CVB Financial Corporation

Good morning, ladies and gentlemen, and welcome to the fourth quarter and year-ended 2022 CVB Financial Corporation and its subsidiary, Citizens Business Bank Earnings Conference Call. My name is Cherie, and I am your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephones. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. 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, Cherie, and good morning, everyone. Thank you for joining us today to review our financial results for the fourth quarter and year-end of 2022. Joining me this morning are Dave Rager, 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.cbbbank.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 Breger. Dave?

Thank you, Christina. I just want to make a quick comment before I start my prepared comments, but we're experiencing a little bit of a windstorm down here in Southern California, so I apologize if there's a little background noise. We can't turn off the wind, unfortunately. But good morning, everyone. The bank generated full year and fourth quarter earnings, record full year and fourth quarter earnings. Full year net income in 2022 was $235.4 million, which represents an 11% increase over 2021. For the fourth quarter of 2022, we reported net income of $66.2 million, or 47 cents per share, representing our 183rd consecutive quarter of profitability. We previously declared a 20 cent per share dividend for the fourth quarter of 2022, or a dividend payout ratio of approximately 42%. This dividend represented our 133rd consecutive quarter of paying a cash dividend to our shareholders. Fourth quarter net income of $66.2 million, or 47 cents per share, compared with $64.6 million for the third quarter of 2022, or 46 cents per share, and $47.7 million, or 35 cents per share, for the year-ago quarter. For the fourth quarter of 2022, our pre-tax, pre-provision income was $95.4 million, compared with $91.9 million for the prior quarter. Pre-tax pre-provision income grew by approximately 43% when compared to the $66.8 million earned in the year-ago quarter. We recorded a provision for credit losses of $2.5 million for the fourth quarter of 2022 compared to $2 million for the third quarter and no provision for the year-ago quarter. As previously mentioned, net income was $235.4 million for the year ended 2022, a $22.9 million increase compared to 2021. Diluted earnings per share were $1.67 for 2022 compared with $1.56 for 2021. Pre-tax pre-provision income grew by 25% from $272 million for 2021 to $339 million in 2022. In 2022, we provisioned $10.6 million for credit losses, which compares to a $25.5 million recapture of provision for credit losses in 2021. Continued expansion in our net interest margin contributed significantly to our earnings growth, for both the full year and fourth quarter of 2022. Our net interest margin grew by 23 basis points compared to the third quarter of 2022, while growing by 33 basis points over the full year of 2021. Our 2022 full year average earning assets grew by more than $1.3 billion compared to 2021, which included the acquisition of Suncrest Bank that occurred in January 2022. However, fourth quarter average earning assets decreased by $521 million from the third quarter. This quarterly decrease in average earning assets reflects the decline in our funds held on deposit at the Federal Reserve, which declined from more than $2 billion on average in the fourth quarter of 2021 to approximately $125 million on average for the fourth quarter of 2022. In contrast to the decline in our Fed balance, both our loans and investment portfolio have grown throughout 2022. Now, let's discuss loans in more detail. Total loans at year end were $9.1 billion or $1.2 billion or 15% increase from the end of 2021. Our new loan production remained strong in the fourth quarter and throughout 2022. New loan commitments were approximately $480 million in the fourth quarter, which compares with approximately $450 million in the third quarter. After excluding loans acquired from Suncrest and PPP loan forgiveness, year-over-year loan growth was $634 million for a growth rate of approximately 8%. From September 30th to December 31st of 2022, loans grew by $305 million, or 3.5%, While average outstanding loan balances grew by $160 million, $169 million, or 2%. After excluding PPP loan forgiveness and the seasonal increase in dairy and livestock loans, fourth quarter loan growth was $189.7 million, or approximately 9% annualized. Dairy and livestock loans increased by $123.8 million from the prior quarter, as many of our dairies choose to defer their mill proceeds into the first quarter of the following year and or prepay their expenses. The core loan growth from the end of the third