CVB Financial Corp (CVBF) 2022 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the First Quarter of 2022 CVB Financial Corporation and its subsidiary, Citizens Business Bank, Earnings Conference Call. My name is Olivia, and I am your conference 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, Christina Carrabino. You may proceed.

Thank you, Olivia, and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 2022.

Joining me this morning are Dave Brager, Chief Executive Officer; and Allen Nicholson, Executive Vice President and Chief Financial 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, 2021, 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.

Now I will turn the call over to Dave Brager. Dave?

Thank you, Christina. Good morning, everyone. For the first quarter of 2022, we reported net earnings of $45.6 million or $0.31 per share, representing our 180th consecutive quarter of profitability. We previously declared an $0.18 per share dividend for the first quarter of 2022, which represented our 130th consecutive quarter of paying a cash dividend to our shareholders.

First quarter net earnings of $45.6 million or $0.31 per share compares with $47.7 million for the fourth quarter of 2021 or $0.35 a share and $63.9 million for the year ago quarter or $0.47 per share.

On January 7, we announced the completion of our acquisition of Suncrest Bank. Our financials for the first quarter of 2022 included 83 days of Suncrest's operating results as well as acquisition-related expenses of $5.6 million. At close, Citizens Business Bank acquired $766 million of net loans, assumed $513 million of noninterest-bearing deposits and $670 million of interest-bearing deposits from Suncrest.

For the first quarter of 2022, our pretax pre-provision income was $65.9 million compared with $66.8 million for the prior quarter and $70 million for the year ago quarter. If acquisition expenses excluded, pretax pre-provision income would have been $71.5 million, a $4.7 million increase from the fourth quarter of 2021.

Of particular note this quarter, we had strong core loan growth, represented by 5% growth from the end of the first quarter of 2021 and 8% annualized growth from the end of 2021. We also expanded our net interest margin by 11 basis points when compared to the fourth quarter of 2021.

We recorded a loan loss provision of $2.5 million for the first quarter. In comparison, we did not have a provision in the fourth quarter of 2021 and recorded a recapture of provision for credit losses of $19.5 million in the first quarter of 2021.

As previously announced, we executed on a $70 million accelerated share repurchase program at the beginning of February that had the effect of reducing our share count by approximately 2.5 million shares. In addition, we repurchased 536,000 shares under a 10b5-1 share repurchase program that became effective at the beginning of March.

Now let's discuss loans in more detail. Our new loan production was very strong in the first quarter. New loan commitments were approximately $439 million, which is higher than the same period of last year by approximately 14%. Total loans at quarter end were $8.6 billion, a $704 million increase from the end of the fourth quarter. Total loans included $766 million of net loans acquired from Suncrest Bank or $775 million when excluding the $8.6 million allowance for credit losses from Suncrest PCD loans.

Excluding the loans acquired from Suncrest, loans declined by $70.5 million. However, after excluding PPP loan forgiveness, the loans acquired from Suncrest and the seasonal decrease in dairy and livestock loans, first quarter loan growth was $144 million or approximately 8% annualized. The core loan growth in the first quarter was led by continued growth in commercial real estate loans, which grew by $100 million; and C&I loans, which increased by $27 million when compared with the end of the fourth quarter. The line utilization rate for C&I loans was 31% at the end of the first quarter compared with 29% for the fourth quarter and 26% for the year ago quarter.

Single-family mortgage loans also grew by $14 million from the end of 2021. Dairy and livestock loans decreased by approximately $110 million from the prior quarter as we experienced paydowns in the first quarter of each calendar year as a result of the temporary increase we experienced in the fourth quarter of each year. PPP loans declined by $105 million compared with the fourth quarter due to the continued forgiveness of these loans.

At quarter end, nonperforming assets, defined as nonaccrual loans, plus other real estate owned, were $13.3 million compared with $6.9 million for the prior quarter and $15.3 million for the year ago quarter. At quarter end, we had no OREO properties, and the $13.3 million in nonperforming loans represented 15 basis points of total loans.

During the first quarter, we had net loan charge-offs of $5,000 compared with net loan charge-offs of $345,000 for the fourth quarter of 2021. At March 31, 2022, we have loans delinquent 30 to 89 days of $2.6 million compared with $2.5 million at December 31, 2021.

