? Or do you think it is a little more Regional uh, in terms of California, uh, business opportunities
Speaker Change: I think, you know, we have obviously High credit quality customers that have low balance, sheet, leverage, and have a lot of excess deposits. I think that's probably been, you know, the headwind for us relative to the utilization on the line. Uh, it doesn't mean that they they you know, well take advantage of opportunities where there aren't opportunities in California. So I do think that you know, that's I think is just
Dave Brager: So I think that will turn around a little bit, Gary, I don't, I don't think it's indicative of a lack of confidence or a lack of anything. I mean, our customers are feeling relatively positive about everything. So I don't think it's indicative of the entire portfolio, I think it is more customer specific, and just the fact that they're sitting on a lot of cash. And, you know, the cost of that, from their perspective is better to utilize their cash, as evidenced by our 87 basis points cost of deposits, I mean, all things being equal, it's cheaper for them to give up the 87 basis points than pay seven and a half percent on borrowings on a, you know, line of prime plus something.
Dave Brager: So I did, I just think that's something that is hopefully something temporary. And, you know, dairy, and I know you said excluding dairy, but dairy is an important part of this. I mean, they're making a lot of money right now. And I think we may even start to see on the deferral loans that they would normally do in the fourth quarter, we should start to see some of that in the third quarter, because they are making so much money for tax planning, they need to expense things, and they're going to borrow to do that. So I think the outlook is positive from that perspective.
Speaker Change: A little bit of a, I'll say temporary. I mean, we've never had a high utilization rate, um, but that point to point 5 million, decrease in loans, if we would have just kept the same utilization rate that we had in the first quarter, we would have grown loans from point to point. So, I think that will turn around a little bit Gary. I don't, I don't think it's indicative of, of a lack of confidence or a lack of anything. I mean, our customers are feeling relatively positive about everything. Um, so I don't think it's indicative of the entire portfolio. I think it is more customer specific and just the fact that they're sitting on a lot of cash and, you know, the cost of of that, uh, from their perspective is better to utilize their cash as evidenced by our 87 basis points, cost to deposits. I mean all things being equal. Um, it's cheaper for them to give up to 87 basis points than pay 7 and a half percent on borrowing. It's on a, you know, line of prime plus something. So I
I did, I just think that's something that is hopefully something temporary, um, and, you know, Dairy, and I know you said, excluding Dairy, but Dairy is an important part of this. I mean, they're making a lot of money right now. Um, and I think we may even start to see on the dairy and livestock in the third quarter start to see some of those deferral loans that they would normally do in the fourth quarter. We should start to see some of that in the third quarter because they are making so much money for tax planning. They they need to expense things and they're going to
Speaker Change: Tomorrow to do that.
Dave Brager: And I do think that our customers will utilize their lines more. But, you know, I think this was just a, I'll say a blip in some ways, in that, you know, sitting on a lot of cash, still taking advantage of things. I mean, we have, as I mentioned, we have the highest month in the history or an increase in our, in our international group. I mean, that's basically foreign transactions, that's importing, exporting. So people are doing things, it's just that they're utilizing their cash first.
Speaker Change: So I I think the Outlook is positive from that perspective and I do think that our customers will utilize their lines more. Um, but you know, I think this was just a, I'll say a blip in some ways in that, you know, sitting on a lot of cash. Um,
Gary Tenner: Thank you for that color. Certainly a high class problem for your customers at this point. Just on the deposit side, real quickly, you know, I think your interest bearing deposit beta through the first 100 basis points sits right around 30% without knowing when, you know, the next or a series of additional rate cuts will come. Do you think you could continue that kind of pace? Or given how low your funding costs already are? Do you think it, you know, kind of next leg is a little bit lighter from a, from a beta perspective? I actually think it's going to be a little bit better from a beta perspective.
Speaker Change: Still taking advantage of things. I mean, we had as I mentioned we had the, the highest month in the history or an increase in our in our International Group. I mean that's basically foreign transactions that's importing exporting. Um, so people are doing things, it's just that they're utilizing their cash first.
