CVB Financial Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2025

There are 9 speakers on the call.

Operator

Good day, and welcome to the CVB Financial First Quarter twenty twenty five 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr.

Operator

Alan Nicholson, Executive Vice President and Chief Financial Officer. Please go ahead.

Speaker 1

Thank you, Sherri, and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of twenty twenty five. Joining me this morning is Dave Breger, 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 1

The speakers on this call claim the protection of the Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward looking statements, please see the company's annual report on Form 10 ks for the year ended 12/31/2024. 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. I'll now turn the call over

Speaker 2

to Dave Brager. Dave? Thank you, Alan. Good morning, everyone. For the first quarter of twenty twenty five, we reported net earnings of $51,100,000 or $0.36 per share, representing our 190 consecutive quarter of profitability, which equates to forty eight years.

Speaker 2

We previously declared a $0.20 per share dividend for the first quarter of twenty twenty five, representing our one hundred and forty second 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 twenty twenty five. We announced in November of twenty twenty four that our Board of Directors authorized a new 10,000,000 share repurchase program and approved a 10b5-one plan. Year to date, as of yesterday, we have repurchased 2,050,000.00 shares at an average share price of $18.13 Our net earnings of $51,100,000 or $0.36 per share compares with $50,900,000 for the fourth quarter of twenty twenty four or $0.36 per share and $48,600,000 or $0.35 per share for the prior year quarter. Pretax income in the first quarter of twenty twenty five was $69,500,000 which was $1,500,000 higher than the fourth quarter of twenty twenty four and $2,700,000 higher than the first quarter of twenty twenty four.

Speaker 2

Our net interest margin expanded by 13 basis points in the first quarter of twenty twenty five, primarily due to the actions we took towards the end of twenty twenty four in which we deleveraged our balance sheet by reducing borrowings and other wholesale funds. Our net interest margin for the first quarter of twenty twenty five was 3.31% compared to 3.18% for the fourth quarter of twenty twenty four and three point one zero percent for the first quarter of twenty twenty four. In the first quarter, we sold $19,300,000 of OREO that was reflected on our 12/31/2024 balance sheet generating a $2,200,000 net gain on sale. Primarily due to reduction in outstanding dairy and livestock loans, we had a recapture of allowance for credit losses of $2,000,000 in the first quarter of twenty twenty five and a $500,000 provision for off balance sheet reserves. This compares to a $3,000,000 recapture of allowance for credit losses in the fourth quarter of twenty twenty four.

Speaker 2

At 03/31/2025, our total deposits and customer repurchase agreements totaled $12,300,000,000 a $56,000,000 increase from 12/31/2024 and $95,000,000 higher than 03/31/2024. Our non interest bearing deposits grew by $147,000,000 or 2% compared to the end of twenty twenty four and were $71,000,000 higher than the end of the first quarter of twenty twenty four. We generally experienced 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 $380,000,000 decline in average deposits and repos from the fourth quarter of twenty twenty four to the first quarter of twenty twenty five. Total deposits and customer repos grew on average by $244,000,000 over the first quarter of twenty twenty four, including $139,000,000 in average growth in brokered CDs.

Speaker 2

On average, non interest bearing deposits were 59% of total deposits for the first quarter of twenty twenty five, which compares to 58.7% for the fourth quarter of twenty twenty four, but lower than the 61.7% average in the first quarter of twenty twenty four. Our cost of deposits and repos was 87 basis points for the first quarter of twenty twenty five, which compares to 97 basis points for the fourth quarter of twenty twenty four and seventy three basis points for the year ago quarter. Our cost of non maturity deposits, which represents more than 95% of our deposits has grown from 70 basis points in April of twenty twenty four to 76 basis points in March of twenty twenty five. 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 2

Now let's discuss loans. Total loans at 03/31/2025 were $8,360,000,000 a 173,000,000 decrease from the end of the fourth quarter of twenty twenty four and a $4.00 $7,000,000 or 4.6 percent decline from 03/31/2024. The quarter over quarter decrease was largely due to a $168,000,000 decline in dairy and livestock loans. In addition, real estate loans declined by $17,000,000 compared to the end of twenty twenty four, but C and I loans grew by $17,000,000 We typically experience a seasonal decline in dairy and livestock loans during the first quarter of 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 twenty twenty five included a decrease in line borrowings of approximately $40,000,000 due to the final distributions received by some of our dairies from the Fairlife sale to Coca Cola.

