CVB Financial Corp. (CVBF) Earnings Call Transcript & Summary

Good day, and welcome to the CVB Financial First Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Allen Nicholson, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Sheri, and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 2025. 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. The speakers on this call claim the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 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 to Dave Brager. Dave?

Thank you, Allen. Good morning, everyone. For the first quarter of 2025, we reported net earnings of $51.1 million or $0.36 per share, representing our 192nd consecutive quarter of profitability, which equates to 48 years. We previously declared a $0.20 per share dividend for the first quarter of 2025, representing our 142nd consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.51% and a return on average assets of 1.37% for the first quarter of 2025. We announced in November of 2024 that our Board of Directors authorized a new $10 million share repurchase program and approved a 10b5-1 plan. Year-to-date, as of yesterday, we have repurchased 2.05 million shares at an average share price of $18.13. Our net earnings of $51.1 million or $0.36 per share compares with $50.9 million for the fourth quarter of 2024 or $0.36 per share and $48.6 million or $0.35 per share for the prior year quarter. Pretax income in the first quarter of 2025 was $69.5 million, which was $1.5 million higher than the fourth quarter of 2024 and $2.7 million higher than the first quarter of 2024. Our net interest margin expanded by 13 basis points in the first quarter of 2025, primarily due to the actions we took towards the end of 2024 in which we deleveraged our balance sheet by reducing borrowings and other wholesale funds. Our net interest margin for the first quarter of 2025 was 3.31% compared to 3.18% for the fourth quarter of 2024 and 3.10% for the first quarter of 2024. In the first quarter, we sold $19.3 million of OREO that was reflected on our December 31, 2024 balance sheet, generating a $2.2 million net gain on sale. Primarily due to a reduction in outstanding dairy and livestock loans, we had a recapture of allowance for credit losses of $2 million in the first quarter of 2025 and a $500,000 provision for off-balance sheet reserves. This compares to a $3 million recapture of allowance for credit losses in the fourth quarter of 2024. At March 31, 2025, our total deposits and customer repurchase agreements totaled $12.3 billion, a $56 million increase from December 31, 2024, and $95 million higher than March 31, 2024. Our noninterest-bearing deposits grew by $147 million or 2% compared to the end of 2024 and were $71 million higher than the end of the first quarter of 2024. 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 million decline in average deposits and repos from the fourth quarter of 2024 to the first quarter of 2025. Total deposits and customer repos grew on average by $244 million over the first quarter of 2024, including $139 million in average growth in brokered CDs. On average, noninterest-bearing deposits were 59% of total deposits for the first quarter of 2025, which compares to 58.7% for the fourth quarter of 2024, but lower than the 61.7% average in the first quarter of 2024. Our cost of deposits and repos was 87 basis points for the first quarter of 2025, which compares to 97 basis points for the fourth quarter of 2024 and 73 basis points for the year ago quarter. Our cost of nonmaturity deposits, which represents more than 95% of our deposits has grown from 70 basis points in April of 2024 to 76 basis points in March of 2025. Our current deposit pipelines are strong and focused on operating companies. In addition, the deposit pipeline in our Specialty Banking group, which is focused on title escrow property management and fiduciaries continues to be strong. Now let's discuss loans. Total loans at March 31, 2025, were $8.36 billion, a $173 million decrease from the end of the fourth quarter of 2024 and a $407 million or 4.6% decline from March 31, 2024. The quarter-over-quarter decrease was largely due to a $168 million decline in dairy and livestock loans. In addition, commercial real estate loans declined by $17 million compared to the end of 2024, but C&I loans grew by $17 million. 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 2025 included a decrease in line borrowings of approximately $40 million due to the final distributions received by some of our dairies from the fairlife sale to Coca-Cola. These reductions contributed to the line -- to the low utilization rate of 64% at March 31, 2025, compared to 81% at December 31, 2024, and 75% at March 31, 2024. The decrease in loans from the end of the first quarter of 2024 included commercial real estate loans declining by $230 million and construction loans declining by $43 million. Dairy and livestock loans were down year-over-year by $91 million, while C&I loans also declined by $21 million. We have experienced an uptick in demand for commercial real estate loans, but rate competition for the quality of loans we focus on has been intense. Loan originations in the first quarter of 2025 were approximately 13% higher than 2024. The increase in originations was across both C&I and commercial real estate loans with a notable increase in investor commercial real estate. We averaged yields of 6.5% on new originations during the first quarter. C&I line utilization continues to be low, declining from 30% at December 31, 2024, to 29% at the end of the first quarter of 2025. Our current loan pipelines remain strong as we are seeing more activity in commercial real estate. Total nonperforming and delinquent loans decreased to $26.8 million at March 31, 2025, from $47.6 million at December 31, 2024. We ended 2024 with $19.3 million in OREO assets. All of these assets were sold during the first quarter of 2025 at a net gain of $2.2 million. Net recoveries in the first quarter were $130,000, which compares to $180,000 in net recoveries for the fourth quarter of 2024. Classified loans were $94.2 million at March 31, 2025, compared to $89.5 million at December 31, 2024. Classified loans as a percentage of total loans was 1.13% at March 31, 2025. The increase from the end of 2024 was primarily due to a downgrade of $6.5 million of loans to a single dairy. Overall, the credit metrics for our dairy and livestock loan portfolio improved with a $51 million decline in criticized loans from the end of 2024. I will now turn the call over to Allen to further discuss additional aspects of our balance sheet and our net interest income. Allen?