Dave Brager: And just to refresh everybody's memory, in the first 50 basis point rate cut, we basically reduced our special price money market accounts by only 25 basis points. And we only did that on deposit accounts over two and a half percent. So it didn't capture anything below two and a half. On the second and cuts of 25 basis points, we did 100% of it, we went down to 2% on the second cut, and we went down to one and a half percent on the third cut. If we have another cut, we will we will capture, you know, for the most part, everything over 1% with 100% decrease, there may be some people that come back and push back a little bit on that.
Um, just on the, on the deposit side, uh, real quickly. You know, I think your interest bearing deposit beta through the first 100 basis points sits right around 30%, without knowing when, you know, the next or series of additional rate Cuts will come, do you think you could continue that kind of pace or given how low your funding costs are already are? Uh, do you think it, you know, kind of the next leg is a little bit lighter from a, from a beta perspective. I actually think it's going to be a little bit better, from a beta perspective and just to refresh everybody's memory in the first 50 basis. Point rate cut. We basically reduced our special price money market accounts by only 25 basis points and we only did that on deposit of the counts over 2 and a half percent. So it didn't capture anything below 2 and a half on the second and third cuts of 25 basis points. We we did a 100% of it. We went down to 2% on the second cut and we went down to 1 and a half percent.
Dave Brager: But all in all, I think we'll do better than 30% on that. Appreciate it. You're welcome.
Speaker Change: On the third cut. Uh, if we have another cut, uh, we will, we will capture, you know, for the most part, everything over 1% with a 100% decrease. There may be some people that come back and push back a little bit on that. But all in all, I think we'll do better than 30% bet on on that.
Andrew Terrell: One moment for our next question. And that will come from the line of Andrew Terrell with Stevens. Your line is open. Hey, good morning. Good morning. Maybe sticking with high class problems to have you guys had a pretty big building cash at end of period. Just wanted to get your thoughts on, you know, any interest in putting cash to work in the bond book, you know, barring a pickup in loan growth or any kind of FHLB reduction or, you know, deposit optimization that could take place in the back half of the year.
Speaker Change: Appreciate it.
Speaker Change: You're welcome.
Speaker Change: Thank you. 1 moment for our next question.
Speaker Change: And that will come from the line of Andrew Terrell with Stevens. Your line is open
Speaker Change: Hey, good morning. Good morning.
Speaker Change: Um maybe sticking with high class problems to have you, you guys had a a pretty big building cash at at end of period.
Speaker Change: Just wanted to get your thoughts on, you know, any interest in putting cash to work in the bond book. You know, barring a, a pickup in loan growth or any kind of fhlb reduction or
Dave Brager: So Andrew, I would think the most likely scenario would be building the investment book. At this point, just the way we're managing interest rate risk, I don't see us reducing the wholesale funding. So yeah, we've built up some cash, we're We'll be judicious about utilizing it because there is a lot of seasonality to our assets and our liabilities, but it's probably more likely than anything we do start to grow the investment book. Got it. Okay, thanks.
Speaker Change: Um, you know, deposit, um, optimization that that could take place in in the back half of the year.
Speaker Change: So Andrew, I would think, um, the most likely scenario would be, uh, building the investment book at this point, just the way we're managing, um, interest rate risk. I don't see us uh, reducing the, uh, the wholesale funding.
Speaker Change: Uh, so yeah, we we, we we've, uh, we've built up some cash. We're, you know, um, we'll be judicious about utilizing it because there is a lot of seasonality to to our asset and our liabilities, but, um, you know, it's it's probably more likely than anything we do. Uh, start to grow the investment book.
Andrew Terrell: And then maybe for Dave, I think you mentioned in some of the prepared comments, just the competitive environment today was, I think you said fierce. I was hoping you could just talk a little bit more about what you're seeing from a competitive standpoint today. Any pockets where you're seeing more or less competition? And then how's that impacting, you know, new loan origination yields? And I'd love to tie that in with, you know, do you feel like the competitive environment could at least partially offset that, that, you know, static kind of fixed repricing benefit you guys are anticipating?
Speaker Change: Got it. Okay, thanks. Um, and then maybe for for Dave, I think you mentioned in some of the prepared, comments, just the the competitive environment today was, um, I think you said fierce
Dave Brager: Yeah, I think I said intense, I should have used fierce, that sounds better. So I'll have my speechwriters work on that for next quarter. But no, it has been intense. And, and, you know, we're seeing spreads that, you know, anywhere from 130 to 170 over like treasuries on on fixed rate stuff. And, and, you know, it's, in some ways, kind of ridiculous that people are willing to do that, and maybe they believe rates are coming down, longer term rates are coming down. I'm not sure I share that same feeling, so we'll see how that plays out, but, you know, we try and stick to at least two to two and a half percent over like indexes.
