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CVB FINANCIAL CORP (CVBF)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 EPS was $0.37 on net earnings of $51.2M; NIM held at 3.05% while efficiency ratio rose to 46.53% from 45.10% in Q2 .
  • Deposits and customer repos grew $408M QoQ; noninterest-bearing deposits were ~59% of total, supporting low funding costs while borrowings fell to $500M after early redemption of $1.3B BTFP debt .
  • Noninterest income included a $9.1M gain from two sale-leasebacks, offset by an $11.6M loss on $312M of AFS securities sold (strategic deleveraging and repositioning) .
  • Management flagged near-term NII headwinds from the loss of positive carry on BTFP and shrinking hedge carry as rates decline; deposit costs have stabilized and are expected to decline with future Fed cuts (near-100% downside beta on non-maturity deposits) .
  • Wall Street consensus from S&P Global was unavailable due to request limits; estimate beat/miss cannot be determined (S&P Global data unavailable).

What Went Well and What Went Wrong

  • What Went Well

    • Strong liability management: repaid $1.3B BTFP early, reducing borrowings to $500M and improving capital ratios (CET1 15.8%, TCE 9.7%) .
    • Core franchise resilience: noninterest-bearing deposits averaged ~59% of total; deposits and repos rose $408M QoQ; NII increased $2.8M QoQ .
    • Strategic actions: sale-leasebacks generated $9.1M gains, and AFS repositioning set up more flexible balance sheet; CEO: “We are pleased with our third quarter results…190th consecutive quarter of profitability” .

  • What Went Wrong

    • Loan growth pressure: loans declined $109M QoQ (CRE, construction, C&I down), reflecting weak demand and competitive pricing below CVBF’s hurdle rates .
    • Margin/funding headwinds: efficiency ratio worsened to 46.53%; deposit costs rose (cost of funds +9bps QoQ) and hedge carry will diminish with Fed cuts .
    • Credit watch items: past due 30–89 days increased to $30.8M; two large CRE loans moved to nonaccrual in October, though management expects minimal losses given collateral value .

Financial Results

MetricQ1 2024Q2 2024Q3 2024
Net Interest Income ($USD Thousands)$112,461 $110,849 $113,619
Noninterest Income ($USD Thousands)$14,113 $14,424 $12,834
Net Earnings ($USD Thousands)$48,599 $50,035 $51,224
Diluted EPS ($USD)$0.35 $0.36 $0.37
Net Interest Margin (TE) (%)3.10% 3.05% 3.05%
ROAA (%)1.21% 1.24% 1.23%
Efficiency Ratio (%)47.22% 45.10% 46.53%
Balance & MixQ1 2024Q2 2024Q3 2024
Total Deposits + Customer Repos ($USD Thousands)$11,705,284 $12,059,151 $12,467,004
Noninterest-Bearing Deposits ($USD Thousands)$7,206,175 $7,090,095 $7,136,824
Loans (Gross, $USD Thousands)$8,904,910 $8,681,846 $8,572,565
Net Loans ($USD Thousands)$8,818,068 $8,599,060 $8,489,623
Other Borrowings ($USD Thousands)$2,070,000 $1,800,000 $500,000
Capital & CreditQ1 2024Q2 2024Q3 2024
CET1 Capital Ratio (%)14.9% 15.3% 15.8%
TCE Ratio (%)8.33% 8.68% 9.71%
Nonperforming Assets ($USD Thousands)$21,941 $25,604 $22,560
Past Due 30–89 Days ($USD Thousands)$639 $146 $30,765
Net Recoveries (Charge-offs) ($USD Thousands)$(4,025) $(31) $156

Notes:

  • TE = tax equivalent.
  • All values are GAAP unless labeled otherwise in source tables.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQ3 2024$0.20 (Q2) $0.20 (declared Sept. 16) Maintained
Effective Tax Rate (YTD)2024 YTD27.25% (Q2 quarterly) 26.25% (YTD through Q3) Lowered
AFS/Sale-Leaseback ActionsQ4 2024N/AAnticipates two additional sale-leasebacks; expects to offset gains with AFS loss trades New strategic actions
Deposit Beta StrategyNext Fed cuts~50% downside beta in first cut Closer to ~100% downside beta on non-maturity deposits in future cuts More aggressive rate pass-through
Net Interest Income OutlookNear-termN/AHeadwinds from lost BTFP positive carry (~$7M QoQ benefit in Q3) and diminishing swap carry as rates fall Negative bias

