CVBF

CVB Financial Corporation (CVBF)

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CVB Financial (CVBF)

Q2 2013 Earnings Call

July 18, 2013 10:30 am ET

Executives

Christina Carrabino

Christopher D. Myers - Chief Executive Officer, President, Director, Chief Executive Officer of Citizens Business Bank, President of Citizens Business Bank and Director of Citizens Business Bank

Richard C. Thomas - Chief Financial Officer, Executive Vice President, Chief Financial Officer of Citizens Business Bank and Executive Vice President of Citizens Business Bank

Analysts

Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division

Hugh M. Miller - Sidoti & Company, LLC

Robert Greene - Sterne Agee & Leach Inc., Research Division

Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division

Douglas Johnson - Evercore Partners Inc., Research Division

Gary P. Tenner - D.A. Davidson & Co., Research Division

Joseph Albert Stieven - Stieven Capital Advisors, L.P.

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Second Quarter 2013 CVB Financial Corp. and its subsidiary, Citizens Business Bank, Earnings Conference Call. My name is Gary and I'm your operator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Christina Carrabino. You may proceed.

Christina Carrabino

Thank you, Gary, and good morning, everyone. Thank you for joining us today to review our financial results for the second quarter of 2013. Joining me this morning is Chris Myers, President and Chief Executive Officer; and Rich Thomas, Executive Vice President and 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.cbbank.com and click on the Our Investors tab.

Before we get started, let me remind you that today's conference call will include some forward-looking statements. These forward-looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the company's future operating results and financial position. Such statements 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 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-K for the year ended December 31, 2012, and in particular, the information set forth in Item 1A, risk factors therein.

Now I will turn the call over to Chris Myers.

Christopher D. Myers

Thank you, Christina. Good morning, everyone, and thank you for joining us again this quarter.

Yesterday, we reported earnings of $24.5 million for the second quarter of 2013 compared with $21.6 million for the first quarter of 2013 and $23.6 million for the second quarter of 2012.

The $24.5 million in net income represents the highest quarterly earnings in our bank's history. Our second quarter earnings were positively impacted by the sale of one OREO property, which resulted in a $2.5 million pretax gain on sale and a $6.2 million recapture of loan loss provision, which lowered our overall loan loss allowance to 2.70% of non-covered loans. Earnings per share were $0.23 for the second quarter compared with $0.21 for the first quarter and $0.23 for the year-ago quarter.

Through the first 6 months of 2013, we earned $46.1 million compared with $45.9 million for the 6 months of 2012. Earnings per share were $0.44 for the 6 months period ending June 30, 2013, compared with $0.44 for the same period in 2012.

The first quarter represented -- the second quarter represented our 145th consecutive quarter of profitability and 95th consecutive quarter of paying a cash dividend to our shareholders. Based on our strong capital position and the stability of our earnings, we increased our second quarter's cash dividend from $0.085 per share to $0.10 per share. Excluding the impact of the yield adjustment on covered loans, our tax-exempt net interest margin was 3.46% for the second quarter compared with 3.54% for the first quarter and down from 3.77% for the year-ago quarter.

The yield on investment securities continued to decline partially driven by the Federal Reserve Bank's stimulus program of purchasing longer-term debt in the open market. Lower rates on mortgages have resulted in larger volumes of refinancings, which have impacted the prepayment fees within our current loan portfolio.

We also continue to see competitive pressure on rates in all classes of loans, particularly commercial real estate secured loans. The competitive pressure has forced us to lower rates on some loans in order to retain the business.

At June 30, 2013, we had $3.34 billion in total loans net of deferred fees and discounts compared with $3.37 billion at March 31, 2013. Overall, non-covered loans decreased by $19.7 million and covered loans decreased by $4.9 million quarter-over-quarter.

Our dairy and livestock loan portfolio decreased by $28.2 million from the prior quarter. This decline was a combination of us exiting troubled relationships and lost business due to competitive pressure -- competitive pricing pressure and/or structure. On the positive side, residential loans increased by $18.1 million and commercial real estate loans increased by $12.5 million. The market remains very competitive for new loan originations but the recent rise in long-term interest rates may moderate future refinanced pressure.

In terms of loan quality, nonperforming assets, defined as noncovered, nonaccrual loans plus OREO, decreased in the second quarter to $59.9 million compared with $68.5 million for the prior quarter.

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