CVB Financial Corp. — FY 2023 Form 10-K
Business context and period. CVB Financial Corp. is a California bank holding company whose principal subsidiary, Citizens Business Bank, serves businesses and individuals through 62 California banking centers. This filing covers the fiscal year ended December 31, 2023; comparisons below are primarily with FY 2022. The filing is an annual report, not a standalone fourth-quarter report.
Financial performance and position
| Metric | FY 2023 / Dec. 31, 2023 | FY 2022 / Dec. 31, 2022 |
|---|---|---|
| Net earnings | $221.4 million | $235.4 million |
| Diluted EPS | $1.59 | $1.67 |
| Net interest income | $488.0 million | $505.5 million |
| Net interest margin, tax-equivalent | 3.31% | 3.30% |
| Noninterest income | $59.3 million | $50.0 million |
| Noninterest expense | $229.9 million | $216.6 million |
| Efficiency ratio | 42.00% | 38.98% |
| Total assets | $16.02 billion | $16.48 billion |
| Net loans | $8.82 billion | $8.99 billion |
| Deposits | $11.43 billion | $12.84 billion |
| Shareholders’ equity | $2.08 billion | $1.95 billion |
| Cash and cash equivalents | $281.3 million | $203.5 million |
- Profitability: return on average assets was 1.35%, return on average equity 11.03%, and return on average tangible common equity 18.48%.
- Interest income rose 17.8% to $606.3 million, but interest expense climbed to $118.3 million from $9.2 million as funding costs increased. Cost of funds was 0.83%, up 77 basis points.
- Operating cash flow was $295.6 million, versus $273.7 million in 2022. Investing activities provided $536.3 million, while financing activities used $754.1 million. Cash increased $77.8 million during the year.
- Borrowings were $2.07 billion, including $1.91 billion of Federal Reserve Bank Term Funding Program (BTFP) advances and $160 million of FHLB advances. Customer repurchase agreements were a further $271.6 million.
- Regulatory capital remained above well-capitalized thresholds: consolidated CET1 14.65%, Tier 1 leverage 10.27%, and total risk-based capital 15.50%.
Material changes versus FY 2022
- Net earnings fell 5.9% and diluted EPS declined 4.8%, principally reflecting higher funding costs and expense growth.
- Deposits declined $1.40 billion, or 10.9%; noninterest-bearing deposits fell $958.2 million. Management attributed outflows to inflationary customer cash needs and transfers to higher-yielding alternatives, including approximately $800 million moved to CitizensTrust for investment in securities.
- Loans declined $174.5 million, or 1.9%, amid slower loan demand. Commercial and industrial loans increased $21.2 million, while several other loan categories contracted.
- Assets declined 2.8%; investment securities decreased $388.8 million, primarily through repayments and maturities. Average earning assets fell $610.4 million.
- Allowance for credit losses rose to $86.8 million, or 0.98% of loans, from $85.1 million, or 0.94%. Provision expense was $2.0 million; net charge-offs were $275,000.
- Nonperforming loans rose to $21.3 million from $4.9 million, mainly due to a $12.4 million syndicated commercial real estate loan acquired with Suncrest and higher nonperforming C&I loans. Classified loans increased to $102.2 million from $78.7 million.
Outlook, commentary, risks and unusual items
- No company earnings or revenue guidance is provided. Management’s credit-loss economic forecast assumes modest GDP contraction in the first three quarters of 2024, positive growth in the fourth quarter, CRE values bottoming in Q3 2024, and unemployment peaking at 5.7% in Q1 2025. These are forecast assumptions used in estimating credit losses, not company guidance.
- Management described the balance sheet as modestly asset-sensitive: a modeled 200-basis-point rate increase would raise net interest income by 3.96% over 12 months, while a 200-basis-point decline would reduce it by 3.97%. Actual results may differ materially from the model.
- The securities portfolio totaled $5.42 billion. At year-end, AFS securities had a $449.8 million pretax unrealized loss and HTM securities an estimated $381.7 million pretax unrealized loss. Management said it did not intend to sell these securities, but forced sales to meet liquidity needs could crystallize losses.
- Uninsured and uncollateralized deposits and customer repos were approximately $5.6 billion, or 48% of the combined balance. Management cited regional-bank confidence, deposit retention, and alternative funding costs as key liquidity risks.
- Approximately $1.9 billion of BTFP advances were outstanding at year-end, with about $695 million maturing in May 2024 and $1.2 billion in December 2024. The program stopped accepting new borrowings in March 2024. The Bank repaid $1.2 billion and borrowed $1.3 billion in January 2024; management expected to assess replacement funding options during 2024.
- The Bank recorded a $9.2 million FDIC special-assessment expense in 2023. On February 23, 2024, the FDIC indicated the assessment could increase by 25%; the company said the final amount and a loss range could not then be estimated, and that $9.2 million remained its best estimate.
- Other notable items: a BOLI restructuring contributed $6.5 million to noninterest income while also generating approximately $6.5 million of additional tax expense; the effective tax rate rose to 29.8% from 28.3%. A $1 billion notional pay-fixed swap hedge generated $8.2 million of interest income in 2023.
- Key exposures include California commercial real estate concentration (CRE loans were 76.2% of loans; CRE concentration was 262% of risk-based capital), office-property credit risk, agricultural and dairy lending, interest-rate and funding risk, cybersecurity, and regulatory change. The filing reports no material adverse effect from cybersecurity incidents to date and no unresolved SEC staff comments.
- Management and KPMG reported effective internal control over financial reporting; KPMG issued unqualified opinions on the financial statements and internal controls. The filing describes lawsuits and threatened claims but says the company does not currently expect their resolution to have a material adverse effect; outcomes remain uncertain.
Most important facts for investors to verify
- Deposit stability, uninsured deposit levels, funding costs, and the Bank’s ability to replace or repay BTFP advances as they mature.
- Trends in nonperforming and classified loans, particularly the identified CRE and C&I exposures, and whether the allowance remains adequate under changing CRE values and economic conditions.
- The magnitude and duration of unrealized securities losses, available liquidity, and the potential capital and earnings effects if assets must be sold.
- The final FDIC special assessment amount and whether the accrued $9.2 million requires adjustment.
- Whether the reported loan-demand slowdown, declining deposits, and higher efficiency ratio persist, and how interest-rate movements affect net interest income and margins.