CVB Financial Corp. — 2021 Form 10-K
Business context and reporting period. CVB Financial Corp. is a California bank holding company whose principal subsidiary, Citizens Business Bank, operates a community banking business serving businesses and individuals in California. The filing covers the fiscal year ended December 31, 2021; comparisons are primarily with 2020. Suncrest Bank was acquired on January 7, 2022, after the reporting period.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Net earnings | $212.5 million | $177.2 million |
| Diluted earnings per share | $1.56 | $1.30 |
| Net interest income | $414.6 million | $416.1 million |
| Noninterest income | $47.4 million | $49.9 million |
| Net interest margin, tax-equivalent | 2.97% | 3.59% |
| Efficiency ratio | 41.09% | 41.40% |
| Return on average assets | 1.38% | 1.37% |
| Return on average equity | 10.30% | 8.90% |
- Balance sheet: Total assets were $15.88 billion, up 10.2%; deposits were $12.98 billion, up 10.6%; net loans were $7.82 billion; and shareholders’ equity was $2.08 billion, up 3.7%.
- Loans and securities: Gross loans declined 5.5% to $7.89 billion, mainly as PPP balances ran off. Excluding PPP loans, core loans grew 3.15%. Investment securities increased 71.6% to $5.11 billion as the Bank invested excess liquidity.
- Credit quality: The allowance for credit losses was $65.0 million, or 0.82% of gross loans (0.84% excluding PPP loans), compared with $93.7 million and 1.12% in 2020. Net charge-offs were $3.2 million; nonperforming loans fell to $6.9 million from $14.3 million.
- Cash flow: Operating activities provided $195.2 million; investing activities used $1.73 billion; financing activities provided $1.31 billion. Cash and cash equivalents ended at $1.73 billion, down $225.6 million during the year.
- Funding and debt: Noninterest-bearing deposits were $8.10 billion, or 62.45% of deposits. Average total deposit cost was 0.04%, and average cost of funds was 0.05%. The Bank had $642.4 million of customer repurchase agreements and $2.3 million of overnight borrowings at year-end. CVB redeemed $25.8 million of junior subordinated debentures in June 2021.
- Capital and shareholder returns: CVB’s year-end CET1 ratio was 14.86%, total risk-based capital ratio 15.63%, and Tier 1 leverage ratio 9.18%; both the Company and Bank were reported well-capitalized. The Company declared $0.72 per share in dividends and repurchased 390,336 shares for $7.4 million.
Material changes versus 2020
- Net earnings rose 20.0%, while net interest income edged down 0.4%. The improvement in earnings was substantially supported by a $25.5 million credit-loss recapture in 2021, versus a $23.5 million provision in 2020.
- Lower loan and securities yields, alongside a larger share of earning assets held in low-yielding cash, reduced tax-equivalent net interest margin to 2.97% from 3.59%. Lower funding costs partially offset the pressure.
- Noninterest income declined 5.0%, chiefly because swap fee income fell $4.6 million; noninterest expense declined 1.6% to $189.8 million.
- Deposit growth funded a significant expansion of the securities portfolio. A decline in the market value of available-for-sale securities reduced 2021 other comprehensive income by $39.3 million after tax.
Outlook, commentary, risks, and unusual items
- The filing provides no formal earnings or growth guidance. Management’s credit-loss forecast assumed GDP growth of 2.7% in 2022, 2% in 2023, and 3% in 2024; unemployment was forecast above 5% in 2022 and 2023, then 4.8% in 2024. These are model assumptions, not company guidance.
- Management said pandemic impacts remained uncertain and that renewed economic stress could increase credit-loss provisions. The 2021 recapture reflected improved forecasts, government support, and vaccine availability.
- Key exposures include concentration in California real estate and commercial real estate lending; CRE loans were 263% of risk-based capital. Risks also include agricultural borrower conditions, interest-rate and securities-value changes, deposit liquidity, cyber threats, regulation, and the LIBOR transition.
- Suncrest acquisition consideration was approximately $237 million, comprising about 8.6 million CVB shares and $39.6 million in cash. Suncrest had approximately $1.4 billion of assets at December 31, 2021; branch integration included planned consolidation of two locations in 2022.
- On February 1, 2022, the Company authorized a new repurchase program for up to 10 million shares, including an initial $70 million accelerated share repurchase agreement.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified the collective commercial real estate allowance estimate as a critical audit matter, citing significant estimation uncertainty and judgment.
- The Company disclosed lawsuits and threatened lawsuits in the ordinary and non-ordinary course, but said it did not presently expect their resolution to have a material adverse effect. Outcomes remain uncertain.
Important facts for investors to verify
- How much of 2021 earnings growth is repeatable without the credit-loss recapture, and how sensitive future provisions are to economic assumptions.
- The difference between reported year-end PPP balances: the filing cites approximately $186.6 million in some sections and $183.6 million at amortized cost in others.
- How rising rates affect deposit pricing, net interest margin, and the market value of the expanded securities portfolio; the filing’s sensitivity analyses depend on modeling assumptions.
- Whether core loan growth and deposit retention continue after PPP runoff, and how the Suncrest acquisition affects integration costs, capital, and per-share results.
- Future credit performance in the concentrated California CRE portfolio and the adequacy of the allowance under less favorable economic conditions.