Dave Burger: I was hoping you could just talk a little bit more about what you're seeing from a competitive standpoint today, any Pockets where you're seeing more or less competition and then how's that impacting, you know, new loan origination yields and I'd love to dial that down with, you know, do you feel like the competitive environment could uh, at least partially offset that that you know, static uh, kind of fixed rate pricing benefit? You guys are anticipating.
Dave Burger: Yeah, I think I said intense, I should have used Fierce, that sounds better. So, I'll have my speech writers work on that for next quarter. Um, but no, uh, it has been intense and and you know, we're seeing spreads that, you know, anywhere from 1:30 to 1 170 over like treasuries on on fixed rate stuff and and you know, it's in some ways.
Dave Brager: For the right relationship, for the right customer, obviously, we have to be competitive, but when we're looking at new relationships to the bank, you know, the focus is really on what's the overall relationship, loan, deposits, fee income opportunities, all of those things, and so we just have to price it based on that, but we're absolutely seeing things priced at, you know, 130 to 170 over like Treasuries, so, you know, in the mid-fives, I do think our origination yields will come down a little bit in the third quarter, and we'll see how that plays out as we get to the fourth quarter, but, you know, we're probably somewhere closer to six and a quarter to six and a half percent origination rate, you know, so far this quarter, so we'll see how that all plays out, and it's across the board.
Dave Burger: Kind of ridiculous. Uh, that people are willing to do that and maybe they believe rates are coming down longer term rates are coming down, I'm not sure. I share that same feeling. Um, so we'll see how that plays out. But, you know, we we try and stick to at least 2 to 2 and a half percent over, like indexes for the right relationship for the right customer. Obviously, we have to be competitive, uh, but when we're uh, looking at new relationship
Dave Brager: It's big banks. It's a lot of people on it, and I, you know, we're going to be disciplined in our underwriting first and foremost, so we're going to choose the best customers, and they're hopefully going to choose us as well, but we're also seeing competition on the underwriting side, on the structure side. We just were competing for a deal that was a restaurant that wanted money, basically unsecured money, to remodel their locations. They have multiple locations, and a bank came in and did that totally unsecured, unguaranteed, and it's a restaurant, and it's, you know, a good restaurant, but it's still a restaurant, and so those are the kinds of things we're seeing, and I think some of that is just pressure based on, you know, people saying that they can grow loans 10 percent or whatever the case may be, and I'm still confident in the production that we have, and the pipelines look good for the next couple of months at least, and so, you know, I do believe we'll still be able to grow, notwithstanding the seasonality and the dairy, and we'll see how the rest of the year plays out, but we'll compete where we need to compete for the right relationship, but, you know, to Alan's point about growing the investment book, you know, if we can get five plus percent on an investment security versus five and a half percent on a loan, I mean...
Dave Burger: So we're we're going to choose the best customers. Um,
Dave Burger: And they're hopefully going to choose us as well. Uh, but we're also seeing competition on the, on the underwriting side. On the structure side, uh, we just were competing for a deal that, um, was a restaurant. Uh, that wanted money basically unsecured money to remodel their locations. They have multiple locations and, uh, a bank came in and did that totally unsecured and unarmed, um, and it's a restaurant and it's, you know, a good restaurant, but it's still a restaurant. And so those are the kinds of things we're seeing. And I think some of that is just pressure based on, you know, people saying that they can grow, loans, 10%, or whatever, the case may be. And I am still confident in the production that we have and the pipelines look good for the next couple of months, at least. Um, and so, you know, I, I do believe, we'll, we'll still be able to grow. Notwithstanding the seasonality and the dairy. Um,
Andrew Terrell: The map says do the investment security. Great. I really appreciate all the color there. And thanks for taking the questions. Of course.