Classified loans for the first quarter were $64.1 million compared with $56.1 million for the prior quarter and $69.7 million for the year ago quarter. Classified loans declined by $9.5 million when excluding the $17.5 million in classified loans acquired from Suncrest.

Now I'd like to discuss our deposits. At March 31, 2022, our total deposits and customer repurchase agreements were $15.1 billion compared with $13.6 billion at December 31, 2021, and $12.6 billion for the same period a year ago. Excluding the approximately $1.2 billion in deposits acquired from Suncrest, total deposits and customer repos increased by $285 million from the end of 2021 and by $1.3 billion from March 31, 2021. At March 31, 2022, our noninterest-bearing deposits were $9.1 billion compared with $8.1 billion for the prior quarter and $7.6 billion for the year-ago quarter. The ending balance at March 31, 2022, included $513 million in noninterest-bearing deposits acquired from Suncrest.

Excluding the acquired deposits, our noninterest-bearing deposits grew by $490 million. During the first quarter, noninterest-bearing deposits averaged $8.72 billion, a $395 million increase from the average balance in the fourth quarter. A key differentiator for our bank is the level of noninterest-bearing deposits. Noninterest-bearing deposits were greater than 61% of our average deposits for the first quarter and 62.9% as of March 31, 2022.

The bank's funding is entirely core customer deposits and customer repos, which, combined, had a cost of 60 basis points in the first quarter. This 3 basis point cost of funds compares with 3 basis points in the prior quarter and 7 basis points for the year ago quarter.

I will now turn the call over to Allen to discuss our investments, acquisition accounting, allowance for credit losses and capital. Allen?

Thanks, Dave. Good morning, everyone. We deployed some of our excess liquidity during the first quarter into additional securities by purchasing more than $1 billion in new securities with yields on average of approximately 2.4%. Including the $130 million in securities acquired from Suncrest, our total investment securities increased by $900 million from the end of the fourth quarter to $6 billion as of March 31, 2022.

Investment securities available for sale or, AFS securities, totaled $3.65 billion, inclusive of a pretax unrealized loss of $203 million. Investment securities held to maturity, or HTM securities, totaled approximately $2.36 billion at March 31. The growth in our investments resulted in the investment portfolio increasing from 33% of earning assets in the fourth quarter to 36% on average in the first quarter.

In addition to the increase in the size of our securities portfolio, the tax equivalent yield on the portfolio grew from 1.52% in the fourth quarter of 2021 to 1.7% in the fourth quarter -- first quarter of 2022. Although we grew the investment portfolio, we continue to maintain a significant amount of funds at the Federal Reserve. Our Fed balance averaged more than $1.6 billion for the first quarter compared to $2 billion in the prior quarter.

The acquisition of Suncrest was consummated utilizing a combination of 8.6 million shares of CVB stock and $40 million in cash for total consideration of $237 million. Upon the close of the merger, Citizens Business Bank acquired approximately $1.4 billion in total assets, including the $130 million of investment securities, $330 million in cash and $766 million in net loans. We recorded a core deposit intangible of $4 million and goodwill of $102 million.

The acquired loans were recorded at a fair value, which was a net discount of 1.5% on the entire loan portfolio. Approximately 30% of the acquired loans are considered PCD loans. An allowance for credit loss of $8.6 million was established for these loans at acquisition. In addition, these loans were further discounted by almost 2% to adjust them to fair value.

Non-PCD loans were valued at a total premium of 0.3%, which was a net of a credit discount of 1.5%. We recorded a loan loss provision to establish a day-1 allowance for credit losses of $4.9 million on the non-PCD loans. At March 31, 2022, our ending allowance for credit losses was $76.1 million or 0.89% of total loans. When excluding PPP loans, our allowance as a percentage of the remaining loans was 0.90%, which compares to 0.84% at December 31, 2021. In addition to the allowance for credit losses, we had $18.6 million in remaining fair value credit discounts from all acquisitions as of March 31, 2022.