Speaker 2

These reductions contributed to the line to the low utilization rate of 64% at 03/31/2025 compared to 81% at 12/31/2024 and seventy five percent at 03/31/2024. The decrease in loans from the end of the first quarter of twenty twenty four included commercial real estate loans declining by $230,000,000 and construction loans declining by $43,000,000 Dairy and livestock loans were down year over year by $91,000,000 while C and I loans also declined by $21,000,000 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 twenty twenty five were approximately 13% higher than 2024. The increase in originations was across both C and 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.

Speaker 2

C and I line utilization continues to be low declining from 30% at 12/31/2024 to 29% at the end of the first quarter of twenty twenty five. Our current loan pipelines remain strong as we are seeing more activity in commercial real estate. Total non performing and delinquent loans decreased to $26,800,000 at 03/31/2025 from $47,600,000 at 12/31/2024. We ended 2024 with $19,300,000 in OREO assets. All of these assets were sold during the first quarter of twenty twenty five at a net gain of $2,200,000 Net recoveries in the first quarter were $130,000 which compares to $180,000 in net recoveries for the fourth quarter of twenty twenty four.

Speaker 2

Classified loans were $94,200,000 at 03/31/2025 compared to $89,500,000 at 12/31/2024. Classified loans as percentage of total loans was 1.13% at 03/31/2025. The increase from the end of twenty twenty four was primarily due to a downgrade of 6,500,000 of loans to a single dairy. Overall, the credit metrics for our dairy and livestock loan portfolio improved with a $51,000,000 decline in criticized loans from the end of twenty twenty four. I will now turn the call over to Alan to further discuss additional aspects of our balance sheet and our net interest income.

Speaker 2

Alan?

Speaker 1

Thanks, Dave. Our allowance for credit loss was $78,200,000 at 03/31/2025 or 0.94% of gross loans. For the first quarter of twenty twenty five, we recaptured $2,000,000 of provision for credit losses while increasing our off balance sheet reserves by $500,000 In comparison, our allowance for credit losses as of 12/31/2024 was $80,000,000 or 0.94% of gross loans. 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 risk weighted among multiple forecasts.

Speaker 1

The resulting economic forecast at 03/31/2025 was marginally different from our forecast at the end of twenty twenty four 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 twenty twenty six. The unemployment rate is forecasted to reach 5% by the beginning of twenty twenty six and remain above 5% until 2028. Commercial real estate prices are also forecasted to continue their decline through the first half of twenty twenty six. Switching to our investment portfolio available for sale or AFS investment securities were approximately $2,540,000,000 at 03/31/2025. The unrealized loss on AFS

Speaker 1

Hedging the market risk of our AFS portfolio, we had $700,000,000 of fair value hedges at the end of the first quarter. These 3.75% pay fixed swaps declined in value from the end of twenty twenty four by $8,000,000 The net after tax impact of changes in both fair value of our AFS securities and our derivatives resulted in a $35,000,000 increase in other comprehensive income for the first quarter. Our held to maturity investments totaled $2,360,000,000 at 03/31/2025, which is $25,000,000 lower than the balance at the end of twenty twenty four. Our level of wholesale funding at 03/31/2025 did not change from the end of twenty twenty four. Our wholesale funds consisted of $300,000,000 of brokered CDs that have been swapped as cash flow hedges at an average rate of four point four percent and $500,000,000 of federal home loan bank advances at a weighted average rate of 4.55%.

