CVB Financial Corporation

Good morning, ladies and gentlemen, and welcome to the second quarter of 2022 CVB Financial Corporation and its subsidiary, Citizens Business Bank Earnings Conference Call. My name is Liz, and I will be your operator for today. At this time, all participants are in 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 Carabino. You may proceed.

Thank you, Liz, and good morning, everyone. Thank you for joining us today to review our financial results for the second quarter of 2022. Joining me this morning are Dave Brigger, President and Chief Executive Officer, and Alan 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 Breger. Dave?

Thank you, Christina. Good morning, everyone. For the second quarter of 2022, we reported net earnings of $59.1 million, or 42 cents per share, representing our 181st consecutive quarter of profitability. We previously declared a 19 cents per share dividend for the second quarter of 2022, an increase of 6% compared to the first quarter of this year. It represented our 131st consecutive quarter of paying a cash dividend to our shareholders. Second quarter net earnings of $59.1 million, or 42 cents per share, compared with $45.6 million for the first quarter of 2022, or 31 cents per share, and $51.2 million for the year-ago quarter, or 38 cents per share. The second quarter of 2022 represents a full quarter of financial results, including the assets and liabilities acquired from Suncrest Bank on January 7, 2022. The integration of Suncrest was completed with the consolidation of two banking centers during the second quarter. We previously completed the systems conversion in February. Through the first six months of 2022, we earned $104.6 million, or 74 cents per share, compared with $115 million, or 85 cents per share, for the first six months of 2021. For the second quarter of 2022, our pre-tax, pre-provision income was at a record level of $85.7 million compared with $65.9 million for the prior quarter and $70 million for the year-ago quarter. After excluding acquisition expense, our second quarter of 2022 generated 14% operating leverage over the first quarter of this year and 9% operating leverage over the same quarter last year. Our net interest margin grew by 26 basis points compared to the first quarter. Although our earning assets benefited from the general increase in interest rates, we also had strong growth in loans and investment securities, with loans growing by $134 million on average and investments growing by $328 million on average when compared to the first quarter. As an overall result, our earning asset yield grew from 2.93% in the first quarter to 3.2% in the second quarter, while only experiencing a one basis point increase in our cost of funds to four basis points in the second quarter. We recorded a provision for credit losses of $3.6 million in the second quarter, compared to $2.5 million in the first quarter, and a recapture provision for credit losses of $2 million in the year-ago quarter. In February, we initiated a $70 million accelerated share repurchase program, which resulted in the repurchase of approximately 3 million shares through the program termination date of June 2nd, 2022. In addition, we repurchased almost 1.7 million shares through June 30, 2022 under a 10B51 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 second quarter. New loan commitments were approximately $560 million, which is higher than the same period of last year by greater than 40%. When excluding PPP loans generated in 2021, I'm sorry, when excluding PPP loans generated in 2021, total loans at quarter end were $8.7 billion, a $100.5 million or 1.2% increase from the end of the first quarter. However, after excluding PPP loan forgiveness, second quarter loan growth was $155 million, or approximately 7% annualized. The core loan growth in the second quarter was led by continued growth in commercial real estate loans, which grew by $173 million, or 11% annualized. CNI loans increased by $17 million when compared with the end of the first quarter, or approximately 7% annualized. The line utilization rate for C&I loans was 32% at the end of the second quarter compared with 31% for the first quarter and 27% for the year-ago quarter. Dairy and livestock loans decreased by approximately $21 million from the prior quarter as loan utilization declined from 69% in the first quarter to 66% at the end of the second quarter. Continued loan forgiveness for PPP loans resulted in a decline of $54 million in comparison to the first quarter. At quarter end, non-performing assets defined as non-accrual loans plus other real estate owned were $13 million compared with $13.3 million for the prior quarter and $8.5 million for the year-ago quarter. At quarter end, we had no OREO properties and the $13 million in non-performing loans represented eight basis points of total assets. During the second quarter, we had net recoveries of $503,000 compared with net loan charge-offs of $5,000 for the first quarter of 2022. At June 30th, 2022, we had loans delinquent 30 to 89 days of $559,000 compared with $2.6 million at March 31, 2022. Classified loans for the second quarter were $76 million, compared with $64 million for the prior quarter and $49 million for the year-ago quarter. As of June 30, 2022, classified loans include $17.8 million in loans acquired from Suncrest. Now, I would like to discuss our deposits. At June 30, 2022, our total deposits and customer repurchase agreements were $14.6 billion, compared with $15.1 billion at March 31, 2021, and $13.2 billion for the same period a year ago. At June 30, 2022, our non-interest-bearing deposits were $8.9 billion, compared with $9.1 billion for the prior quarter and $8.1 billion for the year-ago quarter. During the second quarter, noninterest-bearing deposits averaged $8.9 billion, a $200 million increase from the average balance in the first quarter. Noninterest-bearing deposits were approximately 63% of our average deposits for the second quarter of 2022, compared to 62% for both the prior quarter and the second quarter of 2021. The bank's funding is entirely core customer deposits and customer repos, which combined had a total cost of just four basis points in the second quarter. This four basis point cost of funds compares with three basis points in the prior quarter and five basis points for the year-ago quarter. I will now turn the call over to Alan to discuss our investments, the allowance for credit losses, and capital.