good morning ladies and gentlemen and welcome to the fourth quarter of 2025 cvb financial corporation and its subsidiary citizens business bank earnings conference call my name is sheree and i'm your operator for today at this time all participants are in a listen only mode later we will conduct a question and answer period please note this call is being recorded i would now like to turn the presentation, over to your host for today's call, Alan Nicholson, Executive Vice President and Chief Financial Officer. You may proceed.

To review our financial results for the fourth quarter of 2025. 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. The 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, 2024. 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'll now turn the call over to Dave Brager. Thank you, Alan. Good morning, everyone.

For the fourth quarter of 2025, we reported net earnings of $55 million, or $0.40 per share, representing our 195th consecutive quarter of profitability, which equates to more than 48 years. We previously declared a $0.20 per share dividend for the fourth quarter of 2025, representing our 145th consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.4% of 1.40% for the fourth quarter of 2025. So $55 million, or 40 cents per share, compares with $52.6 million for the third quarter of 2025, or 38 cents. $3.9 million, or 36 cents. Pre-tax income grew by $5.4 million quarter-over-quarter and $6.3 million over-tax income, as well as the increase from the fourth quarter of 2024, were primarily the result of growth in net interest income. Net interest income grew by $7 million, or 6%, $2 million of interest on a non-performing loan that was paid off during $0.8 million loss on sale of investment. $1.6 million of acquisition expense related to the pending merger with Heritage Bank of Commerce during the first quarter and reserve for unfunded loan commitments has a net impact of increasing pre-tax income by $3 million compared to the prior quarter and pre-tax income decreasing by $1.5 million compared to the fourth quarter. Interest income was $11.2 million in the fourth quarter, which was $1.8 million lower than the third quarter, and $1.9 million lower than the fourth quarter of 2024. Trust and investment services income grew by $156,000, or 4%, 25, and grew by $519,000, or 15%, over the long-life insurance income decreased by $1.1 million from the third to fourth quarters due to the annual amortization of revenue enhancements. In addition, other income declined by $800,000 from the prior quarter. This decrease in other income was the result of a smaller loss on sale of investments during the fourth quarter as we incurred a $2.8 million loss during the fourth quarter compared to the $8 million loss on sale incurred in the third quarter and the $6 million of income earned in the third quarter from a legal settlement. Now let's discuss loans. Total loans at December 31, 2025 were $8.7 billion, a $228 million, or 2.7% increase from the end of the third quarter of 2025, and a $163 million, or 2% increase from the end of 2024. The quarter-over-quarter increase in total loans was due to growth in nearly all loan categories. As typically happens year-end, we experienced seasonal increases in dairy and livestock borrowings. Dairy and livestock loans grew by $139 million compared to the end of the third quarter, driven by higher line utilization, 64% at the end of the third quarter to 78% at the end of the fourth quarter. Loan growth was also positively impacted by increases in line utilization for CNI line to credit, increasing from 28 percent at the end of the third quarter to 32 percent at the end of the year. Compared to the end of the third quarter, C&I loans grew by $34 million, CRE loans grew by more than $39 million, and SBA 504 loans grew by $17 million. A $63 million year-over-year increase in loans includes growth of CRE loans of $67 million, $49 million of growth in C&I loans, $25 million of growth in SBA 504 loans, and $22 million of growth in construction loans. Loan originations were approximately 70% higher in 2025 than 2024. Production was approximately 15% higher than the third quarter of 2020. Clines remained strong going into 2026, although rate competition for the quality of loans we compete for continues to be intense. Loan originations in the fourth quarter had average yields of approximately 6.25 percent, which was consistent with the prior quarter. We experienced $325,000 of net recoveries during the fourth quarter compared to $333,000 of net recoveries for the third quarter of 2025. Net recoveries for the full year of 2025 were $539,000. Non-performing and delinquent loans decreased by $20 million to $8 million at December 31, 2025. A $20 million non-performing loan was paid in full at the beginning of the fourth quarter. The sale of the building collateralizing this loan resulted in the bank receiving all principal at $3.2 million of interest. Classified loans were $52.7 million at December 31, 2025, compared to $78.2 million at September 30, 2025, and $89.5 million at December 31, 2020, were 0.6% on the deposits. Total deposits and customer repurchase agreements were $12.6 billion during the fourth quarter, which compares to $12.5 billion for the 120% maturity deposits and customer repos. Deposits were 58% of total deposits for the pair to 59% for both the third quarter of 2025. In 2025, it's in customer repurchase agreement, non-interest-bearing, a year by approximately 4,000. It declines a year.

