While the banking world reels from volatility, CVB Financial Corp. (NASDAQ: CVBF) quietly hums along, a picture of stability in a turbulent sea. Their recent Q1 2024 earnings call transcript, however, reveals a strategy that seems almost counterintuitive in a market hungry for fast growth and rapid returns.

CVBF is deliberately embracing a "whisper strategy," prioritizing relationship building and a measured approach to loan growth over aggressive expansion. While other analysts focus on the immediate impact of rising interest rates and funding challenges, a deeper look at CVBF's approach reveals a long-term vision that could position them as a dominant player in the years to come.

The whisper strategy starts with a laser focus on "banking the best small to medium-sized businesses and their owners." This mantra, repeated in both the Q1 and Q4 2023 earnings calls, underscores their commitment to cultivating deep, long-lasting relationships with a select clientele. It's a move away from the high-volume, transactional approach favored by many institutions, and instead, emphasizes personalized service and a full-suite product offering.

This strategy has several immediate consequences. First, it translates to a deliberate slowdown in loan growth, particularly in the commercial real estate sector, which historically constituted a significant portion of their portfolio. In the Q1 2024 call, CEO Dave Brager notes that "the majority of the loans we funded in the last two or three quarters had been either owner-occupied or C&I loans, whereas normally, it would be majority of the loans we would be funding are more investor commercial real estate-related loans."

This shift is further emphasized by the line utilization rates, which remain below 30% for C&I loans, suggesting a focus on building new relationships that are not yet fully utilizing their credit lines. This contrasts with the 80% utilization rate on dairy and livestock loans at year-end, reflecting a more mature and fully utilized line in this sector.

The whisper strategy also translates to a conservative approach to loan pricing. Brager expresses surprise at the low pricing offered by competitors, particularly for five-year rates. He states, "We're starting to see stuff get back into the mid-sixes on five-year rates, and I just think that's probably too low for us." Instead, CVBF focuses on new loans yielding "well over 7%, " prioritizing quality over volume.

The whisper strategy isn't just about loan growth, though. It's also evident in their deposit acquisition strategy. While CVBF acknowledges the need for wholesale funding to replace the maturing bank term funding program borrowings, they remain optimistic about core deposit growth, driven by their focus on attracting operating companies and the natural seasonality of their deposit base.

Here's where the whisper strategy starts to get truly intriguing. By focusing on operating companies, CVBF is tapping into a more stable and reliable deposit base than those institutions chasing high-net-worth individuals or relying heavily on brokered deposits. Operating companies, by their nature, require robust banking services, making them less likely to jump ship for marginal rate increases.

The numbers support this hypothesis. CVBF's cost of deposits increased by 71 basis points from Q1 2022 to Q1 2024, a mere 14% beta compared to the 525 basis point increase in the Fed funds rate during the same period. This demonstrates a remarkably low deposit beta, suggesting a highly sticky deposit base.

Furthermore, their non-interest bearing deposits, a key indicator of customer loyalty and relationship depth, remain stubbornly high, at over 60% of total deposits. This, coupled with the strong deposit pipelines mentioned in both earnings calls, paints a picture of a bank that's quietly building a fortress of loyal customers, unfazed by the turmoil engulfing other institutions.

Loan Mix Shift: Q1 2023 vs. Q1 2024

Deposit Beta: Q1 2022 vs. Q1 2024

Can slow and steady actually win the banking race?

CVBF's whisper strategy certainly suggests so. By focusing on relationship-driven growth, a conservative approach to loan pricing, and a stable deposit base, they are forgoing short-term gains for a long-term vision. They are laying the foundation for sustained profitability and market dominance in an environment where many of their competitors may find themselves exposed and vulnerable.

Time will tell if the whisper strategy ultimately triumphs, but CVBF's Q1 2024 earnings call transcript offers a compelling glimpse into a bank playing the long game, and perhaps, whispering their way to victory.

"Fun Fact: CVBF has achieved an impressive 188 consecutive quarters of profitability! This consistency speaks volumes about their disciplined approach and commitment to delivering value."