CVB Financial Corporation

Good morning, ladies and gentlemen, and welcome to the fourth quarter and year-ended 2023 CVB Financial Corporation and its subsidiary, Citizens Business Bank Earnings Conference Call. My name is Cherie, and I'm your operator for today. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone and You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again. Please be advised that today's 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-ended 2023. Joining me this morning are Dave Breger, President and Chief Executive Officer of 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 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, 2022, and in particular the information set forth in Item 1-A, 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, and good morning, everyone. For the fourth quarter of 2023, we reported net earnings of $48.5 million, or 35 cents per share, representing our 187th consecutive quarter of profitability. We previously declared a 20 cents per share dividend for the fourth quarter of 2023, representing our 137th consecutive quarter of paying a cash dividend to our shareholders. Our net earnings of $48.5 million, or 35 cents per share, compared to $57.9 million for the third quarter of 2023, or 42 cents per share, and $66.2 million for the year-ago quarter, or 47 cents per share. Fourth quarter earnings would have been 39 cents per share, excluding the $9.1 million expense related to the FDIC special assessment. We produced a return on average tangible common equity of 16.21% and a return on average assets of 1.19% for the fourth quarter. Net income was $221.4 million for the year ended 2023, a $14 million decrease compared to 2022. When excluding the $9.2 million FDIC Special Assessment, the decrease would have been $7.6 million. Diluted earnings per share were $1.59 for 2023 compared to $1.67 for 2022. Our fourth quarter pre-tax pre-provision income decreased $10 million from the third quarter of 2023, primarily due to the expense accrual for the FDIC Special Assessment. We continue to be among the industry leaders with respect to expense control as our efficiency ratio for the fourth quarter and full year 2023 was 40.98% and 40.3% respectively after excluding the FDIC special assessment. Our net interest margin declined by five basis points from the third quarter of 2023 to 3.26% for the fourth quarter. The decrease in our net interest margin was the net result of a 17 basis point increase in our cost of funds, which offset a 12 basis point increase in our earning assets yield. Our net interest margin for all of 2023 was 3.31%, essentially the same as our 2022 net interest margin of 3.3%. Total loans outstanding at the end of 2023 increased from the end of the third quarter of 2023 by approximately $30 million to $8.9 billion. Our allowance for credit losses decreased to approximately $87 million on December 31st based on net charge-offs of $153,000 and a $2 million recapture provision for credit losses in the fourth quarter of 2023. Average total deposits for the fourth quarter decreased by approximately $429 million compared to the third quarter of 2023. Our average non-interest bearing deposits continued to be greater than 61% of our average total deposits. At December 31st, 2023, our total deposits were $11.4 billion, a $925 million decrease from September 30th, 2023. During the latter half of the fourth quarter, we experienced both the normal year-end seasonal deposit outflows as well as some unexpected deposit withdrawals that were directed to an external trust company for estate planning. Although non-interest-bearing deposits declined by $380 million from the end of the third quarter, non-interest-bearing deposits represented 63% of total deposits. Customer repos were $271 million at the end of the fourth quarter, which was consistent with the balance at September 30, 2023. We have experienced a $1.7 billion decline in deposits and customer repos from the end of 2022, which includes approximately $800 million that was moved to Citizens Trust, where these funds were invested in higher yielding assets such as Treasury notes. Overall, we have experienced a decline in deposit levels due to the cash burn on customer accounts resulting from inflationary pressures, as well as the impact of higher interest rates that has led to deposits moving to higher yielding alternatives, such as money market funds and short-term treasury notes. Our cost of deposits was 62 basis points on average for the fourth quarter of 2023, which compares to 52 basis points for the third quarter of 2023, and eight basis points for the fourth quarter of 2022. From the first quarter of 2022 through the fourth quarter of 2023, our cost of deposits has increased by 59 basis points, representing a deposit beta of less than 12%, compared to the recent Federal Reserve tightening cycle of increasing the Fed funds rate by 525 basis points. Now, let's discuss loans. Total loans at December 31, 2023 were $8.9 billion, a $27 million increase from September 30, 2023, and a $174 million, or 1.9%, decrease from the end of 2022. The quarter-over-quarter increase included $73 million increase in dairy and livestock loans. Utilization on dairy and livestock loans was at 80% at December 31, 2023, which compares to 73% at the end of the third quarter. CNI loans also increased by $32 million as line utilization increased from 27% at the end of third quarter to 29% at the end of December 2023. These increases were partially offset by a $58 million decline in commercial real estate loans. In comparison to December 31, 2022, loans declined by $168 million after excluding PPP loans. The majority of the decline was in commercial real estate loans, which decreased by $100 million from the end of 2022 to December 31, 2023. We saw a decline in both construction and consumer loans of $22 million and $23 million, respectively. T&I loans increased by approximately $21 million over the same period, although line utilization decreased from 33% to 29%. This aligns with our strategy of making the best small to medium-sized businesses and their owners. Loan growth continues to be impacted by a slowdown in loan demand. Our new loan production decreased throughout the second half of 2023, and new loan production for the fourth quarter of 2023 was generated at average yields exceeding 7%. Although loans modestly increased at quarter end from the end of the third quarter, we recorded a $2 million recapture provision for credit losses for the fourth quarter of 2023 due to an improving economic forecast. Asset quality remains strong. At the end of the quarter, non-performing assets defined as non-accrual loans plus other real estate owned were $21 million or 13 basis points of total assets. The $21 million in non-performing loans compares with $10 million from the prior quarter and $4.9 million for the year-ago quarter. The increase from the prior quarter was primarily due to a CRE loan that is a loan participation acquired in the Suncrest merger that was placed on non-accrual at the end of the fourth quarter. During the fourth quarter, we experienced credit charge-offs of $181,000 and total recoveries of $28,000, resulting in net charge-offs of $153,000 compared with net recoveries of $28,000 for the third quarter of 2023. Year-to-date net charge-offs were $275,000. Classified loans for the third quarter were $102 million compared with $92 million for the prior quarter and $79 million for the year-ago quarter. Classified loans as a percentage of total loans was 1.15% at quarter end. The $10 million increase in classified loans quarter over quarter was primarily due to a $9.8 million increase in classified commercial real estate loans. I will now turn the call over to Alan to discuss the allowance for credit losses and additional aspects of our balance sheet.