Speaker 1

As a result of our balance sheet deleveraging during the second half of twenty twenty four, our borrowings declined by $1,500,000,000 and our brokered CDs declined by $100,000,000 from 03/31/2024. Now turning to our capital position at 03/31/2025, our shareholders' equity was $2,230,000,000 a $42,000,000 increase from the end of twenty twenty four, including a $35,000,000 increase in other comprehensive income. Retained earnings was $23,000,000 for the first quarter. Our Board of Directors authorized a new share repurchase plan in November of twenty twenty four. There were 782,000 shares repurchased during the first quarter of twenty twenty five at an average purchase price of $19.53 So far in April through yesterday, we have purchased an additional 1,300,000.0 shares at an average purchase price of $17.26 The company's tangible common equity ratio at 03/31/2025 was 10% compared with 9.8% at 12/31/2024.

Speaker 1

At 12/31/2025, our common equity Tier one 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. Now net interest income was $110,400,000 in the first quarter of twenty twenty five. This compares to $110,400,000 in the fourth quarter of twenty twenty four and $112,500,000 in the first quarter of twenty twenty four. Compared to the prior quarter, interest income declined by $4,600,000 as our average earning assets decreased by $4.00 $6,000,000 The $320,000,000 decline in funds at the Federal Reserve contributed $4,000,000 of the $4,600,000 decrease.

Speaker 1

Partially offsetting the impact of lower earning assets was a four basis points increase in our earning assets yield, including a seven basis point increase in average loan yields. Interest income declined by $14,700,000 when compared to the first quarter of twenty twenty four as earning assets were $1,100,000,000 lower in the first quarter of twenty twenty five. Interest expense decreased by $4,600,000 over the prior quarter due to a $270,000,000 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 twenty twenty four to 1.04% in the first quarter of twenty twenty five. Interest expense decreased from the first quarter of twenty twenty four by $12,700,000 primarily due to a $1,500,000,000 decline in borrowings, which was the primary driver of our cost of funds decreasing by 27 basis points from the first quarter of twenty twenty four.

Speaker 1

I'll now turn the call back to Dave for further discussion of our first quarter earnings.

Speaker 2

Thank you, Alan. Moving on to non interest income, our non interest income was $16,200,000 for the first quarter of twenty twenty five compared to $13,100,000 for the fourth quarter and $14,100,000 in the first quarter of twenty twenty four. The first quarter included the $2,200,000 gain on sale of OREO. BOLI income increased by $445,000 from the fourth quarter of twenty twenty four, while decreasing by $762,000 from the first quarter of twenty twenty four. The year over year decrease was primarily due to $530,000 of death benefits received during the first quarter of twenty twenty four.

Speaker 2

Income from CRA related equity investments was approximately $750,000 higher than the fourth quarter of twenty twenty four and $450,000 higher than the first quarter of twenty twenty four. Our trust and wealth management fees decreased by $100,000 from the fourth quarter of twenty twenty four, but increased by approximately $200,000 or 6% compared to the first quarter of twenty twenty four. Now expenses. Non interest expense for the first quarter of twenty twenty five was $59,100,000 compared to $58,500,000 in the fourth quarter of twenty twenty four and $59,800,000 in the first quarter of twenty twenty four. The first quarter of twenty twenty four included $2,300,000 of additional expense related to the initial FDIC special assessment in 2023.

Speaker 2

The first quarter of twenty twenty five 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 twenty twenty four. Staff related expenses increased by 1.3% over the fourth quarter of twenty twenty four, 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 twenty twenty four. Occupancy and equipment expenses grew by $132,000 when compared to the fourth quarter of twenty twenty four and by $433,000 compared to the first quarter of twenty twenty four. 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 twenty twenty four.

Speaker 2

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 twenty twenty four and twenty percent or $700,000 higher than the first quarter of twenty twenty four. Non interest expense totaled 1.58% of average assets in the first quarter of twenty twenty five compared to 1.49% for the fourth quarter of twenty twenty four and 1.48% for the first quarter of twenty twenty four. Our efficiency ratio was 46.7% in the first quarter of twenty twenty five compared to 47.3% for the fourth quarter of twenty twenty four and forty seven point two percent in the first quarter of twenty twenty four. This concludes today's presentation. Now Alan and I will be happy to take any questions that you might have.

