CVB Financial Q4 2024 Earnings Report

CVB Financial EPS Results

• Actual EPS: $0.36
• Consensus EPS: $0.34
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

CVB Financial Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $112.93 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

CVB Financial Announcement Details

• Quarter: Q4 2024
• Date: 1/22/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 23, 2025
• Conference Call Time: 10:30AM ET

CVB Financial (NASDAQ:CVBF) operates as a bank holding company for Citizens Business Bank, a state-chartered bank that provides banking and financial services to small to mid-sized businesses and individuals. It offers checking, savings, money market, and time certificates of deposit products for business and personal accounts; and serves as a federal tax depository for business customers. The company also provides commercial lending products comprising lines of credit and other working capital financing, accounts receivable lending, and letters of credit; agriculture loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers, and farmers; lease financing services for municipal governments; commercial real estate and construction loans; and consumer financing products, including automobile leasing and financing, lines of credit, credit cards, home mortgages, and home equity loans and lines of credit. In addition, it offers various specialized services, such as treasury management systems for monitoring cash flow, merchant card processing program, armored pick-up and delivery, payroll services, remote deposit capture, electronic funds transfers, wires and automated clearinghouse, and online account access. Further, the company provides trust services, such as fiduciary services, mutual funds, annuities, 401(k) plans, and individual investment accounts. CVB Financial Corp. was founded in 1974 and is headquartered in Ontario, California.

CVB Financial Q4 2024 Earnings Call Transcript

Key Takeaways

• Citizens organized its wildfire response around associates, customers, facilities and community relief, providing support to 50+ evacuated staff, assessing 114 loans (~$105 m) in fire zones, reopening all branches and donating $200 k to relief agencies.
• The bank posted net earnings of $51 m (EPS $0.36) in Q4, marking its 191st consecutive profitable quarter and 141st dividend payout, with ROATCE of 14.31% and ROAA of 1.3%.
• A proactive balance sheet deleveraging included early redemption of $1.3 bn in term debt, reducing average assets by nearly $1 bn, cutting interest expense by $15 m and lifting net interest margin by 13 bps.
• Total deposits rose to $12.2 bn (+$505 m YoY) driven by $315 m in non-maturity growth, lowering overall deposit costs to 93 bps; meanwhile, loans fell 4% YoY to $8.54 bn amid soft commercial real estate demand.
• Capital metrics remain strong with a 16.2% CET1 ratio and 9.8% tangible common equity, a newly authorized 10 m share repurchase program, and a disciplined focus on opportunistic buybacks and M&A.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the 4th Quarter of 2024 CVB Financial Corporation and its subsidiary Citizens Business Bank Earnings Conference Call. My name is Sherry, 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.

[Operator]

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.

[Allen Nicholson, EVP & CFO at CVB Financial]

Thank you, Sherry, and good morning, everyone. Thank you for joining us today to review our financial results for the Q4 of 2024. Joining me this morning is Dave Brager, 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.

[Allen Nicholson, EVP & CFO at CVB Financial]

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 ks for the year ended December 31, 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 Brager.

[David Brager, President & CEO at CVB Financial]

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 4 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.

[David Brager, President & CEO at CVB Financial]

2nd, we have identified 114 loans totaling approximately $105,000,000 located in the fire zones. At this point, 14 properties have experienced some level of damage with 7 of the properties completely destroyed. 1 commercial building and 6 residential properties totaling $7,400,000 All 14 of the impacted properties had insurance in place and we have actually received proceeds to fully pay off 1 of the residential properties. 3rd, due to the mandatory evacuation orders or power outages, we had 6 centers temporarily closed at some point during the fires and all the locations have now reopened. 4th, we announced that we have donated $200,000 to 4 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.

[David Brager, President & CEO at CVB Financial]

Now to the quarter. For the Q4 of 2024, we reported net earnings of $51,000,000 or $0.36 per share, representing our 100 and 91st consecutive quarter of profitability. We previously declared a $0.20 per share dividend for the Q4 of 2024, representing our 100 and 41st 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 Q4 of 2024. Our return on equity is impacted by our high level of capital, which is reflected in our common equity Tier 1 capital ratio of 16.2% 9.8 percent tangible common equity ratio.

[David Brager, President & CEO at CVB Financial]

In conjunction with our company's capital planning, we announced in November of 2024 that our Board of Directors authorized a new 10,000,000 share repurchase program. Our net earnings of $51,000,000 or $0.36 per share compares with $51,000,000 for the Q3 of 2024 or $0.37 per share and $48,500,000 or $0.35 per share for the prior year quarter. Pre tax income in the Q4 of $68,000,000 was $423,000 higher than the Q3 of 2024. Net interest income decreased quarter over quarter by $3,200,000 or 2.8 percent, 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 Q3.

[David Brager, President & CEO at CVB Financial]

We had a recapture of allowance for credit losses of $3,000,000 in the 4th quarter. On September 26, 2024, we completed an early redemption of our $1,300,000,000 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 4th quarter declining by almost $1,000,000,000 from the 3rd quarter. The reduction in debt reduced interest expense by $15,000,000 per quarter, driving a 13 basis point increase in our net interest margin for the 4th quarter. We were able to increase our return on average assets from 1.24% in the 3rd quarter to 1.3% in the 4th quarter.

