Good morning, ladies and gentlemen, and welcome to the 1st 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. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer period. 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 1st 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 31st, 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 1st 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 a $0.18 per share dividend for the 1st 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 4th quarter of 2021 or 35 cents a share, and $63.9 million for the year-ago quarter or $0.47 per share. On January 7th, we announced the completion of our acquisition of Suncrest Bank.
Our financials for the 1st 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 1st quarter of 2022, our pre-tax, 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, pre-tax, pre-provision income would have been $71.5 million, a $4.7 million dollar increase from the 4th quarter of 2021.
Of particular note this quarter, we had strong core loan growth represented by 5% growth from the end of the 1st 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 4th quarter of 2021. We recorded a loan loss provision of $2.5 million for the 1st quarter. In comparison, we did not have a provision in the 4th quarter of 2021 and recorded a recapture of provision for credit losses of $19.5 million in the 1st 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 1st 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 4th 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's 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, 1st quarter loan growth was $144 million or approximately 8% annualized. The core loan growth in the 1st 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 4th quarter. The line utilization rate for C&I loans was 31% at the end of the 1st quarter, compared with 29% for the 4th 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 1st quarter of each calendar year as a result of the temporary increase we experienced in the 4th quarter of each year. PPP loans declined by $105 million compared with the 4th quarter due to the continued forgiveness of these loans. At quarter end, non-performing 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 non-performing loans represented 15 basis points of total loans.
During the 1st quarter, we had net loan charge-offs of $5,000 compared with net loan charge-offs of $345,000 for the 4th quarter of 2021. At March 31st, 2022, we had loans delinquent 30-89 days of $2.6 million compared with $2.5 million at December 31st, 2021. Classified loans for the 1st 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 31st, 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 1st quarter, noninterest-bearing deposits averaged $8.72 billion, a $395 million increase from the average balance in the 4th 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 1st 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 just three basis points in the 1st quarter. This three basis point cost of funds compares with three basis points in the prior quarter and seven 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 1st 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 4th quarter to $6 billion as of March 31st, 2022. Investment securities available for sale or AFS securities totaled $3.65 billion, inclusive of a pre-tax unrealized loss of $203 million. Investment securities held to maturity or HTM securities totaled approximately $2.36 billion at March 31st.
The growth in our investments resulted in the investment portfolio increasing from 33% of earning assets in the 4th quarter to 36% on average in the 1st 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 4th quarter of 2021 to 1.7% in the 1st 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 1st quarter compared to $2 billion in the prior quarter.
The acquisition of SunCrest was consummated utilizing a combination of 8.6 million shares of CBB 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 $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 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 one allowance for credit losses of $49 million on the non-PCD loans. At March 31st, 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 0.9%, which compares to 0.84% at December 31st, 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 31st, 2022. For the quarter ended March 31st, 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 4th quarter of 2021. While in the 1st 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 forecasts.
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 then a decline to 4.7% in 2024. Now, turning to our capital position, shareholders' equity decreased by $6.5 million- $2.1 billion at the end of the 1st 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 1st 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 1st, 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 31st, 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 1st quarter earnings.
Thank you, Allen. Net interest income before provision for credit losses was $112.8 million for the 1st quarter, compared with $102.4 million for the 4th 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 1st quarter. First quarter earning assets increased by $1.2 billion on average from the 4th 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 1st quarter of 2022, PPP loans had an average balance of $160 million compared with $244 million for the 4th 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%- 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 1st quarter of 2022, compared with 2.79% for the 4th quarter and 3.18% for the 1st quarter of 2021. The increase in our net interest margin was the result of an increase in our earning asset yield while maintaining our very low cost of funds at three basis points.
When the impact of PPP loans, discount accretion on acquired loans, and non-accrual interest paid is excluded. Our adjusted tax equivalent net interest margin was 2.8% for the 1st 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 1st 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 1st 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 1st quarter of 2022, compared with 4.29% for the 4th 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 1st quarter compared with $4.2 million in the 4th quarter. Excluding the impact of PPP loans, interest income related to purchase discount accretion and non-accrual interest paid, loan yields were 4.11% for the 1st quarter of 2022, 4.08% for the 4th quarter of 2021, and 4.23% for the 1st 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 1st quarter, was 3 basis points. Interest-bearing deposits and customer repos increased on average by $760 million from the 4th 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 1st 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 1st quarter of 2022, compared with $12.4 million for the prior quarter and $13.7 million for the year ago quarter. The 4th 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 1st quarter of 2021 benefited from $3.5 million of insurance proceeds from death 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 4th quarter and were higher than the 1st 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 1st quarter of 2022 or in the 4th quarter of 2021. Generally speaking, our volume of interest rate swaps is impacted, excuse me, 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 1st quarter was $58.2 million, compared with $48 million for the 4th 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 Bank at the beginning of January. The systems conversion from Suncrest Bank's legacy banking system was completed in February, which comprised a meaningful percentage of the $5.6 million in acquisition expense for the 1st quarter of 2022. Excluding acquisition expense, noninterest expense increased by $4.8 million over the 4th quarter of 2021 and $5.4 million over the 1st quarter of 2021. We will consolidate two banking centers in the 2nd quarter, and by the end of the 2nd quarter, we expect to have completed the integration and consolidations.
