Q4 2024 CVB Financial Corp Earnings Call
Intro music
Cherie: Good morning, ladies and gentlemen, and welcome to the fourth quarter of 2024 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.
Speaker Change: 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: Thank you, Cherie, and good morning, everyone. Thank you for joining us today to review our financial results for the fourth quarter of 2024. Joining me this morning is Dave Brager, President and Chief Executive Officer.
Allen Nicholson: 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: 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.
Allen Nicholson: of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements.
Allen Nicholson: Please see the company's annual report on Form 10-K for the year ended December 31st, 2023, and in particular the information set forth in Item 1A, Risk Factors Therein.
Allen Nicholson: 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.
Dave Brager: 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.
Dave Brager: Citizens Business Bank organized a response around four key issues, our associates, our customers, our facilities, and our corporate response for our communities.
Dave Brager: 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.
Dave Brager: Second, we have identified 114 loans totaling approximately $105 million located in the fire zones.
Dave Brager: At this point, 14 properties have experienced some level of damage, with seven of the properties completely destroyed. One commercial building and six residential properties totaling $7.4 million.
Dave Brager: All 14 of the impacted properties had insurance in place, and we have actually received proceeds to fully pay off one of the residential properties.
Dave Brager: Third, due to the mandatory evacuation orders or power outages, we had six centers temporarily closed at some point during the fires, and all the locations have now reopened.
Dave Brager: Fourth, we announced that we have donated $200,000 to four 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.
Dave Brager: Now to the quarter. For the fourth quarter of 2024, we reported net earnings of $51 million, or $0.36 per share, representing our 191st consecutive quarter of profitability.
Dave Brager: We previously declared a $0.20 per share dividend for the fourth quarter of 2024, representing our 141st consecutive quarter of paying a cash dividend to our shareholders.
Dave Brager: We produced a return on average tangible common equity of 14.31% and a return on average assets of 1.3% for the fourth quarter of 2024.
Dave Brager: Our return on equity is impacted by our high level of capital, which is reflected in our common equity tier one capital ratio of 16.2% and 9.8% tangible common equity ratio.
Dave Brager: In conjunction with our company's capital planning, we announced in November of 2024 that our Board of Directors authorized a new $10 million share repurchase program.
Dave Brager: Our net earnings of $51 million, or $0.36 per share, compares with $51 million for the third quarter of 2024, or $0.37 per share, and $48.5 million, or $0.35 per share, for the prior year quarter.
Dave Brager: Pre-tax income in the fourth quarter of $68 million was $423,000 higher than the third quarter of 2024.
Dave Brager: Net interest income decreased quarter over quarter by $3.2 million, or 2.8%, 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.
Dave Brager: On September 26, 2024, we completed an early redemption of our $1.3 billion bank term funding program borrowing that was scheduled to mature in January of 2025.
Dave Brager: The reduction in debt reduced interest expense by $15 million per quarter, driving a 13 basis point increase in our net interest margin for the fourth quarter. We were able to increase our return on average assets from 1.24% in the third quarter to 1.3% in the fourth quarter.
Dave Brager: We executed two sale leaseback transactions in the fourth quarter of 2024, in which we sold and leased back two buildings under long-term leases, realizing gains on sale totaling $16.8 million.
Dave Brager: In conjunction with these real estate transactions, we sold $155 million of available-for-sale investment securities at a cumulative loss of $16.7 million.
Dave Brager: At December 31st, 2024, our total deposits and customer repurchase agreements total $12.2 billion, a $505 million increase from December 31st, 2023, including the growth of $315 million of non-maturity deposits.
Dave Brager: Although we generally experience a decrease in deposits at the end of the fourth quarter each year, total deposits and customer repos grew on average by $150 million over the third quarter of 2024.
Dave Brager: Compared to the third quarter, non-maturity deposits grew on average by $188 million, while time deposits declined on average by $130 million, inclusive of a $100 million brokered CD that we did not renew.
Dave Brager: By the end of the fourth quarter, we experienced a decrease in deposits in customer repos from the end of the third quarter of $257 million.
Dave Brager: Non-interest bearing deposits were 59% of total deposits for the fourth and third quarters of 2024, down from 63% at the end of 2023.
