Q4 2019 Earnings Call

Thursday Thursday

Good morning, ladies and gentlemen and welcome to the fourth quarter and year ended 2019 CVB Financial Corporation and its subsidiary Citizens Business Bank on a conference call. My name is Andrea 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. Please note. This call is being recorded. I would now like to turn the presentation over to your host for today's call Christina carrabino. You may proceed.

Thank you, Andrea.

Thank you for joining us today to review our financial results for the fourth quarter and year ended 2019 joining me this morning are Chris Myers President Chief Executive Officer and Alan Nicholson Executive Vice President Chief Financial 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.cbre.com and click on the investors tab before we get started. Let me remind you that today's conference call will include some forward-looking statements bank statements relate to among other things current plans expectations events and Industry trends that may affect the company's feature operating results and financial positions, such Faith involve risks and uncertainties and future activities and results May differ materially from these expectations.

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, 2018 and in particular information sent for an item 1A risk factors there in now turn the call over to Chris Myers.

Thank you.

Before we get rolling today. I just want to do a special. Thanks for the last ten years to Christina carrabino and to Francine Lapointe our controller for putting all this together and making the hopefully you guys have found our communication a very good and there's a ton of information and and the script and everything that goes into this and they've done a fantastic job, so I want to thank them for their ten years back to business. Good morning everyone and thank you for joining us again this quarter off.

Yesterday we reported net earnings at fifty one point three million dollars for the fourth quarter of 2019 compared with Fifty Point four million dollars for the third quarter of 2019 and bought a 3.2 million dollars for the year ago quarter earnings per share with thirty-seven cents for the fourth quarter compared with 36 Cents for the third quarter and $0.31 for the year-ago quarter the fourth quarter of 2019 represented our 171st consecutive quarter of profitability and our hundred twenty consecutive quarter of paying cash dividend to shareholders. I also want to mention that yesterday they came out with her the ranking in terms of financial performance of the hundred largest banks in the United States and cvbf was rated number one. This is the second time in five years been rated number one. It's a good way for me to to go out. So to speak that earnings were two hundred seven point eight billion dollars for the year end of 2019 compared with $152 for two thousand dead.

and 104.4

Million dollars for 2017 we have essentially doubled our earnings over the past two fiscal years diluted earnings per share were $1.48 for 2019 compared with one thousand and twenty four cents for 2018 and 95 cents for 2017 are tax equivalent net interest margin was 4.24% for the fourth quarter compared with 4.35% for the third quarter of 2019 and 4.40% for the year ago quarter total loans increased by 70% $1000000 for the fourth quarter or about 1% off to seven point five six billion dollars. The increase was primarily due to a seventy two point five million dollar increase in Darien livestock and agricultural loans.

Average loans for the quarter were essentially flat from the prior quarter the majority of the increase in Dairy livestock loans with seasonal and occurred near the end of the quarter as many of our Dairy owners choose to defer their milk checks into the first quarter of the following year and or prepay their feet expenses.

Colonial

We're 5.15% for the fourth quarter of 2019 compared with 5.23% for the third quarter of 2019 and 5.22% for the year ago quarter month excluding interest income related to purchase discount accretion and non-accrual interest paid loan yields were five basis points lower than the third quarter of 2019. This deadline was primarily due to the impact of the federal reserve's three rate decreases after excluding interest income related to purchase discount accretion and non-accrual interest paid our loan yields actual wage increase by 3 basis points over the fourth quarter of 2018.

At December 31st 2019 the allowance for loan and Lease losses was 68.7 dollars or 0.91% of total loans compared with sixty eight point six million dollars or 0.92% of total loans at September 30th 2019.

The allowance for loans for loan losses as a percentage of non acquired loans was 1.30% at December 31st, 2019 compared with 1.37% at September 30th, 2019 and 1.32% at the end of 2018 at quarter-end non-performing assets defined as non-accrual loans plus other real estate. We're ten point two million dollars compared with sixteen Point 1 million dollars for the prior quarter and twenty point four million dollars at December 31st, 2018. Total non-performing assets included 5.8 million dollars and non-performing loans and originated by Community Bank at December 31st, 2019. We have loans delinquent 3289 dead at one point seven million dollars or 0.02% classified loans for the fourth quarter were seventy three point four million dollars eight thirteen point four million dollars.

increase from the prior quarter

The increase was primarily due to a $7 increase in Darien livestock loans and a five point five billion dollar increase in commercial real estate loans total classified loans included $27,000 of loans acquired from Community Bank. We will have more detailed information on classified loans available in our year-end Form 10-K now I'd like to discuss the pockets.

Average non-interest-bearing deposits were five point three hundred billion dollars for the fourth quarter of 2019 compared with five point two or three billion dollars for the prior quarter and 5.31 billion months of the year ago quarter at December 31st, 2019. Our non-interest bearing deposits total 5.5 billion dollars compared with 5.3 $9 for the prior quarter billion dollars for the year ago quarter non-interest-bearing deposits. We're 60.3% of total deposits in the end of the fourth quarter compared with 61.2% for the prior quarter and 59% for the year ago quarter our average total deposits and customer repurchase agreements of 9.2 $1 billion dollars for the fourth quarter grew by $109 or 1.2% from the third quarter at December 31st, 2019. Our total deposits and customer repurchase agreements were nine point one point three billion dollars compared with nine.

