CVBF - NASDAQ

Good morning, ladies and gentlemen, and welcome to the First Quarter 2024 CVB Financial Corp. and its subsidiary Citizens Business Bank Earnings Conference Call. My name is Cherie, and I'm your operator for today. [Operator Instructions] Please be advised that today's conference 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, Cherie, and good morning, everyone. Thank you for joining us today to review our financial results for the first quarter of 2024. Joining me this morning are Dave Brager, President and 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, 2023, 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, and good morning, everyone. For the first quarter of 2024, we reported net earnings of $48.6 million or $0.35 per share, representing our 188th consecutive quarter of profitability. We previously declared a $0.20 per share dividend for the first quarter of 2024, representing our 138th consecutive quarter of paying a cash dividend to our shareholders. Our net earnings of $48.6 million or $0.35 per share compared with $48.5 million for the fourth quarter of 2023 or $0.35 per share and $59.3 million for the year ago quarter or $0.42 per share. We produced a return on average tangible common equity of 15.13% and a return on average assets of 1.21% for the first quarter of 2024. Our net income in the first quarter was impacted by the addition of $2.3 million of accrued expense for the FDIC special assessment. This is in addition to the $9.2 million accrued in the fourth quarter of 2023. The increase in the accrual was the result of the FDIC revising its initial estimate of losses from last year's bank failures up by 25%. Net interest income declined by $6.9 million when compared to the fourth quarter of 2023. Our earning assets were stable over the past 2 quarters, but our net interest margin declined by 16 basis points from the fourth quarter to 3.1% for the first quarter of this year. The decrease in our net interest margin resulted primarily from a 22 basis point increase in our cost of funds. Cost of funds increased primarily due to higher average borrowings, which had a cost of 4.75% and the addition of broker deposits that had a cost of approximately 4.2%. Average total deposits for the first quarter decreased by approximately $517 million compared to the fourth quarter of 2023, while average borrowings grew by $407 million. Our average noninterest-bearing deposits continue to be greater than 61% of our average total deposits for the first quarter of 2024. As we highlighted in our last earnings call, we experienced an outflow of deposits from the bank's largest depositor of more than $400 million, which occurred during December of 2023. At March 31, 2024, our total deposits were $11.9 billion, a $461 million increase from December 31, 2023. This increase included growth in non-maturity deposits of approximately $180 million as our seasonally low level was reached in January followed by growth in February and March. The increase in total deposits at March 31, 2024, also included the addition of $300 million in broker deposits we added between the end of February and the end of March. Although noninterest-bearing deposits declined by $93 million from the end of the fourth quarter, noninterest-bearing deposits still represented approximately 60% of total deposits at the end of the first quarter. Our cost of deposits was 74 basis points on average for the first quarter of 2024, which compares to 62 basis points for the fourth quarter of 2023 and 17 basis points for the first quarter of last year. From the first quarter of 2022 through the first quarter of 2024, our cost of deposits has increased by 71 basis points, representing a deposit beta of 14% compared to the 525 basis point increase in the Fed funds rate during the Federal Reserve's tightening cycle. Now let's discuss loans. Total loans at March 31, 2024, were $8.8 billion, a $134 million decline from December 31, 2023, and a $172 million or 1.9% decrease from March 31, 2023. The quarter-over-quarter decrease included a $66 million decrease in dairy and livestock loans. Dairy and livestock loans see higher line utilization at year-end, which is reflected in the 80% utilization rate at the end of the fourth quarter. The utilization rate on dairy and livestock loans declined to 75% at March 31, 2024. C&I loans remain relatively flat when comparing period-end balances at March 31, 2024 to December 31, 2023, but we have generally seen growth in average balances over the last 4 quarters. This reflects the growth in new relationships as C&I line utilization continues to be at a rate of less than 30%. Commercial real estate loans declined by $64 million from December 31, 2023, a continuation of the trend that we have experienced for multiple quarters. In comparison to March 31, 2023, loans declined by $172 million. The majority of the decline was in commercial real estate loans, which decreased by $230 million from March 31, 2023. Over this period, we also experienced a decline in both construction and consumer loans of $25 million and $13 million, respectively. C&I loans increased by approximately $65 million over the same period although line utilization remained flat at 28%. Our strategy of banking the best small- to medium-sized businesses and their owners and our focus on sourcing new relationships that use our full suite of products has resulted in a higher percentage of new loans that are either owner-occupied or C&I loans. We've seen a modest change in our mix of loans over the last year, with C&I growing from 10% to 11% and investor real estate loans declining from 50% to 49%. Although loan demand is slower than past years, we are optimistic about growth from our pipeline of C&I loans. We compete on loans very selectively, which is also impacted new loan production. Yields on new loans have been well over 7%. We believe our asset quality remains strong even though we experienced greater net charge-offs this quarter than we have since the Great Financial Crisis. Our allowance for credit losses decreased to approximately $83 million on March 31 due to the net charge-offs of $4 million. The vast majority of the loan charge-offs during the first quarter were related to 2 borrowers in which we have previously established specific loan loss reserves in 2023. The largest write-down was for a commercial real estate participation loan that was acquired in the Suncrest merger. We are aggressively pursuing recovery from these borrowers and optimistic we will be successful. The net charge-offs of $4 million in the first quarter compares with net charge-offs of $153,000 for the fourth quarter of 2023 and net charge-offs of $77,000 for the first quarter of 2023. At quarter end, nonperforming assets, defined as nonaccrual loans plus other real estate owned, were $13.8 million or 9 basis points of total assets. The $13.8 million in nonperforming loans compared with $21 million for the prior quarter and $6 million for the year-ago quarter. Classified loans for the first quarter were $103 million compared with $102 million for the prior quarter and $67 million for the year-ago quarter. Classified loans as a percentage of total loans was 1.18% at quarter end. I will now turn the call over to Allen to discuss the allowance for credit losses and additional aspects of our balance sheet. Allen?

