CVB Financial Corporation

Good morning, ladies and gentlemen, and welcome to the first quarter 2024 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. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. 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 Carabino. You may proceed.

Thank you, Sheree, 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 Breger, 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 this 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 31st, 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 Reger. Dave?

Thank you, Christina, and good morning, everyone. For the first quarter of 2024, we reported net earnings of $48.6 million, or 35 cents per share, representing our 188th consecutive quarter of profitability. We previously declared a 20 cents 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 35 cents per share, compared to $48.5 million for the fourth quarter of 2023, or 35 cents per share, and $59.3 million for the year-ago quarter, or 42 cents 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 two 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 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 non-interest-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 non-interest-bearing deposits declined by $93 million from the end of the fourth quarter, non-interest-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 31st, 2024. CNI loans remain relatively flat when comparing period end balances of March 31st, 2024 to December 31st, 2023. But we have generally seen growth in average balances over the last four quarters. This reflects the growth in new relationships as CNI line utilization continues to be at a rate of less than 30%. Commercial real estate loans declined by $64 million from December 31st, 2023, a continuation of the trend that we have experienced for multiple quarters. In comparison to March 31st, 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 CNI loans. We compete on loans very selectively, which has 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 31st due to the net charge-offs of $4 million. The vast majority of the loan charge-offs during the first quarter were related to two 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, non-performing assets defined as non-accrual loans plus other real estate-owned were $13.8 million for nine basis points of total assets. The $13.8 million in non-performing loans compares 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 Alan to discuss the allowance for credit losses and additional aspects of our balance sheet.