[David Brager, President & CEO at CVB Financial]

We executed 2 sale leaseback transactions in the Q4 of 2024 in which we sold and leased back 2 buildings under long term leases, realizing gains on sale totaling $16,800,000 In conjunction with these real estate transactions, we sold $155,000,000 of available for sale investment securities at a cumulative loss of $16,700,000 At December 31, 2024, our total deposits and customer repurchase agreements totaled $12,200,000,000 a $505,000,000 increase from December 31, 2023, including the growth of $315,000,000 of non maturity deposits. Although we generally experienced a decrease in deposits at the end of the Q4 each year, total deposits and customer repos grew on average by $150,000,000 over the Q3 of 2024. Compared to the Q3, non maturity deposits grew on average by $188,000,000 while time deposits declined on average by $130,000,000 inclusive a $100,000,000 brokered CD that we did not renew. By the end of the 4th quarter, we experienced a decrease in deposits in customer repos from the end of the Q3 of $257,000,000 Non interest bearing deposits were 59% of total deposits for the 4th 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.

[David Brager, President & CEO at CVB Financial]

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 2 years. From December 31, 2019 to December 31, 2024, our total deposits and repos have grown by more than $3,000,000,000 Excluding the deposits acquired from SunCrest Bank and brokered CDs, our core deposits and repos grew by approximately $1,600,000,000 which represents a cumulative average growth rate of 3.3 percent over that 5 year period. Our cost of deposits was 93 basis points for the Q4 of 2024, which compares to 98 basis points for the Q3 of 2024 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.

[David Brager, President & CEO at CVB Financial]

Now let's discuss loans. Total loans at December 31, 2024 were $8,540,000 a $36,000,000 decrease from the end of the 3rd quarter and a $368,000,000 or 4% decline from December 31, 2023. The quarter over quarter decrease was led by a $111,000,000 decline in commercial real estate loans. We also had an $11,000,000 decrease in commercial and industrial loans and approximately $10,000,000 decline in agribusiness loans. Dairy and livestock loans grew seasonally by $87,000,000 from the end of the third quarter.

[David Brager, President & CEO at CVB Financial]

We continue to experience limited demand for commercial real estate loans and rate competition 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 4th quarter, but by the end of the quarter originations were in the high 6% range. C and I line utilization continues to be low even though we have grown our total C and I 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 percent of 2023 levels as we originated a greater percentage of C and I loans in 2024. The decrease in loans from the end of 2023 included commercial real estate loans declining by $277,000,000 and construction loans declining by $51,000,000 as construction loan origination was minimal in 2024.

[David Brager, President & CEO at CVB Financial]

C and I loans also declined by $45,000,000 when comparing December 31, 2023 to December 31, 2024. In total, we ended the quarter with $19,300,000 in OREO assets, including $17,700,000 of loans that were classified as non performing at the end of the Q3 of 2024 and were foreclosed during the Q4 and recorded as OREO. An additional $1,000,000 loan that was not past due at September 30, 2024 became an OREO asset at year end. Net recoveries for the Q4 were $180,000 which compares to $156,000 in net recoveries for the Q3 of 2024. Total non performing and delinquent loans decreased from $53,300,000 at September 30, 2024 to $47,600,000 at December 31, 2024.

[David Brager, President & CEO at CVB Financial]

We had $30,700,000 of past due and accruing loans as of September 30, 2024, of which $24,800,000 became non performing and approximately $1,000,000 became OREO by the end of 2024. We reversed interest income of approximately $1,500,000 during the Q4 for these non performing assets. The remaining $4,900,000 of past due and accruing loans at the end of the 3rd quarter were paid off by the borrower or from the sale of loan collateral. Classified loans were $89,500,000 at December 31, 2024, $25,000,000 lower than the prior quarter and $17,000,000 lower than the end of 2023. Classified loans as a percentage of total loans was 1.05% at the end of 2024.

[David Brager, President & CEO at CVB Financial]

Classified dairy and livestock and agribusiness loans declined by $11,000,000 as profitability is improving for these borrowers. Classified non owner commercial real estate loans decreased by $27,000,000 including a reduction of $13,000,000 for a group of multifamily loans to 1 borrower, which we foreclosed on during the Q4. Of this $13,000,000 in loans, dollars 9,000,000 became OREO as of December 31, while the remaining $4,000,000 was paid off through the sale of the collateral. Additionally, dollars 9,800,000 loan on a senior living facility that was participation entered into by SunCrest Bank was foreclosed during the Q4 and recorded as an OREO at December 31, 2024. We do not anticipate losses on the sale of the $19,000,000 of OREO assets during the Q1 of 2025.

[David Brager, President & CEO at CVB Financial]

The multifamily properties representing the $9,000,000 of OREO have been or will be sold in January. As sales of these properties have either closed or 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. Alan?

[Allen Nicholson, EVP & CFO at CVB Financial]

Thanks, Dave.