Dave Brager: We are optimistic about our ability to continue to grow low-cost deposits. 2024 was a relatively strong year for new deposit relationships.
Dave Brager: As an example, our specialty deposit group generated 75% more in new business in 2025 than the average for the prior two years.
Dave Brager: From December 31st, 2019 to December 31st, 2024, our total deposits and repos have grown by more than $3 billion.
Dave Brager: Our cost of deposits was 93 basis points for the 4th quarter of 2024, which compares to 98 basis points for the 3rd quarter of 2024 and 62 basis points for the year-ago quarter.
Dave Brager: 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.
Now, let's discuss loans.
Dave Brager: Total loans at December 31st, 2024 were $8.54 billion, a $36 million decrease from the end of the third quarter, and a $368 million or 4% decline from December 31st, 2023.
Dave Brager: The quarter over quarter decrease was led by a $111 million decline in commercial real estate loans. We also had an $11 million decrease in commercial and industrial loans and approximately $10 million decline in agribusiness loans.
Dave Brager: Dairy and livestock loans grew seasonally by $87 million from the end of the third quarter.
Dave Brager: We continue to experience limited demand for commercial real estate loans and rate competition for the quality of loans we focus on has been very competitive.
Dave Brager: We averaged yields of 7% on new CRE loans in the fourth quarter, but by the end of the quarter, originations were in the high 6% range.
Dave Brager: C&I line utilization continues to be low even though we have grown our total C&I loan commitments.
Dave Brager: Overall, total new loan commitments for 2024 were 90% of 2023's productions, but balances funded on the new loan commitments was only 75% of 2023 levels, as we originated a greater percentage of C&I loans in 2024.
Dave Brager: CNI loans also declined by $45 million when comparing December 31, 2023 to December 31, 2024.
Dave Brager: In total, we ended the quarter with $19.3 million in OREO assets.
Dave Brager: including $17.7 million of loans that were classified as not performing at the end of the third quarter of 2024 and were foreclosed during the fourth quarter and recorded as an OREO.
Dave Brager: An additional $1 million loan that was not passed due on September 30, 2024 became an OREO asset at year-end.
Dave Brager: Net recoveries for the fourth quarter were $180,000, which compares to $156,000 in net recoveries for the third quarter of 2024.
Dave Brager: Total non-performing and delinquent loans decreased from $53.3 million at September 30, 2024, to $47.6 million at December 31, 2024.
Dave Brager: We had $30.7 million of past due and accruing loans as of September 30, 2024, of which $24.8 million became non-performing and approximately $1 million became OREO by the end of 2024.
Dave Brager: We reversed interest income of approximately $1.5 million during the fourth quarter for these non-performing assets. The remaining $4.9 million of past due and occurring loans at the end of the third quarter were paid off by the borrower or from the sale of loan collateral.
Dave Brager: Classified loans were $89.5 million at December 31, 2024, $25 million lower than the prior quarter, and $17 million lower than the end of 2023.
Dave Brager: Classified loans as percentage of total loans was 1.05% at the end of 2024. Classified dairy and livestock and agribusiness loans declined by $11 million as profitability is improving for these borrowers.
Dave Brager: Classified non-owner commercial real estate loans decreased by $27 million, including a reduction of $13 million for a group of multi-family loans to one borrower, which we foreclosed on during the fourth quarter.
Dave Brager: Of this $13 million in loans, $9 million became OREO as of December 31st, while the remaining $4 million was paid off through the sale of the collateral.
Dave Brager: Additionally, $9.8 million loan on a senior living facility that was a participation entered into by Suncrest Bank was foreclosed during the fourth quarter and recorded as an OREO at December 31, 2024.
Dave Brager: The multifamily properties, representing the $9 million of OREO, have been or will be sold in January, as sales of these properties have either closed or are under sales contracts, awaiting title to clear in the next few days.
Dave Brager: 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?
Alan: Thanks, Dave. We effected a deleveraging of a balance sheet at the end of the third quarter of 2024 by completing an early redemption of $1.3 billion bank term funding program borrowing in September of last year.
