Cvb Financial Corp (CVBF) Q1 2026 Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the first quarter of the 2026 Earnings Conference Call for CVB Financial Corporation and its subsidiary, Citizens Business Bank. My name is Cherie, 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 that 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.

Thank you, Cherie, and good morning, everyone. To differ materially from our forward-looking statements, 10-K for the year ended December 31, 2025. Item 1A, risk factor. To save Harbor Disclosure, please see the company's earnings release issued in connection with this call. I'll now turn the call over to Dave Greger. Thank you, Alan.

Good morning, everyone. In 2021-2026, we reported net earnings of $51 million, or $0.38 per share, representing our 196th consecutive quarter of profitability, which is every quarter for 49 years. We previously declared a $0.20 per share dividend for the first quarter of 2026, representing our 146th consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 13.4% and a return on average assets of 1.33% for the first quarter of 2026. Our net earnings of $51 million or $0.38 per share compares with $55 million for the fourth quarter of 2025 or $0.40 per share and $51.1 million dollars or 36 cents per share for the prior year of 2026 reflects solid growth year-over-year across several financial metrics, including pre-tax pre-provisioned income growth, net interest margin expansion, loan growth, and growth in deposits and customer repurchase agreements. Pre-tax pre-provisioned income grew by four million dollars or six percent over the first quarter of 2025. Our net interest margin expanded by 13 basis points over the prior year quarter to 3.44% as our earning asset yields increased by seven basis points, while our cost of funds decreased by seven basis points by $157 million, or approximately 2% from the first quarter of 2025. We also increased our average total deposits and customer repurchase agreements by $288 million, or 2.4%, Scott's loans further. March 31st, 2026, were $8.64 billion, a $280 million, or 3.3% increase from the end of the first quarter of 2025. This increase was driven primarily by growth in commercial real estate loans of $141 million, a $62 million increase in dairy and livestock and agribusiness loans and a $43 million increase in construction loans. We also had $34 million of growth in SBA 504 loans and CNI loan outstanding increased by $10 million over and by $56 million from the end of 2025 as dairy and livestock and agribusiness loans declined by $117 million due to the seasonal peak in line usage that occurs every calendar year in. This seasonal decline is evident by the decrease in line utilization rate from 78% at the end of 2025 to 69% at March 31, 2026. CNI loans decreased quarter over quarter by $21 million as line utilization decreased from 32% at the end of 2025 to 30% at the end of the first quarter of 2026. Partially offsetting the decline in line usage from the end of 2025 was commercial real estate loan growth of $57 million, SBA 504 loan growth of $13 million, and construction loans increasing by $22 million. Loan originations have started off the year at a strong pace, as originations for the first quarter of 2026 were approximately 90% higher than the first quarter of 2025 and 15% higher than the fourth quarter. Pipelines remain relatively strong, although rate competition for high-quality loans continues to be intense. Originations have stayed relatively consistent over the past year. Real estate loan originations have been strengthening. Loan originations in the first quarter had average yields of approximately 6%, which was roughly 25 basis points lower than the first loan yield was 5.32% for the first quarter of 2026 compared to 5.47% for the fourth quarter of 2025 and 5.22% for the first quarter of 2025. In 2025, we collected $3.2 million of interest on a non-performing loan. Excluding this additional interest income, our loan yield would have been 5.32% for the fourth We experienced $9,000 of net recoveries during the first quarter of 2026, compared to $325,000 of net recoveries for the fourth quarter of 2025. Total non-performing loans increased by $1.5 million to $6.1 million at March 31, 2026, which represents 0.07% of total loans. The increase is primarily due to the downgrade of a $2.9 million C&I loan for which we established a specific reserve in our allowance for credit loans were $83.1 million at March 31, 2026, compared to $52.7 million at December 31, 2025, and $94.2 million at March 31, 2025. As a percentage of total loans were less than 1% at March 31st, 2020. On to deposits. And customer repurchase agreements for the first quarter of 2026 were $12.5 billion, which compares to $12.2 billion for the first $1.6 billion during the fourth quarter. Interest-bearing deposits declined on average by $112 million compared to the first quarter of 2025 and by $107 million compared to the fourth quarter of 2026. non-interest-bearing deposits were 58% of total deposits for both the first quarter of 2026 and the fourth quarter of 2025, compared to 59% for the first quarter of 2025. Interest-bearing non-maturity deposits and customer repos by $400 million from the first quarter of 2025. Our cost of deposits and repos was 82 basis points for the first quarter of 2026, compared to 86 basis points for the fourth quarter of 2025 and 87 basis points for the year-ago quarter. We discuss additional aspects of our balance sheet and income.

