CVB Financial Corporation

Good morning, ladies and gentlemen, and welcome to the third 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. Later, we will conduct a question and answer session. Please note, this call is being recorded. I would now like to turn the presentation over to your host for today's call, Alan Nicholson. Executive Vice President and Chief Financial Officer. You may proceed.

Thank you, Cherie, and good morning, everyone. Thank you for joining us today to review our financial results for the third quarter of 2024. Joining me this morning is Dave Breger, President and Chief Executive 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, 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. I'll now turn the call over to Dave Rager.

Thank you, Alan. Good morning, everyone. For the third quarter of 2024, we reported net earnings of $51 million, or 37 cents per share, representing our 190th consecutive quarter of profitability. We previously declared a 20 cents per share dividend for the third quarter of 2024, representing our 140th consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.93% and a return on average assets of 1.23% for the third quarter of 2024. Our net earnings of $51 million or 37 cents per share compares with $50 million for the second quarter of 2024 or 36 cents per share and $57.9 million or 42 cents per share for the prior year quarter. Quarter over quarter, our pre-tax, pre-provision income grew by 2%, excluding net gains and losses. Total revenue, excluding gains and losses, grew by 2.9%, or $3.7 million, compared to the second quarter of 2024, primarily due to a $2.8 million increase in net interest income. Our core non-interest expense increased by 3.8% or $2 million compared to the prior quarter. On September 26th, we completed an early redemption of our $1.3 billion bank term funding program borrowing that was scheduled to mature in January of 2025. Total assets declined by approximately $750 million from the end of the second quarter of 2024 as the BTFP redemption was offset by more than $400 million of growth in deposits and customer repos. As part of our strategy to pay off the BTFP borrowings and deleverage our balance sheet, we executed two sale leaseback transactions in which we sold and leased back two banking center buildings under long-term leases. realizing gain on sale totaling $9.1 million. In conjunction with these real estate transactions, we sold more than $300 million of available for sale investment securities at a cumulative loss of $11.6 million. Although total assets declined to $15.4 billion by September 30th, 2024, Average earning assets grew by $262 million, or 1.8%, from the second quarter of 2024 to the third quarter of 2024, which drove the $2.8 million quarter-over-quarter increase in net interest income. Our net interest margin was 3.05% in the third quarter, the same as the prior quarter. The third quarter is generally a strong deposit quarter for our bank. We experienced an increase in deposits and customer repos of $408 million from the end of the second quarter to September 30th, 2024. The quarter over quarter growth and average deposits and customer repos was $251 million. Our average non-interest bearing deposits were greater than 59% of our average total deposits for the third quarter of 2024. At September 30, 2024, our total deposits and customer repurchase agreements total $12.5 billion, a $762 million increase from December 31, 2024. The increase in total deposits and customer repos includes the addition of $400 million in brokered time deposits that were added to the balance sheet during the first quarter of 2024. For the first nine months of 2024, approximately $200 million of deposits have moved to Citizens Trust. These funds were invested in higher yielding liquid assets such as treasury notes. This compares to $800 million that was transferred during 2023. Our cost of deposits and customer repos was 101 basis points for the third quarter of 2024, which compares to 87 basis points for the second quarter of 2024, and 51 basis points for the year-ago quarter. Our cost of non-maturity deposits has grown from 60 basis points in December 2023 to 88 basis points in September of 2024, while our cost of time deposits has grown from 1.84% in December of 2023 to 3.24% in September of 2024. From the first quarter of 2022, through the third quarter of 2024, our cost of deposits has increased by 95 basis points. Our deposit data on non-maturity deposits from the beginning of the Fed's 525 basis point increasing rate cycle through the end of the third quarter of 2024 was 16%. Now, let's discuss loans. Commercial real estate loan demand continues to be tepid. CNI line utilization also continues to be low, even though we have grown our total CNI loan commitments. Total loans at September 30th, 2024 were $8.6 billion, a $109 million or 1% decrease from the end of the second quarter and a $332 million decline from December 31st, 2023. The quarter over quarter decrease was led by a $46 million decline in commercial real estate loans, a $38 million decline in construction loans, and a $20 million decrease in commercial and industrial loans. The decrease in loans from the end of 2023 included a $77 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 of 2023, compared to the 71% utilization rate at September 30, 2024. Commercial real estate loans declined by $166 million from December 31, 2023, as commercial real estate loan demand has weakened. Our CRE loan production for the first nine months of 2024 has lagged the same period in 2023 by more than 30%. Construction loans declined by $52 million over the same period, as construction loan origination has been minimal. C&I loans declined by $33 million when comparing the third quarter in balance to December 31, 2023. CNI line utilization continues to be at a rate of less than 30%. We compete on loans very selectively, which can impact new loan production and loan yields. Even considering the high credit quality of our new loan originations, yields on new loans in 2024 have been greater than 7.25%. However, loan rates have been under pressure recently from competition and near-term originations will likely average below 7%. Our continued focus on banking the best small to medium-sized businesses and their owners, providing them our full array of products, has resulted in a higher percentage of new loans in 2024 that are either owner-occupied or C&I loans. Non-owner-occupied loan originations in 2024 have been approximately 16% of total loan originations, which compares to approximately 26% for the same nine-month period in 2023. We believe our asset quality remains strong as non-performing loans decline by $3 million and our classified loans remain relatively flat quarter over quarter. Our allowance for credit losses totaled approximately $83 million at September 30th, the same as June 30th, 2020. Net recoveries in the third quarter were $156,000 compared to net charge-offs of $31,000 in the second quarter of this year. At quarter end, non-performing assets, defined as non-accrual loans, plus other real estate owned were $22.6 million or 15 basis points of total assets. The $22.6 million in non-performing loans compares with $25.6 million for the prior quarter. Classified loans were $125 million for both the third quarter and the prior quarter. Classified loans as percentage of total loans was 1.45% at quarter end. Classified dairy and livestock and agribusiness loans declined by $3.5 million due to paydowns, while classified commercial and industrial loans increased by $3.5 million, primarily due to the addition of one classified commercial and industrial loan. At September 30th, we had approximately $31 million of commercial real estate loans that were past due more than 30 days, but less than 90 days. that comprised approximately 80% of these past due loans went on non-accrual in October. We believe that these loans are well secured and there are no anticipated charge-offs. In October, we also foreclosed on three non-performing loans, one of which was a $2.2 million loan that was fully paid off by a third party that purchased the asset at foreclosure. Of the two remaining loans, A $4.8 million loan has become an OREO asset, but we have multiple offers that exceed our book value. The third loan is the previously discussed senior living facility participated loan acquired in the Suncrest merger. In October, the loan was foreclosed and became an OREO asset of approximately $4 million. There are multiple offers on this property in which we believe will result in a recovery of most or all of the charge off we took in the first quarter of 2024. I will now turn the call over to Alan to further discuss our net interest income and additional aspects of our balance sheet. Alan.