Thanks, Dave. Good morning, everyone. As of March 31, 2024, our allowance for credit losses was $82.8 million or 0.94% of total loans, which compares to $86.8 million or 0.98% of total loans at December 31, 2023, and $86.5 million or 0.97% of total loans at March 31, 2023. Our allowance for credit losses that is established on a collective pool basis for performing loans grew from $80.9 million at December 31, 2023, to $82.8 million at March 31, 2024. The changes in our allowance over the last few quarters have been primarily due to changes in our economic forecast as well as reserves established on specific loans. We did not record a provision in the first quarter of 2024 as the $1.9 million increase in allowance for those loans that are evaluated on a collective pool basis were offset by the net impact from the $5.9 million reduction in specific reserves and the $4 million of net charge-offs. For the quarter ended December 31, 2023, we have recorded a $2 million recapture provision for credit losses, while the first quarter of 2023 included a $1.5 million provision. 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 downside risks weighted among multiple forecasts. The resulting economic forecast resulted in real GDP declining in the third and fourth quarters of 2024. GDP growth is forecasted to be below 2% for 2025 before returning to growth between 2% and 2.5% in 2026. Unemployment is forecasted to rise in 2024, peaking around 6% in the first quarter of 2025. The unemployment rate is forecasted to stay elevated through 2026. Commercial real estate values are forecasted to continue their decline until reaching their lowest level in the third quarter of 2024 before slowly rising in 2025. Our total investment portfolio declined by $129 million from December 31, 2023, to $5.3 billion as of March 31, 2024, as cash flows generated from the portfolio were not reinvested during the first quarter and the unrealized loss in AFS securities increased by $36 million. The $36 million increase in fair value of our AFS securities was partially offset by a $19 million increase in the fair value of our derivatives that hedge the change in value in our AFS portfolio. The $450 million decrease in our investment portfolio from the prior year quarter was primarily due to a $367 million decline in investment securities available for sale, or AFS securities. AFS securities totaled $2.84 billion at the end of the first quarter, inclusive of a pretax net unrealized loss of $486 million. Investment securities held to maturity, or HTM securities, totaled approximately $2.4 billion at March 31, 2023. The HTM portfolio declined by approximately $81 million from March 31, 2023. The tax equivalent yield on the entire investment portfolio was 2.64% for the first quarter of 2024 compared to 2.71% for the prior quarter. We continue to have positive carry on the fair value hedges we executed in late June of 2023. We receive daily SOFR on pay-fixed swaps which have a weighted average fixed rate of approximately 3.8%. Our cash on deposit at the Federal Reserve grew by more than $700 million from the end of 2023 to March 31, 2024. This growth in cash was partly attributable to the issuance of $300 million in broker deposits. These deposits, which mature every 90 days, were combined with cash flow hedges, which resulted in a fixed rate of approximately 4.2%. Borrowings from the bank term funding program at the end of the first quarter included $695 million of advances that mature in May of this year and $1.3 billion of advances that mature in January of 2025. Our bank term funding program borrowings had a weighted average borrowing rate of approximately 4.75%. We anticipate that the bank term funding program borrowings will be repaid through a combination of existing cash, future principal and interest payments from our security portfolio, core deposit growth and additional wholesale funding sources, which may consist of new borrowings and/or additional broker deposits. Now turning to our capital position. The company's tangible common equity ratio at March 31, 2024, was 8.33% compared with December 31, 2023 ratio of 8.51%. At March 31, 2024, our shareholders' equity increased from the fourth quarter of 2023 by $8.9 million $2.09 billion. Retained earnings increased in 2024 as year-to-date income of $49 million was offset by $28 million in dividends. The resulting year-to-date dividend payout ratio was approximately 57%. Our OCI decreased by $12 million from the end of 2023. Our regulatory capital ratios continue to be above the majority of our peers. At March 31, 2024, our common equity Tier 1 capital ratio was 14.9% and our total risk-based capital ratio was 15.8%. I'll now turn the call back to Dave for further discussion of our first quarter earnings.