With $71.6 million in the first quarter of 2026 compared to $71.9 million in the fourth quarter of 2025 and $67.5 million in the... After adjusting for acquisition expense and gains on OREO, Our operating income grew from the first quarter of 2025 by $8 million, reflecting positive operating leverage of 6%. Our operating income was driven by growth in net interest income of $7.4 million by a 7% rate of growth. That was $117.8 million in the first quarter of 2026, compared to $122.7 million in the fourth quarter of 2025 and $110.4 million in the first income decrease from the fourth quarter of 2025 by $6.9 million due primarily to two fewer calendar days in the first quarter, a $134 million decrease in earning assets, and the $3.2 million of non-accrued increase from the first quarter of 2025 by $6.1 million as our earning asset yield increased by seven basis points from 4.28% to 4.35% and our average earning assets increased by $336 million. Interest expense declined from both the prior quarter and the prior year quarter. $31.3 million in the first quarter of 2026 compared to $33.3 million in the fourth quarter of 2025 and $32.6 million in the first quarter decreased from 1.01% in the fourth quarter of 2025 to 97 basis points in the first quarter of 2026. Our cost funds was seven basis points lower than the first quarter of 2025, even though the average balance of interest-bearing deposits and repos increased by $400 million. dollars. Non-interest expense, non-interest income was 14.3 million dollars in the first quarter of 2026 compared to 11.2 million dollars in the fourth quarter of 2025 and 16.2 million dollars in the first quarter of 2025. The fourth quarter of 2025 included a 2.8 million dollar loss on the sale of securities, while the first quarter of 2025 included a gain on sale of OREO of $2.2 million. The third quarter increase in non-interest income also included a $1.1 million increase in the cash render value of bank-owned licensure. Trust in investment services' income grew by $313,000, or 9%, from the first quarter of 2025, but decreased by $307,000 over the fourth quarter 2025 due to lower brokerage fee income with eighty point two million dollars at March 31st 2026 in comparison our allowance for credit losses with seventy seven million dollars at December 31st 2025 the three million dollar increase in the allowance was primarily due to the establishment of a specific reserves totaling three point two million dollars continue to be a blend of multiple forecasts continue to have the largest individual scenario weighting on Moody's upside and downside risks weighted among multiple forecasts. The resulting economic forecast at March 31, 2025 was modestly different from our forecast at the end of 2025. Sorry, the resulting economic forecast at March 31, 2020 was modestly different from the forecast at the end of 2025. Real GDP is forecasted to be below 1% in the second half of 2026 and stay below 2% through 2027. The unemployment rate is forecasted to reach 5% by the middle of 2026 and remain above 5% through 2028. Commercial real estate prices are forecasted to continue their decline through the end of 2026 before experiencing growth in the back half of 2027 switching to our investment portfolio seven securities totaled 4.8 billion dollars at march 31st 2026 a 116 million dollar decrease from the end of 2025 available for sale or afs investment securities were 2.59 billion dollars and their held to maturity investments totaled 2.25 billion dollars loss on afs securities increased by $2 million from $308 million on December 31st, 2025 to $310 million, a negative carry in the first quarter of 2026, resulting in a $1.1 million and $750,000 decrease in interest income compared to the first and fourth quarters of 2025. Respectable positions, at March 31st, 2026, our shareholders' equity was $2.3 billion, a $93 million increase from the first quarter of 2025, including the $52 million increase in other comprehensive income. The company's tangible common equity ratio was 10.5% at March 31st, 2026, while our common equity Tier 1 capital ratio was 16.3%. Our tangible book value per share increased over the last 12 months by 9% from $10.45 at March 31st, 2025 to $11. We'll turn the call back today for further discussion of our expenses. Thank you, Alan.