Operator

Thank you. A. Davidson. Your line is open.

Speaker 2

Good morning, Gary.

Speaker 3

Hey, good morning. I apologize.

Speaker 2

That's okay. Can you hear me? Yeah, no problem. We just didn't want it to be on our end.

Speaker 3

No, not at all. Not at all.

Speaker 4

So I had two quick questions. One, in terms

Speaker 3

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?

Speaker 2

Yes, I mean, 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 the customers feel relatively okay about it. It's still to be determined. Milk prices have remained steady.

Speaker 2

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, it's still a little too early to tell, but all in all things appear to be okay.

Speaker 3

Okay, 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 and the improved pipelines you commented on in your prepared remarks?

Speaker 2

Yes, absolutely. So we did have elevated prepayment penalties in the first quarter, which obviously indicates 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 fourteen months. So we are seeing more activity.

Speaker 2

I think it's a combination of 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 twenty twenty four. And I see that accelerating over at least over the next couple of quarters. And Gary, if

Speaker 1

you look at Page 40 of the IP, we do show for CRE, maturing loans over the next twenty four months as resets over the next twenty four months. 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 period.

Speaker 3

Yeah, appreciate that. Just as a follow-up, Dave, to your response, do you think you're at the point where those that improvement in production starts to more consistently outpace the payoffs?

Speaker 2

I do. I think I mean, I can forecast out a couple of quarters to be more accurate. But yes, I do think we are. And look, we had some unique things that happened in the first quarter. We had five dairies that received fair life funds that paid off $40,000,000 of loans.

Speaker 2

I mean, there's 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. 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 calm and the uncertainty starts to fade. But I do think that we can definitely start to grow loans again.

Speaker 1

Great, appreciate it.

Operator

Thank you. One moment for our next question. And that will come from the line of Andrew Cherrill with Stephens. Your line is open.

Speaker 4

Hey, morning Dave, morning Allan.

Speaker 1

Good morning. Good morning.

Speaker 4

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 interest loan interest income or maybe in loan yields or margin terms?

Speaker 1

I can just give you dollar wise. I mean, quarter over quarter, I think it was up about 300,000 ish.

Speaker 5

Okay.

Speaker 4

And then maybe just sticking on the margin. I appreciate the slide in the deck around the deposit repricing trends on a monthly basis. It looks like if I'm looking at March trends that a lot of the deposit repricing has already occurred and started to slow towards the end of the quarter. Just wanted to get a sense from you guys, you saw good deposit growth this quarter. What's expectation is around deposit cost reduction or the potential for that, absent rate decreases here, whether that's mostly in the rearview or there's more room to go?

Speaker 2

No, I think there's probably a little room to go. That's just primarily based on 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 and some of the mix aspects of it.

Speaker 2

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 be a big decrease absent a rate cut, but we should be able to manage that pretty closely.

Speaker 4

Okay, great. Thanks for taking the questions. I'll step back.

Operator

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

Speaker 6

Hey. Good morning, everybody.

Speaker 1

Good morning, David.

Speaker 6

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 tariffs and all that. You 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 I'm just curious, you know, with this backdrop, I mean, I guess, first off, where are you focused? 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?

Speaker 2

So the simple answer to your question is really not a lot has changed in our overall underwriting or evaluation of credit. Obviously, are more questions we ask, how impacted could you be deterrent based on the tariff situation based on other things. I think a little bit of that is overblown. Mean, had a number of customers that pre purchased. 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.

Speaker 2

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 very disciplined approach regardless of the economic environment we're in. And I think that served us well over the years. I don't feel that there's anything different.