[Allen Nicholson, EVP & CFO at CVB Financial]

We affected the deleveraging of our balance sheet at the end of the Q3 of 2024 by completing an early redemption of $1,300,000,000 bank term funding program borrowing in September of last year. As a result of this deleveraging, average borrowings during the Q4 of 2024 were 1 point $2,000,000,000 lower than the Q3 of last year and average earning assets decreased by approximately $975,000,000 from the 3rd quarter. The use of cash to redeem the bank from funding program borrowing at the end of the Q3 resulted in our average funds on deposit at the Federal Reserve decreasing by approximately $750,000,000 during the Q4 of 2024. Investment securities also declined on average between the 3rd and 4th quarters of 2024 by $144,000,000 as we executed on targeted sales of certain available for sale or AFS securities during the 3rd and 4th quarters of 2024. We executed 2 sale leaseback transactions during the Q4 of 2024 realizing gains on sale totaling $16,800,000 In conjunction with these real estate transactions, we sold approximately $155,000,000 of available for sale investment securities at a cumulative loss of $16,700,000 During the Q4 of 2024, we purchased $385,000,000 of securities, a combination of floating rate and 15 year fixed rate mortgage backed securities with an average yield at the time of purchase of more than 5%. We also sold more than $300,000,000 of AFS securities during the Q3 of 2024 at a cumulative loss of $11,600,000 which was also timed in conjunction with the sale and leaseback of 2 banking center buildings during the Q3. The building sales in the Q3 resulted in gains on sale totaling $9,100,000 The securities sold in the 3rd quarter had an average book yield of less than 3%, while the securities sold in the 4th quarter had an average book yield of less than 2%. On a combined basis, over the 3rd and 4th quarters of 2024, we sold $467,000,000 of the low yielding AFS securities and purchased $385,000,000 of new investments with current yields in excess of 5%. Available for sale investment securities were approximately $2,540,000,000 at December 31, 2024, a $77,000,000 increase from September 30, 2024.

[Allen Nicholson, EVP & CFO at CVB Financial]

The unrealized loss on AFS securities increased by $80,000,000 from $367,000,000 at September 30, 2024 to $448,000,000 on December 31, 2024. At the end of the Q3 of 2024, we had 3 paid fixed swaps that we recorded as fair value hedges totaling $1,000,000,000 in notional value. The bank received daily sober on these swaps. In December, we unwound one of these swaps, which matured in June of 2027 with a notional value of $300,000,000 and a fixed rate of 3.95%. We netted less than $100,000 on the transaction.

[Allen Nicholson, EVP & CFO at CVB Financial]

For the Q4 of 2024, we earned a positive carry on these swaps generating $2,300,000 of interest income compared to $4,300,000 in the Q3 of 2024. At year end, we continue to have $300,000,000 of brokered CDs that have been swapped as cash flow hedges, but an additional $100,000,000 brokered CD that was issued earlier in 2024 was not renewed during the Q4. As of December 31, 2024, the market value of our remaining 2 fair value hedges combined with our cash flow hedges increased by approximately $27,000,000 from the end of the 3rd quarter. The net after tax impact of changes in both the fair value of our AFS securities and our derivatives resulted in a $37,000,000 decrease in other comprehensive income for the Q4. Investment securities held to maturity or HCM securities totaled approximately $2,380,000,000 at December 31, 2024.

[Allen Nicholson, EVP & CFO at CVB Financial]

The HCM portfolio declined by approximately $26,000,000 from September 30. Our total investment portfolio declined by $500,000,000 from December 31, 2023, including a decline in AFS securities of more than $400,000,000 As of December 31, 2024, we had $800,000,000 in wholesale funds, including $500,000,000 of Federal Home Loan Bank advances and $300,000,000 of brokered CDs, which represents a $1,400,000,000 decrease from our wholesale funds on December 31, 2023. As a result of our balance sheet deleveraging and the Fed lowering short term interest rates, our interest income in the Q4 declined by $18,000,000 over the Q3 of 2024. Average earning assets declined by $974,000,000 and the yield on earning assets declined by 19 basis points. The decrease in interest income was primarily due to an $11,000,000 decline in interest from funds deposited at the Federal Reserve, reflecting a $748,000,000 decrease in average balances at the Fed and a 65 basis point decline in the yield on these funds.

[Allen Nicholson, EVP & CFO at CVB Financial]

Loans were also down on average by $83,000,000 which combined with a 16 basis point decrease in loan yields resulted in a $4,700,000 decrease in interest income. This decline in loan interest income included the approximately $1,500,000 of accrued interest that was reversed for loans that were classified as non accrual during the Q4. A better reflection of the decline in loan yields is the decline in our core loan yields, which decreased by 6 basis points from September to December of 2024. Interest expense decreased by $15,000,000 over the prior quarter due to the $15,000,000 decrease in interest on borrowings, reflecting the redemption of the $1,300,000,000 in DTFP borrowings. Our cost of funds decreased from 1.47 percent for the Q3 of 2024 to 1.13% in the 4th quarter.