Alan Nicholson: And uh we'll see how the rest of the year plays out, but we we'll compete where we need to compete, uh, for the right relationship. But you know, to Allen's point about growing the investment book. You know, if we can get 5 plus percent on a investment security versus 5 and a half percent all alone. I mean
Dave Burger: The math says, do the investment security?
David Feaster: One moment for our next question and that will come from the line of David Feaster with Raymond James. Your line is open. Hey, good morning, everybody. Good morning. Maybe just kind of staying on the competitive side. First off, where are you seeing the most competition from? Is it the larger banks? Is it non banks? Just kind of curious where this competition is coming from.
Dave Burger: Great. Um, I really appreciate all the color there uh and thanks for taking the questions.
Speaker Change: Of course.
Speaker Change: Thank you. 1 moment for our next question.
Speaker Change: And that will come from the line of David faster. With Raymond James, your line is open
Speaker Change: Hi. Um, good morning everybody. Good morning.
Speaker Change: Maybe just kind of staying on the competitive side. Uh, first off, where, where are you seeing?
Dave Brager: And then maybe given a bit more competitive pricing on your side, you know, do you think originations can can start outpacing these elevated payoffs and paydowns kind of in the back half of the year? So I'll take the last part first. Yes, I still believe that originations can outpace the, you know, payoffs and that type of thing. I think we'll get some more normalization in our utilization. So I think that will help. Obviously, we have the seasonality of dairy. And to answer your question as far as the competition, it's not coming from private credit. Most of the private credit stuff is not stuff we would necessarily want to do anyway.
Speaker Change: The the most competition from it. It is the larger Banks. Is it non-banks? Um, just kind of curious where this competition is coming from and then maybe just giving a bit more competitive pricing on your side, you know? Do you think originations can can start outpacing these elevated payoffs and pay Downs? Kind of in the back, half of the year
Speaker Change: um, so I'll take the last
Speaker Change: yes, I
Dave Brager: And so I think that that's something that we're not seeing. I would say that the I'll use Andrew's word, the fiercest competition is coming from sort of the regional banks. To some degree, the larger banks, it's not really the smaller banks that we're seeing the ridiculous pricing from, you know, that's more of a structure challenge, I would say.
Speaker Change: Believe that originations can outpace uh the you know payoffs and that type of thing. I think we'll get some more normalization in our utilization. Uh so I think that will help obviously we have the seasonality of dairy and to answer your question as far as the competition. It's not coming from private credit. Uh most of the private credit stuff is not stuff. We would necessarily want to do anyway. Um and so I think that that that's something that uh, we're not seeing. I would say that the
Andrew Terrell: I'll use Andrews where the fiercest competition is coming from sort of the regional Banks.
Speaker Change: Um,
David Feaster: So I think the combination of all of those things, if I had to sort of characterize it, I would say it's more of the regional bank, kind of the bank that's that, you know, 100 to 250 billion in asset bank. Okay, that's helpful.
Dave Brager: And you know, we've talked in the past about the success that your specialty banking groups had, you know, I'm curious kind of how that that groups contributed that maybe this quarter to some of the the, you know, solid deposit trends that you're seeing and, and maybe more broadly, the competitive side for funding, right? I mean, you know, just curious what you're seeing there, especially as industry growth seems to be improving. Yeah, I look, they they had a record year last year. They're not quite at record year pace this year, but they're still having a good year.
Speaker Change: to some degree, the larger Banks. It's not really the smaller Banks, uh, that we're seeing the ridiculous pricing from, um, you know, that's more of a structure challenge. I would say. So, I think the combination of all of those things, if I had to sort of characterize it, I would say it's more of the Regional Bank, kind of the bank, that's that, you know, 100 to 250 billion in asset Bank.
Speaker Change: Okay, that's helpful. Um, and you know, we've talked in the past about the success that your specialty banking groups had, you know, I'm curious kind of how that that groups contributed that maybe this quarter to some of the the, you know, solid deposit trends that you're seeing and and maybe more broadly, the the competitive side for funding, right? I mean, you know, just curious what you're seeing there especially as industry growth. Seems to be improving
Dave Brager: And very candidly, we could be even doing better there. But it's similar to the loan pricing, we're very conscientious about the cost of, you know, third party vendor payments, and you know, the related ECR rate, the earnings credit rate that we would have to pay. And so there are people out there that are paying extremely high ECR rates, and then subsequently, you know, writing big checks through third party vendor payments. That is not our model. Our model is more relationship based, service based, all of those things. And and we've been successful. And I think I've mentioned this in the past.
