CVB Financial Corporation

Good morning, ladies and gentlemen, and welcome to the second quarter of 2025 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, Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed.

Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nicholson, Executive Vice President and Chief Financial Officer. You may proceed. Allen Nichol 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 31st, 2024, 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 Brayer. Thank you, Alan.

Good morning, everyone. For the second quarter of 2025, we reported net earnings of $50.6 million, or 36 cents per share, representing our 193rd consecutive quarter of profitability, which equates to more than 48 years of consecutive quarters of profitability. We previously declared a 20 cents per share dividend for the second quarter of 2025, representing our 143rd consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.08% and a return on average assets of 1.34% for the second quarter of 2025. Our net earnings of $50.6 million, or 36 cents per share, compares with $51.1 million for the first quarter of 2025, or 36 cents per share, and $50 million, or 36 cents per share, for the prior year quarter. The $540,000 decline in net income in the first quarter, excuse me, in the second quarter compared to the prior quarter was a result of the first quarter including both a $2.2 million gain from the sale of OREO properties and a recapture of allowance of credit losses of $2 million. Pre-tax, pre-provisioned income in the second quarter of 2025 was $68.8 million, which was $1.3 million higher than the first quarter of 2025 and remained flat compared to the second quarter of 2024. Net interest income for the second quarter of 2025 was $1.2 million higher than the prior quarter and $760,000 higher than the second quarter of 2024. Our earning assets remained stable between the first and second quarters of 2025 and our net interest margin remained at 3.31%. The increase in net interest income was primarily due to an additional day of interest income in the second quarter compared to the first quarter of the year. As a result of our deleveraging strategy executed during the second half of 2024, our net interest margin increased by 26 basis points from 3.05% in the second quarter of 2024, while earning assets declined by $1.1 billion from the prior year quarter. Non-interest income was $14.7 million in the second quarter, which was $1.5 million lower than the first quarter. we realized a $2.2 million net gain from the sale of $19.3 million of OREO in the first quarter of this year. Excluding this gain, second quarter non-interest income increased by $700,000 from the prior quarter, driven by higher trust and international fee income. Non-interest expense was $57 million in the second quarter, which was $1.6 million lower than the first quarter. Salary and benefits were lower by $1.5 million and there was a $500,000 provision for off-balance sheet reserves in the first quarter. This improved the efficiency ratio to 45.6% in the second quarter compared to 46.9% in the first quarter. At June 30, 2025, our total deposits and customer repurchase agreements totaled $12.4 billion, a $123 million increase from March 31, 2025, and a $330 million higher than June 30, 2024. The year-over-year net growth was net of a $200 million decrease in brokered CDs. Our non-interest-bearing deposits grew by $63 million compared to the first quarter and were $157 million, or 2.2% higher than the end of the second quarter of 2024. On average, non-interest-bearing deposits were 60.5% of total deposits for the second quarter of 2025 compared to 59.9% for the first quarter of 2025. Second quarter average deposits and customer repos were basically flat from both the prior quarter and the same quarter of last year. However, core deposits, excluding brokered CDs, grew on average by $173 million over the prior year. Our cost of deposits and repos remained at 87 basis points for the second quarter, which is the same as the first quarter of 2025 and the year-ago quarter. Our current deposit pipelines are strong and focused on operating companies. In addition, the deposit pipeline in our specialty banking group, which is focused on title escrow property management and fiduciaries, continues to be strong. Now, let's discuss loans. Total loans at June 30th, 2025 were $8.36 billion, a $5 million decline from the end of the first quarter of 2025 and a $178 million or 2.1% decline from December 31st, 2024. Commercial real estate and single family loans grew by $27 million and $19 million respectively from the end of the first quarter. The quarter-over-quarter decrease in total loans was largely due to reductions in line utilization for CNI and dairy and livestock lines of credit. A quarter-over-quarter decrease of $30 million in CNI reflects a decrease in line utilization from 29% at March 31, 2025 to 26% at June 30. In addition, Dairy and livestock loans declined by $18 million compared to the first quarter, driven by a reduction in line utilization from 64% at the end of the first quarter to 62% at the end of the second quarter. The $178 million decrease in loans from the end of 2024 was driven by dairy and livestock loans declining by $186 million as these lines experienced their seasonally high utilization at year end. C&I loans declined over the period by $13 million as line utilization decreased from 30% at the end of 2024 to 26% at June 30th. Commercial real estate loans and single family loans increased by $10 million and $19 million respectively from the end of 2024. Although we have seen a relative increase in loan originations so far in 2025, we also experienced a higher level of unscheduled loan payoffs in addition to the reduced line utilization. We've experienced an uptick in recent loan originations and our loan pipelines remain strong, although rate competition for the quality of loans we focus on has been intense. Loan originations in the second quarter of 2025 were approximately 58% higher than the first quarter of 2025 and 79% higher than the second quarter of 2024. The increase in loan originations was across both C&I and commercial real estate loans, with a notable increase in investor commercial real estate. We averaged yields of 6.6% on new originations during the second quarter. Although loan yields were 5.22% in both the second and first quarters of 2025, the yield on our loan portfolio would have expanded by five basis points, if not for lower line utilization during the second quarter of higher yielding ABL and dairy and livestock loans, as well as lower prepayment penalty income in the second quarter of this year. We experienced $249,000 of net charge-offs for the second quarter of 2025 compared to net recoveries in the first quarter of $180,000. Total non-performing and delinquent loans increased by $3.2 million to $30 million at June 30, 2025. This increase was primarily due to an SBA loan that was greater than 30 days past due on June 30th. Non-performing and delinquent loans were $17.6 million lower than the $47.6 million at the end of 2024. Classified loans were $73.42 million at June 30, 2025, compared to $94.2 million at March 31, 2025, and $89.5 million at December 31, 2024. Classified loans as a percentage of total loans was 0.9% at June 30, 2025. The decrease from the first quarter of 2025 was primarily due to a $17 million decline in classified owner-occupied commercial real estate loans, resulting from these loans being upgraded. I will now turn the call over to Alan to further discuss additional aspects of our balance sheet and our net interest income.