[Allen Nicholson, EVP & CFO at CVB Financial]

After our balance sheet repositioning, net interest income before provision for credit losses decreased by $3,200,000 from the 3rd to the 4th quarters of 2024, while our net interest margin expanded from 3.05% in the 3rd quarter to 3.18% in the 4th quarter. For the Q4 of 2024, we recaptured $3,000,000 in provision for credit losses, reducing our allowance for credit losses as of December 31, 2024 to $80,000,000 Our ACL at December 31, 2023 was $86,800,000 including approximately $6,000,000 of reserves for specifically identified non performing loans. Our reserves for specific loans was close to 0 at December 31, 2024. Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. We continue to have the largest individual scenario waiting on Moody's baseline forecast with both upside and downside risks weighted among multiple forecasts.

[Allen Nicholson, EVP & CFO at CVB Financial]

The resulting economic forecast resulted in real GDP growing at a slower rate with GDP growth below 2% for 2025 through 2027 and the unemployment rate rising over 5% by 2026 and not moving below 5% until 2028. Commercial real estate prices are also forecasted to continue their decline in 2025 with only meaningful price appreciation starting in 2027. Now turning to our capital position. At December 31, 2024, our shareholders' equity was $2,200,000,000 a $108,000,000 increase from the end of 2023. The company's tangible common equity ratio at December 31, 2024 was 9.8% compared with 8.5% at December 31, 2023.

[Allen Nicholson, EVP & CFO at CVB Financial]

At December 31, 2024, our common equity Tier 1 capital ratio was 16.2% and our total risk based capital ratio was 17.1%. Although the Board of Directors authorized a new 10b5-1 stock repurchase plan in November, there were no shares repurchased during the Q4 of 2024. I'll now turn the call back to Dave for further discussion of our Q4 earnings.

[David Brager, President & CEO at CVB Financial]

Thank you, Alan. Moving on to non interest income. Our non interest income was $13,100,000 for the Q4 of 2024 compared to $12,800,000 for the 3rd quarter and $19,200,000 for the Q4 of 2023. The Q3 of 2024 included a net loss of $2,300,000 between the sale leaseback transactions and the accompanying bond sales, while the 4th quarter transactions essentially offset.

[David Brager, President & CEO at CVB Financial]

BOLI income decreased by $1,100,000 from the 3rd quarter and by $5,500,000 in the Q4 of 2023. These decreases were primarily the result of the BOLI restructuring during the Q4 of 2023. Income from CRA related investments was approximately $1,000,000 lower in the Q4 of 2024 compared to both the Q3 of 2024 and the Q4 of 2023. Our trust and wealth management fees increased by approximately $370,000 or more than 14% compared to the Q4 of 2023. Now expenses.

[David Brager, President & CEO at CVB Financial]

Non interest expense for the Q4 was $58,500,000 compared with $58,800,000 for the Q3 of 2024 and $65,900,000 in the Q4 of 2023. The Q4 of 2023 included $9,200,000 of additional expense related to the initial FDIC special assessment. A recapture provision for unfunded loan commitments totaled $750,000 in the Q3 of 2024 $500,000 in the Q4 of 2023. Staff related expenses declined by approximately $650,000 from the Q3 of 2024, while increasing by approximately $350,000 from the Q4 of 2023. Occupancy expense grew by $167,000 when compared with the Q4 of 2023, which includes the impact of the higher occupancy costs for the 4 offices involved in the sale leaseback transactions.

[David Brager, President & CEO at CVB Financial]

Excluding a decrease in building security expense, occupancy expense would have increased by approximately $400,000 from the Q4 of 2023 and would have been essentially the same in comparison to the Q3 of 2024. Non interest expense totaled 1.49 percent of average assets for the Q4 of 2024 compared to 1.42% for the prior quarter and 1.62% for the Q4 of 2023. Our efficiency ratio was 46.3 percent for the Q4 of 2024. This compares with 46.5% for the 3rd quarter 47.6% in the year ago quarter. This concludes today's presentation.

[David Brager, President & CEO at CVB Financial]

Now Alan and I will be happy to take any questions that you might have.

[Operator]

Thank you. And our first question will come from the line of David Feaster with Raymond James. Your line is open.

[David Feaster, Director - Banking at Raymond James Financial]

Hey, good morning everybody.

[David Brager, President & CEO at CVB Financial]

Good morning, David.

[David Feaster, Director - Banking at Raymond James Financial]

I just wanted to start out maybe touching on the pulse of your clients. There's a lot of optimism out there with investors and analysts alike talking about improving demand, accelerating loan growth. I'm curious, have you started to see that in your pipeline yet? It's just kind of early read with your conversations and how clients just their sense of optimism and their plans for 2025?

[David Brager, President & CEO at CVB Financial]

Yes. I absolutely believe there's a sense of optimism going forward. And we have had a good start to the year on the loan front. The pipelines are improving, but are still not where I would want them to be overall. But just generally speaking, I don't think there's any question that people are a little more excited and looking forward to 2025.

