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CVB FINANCIAL CORP (CVBF)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered diluted EPS of $0.36, up vs Q1 ($0.35) but down vs prior year ($0.40), with NIM compressing to 3.05% and efficiency ratio improving to 45.1% quarter-over-quarter .
  • Average deposits rose $245.3M Q/Q; mix remained strong with 60% noninterest-bearing, while cost of deposits climbed to 0.88% and cost of funds to 1.38%, pressuring NIM .
  • Asset quality remained solid with minimal net charge-offs ($31K) but nonperforming assets increased to 0.16% of total assets due to new nonperforming CRE loans; ACL held at 0.95% of loans .
  • Management is executing targeted sale-leasebacks (first closed in July with >$3M gain) and planning to repay BTFP borrowings via cash, security cash flows, core deposits, and selective wholesale funding—key capital/funding catalysts for the stock .
  • No formal quantitative guidance; management reiterated a low single‑digit loan growth objective from here and indicated possible buybacks depending on M&A opportunities and capital mix .

What Went Well and What Went Wrong

  • What Went Well

    • Expense discipline: Noninterest expense fell $3.3M Q/Q, largely due to FDIC special assessment accrual reversal; efficiency ratio improved to 45.1% from 47.22% Q/Q .
    • Deposit stability and mix: Average deposits +$245.3M Q/Q, with noninterest-bearing deposits ~60% of total, supporting funding resilience despite higher rates .
    • Capital strength: CET1 15.3%, total risk-based 16.1%, TCE 8.7%; tangible book value per share rose to $9.55 .
    • Management quote: “The second quarter financial results represent our 189th consecutive quarter of profitability… steady and stable performance in the face of a challenging environment.” — CEO David Brager .

  • What Went Wrong

    • Margin pressure: NIM declined 5 bps Q/Q to 3.05% as cost of funds rose 7 bps; time deposit costs spiked 79 bps with higher brokered CDs .
    • Nonperforming loans increased: NPLs rose to $25.6M (0.16% of assets), driven by three nonperforming CRE loans (~$10.9M), and classified loans increased Q/Q (to $124.7M) with ag exposures .
    • Loan balances contracted: Total loans fell $88.9M Q/Q; weaker CRE demand and low utilization on new C&I commitments limited growth .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Diluted EPS ($)$0.40 $0.35 $0.36
Total Interest Income ($mm)$149.239 $157.689 $159.072
Interest Expense ($mm)$29.704 $45.228 $48.223
Net Interest Income ($mm)$119.535 $112.461 $110.849
Noninterest Income ($mm)$12.656 $14.113 $14.424
Efficiency Ratio (%)40.86% 47.22% 45.10%
NIM (TE, %)3.22% 3.10% 3.05%
ROAA (%)1.36% 1.21% 1.24%
ROAE (%)11.03% 9.31% 9.57%

KPIs and Funding

KPIQ2 2023Q1 2024Q2 2024
Yield on Avg Loans (%)5.01% 5.30% 5.26%
Yield on Avg Investment Securities (TE, %)2.37% 2.64% 2.71%
Yield on Avg Earning Assets (TE, %)4.01% 4.34% 4.37%
Cost of Deposits (%)0.35% 0.74% 0.88%
Cost of Funds (%)0.83% 1.31% 1.38%
Noninterest-bearing Deposits (% of total, avg)63.58% 61.72% 60.20%
Avg Interest-Earning Assets ($mm)$14,967.661 $14,644.400 $14,673.474

Balance Sheet and Asset Quality

MetricQ2 2023Q1 2024Q2 2024
Total Deposits ($mm, EOP)$12,397.521 $11,433.642 $11,790.325
Customer Repos ($mm, EOP)$452.373 $271.642 $268.826
Noninterest-bearing Deposits ($mm, EOP)$7,878.810 $7,206.175 $7,090.095
Time Deposits ($mm, EOP)$316.036 $396.395 $774.980
Gross Loans ($mm, EOP)$8,907.397 $8,904.910 $8,681.846
Net Loans ($mm, EOP)$8,820.430 $8,818.068 $8,599.060
ACL (% of loans)0.98% 0.94% 0.95%
Nonperforming Assets / Total Assets (%)0.04% 0.09% 0.16%
Net Charge-offs ($mm)$0.073 $4.025 $0.031

Dividend

MetricQ2 2023Q1 2024Q2 2024
Cash Dividend per Share ($)$0.20 $0.20 $0.20
Dividend Payout Ratio (%)49.82% 57.38% 56.00%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loan Growth ObjectiveBalance of 2024Low single-digit objective (qualitative) Low single-digit objective reiterated Maintained
Balance Sheet TrajectoryNear-term (next few quarters)NoneLikely near-term shrink as BTFP is repaid; focus on reducing borrowings Introduced qualitative view
Capital Actions (Buybacks)2–4 quartersEvaluating; dependent on M&A and TCE levels Under consideration; may reinstate 10b5-1 depending on conditions Maintained/Monitoring
Sale-Leasebacks2H 2024ExploringHandful targeted; first closed with >$3M gain; not expecting material gains in Q3 Introduced
DividendQ2 2024$0.20 quarterly $0.20 declared (139th consecutive) Maintained
Tax RateQ2 2024NoneEffective tax rate ~27.25%; varies with BOLI/munis Informational