For the quarter ended March 31, 2022, we recorded a total loan loss provision for credit losses of $2.5 million. Comparatively, there was no loan loss provision or recapture of credit losses in the fourth quarter of 2021. While in the first quarter of 2021, we had a recapture of loan loss provision of $19.5 million.

Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. These U.S. economic forecasts include a baseline forecast as well as downside forecast. We continue to have the largest weighting on the baseline forecast with downside risks weighted among multiple forecasts. Our weighted forecast assumes GDP will increase by 2.6% in 2022, 1.3% for 2023 and then grow by 3% in 2024. The unemployment rate is forecasted to be 4.3% for 2022, 5.2% in 2023 and a decline of 4.7% in 2024.

Now turning to our capital position. Shareholders' equity decreased by $6.5 million to $2.1 billion at the end of the first quarter. Equity increased from the end of 2021 by $197 million for the issuance of 8.6 million shares to the former shareholders of Suncrest. As interest rates increased during the first quarter, equity decreased due to a $142 million decrease in other comprehensive income as a result of about a $200 million increase in the unrealized loss on our available-for-sale securities.

On February 1, we announced that our Board of Directors authorized a share repurchase plan to repurchase up to 10 million shares of the company's common stock and the execution of a $70 million accelerated share repurchase, or ASR plan. Under the ASR, we were initially able to retire approximately 2.5 million shares. In addition, we repurchased more than 500,000 shares under our 10b5-1 stock repurchase plan in March. In total, equity was reduced by $83 million in conjunction with the repurchase of approximately 3 million shares of common stock.

Our overall capital position continues to be very strong. Our regulatory capital ratios are well above regulatory requirements to be considered well capitalized and above the majority of our peers. At March 31, our common equity Tier 1 capital ratio was 13.6%, and our total risk-based capital ratio was 14.4%.

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

Thank you, Allen. Net interest income before provision for credit losses was $112.8 million for the first quarter compared with $102.4 million for the fourth quarter and $103.5 million for the year ago quarter. The increase in net interest income includes the impact of Suncrest's acquired assets and deposits for 83 days in the first quarter.

First quarter earning assets increased by $1.2 billion on average from the fourth quarter as a $930 million average increase in the investment portfolio, combined with a $670 million increase in average loans, were offset by a $365 million decrease in average funds on deposit at the Federal Reserve.

During the first quarter of 2022, PPP loans had an average balance of $160 million compared with $244 million for the fourth quarter of 2021. Our earning asset yield increased by 11 basis points compared to the prior quarter. The increase in our earning asset yield was a result of a 17 basis point increase in investment yields and a shift in the composition of earning assets with investments growing from 33% of earning assets to 36%, while our average amount of funds at the Fed declined from 14% to 10% of earning assets. Our balance sheet continues to be well positioned for rising interest rates with significant liquidity, including $1.5 billion on deposit with the Fed at quarter end and approximately $200 million of expected quarterly cash flows from our securities portfolio.

Our tax equivalent net interest margin was 2.9% for the first quarter of 2022 compared with 2.79% for the fourth quarter and 3.18% for the first quarter of 2021. The increase in our net interest margin was a result of an increase in our earning asset yield while maintaining our very low cost of funds at 3 basis points. When the impact of PPP loans, discount accretion on acquired loans and nonaccrual interest paid is excluded, our adjusted tax equivalent net interest margin was 2.8% for the first quarter, an increase from 2.65% for the prior quarter but lower than the 2.93% for the year ago quarter. Our net interest margin continued to be negatively impacted by our excess liquidity. During the first quarter, we had approximately $1.6 billion on average on deposit at the Federal Reserve, earning on average less than 20 basis points. Our net interest margin in the first quarter would have been approximately 31 basis points higher without the $1.6 billion on average on deposit at the Federal Reserve.

Loan yields were 4.27% for the first quarter of 2022 compared with 4.29% for the fourth quarter of 2021 and 4.5% for the year ago quarter. Total interest and fee income from PPP loans was approximately $3 million in the first quarter compared with $4.2 million in the fourth quarter. Excluding the impact of PPP loans, interest income related to purchase discount accretion and nonaccrual interest paid, loan yields were 4.11% for the first quarter of 2022, 4.08% for the fourth quarter of 2021 and 4.23% for the first quarter of 2021. New loan production has generally moved to yields that exceed 4%.