[David Brager, President & CEO at CVB Financial]

So I do believe that we'll be able to execute on loan growth and it's something that all of our bankers understand, we're reaching out to our customers, talking about plans that they maybe had shelved before that they are now hoping to get done or get started. So absolutely believe there's some enthusiasm out there, which we haven't had in a couple of years.

[David Feaster, Director - Banking at Raymond James Financial]

Okay. That's great. And then just wanted to touch on your capital priorities. You guys have been active, very active. You've got an extremely strong balance sheet.

[David Feaster, Director - Banking at Raymond James Financial]

How do you think about deploying capital today? And where are you most interested? Are buybacks or additional restructurings on the table? And just any broader thoughts maybe on the M and A market as well?

[David Brager, President & CEO at CVB Financial]

Yes. So I mean, obviously, we recognize we have an enormous amount of capital and we have a number of things that we want to accomplish. 1st and foremost, we want to be able to grow, utilize the capital to grow internally. As far as the M and A market is concerned, conversations have definitely picked up. We've had numerous conversations over the last month or so with a number of banks and we'll continue to do that.

[David Brager, President & CEO at CVB Financial]

The challenge really has been most of the people on the other side look at this and say, well, here's what Citizens Business Bank can pay based on where they're trading. And then we have to explain to them how much we are willing to pay and there is usually a disconnect between those two numbers. And so it is an important part of 2025 for us. I do believe we're in a window from a regulatory perspective, from a business environment perspective. I think that we should be able to execute on something in 2025.

[David Brager, President & CEO at CVB Financial]

But at this point, obviously nothing imminent, nothing happening, but we are working very hard at that. And then beyond the M and A, but beyond the growth in the M and A front, we do have the 10b5-1 plan in place. We are disciplined and it is somewhat opportunistic from where we're trading or at least where we were trading yesterday. And so there will be an opportunity, I believe, for us to continue to look at that if it hits the certain numbers. So we're working on that.

[David Brager, President & CEO at CVB Financial]

So I don't know, Alan, if you have anything you want to add, but

[Allen Nicholson, EVP & CFO at CVB Financial]

The only other things I would say, David, is from an M and A perspective, certainly sellers' expectation maybe have gotten a little too optimistic, but also rates have moved up as you can reflect in the impact to our OCI and that does continue to make the math a little more challenging when you do acquisitions. So those are other than the regulatory being positive, those are maybe some headwinds to it. And just remember, as we said last quarter, we have enough capital to do M and A and buybacks. So they're not exclusive of each other.

[David Brager, President & CEO at CVB Financial]

Yes. And just one more thing, David, just to sort of tie the bow on this. It's not burning a hole in our pocket either from the sense of I think there was a big bank CEO who said the capital is not burning a hole in our pocket. We're going to be disciplined in how we look at the uses of capital, whether that's through M and A, buybacks, other ways. We will continue to perform at a very high level and we are going to generate additional capital.

[David Brager, President & CEO at CVB Financial]

But we definitely want to put it to use, but we also want to make sure we put it to use in our normal disciplined way.

[David Feaster, Director - Banking at Raymond James Financial]

Yes, that's great. And then just you guys have done a great job. You've been really active managing interest bearing deposit costs. I'm curious the feedback that you've received from clients. Have you gotten any pushback?

[David Feaster, Director - Banking at Raymond James Financial]

Have you seen any attrition? And then just how do you think about your ability to further reduce deposit costs and your outlook for core deposit growth going forward?

[David Brager, President & CEO at CVB Financial]

Yes. We added a slide in our slide deck that showed from and I mentioned in my prepared remarks that we've grown deposits by 3.3% on a 5 year cumulative average growth rate. It's actually 6% if you include the acquisition and the broker deposits that we've added. But I feel very confident on that front. I mean, we have done a great job in the last couple of years when commercial real estate last year really, but couple of years for the most part, where commercial real estate demand has been slower.

[David Brager, President & CEO at CVB Financial]

We have brought on a number of great operating companies, C and I relationships. Well, that doesn't really translate into loan growth because the utilization is low and but it does translate in a lot of other ways. And so there is this optimism that I am feeling out there in the market. I think that some of these customers will start to utilize those lines, will start to initiate projects that maybe they were holding off on. And deposits should grow just as that money starts moving around.

[David Brager, President & CEO at CVB Financial]

And we're continuing to drive growth in our specialty banking group, in our government services group. So all of those sort of focused verticals that we have there are areas for us to do a good job. And a lot of the excess money is out of the system. As we've talked about in the past, over $1,000,000,000 has gone to our trust group. There is an opportunity depending on what rates do that some of that could start to come back if they're going to start on some of these other projects.

[David Brager, President & CEO at CVB Financial]

So I'm very optimistic on the deposit side. We constantly have to prove our worth there and we've done a really good job. We will continue to do a good job there.

[David Feaster, Director - Banking at Raymond James Financial]

That's great. Thanks everybody.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Andrew Terrell with Stephens. Your line is open.

[Andrew Terrell, Managing Director at Stephens Inc]

Hey, good morning.

[Allen Nicholson, EVP & CFO at CVB Financial]

Good morning. Good morning, Andrew.