Thank you, Allen. Net interest income before provision for credit losses was $112.5 million for the first quarter compared with $119.4 million for the fourth quarter and $125.7 million for the year-ago quarter. For tax equivalent, net interest margin was 3.1% for the first quarter of 2024 and compared with 3.26% for the fourth quarter of 2023. Interest income declined by $389,000 over the prior quarter as interest income on investment securities decreased by more than $800,000 while interest revenue on loans increased by more than $600,000. Our earning assets yielded 4.34% for the first quarter of 2024 compared to 4.3% in the fourth quarter of 2023. Interest expense increased by $6.5 million over the prior quarter as our cost of funds increased by 22 basis points from the fourth quarter of 2023. Interest expense on deposits increased by $2.5 million. Average interest-bearing deposits declined by $249 million quarter-over-quarter, while the cost of interest-bearing deposits increased from 1.59% in the prior quarter to 1.93% in the first quarter of 2024. Interest expense on borrowings increased from the prior quarter by $4 million as average borrowings in the first quarter increased by $407 million. The cost of borrowings, however, declined by approximately 15 basis points. The $13 million decline in net interest income from the year-ago quarter resulted from a 35 basis point decrease in net interest margin and a $158 million decline in average earning assets. The year-over-year net interest margin decline was due to an 82 basis point increase in our cost of funds, offsetting a 43 basis point increase in earning asset yields. The increase in earning asset yields was the result of higher loan and investment yields in the first quarter of 2024 compared to the first quarter of 2023. Loan yields were 5.3% for the first quarter of 2024 compared with 4.9% for the year-ago quarter. Investment security yields increased by 27 basis points from a yield of 2.37% in the prior year quarter to 2.64% in the first quarter of 2024, including the positive carry on the pay-fixed swaps of $3.7 million. Moving on to noninterest income. Noninterest income was $14.1 million for the first quarter of 2024 compared with $19.2 million for the prior quarter and $13.2 million for the year-ago quarter. Our customer-related banking fees, including deposit services, international and merchant bankcard were essentially the same compared to the fourth quarter of 2023 but declined by $308,000 when compared to the first quarter of 2023. Our trust and wealth management fees increased by $143,000 compared to the prior quarter. And year-over-year, these fees grew by $310,000. First quarter BOLI income decreased by $4.3 million from the fourth quarter of 2023 and increased by $2.4 million compared to the first quarter of 2023, primarily due to the restructuring and enhancements in BOLI policies in the fourth quarter of 2023. Now on to expenses. Noninterest expense for the first quarter was $59.8 million compared with $66 million for the fourth quarter of 2023 and $54.9 million for the year-ago quarter. The $6.2 million quarter-over-quarter decrease was primarily due to the expense associated with the FDIC special assessment. The first quarter of 2024 reflected an additional accrual of $2.3 million for the FDIC special assessment, resulting from a 25% increase in the FDIC's initial loss estimate, which was $9.2 million as reflected in the fourth quarter of 2023. In total, regulatory assessment expense was $4.4 million for the first quarter of 2024, a $6.8 million decrease from the fourth quarter of 2023 and a $2.4 million increase from the first quarter of 2023. Salaries and employee benefit costs increased $749,000 quarter-over-quarter. This increase includes $1.7 million in higher payroll taxes paid in the first quarter as a result of the annual reset of salary caps on payroll taxes and the payment of annual bonuses. The increase in payroll taxes was offset by a $900,000 decrease in bonus accruals compared to the fourth quarter of 2023. Total salaries and employee benefits increased by $1.2 million compared with the prior year quarter as salary expense grew year-over-year by $1.1 million or 4.5%. There was no provision or recapture for unfunded loan commitments for the first quarter of 2024. The fourth quarter of 2023 included $500,000 in recapture provision for unfunded loan commitments compared to $500,000 in provision for the first quarter of 2023. Noninterest expense totaled 1.48% of average assets compared with 1.62% for the prior quarter and 1.36% for the first quarter of 2023. Our efficiency ratio was 47.22% for the first quarter of 2024 or 45.4% when the special FDIC assessment expense is excluded. This compares with 47.6% for the prior quarter or 41%, excluding the special FDIC assessment, and 39.5% for the first quarter of 2023. This concludes today's presentation. Now Allen and I will be happy to take any questions you might have.