It's in repos with 86 basis points, or to 90 basis points, $122.7 million in the fourth quarter of 2025. This compares to $115.6 million in the third quarter of 2025 and $110.4 million in the fourth quarter of 2024. Interest income was $156 million in the fourth quarter of 2025 compared to $150.1 million in the third quarter and $147.6 million in the fourth quarter of last year. Average earning assets increased by $153 million in the fourth quarter when compared to the third quarter, and the earning asset yield increased by 11 basis points from 4.32% to 4.43%. The fourth quarter loan yield was 5.47% compared to 5.25% in the prior quarter. Excluding the $3.2 million of interest income on the non-performing loan we previously discussed, the owed on loans would have increased quarter over quarter by seven basis points. Interest expense was $33.3 million in the fourth quarter and $34.5 million in the third quarter of 2025. Our cost of funds decreased from 1.05% for the third quarter of 2025 to 1.01% in the fourth quarter of 2025. The average balances of interest-bearing deposits and repos increased by $232 million over the prior quarter. However, interest expense decreased as interest-bearing deposit costs declined by 17 basis points and the cost of customer repurchase agreements decreased by 24 basis points. Balance for credit loss was $77 million at December 31, 1, 2025, or 0.89% of gross loans. In comparison, our allowance for credit losses as of September 30, 2025 was $79 million, or 0.94% of gross loans. The decrease in the ACL resulted from a $2.5 million recapture of credit loss and net recoveries of $325,000. Our $77 million dollar ACL is 133 percent of our combined non-performing assets and classified loans. Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. We continue to have the largest individual scenario weighting on Moody's baseline forecast with both upside and downside risks weighted among multiple forecasts. The resulting economic forecast at December 31, 2025 was modestly different from our forecast at the end of the third quarter. with loss rate assumptions for C&I loans experiencing a negative impact from the economic forecast. Real GDP is forecasted to stay below 1.5% through 2027 and not reach 2% until 2029. The unemployment rate is forecasted to reach 5% by the beginning of 2026 and remain above 5% through 2028. Commercial real estate prices are forecasted to continue their decline through the third quarter of 2026 before experiencing growth through 2029. So now switching to our investment portfolio, available for sale or AFS investment securities were $2.68 billion at December 31st, 2025. During the fourth quarter, we sold $30 million of securities with an average book yield of 1.5%. realizing a $2.8 million loss, and then purchased $239 million of new securities in an average book value yield of approximately 4.75%. The unrealized loss on AFS security decreased by $26 million from $334 million on September 30, 2025, to $308 million on December 31, 2025. The net after-tax impact of changes in both the fair value of our AFS securities and our derivatives resulted in a $20 million increase in other comprehensive income for the fourth Our held-to-maturity investments totaled $2.27 billion at December 31, 2025, which is $109 million lower than the balance at December 31, 2024. Now, turning to the capital position, at December 31, 2025, our shareholder's equity was $2.3 billion, a $109 million increase from the end of 2024, including the $84 million increase in other comprehensive income. There were 1.96 million shares of common stock repurchased during the fourth quarter of 2025 at an average purchase price of $18.80. For all of 2025, we repurchased 4.3 million shares at an average share price of $18 and six-footing tangible common equity ratio was 10.3% at December 31st, 2025, while our common equity Tier 1 capital ratio was 15.9%, and our total risk-based capital ratio was 16.7%. I'll now turn the call back to Dave for further discussion of our expenses.