[Andrew Terrell, Managing Director at Stephens Inc]

I just wanted to maybe start on the margin. If I look at the presentation, it looks like the cost of total deposits was 90 basis points in December, so a few basis points off of the quarterly average. I'm just curious, any color you can provide on just the timing of rate reductions that you took kind of throughout the quarter? And then as we look into 2025, should we think of obviously that 90 basis points is kind of the starting point coming into the year, but do you feel like there's more reductions cost wise you can make in the deposit base absent any additional rate decreases?

[Allen Nicholson, EVP & CFO at CVB Financial]

So Andrew, if you look at that slide, I think you're mentioning, if you look at the top left where you separate the cost of non maturity versus time deposits. From the time deposit perspective, the bulk of what we have in time deposits is those cash flow hedge CDs. So those are unlikely near term to change. That said, the non maturity deposits will probably continue to slowly go down in the near term. If the Fed does nothing, then obviously it will hit all floor.

[Allen Nicholson, EVP & CFO at CVB Financial]

But I think over the next month or 2, we probably will still see a little bit of a lag because the last Fed cut was in December. So there's still probably a little bit of a decline for that to continue. And then we suspect that that won't be doing anything this year and that'll probably level out.

[David Brager, President & CEO at CVB Financial]

And Andrew, just to add one comment on that, a little more technical. Basically every money market rate in the bank that was 1% or over in the last rate cut, we matched that rate cut 100% on that. So to Alan's point, some of that occurred later in the month of December and you're not seeing it in the monthly average, but there still should be some opportunity there. And look, it's also a big part of the mix, right. If we can continue to get operating deposits and move our non interest bearing deposits, keep them the same or move them up a little bit as a percent of total deposits that should help too in the overall cost.

[Andrew Terrell, Managing Director at Stephens Inc]

Got it. I appreciate it. And then for the $500,000,000 of borrowings that are remaining, can you remind us the weighted average cost of those?

[Allen Nicholson, EVP & CFO at CVB Financial]

I think it's in the low 4s, if I remember correctly, Andrew. I'll estimate like 425,000,000 if I recall correctly.

[Andrew Terrell, Managing Director at Stephens Inc]

Okay, thanks. And then just last one for me. I mean, the expenses were pretty stable quarter to quarter. Would love to hear just your thoughts on it sounds like optimistic on loan growth in 2025. How are you thinking about expense growth in 2025?

[Andrew Terrell, Managing Director at Stephens Inc]

And what are some of the kind of key areas of investment you're focused on in the year?

[Allen Nicholson, EVP & CFO at CVB Financial]

Andrew, I would say that from a controllable expense perspective, we've probably been growing about 4% recently. I think our goal is to keep it below that going forward, but we do plan on continuing to invest in technology. At the same time, I think some of those investments we have and will be made will help deploy and increase our efficiencies. So but the area of focus will continue to be there's no big bang per se of any one major technology. It's just a number of things we're doing to automate and improve overall efficiencies.

[Andrew Terrell, Managing Director at Stephens Inc]

Okay. Thanks for taking the questions. Of course.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Ahmad Hassan with D. A. Davidson. Your line is

[Ahmad Hasan, Equity Research Associate at D.A. Davidson Companies]

Ahmad Hassan on for Gary Tenner. Good morning, Ahmad. Good morning. Any additional color on the timing of the $385,000,000 securities purchase?

[Allen Nicholson, EVP & CFO at CVB Financial]

Timing of the purchases we did in the Q4?

[Ahmad Hasan, Equity Research Associate at D.A. Davidson Companies]

Yes.

[Allen Nicholson, EVP & CFO at CVB Financial]

The purchase that we did in the Q4 based on settlement dates, it was probably weighted more towards the end of the quarter versus the middle of the quarter. I guess it's the best way of explaining it to you.

[Ahmad Hasan, Equity Research Associate at D.A. Davidson Companies]

Right. That makes sense. And as a follow-up, any additional sale leaseback or securities transaction contemplated at this point?

[David Brager, President & CEO at CVB Financial]

No. We originally had actually looked at selling 6 properties. Our timing was pretty good on this and both from the sale perspective is on the properties and the sale perspective of the securities. We actually sold all of the properties under a 6 cap and a couple of the properties under a 5 cap. And so once we got to the 4 properties, we decided to not sell the other 2 properties to increase our expenses.

[David Brager, President & CEO at CVB Financial]

So at this point, there are no contemplated sale leaseback transactions and we don't have anything listed for sale. So I think our mini balance sheet restructuring for the most part is done.

[Ahmad Hasan, Equity Research Associate at D.A. Davidson Companies]

Thank you. That will be all my questions.

[David Brager, President & CEO at CVB Financial]

You're welcome.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Adam Butler with Piper Sandler. Your line is open.

[Adam Butler, Equity Research Analyst at Piper Sandler Companies]

Hey, good morning everybody. This is Adam on for Matthew Clark.

[David Brager, President & CEO at CVB Financial]

Hi, Adam. Good morning.