[Operator Instructions] Our first question will come from the line of Kelly Motta with KBW.

I was hoping we could start with how you're thinking about the funding base. I appreciate all the color around the broker you took on, it seems like you might take on a slug more to pay off the chunk of BTFP that comes due in May. Just wondering how we should be thinking about the overall contribution of borrowings as well as liquidity levels. I saw the EOP cash built quite a bit this quarter. I'm assuming some of that is to prefund that BTFP payoff. But any color as to how you're approaching it would be helpful.

Sure, Kelly. You're correct. We did do some brokered CDs to start to support the paydown of that BTFP that comes in May. I think cash levels may be elevated at the end of the first quarter, so they may come down a little bit as the year goes on. But I don't think it's going to be dramatically different. We always want to keep some cash on the balance sheet. I think the biggest thing for us as we go through the rest of the year is how we mix the funding. Our pipelines, as Dave alluded to, on core deposits are pretty good right now. So we feel optimistic about that. But we do anticipate that we'll need to mix in some wholesale deposits to replace that overall $2 billion at the bank term funding program. So we'll manage it both from an interest rate risk perspective as well as trying to get the lowest cost of funding.

That was really helpful. Maybe we could talk about that pipeline you just spoke of, of core deposits that's pretty strong now. Just wondering, it's such a competitive environment for deposits, is that from penetration of your existing client base? I know you guys already do a fantastic job with the customers you support, new prospects. Just wondering what's driving that pipeline, any change in incentives? Any color you could provide there.