Thank you, Alan. Non-interest expense for the fourth quarter of 2025 was $62 million, compared to $58.6 million in the third quarter of 2025 and $58.5 million in the fourth quarter of 2024. During the fourth quarter, we incurred $1.6 million of one-time merger-related expenses associated with the pending merger with Heritage Bank of Commerce. The fourth quarter of 2025 also included a $1 million provision for off-balance sheet reserves compared to a $500,000 provision in the third quarter. Excluding acquisition expense and the provision for off-balance sheet reserves, operating expenses grew by 2.3%, or $1.4 million over the third quarter of 2025. For $1 million, over the acquisition expense and the provision for off-balance sheet reserves, we achieved positive operating leverage from both the prior quarter and the year-ago quarter of 2% and 6% respectively. Non-interest expense, excluding acquisition expense, totaled 1.53% as a percentage of average assets in the fourth quarter of 2025, compared to 1.50% for the third quarter of 2.49% for the fourth quarter. This concludes today's presentation. Now Alan and I will be happy to take any questions.

Thank you. If you would like to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Matthew Clark with Piper Sandler. Your line is open.

Hey, good morning, guys.

Good morning, Matthew.

I just want to start on the non-interest-bearing deposits. You mentioned some seasonality. It looks also like some mixed change toward savings money market. Can you just speak to what you saw there and maybe, you know, whether or not there was some behavioral change among customers, you know, seeking rate?

For us, people pay bonuses, accrue for taxes, do different things. So I don't really think there was any major change. there wasn't any movement of any large relationships or deposits from non-interest bearing to interest bearing. I think for the most part, it just was normal seasonality. The part that was different was that we actually grew the non-interest bearing deposits, and that is something that is a little different, but it wasn't necessarily coming from the non-interest bearing and moving I mean, Matthew, I would just consistently say look at quarterly hard deposit.

Customers move fairly large amounts of money at any point in time, so point in time balances don't necessarily reflect exactly what's going on, so average balances I think are just more informative.

Yep. Yep. Okay. And then just on the non-dairy and livestock loan growth, you know, if you exclude it, it's, you know, up over 4% annualized this quarter. I know some of it was higher line utilization, but maybe speak to, you know, the higher line utilization, whether or not you think that might be more sustainable and, you know, your thoughts overall on kind of non-dairy and livestock loan growth this year?

Yeah, you know, it's kind of interesting. I think we ended the year. I think the utilization is normalizing. I think people are a little more positive, I mean, as evidenced by just some of the GDP growth that we're seeing. So, I think that that's probably going to remain a little more stable than it has been over the last, you know, year and a half or so. So, and candidly, that's anecdotal, but everybody we talk to is basically saying that, you know, they're ready to go and they think things are going to be okay. So, that's a good sign. That's also evidenced, obviously, by the classified loans and the non-performing loans that, you know, we reported at the end of the quarter. So, I think all in all, the pipelines are strong, at least for the foreseeable future, and I believe that, you know, we'll be able to do more with our existing customers, and we're still attracting, you know, some pretty good relationships going forward. So all in all, I'm cautiously optimistic, maybe even positive, and optimistic about 2026 so far.

Great. And then last one for me, just on the Heritage deal, any update and how it's progressing?

We're getting ready from an application perspective and the proxy perspective, but everything's going according to plan right now. We still anticipate a second quarter close and a second quarter systems conversion, and I think that's where we are. Obviously, you know, there's still game to be played there, but everything's looking good so far.

Okay, great.

One moment for our next question. And that will come from the line of David Feaster with Raymond James. Your line is open.

Good morning, everybody. I wanted to circle back to the core deposit side. Obviously, we talked about the seasonal dynamics within NIB, but I wanted to get your thoughts on the competitive landscape for deposits from your standpoint. Where are you winning deposit business? And your thoughts on the, you know, obviously you saw good interest-bearing deposit growth. And then just your thoughts on the ability to push through the Fed cuts and expectations for betas near term.