[Adam Butler, Equity Research Analyst at Piper Sandler Companies]

So just on the expense line, particularly occupancy and equipment expense, what was the timing of the sale leaseback transaction? And how much of that 4Q run rate of $5,900,000 includes the expected $1,800,000 annualized increase in the expense line?

[Allen Nicholson, EVP & CFO at CVB Financial]

Those sales occurred in October. So the bulk of it was reflected. There's other things that go into our occupancy expense. So you can look at our slide deck and you'll be able to see the full year annual impact to occupancy from the sale leaseback. But we have other ways to reduce occupancy expense as well.

[Allen Nicholson, EVP & CFO at CVB Financial]

I mean as leases come up, we are reducing what we're paying on those leases and many downsizing the size of our offices. So there's other components that we're managing to keep occupancy expense down.

[Adam Butler, Equity Research Analyst at Piper Sandler Companies]

Okay. That's helpful. And then on the buyback authorization, I was just curious to get your sense of optimism on your on being opportunistic on repurchases if rates remain elevated.

[Allen Nicholson, EVP & CFO at CVB Financial]

Well, I think as Dave said that buyback, we have a 10b5-1 in place and we typically do make those opportunistic. We'll see there's always I mean 2025 maybe a volatile stock market and so we buy on the dips really and that's the way it's designed.

[Adam Butler, Equity Research Analyst at Piper Sandler Companies]

Okay. Very helpful. Those are my questions. Thanks for answering them. Thank you.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Kelly Motta with KBW. Your line is open.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, guys. Good morning. Good morning. I guess from a high level, we sometimes get pushback from investors on the dynamics in California with population outflows, migration, and it's a terrible situation, but the wildfires certainly doesn't help the narrative. What would you say to those who question the outlook here in California?

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

What are you seeing and what gives you optimism about your outlook ahead here?

[David Brager, President & CEO at CVB Financial]

Yes. So many of those thoughts sometimes Alan and I share as well. So that's okay. But what I would say and this is true. Look, California is whatever, 5th, 6th, 7th largest economy in the world.

[David Brager, President & CEO at CVB Financial]

It's an extremely diversified economy across pretty much every industry, whereas many other states are more one trick ponies in a lot of cases. When you look at our market share in the markets we serve, we have a lot of opportunity to acquire market share. We're not a 30% or 40% market share in the state of California. We're a 2% or 3% market share in the state of California. So I think there's a lot of opportunity there.

[David Brager, President & CEO at CVB Financial]

And despite the fact that there's been out migration, if somebody's businesses here, it is very easy for them to pick up and move to another state, but it's very hard for them to move their business out of state. And while we will follow their business out of state if they go like we've done in dairy and livestock, like we've done in some other situations, Most of the time, it's more of a personal decision and where they're making their money is still in California. And so I think there to the point of California's challenges, I think all that's true. But it's still a great opportunity for us and we still have a lot of opportunity in the type of client that we want to attract to our bank. So I don't I'm not as negative on the overall situation.

[David Brager, President & CEO at CVB Financial]

I mean, there are individual situations sometimes that create problems. But for the most part, even when our customers have moved, 99% of the time, we've still banked them. So they're not going anywhere from a business perspective.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Thanks for that. That's really helpful. And then I also wanted to touch on just the opportunity on the loan side. I think I caught in your prepared remarks or earlier in the Q and A that commercial real estate has been it's challenging right now to get things that fit your very tight credit box.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Can you remind us where are new loans coming on at? And do you if we were to get a rate cut or 2, do you think you can help offset that with reinvestment of some of these cash flows into the loan production you're getting?

[David Brager, President & CEO at CVB Financial]

Yes. So look, like I said, sort of in my earlier answer, I think people are optimistic and I do think the pipelines are improving, albeit not where we want them to be completely. I do think that there is more commercial real estate that people are now willing maybe to do some stuff. The movement in the 10 year the 5 year and the 10 year, which is primarily what we base our rates on. As move rates higher, spreads have come in, we've had to be more aggressive on the pricing if it meets our credit box.

[David Brager, President & CEO at CVB Financial]

We won't substitute or take any credit any more credit risk than we would normally take, but we are having to be more aggressive on the pricing. And as I said in my prepared remarks, I would say it's coming in at the 6.5% range and maybe slightly higher than that. So we're having to do stuff. We just lost the deal yesterday and it was a 10 year fixed at 4.8% to a large bank. So that's not even the 10 year treasury is 4.50 or whatever it's at.

[David Brager, President & CEO at CVB Financial]

So I don't I mean, I think a lot of the challenge obviously, we didn't compete at that rate. But a lot of the challenge has been everybody says they're going to grow loans 10% and the only way to do there's only 2 ways to do that. Jeopardize your credit quality or price to win. And we're going to be smart about how we do that just as we've been in the history of our bank. But there is some irrational pricing that's starting to happen.

[David Brager, President & CEO at CVB Financial]

And so we just have to make sure, as Alan reminds me often, we can give mortgage backed securities and other investments over 5%. So I don't with 0 credit risk and 0 risk rating. So why are we No bonus paid on it. Yes. So So we just need to be smart about how we do that.