Alan: As a result of this deleveraging, average borrowings during the fourth quarter of 2024 were $1.2 billion lower than the third quarter of last year, and average earning assets decreased by approximately $975 million from the third quarter.
Alan: We executed two sale-leaseback transactions during the fourth quarter of 2024, realizing gains on sale totaling $16.8 million.
Alan: In conjunction with these real estate transactions, we've sold approximately $155 million of available-for-sale investment securities at a cumulative loss of $16.7 million.
Alan: During the fourth quarter of 2024, we purchased $385 million 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 percent.
Alan: We also sold more than $300 million of AFS securities during the third quarter of 2024 at a cumulative loss of $11.6 million, which was also timed in conjunction with the sale and leaseback of two banking center buildings during the third quarter.
Alan: The building sales in the third quarter resulted in gains on sales totaling $9.1 million.
Alan: The securities sold in the third quarter had an average book yield of less than 3%, while the securities sold in the fourth quarter had an average book yield of less than 2%.
Alan: Available for sale investment securities were approximately $2.54 billion at December 31, 2024, a $77 million increase from September 30, 2024.
Alan: The unrealized loss on AFS securities increased by $80 million from $367 million on September 30, 2024 to $448 million on December 31, 2024.
Alan: At the end of the third quarter of 2024, we had three paid fixed swaps that we recorded as fair value hedges, totaling $1 billion in notional value. The bank received daily SOFR on these swaps.
Alan: In December, we unwound one of these swaps, which matured in June of 2027, with a notional value of $300 million and a fixed rate of 3.95%.
We netted less than $100,000 on the transaction.
Alan: For the fourth quarter of 2024, we earned a positive carry on these swaps, generating $2.3 million of interest income compared to $4.3 million in the third quarter of 2024.
Alan: At year end, we continue to have $300 million of brokered CDs that have been swapped as cash flow hedges.
Alan: But an additional $100 million brokered CD that was issued earlier in 2024 was not renewed during the fourth quarter.
Alan: As of December 31, 2024, the market value of our remaining two fair value hedges combined with our taxable hedges increased by approximately $27 million from the end of the third quarter.
Alan: The net after-tax impact of changes in both the fair value of our AFS securities and our derivatives resulted in a $37 million decrease in other comprehensive income for the fourth quarter.
Alan: Investment securities held to maturity for HTM Securities totaled approximately $2.38 billion at December 31, 2024. The HTM portfolio declined by approximately $26 million from September 30.
Alan: Our total investment portfolio declined by $500 million from December 31, 2023, including a decline in AFS securities of more than $400 million.
Alan: As of December 31st, 2024, we had $800 million in wholesale funds.
Alan: including $500 million of federal home loan bank advances and $300 million of brokered CDs.
Alan: which represents a $1.4 billion decrease from our wholesale funds on December 31st, 2023.
Alan: As a result of our balance sheet deleveraging and the Fed lowering short-term interest rates, our interest income in the fourth quarter declined by $18 million over the third quarter of 2024. Average earning assets declined by $974 million, and the yield on earning assets declined by 19 basis points.
Alan: Loans were also down on average by $83 million, which combined with a 16 basis point decrease in loan yields resulted in a $4.7 million decrease in interest income.
Alan: This decline in loan interest income included the approximately $1.5 million of accrued interest that was reversed for loans that were classified as non-accrual during the fourth quarter.
Alan: A better reflection of the decline in loan yields is the decline in our core loan yields, which decreased by six basis points from September to December of 2024.
Alan: Interest expense decreased by $15 million over the prior quarter due to the $15 million decrease in interest on borrowings, reflecting the redemption of the $1.3 billion in DTFP borrowings.
Alan: Our cost of funds decreased from 1.47% for the third quarter of 2024 to 1.13% in the fourth quarter.
Alan: For the fourth quarter of 2024, we recaptured $3 million in provision for credit losses, reducing our allowance for credit losses as of December 31, 2024, to $80 million.
Alan: Our ACL at December 31st, 2023 was $86.8 million, including approximately $6 million of reserves for specifically identified non-performing loans.
Alan: Our reserves for specific loans was close to zero at December 31st, 2024.
