CVB Financial Corp. (CVBF) Earnings Call Transcript & Summary

Good morning, and welcome to the CVB Financial Corporation 2020 Annual Meeting of Shareholders. Please note, this call is being recorded. I would now like to turn the call over to Christina Carrabino. Please go ahead.

Thank you, and good morning, everyone. Before we get started, let me remind you that today's meeting 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. Among other risks, the ongoing COVID-19 pandemic may significantly affect the banking industry and the company's business prospects. The ultimate impact on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the impact on the economy, our customers and our business partners and actions taken by governmental authorities in response to the pandemic. 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 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, 2019, and in particular, the information set forth in Item 1A, risk factors therein. I would now like to turn the call over to Dave Brager, Chief Executive Officer of CVB Financial Corporation.

Thank you, Christina, and I would like to call the 45th annual meeting of shareholders to order and announce that Raymond V. O'Brien III, Chairman of the Board, will preside over the meeting and that Michelle Edu will serve as Secretary of the Meeting. Any shareholder attending this meeting who wishes to vote their shares in person, or has not yet submitted their proxy, should please see Michelle Edu, who is sitting off to the side here. I'd now like to turn it over to Ray. Ray?

Thank you, Dave. Everybody, welcome to the 45th Annual Shareholders Meeting. You could see quite a few changes this year, given the changing in format due to the COVID-19 pandemic, including a limited in-person attendance, I believe we have one shareholder here right now. And we've taken on the conference call format. Please note that the agenda will generally be limited to mandatory corporate and housekeeping matters with the opportunity for shareholder questions, but only at the end of the meeting. So I'd like to start our meeting today by leading us in the pledge of allegiance. I pledge allegiance to the flag of the United States of America and to the Republic for which it stands, one nation under God, indivisible with liberty and justice for all. Thank you. I would like to announce the selection of the Board of Directors of Mark Cano of Computershare as inspector of election. Note that Mark Cano is not present in person this year but is participating by telephone on this conference call. Mark, please confirm that you're on the telephone call and can hear all the proceedings.

Yes. This is Mark Cano from Computershare, and I am on the call.

Okay. Thank you, Mark. May I have a motion to ratify the appointment of Mark Cano as inspector of elections?

So moved.

Thank you.

Second.

Thank you. All those in favor, say aye.

Aye.

Aye.

All those against, say nay. The ayes have it. Now since that we believe all CVBF directors, besides Ray O'Brien, myself and Dave Brager who are physically here, are participating by telephone conference call. Okay. So we're ready to begin. With that, I am pleased to hand it back to our CEO, Dave Brager, who I would note has taken the reins of leadership of our organization and is doing a great job. Dave, all yours.

Thank you, Ray. And again, I'd like to welcome everybody to our shareholders' meeting. There's not going to be a formal CEO shareholder presentation this year, and I just would ask that all questions be reserved until the end of the meeting. If you have or need -- if you would like information on CVBF and our year-end results from 2019, I would point you to cbbank.com, our Investors page, for not only the year-end earnings, but the first quarter earnings and the latest shareholder presentation. With that, I'd like to now introduce Richard Wohl, our General Counsel, to handle the procedural matters of the meeting. Richard?

Thank you, Dave. And thank you, Ray. Good morning, everybody. We do have one shareholder here in attendance, Tony Ellis, one of our former managers. So welcome, Tony, and thank you for joining us today. And thank you guys on the phone for joining us, for those of you who are on the phone. So we're going to now move to the official business and the legal portion of our 2020 annual meeting, but before we proceed to our business items, there's 2 procedural matters that we have to address. So the first one is the reading of the legal notice of this annual meeting. And Computershare, Mark Cano, the company's transfer agent who you just heard from, has provided me with an affidavit of mailing of the notice of the meeting which states that the notice of the meeting -- with instructions on how to obtain copies of the proxy materials, the ones that Dave Brager just referred to, was mailed on or about April 8, 2020, to all CVB Financial Corp. shareholders of record who were of record on March 30, 2020, which is the record date for this meeting. That affidavit is available at our corporate headquarters here in Ontario, if any shareholder wishes to examine it, and it will be filed with the minutes of this annual meeting by Michelle Edu, our Corporate Secretary, who Dave introduced a little while ago. So to keep things moving quickly, I would entertain a motion to waive the reading of the annual meeting notice. Do I hear such a motion?