Yeah, so we always seem to have this sort of dip. And as Alan said, on any one given day, that money can move out and move back. And there's a number of things that happen. And that's why I think the average number is better as well. But we are winning relationships. As you know, we are not a bank that goes out and offers the highest rate on our deposit accounts. and we're not really trying to attract that type of customer. So I think for the most part, it's pretty standard on the type of relationship. As far as the Fed rate cuts are concerned, we basically, during the last cut, we basically lowered everything by a quarter percent that was earning over 1%. And so, you know, we're trying to capture as much of that as possible. I think the combination of, you know, on the interest-bearing deposit side with the trying to offset to the extent we can on the asset side of those rate cuts, I mean, I think it was a good sign for us that, you know, our asset, our loan yield still went up despite a Fed rate cut. And we added a slide in our investor deck in the appendix that really gives a very good overview of sort of the repricing slash reset timeframes, both the fixed rate stuff that's maturing or resetting over the next, you know, I think it's, we go all the way up to 10 years and over. It's a very small number in that category there than we had in the previous deck as well. But on the deposit side, David, it's pretty much the same type of thing. And I think from a competition standpoint, we are seeing more competition utilizing earnings credit and, you know, that ability to pay. I mean, we just had a relationship that came to us and said that there was a bank, and I won't mention the name, but there was a bank that was offering them a 3% guaranteed ETR rate for five years with paying their accounting system, which is 120 grand a year as part of that five-year deal. I don't know the outcome of that one yet, but that's what I'm seeing out there. And I don't know if that's just for the other banks to drive their non-interest bearing or just deposits in general, but there is loan growth, so there's going to be funding pressure. So I think that's something that, you know, we need to stay on top of. But for the most part, it's pretty much status quo and business as usual for us.

Okay, that's helpful. And to that point on the growth side, I was hoping you could touch on the competitive landscape there. It sounds like you're seeing primarily just on the pricing side, but wanted to see if you're getting any more aggressiveness from competitors on the underwriting side. And then just how do you think about payouts and paydowns. Obviously, there's pretty significant back book repricing in your story, but I'm just curious with competition and potential Fed cuts still on the horizon, how do you think about payouts and paydowns next year? Is that something that you would expect could be a headwind?

Yeah, well, it's always to your comment. The one thing that I is that we theoretically always see the actual quote, so I always question whether that's true or not, but they're theoretically getting quotes from competitors out there saying they'll do the loan at a lower rate than what our repricing rate would be or reset rate would be. And so we have a little protection with the prepayment penalty, but on the maturing book, we don't have any protection there, so we have to be a little more aggressive. I was candidly very happy that our fourth quarter average yield was six and a quarter, because I would say some of the stuff we're doing now is closer to the six range, just to be competitive on that. And look, treasuries, you know, are going up, at least in the last week or so, they're going up pretty good. So, you know, hopefully people will remain disciplined. But, you know, it's really more pricing than credit. You know, we're not going to do something that we wouldn't do from a credit underwriting perspective. But we, you know, especially to protect relationships, we'll be a little more aggressive on the pricing aspect of it are you seeing more people are doing i think that's also part of okay have you started to see the point that alan brought up if he thinks two or three years you know we'll see uh but if you just look at the forward you know a lot of different

factors yeah um and so it doesn't sound like other than the duration that you've really seen much pressure on on the underwriting structures or standards all right thanks everybody one moment for our next question and that will come from the line of Andrew Terrell with Stevens your line is open hey good morning if I

could just start maybe you know asking an expenses I think you know post the adjustments you guys call out it's around 59 million or so but you know With compensation up this quarter, was any of that incentive accrual adjustments kind of at year end? And then maybe just, you know, looking for a little bit of help around thoughts on organic expense growth into 2026 or kind of run rate expectations you guys have?

Adjustments to our private bonus share accrual holiday season, there's extra benefit expense or might be a better indication of where expense growth is. And I think that was less than two. You know, I think, once again, particularly if you look at the full-year numbers, the only expense line that's really growing more than, you know, very low single digits is the technology side, the software expense. And, you know, we'll continue to invest in that. The percentages may not be quite as high as 24 to 25, but that's an area we'll continue to invest in.