Yes. There really isn't any change in incentives. We changed that back in December of 2022 to really make noninterest-bearing deposits, operating deposits, pretty much the equivalent of 3x of doing the same size loan as far as the incentive is concerned. So that's been in place for all of '23 and obviously continuing into '24, with the focus on really calling on those operating companies and driving that. I think there's a few pieces of the puzzle here, and I'll talk about all of them. So the pipeline is strong. We have hired some good people from other organizations that are driving some of that. I think we've always been focused on the operating company, but I think there's sort of a renewed enthusiasm from the salespeople of going after those full relationships as evidenced by sort of the modest mix in the C&I loans relative to the investor commercial real estate loans. And I think right now, from the lending side, for those that lead with lending, there's just not a lot of investor commercial real estate deals out there that we are interested in doing from either a credit perspective or a pricing perspective, and so they really have had to focus on those operating companies. The second part of it, I would say, is just the normal seasonality in our deposit base. And we've talked about this in the past, the fourth and first quarter are sort of, I'll say, the down quarters historically, excluding 2020, because everybody was growing deposits in the first quarter and second quarter of 2020. But excluding 2020, we normally have about a 4% to 6% decline in the fourth quarter and then we sort of build it back towards the end of the first quarter, and then we really see that sort of start to build more in the second and third quarter. So I think just naturally, if things hold true as they have for a long time, we'll see some growth in our existing relationships. Coupled with the stronger pipeline, I think we should create sort of that buildup on the deposit side as we go through the next couple of quarters at least. I hope that helped.

The next question will come from the line of David Feaster with Raymond James.

Maybe I just want to start out on the competitive landscape from your perspective. I mean you just touched a little bit on the deposit side. But maybe touching on the loan side, I'm curious, how is the competitive landscape? And then how is demand trending? And what are you hearing from your clients? And just kind of how do you think about loan growth at this point, what's your appetite?

Yes. So look, we're interested in doing quality loans. We always are. And whether that's a real estate loan or a C&I loan, we're interested in both. We do have a better pipeline at this point this year than we had last year at the same time frame. But I will say that it is definitely slower than it was the year before that, and we're just really focused on the operating company side. The majority of the loans we funded in the last 2 or 3 quarters have been either owner-occupied or C&I loans, whereas normally, the majority of the loans we would be funding are more investor commercial real estate-related loans. I do think the competitive landscape is still there. I mean, we're still sticking to our low single-digit growth. I think we can accomplish that throughout the year. We're in a little bit of a lull. We've booked some very nice relationships that haven't started to borrow yet on the C&I side, on the facilities that we provided them. So I think we're in a little bit of a lull there, but I still am sticking to that kind of low single-digit growth objective, not guidance but objective. And we're focused on getting the whole relationship, and so I think the bankers have done a really good job at sort of redoubling their efforts towards that type of business. But I will tell you, I've been somewhat shocked at some of the pricing that's out there on the loan side, especially given potentially funding challenges at institutions. We're starting to see stuff get back into the mid-6s on 5-year rates. And I just think that's probably too low for us. Normally, we want to make sure that credit comes first, making sure we underwrite it right, and then we'll be aggressive on pricing if we believe that we're getting the full relationship. But that competitive landscape for lending out there is driving price down even though rates are going up, so we're just not going to compete at that rate. And as I said in the call, we're booking loans well over 7% recently.

And then maybe just touching on ag specifically. Obviously, there's some challenges in that space, you alluded to that, from commodity prices, input costs and all that. I'm curious what you're seeing and hearing from your clients, where you're specifically seeing any stresses, and just how you think about managing that book going forward.