[David Brager, President & CEO at CVB Financial]

But the simple answer to your question is around 6.5% to 6.75% is probably the range I would say new things are coming on.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

That's helpful. I'll step back. Thank you guys.

[David Brager, President & CEO at CVB Financial]

Thanks, Kelly.

[Operator]

Thank you. One moment for our next question. And that will come from the line of Tim Coffey with Janney Montgomery Scott. Your line is

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

Dave, I mean, I hate to ask these questions because I mean, there's still an active situation, but I mean, there's going to be with the fire situation in your footprint, there's going to be some things that are going to happen with your balance sheet over the next couple of quarters. And so I'm wondering, is the expectation that the money you bring that comes into the bank in form of deposits from rebuilding from insurance, Is your expectation to put those into kind of overnight funds?

[David Brager, President & CEO at CVB Financial]

Yes. By the way, it's no problem asking the questions. I mean, Tim, we have a very limited impact, I would say, directly. As I mentioned, we only have 14 impacted properties, 7 of those 14 were completely destroyed. 1 of the 7, we've already received the insurance proceeds and paid off the loan and he has the money sitting in the bank.

[David Brager, President & CEO at CVB Financial]

So currently that money sitting in a band control and an account that we control bank control account that we will use to once he finds somebody and once he can start rebuilding to rebuild his home. So I don't think the impact is that great. I mean, it's about $7,500,000 of loans that are on properties that are destroyed. And so I think the appraised value was somewhere in the neighborhood of $23,000,000 $24,000,000 We'll probably get somewhere close to $20,000,000 in insurance proceeds. So I don't think it's going to have a big impact either way.

[David Brager, President & CEO at CVB Financial]

One of the things and again, not something that you want to have to do, But we have agreed to be part of a couple of different efforts to rebuild. 1 through the Department of Financial Protection and Innovation, we decided to give relief if anybody asked, nobody has asked for relief at this point, but there are some measures that they asked us to agree to, which we did. There's also a group of banks that's being put together led by a supervisor in LA County that wants to work with a bunch of community banks to help these impacted people rebuild. And so that I don't know too much about that yet. Our first meeting is tomorrow on that.

[David Brager, President & CEO at CVB Financial]

So I'll know more after tomorrow. But I don't think it's going to be a huge impact. We have a decent amount of contractors as customers and they're all going to be busy and for a long time on this. And so I think that maybe should help us a little bit on the deposit side and potentially even the borrowing side. So I think all in all, while it was obviously a terrible situation, I think from a business perspective for the bank, I see probably more upside opportunity than downside risk.

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

Right. And that's my At

[David Brager, President & CEO at CVB Financial]

least at this point.

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

Right. And then that was my next question is on the loan side, right. So I think there is going to be some opportunity for new development, obviously, in the semi spot areas and maybe perhaps not for the existing property owner. And that would put contractors to work quite a bit. Do you feel I mean that you're obviously you're capable and willing to rebuild the community.

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

I mean are you comfortable with construction balances rising above the current level for a period of time?

[David Brager, President & CEO at CVB Financial]

We are. We have as you know, we have such a low balance there. I mean, we have a lot of capacity there. And I have actually even we are extremely disciplined on the construction side, like 50%, 60% loan to cost is generally what we do. I've actually even talked to our Chief Credit Officer about maybe relaxing that a little bit where we are doing something from a wildfire relief perspective.

[David Brager, President & CEO at CVB Financial]

So that's to meet all the other credit aspects of it, but allowing maybe a 60% or 70% loan to cost. So relaxing a little bit while still maintaining excellent credit quality. I don't see that number going from where it is today and going to $300,000,000 but it could get to $100,000,000 or 150,000,000 dollars over the next couple of years.

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

Right. Okay. All right. Those are my questions. Thank you very much.

[David Brager, President & CEO at CVB Financial]

And Tim, I just want to say thank you regarding the donations as well. I appreciate your comments in the email you sent

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

me. Well, yes, of course. I mean, I'm a Northern Californian, so I've seen how devastating the wildfires can be to my community. So absolutely happy to help.

[David Brager, President & CEO at CVB Financial]

Yes. Thank you.

[Operator]

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. David Brager for any closing remarks.

[David Brager, President & CEO at CVB Financial]

Thank you, Sherry. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by our 191 consecutive quarters or more than 47 years of profitability and 141 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the best small to medium sized businesses and their owners through all economic cycles. I'd like to thank our customers and our associates for their commitment and loyalty.

[David Brager, President & CEO at CVB Financial]

Thank you for joining us this quarter. We appreciate your interest and look forward to speaking with you in April for our Q1 2025 earnings call. Please let Alan or I know if you have any questions. Have a great day.

[Operator]

Thank you all for participating. This concludes today's program. You may now disconnect.

Participants

Executives

• Allen Nicholson, EVP & CFO
• David Brager, President & CEO

Analysts

• David Feaster, Director - Banking at Raymond James Financial
• Andrew Terrell, Managing Director at Stephens Inc
• Ahmad Hasan, Equity Research Associate at D.A. Davidson Companies
• Adam Butler, Equity Research Analyst at Piper Sandler Companies
• Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)
• Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott