CVB Financial Corporation

Good morning, ladies and gentlemen, and welcome to the fourth quarter of 2024 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 period. 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 fourth 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 relief issued in connection with this call. I'll now turn the call over to Dave Brayer.

Thank you, Alan. Good morning, everyone. First, I want to say that our thoughts and prayers are with the victims and those impacted by the devastating wildfires that occurred in Los Angeles County. Citizens Business Bank organized a response around four key issues. Our associates, our customers, our facilities, and our corporate response for our communities. First, we had over 50 associates that were impacted by the mandatory evacuation orders, and we will be providing direct support to them through a variety of methods. Second, we have identified 114 loans totaling approximately $105 million located in the fire zones. At this point, 14 properties have experienced some level of damage, with seven of the properties completely destroyed. one commercial building and six residential properties totaling $7.4 million. All 14 of the impacted properties had insurance in place and we have actually received proceeds to fully pay off one of the residential properties. Third, due to the mandatory evacuation orders or power outages, we had six centers temporarily closed at some point during the fires and all the locations have now reopened. Fourth, we announced that we have donated $200,000 to four relief agencies working on the front lines to assist people in need and will be one of the banks participating in the California DFPI relief efforts to assist those impacted. Now to the quarter. For the fourth quarter of 2024, we reported net earnings of $51 million or 36 cents per share. representing our 191st consecutive quarter of profitability. We previously declared a 20 cents per share dividend for the fourth quarter of 2024, representing our 141st consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.31% and a return on average assets of 1.3% for the fourth quarter of 2024. Our return on equity is impacted by our high level of capital, which is reflected in our common equity tier one capital ratio of 16.2% and 9.8% tangible common equity ratio. In conjunction with our company's capital planning, we announced in November of 2024 that our board of directors authorized a new 10 million share repurchase program. Our net earnings of $51 million, or 36 cents per share, compares with $51 million for the third quarter of 2024, or 37 cents per share, and $48.5 million, or 35 cents per share, for the prior year quarter. Pre-tax income in the fourth quarter of $68 million was $423,000 higher than the third quarter of 2024. Net interest income decreased quarter over quarter by $3.2 million, or 2.8%, primarily due to the actions we have taken to deleverage our balance sheet by reducing borrowings and other wholesale funds, therefore reducing our earning assets. Non-interest income increased by $269,000 and non-interest expense decreased by $355,000 compared to the third quarter. We had a recapture of allowance for credit losses of $3 million in the fourth quarter. On September 26, 2024, we completed an early redemption of our $1.3 billion bank term funding program borrowing that was scheduled to mature in January of 2025. By redeeming this debt, we deleveraged our balance sheet, resulting in total average assets for the fourth quarter declining by almost $1 billion from the third quarter. The reduction in debt reduced interest expense by $15 million per quarter, driving a 13 basis point increase in our net interest margin for the fourth quarter. We were able to increase our return on average assets from 1.24% in the third quarter to 1.3% in the fourth quarter. We executed two sale leaseback transactions in the fourth quarter of 2024, in which we sold and leased back two buildings under long-term leases, realizing gains on sale totaling $16.8 million. In conjunction with these real estate transactions, we sold $155 million of available for sale investment securities at a cumulative loss of $16.7 million. At December 31st, 2024, Our total deposits and customer repurchase agreements total $12.2 billion, a $505 million increase from December 31, 2023, including the growth of $315 million of non-maturity deposits. Although we generally experience a decrease in deposits at the end of the fourth quarter each year, total deposits and customer repos grew on average by $150 million over the third quarter of 2024. Compared to the third quarter, non-maturity deposits grew on average by $188 million, while time deposits declined on average by $130 million, inclusive a $100 million brokered CD that we did not renew. By the end of the fourth quarter, we experienced a decrease in deposits in customer repos from the end of the third quarter of $257 million. Non-interest-bearing deposits were 59% of total deposits for the fourth and third quarters of 2024, down from 63% at the end of 2023. We are optimistic about our ability to continue to grow low-cost deposits. 