Earnings Call Themes & Trends

TopicQ4 2023 (Prior-2)Q1 2024 (Prior-1)Q2 2024 (Current)Trend
Funding costs & NIMNIM 3.26%; cost of funds +17 bps Q/Q; deposit beta <12% NIM 3.10%; cost of funds +22 bps Q/Q; deposit beta ~14% NIM 3.05%; cost of funds +7 bps Q/Q; cost of deposits 0.88% Continued pressure, moderating sequentially
Deposit mix & migrationSeasonal outflows; noninterest-bearing 63% EOP; trust migration noted Noninterest-bearing ~60%; +$300M brokered deposits added Noninterest-bearing ~60%; deposits up on average; $400M brokered at EOP Mix resilient; brokered usage up
BTFP & borrowings~$1.9B BTFP; maturities in 2024 Plan to repay via cash, securities, core deposits, wholesale $1.3B BTFP outstanding; repayment plan reiterated; added $500M FHLB (4.27–4.73%) Transition planning active
Securities portfolio & hedgesAFS unrealized loss improved; pay-fixed swaps positive carry Maintain swaps; TE yield 2.64%; evaluating restructuring TE yield 2.71%; swaps income +$0.4M Q/Q; considering limited AFS sales offset by sale-leaseback gains Incremental optimization
Sale-leasebacksNot discussedExploring First closed (> $3M gain); more possible if pricing acceptable New balance sheet lever
CRE & Inland Empire industrialPortfolio resilient; office detail shared CRE demand slow; pricing competition noted Inland Empire large-box vacancy up but not in bank’s target; disciplined underwriting; largest classified industrial LTV <30% Cautious but contained
Ag (Dairy/Production)Monitoring; exposures modest Dairy/Livestock utilization seasonality; pressures persist Classified ag up; dairy recovery underway (feed -25%, milk prices rising) Early improvement signs
M&A / Capital returnsConversations ongoing; sizes $1–10B Active discussions; headline/regulatory risks considered Hope to announce by year-end; buybacks considered vs M&A Optionality maintained
CitizensTrustGrowth with deposit migration$800M (2023) moved; AUA/AUM growing ~$170M moved YTD; AUA/AUM ~$4.3B; trust fees + Slower migration; fee growth

Management Commentary

  • “Net earnings of $50 million or $0.36 per share… efficiency ratio 45.1%… our 189th consecutive quarter of profitability.” — David Brager, CEO .
  • “We anticipate that the Bank Term Funding Program borrowings will be repaid through a combination of existing cash, security cash flows, core deposit growth and additional wholesale funding sources.” — E. Allen Nicholson, CFO .
  • “We expect to utilize gains from [sale‑leasebacks] to offset losses from selling some securities within our AFS portfolio. The first… closed… resulting in a gain of greater than $3 million.” — CFO .
  • “Loan pipelines are slower… but we can grow loans in the low single‑digit range from this point… we’re getting full relationships.” — CEO .

Q&A Highlights

  • Margin and funding outlook: Cost of non‑maturity deposits rose to ~74 bps; time deposits ~3.44% spot; NIM color provided without forward guidance .
  • Loan yields: Core loan yield trend up modestly; quarter-to-quarter volatility from fees/prepayments, but underlying trend positive .
  • Capital deployment: M&A conversations ongoing; buybacks under review if M&A slow; board may consider reinstating 10b5‑1 plan .
  • Sale-leasebacks: Executing selectively based on cap rates; a “handful at most” expected depending on market pricing .
  • CRE (Inland Empire industrial): Larger-box vacancy increases not representative of bank’s lending focus; disciplined underwriting and low LTVs .
  • Deposits and trust migration: Deposit pipeline solid; continued, but slowing movement to CitizensTrust for yield; relationship retention emphasized .

Estimates Context

  • S&P Global Wall Street consensus data for Q2 2024 EPS and revenue was unavailable at the time of this analysis due to data access limits. As a result, we cannot classify the quarter as a beat/miss versus consensus. Actual diluted EPS was $0.36; net interest income was $110.8M, noninterest income $14.4M .
  • Where sell-side models adjust, expect: modest reductions to NIM assumptions given higher funding costs, slight improvements to expense run-rate after FDIC accrual reversal, and more conservative credit provisioning paths given higher NPLs (qualitative inference; no numeric consensus retrieved).

Key Takeaways for Investors

  • Funding cost headwinds likely persist near-term; watch cost of deposits/time deposits and wholesale mix as the primary NIM drivers .
  • Deposit mix resilience (60% noninterest-bearing) remains a differentiator supporting ROA/ROE; brokered time deposits utilized tactically at EOP .
  • Asset quality broadly solid; monitor CRE additions to nonaccruals and classified ag loans; ACL coverage steady at ~0.95% .
  • Capital optionality intact: sale-leasebacks unlocking gains, potential AFS repositioning offset; high regulatory capital ratios support M&A or buybacks .
  • Loan growth likely low single-digit from here, skewed to C&I/owner‑occupied with lower utilization; CRE demand subdued—supports spread but tempers volume .
  • Near-term balance sheet optimization (repaying BTFP, adjusting securities) may shrink assets but can lift ROA/TCE—watch execution and timing .
  • Dividend continuity (139th consecutive) underscores stability; payout ~56% this quarter offers yield support while preserving capital flexibility .