Non-interest expense for the first quarter of 2026 was $60.6 million, which includes $1.1 million in one-time merger. Regulatory assessment expense decreased by $1.6 million as a result of the unwinding the remaining accrual for the special FDIC assessment. Excluding acquisition expense and the provision for off balance sheet reserves, the level of core operating expense was essentially flat to both the prior quarter and the first quarter of 2025. Our efficiency ratio was 45.8% in the first quarter of 2026 compared to 46.3% in the fourth quarter of 2025 and 46.7% in the first quarter of 2025 non-interest expense excluding acquisition expense as a percentage of average assets totaled 1.55 percent for the first quarter of 2026 compared to 1.53 percent in the fourth quarter of 2025 and 1.58 percent for the first quarter of 2020 concludes today's presentation and clay we'll be happy to take any questions that you might have thank you to ask a question please press star

one one on your telephone and wait for your name to be announced to withdraw your question press star one one again one moment while we compile the q a roster the first question will come from the line of david feaster with raymond james your line is open hey good morning everybody um i wanted to start on the deal um and welcome to the call clay um so i know we're only a week into this but i just wanted to get a sense of how it's gone four days excuse me um you know how has it gone thus far like what are your top priorities just you know in these first few weeks after the deals closed from an operational perspective and you know dave i know like your your the goal is always to cbb the bank like where like where are you focused initially and you see the most opportunity to add value.

Yeah, so I think his team, the former, we're looking at structure relationships. All of those things are part of me who joined our board. We're at our first board meeting yesterday, so they're getting acclimated. Clay is going to be spending a lot of time down here. We'll be spending a lot of time together. We've sort of restructured the organization to involve the new senior leaders that are joining us, you know, Clay and his former senior leadership team that are remaining. So there's just a lot of education about the culture of our bank, the way we do things. And, you know, that's not an event. It's a process. So it's going to take some time to do that. But all in all, things went very well on closed weekend. And, you know, it'll continue to get easier and better as we go forward. But I'd love to, you know, Clay can give his perspective as well. Yeah, David, I think, Dave, they're going just fine. As Dave said, the team is just getting acclimated to new reporting lines and new systems and reporting lines, so it's all going just fine. I think the primary focus we have is, one, staying close to our customers and clients and making sure that they hear from us often and also just keeping a close eye on our associates to make sure that they're keeping pace with the integration and the training.

Okay. That's great. And I know, you know, I know we didn't include much in the way of optimization. Look, the deal gives you a ton of financial flexibility, right? Didn't really include any optimization and guidance outside of maybe some of the purchase mortgages that we talked about. With the deal closed and all this financial flexibility, has your thoughts changed at all about, you know, opportunities to optimize things or deploy excess liquidity just given the fully mark balance sheet. Okay. Okay. And then just last one for me, you know, the commentary on the origination activity is extremely encouraging. I wanted to dig into that a bit. How much of the improvement that you're seeing is you gaining share at this point and your bankers being more productive versus improving demand? And just kind of curious, how do you think about the growth outlook just in light of the competitive landscape that you alluded to, which it sounds like is primarily on the pricing side, and then just, again, the expansion of the Bay Area?

Yeah, well, I mean, you're monetizing the rest of the, you know, initially, I would say initially, with the increase in the opportunities that we're seeing, I think that we're in a very good position, you know, from a liquidity perspective, from a market perspective, obviously, from the heritage, the former heritage perspective, you know, there's some significant opportunity there just with the capacity of the combined organization relative to, you know, hold limits, house, you know, lending limits, those types of things. So, you know, we view it as very positively. We need to get them integrated and understand how we look at it, but from a credit perspective, you know, very similar. From a pricing perspective on the lending side, very similar. You know, on the deposit pricing side, that's probably a little more work that we're going to have to do ultimately but at the end of the day we're going after the same types of relationships we were going after the same types of relationships so I think it's our people recognizing that hey we're we're ready but you know a lot of it is just there's a lot a lot going on out there but there's a lot of competition so you know that's primarily why even though in some ways the the Treasury rates have gone up a little bit the you know and our loan origination yields have gone down slightly just because we're having to compete if we want to win.