Motion.

And do I have a second?

I second.

Thank you. All in favor, say aye.

Aye.

Aye.

Any opposed? So the motion carries. Thank you. So the second procedural item, again, before we get to the business items that we need to address, is what's called a quorum report. And I've conferred again with Mark Cano, our inspector of elections, who's advised me that the number of shares of CVB Financial Corp. outstanding on the record date of March 30, for this Annual Meeting is 135,880,523, and the shareholder votes that are present, either by proxy or in person, amount to 122,209,845 votes, which constitutes 89.9% of outstanding shares. So the shares which are present in voting, either in person or by proxy, constitute well over a majority of CVB Financial's outstanding shares. So I'm pleased to report, Mr. Chairman, that we do have a quorum of shares represented in voting for this annual meeting. So now let's move to the actual business items that are the subject of our annual meeting today. As set forth in the notice of annual meeting, there are 3 items of business to be considered, and they are as follows: one, the election of our 9 nominees for our Board of Directors; #2, ratification of the appointment of KPMG LLP as our independent registered public accountants for CVB Financial Corp. for the year ending December 31, 2020; and third, to approve on a nonbinding advisory basis the compensation of our company's named executive officers for 2019, that's called our say-on-pay resolution. So turning to the first item of business, which is the election of our 9 directors to serve a 1-year term on the company's Board of Directors. As set forth in the notice of annual meeting, the Board's nominated the following 9 persons: George Borba, Jr; David Brager, Steve Del Guercio; Rod Guerra, Jr., Anna Kan, Marshall Laitsch, Kristina Leslie, Ray O’Brien and Hal Oswalt. May I please have a motion to place the nomination of the Board's 9 nominees.

Motion.

May I have a second?

Second.

Thank you. So the procedures for shareholders to nominate individuals to serve on the Board are set forth in our bylaws, which are referenced in the notice of this annual meeting. I've been advised that no shareholder nominations were otherwise received by CVB Financial Corp., and therefore, the only nominees for our director positions are the Board's 9 nominees. May I have a motion to close the nominations?

Motion.

May I have a second.

Second.

Thank you. So the motion on the floor is be it resolved that the nominees whom I announced be, and they hereby are, elected to serve as members of the Board of Directors of CVB Financial Corp. until the 2021 Annual Meeting of Shareholders and until their successors have been elected and are so qualified. I confer with Mr. Cano, our inspector of elections, who advises me that each of the Board's nominees has received at least 94,901,970 votes, which is 96.6% at a minimum in favor of election and no other person received any votes. Since each nominee has received a plurality of the votes cast, they are all elected for another 1-year term. So congratulations to our 9 directors. Our second item of business is a proposal to ratify the appointment of KPMG LLP as our company's independent public accountants for the company's 2020 fiscal year. This proposal is also explained in detail in our proxy statement for this annual meeting. At this time, I'd entertain a motion to ratify the appointment of KPMG LLP as the company's independent public accountants for the company's 2020 fiscal year. Do I hear such a motion?

Motion.

Motion.

Do I hear a second?

Second.