Speaker 2

I mean, of the things that's happened, the one thing that we do adjust is our debt yields and that's more based on an interest rate environment. 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 there's been a lot of movement in the five and ten year treasury kind of going up and down. So that kind of creates some problems because when we initially underwrite a deal, if rates were lower and then all of a sudden rates went up fifty, sixty, 70 basis points, we do look at that.

Speaker 2

But think all in all the simple answer to your question is, there's not a lot that's changed. I think that creates an environment for our salespeople of certainty where they know what we can sell and helps us in the long run get the best customers. So I hope that answers your question.

Speaker 6

Yeah, no, that's great. 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. I was hoping you could maybe touch on the competitive landscape for deposits today.

Speaker 6

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?

Speaker 2

Yes, I feel good about core deposit growth and I feel good about 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, 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.

Speaker 2

The Specialty Banking Group had their best year ever in 2024 and they've started off the year very strong, which 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 more purchase activity, more refinance activity, our specialty banking group has a lot of room with their existing customers to grow even faster. We're down close to probably $400,000,000,000 from our peak in specialty $400,000,000,000 from our peak in specialty banking deposits. And that's primarily in escrow business.

Speaker 2

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. We're we do relationship and we focus on relationship and every single new 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 2

I mean, you look in our slide deck, think we've grown if you exclude acquisition and brokered, we've grown on average still by 3.3%. And I think that's probably a good run rate for us. Okay.

Speaker 6

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. I'm just kind of curious, how do you think about capital priorities today? I mean, and balancing the buyback versus potential M and A and just how do you get comfortable with M and A? I guess how are conversations going and how do you get comfortable underwriting somebody else's credit today?

Speaker 2

Yes. 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 buy back at attractive valuations, which we've done. As I mentioned, we've purchased as of yesterday over 2,000,000 shares at an average price of $18.13 which is in the $1.7 ish range price to tangible book, which we feel were undervalued. So we can do both.

Speaker 2

There are conversations, M and A conversations. I mean, obviously there was a big announcement yesterday. There are M and 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.

Speaker 2

There could be some disruption through that process as well that we could take advantage of. So I do think that there's some opportunities for us as we go through this. 1A is still M and A, we still want to do M and A, but absent a seller that is reasonable, we're going 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.

Speaker 2

And I do think we're in a much better position with potential buyer or potential sellers that looked us as their someday acquirer. I don't know, Alan, do you have anything to add to that?

Speaker 1

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 and A.

Speaker 6

Terrific. Thanks everybody for the color.

Operator

Thank you. One moment for our next question. And that will come from the line of Adam Butler with Piper Sandler. Your line is open.

Speaker 7

Hey. Good morning, everybody. This is Adam on for Matthew Clark.

Speaker 1

Good morning. Good morning.

Speaker 7

Just to start off, I was curious in the fee 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 run rate going forward.

Speaker 1

Yes, Adam, I think in our prepared remarks, 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 dividend incomes that are very consistent from some of those, 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 markets and the bond markets. And so if Q1 was a pretty good quarter for those, we've had better, but we've had worse.

Speaker 1

So there is a little bit of volatility there.

Speaker 7

Okay, that's helpful. Thanks. And then just one more for me on the capital side, most of my questions had 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 trades going forward.

Speaker 1

I don't think our appetite's changed. 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 allowed us to harvest some losses, but we don't foresee that in the near term.

Speaker 7

Okay, I appreciate that. And that's all I had. I appreciate the time. Thank you.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. And that will come from the line of Tim Coffey with Janney Montgomery. Your line is open.

Speaker 5

Great. Thank you. Good morning, gentlemen.

Speaker 2

Good morning, Tim.

Speaker 5

Getting back to the CRE discussion, are there property types where you're seeing the most demand? I mean, is it office in the central business districts, industrial warehouses in Empire? Can you provide some color?

Speaker 2

Yes, it's pretty broad based across all asset classes. I don't think that there's anything specifically, we still are doing more owner occupied commercial real estate at least so far this year 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. So I wouldn't call out any one specific asset class.