Alan: Our economic forecast continues to be a blend of multiple forecasts produced by Moody's.
Alan: We continue to have the largest individual scenario weighting on Moody's baseline forecast, with both upside and downside risks weighted among multiple forecasts.
Alan: And the unemployment rate rising over 5% by 2026 and not moving below 5% until 2028.
Alan: 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.
Alan: At December 31st, 2024, our shareholders' equity was $2.2 billion, a $108 million increase from the end of 2023.
Alan: The company's tangible common equity ratio at December 31st, 2024 was 9.8%, compared with 8.5% at December 31st, 2023.
Alan: At December 31st, 2024, our common equity Tier 1 capital ratio was 16.2%, and our total risk-based capital ratio was 17.1%.
Alan: Although the Board of Directors authorized a new 10B51 stock repurchase plan in November, there were no shares repurchased during the fourth quarter of 2024.
Alan: I'll now turn the call back to Dave for further discussion of our fourth quarter earnings.
Speaker Change: Thank you, Alan. Moving on to non-interest income. Our non-interest income was $13.1 million for the fourth quarter of 2024 compared to $12.8 million for the third quarter and $19.2 million for the fourth quarter of 2023.
Speaker Change: The third quarter of 2024 included a net loss of $2.3 million between the sale of e-SPAC transactions and the accompanying bond sales, while the fourth quarter transactions essentially offset.
Speaker Change: BOLI income decreased by $1.1 million from the third quarter and by $5.5 million in the fourth quarter of 2023. These decreases were primarily the result of the BOLI restructuring during the fourth quarter of 2023.
Speaker Change: Income from CRA-related investments was approximately $1 million lower in the fourth quarter of 2024 compared to both the third quarter of 24 and the fourth quarter of 2023.
Speaker Change: Our trust and wealth management fees increased by approximately $370,000, or more than 14%, compared to the fourth quarter of 2023.
Now expenses.
Speaker Change: Non-interest expense for the fourth quarter was $58.5 million compared with $58.8 million for the third quarter of 2024 and $65.9 million in the fourth quarter of 2023.
Speaker Change: The fourth quarter of 2023 included $9.2 million of additional expense related to the initial FDIC special assessment.
Speaker Change: A recapture of provision for unfunded loan commitments totaled $750,000 in the third quarter of 2024 and $500,000 in the fourth quarter of 2023.
Speaker Change: Staff-related expenses declined by approximately $650,000 from the third quarter of 2024, while increasing by approximately $350,000 from the fourth quarter of 2023.
Speaker Change: Occupancy expense grew by $167,000 when compared with the fourth quarter of 2023, which includes the impact of the higher occupancy costs for the four offices involved in the sale-leaseback transactions.
excluding a decrease in building security expense.
Speaker Change: Occupancy expense would have increased by approximately $400,000 from the fourth quarter of 2023 and would have been essentially the same in comparison to the third quarter of 2024.
Speaker Change: Non-interest expense totaled 1.49% of average assets for the fourth quarter of 2024, compared to 1.42% for the prior quarter and 1.62% for the fourth quarter of 2023. Our efficiency ratio is 46.3% for the fourth quarter of 2024.
Speaker Change: This compares with 46.5% for the third quarter and 47.6% in the year-ago quarter.
Speaker Change: This concludes today's presentation, now Alan and I will be happy to take any questions that you might have.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.
Speaker Change: And our first question will come from the line of David Feaster with Raymond James. Your line is open.
Hey, good morning everybody. Morning, David.
Speaker Change: I just wanted to start out maybe touching on the pulse of your clients. You know, there's a lot of optimism out there with investors and analysts alike talking about, you know, improving demand, accelerating loan growth.
Speaker Change: I'm curious, have you started to see that in your pipeline yet? It's just kind of the early read with your conversations and how clients, you know, just their sense of optimism and their plans for 2025.
Speaker Change: Yeah, 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.
Speaker Change: The pipelines are improving, but are still, you know, not where I would want them to be overall.
Speaker Change: But just generally speaking, I don't think there's any question that people are a little more excited and looking forward to...
Speaker Change: 2025. 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.