Speaker Change: Yeah, I I look they they they had a a record year last year. Um, they're not quite at record to your pace this year but they're still having a good year uh and very candidly, we can be even doing better there. Um but it's similar to the loan pricing, we're very conscientious about the the cost of you know third-party vendor payments. And you know the the
Dave Brager: Our ECR beta was lower than our deposit beta in the up cycle and has remained, you know, that. So, you know, we we are seeing competition there. There are banks that are willing to pay up. And I can tell you of the customers that have left in that group, I would say at least 40 to 50 percent of them come back to us because people are just throwing it out there to get deposits. But there's a lot to that business. And we have a great team that does a great job and, you know, has competed very well without having to give away the bank.
David Feaster: That's helpful.
David Feaster: And maybe just last one for me, just, you know, always interested to hear your thoughts on the M&A side. I mean, we've seen some more maybe transactions happening, you know, stronger currencies. Curious how conversations are going and just kind of what you're seeing on the M&A front. Yeah, conversations are still happening. You know, I agree with you that we are seeing more transactions. I think Most of the transactions I'm seeing are being done at, you know, very reasonable pricing. I do believe that most of the conversations I'm having with people, there are expectations of better pricing, and in some cases, pricing that makes it a little more challenging for us.
Speaker Change: 40 to 50% of them, come back to us, uh, because people are just throwing it out there to get deposits, uh, but there's a lot to that business and we have a great team that does a great job, uh, and you know, has competed very well uh, without having to give away the bank.
That's helpful and maybe just lasts 1 for me just you know always interested to hear your thoughts on the m&a side. I mean we've seen some more maybe transactions happening, you know, stronger currencies curious how conversations are going and um just kind of what you're seeing on the m&a front.
Speaker Change: Yeah, um, conversations are still happening.
Speaker Change: you know, I
With you that we are seeing more transactions. Uh, I think
Dave Brager: I do think that, you know, and I still believe that we can announce something by the end of the year. It will probably take us, you know, pushing a little further outside of our box than we would want to in order to make that happen. But for the right organization, that's something we would consider. And I just think that, you know, we we've had opportunities. We've looked at stuff. There's nuances to the stuff we've looked at for, you know, that would include reasons on why we didn't do something. But at the end of the day, we, you know, we want to make sure that we, you know, Keep Citizens Business Bank, Citizens Business Bank, and do a good job at integrating.
Speaker Change: Most of the transactions I'm seeing are being done at, you know, very reasonable pricing. Uh, I do believe that most of the conversations I'm having with people, there are, uh, expectations of better pricing. Um, and in some cases pricing, that makes it a little more challenging for us. Uh, I do think that, you know, and I still believe that we can announce something by the end of the year. Um, it it
Speaker Change: It will probably take us, you know, push it a little further outside of our box than we would want to in order to make that happen. Uh, but for the right organization, that's something we would consider. Uh, and I just think that, you know, we, we've had opportunities, we've looked at stuff, there's nuances to the stuff we've looked at for, you know, that would include reasons on why we didn't do something. Um, but at the end of the day, we, you know, we want to make sure that we
You know.
Dave Brager: And so there are nuances. But David, most of those deals have been outside of California. I mean, Sam, the PPPI deal, there really hasn't been anything in California, at least California, you know. Centric. Yeah, it's a good point.
Operator: All right.
Centric.
Kelly Motta: Thanks, everybody, for the caller. Appreciate it. Thank you.
Operator: As a reminder, if you would like to ask a question, please press star 11.
Speaker Change: Yeah, it's a good point. All right, thanks everybody for the caller. Appreciate it, of course.
Operator: One moment for our next question.
Kelly Motta: And that will come from the line of Kelly Motta with KBW, your line is open. Hey, good morning. Thanks for the question. Maybe maybe piggybacking on on that last point. I The economic environment in California has had some headwinds. You know, you are a California based bank and, you know, bank the best businesses in your footprint, but wondering, you know, just given the macro. challenges. Would you consider going out of state? Or have you started to have those discussions more now relative to maybe a couple of years ago? Thanks. You're welcome, Kelly. And it's a great question.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star 1 1 1, 1 moment for our next question.
