CVB Financial Expands Lending as Heritage Costs Cut Profit
Net interest income climbed 37.8% sequentially to $162.4 million after the Heritage acquisition.
CVB Financial Corp. (CVBF), the California bank holding company, reported lower second-quarter profit as Heritage acquisition costs outweighed growth in net interest income.
Net income fell to $48.3 million from $51.0 million in the first quarter and $50.6 million a year earlier. Diluted earnings declined to $0.29 a share from $0.38 and $0.37, respectively, after the company recorded $31.4 million of acquisition expense and a $4.25 million provision for unfunded loan commitments.
The Heritage transaction reshaped the quarter’s earnings and balance sheet. Net interest income rose 45.5% from a year earlier, reflecting 74 days of Heritage operations, a $3.67 billion sequential increase in average earning assets and a wider margin. Total assets expanded 36.6% from the first quarter to $21.18 billion.
The tax-equivalent net interest margin widened to 3.72% from 3.44% sequentially and 3.31% a year earlier. The average earning-asset yield increased 27 basis points to 4.62%, while the cost of funds was nearly unchanged at 0.96%. Heritage also brought Bay View Funding, a factoring business whose average factored receivables of about $86.1 million yielded 18.04% during the quarter.
Loans increased 39.0% sequentially to $12.02 billion, driven primarily by $3.10 billion of Heritage loans held for investment. Deposits and customer repurchase agreements rose 35.5% to $16.85 billion, though the funding mix shifted toward interest-bearing accounts. Noninterest-bearing deposits represented 52.84% of quarter-end deposits, down from 59.44% in the first quarter.
Noninterest expense increased to $114.4 million from $60.6 million in the prior quarter, with acquisition expense accounting for $31.4 million. The reported efficiency ratio deteriorated to 63.75%, while the ratio excluding merger-related costs improved to 43.88% from 44.61%. Noninterest income rose to $17.0 million from $14.3 million, supported by higher deposit-service, trust and insurance income.
Credit measures weakened as Heritage loans entered the portfolio. Nonperforming loans rose to $16.6 million, or 0.14% of loans, and classified loans increased to $109.7 million, largely because Heritage contributed $29.1 million. The allowance for credit losses increased to $126.7 million, lifting coverage to 1.05%, while the company recorded no provision for credit losses during the quarter.
CVB Financial authorized repurchases of as many as 15 million shares under a new program after buying 241,034 shares for $5.1 million during the quarter. Tangible book value declined to $11.07 a share from $11.42 sequentially, and the common-equity Tier 1 ratio fell to 14.7%, leaving the company to integrate its larger balance sheet with a thinner capital cushion.