CVB Financial Corp (CVBF) 2025 Q2 法說會逐字稿

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 Shuri, and I am your operator for today. (Operator Instructions) Please note, this call is being recorded.

I would now like to turn the presentation over to your host for today’s call, Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed.

Thank you. And good morning, everyone. Thank you for joining us today to review our financial results for the second quarter of 2025.

Joining me this morning is David 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 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 David Brager.

Thank you, Allen. Good morning, everyone. For the second quarter of 2025, we reported net earnings of $50.6 million or $0.36 per share, representing our 193 consecutive quarter of profitability, which equates to more than 48 years of consecutive quarters of profitability.

We previously declared a $0.20 per share dividend for the second quarter of 2025, representing our 143 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.

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-provision 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. 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. 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 in 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.

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 CDs.

Our non-interests 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. 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.

Now let's discuss loans. 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 mine utilization from 29% at March 31, 2025, to 26% at June 30.

In addition, dairy livestock loans declined by $18 million 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 experience their seasonally high utilization at year end. C&I loans declined over the period by $13 million as the 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.

Although we have seen a relative increase in loan originations 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 estate. We average yields of 6.6% on new originations during the second quarter.

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 5 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 pre-payment 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. 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 a 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.

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, David. 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%. Compared to the second quarter of 2024, our earning assets decreased by $1.1 billion and the earning asset yield declined by 9 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. 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 loans. In comparison, our allowance for credit losses as of March 31, 2025, was $78.3 million or 0.94% of gross loans. The decrease was due to net charge offs of $249,000. Comparatively, we had a $2 million recapture provision for credit losses during the first quarter of the year.

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.

The resulting economic forecast in 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. 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. 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 hedges. 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 pay fix 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 paid six swaps that mature in May of 2029, 2030, and 2031.

The swap replacement resulted in a 3 basis points 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 held to 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 had been swapped as cash flow hedges and $500 million of federal home loan bank advances.

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 at an average rate of 4.4%.

Now I'm going to turn to the capital position. At June 30, 2025, our shareholders' equity was $2.24 billion, and $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.

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 10b5-1 plan.

There were 1.28 million shares repurchased during the second quarter of 2025 at an average purchase price of $17.30. Year-to-date, we've repurchased 2.06 million shares at an average share price, $18.15.

The company's tangible common equity ratio remains 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%.

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

Thanks, Allen. 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. BOLI 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. International fees also increased from the first quarter by more than $150,000.

Now expenses. 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% over the first quarter of 2025, primarily due to higher payroll taxes that occur at the beginning of each calendar year. 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.

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.

This concludes today's presentation. Now, Allen and I will be happy to take any questions.

Thank you. (Operator Instructions) Matthew Clark, Piper Sandler.

Sounds like the pre-pays and line utilization weight on your loan yields this quarter. Can you quantify the pre-pay income this quarter versus last, how that compares to kind of a typical quarter and then to pick up an activity you're seeing in July, whether or not you've seen some increase in line utilization to date.

I'll take the first part of it, and then Allen can, -- I'll take your second question and Allen will take part of the first question there.

So, we're not seeing any changes in line utilization at this point. 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, people have cash, it's, most of those lines are priced at prime or so for plus the spread. And it's just a better financial decision for them to utilize their cash or pay down the line if they have excess cash.

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.

So I think, Allen, you want to take the prepayment penalty vis-a-vis payoffs.

Yeah, I mean, Matthew, I guess, maybe the best way to answer at the beginning of your question is that we did see, and really throughout the year, but particularly in the second quarter, we have seen elevated payoffs.

That's impacted more the volume than I would say the yield, and so, 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.

Without that and without and pre-payment penalties were down as well, I think they've indicated that we would have been up about 5 basis points on loan yields, everything else equal. And really the repricing of the portfolio, just from the natural payoff and resets of adjustables is really a couple of basis points a month, so like 6 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 pre-payments sort of overset that and did not see that come through in the financials of this quarter, so.

Okay. 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. I would first say. But these are basically customers have a pig 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-ish.

Gary Tenner, D.A. Davidson.

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 kind of a lag perhaps is more customer specific, or do you think it is a little more regional in terms of California business opportunities?

Yeah, I don't think it's a regional impact. I think, 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, the headwind for us relative to the utilization on the lines. It doesn't mean that they, won't take advantage of opportunities or there aren't opportunities in California.

So I do think that, 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.

So I think that will turn around a little bit, Gary. 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 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 7.5% on borrowing on a line of prime plus something.

So I just think that's something that is hopefully something temporary, and 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 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 the 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 and I do think that our customers will utilize their lines more, but I think this was just a, I'll say a blip in some ways in that, sitting on a lot of cash. Still taking advantage of things. I mean, we had, as I mentioned, we had the highest month in the history or an increase 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.

Thank you for that color. Certainly a high class problem for your customers at this point. Just on the deposit side, real quickly, 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 already are, do you think it, kind of the next leg is a little bit lighter from a data 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 points 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 2.5%. So it didn't capture anything below 2.5%.