Yeah, okay. Okay. And then just on the margin overall, I appreciate the slide you guys gave on the loan repricing in the presentation. But, you know, if we look at margins for the industry right now, a lot of the banks out there are approaching kind of that, you know, peak level or fairly close from back in, you know, 2019. You guys are still, you know, 50, 75 basis points light versus, you know, that four and a quarter level from 2019. So, I guess the kind of question is, has anything structurally changed preventing you from getting back there? And then, you know, just keeping that loan repricing in mind, I know some of it looks, you know, decently far out there up to 10 years. How long does it take you guys to get margin back to what you would view as a normalized level?

The yield environment played back then, the loan book still as well. So it'll take a little time for both cash flows and the security book to reprice, as well as the loan book to reprice, and that's why we added that slide. So, I mean, it's hard to tell, and I don't know if I would comment on it, knowing that there's so many variables. But, you know, I wouldn't be surprised if we get there over the next couple of years, but, you know, there's a lot of things that can change that.

Yeah, and the only thing I would add to that, Andrew, is, you know, to the point that, you know, we have not done any large restructuring lost trade-type transactions. And so in the fourth quarter, with the gain that we had or with the recapture of the interest income that we had, we used that to take advantage of. So sort of all these one-time things that happen, we will still look at that and make determinations. And that's really, you know, part of the reason that we looked at the loss trade, you know, utilized that $3.2 million we recaptured in interest. So, you know, we'll just continue to do that. It's more singles. We're not planning on doing anything, you know, like we've said all along, anything larger than.

Yeah. Yeah, my follow-up to that was going to be on the securities, so I appreciate it. Thanks for taking the questions.

One moment for our next question. And that will come from the line of Gary Tenner with DA Davidson. Your line is open.

Good morning. Hey, I had just a follow-up on the loan yields in the quarter, you know, even excluding that interest recovery, as you pointed out, Alan, the loan yield is up seven basis points. Was that pretty exclusively driven by the increased C&I outstandings, you know, between general C&I and the ag portfolio? I just wanted to make sure there weren't any other dynamics during the quarter.

I mean, I wouldn't point to any one thing. I mean, you know, dairy goes up, but really I think the dairy borrowings as a higher percentage of our overall loans probably drove about a basis point, you know, improvement in loan yield. So once again, I think the bulk of our loans are commercial real estate, and, you know, it really goes back to the back book conversation. They're slowly repricing, and as we have the payoffs, we're replacing them with higher yield. So that concept is probably still the biggest driver, and new production. Yeah, new production versus what's rolling off down there.

Great, thanks. And then just looking forward to the HDDK transaction, any expectations at this point of kind of any day-one restructuring of their balance sheet or otherwise?

The market and accretion there, that if we kept them, that's significant accretion, but still they're very low coupon, 30-year mortgages. We don't really care for the duration, and they're not associated with customers. So we'll sell those, and we'll invest into investments with shorter durations.

And that was in the merger announcement, but beyond that, nothing else contemplated at this point.

One moment for our next question. And that will come from the line of Kelly Motta with KBW. Your line is open.

Hey, good morning. Thanks for the question. Good morning. I apologize. I joined a little bit late. I may have missed this. But just circling back to the non-interest-bearing flows, with those balances down a bit, can you just elaborate? I know you guys sold an NPL if there was any attrition of customers related to exits or anything like that, or if it was just normal seasonal movements, you know, post-COVID, getting back to more normal trends.