Speaker Change: 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, you know, some enthusiasm out there, which we haven't had in a couple of years.
Speaker Change: Okay, that's great. And then, you know, just wanted to touch on your capital priorities. You guys have been, you know, active, very active. You've got an extremely strong balance sheet.
Speaker Change: 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&A market as well.
Speaker Change: Yeah, so I mean obviously we recognize we have an enormous amount of capital and you know, we have a number of things
Speaker Change: As far as the M&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.
Speaker Change: on something in 2025. But at this point, obviously nothing imminent, nothing happening, but we are working very hard at that. And then beyond the M&A, but beyond the growth in the M&A front, we do have the 10B51 plan in place.
if it hits the certain numbers.
Speaker Change: So we're working on that. So I don't know, Alan, if you have anything you want to add. The only other thing I would say, David, is from an M&A perspective, certainly sellers' expectations maybe have gotten a little too optimistic, but also rates have moved up, as you can reflect in the impact for OCI.
of each other.
Speaker Change: Yeah, and just one more thing, David, just to sort of tie the bow on this.
Speaker Change: whether that's through M&A, buybacks, you know, other ways, you know, we will continue to perform at a very high level and we are going to generate additional capital, 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.
Yeah, that's great.
Speaker Change: And then just, you know, you guys have done a great job.
Speaker Change: 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? Have you seen any attrition? And then just how do you think about your ability to further reduce deposit costs and you know your outlook for for core deposit growth going forward?
Speaker Change: Yeah, we added a slide in our slide deck that you know showed from and I mentioned in my prepared remarks
Speaker Change: You know that we've grown deposits by 3.3% on a five-year cumulative average growth rate.
Speaker Change: It's actually 6% if you include the acquisition and the broker deposits that we've added.
Speaker Change: where commercial real estate demand has been slower. We have brought on a number of great operating companies, C&I relationships.
Speaker Change: Well, that doesn't really translate into loan growth because the utilization is low.
Speaker Change: 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.
Speaker Change: that maybe they were holding off on. And deposits should grow just as that money starts moving around. And we're continuing to, you know, drive growth in our specialty banking group, in our government services group. So all of those, you know, sort of...
Speaker Change: you know, 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.
you know, as we've talked about in the past.
over a billion dollars has gone to our trust group.
Speaker Change: There's the opportunity, depending on what rates do, that some of that could start to come back if they're going to, you know, start on some of these other projects, so I'm very optimistic on the deposit side.
Speaker Change: you know, prove our worth there, and we've done a really good job. We will continue to do a good job there.
That's great. Thanks, everybody.
Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Andrew Terrell with Stevens. Your line is open.
Hey, good morning. Morning Andrew.
Andrew Terrell: 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.
Andrew Terrell: So a few basis points off of the quarterly average. I'm just curious, you know, any color you can provide on just the timing of rate reductions that you took kind of throughout the quarter. And then, you know, as we look into 2025,
Andrew Terrell: Should we 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 it a deposit base absent any additional rate decreases?
Speaker Change: 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 deposit.
So those are unlikely near-term to change.
Speaker Change: That said, the non-maturity deposits will probably continue to slowly go down in the near term. If that does nothing, then obviously it will floor. But I think over the next month or two, we probably will still see a little bit of a lag because the last...
Speaker Change: 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
And Andrew, just to add one comment on that.
you know, a little more technical.
Speaker Change: 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...
Speaker Change: and move our non-interest bearing deposits, keep them the same or move them up a little bit as percent of total deposits, that should help too in the overall cost.
Speaker Change: got it I appreciate it and then for the the 500 million dollars of borrowings
Speaker Change: that are remaining. Can you remind us the weighted average cost of those?
Speaker Change: I think it's in the low fours if I remember correctly, Andrew. I'll estimate like 425 if I recall correctly.
Speaker Change: Okay, thanks. Um, and then just last one for me. I mean, you know, the expenses were pretty stable quarter to quarter would love to hear just your thoughts on it sounds like, you know, optimistic or optimistic on, you know,
Speaker Change: Loan growth in 2025, you know, how are you thinking about expense growth into in 2025 and what are some of the kind of key areas of investment you're focused on in the year?