Thanks, Dave. Our allowance for credit loss was $78.2 million at March 31, 2025, or 0.94% of gross loans. For the first quarter of 2025, we recaptured $2 million of provision for credit losses while increasing our off-balance sheet reserves by $500,000. In comparison, our allowance for credit losses as of December 31, 2024, was $80 million 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 weighting on Moody's baseline forecast with both upside and downside risk weighted among multiple forecasts. The resulting economic forecast at March 31, 2025, was marginally different from our forecast at the end of 2024 as a result in real GDP growing at a slower rate for the remainder of 2025 and only reaching a 2% growth rate in the second half of 2026. The unemployment rate is forecasted to reach 5% by the beginning of 2026 and remain above 5% until 2028. Commercial real estate prices are also forecasted to continue their decline through the first half of 2026. Switching to our investment portfolio available-for-sale or AFS investment securities were approximately $2.54 billion at March 31, 2025. The unrealized loss on AFS securities decreased by $59 million from $448 million at December 31, 2024, to $388 million on March 31, 2025. Hedging the market risk of our AFS portfolio, we had $700 million of fair value hedges at the end of the first quarter. These 3.75% paid fixed swaps declined in value from the end of 2024 by $8 million. The net after-tax impact of changes in both fair value of our AFS securities and our derivatives resulted in a $35 million increase in other comprehensive income for the first quarter. Our held-to-maturity investments totaled $2.36 billion at March 31, 2025, which is a $20 million -- which is $20.5 million lower than the balance at the end of 2024. Our level of wholesale funding at March 31, 2025, did not change from the end of 2024. Our wholesale funds consisted of $300 million of brokered CDs that have been swapped as cash flow hedges at an average rate of 4.4% and $500 million of Federal Home Loan Bank advances at a weighted average rate of 4.55%. As a result of our balance sheet deleveraging during the second half of 2024, our borrowings declined by $1.5 billion and our brokered CDs declined by $100 million from March 31, 2024. Now turning to our capital position. At March 31, 2025, our shareholders' equity was $2.23 billion, a $42 million increase from the end of 2024, including a $35 million increase in other comprehensive income. Retained earnings was $23 million for the first quarter. Our Board of Directors authorized a new share repurchase plan in November of 2024. There were 782,000 shares repurchased during the first quarter of 2025 at an average purchase price of $19.53. So far in April through yesterday, we have purchased an additional 1.3 million shares at an average purchase price of $17.26. The company's tangible common equity ratio at March 31, 2025, was 10% compared with 9.8% at December 31, 2024. At December 31, 2025, our common equity Tier 1 capital ratio was 16.5% and our total risk-based capital ratio was 17.3%. Our capital levels will allow us to continue share repurchases while still having excess capital that can be deployed in an acquisition. Now net interest income was $110.4 million in the first quarter of 2025. This compares to $110.4 million in the fourth quarter of 2024 and $112.5 million in the first quarter of 2024. Compared to the prior quarter, interest income declined by $4.6 million as our average earning assets decreased by $406 million. The $320 million decline in funds at the Federal Reserve contributed $4 million of the $4.6 million decrease. Partially offsetting the impact of lower earning assets was a 4 basis point increase in our earning asset yield, including a 7 basis point increase in average loan yields. Interest income declined by $14.7 million when compared to the first quarter of 2024 as earning assets were $1.1 billion lower in the first quarter of 2025. Interest expense decreased by $4.6 million over the prior quarter due to a $270 million decrease in interest-bearing deposits and repos and a 9 basis point decline in our cost of funds. Our cost of funds decreased from 1.13% for the fourth quarter of 2024 to 1.04% in the first quarter of 2025. Interest expense decreased from the first quarter of 2024 by $12.7 million, primarily due to a $1.5 billion decline in borrowings, which was the primary driver of our cost of funds decreasing by 27 basis points from the first quarter of 2024. I'll now turn the call back to Dave for further discussion of our first quarter earnings.