2024 was a relatively strong year for new deposit relationships. As an example, our specialty deposit group generated 75% more in new business in 2025 than the average for the prior two years. From December 31, 2019 to December 31, 2024, our total deposits and repos have grown by more than $3 billion. Excluding the deposits acquired from Suncrest Bank and brokered CDs, Our core deposits and repos grew by approximately $1.6 billion, which represents a cumulative average growth rate of 3.3% over that five-year period. Our cost of deposits was 93 basis points for the fourth quarter of 2024, which compares to 98 basis points for the third quarter of 2024 and 62 basis points for the year-ago quarter. Our cost of non-maturity deposits has grown from 60 basis points in December of 2023 to 81 basis points in December of 2024, while our cost of time deposits has grown from 1.84% in December of 2023 to 2.84% in December of 2024. Now, let's discuss loans. Total loans at December 31st, 2024 were $8.54 billion, a $36 million decrease from the end of the third quarter and a $368 million or 4% decline from December 31st, 2023. The quarter over quarter decrease was led by a $111 million decline in commercial real estate loans. We also had an $11 million decrease in commercial industrial loans and approximately $10 million decline in agribusiness loans. Dairy and livestock loans grew seasonally by $87 million from the end of the third quarter. We continue to experience limited demand for commercial real estate loans and rate competition for the quality of loans we focus on has been very competitive. We average yields of 7% on new CRE loans in the fourth quarter, but by the end of the quarter, originations were in the high 6% range. CNI line utilization continues to be low, even though we have grown our total CNI loan commitments. Overall, total new loan commitments for 2024 were 90% of 2023's productions, but balances funded on the new loan commitments was only 75% of 2023 levels, as we originated a greater percentage of CNI loans in 2024. The decrease in loans from the end of 2023 included commercial real estate loans declining by $277 million and construction loans declining by $51 million, as construction loan origination was minimal in 2024. CNI loans also declined by $45 million when comparing December 31, 2023 to December 31, 2024. In total, we ended the quarter with $19.3 million in OREO assets, including $17.7 million of loans that were classified as non-performing at the end of the third quarter of 2024 and were foreclosed during the fourth quarter and recorded as OREO. An additional $1 million loan that was not passed due at September 30, 2024 became an OREO asset at year end. Net recoveries for the fourth quarter were $180,000, which compares to $156,000 in net recoveries for the third quarter of 2024. Total non-performing and delinquent loans decreased from $53.3 million at September 30, 2024 to $47.6 million at December 31, 2024. We had $30.7 million of past due and accruing loans as of September 30, 2024, of which $24.8 million became non-performing and approximately $1 million became OREO by the end of 2024. We reversed interest income of approximately $1.5 million during the fourth quarter for these non-performing assets. The remaining $4.9 million of past due and accruing loans at the end of the third quarter were paid off by the borrower or from the sale of loan collateral. Classified loans were $89.5 million at December 31, 2024, $25 million lower than the prior quarter, and $17 million lower than the end of 2023. Classified loans' percentage of total loans was 1.05% at the end of 2024. Classified dairy and livestock and agribusiness loans declined by $11 million as profitability is improving for these borrowers. Classified non-owner commercial real estate loans decreased by $27 million, including a reduction of $13 million for a group of multifamily loans to one borrower, which we foreclosed on during the fourth quarter. Of this $13 million in loans, $9 million became OREO as of December 31st, while the remaining $4 million was paid off through the sale of the collateral. Additionally, $9.8 million loan on a senior living facility that was a participation entered into by Suncrest Bank was foreclosed during the fourth quarter and recorded as an OREO at December 31st, 2024. We do not anticipate losses on the sale of the $19 million of OREO assets during the first quarter of 2025. The multifamily properties representing the $9 million of OREO have been or will be sold in January, as sales of these properties have either closed or are under sales contracts, awaiting title to clear in the next few days. There is also a signed purchase agreement for the senior living facility, which we expect to close in February. I will now turn the call over to Alan to further discuss our net interest income and additional aspects of our balance sheet.