The 3rd quarter of 2022 should reflect the full benefit of our expense savings. Noninterest expense totaled 1.36% of average assets for the 1st quarter of 2022, or 1.23% when acquisition expense is excluded. This compares with 1.19% for the 4th quarter of 2021 and 1.32% for the 1st quarter of 2021. Our efficiency ratio is 46.9% for the 1st 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 1st 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 4th-ranked bank by Forbes out of the largest 100 publicly traded banks in asset size. This recognition marks the 6th time since 2016 that our bank is placed in the top four position on Forbes annual rankings, including three number one 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 for expansion into the Greater Sacramento market, as well as solidifying our position in the Central Valley. We remain committed to our five 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.
Ladies and gentlemen, if you'd like to ask a question at this time, you will need to press the star then the one key on your touchtone telephone. Please stand by while we compile the Q&A roster. Now 1st question coming from the line of Matthew Clark with Piper Sandler. Your line is open.
Hey, good morning, guys.
Morning, Matthew.
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, you know, rate hikes and just new business?
Yeah. As I mentioned in the prepared remarks, you know, the loan yields that we are originating loans at today are, you know, 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, you know, a tailwind for us, and I think that rates have turned. You know, the key to that, obviously, is we still wanna win the best deals. You have to compete. But at the end of the day, I do believe that we will be able to see that sort of start to turn around.
Okay. 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, you know, mid-single digits was doable. You did better than that on a core basis here. Just wanna get your updated thoughts on that front.
Yeah. I don't really have any changes to what I've been saying. You know, we had a good quarter this quarter. We did close a number of things. Some of that production was the result of, you know, the acquired SunCrest offices as well. But overall, the majority of it was our legacy offices. SunCrest accounted for about $25 million-$30 million of our total loan production in the 1st quarter. Our pipelines remain strong right now. I will say that, you know, there are some, you know, some headwinds with respect to the pipelines, especially depending on, you know, where rates go, specifically five and ten-year Treasury rates. That could have an impact and slow things down. Obviously, the refinance takeout game is gonna slow down a little bit, I think, for everybody.
You know, we focus on operating businesses and the real estate and the C&I lines. I think we still have room, obviously, on our utilization on our C&I loans. That was also a benefit to us. The pipelines remain strong as of now.
Okay. Just shifting gears to the share buyback, pretty active this quarter. Does the growing macro uncertainty give you some pause from here, or do you think you'll remain active?
Well, I mean, the ASR has not concluded yet. I think, you know, we'll see how things go, but I would anticipate us to not be certainly the extent the 1st quarter, but I think we'll still be modestly active.
Okay. Thank you.
Thank you.
Now next question coming from the line of David Feaster with Raymond James. Your line is open.
Hey, good morning, everybody.
Good morning, David.
Morning, David.
I just wanna 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?
Yeah, 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 1st quarter, but most of it was from existing customers. I do believe that, you know, 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, you know, and start to burn off, and then that hopefully will translate to a little bit more borrowings. I do think that's something that is definitely a tailwind for us, especially, you know, depending on how long these inflationary pressures persist.
I think we're about a year into the transitory nature of these now, so, you know, we'll probably see it go a little bit longer, I would think. You know, I think there's opportunity for us there.
Okay. Just touching on the deposit front, and appreciate all the commentary and the prepared remarks. You know, 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. Just hearing the commentary, it almost sounds like maybe you'd expect deposit flows to at least slow, if not begin to flow out. Just any other comments on the deposit trends that you're seeing?
Yeah. Well, as you know, our focus is on operating companies and noninterest-bearing deposits, so we're gonna 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. The real advantage we have, I mean, 100% of our loans, more than 100% of our loans are funded with our noninterest-bearing deposits. The interest-bearing deposits on the books, we can, you know, be a little more disciplined about rising rates or customers' expectations and, you know, we're still sitting with enormous amount at the Fed. All of those things combined, I think our, you know, 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. I think, you know, we should, you know, 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. You know, the one thing with SunCrest we did is we put them into our pricing structure, you know, pretty much right away. That obviously helped us on the funding side this quarter. You know, we'll see the reaction, you know, from, you know, as rates start to go up, there will be some opportunities for people to get higher rates. The great thing that we have there is that we can also look to our CitizensTrust group and look to investments.
I mean, right now they can get a, you know, 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, you know, they can get pretty close to 2%, and we make, you know, a decent fee on that as well. 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. That's helpful. Thank you. Just, you know, switching gears to asset quality, I mean, credit remains phenomenal. You've always you got a great track record, obviously. You know, kind of listening to the commentary about what you guys are including in, you know, your CECL forecast, a deceleration in GDP growth and increase in unemployment rate. Just curious, you know, 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. We haven't tightened the credit box. I mean, we've always remained very disciplined. Our underwriting guidelines, our standards, nothing has changed throughout the pandemic. We've remained very consistent and disciplined in how we look at credit. I feel pretty good overall. You know, there's obviously the ones that everybody talks about. Office is something that, you know, everybody's talking about. You know, things are starting to. You know, we're starting to see some of these leases expire and maybe people moving out. Most of our office, and I mentioned this before, is more suburban and rural office. It's not, you know, money center, big city, type stuff.