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2024 and Q2 2024)Current Period (Q3 2024)Trend
Funding strategy & BTFPPrefunding BTFP maturities; mixing brokered CDs and FHLB; evaluating sale-leasebacks and potential AFS sales Early redemption of $1.3B BTFP; borrowings down to $500M; deposits/customer repos +$408M QoQ Improving balance sheet flexibility
Deposit costs & betaCost of deposits rose; downside beta ~50% on first cut; stabilization evident by June Expect ~100% downside beta on non-maturity deposits in subsequent cuts; costs stabilizing Favorable as rates decline
Loan demand & competitionLow utilization (<30%), CRE production weak; discipline on pricing; target low-single-digit loan growth Loan balances down $109M QoQ; competition fierce (sub-6% rates in market) but CVBF targeting quality/relationships Still challenged; disciplined
Securities/hedgesPositive carry on pay-fixed swaps (~$4.1M in Q2); evaluating AFS repositioning; sale-leasebacks Hedge carry $4.3M; expect carry decline as Fed cuts; executed AFS loss trades and sale-leasebacks in Q3 Carry declining with rates
Asset qualityQ1 charge-offs ($4M) from two known borrowers; NPL/ Classified up but collateral strong Past dues rose; two large CRE loans moved to nonaccrual in Oct; expect minimal losses given collateral Watch items, manageable

Management Commentary

  • “We are pleased with our third quarter results…190th consecutive quarter of profitability.” — David A. Brager, CEO .
  • “Interest income grew by $6.7M… Fed cash up >$500M to ~$1.2B… sold ~$300M AFS at pretax loss of $11.6M… sale-leasebacks generated ~$9.1M gain.” — E. Allen Nicholson, CFO .
  • “Deposit costs have stabilized… we’ll be closer to ~100% beta on the downside on future cuts for non-maturity deposits.” — CEO .
  • “M&A is option 1-A… evaluating buybacks; expect to have something relatively shortly.” — CEO .
  • “We may unwind some fair value hedges as they shorten; not imminent.” — CEO .

Q&A Highlights

  • Near-term NII outlook: loss of BTFP positive carry (~$7M QoQ benefit in Q3) and declining hedge carry will pressure NII as rates fall .
  • Deposit costs: stabilized; plan for near-100% downside beta on non-maturity deposits in future Fed cuts; targeting further rate reductions .
  • Securities and sale-leasebacks: potential additional sale-leasebacks in Q4 with reinvestment and selective hedge changes; AFS losses to offset gains .
  • Loan growth: competition intense, especially CRE and C&I pricing; pipelines mixed; focus on full-relationship C&I originations .
  • Credit: two large CRE loans moved to nonaccrual in Oct; strong collateral, multiple offers on OREO properties; expect minimal credit losses .

Estimates Context

  • S&P Global consensus estimates for Q3 2024 EPS and revenue were unavailable due to request limits; a beat/miss assessment versus Street cannot be provided (S&P Global data unavailable).
  • Given management’s outlook, sell-side models may need to reflect: (a) lower hedge carry as rates decline, (b) improved funding mix (deposit beta-driven), (c) modest loan growth with competitive pricing pressure, and (d) one-off gains/losses tied to sale-leasebacks and AFS repositioning .

Key Takeaways for Investors

  • Liability actions materially de-risked the balance sheet (BTFP retired; borrowings down to $500M); capital ratios among the highest in peers (CET1 15.8%, TCE 9.7%) .
  • Near-term NII pressure likely as Fed cuts reduce hedge carry; watch Q4 for incremental sale-leasebacks and AFS optimization that may add one-time items to noninterest income .
  • Deposit franchise remains a differentiator (NIB ~59%); management expects faster pass-through of rate cuts to deposit costs, supporting margin defense .
  • Loan growth remains challenging amid aggressive competitor pricing; CVBF prioritizes relationship-based C&I and owner-occupied lending over investor CRE .
  • Credit is stable with idiosyncratic issues; October nonaccruals are well-collateralized with potential recoveries; monitor past due trends and classifieds .
  • Capital deployment optionality (M&A and buybacks) is active; watch for announcements that could be stock catalysts .
  • Dividend durability evidenced by 140th consecutive quarterly dividend ($0.20/share) and strong capital; income profile attractive for yield-focused holders .