Our cost of deposits and customer repos, as well as our total cost of funds for the first quarter, was 3 basis points. Interest-bearing deposits and customer repos increased on average by $760 million from the fourth quarter, including the deposits acquired from Suncrest, which resulted in a $125,000 increase in interest expense. Our cost of funds declined by 4 basis points compared with the first quarter of 2021.

To date, we've experienced little pressure to increase deposit rates despite the recent increase in market interest rates as well as potential customer expectations. I would note that during the last cycle of rising short-term rates from 2014 through the end of 2018, when the Fed increased rates by 225 basis points, our cost of funds increased by only 8 basis points. We believe that our low cost of funds will remain relatively stable, even if short-term rates continue to rise in 2022.

Moving on to noninterest income. Noninterest income was $11.3 million for the first quarter of 2022 compared with $12.4 million for the prior quarter and $13.7 million for the year ago quarter. The fourth quarter of 2021 included a $700,000 gain on sale of an OREO property and $890,000 from the collection of a previously acquired loan that had been charged off prior to our acquisition of San Joaquin Bank.

The first quarter of 2021 benefited from $3.5 million of insurance proceeds from debt benefits that exceeded the cash surrender value on bank-owned life insurance. Deposit service charges exceeded $5 million during the current quarter, which is an increase of $575,000 compared with the fourth quarter and were higher than the first quarter of 2021 by 27% or $1.1 million.

Our trust and investment services fee income decreased by approximately $290,000 compared with the prior quarter while being $211,000 or approximately 8% higher when compared with the year ago quarter. As previously discussed, our trust business anticipates losing a significant relationship in 2022 due to the relocation of our customer out of state. The impact will be primarily to assets under management. However, the revenue impact will represent less than 4% of the 2021 trust and investment services revenue. We expect these assets to start migrating next quarter and to be fully gone by year-end. We did not have any fees from interest rate swaps during the first quarter of '22 or the fourth quarter of 2021.

Generally speaking, our volume of interest rate swaps is impacted by the shape of the yield curve with a relatively flat yield curve being more conducive to a higher volume of swaps. Overall, we're optimistic that the addition of Suncrest customers and the extension of our geographic footprint will allow us to grow fee income through a wider array of products and services not previously offered by Suncrest, including wealth and investment management, foreign exchange and more sophisticated treasury management products.

Now expenses. Noninterest expense for the first quarter was $58.2 million compared with $48 million for the fourth quarter of 2021 and $47.2 million for the year ago quarter. The growth in expenses was primarily the result of the acquisition of Suncrest at the beginning of January. The systems conversion from Suncrest legacy banking system was completed in February, which comprise a meaningful percentage of the $5.6 million in acquisition expense for the first quarter of 2022. Excluding acquisition expense, noninterest expense increased by $4.8 million over the fourth quarter of 2021 and $5.4 million over the first quarter of 2021.

We will consolidate 2 banking centers in the second quarter. And by the end of the second quarter, we expect to have completed the integration and consolidations. The third quarter of 2022 should reflect the full benefit of our expense savings. Noninterest expense totaled 1.36% of average assets for the first quarter of 2022 or 1.23% when acquisition expense is excluded. This compares with 1.19% for the fourth quarter of 2021 and 1.32% for the first quarter of 2021.

Our efficiency ratio was 46.9% for the first quarter of 2022 or 42.4% when acquisition expense is excluded. This compares with 41.8% for the prior quarter and 40.3% for the first quarter of 2021.

According to various economic reports, the California economy continues to improve, but challenges remain. Supply constraints, inflation and labor shortages continue to negatively impact the businesses and the industries we serve. Our bank has experienced similar impacts on our staffing and labor costs, along with inflationary pressures, that could begin to reduce the excess liquidity our customers maintain in their deposit accounts. Although these issues are concerning, we continue to remain disciplined in our approach and continue to produce consistent earnings, maintain strong capital levels, solid credit quality and excellent liquidity.

