CVB Financial Corp. — Q1 2023 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2023; balance-sheet comparisons are primarily against December 31, 2022. CVB operates Citizens Business Bank, serving businesses and individuals across California. The filing reports one banking segment and 62 banking centers.
Financial performance and condition
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Net earnings | $59.3 million; diluted EPS $0.42 | Up 30.1% and from $0.31 per share in Q1 2022; down from Q4 2022 earnings of $66.2 million and EPS of $0.47 |
| Net interest income | $125.7 million | Up 11.4% year over year; down 8.5% from Q4 2022 |
| Net interest margin | 3.45% tax-equivalent; 3.43% as presented in the average-balance table | Tax-equivalent margin was 2.90% in Q1 2022 |
| Noninterest income / expense | $13.2 million / $54.9 million | Income up 17.2%; expense down 5.8% year over year |
| Profitability ratios | ROAA 1.47%; ROAE 12.15%; ROATCE 20.59%; efficiency ratio 39.50% | Q1 2022 ROAA 1.06%, ROAE 8.24%, efficiency ratio 46.93% |
| Total assets | $16.27 billion | Down 1.2% from year-end 2022 |
| Loans, gross / net | $8.94 billion / $8.86 billion | Gross loans down 1.5% from year-end; commercial real estate loans rose $65.4 million while dairy and livestock loans fell $127.2 million |
| Deposits | $12.27 billion; 63.9% noninterest-bearing | Down $564.4 million, or 4.4%, from year-end |
| Borrowings and repos | Other borrowings $1.405 billion; customer repos $490.2 million | Other borrowings increased $410 million from year-end, primarily reflecting FHLB funding |
| Cash and cash equivalents | $227.5 million | Up $24.1 million during the quarter |
| Allowance for credit losses | $86.5 million, or 0.97% of loans; $8.5 million reserve for unfunded commitments | ACL was $85.1 million, or 0.94%, at year-end |
| Stockholders’ equity | $1.99 billion; tangible book value $8.64 per share | Equity increased $41.3 million from year-end |
Cash flow. Operating activities provided $70.1 million; investing activities provided $232.6 million; financing activities used $278.6 million. Cash and cash equivalents increased $24.1 million to $227.5 million.
Material changes and notable items
- Interest income rose 25.1% year over year, while interest expense increased to $17.1 million from $1.3 million. Management attributed higher income to increased asset yields and higher expense to deposit repricing and short-term borrowing costs.
- Average cost of funds increased to 0.49% from 0.03% in Q1 2022. Average overnight borrowings were $971.7 million at a 4.81% cost.
- Available-for-sale securities had a $459.8 million pretax unrealized loss at quarter-end; held-to-maturity securities had a $369.8 million unrealized loss. The filing says the losses primarily reflect interest-rate movements and reports no identified credit losses on these securities. Q1 OCI included a $28.7 million after-tax gain.
- Nonperforming loans were $6.2 million, or 0.07% of loans, compared with $4.9 million at year-end. Net charge-offs were $77,000. The portfolio is concentrated in real estate: 81.6% of loans were real-estate related, including 77.7% commercial real estate.
- Q1 2023 included $500,000 of provision for unfunded commitments. Q1 2022 included $5.6 million of Suncrest acquisition expenses; the Suncrest acquisition closed in January 2022.
- The company repurchased 791,800 shares for $18.5 million at an average $23.43 per share; its 10b5-1 plan expired March 2, 2023. It declared dividends of $0.20 per share.
Outlook, risks and contingencies
- No specific earnings, revenue or loan-growth guidance is provided. Management said FHLB borrowings could moderate in the second half of 2023 if seasonal deposit inflows occur and loan demand remains slower; it cautioned that rate increases and inflation could continue to pressure deposits and liquidity.
- Management’s credit forecast assumes a possible modest recession beginning in late 2023. Its weighted forecast projects GDP growth of 1.4% in 2023 and 0.9% in 2024, with unemployment of 4.2% and 5.1%, respectively. Management warned that weaker conditions, lower commercial real estate values and higher unemployment could raise future credit provisions.
- Liquidity resources include approximately $4.37 billion of available secured borrowing capacity, more than $300 million of unsecured correspondent-bank lines, and access to the Federal Reserve Bank Term Funding Program. Management noted that availability is subject to conditions and does not assure funding under stress. Deposits and customer repos that were neither collateralized nor insured totaled $7.1 billion.
- The filing identifies recent bank failures and possible depositor confidence shifts as liquidity risks, as well as potential realized losses if securities or loans must be sold. It also highlights interest-rate, credit-concentration, economic, regulatory, cybersecurity and goodwill-impairment risks.
- The company is involved in lawsuits in the ordinary and non-ordinary course. It does not presently expect pending matters to have a material adverse effect, but says litigation outcomes are inherently uncertain. No material changes to previously disclosed risk factors were reported apart from the added banking-industry risks.
Investor facts to verify
- Deposit trends, uninsured or otherwise uncollateralized balances, deposit pricing, and reliance on FHLB and other borrowings.
- Available borrowing capacity and the liquidity implications of the securities portfolio’s unrealized losses, including the distinction between available-for-sale and held-to-maturity securities.
- Commercial real estate concentration and subsequent trends in criticized/classified loans, nonaccruals, charge-offs and the allowance for credit losses.
- Whether management’s projected recession, GDP and unemployment assumptions change, and the resulting effect on credit provisioning and earnings.
- Subsequent capital, dividend and share-repurchase developments; the filing’s stated capital ratios were above regulatory “well-capitalized” thresholds.