Yes. I mean, look, it's a smaller part of our overall portfolio, but it's an important part of our portfolio. A lot of our offices are located in the Central Valley, California, which is the breadbasket of the world, really. I mean the largest ag-producing counties in the country are in the Central Valley, so it's an important part of what we do. We just have to be very cautious when we're looking at it. The dairy and livestock or the ag production side have been challenged. But things recently have maybe gotten a little bit better. Mill prices, futures, are starting to pop up a little bit. Some of the input costs have stabilized or even gone down, in some cases. There's a lot of news that comes out of that area. One thing we shouldn't have to worry about, at least in the foreseeable future, is water. We've had a lot of rain over the last couple of years, so that's a good thing. But it remains challenging. I mean it's a hard business. Just like everything, we want to bank the best in each of the specific industries that we do business with. And so we just try to pick and choose the right customers, as much as they're picking and choosing us, that is. But I would say it's going to remain sort of in that 5-ish or less percent of our total loan portfolio, but it's still an important part of what we do.

Got it. That's great. And then obviously, there's a lot of moving parts in the balance sheet right now. We touched on a bit of that with Kelly's question, using cash and cash flows from the securities book to fund upcoming BTFP maturities. But I'm just curious, how do you think about managing the balance sheet, other moves you're considering at this point? I mean we did the swap. You did some restructuring on the BOLI policies. I'd be kind of curious what the implications of that. But I'm curious, how do you think about managing the balance sheet and whether maybe a higher for longer outlook impacts that?

Well, David, it's definitely a balancing act. I mean we are balancing both our interest rate risk, which has become a little more asset-sensitive as we put on these derivatives; obviously, a lot of liquidity measurements we look and ultimately trying to fund the bank in the cheapest way possible. So there's a lot of tweaks and sometimes we make decisions balancing against all three of those. So I do agree that interest rates probably will stay elevated for a fairly long time. In some ways, that's not really a bad thing in my mind. And so I think long term, as we continue to change the funding mix and put on loans well into the 7%, I think that will be positive for us for a long time.

Okay. And any details on that BOLI restructuring?

Well, we completed it successfully. I think you saw the impact this quarter, significantly more income if you look year-over-year. And we're happy with it. It's doing what we wanted to do.

So it's fully reflected in this quarter. Got it.

It is, yes.

Our next question will come from the line of Gary Tenner with D.A. Davidson.

A lot of my questions are asked and answered. But just curious, from a bigger picture perspective, in terms of M&A, I think last time we spoke, you kind of suggested maybe post-NYCB, there have been a little bit more discussion or conversations around M&A. Obviously, you're in a great position from a capital and a valuation perspective, so curious kind of how that trend has gone in terms of conversations. Has it tended to be more kind of the smaller end of the size spectrum in terms of who might be more willing as a seller today and your broad thoughts on the topic?

Yes. I would say conversations are still active. I mean there's a lot of conversations. I think with the recent move in rates and some of the marks and the challenges on the math, it always becomes challenging when you get down to really talking about what you can or are willing to do. But there's still a lot of conversations going on. And look, we're in a good spot. We're going to be selective like we always are. We need to really find somebody that wants to be a partner with us and really look at the combination of whatever banks there are. And I think part of your question was sort of the size. I mean, all the conversations we're having, and again, these are all preliminary, nothing imminent, are really driven between that $1 billion to $10 billion in asset size bank. I think it could be potentially the larger you get, the more regulatory pushback you might get. I mean, there's a lot of factors, maybe some more factors, than there would have been a couple of years ago today. So you just have to really make sure that you're picking and choosing the right partners and that you can do it in a way that you don't dilute your existing shareholders too much and you earn it back relatively quickly. So we're still having conversations. I would love to say that we want to get something done, but we don't really buy banks, they sell, so they have to agree to what we're willing to do. So that's sort of where we are.

I appreciate that. And since you broached the topic of kind of regulatory pushback potentially on deals, your regulators, as you've been in communication with them, have they been able to give you any kind of visibility or guidance on what to expect in the scenario where you announce a deal? I mean there seems to be a lot of uncertainty out there. I'm curious what has been communicated to you.