Thank you, Allen. Moving on to noninterest income. Our noninterest income was $16.2 million for the first quarter of 2025 compared to $13.1 million for the fourth quarter and $14.1 million in the first quarter of 2024. The first quarter included the $2.2 million gain on sale of OREO. BOLI income increased by $445,000 from the fourth quarter of 2024, while decreasing by $762,000 from the first quarter of 2024. The year-over-year decrease was primarily due to $530,000 of debt benefits received during the first quarter of 2024. Income from CRE-related equity investments was approximately $750,000 higher than the fourth quarter of 2024 and $450,000 higher than the first quarter of 2024. Our trust and wealth management fees decreased by $100,000 from the fourth quarter of 2024, but increased by approximately $200,000 or 6% compared to the first quarter of 2024. Now expenses. Noninterest expense for the first quarter of 2025 was $59.1 million compared to $58.5 million in the fourth quarter of 2024 and $59.8 million in the first quarter of 2024. The first quarter of 2024 included $2.3 million of additional expense related to the initial FDIC special assessment in 2023. The first quarter of 2025 included a $500,000 provision for off-balance sheet reserves. There was no provision or recapture of off-balance sheet reserves in the first or fourth quarters of 2024. Staff-related expenses increased by 1.3% over the fourth quarter of 2024, including the impact of higher payroll taxes that occur at the beginning of each calendar year, while staff expense stayed essentially the same as the first quarter of 2024. Occupancy and equipment expenses grew by $132,000 when compared to the fourth quarter of 2024 and by $433,000 compared to the first quarter of 2024. The increase in occupancy expense includes the impact of the higher rent expenses for the four offices involved in the sale-leaseback transactions in the second half of 2024. We continue to invest in our technology infrastructure and automation as reflected in our growth in software expense that was 8% or $300,000 higher than the fourth quarter of 2024 and 20% or $700,000 higher than the first quarter of 2024. Noninterest expense totaled 1.58% of average assets in the first quarter of 2025 compared to 1.49% for the fourth quarter of 2024 and 1.48% for the first quarter of 2024. Our efficiency ratio was 46.7% in the first quarter of 2025 compared to 47.3% for the fourth quarter of 2024 and 47.2% in the first quarter of 2024. This concludes today's presentation. Now Allen and I will be happy to take any questions that you might have.

[Operator Instructions] And our first question will come from the line of Gary Tenner with D.A. Davidson.

