CVB FINANCIAL CORP Q3 FY2024 earnings call

• Net earnings for Q3 2024 were $51 million or $0.37 per share, with 190 consecutive quarters of profitability and 140 consecutive quarters of paying a cash dividend.
• Total revenue excluding gains and losses grew by 2.9% due to a $2.8 million increase in net interest income. Core noninterest expense increased by 3.8%.
• Completed early redemption of $1.3 billion BTFP borrowing, with total assets declining but average earning assets growing by $262 million. Executed sale-leaseback transactions realizing $9.1 million gain on sale.
• Deposits and customer repos increased by $408 million from end of Q2 2024. Cost of deposits and customer repos was 101 basis points in Q3 2024.
• Loans: Commercial real estate, construction, and C&I loans declined. Asset quality remained strong with nonperforming loans down $3 million, classified loans flat. Allowance for credit losses totaled $83 million at Q3 end.
• Investment portfolio: AFS securities declined by $280 million, HTM securities $25 million. Tax equivalent yield on investment portfolio was 2.67% in Q3. Positive carry on fair value hedges, but spread to reduce with Fed rate cuts.

For the third quarter of 2024, CVB Financial Corporation reported net earnings of $51 million or $0.37 per share. 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. Noninterest income was $12.8 million for the third quarter of 2024, or $15.3 million when net gains and losses are excluded. Noninterest expense was $58.8 million for the third quarter, up from $56.5 million in the second quarter. Net interest margin was 3.05% in the third quarter, same as the prior quarter. Total loans at September 30, 2024, were $8.6 billion, a $109 million or 1% decrease from the end of the second quarter.

• Economic forecast: Real GDP to decline slightly in Q4 2024 and Q1 2025, GDP growth <1% in 2025, then increase. Unemployment to increase, averaging 5.5% in 2025.
• Anticipates two additional sale-leaseback transactions in Q4 2024, expecting to offset gains with AFS portfolio loss trades.
• Evaluating capital management including buybacks and M&A, with significant capital available.

• Interest rate changes: Impact on net interest income, especially with Fed rate cuts affecting hedges and deposit costs.
• Economic downturn: Potential impact on loan quality and economic forecast assumptions.
• Credit risks: Specific loan situations like multifamily properties going dark, and potential credit migration in CRE; however, asset quality remains generally strong but monitoring continues.

Q: Specific timing of securities sold during Q3.

A: Sold throughout the quarter, heavier on back end, last month particularly.

Q: Deposit cost commentary, 88 basis points in September, moderation expected.

A: Moderate expected, rate requests slowed, closer to 100% beta on second rate cut, should stabilize or decline slightly.

Q: Hedging standpoint during Q3, changes with security sales.

A: Hedges on AFS portfolio had excess capacity, may evaluate unwinding some fair value hedges in Q4 but not all.

Q: Plans for sale-leaseback transactions and reinvestment, impact on wholesale funding.

A: Evaluating reinvestment, considering reinvesting some, evaluating FHLB, brokered CDs; $100 million 90-day reset brokered CDs evaluated for interest rate risk vs cost of funding.

Q: Quantification of future security sales and impact on balance sheet.

A: Anticipate less than $300 million sold in Q4, yields on sold securities likely lower, unrealized losses may expand, impact on cash from sales.