Yes. I mean, look, we've had a very good relationship with our regulators historically, and we continue that good relationship today. We're always upfront with them if we're looking at something or something is sort of maybe getting closer to fruition. The only thing I would say, they haven't given any specific and we haven't asked any specific questions around that, but there's been a number of proposed rules that have come out from the OCC as well as the FDIC, which does add some complexity to the process. But outside of that, we haven't had really any specific conversations around, hey, here's an opportunity, what do you guys think. But I do think there's a number of things that have been added, I'll say, to their checklist of what they're looking at. And so we just take that into consideration if we're getting closer to looking at something.

[Operator Instructions] The next question will come from the line of Matthew Clark with Piper Sandler.

Just first one for me on the NIM and NII. Do you have the average margin in the month of March and then the spot rate on deposits at the end of March? And then as a follow-up to that, what's your expectation for when you think the NIM and NII bottom starts to inflect?

We can answer part of your question. I think the spot rate is in our investor deck. In terms of the cost of deposits, we don't have the NIM in there. We don't disclose that. As you know, we don't really provide forward guidance. I would say, Matthew, that the main variable that will continue next quarter is really going to be the funding side and what transpires there between. As Dave alluded to earlier, we typically see deposits naturally grow in the second quarter. We have a good pipeline. To the extent we're able to execute on that and minimize the wholesale funds, that will be positive, but we'll see how that plays out.

And Matthew, the spot cost of interest-bearing deposits and repos was 1.95% in March.

Got it. And then just on the securities portfolio, I mean, CET1 is up another 30 bps to 14.9%. Why not bite the bullet and just restructure the AFS book? You can clearly afford it and move on and improve the profitability from here. Any change in appetite there?

Yes. Look, we still continue to evaluate a lot of different options relative to restructuring. There's other things that we could look at doing as well. At this point, we haven't made the decision to do anything, but I do think we're continuing to evaluate it. Like I said, there are some other things we can do around it, and we've made the decision not to do it yet, but it doesn't mean we never will do it, and we'll just continue to evaluate it. So I think as we get through the next couple of quarters, we'll see what rates do, we'll see what happens as far as our deposits. I think, like I said, historically, we basically have, I'd say, gotten rid of the excess deposits at this point, but we historically have seen some growth. So there's a lot of different things that we can do from the funding side to improve the NIM, and we'll continue to evaluate that. I don't know, Allen, if you have anything you want to add to that.

No, I don't think. It's something we've talked to you about before, and we'll continue to evaluate. We have nothing imminent though.

Yes. And look, I would say part of that decision-making, it's not all just math, right? I mean it's the perception of our customers. Our customers have been very satisfied with us. The deposits, the relationships, have been stable, albeit some money has moved to higher-yielding stuff. We haven't lost relationships for the fear of anything. But if you did a big restructure and you had a loss in a quarter, that could spark more fears than we need to fear. So that reputational headline risk is something that we also evaluate in that as well.

Got it. And last one for me. Just if it's likely you're not able to get an M&A deal this year, is it fair to assume you'll get active buying back stock at some point this year?

Yes. I mean, look, we're going to have to evaluate every situation, but we do have a lot of capital. I'd say one of the limiting factors on that is just the TCE. We want to make sure we maintain a solid TCE that allows us to do a deal as if we're going to impact that, so there's a lot of different aspects there. But yes, I mean, that's something that we also discuss pretty regularly. And we are building capital and we do have close to 15% CET1, so we have good regulatory capital. But we're also sort of managing to that TCE ratio as well. And so it went down a little bit because of the movement in interest rates. But as we get through the year, that's definitely something that we'll continue to look at.

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 closing remarks.

Great. Thank you, Cherie. Citizens Business Bank continues to perform consistently in a challenging operating environment. Our solid financial performance is highlighted by our 188 consecutive quarters of profitability and 138 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. Thanks for joining us again this quarter. We appreciate your interest and look forward to speaking with you in July for our second quarter 2024 earnings call. Please let Allen and I know if you have any questions. Have a great day.