So I had two quick questions. One, in terms of kind of the tariff policies, I know the ag portfolio is not a huge portfolio for you guys at this point. But any thoughts on the potential impacts there on that customer base?

Yes. I mean, look, I think it's a little too early to tell overall. There is both on the production ag side and the dairy side, there are exports that go out. And so there could be some impact. But overall, there hasn't been that great of an impact yet. And anecdotally, we're hearing that the customers feel relatively okay about it. It's still to be determined. Milk prices have remained steady. Powder prices have remained steady. So at least so far, the markets aren't showing any impact and our customers aren't reporting any impact. So I think all in all, it's still a little too early to tell, but all in all, things appear to be okay.

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?

Yes. Absolutely. So we did have elevated prepayment penalties in the first quarter, which obviously indicates that loans did pay off and primarily in commercial real estate where we have prepayment penalties. But the pipelines are strong. Through yesterday, we had closed more loans in the month of April than we have closed in any single month over the last 14 months. So we are seeing more activity. I think it's a combination of getting used to the rate environment. People have money sitting on the sidelines for a while, wanted to do something with it, but we are definitely seeing more activity there. The pipelines remain strong. As I mentioned, we did book more loans in the first quarter by about 13% than we did in the first quarter of 2024. And I see that accelerating over -- at least over the next couple of quarters.

And Gary, if you look at Page 40 of the IP, we do show for CRE maturing loans over the next 24 months as well as rate resets over the next 24 months. 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.

Yes. I 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?

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 have some unique things that happened in the first quarter. We had 5 dairies that received fairlife funds that paid off $40 million of loans. 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.

One moment for our next question. And that will come from the line of Andrew Terrell with Stephens.

Maybe just to start, and apologies 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?

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

Okay. 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 your 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?

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 noninterest-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, we're seeing the new money market accounts coming into the bank are lower in most cases than our current run rate. And so there are exceptions to that, obviously. But I do think that we should be able to continue to move that ever so slightly. I don't think it's going to be a big decrease absent a rate cut, but we should be able to manage that pretty closely.

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

Maybe just one high-level one. Obviously, there's a lot of uncertainty in the market, a lot of volatility just around DOGE or around the trade wars and tariffs and all that. You are very disciplined on the credit side, both at initial underwriting and being proactive managing credit and addressing issues head on. I'm just curious, with this backdrop, I mean, I guess, first off, where are you focused? Like what are you watching more closely today? And has your approach to either underwriting or managing credit and addressing some of these potential issues changed at all just given the broader economic uncertainty?

So the simple answer to your question is really not a lot has changed in our overall underwriting or evaluation of credit. Obviously, there are more questions we ask how impacted could you be based on the tariff situation, based on other things. I think a little bit of that is overblown. I mean we had a number of customers that prepurchased. We had, I think, our best month ever in the month of March in our international because people were buying stuff prior to tariffs being implemented. So I do think that our customers are smart. They figure it out, but we have not changed our underwriting. We haven't -- we don't loosen or tighten based on the environment. We just have a very disciplined approach regardless of the economic environment we're in. And I think that's served us well over the years. I don't feel that there's anything different. I mean one 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 5- and 10-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 50, 60, 70 basis points, we do look at that. But I think all in all, the simple answer to your question is there's not a lot that's changed. 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.

Yes. 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. It 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. 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?

Yes. I feel good about core deposit growth, and I feel good about continuing to grow noninterest-bearing. There are obviously things that happen, and we have big fluctuations every day. But the majority of the growth came from new relationships. 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. The Specialty Banking group had their best year ever in 2024, and they started off the year very strong, which I would say from that perspective, those deposits are probably 90-plus percent noninterest-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 billion from our peak in specialty -- $400 million from our peak in specialty banking deposits. And that's primarily in the escrow business. We've had good success on property management. We've had good success in the fiduciary world. So I think all in all, I feel pretty good about it. We're -- we do relationship and we focus on relationship and every single new C&I relationship that we brought to the bank and owner-occupied commercial real estate loan, we're getting the full relationship. So I feel good on the deposit side. I mean, if you look in our slide deck, I 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.