On the second and third cuts of 25 basis points, we did 100% of it. We went down to 2% on the second cut, and we went down to 1.5% on the third cut. If we have another cut, we will capture, 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, but all in all, I think we'll do better than 30% beta on that.

Andrew Terrell, Stephens.

Maybe sticking with high class problems you have. You guys had a pretty big building cash at the end of period. Just wanted to get your thoughts on, any interest in putting cash to work in the bond book, barring a pick-up in loan growth or any kind of FHLB reduction or deposit, optimization that could take place in the back half of the year.

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 it reducing the wholesale funding. So, 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 liability. But, it's probably more likely than anything we do, start to grow the investment book.

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, new loan origination yields, and I'd love to tie that in with, you feel like the -- competitive environment could. At least partially offset that static kind of fixed rate pricing benefit you guys are anticipating.

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, we're seeing spreads that anywhere from 130 to 170 over like treasuries on fixed rate stuff, and, 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 we try and stick to at least 2% to 2.5% over like Indexes 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, 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, 130 to 170 over like treasury. So, 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 6.25% to 6.5% origination rate so far, this quarter. So we'll see how that all plays out, and I, it's across the board, it's big banks, it's a lot of people on it, and I, 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 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 people saying that they can grow loans 10% 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, I do believe we'll still be able to grow, notwithstanding the seasonality in the dairy. And, we'll see how the rest of the year plays out, but we, we'll compete where we need to compete, for the right relationship.

But to Allen's point about growing the investment book, if we can get 5% on an investment security versus 5.5% all alone, I mean, the math says do the investment security.

David Feaster, Raymond James.

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 and then maybe given a bit more competitive pricing on your side, do you think originations can start out pacing these elevated payoffs and pay downs 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 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. 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, 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, $100 billion, $250 billion in asset bank.

And we've talked in the past about the success that your specialty banking groups had, I'm curious kind of how that groups contributed maybe this quarter to some of the solid deposit trends that you're seeing and maybe more broadly the competitive side for funding, right? I mean, just curious what you're seeing there, especially as industry growth seems to be improving.

Yeah, I look, 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, 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 third party vendor payments and 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, 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 we've been successful.

And I think I've mentioned this in the past. Our ECR beta was lower than our deposit data in the up cycle, and has remained, that. So we are seeing competition. 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% 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 has competed very well without having to give away the bank.

And maybe just last one for me. Just always interested to hear your thoughts on the M&A side. I mean, we've seen some more maybe transactions happening, stronger currencies, curious how conversations are going and just kind of what you're seeing on the M&A front?

Conversations are still happening. I agree with you that we are seeing more transactions, I think most of the transactions I'm seeing are being done at 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.

I do think that, and I still believe that we can announce something by the end of the year. It will probably take us, 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, we've had opportunities, we've looked at stuff, there's nuances to the stuff we've looked at for, that would include reasons on why we didn't do something.

But at the end of the day we want to make sure that we keep Citizens Business Bank, and do a good job at integrating and so there are nuances. But David, most of those deals have been outside of California. I mean, Sam's the PPBI deal, there really hasn't been anything in California, at least California centric.

(Operator instructions) Kelly Motta, KBW.

Maybe piggybacking on, that last point. The economic environment in California has had some headwinds, you are a California-based bank and, banks the best businesses in your footprint. But wondering, 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. 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 locations outside of California. But I just think from a strategic perspective we're sort of opening the window a little bit more to look at other things as well.

So obviously there's nothing imminent or nothing that, 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 in the environment we're in with the diversity of industry and the diversity of things here does create, still allows us to take advantage of that from a market share perspective. So and looking at de novo teams as well. So it's all on the table, I would, -- I guess I would answer your question by.

Maybe last question from me. Your expenses are really well controlled and it seems like, the growth environment, there's been a couple of things that have been working in the wrong direction, even though your clients remain really healthy and you've been able to control expenses very well.

In light of that, wondering, given the step down this quarter, 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.

I mean, I would think about run rate a couple ways. Dave mentioned, 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 mid-year salary increases for our associates in July. And so, 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, 10% growth in our technology side, that would be the one area that should continue to grow. But overall expense growth should still be low single digits as it typically is for us. And we'll continue to be obviously we monitor that very closely.

And Kelly, I'm just going to add one little piece to that, and I think it's an important piece. And 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 lease back transactions, the rental expense, the actual occupancy expense of the properties, we're increasing by $2.2 million to $2.4 million.

And if you look at the numbers, I mean they've only, I think they went up $335,000 in the second quarter. So we are consistently looking at our locations. How much space we're in, we just relocated one of our offices. We were in 7,500 square feet. We moved to 2,500 square feet. So every lease renewal is an opportunity for us to look at that, with the perceived softness in office, and a good tenant, us, we've been able to negotiate, reductions in lease rates on the remaining properties.

So we're working hard to maintain that, and I think Allen would normally say it's low single digit, expense growth per year, and I think that's something that we can continue to execute on and we have had positive operating leverage the last two quarters and we're working hard to do that. And there's two parts to that obviously growing revenue and keeping expenses, in line and or decreasing. So we're working on all those things.

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.

Thank you. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by our 193 consecutive quarters for 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 of 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.