Thank you. So the motion on the floor is be it resolved that the appointment of KPMG LLP as the company's independent public accountants for the fiscal year ending December 31, 2020, be and hereby is ratified and approved. Again, I confer with Mr. Cano, our inspector of elections, who advises me that on this proposal in favor were 121,151,101 votes, so a little over 99%. Against were 894,894 votes, a little less -- a little more than 0.5% and abstained were 153,850 votes, a little more than 0.1%. So since the number of shares voting in favor of the proposal exceeds by a large margin a majority of the shares represented in voting at the meeting with the affirmative votes constituting a majority of the required quorum, this proposal also passes. Our next -- the third and last item of business is the proposal to ratify the compensation of the company's 5 named executive officers. This say-on-pay proposal is explained in further detail in our proxy statement. And by a separate vote of our shareholders at our annual meeting in 2017, it was established that this item shall be placed on our annual meeting agenda for a vote by our shareholders on an annual basis. So we do this every single year, this resolution. That being so, this resolution covers the compensation for our named executive officers for the most recent fiscal year of the company, which was the one ending on December 31, 2019. The component elements of our individual named executive officers compensation, the metrics for determining their performance, the amounts paid for each component element and the total amounts paid are all set forth in detail in our annual proxy statement. Please note that this shareholder vote is advisory only and is thus nonbinding on the company. Although the Board will, of course, consider the views of our shareholders in setting our compensation plans for our named executive officers. At this time, I would entertain a motion to ratify the compensation of our 5 named executive officers for the company's most recent fiscal year. Do I hear such a motion?

Motion.

Do I have a second?

Second.

Thank you. The motion on the floor is, be it resolved that the compensation paid to the company's named executive officers as disclosed in our proxy statement pursuant to the compensation rules of the Securities and Exchange Commission and Item 402 of Regulation S-K, including the compensation discussion and analysis, the summary compensation tables and the related narrative discussion, be hereby approved. Once again, I confer with Mr. Cano, who advises me that on this proposal, we have in favor, 55,892,166 votes, which is almost 57%; against were 42,012,777 votes which was almost 43% and abstained were 362,971 votes a little more than 0.3%. So since the number of shares voting in favor of the proposal exceeds a majority of the shares represented in voting at the meeting, with the affirmative votes constituting a majority of the required quorum, this nonbinding advisory proposal also passes. So this now concludes the business portion of our annual meeting today, and thank you very much, and I will now turn the meeting back to our CEO, Dave Brager.

Thank you, Richard. I just want to remind any -- everybody that any shareholder questions from this room or via our conference call facility should be addressed to me and should relate to matters on the annual meeting agenda. We will address any questions from individuals who are present here in the room first and then move to any questions by telephone. If there are any questions posed by persons here in the room, we will repeat them for the benefit of those of you participating by telephone. Questions should be asked only by shareholders and each person asking a question should identify themselves either in person or over the telephone. Each person is requested to limit his or her question to a maximum of 1 minute. Please allow for a complete response before seeking to ask any follow-up questions. Are there any questions from anybody in the room? Okay. Seeing none, I'd like to turn it back over to the operator. We're now ready to take questions from our dial-in participants.

[Operator Instructions] Our first question will come from [ Joel Armstrong ] with CVB.

I'm not with CVB, except as a shareholder. I am not an officer or employee nor have any other capacity, except when we receive dividend checks and cashes them promptly. Mr. Chairman, and I have been the shareholder for more than 30 years, and I am basically proud of my investment, but I have a few questions and they might go beyond just 1 minute. First of all, the Board of Directors. In meeting the role of its committees, I'm concerned about a few points. First, the nominating committee. Yet discusses only nominations, it's also called the nominating and governance committee but there's no issue discussed under governance. And today, you mentioned that the plurality vote was applicable to the election of directors, but I don't see it. It's clearly spelled out that way in the proxy statement. And I would request that the governance committee begin studying the benefits of a majority vote standard for the shareholders.

All right. This is Richard. I'll address that or try to address that, Mr. Armstrong. First, we do have very detailed governance procedures that our nominating and corporate governance committee follows. And those are actually referred to in our proxy. The committee receives a presentation every year on governance principles. And we have governance standards in our -- for our corporation. If you go on our website, you will see and look at the charter for the nominating and corporate governance committee, you'll see the governance standards spelled out in detail in the charter. So I would encourage you to look at that. And in terms of the standard, the vote standard in terms of plurality versus majority, again, the vast, vast majority of public companies, which I'm aware, use a plurality standard as opposed to a majority standard for election of their directors. And it's our intention to, I think, follow a common practice and stick with that for now, but we certainly can consider other views, and that is something that we can discuss at our next committee meeting when we have that.