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&A? And just how do you get comfortable with M&A, I guess, how are conversations going? And how do you get comfortable underwriting somebody else's credit today?

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 purchased as of yesterday, over 2 million shares at an average price of $18.13, which is in the 170-ish range price to tangible book, which we feel we're undervalued. So we can do both. There are conversations, M&A conversations. I mean, obviously, there was a big announcement yesterday. There are M&A conversations going on. I think that announcement yesterday puts us in a better position even more so to be the acquirer of choice. So I think that's a positive for us. 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. One is still M&A. We still want to do M&A. But absent a seller that is reasonable, we're going to just continue to focus on ourselves and look within. So there are conversations going on. I still feel confident that we can announce something this year. but we'll see how it plays out. And I do think we're in a much better position with potential buyer or potential sellers that look to us as their someday acquirer. I don't know, Allen, do you have anything to add to that?

No. As we mentioned, we feel very comfortable that the capital levels allow us to continue buybacks if prices are attractive and still have plenty of capital for M&A.

One moment for our next question, and that will come from the line of Adam Butler with Piper Sandler.

This is Adam on for Matthew Clark. 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.

Yes, Adam, I think in our prepared remarks, we noted that some of our equity investments we have for CRE 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 Q1 was a pretty good quarter for those. We've had better, but we've had worse. So there is a little bit of volatility there.

Okay. That's helpful. And then just one more for me on the capital side. Most of my questions have been answered there. But I'm just curious what your appetite would be to consider -- I know that you guys didn't do it this quarter, but just some securities loss trade going forward.

I don't think our appetite has changed. 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.

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

Go 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 the Inland Empire? Can you provide some color?

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, really retail, it's really across the board. So I wouldn't call out any one specific asset class. And remember, the type of loans we're doing, they're -- 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.

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

I'm sorry, you said the sentiment?

Yes. Yes. I mean discussions or in actual applications that you're seeing.

Yes. Well, I can tell you most of the discussions I've had, everybody has been relatively positive. There really hasn't been anybody that I've personally had a conversation with that is super concerned. They think it's going to be a little turbulent over the next 6 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. But I think in the short run, the next quarter or 2, 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 prepurchased 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. They're very well healed and have the ability to do so. So in some cases, I wouldn't say they root for bad. But if bad happens, they're ready to take advantage of it.

Okay. 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?

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 of 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. Allen just looking to be like we don't have new construction loans. But we do -- we are looking at a lot more on the construction lending side, and we think there's a lot of opportunity. And this is one of the tailwinds, I think, that can come from the tragedy that occurred during the fires. So I think all in all, it's -- again, there's positives and negatives there, but we're open for construction business, I'll say that.

Okay. And 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?

Yes. I think that -- 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. We underwrite appropriately. We make sure we have the right borrowers, and we're open for business for the right borrowers.

[Operator Instructions] And one moment for our next question, that will come from the line of Kelly Motta with KBW.

Maybe -- a lot of might have been asked and answered. Maybe on just the competitive landscape in California, there's been a lot of disruption these past couple of years. Can you share -- are you still seeing good opportunities to gain share from some of these changes that have gone on? And if so, in which areas?

Yes. Yes. I mean the simple answer is yes, we are seeing opportunities. I 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, we -- 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. 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 bank 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. It's in -- both on the lending side and the deposit side and the fee income side.

Okay. Got it. That's really helpful. And maybe a question for Allen. 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? Your deposit growth was quite strong. So wondering, is this a good level to manage to on a go-forward basis?

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 has 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.

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.

Thank you, Sheri. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by the 192 consecutive quarters or 48 years of profitability and 142 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the best small- to medium-sized businesses and their owners through all economic cycles. I would like to thank our customers and associates for their commitment and loyalty. Thank you for joining us this quarter. We appreciate your interest and look forward to speaking with you in July for our second quarter 2025 earnings call. Please let Allen or I know if you have any questions. Have a great day.

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