CVB FINANCIAL CORP

For the year ended December 31, 2024, we reported net earnings of $200.7 million, compared with $221.4 million for 2023, a $20.7 million, or 9.36%, decrease from the prior year. Diluted earnings per share of $1.44 for 2024, decreased by $0.15, or 9.43%, when compared to $1.59 for 2023. During 2023 market interest rates rapidly increased and stayed elevated through 2024. Net earnings were negatively impacted by a decrease in net interest income, as the cost of our interest-bearing liabilities increased faster than the rising yield on our interest-earning assets, primarily as a result of the higher short term market interest rates controlled by the Federal Reserve. The decline in net interest income was also negatively impacted by increased levels of higher-cost borrowings that were used to manage our liquidity during the uncertain times following the banking crisis in the spring of 2023 and resulting declines in our level of deposits. Net earnings of $200.7 million produced a return on average equity (“ROAE”) of 9.35%, a return on average tangible common equity (“ROATCE”) of 14.95% and a return on average assets (“ROAA”) of 1.24%. Our net interest margin, tax equivalent (“NIM”), was 3.09% for 2024, while our efficiency ratio was 46.6%.

Net interest income of $447.3 million for the year ended December 31, 2024, decreased $40.6 million, or 8.33%, compared to the same period of 2023. Interest income grew by $23.8 million, or 3.92%, in 2024, offset by a $64.4 million increase in interest expense year-over-year. Cost of funds for 2024 increased by 49 basis points over 2023, while the earning asset yield grew by 25 basis points. Average earning assets declined by $275.6 million year-over-year.

Noninterest income of $54.5 million for the year ended December 31, 2024, decreased $4.8 million, or 8.18%, compared to the same period of 2023. Noninterest income in 2024 included a total pre-tax loss of $28.3 million from the sale of $467 million of AFS securities partially offset by a pre-tax gain of $25.9 million from the sale-leaseback of four buildings, while 2023 included a $2.6 million gain from an equity fund distribution. Trust and investment income for 2024 grew by $1.2 million, or 9.34%, from the prior year.

Noninterest expense increased from $229.9 million in 2023 to $233.6 million in 2024. The $3.7 million increase in noninterest expense generally represents normal inflationary increases in most expense categories, partially offset by a decrease in regulatory assessment expense as 2023 included the $9.2 million Special FDIC assessment.

At December 31, 2024, total assets of $15.15 billion decreased by $867.3 million, or 5.41%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $13.53 billion at December 31, 2024 decreased by $934.2 million, or 6.46%, when compared with $14.46 billion at December 31, 2023. The decrease in interest-earning assets was primarily due to a $499.0 million decrease in investment securities, a $368.5 million decrease in total loans, and a decrease of $59.1 million in interest-earning balances due from the Federal Reserve.

Total investment securities were $4.92 billion at December 31, 2024, a decrease of $499.0 million, or 9.20%, from $5.42 billion at December 31, 2023. The decrease was primarily due to principal repayments and maturities, as well as sales of securities exceeding purchases during the year. At December 31, 2024, investment securities held-to-maturity (“HTM”) totaled $2.38 billion. HTM securities decreased by $85.0 million, or 3.45% from $2.46 billion at December 31, 2023. At December 31, 2024, investment securities AFS totaled $2.54 billion, inclusive of a pre-tax net unrealized loss of $447.7 million. AFS securities decreased by $414.0 million, or 14.01%, from $2.96 billion at December 31, 2023, including the impact of the sale of $467 million of AFS securities in the third and fourth quarters. The sale of these securities resulted in a net pre-tax loss of $28.3 million. The securities sold had an average yield of less than three percent. The net cash proceeds from the sale of these securities was partially utilized to purchase $385 million of AFS securities in the fourth quarter of 2024, with yields that exceeded five percent. Our tax equivalent yield on our investment portfolio grew from 2.52% for 2023 to 2.65% for 2024. The 13 basis point increase in the yield on investment securities from the prior year was impacted by the positive spread generated from fair-value hedging of certain AFS securities, in which the Company receives daily SOFR and paid a weighted average fixed cost of approximately 3.8% during 2024.

In June 2023, fair value hedging transactions were executed in which $1 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. In December 2024, we terminated one of these swaps which had a notional value of $300 million, a maturity date of June 2027 and a fixed rate of 3.95%. The remaining $700 million notional pay-fixed interest rate swaps had a fair value which totaled $7.2 million and was reflected as an asset at December 31, 2024. The fair value of these instruments totaled $6.9 million and were reflected as a liability at December 31, 2023. These instruments generated interest income of $14.4 million for the year ended December 31, 2024. Refer to Note 18 –Derivative Financial Instruments of the notes to the consolidated financial statements of this report for additional information.

Total loans and leases, at amortized cost, were $8.54 billion at December 31, 2024, a decrease of $368.5 million, or 4.14%, from $8.90 billion at December 31, 2023. The decrease in outstanding loans in 2024 was impacted by a slowdown in loan demand due to higher interest rates and borrower uncertainty about the timing and amount of future rate actions of the Federal Reserve and the outcome of the November 2024 election. The $368.5 million decrease included $277.1 million in commercial real estate loans, $50.7 million in construction loans and $44.7 million in commercial and industrial loans. Our loan yields were 5.26% for the year ended December 31, 2024, compared to 5.04% for 2023. This 22 basis point increase in our loan yields year-over-year was the result of increases in market interest rates.