Andrew Terrell: Andrew, I would say that from a controllable expense perspective, we've probably been growing
Andrew Terrell: 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.
Andrew Terrell: Some of those investments we have and will be made will help deploy and increase our efficiency. 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 the number of things we're doing to automate and improve overall efficiencies.
Andrew Terrell: Okay, thanks for taking the questions. Of course. Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Ahmad Hassan with D.A. Davidson. Your line is open.
Speaker Change: Hey guys, Amal Hasan on for Gary Tanner. Morning. Morning. Any additional color on the timing, timing of the 385 million securities purchase?
Timing of the purchases we did in the fourth quarter?
Yeah.
Speaker Change: The purchase that we did in the fourth quarter, based on settlement dates, it was probably weighted more towards the end of the quarter versus the middle of the quarter. I guess that's the best way of explaining it to you.
Speaker Change: Right, that makes sense. And as a follow-up, any additional sale, leaseback, or securities transactions contemplated at this point?
Speaker Change: No, we originally had actually looked at selling six properties, our timing was pretty good on this and
Speaker Change: both from the sale perspective of the properties and the sale perspective of the securities.
Speaker Change: under a six cap and a couple of the properties under a five cap.
Speaker Change: You know, we don't have anything listed for sale, so I think our mini balance sheet restructuring, for the most part, is done.
Speaker Change: Thank you. That'll be all my questions. You're welcome. Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Adam Butler with Piper Sandler. Your line is open.
Adam Butler: Hey good morning everybody this is Adam on for Matthew Clark. Hi Adam.
Speaker Change: So, just on the expense line, particularly occupancy and equipment expense, what was the timing of the sale-leaseback transaction?
Adam Butler: and how much of that 4Q run rate of 5.9 million
Adam Butler: includes the expected 1.8 million dollar annual increase in the expense line.
Those sales occurred in October.
Adam Butler: 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.
Adam Butler: But we have other ways to reduce expense as well. I mean, as leases come up, we are reducing what we're paying on those leases and downsizing the size of our offices. So...
Adam Butler: There's other components that we're managing to keep occupancy expense down.
Speaker Change: Okay, that's helpful. And then on the buyback authorization, I was just curious to get your sense of optimism on being opportunistic on repurchases if rates remain elevated.
Speaker Change: Well, I think as Dave said, that buyback, we have a 10B51 in place.
Speaker Change: and we typically do make those opportunistic. So, you know, we'll see there's always, I mean, you know, 2025 may be a volatile stock market. And so, you know, we buy on the dips really and that's the way it's designed.
Speaker Change: Okay, very helpful. Those are my questions. Thanks for answering them. Thank you. Thank you. As a reminder, if you have a question, please press star 11. One moment for our next question.
Speaker Change: And that will come from the line of Kelly Mata with KBW. Your line is open.
Speaker Change: you know, question the outlook here in California. What are you seeing and what gives you, you know, optimism about your outlook ahead here?
Speaker Change: Yeah, so many of those thoughts sometimes Alan and I share as well, so that's that's okay But but what I would say, you know, and and this is true Look, California is the whatever fifth sixth seventh largest economy in the world. It's an extremely diversified economy Across, you know, pretty much every industry Whereas many other states are more one-trick ponies in a lot of cases
Speaker Change: 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, you know, a 30 or 40 percent market share in the state of California. We're a 2 or 3 percent market share in the state of California. So I think there's a lot of opportunity there.
Speaker Change: And despite the fact that there's been out-migration, you know, if somebody's business is here...
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: So, I don't, I'm not as negative on the overall situation, I mean there are individual situations sometimes that create problems, but for the most part, even when our customers have moved,
Speaker Change: 99% of the time, we've still banked them, so they're not going anywhere from a business perspective.
Speaker Change: Got it. Thanks for that. That's really helpful. And then I also wanted to touch on...
Speaker Change: Just the opportunity on the loan side. I think I caught your prepared remarks or earlier in the Q&A that
to the loan production you're getting.
Speaker Change: Yeah, so look, like I said, you know, sort of in my earlier answer, I think.