The average loan size and the granularity of that portfolio are very strong. 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 seven A loans, we look at that. I think just generally speaking, I feel pretty good. I feel, you know, 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. I still feel very good about our C&I loan portfolio. Gosh, you know, 31% utilization rate is still pretty low. You know, our customers are strong. I feel pretty good about it.
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.
Got it. That's all.
Remember, one other comment I'll make to that just real fast, is, you know, that's a nationwide forecast. California is still, you know, a little bit behind the nation in some of these things, unemployment specifically.
Yeah. Good point. Thanks, everybody.
Our next question coming from the line of Ben Gerlinger with Hovde Group. Your line is open.
Hey, good morning, everyone.
Morning, Ben. Congratulations.
Yeah, thanks. I appreciate it. 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 this, the recent deal and the branches. I think you said in prepared remarks 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. 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 2nd quarter it'll be close to a good run rate and the 3rd quarter being completely clean. We're still planning on investing in technology, as we've noted before, about $3 million in 2022. Some of the drivers of expenses as we go forward are certainly gonna be inflationary pressures, as Dave mentioned. Right now we're actually seeing elevated vacancy factors, though, because of that. You know, that might be a benefit to your expense in the near term, obviously, as we try to fill some of those positions. I think right now Q1 has a lot of moving parts. I think Q2 will give you a better run rate.
Yeah, I just think overall, nothing's really changed from, you know, what we sort of talked about, you know, expenses being sort of flat but slightly up year-over-year, not including the SunCrest noise.
Gotcha. Okay, that's fair. That is helpful. Then when you look back historically, like, you guys had a margin that approached 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. With the Fed likely or at least positioned to increase rates at 50 basis point clips for the next three meetings, does that change how you guys are approaching your budgetary perspective? Then from there, is there anything that if you have the excess funds you're looking to go put that into?
Well, I think then a couple things. You know, 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 gonna continue to take a balanced approach, really looking to be opportunistic about putting it, you know, into securities as well as looking at our loan growth. Just making sure we manage where deposits continue to grow. I think we just wanna take a balanced approach, not turn around and invest the whole bit, even though yields might be attractive immediately, because we don't wanna be in a situation where, you know, we start to see any type of attrition on, you know, interest-bearing deposits that was unexpected. We wanna be prepared for that.
Yeah. I mean, obviously the advantage we have here is over 60% of our deposits are noninterest-bearing. As the Fed's raising rates, 60% of our deposit base, at least today, 61%-62% of our deposit base has a zero beta. It's not going to change. That mix could change slightly, but again, we're gonna be very disciplined just as we were in the last Fed rising rate environment cycle. 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. We should start to see the benefit of that as we go through the rest of this year.
Gotcha. 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 an open repurchase. At what point is there kind of diminishing effects because at the higher valuation, the payback period keeps elongating, and there are a lot of banks in California. Kind of how, what's your appetite for future M&As?
Yeah, we're still interested in looking at M&A. There's nothing that's imminent that we're, you know, talking about at this very moment. I will say it sort of slowed down towards the end of last year and the beginning of the 1st quarter. There are conversations that are starting to pick up again. You know, as you mentioned with our currency, that creates an opportunity for us, especially if there's something that we really want. We're gonna remain, you know, 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-$8 billion to $1 billlion-$10 billion, in-market deals, you know, within or adjacent to our footprint. We want it to be as similar of a culture as possible.
All of those things are factors that we evaluate when we're looking at potential opportunities. You know, there are more opportunities and, you know, it's part of our growth strategy, acquisition. We're open to those conversations, and we're looking and evaluating, you know, different deals all the time. I just have to convince Allen. No.
Gotcha. Well, that's great color. I appreciate it, guys.
Thanks.
As a reminder, ladies and gentlemen, if you'd like to ask a question, please press the star then the one key on your touchtone telephone. Our next question coming from the line of Kelly Motta with KBW. Your line is open.
Hi. Good morning. Thanks for the question. 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. Thanks.
Sure. I was talking about that a little bit a minute ago, Kelly, but I think, you know, we're not gonna turn $1.5 million in, into-
Billions. $1.5 billion.
$1.5 billion. We continue to look at, you know, bond yields are attractive right now. We are shorting the duration of some of the securities because, you know, 15-year mortgage-backed securities look a lot more attractive than they did a few months ago. We still wanna maintain a fair amount of liquidity on the balance sheet in this environment. We'll be cautious, but I do expect us to continue to deploy some of that into securities and as Dave's talked about, loan growth.
Great. Thank you so much.
You're welcome.
Again, as a reminder, to ask a question, please press star one. All right. At this time, there are no further questions. I would like to turn the call back over to Mr. Brager.
Thank you. I wanna thank everybody for joining us this quarter. We appreciate your interest and look forward to speaking with you in July for our 2nd quarter 2022 earnings call. Please let Allen or 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 end our conference for today. Thank you for your participation. You may now disconnect.