CVB Financial Corp 2026 Q3 Earnings Call

You may proceed. Thank you, Sheree, and good morning, everyone.

Thank you for joining us today to review our financial results for the third quarter of 2026. Joining me this morning is our Chief Executive Officer, Dave Brager, and our President, Clay Jones. Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy, please visit our website at www.cbbank.com and click on the Investors tab. Speakers on this call claim the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2025, and in particular, the information set forth in Item 1A, Risk Factors therein.

For a more complete version of the company's safe harbor disclosure, please see the company's earnings release issued in connection with this call. I will now turn the call over to Dave Brager.

Dave? Thank you, Allen. Good morning, everyone.

For the third quarter of 2026, we reported net earnings of $78.1 million, or $0.44 per share, representing our 198th consecutive quarter of profitability, which is every quarter for over 49 years. We previously declared a $0.20 per share dividend for the third quarter of 2026, representing our 148th consecutive quarter of paying a cash dividend to our shareholders. Our net earnings of $78.1 million or $0.44 per share compared with $48.3 million for the second quarter of 2026 or $0.29 per share and $52.6 million or $0.38 per share for the prior year quarter. Pre-tax income in the third quarter of 2026 was $106.1 million compared to $65 million in the second quarter of 2026.

The third quarter was the first calendar quarter with the full benefit of the acquisition of Heritage Bank of Commerce as the second quarter of 2026 reflected 74 days of combined operations with Heritage. The core banking systems of the two banks were integrated at the end of the second quarter, and we incurred $31.4 million in acquisition expenses during the second quarter compared to $8.1 million for the third quarter. Now that we have completed a full quarter post-merger and systems conversion, I would like to highlight some key financial measurements we have achieved at this time by comparing the third quarter of 2026 to the same quarter of 2025. We announced with the merger that we would generate EPS growth of 13% by 2027. For the third quarter, earnings per share grew by six cents or 16%.

Upon announcement, we highlighted a return on average assets targeted to exceed 150 basis points by 2027. For the third quarter of 2026, the reported return on average assets was 1.48%, but after adjusting for acquisition expense, it was 1.59%. We also achieved a 16.2% return on average tangible common equity in the third quarter of 2026, which compares to the 17% target we announced in 2027. I will now turn the call over to Clay to discuss loans and deposits.

Thank you, Dave. Total loans were $12.1 billion at September 30th, 2026, an increase of $105 million from June 30th. Loan originations continued at a strong pace in the third quarter. However, originations decreased by 15% from the second quarter of 2026 but were approximately 20% higher than the first quarter of this year. Third quarter loan origination yields were approximately 20 basis points higher than the prior quarter, with new loan origination yields approaching 6.25%. Rate competition for high-quality loans continues to be intense, and the recent rise in interest rates has resulted in some customers rethinking transactions or just utilizing internal cash funds. Our loan pipelines remain relatively strong, but demand is slowing down among our customers and prospects due to higher interest rates.

Our average loan portfolio yield was 5.66% for the third quarter of 2026, compared to 5.53% for the second quarter of 2026 and 5.25% for the third quarter of 2025. Excluding loan fees and discount accretion on acquired loans, our base loan yield increased from 5.37% at June 30th to 5.46% at September 30th. The overall line utilization rate at September 30th, 2026 was 42%, compared to 41% at June 30th, 2026. However, the C&I line utilization decreased quarter-over-quarter from 32% to 31%. Dairy and livestock line utilization increased from 53% at the end of the prior quarter to 66% at September 30th, which compares to 64% in the second quarter of last year. We experienced $20,000 of net charge-offs during the third quarter, compared to $137,000 of net charge-offs during the second quarter of 2026.

Total non-performing assets increased from $16.8 million to $18.7 million at September 30, 2026, which represents 9 basis points of total assets. Classified loans were 94 basis points of total loans, or $113.9 million at September 30, compared to $109.7 million at June 30, 2026. The $4.2 million increase from June 30, 2026 was due to the addition of two classified CRE loans totaling approximately $5 million. Now on to deposits. Our total deposits and customer repurchase agreements as of September 30 were $16.3 billion, which compares to $16.9 billion on June 30, 2026. The $550 million decrease was the result of interest-bearing deposits and repos declining by $360 million and non-interest-bearing deposits decreasing by $190 million. Our non-interest-bearing deposits were 53.5% of total deposits on September 30, compared to 52.8% on June 30, 2026.

Total deposits and customer repurchase agreements increased on average by $578 million from the second quarter of 2026, net of a $256 million decline in average time deposits, concentrated in the $240 million average decrease in brokered CDs. If the second quarter is adjusted on a pro forma basis to include the deposits acquired from Heritage for the full 91 days in the quarter, total deposits and customer repurchase agreements would have decreased in the third quarter by approximately $300 million, including the $240 million average decrease in brokered CDs. Non-interest-bearing deposits have been stable. On a pro forma basis, they would have increased by $100 million on average in the third quarter. However, we did experience some late quarter drawdowns on interest-bearing deposits that on a pro forma basis reflect an average decrease in customer interest-bearing deposits and repos of $170 million.

Interest-bearing deposit levels have stabilized in October to date, while non-interest-bearing deposit levels have strengthened modestly. With the Fed increasing interest rates, we anticipate continued deposit pressure, which could impact our near-term level of interest-bearing deposits. Our cost of deposits and repos was 83 basis points for the third quarter of 2026, compared to 86 basis points for the second quarter of 2026 and 90 basis points for the year-ago quarter. I will now turn the call over to Allen to further discuss balance sheet and net interest income.

Thanks, Clay. Our total assets decreased from $21.2 billion at June 30, 2026 to $20.5 billion as of September 30. Average earning assets for the third quarter of 2026 were $18.5 billion, an increase over the second quarter of $900 million. The growth in earning assets, combined with a 16 basis point expansion in our earning asset yield, drove a 9% or $18.5 million increase in interest income compared to the second quarter of 2026. Our cost of funds was 0.96% for both the third and second quarters of this year. Interest expense for the third quarter increased by $1.9 million from the second quarter of this year as average interest-bearing deposits grew by $213 million and borrowings increased by $116 million related to the transition of our cash flow hedges from brokered CDs to FHLB advances during the second quarter.