Speaker Change: 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's more commercial real estate that
Speaker Change: you know, as move rates higher, spreads have come in, it's, you know, we've had to be more, more aggressive on the pricing if it meets our credit box. We won't.
Speaker Change: substitute or, you know, take any credit, any more credit risk than we would normally take.
Speaker Change: But we are having to be more aggressive on the pricing and as I said in my prepared remarks I would say it's you know, it's coming in at the six and a half range and and maybe slightly higher than that
Speaker Change: You know, we're having to do stuff. We just lost a deal yesterday, and it was a 10-year fixed at 4.8.
to a large bank.
Speaker Change: So, that's not even the 10, I mean a 10 year treasury is $450 or whatever it's at. 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, you know, everybody says they're going to grow loans 10% and the only way to do, there's only two ways to do that.
Speaker Change: jeopardize your credit quality or price to win and you know 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.
Speaker Change: And so, we just have to make sure, as Alan reminds me often, you know, we can get mortgage-backed securities and other investments over 5%. So, I don't, you know, with zero credit risk and zero risk rating, so why are we...
Speaker Change: We just need to be smart about how we do that, 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.
That's helpful. I'll step back. Thank you, guys. Thanks, Kelly.
Thank you.
Speaker Change: And that will come from the line of Tim Coffey with Janie Montgomery Scott. Your line is open.
Thank you more gentlemen.
Speaker Change: Hey Dave, I mean I hate to ask these questions because I mean it's still an active situation but I mean there's going to be you know the fire situation in your footprint there's going to be some things that are going to happen you know with your balance sheet over the next couple quarters.
Speaker Change: Rebuilding from insurance, your expectation to put those into kind of overnight funds?
Speaker Change: Yeah, it's by the way, it's no problem asking the questions. I mean can we have a very limited impact? I would say directly as I mentioned, you know, we we only have 14 impacted properties seven of those 14 Were completely destroyed one of the seven we've already received the insurance proceeds
Speaker Change: find somebody and once he can start rebuilding, to rebuild his home.
Speaker Change: We'll probably get somewhere close to $20 million in insurance proceeds, so I don't think it's going to have a big impact either way.
Speaker Change: One of the things, you know, and again, not something that you want to have to do, but we have agreed to be part of a couple of different
Speaker Change: efforts to rebuild, one through the Department of Financial Protection and Innovation. We, you know, decided to give relief if anybody asked. Nobody has asked for relief at this point.
Speaker Change: And so that I don't know too much about that yet. Our first meeting is tomorrow on that.
Speaker Change: So I think, you know, all in all, while it was obviously a terrible situation, I think, you know, from a business perspective for the bank, I see probably more upside opportunity than downside risk.
Right, at least at this point.
Speaker Change: Right, and that was my next question. It was on the loan side, right, because I think there is going to be some opportunity for new development, obviously, in these fire areas, and maybe perhaps not for the existing property owner.
And that would put contractors to work quite a bit.
Speaker Change: Do you feel that you're capable and willing to rebuild the community? Are you comfortable with construction balances rising?
Speaker Change: We are, as you know, we have such a low balance there, I mean, we have a lot of capacity there. And, you know, I've actually even, you know, we are extremely disciplined on the construction side.
perspective.
Speaker Change: $300 million, but it could get to $100 million or $150 million over the next couple of years.
Speaker Change: Right. Okay. All right. Those are my questions. Thank you very much. And Tim, I just want to say thank you regarding the donations as well. I appreciate your comments in the email you sent me.
Speaker Change: Well, yeah, of course. I mean, I'm a Northern Californian, so, you know, I've seen how devastating the wildfires can be to my community. So, absolutely, I'd be happy to help. Yeah, thank you.
Speaker Change: 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: Thank you, Cherie. 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.
David Brager: We remain focused on our mission of banking the best small to medium-sized businesses and their owners through all economic cycles.
David Brager: I'd like to thank our customers and our associates for their commitment and loyalty. Thank you for joining us this quarter. We appreciate your interest and look forward to speaking with you in April for our first quarter 2025 earnings call. Please let Alan or I know if you have any questions. Have a great day.
David Brager: Thank you all for participating. This concludes today's program. You may now disconnect.
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