And that will come from the line of Kelly Ma with KBW. Your line is open.
Speaker Change: Hey, good morning, thanks for the question. Um, good morning.
Speaker Change: Maybe, maybe piggybacking on on, uh, that last Point. Um, I
The economic environment in California has had some headwinds, you know, you are a California based bank and, you know, Bank, the best businesses, uh, in your footprint. But wondering, you know, just given the um, macro
Speaker Change: Challenges. Um, would you consider going out of state or have you started to have those discussions? Um more now relative to maybe a couple of years ago? Thanks.
Dave Brager: In our investor presentation, I don't know if you guys noticed this or not. But we did sort of modify our acquisition strategy, which is on page 10. And you will notice that it now says in market and new geographic markets, and we removed the word California. I think for the most part, we would still be looking for a California-centric bank. And I would say in the past, we've been more hesitant to look at banks that have, you know, locations outside of California. But I just think from a strategic perspective, we're sort of opening, you know, opening the window a little bit more to look at other things as well.
Speaker Change: Uh, you're welcome Kelly and it's a great question. Um, in our investor presentation. I don't know if you guys noticed this or not
Speaker Change: Um but we did sort of modify uh, our acquisition strategy which is on page 10. Um, and you will notice uh, that it now says in market and new Geographic markets, and we removed the word California. Um, I think for the most part we would still be looking for a California Centric Bank. Um, and I would say in the past, we've been more hesitant to look at banks that have, you know,
Dave Brager: So, obviously, there's nothing imminent or nothing that, you know, it's just more of a strategic decision to consider expanding beyond our borders currently. And to your point about California economic headwinds, I think there is some truth to that. But I also think there's still so much opportunity here. And the environment we're in with the diversity of industry and the diversity of, you know, things here does create, you know, still allows us to take advantage of that from a market share perspective. So, and looking at de novo teams as well. So, you know, it's all on the table, I would, I guess I would answer your question by Thanks for the color and pointing that out.
Locations outside of California, but I just think from a strategic perspective, we're sort of opening, uh, you know, opening the window a little bit more to look at other things as well. Um, so obviously, there's nothing imminent or nothing that, you know, it's just more of a strategic decision to consider, uh, expanding beyond our borders currently, um, and, and to your point about California, economic headwinds. I, I think there is some truth to that, but I also think there's still so much opportunity here in the the environment we're in, with the diversity of of industry and the diversity of of, you know, things here uh, does create, you know, still allows us to take advantage of that from a market share perspective, so um and looking at denovo teams as well. So you know, it's all it's all on the table. I would, I guess I would answer your question by.
Kelly Motta: I really appreciate it.
Alan Nicholson: Maybe last question from me, your expenses are really well controlled. And it seems like, you know, the growth environment, there's been a couple things that have been working, you know, in in the wrong direction, even though your clients remain really healthy, and you've been able Unknown Attendee, Robert Terrell, Ahmad Hasan, Michelle Edu, CVB Financial Corp. Sure, Kelly, I mean, I would think about run rate a couple ways. You know, Dave mentioned, you know, Q1 to Q2 is always a little noisy, because payroll taxes are always higher in the first quarter. As you get into the second half of the year, we do do mid-year salary increases for our associates in July.
Expenses are really well controlled. And it seems like, you know the growth environment. There's been a couple things that have been working, you know, in in the wrong direction. Even though your clients remain really healthy and you've been able
Speaker Change: To control expenses, you know very well. In, in light of that wondering, you know, given that the step down this quarter. If, if there's any nuances around that, that we should be mindful of when thinking about the Run rate ahead and any Flex there. Thank you.
Alan Nicholson: And so, you know, staff expense should grow a little bit from that perspective. But we have done a really good job of, I think, utilizing technology to automate things. And it's allowed us to manage expenses on the staff side pretty well. We'll continue to see, I would say, probably double digit, you know, 10% growth in, you know, our technology side. That would be the one area that should continue to grow. But overall, expense growth should still be, you know, low single digits as it typically is for us. You know, and we'll continue to be, you know, obviously, we monitor that very, very closely.