Speaker 2

And remember the type of loans we're doing, there's been talk obviously of industrial or office and the types of loans we're doing 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 in any asset class.

Speaker 5

Okay, I appreciate that. Outside of commercial real estate, what is the sentiment of your customers right now?

Speaker 2

I'm sorry, you said the sentiment?

Speaker 5

Yeah, mean, this is discussions or in actual applications that you're seeing.

Speaker 2

Yeah, 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 that is super concerned. They think it's going to be a little turbulent over the next six months, but many of them 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. Now we'll see, if this continues for a longer period of time that could have some more impact.

Speaker 2

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 pre purchased prior to tariffs being implemented. And I just think all in all, their mood remains optimistic. 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. And there as I've mentioned, when things go bad, a lot of our customers take advantage of that opportunity.

Speaker 2

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 that happens, they're ready to take advantage of it.

Speaker 5

Okay, good. 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?

Speaker 2

Yes, well, I think it's already higher and obviously with all of the fires things are in Southern California are going to be impacted by, I believe shortages, materials or at least higher demand for the materials. So I do think that that is something that is on our minds. Obviously, we do a lot of underwriting around costing the project and 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. Alan is just looking to be like, we don't have any construction loan.

Speaker 2

But we do we are looking at a lot more on the construction lending side and we think there's a lot of opportunity. 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, there's positives and negatives there, but we're open for construction business, I'll say that.

Speaker 5

And I'm sorry, just one more just as you're talking about potential opportunities here. What is your appetite for increasing the multifamily portfolio given the amount of dislocation that's happening among lenders in the Southern California market?

Speaker 2

Yes, I think that the 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 get in and out of asset classes or business lines.

Speaker 2

We underwrite appropriately. We make sure we have the right borrowers and we're open for business for the right borrowers.

Speaker 5

All right. Well, those are my questions. Thank you very much.

Speaker 1

You're welcome.

Operator

Thank you. And one moment for our next question that will come from the line of Kelly Motta with KBW. Your line is

Speaker 8

A lot of mine have been asked and answered. Maybe on just the competitive landscape in California, there's been a lot 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, which areas? Thanks.

Speaker 2

Yes, mean, simple answer is yes, we are seeing opportunities. Would also say that 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, I've talked about it before. I mean, we've done a good job at sort of using the rifle approach with associates at some of these banks that have been disrupted.

Speaker 2

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 City National and First Republic. So I think there will continue to be opportunities there, but we're trying to think the top 25% of clients. So a lot of these clients don't necessarily fit what we're looking for, but we'll continue to take a look at that and it's across the board, Kelly. It's in all industries.

Speaker 2

It's in both on the lending side and the deposit side and the fee income side.

Speaker 8

Okay, got it. That's really helpful. And maybe a question for Alan, just from a modeling perspective. It looks like average interest bearing cash came down over the last quarter. Is this a good level or is there any like puts and takes to think about here?

Speaker 8

Your deposit growth was quite strong. So wondering, is this a good level to manage to on a go forward basis?

Speaker 1

Kelly, on an average basis, that was really, sort of tied to our average deposit decline quarter over quarter. As we noted, we tend to have really strong deposits in the beginning of the fourth quarter, but they declined fairly rapidly towards the end and that really continues to some degree all the way through tax season. So that will rebound here or have started to rebound a bit, here in April. So I think that's mostly tied to that. So I would say, we'll see some growth in that, but modest growth in that as we get into the second quarter.

Speaker 8

Got it. Appreciate it. Thank you.

Operator

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. Brager for any closing remarks.

Speaker 2

Thank you, Sheree. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by the one hundred and ninety two consecutive quarters or forty eight years of profitability and one hundred and forty two 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 would like to thank our customers and associates for their commitment and loyalty.

Speaker 2

Thank

Speaker 1

you

Speaker 2

for joining us this quarter. We appreciate your interest and look forward to speaking with you in July for our second quarter twenty twenty five 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. You may now disconnect.

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Earnings Conference Call
CVB Financial Q1 2025
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