CVB Financial Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023 unless noted. CVB Financial Corp. operates Citizens Business Bank, serving businesses and individuals primarily in California through 62 banking centers and three trust offices.
Financial results and condition
Amounts below are in millions of dollars except per-share amounts and ratios.
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Net interest income | $112.5 | Down 10.6% year over year; down 5.8% from Q4 2023 |
| Net interest margin | 3.10% tax-equivalent; 3.08% reported | 3.45% tax-equivalent in Q1 2023 |
| Net earnings / diluted EPS | $48.6 / $0.35 | Net earnings down 18.0% and EPS down from $0.42 year over year; net earnings approximately flat sequentially |
| Noninterest income / expense | $14.1 / $59.8 | Income up 6.9%; expense up 8.9% year over year |
| Efficiency ratio | 47.22% | 39.50% in Q1 2023 |
| Assets / equity | $16,468 / $2,087 | Assets up 2.8%; equity up $8.9 from year-end |
| Loans, gross / deposits | $8,771 / $11,895 | Loans down 1.5%; deposits up 4.0% from year-end |
| Cash and cash equivalents | $950 | Up $668 from year-end |
| Borrowings / customer repos | $1,995 / $276 | Borrowings down $75 from year-end |
| Capital ratios, consolidated | Tier 1 leverage 10.46%; CET1 14.95%; total risk-based 15.77% | Above stated well-capitalized regulatory thresholds |
Operating cash flow was $77.5 million, investing cash flow provided $231.0 million, and financing cash flow provided $359.8 million. The $668.3 million net increase in cash reflected deposit growth and other funding flows, alongside loan repayments and investment-security cash flows.
Net interest pressure reflected funding costs rising faster than asset yields: year-over-year funding cost increased 82 basis points, partly offset by a 43-basis-point rise in earning-asset yield. Average borrowings were higher by approximately $1.02 billion year over year. The allowance for credit losses was $82.8 million, or 0.94% of loans; there was no loan-loss provision in Q1, while net charge-offs were $4.0 million. Nonperforming loans were $13.8 million, down from $21.3 million at year-end.
Material changes and notable items
- Interest-bearing deposits rose $554.7 million from year-end, while noninterest-bearing deposits fell $93.4 million. The quarter-end deposit increase included $300 million of brokered deposits, issued with 90-day maturities and paired with cash-flow hedges at an approximate fixed rate of 4.2%.
- Loans declined $134.2 million from year-end, including lower commercial real estate and dairy, livestock and agribusiness balances. Commercial real estate represented 76.62% of total loans; real estate loans overall represented 80.44%.
- Available-for-sale securities had a $485.6 million pretax net unrealized loss at quarter-end, up approximately $35.9 million from year-end. The after-tax unrealized loss reported in accumulated other comprehensive income was $335.8 million. Management attributed valuation movements primarily to interest rates; no credit losses were identified in securities in unrealized-loss positions.
- Noninterest expense included a $2.3 million additional FDIC special-assessment accrual after the FDIC raised its estimated losses from prior bank failures by 25%. The company had accrued $9.2 million in Q4 2023. Higher staff and professional-services costs also contributed to year-over-year expense growth.
- Q1 net earnings included $3.6 million of BOLI income, which was higher year over year partly due to policy changes completed in Q4 2023 and $531,000 of death benefits. Fair-value hedges generated $3.7 million of interest income.
- The company declared $0.20 per share in dividends. It made no open-market repurchases under its program; 145,719 shares were acquired through employee tax-withholding net settlement.
Outlook, liquidity and risks
The filing provides no formal earnings or growth guidance. Management’s allowance forecast, based on probability-weighted Moody’s scenarios, anticipated slower GDP growth late in 2024, GDP growth below 2% in 2025, continued commercial real-estate-value declines through a projected Q3 2024 low, and unemployment peaking near 6% in Q1 2025 and remaining elevated through 2026. Management considered the allowance appropriate but cautioned that inflation, high interest rates, lower commercial real-estate values and geopolitical events could lead to increased future credit-loss provisions.
Quarter-end borrowings consisted of approximately $2.0 billion of Federal Reserve Bank Term Funding Program advances at about 4.75%; $695 million matured in May 2024 and $1.3 billion in January 2025. The BTFP was no longer available for new borrowing as of March 2024. Management expected repayment through cash, security cash flows, core deposit growth and potential wholesale funding. The filing reported $4.81 billion of unused FHLB borrowing capacity and substantial other liquidity sources.
Liquidity and funding risks include reliance on wholesale funding and the potential for deposit outflows or repricing. About 45% of deposits and customer repurchase agreements were described as uncollateralized and uninsured. Interest-rate risk is material: management’s model showed net interest income sensitivity of +3.93% over 12 months for a 200-basis-point rate rise and -4.69% for a 200-basis-point decline; model estimates depend on assumptions about deposit behavior, repricing and prepayments. The filing also identifies California and commercial real-estate concentration, borrower-credit deterioration, securities valuation, legal and regulatory matters, cybersecurity, economic conditions and natural disasters among risks. Management reported no material change to previously disclosed risk factors and no expected material adverse effect from currently pending litigation, while noting litigation outcomes remain uncertain.
Investor verification points
- Track deposit composition and retention, including the level and maturity of brokered deposits, uninsured funding, and the cost of deposits.
- Monitor repayment or refinancing of the $2.0 billion BTFP advances and confirm continued access to stated contingent liquidity sources.
- Assess commercial real-estate concentration, past-due and classified loans, charge-offs, and the adequacy of the allowance as economic forecasts evolve.
- Follow unrealized securities losses, interest-rate exposure, and the effects of hedging on earnings and accumulated other comprehensive income.
- Check whether net interest margin, expense growth and the FDIC assessment continue to pressure profitability and the efficiency ratio.
- Verify dividend sustainability, capital levels, and any changes to the share-repurchase program or regulatory restrictions.