More and more corporations are adopting the majority vote standard all the time. And I submitted it to -- 3 proposals on that topic, and the Board's adopted it in all 3 cases, so I had to withdraw my proposals. And I intend to submit more in the future. The compensation committee, for example, Page 25 shows a chart of comparables, 15 in number. And I own stock and I'm very familiar with 13 of those. When ranked by total assets, 2 are in Hawaii, which has a much higher cost of living factor to it and is present in Southern California. And it seems to be very interesting. And #2 is PacWest Corporation and a competitor of yours, which has recently slashed its dividend direct and significantly. And its corporate headquarters seems to be moving to Denver, Colorado, where it has no operations that are visible. And then #3 is Umpqua, which is extravagant too and when -- its extravagance grew when it moved from Roseburg, Oregon to Portland and became a big competitor to the big banks. No one seems to consider how much inflation contributes to the increased earnings and the increased earnings are a blessing to the increased pay for officers. I think you should look at that carefully. We should pay for good work done only once. The compensation committee report is 49 pages in the annual report. The dividend committee, which doesn't exist, of course, had no meetings. But I think 49 pages to have to explain compensation is a bit excessive, and it can be cut down best by curtailing some of the expenses involved in that. Boston Private took me 3 years to accomplish annual elections for directors. It's there, and it's struggling now. Opus Bank, its President, came from the Guaranty Bank in Denver, which was -- he effectively caused the merger into a Texas Bank. He was to join the Board but didn't and jumped to Opus instead, and it's now up for sale and has a contract pending on it through a merger. I think you should look carefully at that list of comparables. And let your conscience be your guide. It's not really very comparable.

Allen, want me to respond to that, too?

Yes. Go ahead, Richard, and then I'll follow-up.

So Mr. Armstrong, in terms of the comparables, we don't just come up with those on our own on some sort of whim. We actually contract with nationally known outside compensation consulting firms. And we've dealt with 2 in the time that I've been here, which has been 9 years and most recently, Pearl Meyer, and they help us come up with that group of peers. They do a lot of very detailed studies to try to look at asset size market capitalization, many, many, many different metrics in terms of coming up with those comparables. And I would also point out that the shareholder advisory services, which are completely -- I mean, the compensation consultants are independent, but the shareholder advisory services are even more so because we don't really have a financial relationship with them. Institutional shareholder services and Glass Lewis, they also come up with peer groups for us. And I would point out, and if you look at this, you'll see they vary substantially with just a couple of exceptions, overlap with the peer group that Pearl Meyer picked. So I think we feel very confident that our peer group is properly reflective of our business model, and it's very comparable. And I understand your reference to Hawaii, but I can tell you that Los Angeles and Southern California are very expensive areas with, I think, comparable costs of living to almost any expensive area in the country. And if you look at Fannie Mae, Freddie Mac, if you look at mortgage standards in terms of what the maximum mortgage amount is, very comparable in Hawaii and Southern California. So I think if you look across a number of measures, we're, again, doing the appropriate thing in terms of how we're benchmarking ourselves. In fact, it's very difficult because a lot of banks that will be in our peer group are in places with much lower cost of living. So we need to find some places with higher cost of living, again, to balance that out because the notion of a peer group is not that every bank in the peer group was exactly average. It's -- the idea is we're balancing the peer group out to make it as close to us as possible on average. So I don't -- Dave, did you want to...

Yes. The only thing that I would add, Mr. Armstrong is that this was a little bit of a unique year. We had a transition from a CEO, a very successful CEO that had been here for over 13 years to myself, who I've been here over 17 years. So there was also additional information regarding that, that was referenced in the proxy. So that would be the only thing that I would add to Richard's comments.