I am pleased that we were recently ranked the 17th best publicly traded bank in 2021 by S&P Global Market Intelligence, along with being the fourth-ranked bank by Forbes out of the largest 100 publicly traded banks in asset size. This recognition marks the sixth time since 2016 that our bank has placed in the top 4 position on Forbes' annual rankings, including 3 #1 rankings.

In closing, we are pleased to have finalized our acquisition of Suncrest, and we welcome the addition of their customers, associates and shareholders to our growing organization. I would like to thank our associates for their hard work and dedication through this acquisition and ongoing integration. We are very excited to have combined forces with an institution that will provide us with a deep pool of talent, a strong and diverse customer base and a platform expansion into the greater -- a platform for expansion into the Greater Sacramento market as well as solidifying our position in the Central Valley.

We remain committed to our 5 core values of financial strength, superior people, customer-focus, cost-effective operations and having fun. Please stay healthy and safe.

That 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, coming from the line of Matthew Clark with Piper Sandler.

Wanted to start on the loan yields, up a few basis points on a core basis. New production now above 4%. Sounds like we may have started to see some lift in those yields. Can you just give us a sense for your outlook on loan yields given the Fed rate hikes and just new business?

Yes. So as I mentioned in the prepared remarks, the loan yields that we are originating loans at today are definitely above 4%. There are still some things that we'll book that are a little bit lower than that. But overall, I think it's definitely a tailwind for us, and I think the rates have turned. The key to that, obviously, is we still want to win the best deals you have to compete. But at the end of the day, I do believe that we'll be able to see that sort of start to turn around.

Okay. And then on the loan pipeline, can you give us a sense for where that stood coming out of the quarter relative to year-end and maybe even year-over-year? And your outlook for growth, I think you had previously suggested mid-single digits was doable. You did better than that on a core basis here, so just wanted to get your updated thoughts on that front.

Yes. I don't really have any changes to what I've been saying. We had a good quarter. This quarter, we did close a number of things. Some of that production was the result of the acquired Suncrest offices as well. But overall, the majority of it was our legacy offices. Suncrest accounted for about $25 million to $30 million of our total loan production in the first quarter.

Our pipelines remain strong right now. I will say that there are some headwinds with respect to the pipeline, especially depending on where rates go specifically 5-, 10-year treasury rates. That could have an impact and slow things down. Obviously, the refinance takeaway game is going to slow down a little bit, I think, for everybody. But for us, we focus on owner occupied -- or excuse me, operating businesses and the real estate and the C&I lines. And I think we still have room, obviously, on our utilization on our C&I loans. That was also a benefit to us, but the pipelines remain strong as of now.

Okay. And then just shifting gears to the share buyback, pretty active this quarter. Does the growing macro uncertainty give you some pause from here? Do you think you'll remain active?

Well, I mean, the ASR has not concluded yet. And I think we'll see how things go, but I would anticipate us to not to be certainly the extent in the first quarter, but I think we'll still be modestly active.

And our next question, coming from the line of David Feaster with Raymond James.

I just want to follow up kind of on the loan side. It was really good to see the increase in C&I utilization in the quarter and the strength and the growth there. Just curious what you're hearing from those borrowers and their plans on whether they're looking to draw on lines to manage supply chain? And how much of the growth that you saw was from drawings on existing lines versus new commitments?

Yes. I don't have the specific breakdown of that, but I can tell you that, just generally speaking, it was mostly from existing lines. There were some new larger C&I relationships that we put on the books in the first quarter, but most of it was from existing customers.

I do believe that with inflation, with everything going on, the supply chain disruptions, I do think that some of the excess liquidity that borrowers have been carrying on their books will translate and start to burn off, and then that hopefully will translate to a little bit more borrowings.

So I do think that's something that is definitely a tailwind for us, especially depending on how long these inflationary pressures persist. I think we're about a year into the transitory nature of these now. So we'll probably see it go for a little bit longer, I would think. So I think there's opportunity for us there.

Okay. And then just touching on the deposit front, and I appreciate all the commentary in the prepared remarks. I mean, core deposit growth continues to remain strong. You guys have a phenomenal core deposit base. I'm just curious your expectations going forward. I know you're not going to have to increase rates, just given the strength of your portfolio. But just hearing the commentary, it almost sounds like maybe you'd expect deposit flows to at least slow, if not begin to flow out. And then just any other comments on the deposit trends that you're seeing?