quarter was led by continued growth in commercial real estate loans, which grew by $199.7 million, or 3% annualized. Construction loans increased by approximately $12 million from the prior quarter, as many of our lines had increased usage as projects progressed. CNI loans decreased by $3.5 million, despite the overall line utilization rate for CNI loans increasing modestly from 32% to 33% at year end. Agribusiness loans declined by $13 million, and SBA loans decreased by $14 million, including an $8 million decrease in PPP loans. Only $9 million in PPP loans remain from the $1.5 billion in loans we originated. We remain cautiously optimistic about our ability to grow high-quality loans in 2023, although higher interest rates and uncertain economic conditions could impact the level of growth we achieve this year. At quarter end, non-performing assets defined as non-accrual loans plus other real estate owned were $4.9 million compared with $10.1 million for the prior quarter and $6.9 million for the year-ago quarter. At quarter end, we had no OREO properties and the $4.9 million in non-performing loans represented three basis points of total assets. During the fourth quarter, we experienced credit charge-offs of $127,000 and total recoveries of $143,000 resulting in net recoveries of $16,000 compared with net recoveries of $379,000 for the third quarter of 2022. For the full year of 2022, we experienced charge-offs of $197,000 and total recoveries of $1.1 million resulting in net recoveries of $893,000. Classified loans for the fourth quarter were $78.7 million compared with $63.7 million for the prior quarter and $56.1 million for the year-ago quarter. The increase in classified loans from the prior quarter was the result of a downgrade and a $13 million loan on a senior living facility acquired from Suncrest. As of December 31, 2022, classified loans included $22.8 million in loans acquired from Suncrest, which approximates the increase in classified loans from the end of 2021. Now, I'd like to discuss our deposits. A decline in deposits started in November, which is not unusual, as we typically see seasonal lows in deposits from November through February. In addition to this typical seasonality, some of our customers deployed excess funds with our citizens' trust group, and the slowing housing market has negatively impacted the deposit totals in our specialty banking group that focuses on escrow title and property management customers. Additionally, our customers continue to experience an inflationary environment, which has contributed to the cash burn. During the fourth quarter, noninterest-bearing deposits averaged $8.7 billion, a $307 million or approximately 3% decrease from the average balance in the third quarter. Year over year, we had a $377 million increase in average balance when compared to the fourth quarter of 2021, including the $513 million in noninterest-bearing deposits acquired from Suncrest at the beginning of 2022. Total deposits and customer repos were $14.2 billion on average in the fourth quarter of 2022, a $524 million or 3% decrease compared with the prior quarter, while being $497 million higher than the fourth quarter of 2021. Noninterest-bearing deposits were approximately 63.6% of our average deposits for the fourth quarter, compared to 63.4% for the prior quarter and 63.8% for the year-ago quarter. At December 31, 2022, our total deposits and customer repos were $13.4 billion, compared with $14.3 billion at September 30, 2022, and $13.6 billion for the same period a year ago. At December 31, 2022, our non-inspiring deposits were $8.2 billion, compared with $8.8 billion for the prior quarter and $8.1 billion from the year-ago quarter. The bank's funding is primarily core to customer deposits and customer repos, which combined had a total cost of eight basis points in the fourth quarter. This eight basis point cost of deposits compares with five basis points in the prior quarter and three basis points for the year-ago quarter. In comparison, the Fed funds rate has increased by 425 basis points since the fourth quarter of last year. The combination of seasonal growth in dairy and livestock loans, seasonal deposit declines, and the impact of cash burn on deposits from inflationary pressures resulted in borrowing overnight from the Federal Home Loan Bank, averaging $161 million for the fourth quarter and peaking at year end at $995 million. With slowing loan demand, the cash flow from our investment securities, and the normal historical inflows of deposits we experienced from the beginning of the year, we expect borrowings to moderate in the first half of this year. I will now turn the call over to Alan to discuss our investments, the allowance for credit losses, and capital.