Yes. That would take 6 pages out of the 49 pages, which is still excessive in my eyes. And the compensation consultants, which you referenced, compensation consultants seem to be a new entity. And it's very hard to define them and find out much about them. But lawyers, we have the bar association; accountants, we have the society of CPAs and regulatory agencies in several states, in most states for that manner. But compensation consultants are their own breed, and they don't seem to have the backing of any entity. And the public library, I asked for research on this, they could not find professional association for compensation consultants, except one, and it states it by name only and didn't have an address. I think we need to look beyond compensation consultants and figure out something better. And I would ask you to do that and begin doing that. Perhaps they do have a professional association, but I hope the Board has looked at that very carefully. Now 2 remaining questions. Share -- Computershare, on its results of tabulation. Did they look at the signatures of the shareholders as they were tabulating these proxies? I understand they do not do so. It was only done by scanning and any zig-zag put on that little box by a shareholder or by a nonshareholder gets counted as a signature. Could you elaborate on that, if they have counted -- they look at the signatures, actually?

I'll say -- this is Richard Wohl again. I'll say just one thing on that, and then I'll turn it over to Mark Cano to answer. But I think our practice, again, because we use Computershare, which is a nationally known firm, they apply the same standards to the vote by our shareholders that they would for any other corporation. As far as I know, and Mark Cano, maybe you can comment on that?

Yes, Richard. So to answer that question, I know that when the proxies do come in, they are looked at for signatures. If they're not signed, they're not counted. They just don't automatically get scanned in. They verify that there's a signature on there, but there's no way to verify if that's the actual person's signature, but they do have signatures on there, and they're voted accordingly as the shareholders mark their proxy.

And most -- I would also point out that most shareholders don't vote by mail anymore. They vote by Internet or by telephone. So we don't actually have physical signatures to verify in the vast, vast majority of cases.

The telephone issues are also interesting, and I get a large number of annual reports and proxy statements in the mail and occasionally, Computershare, among others, will include 2 proxies for the same person and send them to me along with mine. I don't think it's fair. I think there's some sloppiness in the efforts, and I've had the same problem with some of the other transfer agents. A dividend check arrived a fine weekend in an unsealed envelope and I'm thankful it was there, but...

Mr. Armstrong, you had 1 final question.

I have, yes, one final question for you. If I could cover the subjects of share ownership. And you've commented in the proxy statement that every Director has meaningful ownership by its standards. I prefer meaningful and significant because 5% of somebody's net worth could be a large amount. It could also be a small amount, but I think it could be significant and reportable. And 5% demanding after 3 years of service is appropriate as some other corporations are doing. And share ownership, where is it concentrated today? Is it mostly in Southern California or has it -- had been scattered among all of the larger entities through mutual funds and investment funds?

Let me address your first question first, which is we actually been proactive on this issue. And our Board actually raised director ownership requirements this year so that in the past, the Director had to own $100,000 worth of stock. And as we explained in our proxy this year, starting in 2020, directors need to own 3x their annual base compensation as Director. So that amounts -- that's $70,000, so that's $210,000. So we've more than doubled our director shareholder ownership requirement just in the past year. I would note that. And then in terms of our breakdown, again, we don't really track by geography who owns our stock, but we're about, I think, Allen, on what percentage institutional would you say?

Probably 70%.

So 70% institutional, which is mutual funds, pension funds and so forth, and the other 30% are individual. And our actual individual ownership percentage is probably a little bit higher than most banks of our size because of the fact that our roots -- we're here locally in the dairy industry, and it was a group of dairy farmers that ended up initially founding the bank with their friends. And so we've always had historically a pretty high level of individual shareholder ownership as well.

Thank you for your questions. Are there any other questions? I'll turn it back to the operator.

[Operator Instructions] Seeing no further questions, I would like to hand the call back over to Ray O'Brien for any closing remarks.

Thank you. I would, first of all, like to thank the bank's associates, directors and shareholders for their continued support. It's unusual times that we're living through right now. And it would be nice if in a shorter period of time, we'll be able to get together face-to-face and not have to do everything electronically. So hopefully, next year, we'll resume a more user-friendly form of our shareholder meeting. In the meantime though, I hope everyone stays safe and healthy during this difficult time. So at this time, I would entertain a motion to adjourn the meeting.

So moved.

Is there a second?

Second.

All those in favor, say aye.

Aye.

Aye.

The annual meeting is hereby adjourned. Thank you for attending.

The annual meeting of shareholders has now concluded. Thank you for participating. You may now disconnect.