Yes. Well, as you know, our focus is on operating companies and noninterest-bearing deposits. So we're going to continue to drive that. That's something that I think is important. There could be some impact as I made in my previous comments just with people utilizing the excess cash they have. But the real advantage we have, I mean, 100% of our loans -- more than 100% of our loans are funded with our noninterest-bearing deposits.

So the interest-bearing deposits on the books, we can be a little more disciplined about rising rates or customers' expectations. And we're still sitting with enormous amount at the Fed. So all of those things combined, I think our strategy is to continue to go after operating companies, noninterest-bearing deposits. We'll be able to do that. We've been able to do that. And I think we should probably see a little bit of a slowdown, but I think that we can still grow the noninterest-bearing side. I think where you'll see some of that decline is more on the interest-bearing side.

The one thing with Suncrest we did is we put them into our pricing structure pretty much right away, and that obviously helped us on the funding side this quarter. But we'll see the reaction from -- as rates start to go up, there will be some opportunities for people to get higher rates.

But the great thing that we have there is that we can also look to our Citizens Trust Group and look to investments. I mean, right now, they can get a liquidity account at Citizens Trust, just by buying treasuries if they don't need to use that excess funds. And they can get pretty close to 2%, and we make a decent fee on that as well. So there's opportunity for us if it starts to move away to push it towards our Citizens Trust Group, which is something that we've had a lot of conversation about in this rising rate environment.

Okay. And then -- that's helpful. And then just -- switching gears to asset quality. I mean, credit remains phenomenal. You've got a great track record, obviously. But kind of listening to the commentary about what you guys are including in your CECL forecast, a deceleration in GDP growth, an increase in unemployment rate, just curious what keeps you up at night, what you're watching as you're managing your credit and whether you've begun tightening the credit box at all.

We haven't really tightened the credit box. I'll start there. Allen can jump in as well, but we haven't tightened the credit box. I mean, we've always remained very disciplined. Our underwriting guidelines are standards. Nothing has changed throughout the pandemic. We remain very consistent and disciplined in how we look at credit. So I feel pretty good overall.

There's obviously the ones that everybody talks about. Office is something that everybody is talking about. Things are starting to -- we're starting to see some of these leases expire and maybe people moving out. But most of our office, and I've mentioned this before, is more suburban and rural office. It's not money center, big city type stuff, and the average loan size and the granularity of that portfolio are very strong.

So I feel pretty good about that. I've mentioned to you in the past, I still believe that C&I could be an area. Obviously, my favorite, SBA, that's always something we -- 7(a) loans, we look at that. But I think just generally speaking, I feel pretty good. I feel there's more potential for loss content in the C&I than in the real estate, just based on how we underwrite deals at the beginning. But I still feel very good about our C&I loan portfolio. And gosh, 31% utilization rate is still pretty low.

So our customers are strong. I feel pretty good about it. But I think inflation, wage issues, supply chain issues, all of these things can definitely have an impact on that, so we're keeping a close eye on it.

Do you have anything to add to that?

Well, David, as you noted, certainly, at a macro level, we're concerned about a recession next year, and our forecast sort of reflects that.

And remember, one other comment I'll make to that just real fast is that's a nationwide forecast, and California is still a little bit behind the nation in some of these things, unemployment specifically.

And our next question, coming from the line of Ben Gerlinger with Hovde Group.

I was curious if we could just take a moment here to kind of talk about the expense base. I know there's a little bit of noise, especially with the recent deal on the branches I think you said in prepared remarks were next quarter. So 3Q is really kind of the core. I was curious on what like a core level might be in terms of total expenses and then if you guys are kind of adding into any sort of investment with any potential cost savings you might be getting?

I guess how we would answer that is I think in the second quarter, it will be close to a good run rate and third quarter being completely clean. We're still planning on investing in technology, as we've noted before, of about $3 million in 2022.

Some of the drivers of expenses as we go forward are certainly going to be inflationary pressures, as Dave mentioned. Right now, we're actually seeing elevated vacancy factors, though, because of that. And so that might be a benefit to your expense in the near term, obviously, as we try to fill some of those positions. So I think there's -- right now, Q1 has a lot of moving parts. I think Q2 will give you a better run rate.