Yeah, I think maybe you're just fact-checking me, Kelly. But, no, there was no loss of relationships that that represented. And the comment that we made, you know, was really just around the point in time on December 31st. there's a lot of movement around the deposits, you know, going back and forth or going out. And, you know, this is actually pretty standard. The part that was a little surprising, I mean, I watch it every day, but not surprising, but the part that was different is, you know, we did grow non-interest-bearing deposits. The new relationships that we're attracting to the bank are probably in the 75% non-interest-bearing range, 25% interest-bearing. So, you know, this is really just kind of normal stuff. If you go back 10 years, we always have this seasonality in the fourth and first quarter. I think, Alan, a while back we had done an analysis of that, and I think in the fourth quarter we normally lose about 4% of our deposits going back like 10 years. This, on averages, you know, that didn't occur this year. We sort of had the normal non-interest-bearing stuff that went out for taxes or bonuses or whatever the case may be. There was nothing abnormal about it and no loss of relationship or significant relationship. Nothing changed.

You mentioned that I think it's better to look at average balances. They're more indicative. Our customers move a lot of money. There's patterns day of the week and things like that that depending on how a quarter end happens to land, you're not really getting the probably the true picture got it that's helpful maybe switching to the buyback you were really active this quarter and then obviously you had announced Heritage Commerce late in the quarter wondering is it fair to say that you're you're out of the market at least until the deal closes just wondering we'll be issuing a S4 perspective So we've been out of the market since the beginning of December, and, you know, the board will reevaluate that once we close the merger.

Great. Thank you so much. I'll step back.

Thank you. As a reminder, if you would like to ask a question, please press star 11. And our next question will come from the line of Tim Coffey with Janie Montgomery Scott. Your line is open.

Thank you. Good morning, gentlemen. Question on the loan modifications. Is there anything special causing the balances in that bucket to rebound?

Anything abnormal about it, Jim.

What causes somebody to fall into that bucket? Yeah.

Well, it depends. I mean, when we – there's a lot of different reasons they can fall into that. If they come to us and ask for help and they need to do something to make the payment, that's one way that they would get in there. Another way would be just to our normal evaluation when we're doing our annual term loan reviews. If we see something that's not accurate or not, you know, that isn't meeting our minimum debt service coverage or some other covenant, that could cause it to go in there. That number in and of itself is still not a material number relative to the total loan portfolio. But there's a few different reasons that it could fall into that category.

Okay. Okay. And then post the close of the deal with Heritage Commerce Bank, we look out back half of this year and the next year. Dave, do you anticipate the addition of Heritage Commerce to materially change your outlook for loan growth?

Yeah, I look at a couple of different factors. You know, we are, as you know, I've just been growing. I'm sure there'll be some combination of that. You know, we're going into new markets. We're going to be able to help their clients, you know, grow even, you know, they'll be able to do more for their clients than they can do for them today. So I think there's some definite tailwinds with respect to that. But, you know, we've got to make sure we get to close, we get it integrated, you know, we go through the culture, you know, things to make sure they understand how we do things. So I think for the most part, you know, there could be some benefit to that for our, you know, We're going to maintain the same credit quality that we've maintained and the same credit quality that they've maintained. So we'll have to evaluate that as we combine everything and see where we are. But I do think there's a lot of opportunity in those markets for what we have to offer, not just from the loan perspective, but also from just the overall product array that we have relative to the product array they have.

Sure. Yeah. And a bigger balance sheet will help them out a lot. Yeah, and then just a final note check for me, Alan, what was the core loan yield in the quarter?

The slide we added on is nothing else, and you can see where it ended the year, and then you can obviously see the relative repricing for the different buckets. And Tim, that number was 5.12.

Okay. That was my question. Thank you, gentlemen.

Thank you. I'm showing no further questions in the queue. At this time, I would now like to turn the call back over to Mr. Brager for any closing remarks.

We perform consistently in all operating environments. Our solid financial performance is highlighted by our 195 consecutive quarters or more than 48 years of profitability and 145 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the best small to medium-sized businesses and their owners through all economic cycles. I'd like to thank our customers and associates for their commitment and loyalty, and we look forward to a successful 2026 and the pending merger with Heritage Bank of Commerce. Thank you for joining us this quarter. We appreciate your interest and look forward to speaking to you in April for our first quarter 2026 earnings call. You can always let Alan and I know if you have any questions. Have a great day. Thank you.

This concludes today's program. Thank you all for participating. You may now disconnect.