CVB FINANCIAL CORP Q1 FY2025 earnings call

Key Points

• Net earnings for the first quarter of 2025 were $51.1 million or $0.36 per share, representing 192nd consecutive quarter of profitability.
• Net interest margin expanded by 13 basis points in the first quarter due to balance sheet deleveraging.
• Sold $19.3 million of OREO in the first quarter, generating a $2.2 million net gain on sale.
• Total deposits and customer repos increased, with noninterest-bearing deposits growing.
• Total loans decreased, largely due to a decline in dairy and livestock loans, but commercial real estate loans showed growth signs and loan originations were 13% higher than 2024.
• Recaptured $2 million of allowance for credit losses in the first quarter of 2025 and increased off-balance sheet reserves by $500,000.
• Unrealized loss on available for sale securities decreased, held-to-maturity investments declined.
• Shareholders' equity increased, share repurchase program ongoing, and tangible common equity ratio improved.
• Non-interest income had changes, with non-interest expense also showing variations.

For the first quarter of 2025, CVB Financial Corp reported net earnings of $51.1 million or $0.36 per share. The net interest margin expanded by 13 basis points to 3.31%. Total deposits and customer repurchase agreements totaled $12.3 billion at 03/31/2025, a $56 million increase from 12/31/2024. Total loans at 03/31/2025 were $8.36 billion, a $173 million decrease from the end of the fourth quarter of 2024. Non-interest income was $16.2 million for the first quarter of 2025, and non-interest expense was $59.1 million.

Forward-looking Statements

• Board of Directors authorized a new 10 million share repurchase program in November 2024, with 2.05 million shares repurchased by the first quarter of 2025. Continues to repurchase shares in the second quarter.
• Optimistic about commercial real estate loan originations, expecting acceleration in the next couple of quarters.
• Anticipates some room for further reduction in deposit costs without rate cuts, able to manage deposit costs by evaluating customer relationships.

Risks

• Economic uncertainties such as slower real GDP growth, rising unemployment, and continuing decline in commercial real estate prices.
• Potential impact of tariff policies on the agricultural customer base, though no significant impact seen currently.

Q: Thoughts on the potential impacts of tariff policies on the ag portfolio?

A: It's too early to tell overall. There could be impacts on exports for production ag and dairy sides, but so far markets and customers haven't reported significant impacts. Milk and powder prices remain steady.

Q: Pace of commercial real estate payoff activity and relation to production?

A: Elevated prepayment penalties in the first quarter indicating loan payoffs, especially in commercial real estate. Pipelines are strong, with April loan closings at a 14-month high.

Q: Impact of loan prepayment penalties on interest income and deposit cost reduction expectation?

A: Quarter-over-quarter, prepayment penalties were up about $300,000. There's some room for deposit cost reduction by evaluating customer relationships without rate cuts.

Q: Focus on credit and change in credit evaluation method?

A: Credit evaluation remains disciplined. Not loosening or tightening significantly due to environment, but debt yields adjusted based on interest rate environment.

Q: Source of deposit growth and ability to drive core deposit growth?

A: Most growth from new relationships. Specialty banking group has strong performance with high noninterest-bearing deposits. Future growth expected due to seasonality and existing customer potential.

Q: Capital priorities and M&A considerations?

A: Strong capital allows continued share repurchase and M&A conversations. Positioned well as an acquirer of choice, with M&A conversations ongoing.

Q: Consideration of input costs for new construction loans?

A: Input costs are already higher, with concerns about material and labor shortages, which are considered in underwriting.

Q: California competitive landscape and market share opportunities?

A: There are opportunities, especially from disruptions at other banks. Specialty banking group has benefited, and continues to look for top 25% clients across industries.

Q: Average interest-bearing cash decline and management?

A: Related to average deposit decline quarter-over-quarter, which rebounds in April, with modest growth expected in the second quarter.