Yes. I just think, overall, nothing has really changed from what we sort of talked about, expenses being sort of flat but slightly up year-over-year, not including the Suncrest noise.

Got you. Okay. That's fair. That is helpful. And then when you look back historically, like you guys had a margin that approach around 4.5% at the peak or so. And obviously, your margin continues to go up after the Fed stops raising rates due to the lag effect. But with the Fed likely -- or at least positioned to increase rates at 50 basis point clips for the next 3 meetings, does that change how you guys are approaching your budgetary perspective? And then from there, is there anything that, if you have the excess funds, you're looking to put that into?

Well, I think, Ben, a couple of things. The shape of the curve and the velocity of those changes obviously has a lot of impact on where our margins may go. In terms of investing the liquidity, I think we're going to continue to take a balanced approach, really looking to be opportunistic about putting it -- into in securities as well as looking at our loan growth and then just making sure we manage where deposits continue to grow.

So I think we just want to take a balanced approach, not to turn around and invest the whole of it, even though yields might be attractive immediately because we don't want to be in a situation where we start to see any type of attrition on interest-bearing deposits that was unexpected. So we want to be prepared for that.

Yes. And I mean, obviously, the advantage we have here is over 60% of our deposits are noninterest-bearing. So as the Fed is raising rates, 60% of our deposit base, at least today, 61%, 62% of our deposit base has a 0 beta. It's not going to change. That mix could change slightly. But again, we're going to be very disciplined, just as we were in the last Fed rising rate environment cycle.

So I think we're in pretty good shape, but we should start to see -- as we talked about in the past, we're very asset sensitive, and we continue to be asset sensitive. So we should start to see the benefit of that as we go through the rest of this year.

Got you. That's helpful. If I could sneak one more in. I know you guys have pretty healthy currency, especially relative to the bank space today. I know that you also have open repurchase. At what point is there kind of diminishing effects because the higher valuation, the payback period keeps elongating, and there are a lot of banks and California? So kind of what's your appetite for future M&A?

Yes. We're still interested in looking at M&A. There's nothing that's imminent that we're talking about at this very moment, but I will say it sort of slowed down towards the end of last year and the beginning of the first quarter, but there are conversations that are starting to pick up again.

And as you mentioned with our currency, that creates an opportunity for us, especially if there's something that we really want. But we're going to remain disciplined in our approach. We're looking for banks. We just changed our investor presentation on the types of deals that we look for, from $1 billion to $8 billion to $1 billion to $10 billion, in-market deals within or adjacent to our footprint. We want it to be a similar of a culture as possible. So all of those things are factors that we evaluate when we're looking at potential opportunities. But there are more opportunities, and it's part of our growth strategy, acquisitions. So we're open to those conversations, and we're looking and evaluating different deals all the time. I just have to convince Allen.

(Operator Instructions) And our next question, coming from the line of Kelly Motta with KBW.

Most of mine have been asked and answered already. I did see the M&A range shaken up, so that one just got snapped. Maybe you could talk, since you still have quite a bit of cash on balance sheet, how we should be thinking about a normalized level of cash and kind of the cadence of the deployment of that into loans and securities.

Sure. I was talking about that a little bit a minute ago, Kelly, but I think -- we're not going to turn $1.5 million into...

$1.5 billion.

$1.5 billion, right. But we continue to look at -- bond yields are attractive right now. We are shortening the duration of some of the securities because 15-year mortgage-backed securities look a lot more attractive than they did a few months ago. But we still want to maintain a fair amount of liquidity on the balance sheet in this environment. So we'll be cautious, but I do expect us to continue to deploy some of that into securities, and as Dave talked about, loan growth.

(Operator Instructions) And at this time, there are no further questions. I would like to turn the call back over to Mr. Brager.

Thank you. I want to thank everybody for joining us this quarter. We appreciate your interest and look forward to speaking with you in July for our second quarter 2022 earnings call.

Please let Allen and I know if you have any questions. Have a great day, and we'll talk to you all soon. Thanks.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.