The allowance for credit losses totaled $80.1 million at December 31, 2024, compared to $86.8 million at December 31, 2023. At December 31, 2024, ACL as a percentage of total loans and leases outstanding was 0.94%. This compares to 0.98% at December 31, 2023. The changes in our allowance over the last few quarters have been primarily due to lower loan balances outstanding and changes in our economic forecast. Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. The resulting economic forecast reflects slower GDP growth of less than 2% for 2025 though 2027. Commercial Real Estate values are forecasted to continue their decline in 2025, with meaningful growth in values not occurring until 2027. Unemployment is forecasted to exceed 5% throughout the near term forecast periods, with a decrease below 5% in 2028.

Noninterest-bearing deposits were $7.04 billion at December 31, 2024, a decrease of $169.1 million, or 2.35% when compared to $7.21 billion at December 31, 2023. At December 31, 2024, noninterest-bearing deposits were 58.90% of total deposits, compared to 63.03% at December 31, 2023.

Interest-bearing deposits were $4.91 billion at December 31, 2024, an increase of $683.8 million, or 16.18%, when compared to $4.23 billion at December 31, 2023. Customer repurchase agreements totaled $261.9 million at December 31, 2024, compared to $271.6 million at December 31, 2023. Our average cost of total deposits including customer repurchase agreements for 2024 was 0.90%, compared to 0.41% for 2023.

In 2024, we experienced a decline in noninterest-bearing deposit levels due to the impact of higher interest rates that led to deposits moving to higher yielding alternatives, such as our money market and time deposit products. We also experienced noninterest-bearing deposits being transferred from the Bank’s balance sheet by customers to be invested by CitizensTrust in higher yielding instruments such as United States treasury notes or bonds.

At December 31, 2024, total borrowings of $0.50 billion consisted of Federal Home Loan Bank (“FHLB”) advances, at an average cost of approximately 4.6%. Borrowings decreased $1.57 billion from $2.07 billion at December 31, 2023, primarily due to the payoff of $1.91 billion of advances from the Federal Reserve's Bank Term Funding Program (“BTFP”) in 2024. The higher-cost short-term borrowings outstanding during most of 2024 and an increase in the cost of deposits and customer repurchase agreements of 49 basis points, increased our cost of funds by 49 basis points to 1.32% for the year ended December 31 2024.

The Company’s total equity was $2.19 billion at December 31, 2024. This represented an overall increase of $108.3 million from total equity of $2.08 billion at December 31, 2023. Increases to equity included $200.7 million in net earnings and an $11.5 million increase in other comprehensive income, that were partially offset by $111.9 million in cash dividends. We did not repurchase any stock during 2024. In 2023, we repurchased 791,800 shares of common stock, at an average repurchase price of $23.43, totaling $18.5 million. Our tangible book value per share at December 31, 2024 was $10.10, compared to $9.31 at December 31, 2023.

Our capital ratios under the capital framework referred to as Basel III remain well above regulatory requirements. As of December 31, 2024, the Company’s Tier 1 leverage capital ratio totaled 11.46%, our common equity Tier 1 ratio totaled 16.24%, our Tier 1 risk-based capital ratio totaled 16.24%, and our total risk-based capital ratio totaled 17.06%. Refer to our Analysis of Financial Condition — Capital Resources.

Acquisition Related

On January 7, 2022, the Company completed a merger transaction whereby Suncrest Bank (“Suncrest”), headquartered in Visalia, California, merged with and into the Company’s wholly-owned subsidiary Citizens Business Bank, in accordance with the terms and conditions of that certain Agreement and Plan of Reorganization and Merger (“Merger Agreement”), dated as of July 27, 2021, by and among the Company, the Bank and Suncrest, in a stock and cash transaction valued at approximately $237 million in aggregate, or $18.63 per Suncrest share based on CVB Financial Corp.’s closing stock price of $22.87 on January 7, 2022. Under the terms of the Merger Agreement, the Company issued approximately 8.6 million shares of Company common stock and approximately $39.6 million in aggregate cash consideration, including cash paid out in settlement of outstanding incentive stock option awards at Suncrest.

At close, the total fair value of assets acquired approximated $1.38 billion in total assets, including $329.0 million of cash and cash equivalents, net of cash paid, $131.1 million of investment securities, and $765.9 million in net loans. The acquired loans were recorded at fair value, which reflected a net discount of 1.5% for the entire loan portfolio. Approximately 30% of the acquired loans are considered PCD loans. An allowance for credit loss of $8.6 million was established for these PCD loans at acquisition. In addition, the acquired PCD loans were further discounted by almost 2% to adjust them to fair value. Non-PCD loans were valued at a total premium of 0.3%, net of a credit discount of 1.5%. We recorded a loan loss provision to establish a day one allowance for credit losses of $4.9 million on the non-PCD loans.

Suncrest had seven branch locations and two loan production offices in California’s Central Valley and the Sacramento area, which opened as Citizens Business Bank locations on January 10, 2022. The integration of Suncrest, including the conversion of core systems in the first quarter of 2022, was completed with the consolidation of two banking centers during the second quarter of 2022. For the year ended December 31, 2022, the Company incurred non-recurring merger related expenses associated with the Suncrest acquisition of $6.0 million.