Hours of September 30th, 2019 and 9.2 seven billion dollars for the same period a year ago our cost of deposits and customer purchase agreements for the fourth quarter were Twenty-One basis points off. Our total cost of funds were twenty-two basis points both slightly down from the prior quarter interest income interest income for the fourth quarter of 2019 totaled $112,000 compared with a hundred thirteen point six million dollars for the third quarter and a hundred Seventeen point seven million dollars for the same period a year ago the decrease in interest income from the third quarter of 2018 was primarily due to $474,000 and lower discount accretion on acquired loans and not non-accrual interest paid. We also experienced an additional 5,000 to Klein and low Neil's the decline in loan yields was primarily due to the three Federal Reserve rate decreases during the third and fourth quarter the five point five billion dollar year-over-year quarterly dead.

decent interest income was the

And lower average earning assets and a decrease in yield on earning assets of 14 basis points.

The fourth quarter of 2019 reflected a 1.7 million dollar decrease in low discount accretion in non-accrual interest paid over the fourth quarter of 2018.

Tax-equivalent yield on earning assets for the fourth quarter was 4.44% compared with 4.55% for the prior quarter and 4.58% for the year of quarter when loan discount accretion and non-accrual interest paid are excluded the tax equivalent yield on earning assets for the fourth quarter decreased by ten basis points compared to the prior quarter Life by 8 paise 8 basis points compared the fourth quarter of 2018 interest expense.

Interest expense for the fourth quarter of 2019 total 5.2 million dollars a $200,000 decrease over the third quarter and a $500,000 increase over the fourth quarter of 2018 off average interest bearing liabilities increased by $31 compared with the third quarter while the cost of interest bearing liabilities decreased by 3 basis points, the $500,000 increase in interest from the fourth quarter of 2018 can be attributed to a 12 basis point increase in the cost of interest bearing deposits.

Interest margin our tax equivalent net interest margin was 4.24% for the fourth quarter of 2019 compared with 4.34% for the third quarter of when the impact of discount accretion on acquired loans and not accrue interest paid is excluded adjusted tax-equivalent net interest margin was 3.95% for the fourth quarter down from 4.02% for the prior quarter non-interest income non-interest income was twelve point six million dollars for the fourth quarter of 2019 compared to point nine billion dollars for the prior quarter and ten point eight million dollars for the year ago quarter the $746,000 increase from the third quarter includes a two hundred ninety thousand two hundred ninety $3,000 increase in fees from interest rate swaps non-interest income grew by one point nine million dollars compared to the fourth quarter of 2018 fee income. Yep.

trust and Investment Services Group

$125,000 Bank service charges increased by $332,000 International Services fee income grew by approximately $175,000 and interest rates wage is increased by $671,000 conversely fourth quarter 2019 debit card interchange income declined by approximately $300,000 from the fourth quarter of 2018 due to the Durban event and US reaching the ten billion dollar Mark in Assets. Now expenses non interest expense for the fourth quarter was $4,900 compared with forty seven point five million dollars for the third quarter 2019 and sixteen point eight million dollars for the year ago quarter salary and benefit expense Group by 1.1 million km compared to the third quarter of which which there was a $430,000 increase in bonus and profit sharing expense.

The eleven point eight million dollar decrease in expense for the fourth quarter of 2019 includes an eight million dollar decrease in acquisition expense related to Community Bank merger and a two point six million dollar decrease in occupancy and expense from the consolidation of ten banking offices non-interest expense totaled 1.71% of average assets for the fourth quarter wage compared with 1.68% for the third quarter and 2.10% for the fourth quarter of 2018. Our efficiency ratio was 41% for the fourth quarter of 2019 compared with 39.6 for the prior quarter and 49.2% for the fourth quarter of 2018 now I'd like to turn the call over to Alan or CFO to discuss our effective tax rate of Investment, Portfolio and overall Capital position Allen.

Thanks, Chris.

Our effective tax rate was 27.4% for the fourth quarter and 28.6% for the full year. This compares to 28% for the fourth quarter of 2018, and the full year 2018 the slight increase from the prior-year was due to the greater relative increase in taxable income compared to the level of tax advantage income looking to our Investment Portfolio December 31st, 2019 are combined available for sale and held-to-maturity investment Securities pulled 2.4 billion dollars.

$140 increase from the third quarter and A $64 decrease from December 31st, 2018.

A quarter and investment security is available for sale towed one point seven $4 billion dollars a portfolio had a pre-tax unrealized gain of twenty two million dollars at December thirty first two thousand package in addition. We own held-to-maturity investment Securities, totaling $674 million dollars the tax equivalent yield on the total Securities portfolio was to pack for the fourth quarter compared with 2.47% for the third quarter and 2.55% for the fourth quarter of 2018.

During the fourth quarter.

We purchased $272 and worries back Securities with an average expected you out of approximately 2.52% now turning to our Capital position with shareholders Equity increased by 140.