CVB Financial Corp. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter filing. CVB is a California community bank holding company operating Citizens Business Bank, with one reportable segment and 57 banking centers.
Key financial and operating metrics
| Metric | FY2020 / Dec. 31, 2020 | Comparable period |
|---|---|---|
| Total assets | $14.42 billion | $11.28 billion at Dec. 31, 2019 |
| Net loans | $8.26 billion | $7.50 billion at Dec. 31, 2019 |
| Deposits | $11.74 billion | $8.70 billion at Dec. 31, 2019 |
| Net interest income before credit-loss provision | $416.1 million | $435.8 million in 2019 |
| Net earnings | $177.2 million; diluted EPS $1.30 | $207.8 million; diluted EPS $1.48 in 2019 |
| Net interest margin, tax-equivalent | 3.59% | 4.36% in 2019 |
| Return on average assets / equity | 1.37% / 8.90% | 1.84% / 10.71% in 2019 |
| Allowance for credit losses | $93.7 million; 1.12% of loans | $68.7 million; 0.91% at Dec. 31, 2019 |
| Shareholders’ equity | $2.01 billion; tangible common equity ratio 9.55% | $1.99 billion at Dec. 31, 2019 |
Fourth quarter: Net earnings were $50.1 million and diluted EPS was $0.37, versus $51.3 million and $0.37 in Q4 2019. Net interest income was $105.9 million versus $107.0 million. No credit-loss provision was recorded in Q4 2020.
- Interest income declined to $430.3 million from $457.9 million, while interest expense fell to $14.3 million from $22.1 million. Lower market rates and reduced acquired-loan discount accretion weighed on asset yields; lower funding costs partly offset this.
- Noninterest income was $49.9 million, down from $59.0 million. Deposit service charges and bankcard income declined; swap fee income and bank-owned life insurance income increased.
- Noninterest expense fell 2.9% to $192.9 million, including no Community Bank acquisition costs versus $6.4 million in 2019. The efficiency ratio was 41.40%, compared with 40.16%.
- Net charge-offs were $308,000. Nonaccrual loans rose to $14.3 million, or 0.17% of loans, from $5.3 million, or 0.07%, a year earlier.
Cash flow, liquidity and capital
- Cash and cash equivalents increased $1.77 billion to $1.96 billion. Operating activities provided $185.1 million; investing activities used $1.27 billion; financing activities provided $2.86 billion.
- Deposit growth of $3.03 billion reflected customers holding more liquidity. Noninterest-bearing deposits were $7.46 billion, 63.52% of total deposits, versus 60.26% a year earlier.
- Period-end borrowings included $439.4 million of customer repurchase agreements and $5.0 million of short-term borrowing; junior subordinated debentures were $25.8 million, floating at three-month LIBOR plus 1.38% and due in 2036.
- Management reported $4.29 billion of available secured FHLB borrowing capacity and significant balance-sheet liquidity. Company and Bank regulatory capital ratios were well above well-capitalized thresholds: Company CET1 14.77%, Tier 1 leverage 9.90%, and total risk-based capital 16.24%.
- The company declared $0.72 per share in dividends and repurchased 4.94 million shares for approximately $91.7 million during 2020. No shares were repurchased in Q4.
Material changes, outlook and risks
- Total assets grew 27.8%, deposits 34.8%, and net loans 10.1%. Loan growth included $883.0 million of PPP loans outstanding at year-end; excluding PPP, loans declined $98.8 million, or 1.31%.
- The company originated about 4,100 PPP loans totaling approximately $1.10 billion. PPP interest and fee income was approximately $28.5 million. SBA eligibility, forgiveness, and guarantee decisions remained uncertain; as of January 15, 2021, approximately $260 million of forgiveness requests had been granted.
- CVB adopted CECL on January 1, 2020, reducing opening retained earnings by $1.3 million net of tax. A $23.5 million credit-loss provision was recorded in the first half, primarily reflecting COVID-19 forecasts; none was recorded in the second half. Management warned that further provisions could be required if economic stress exceeds forecasts.
- Management stated that 2021 results remained uncertain and could be affected by additional credit provisions and lower interest income if low rates persisted. The filing provides no formal earnings or revenue guidance. Its credit-loss forecast assumed GDP growth of 2.5% in 2021 and unemployment of 7.7% in 2021; these are assumptions used in reserve estimates, not company guidance.
- Credit exposure is concentrated in California real estate: commercial real estate loans were $5.50 billion, and CRE concentration was 254% of risk-based capital, or 275% including unfunded commitments. COVID-sensitive sectors, real estate values, agricultural conditions, and borrower payment capacity are key risks.
- Six loans totaling $10 million remained under temporary payment deferrals as of January 15, 2021; 85% were rated special mention or classified. Litigation is described as arising in the ordinary and non-ordinary course; management did not expect pending matters to have a material adverse effect, but outcomes remain uncertain.
- Other notable items include $2.8 million of BOLI death benefits in 2020 and $1.7 million of gains on building sales. 2019 results included $5.7 million from an eminent-domain settlement and $4.8 million in building-sale gains.
- The company reported effective internal controls and received unqualified audit opinions on its financial statements and internal control over financial reporting.
Important facts for investors to verify
- Progress and timing of PPP forgiveness, second-round lending, and the continuing validity of SBA guarantees.
- Whether rising nonaccrual loans, deferred payments, and California CRE concentrations lead to higher credit losses or reserve needs.
- How deposit growth, excess Federal Reserve balances, and persistently low rates affect net interest margin and earnings.
- The sensitivity of reported earnings to one-time items and acquired-loan discount accretion, and the sustainability of dividends and repurchases.
- Management’s CECL economic assumptions and the effect of actual economic conditions on the $93.7 million allowance.