Dave Brager: And Kelly, I'm just going to add one one little piece to that. And I think it's an important piece. And, you know, there's a lot of moving parts in some of these numbers. But even if you look at occupancy expense, when we did the sale leaseback transactions, the the rental expense, the actual occupancy expense of the properties, you know, we're increasing by two point two to two point four million dollars. And if you look at the numbers, I mean, they've only I think they went up three hundred thirty five thousand dollars in the second quarter.
Speaker Change: Sure. Kelly. I mean I I would think about run rate a couple ways you know, Dave mentioned, you know q1 to Q2 is always a little noisy because payroll taxes are always higher in the first quarter. Um, as you get into the second half of the year, we do do mid-year salary increases for our Associates in July. Um, and so, you know, staff expense should grow a little bit from that perspective, uh, but we have done a really good job of of I, I think utilizing the technology to automate things and it's allowed us to manage expenses, on the staff side, pretty well uh, we'll continue to see. Uh, I would say, probably double digit, you know, 10% growth in, you know, our technology side that would be the 1 area that should continue to grow. But overall expense growth should still be, you know, low single digits as it typically is for us. Um you know, and we'll continue to be, you know, obviously we we monitor that very, very closely.
Dave Brager: So we are consistently looking at our locations, how much space we're in. We just relocated one of our offices. We were in seventy five hundred square feet. We moved to twenty five hundred square feet. So every lease renewal is an opportunity for us to look at that, you know, with the perceived softness in office and a good tenant us. We've been able to negotiate, you know, reductions in lease rates on the remaining properties. So we're working hard to maintain, you know, that. And I think Alan would normally say it's low single digit, you know, expense growth per year.
Speaker Change: And I'm just going to add 1 1, little piece to that, and I think it's an important piece and, you know, there's a lot of moving Parts in in some of these numbers. But even if you look at occupancy expense when we did the sale lease back, transactions, uh, the the rental expense, the actual occupancy, expense of the properties, you know, uh, were increasing by 2.2 to 2.4 million. Uh, and if you look at the numbers, I mean, they've only, I think they went up 335,000 in the second quarter. Um, so we are consistently looking at our locations, uh, how much space we're in. We just relocated 1 of our offices. We were in 7,500 square feet. We moved to 2500 square feet. Uh, so, every lease renewal is an opportunity for us to look at that, you know, with the perceived softness in office, uh, and a good tenant us. Um, we've been able to negotiate, you know, reduction.
Kelly Motta: And and I think that's something that we can we can continue to execute on. And we have had positive operating leverage the last two quarters. And and, you know, we're working hard to do that. And there's two parts to that, obviously, growing revenue and and keeping expenses, you know, in line and or decreasing. So we're working on all those things. Got it. Thanks so much for the color there. I'll step back. Thank you.
Speaker Change: In in lease rates on the, the remaining properties. Um, so we're working hard to maintain, you know, that. And I think Alan would normally say it's low single digit, you know, expense growth per year. And and I think that's something that we can we can continue to execute on and we have had positive operating leverage the last 2 quarters. And and, you know, we're working hard to do that and there's 2 parts to that obviously growing revenue and and keeping expenses you know, in line and or
Decreasing. So we were working on all those things.
Operator: I'm showing no further questions in the queue at this time.
Speaker Change: Got it. Thanks so much for for the color there. I'll step back.
Dave Brager: I would now like to turn the call back 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 our 193 consecutive quarters or more than 48 years of profitability, and 143 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. Thank you again for joining us this quarter.
Speaker Change: Thank you. 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 any closing remarks
Dave Brager: We appreciate the interest and look forward to speaking with you in October for our third quarter 2025 earnings call. Please let Alan or I know if you have any questions. Have a great day.
Operator: This concludes today's program. Thank you all for participating.
Mr. Brager: Thank you. Sheree Citizens, Business Bank continues to perform consistently in all operating environments, our solid financial performance is highlighted by our 193. Consecutive quarters or more than 48 years of profitability and 143 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. Thank you again for joining us this quarter. We appreciate the interest and look forward to speaking with you, in October, for our third quarter, 2025 earnings, uh, call please let Allan. Or, I know if you have any questions, have a great day
Operator: You may now disconnect.
Mr. Brager: This concludes today's program. Thank you all for participating. You may now. Disconnect