So is our pipeline still holding up pretty solid? And do you think you can kind of hold new origination yields in this 6% realm?

Happen and our yields stay the same, essentially the same if you exclude the NAIP. And so I think that was a big victory for us. And if this loan demand remains and we're continuing to book what we've been booking, you know, I think it, you know, that's a big tailwind for us as we keep going through the year. But, yes, pipelines are holding up and, you know, there's plenty of opportunities for us out there for the right relationships.

That's terrific. Thanks, everybody.

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

Hi. Good morning. Thanks for the question. Good morning. Maybe building upon David's question, I do appreciate the color on pipelines, and it's all quite encouraging. I'm wondering in your markets if you're seeing any, you know, increased competitive dynamics. Notably, I think growth at Wells is a lot stronger with the asset cap coming off. I'm just wondering if there's been any notable shifts or change in dynamics in your markets.

Yeah, I don't think there's been any noticeable shift. I mean, it's always extremely competitive, especially for the types of relationships that we're looking for. You know, there are some banks. You mentioned Wells Fargo. I would, you know, there's other banks. You know, PAC Premier was not as active for the last few years. Columbia is going to be much more active. I mean, there's a number of organizations. You know, the Fifth Thirds, the regional banks, BMO. There's a number of banks that are coming into our market. And, you know, plus you always have the big guys. And so I think there is, you know, maybe some increase at the higher end of sort of our typical type relationship we go after. But it's not significantly different than before. I don't know, Clay, do you want to? Yeah, no, I echo Dave's comments here. The market continues to be very competitive. I don't think there's been any recent shifts in the competitive nature of the clients that we go after. In the Bay Area, it continues to be just as competitive as it is here. Yeah, and Kelly, I would just say this. You know, our bankers are most successful in their, you know, new customer origination, new relationship origination business. It's with the biggest banks. You know, we provide a super high level of service that allows us to compete. You know, we have the product array, and I think that's another sort of tailwind from the heritage. merger as far as both combined organizations being able to provide that wide array of products and services to our relationships and prospects. So, you know, there are some, you know, very positive things that are occurring. And as we get, you know, everybody integrated and acclimated, it should improve.

Got it. That's really helpful color. Thank you. Turning to capital, you know, your level should still be quite robust pro forma for the merger just closed. You had been a bit active in the buyback prior to announcing the deal, which put that on hold. Wondering any updated thoughts on capital management, buybacks, future deals, the works. Thanks.

Yeah, so I'll sort of start with the tail end of your question first. Look, we want to make sure we integrate heritage appropriately. That is our number one focus. So unless there's something that's really unique or an opportunity that's really unique and something we've been looking at, I would say we're more focused on the integration of heritage than, you know, additional M&A. We do recognize that we have an enormous amount of capital. And, you know, prior to us getting in conversations with Clay and Heritage, you know, that was something that we were very active in. We repurchased 4.2 million shares last year, and we'll continue to evaluate that. Obviously, the combined company's earnings, you know, we'll be looking at the dividend, you know, ultimately. You know, this quarter's, you know, really where we're going to get all that. Alan can opine on this as well, but where we're going to get, you know, the balance sheet set up the way that we want it set up, and then we'll be working on those capital management things and definitely buybacks are going to be part of that strategy going forward. So I don't know, Alan, do you have anything you want to add?

You know, Kelly, as Dave said, it will be noisy in Q2, a little bit more noise in Q3, but as we get into Q3, I think we'll have a lot more visibility into our capital. And of course, as you pointed out, a pro farm is already very strong And historically, we've been able to generate a lot of organic capital and, you know, we'll definitely have to evaluate all those things that Dave mentioned.

Got it. If I could just slip it in as a follow-up, you mentioned the resi mortgage. It's held for sale right now. Do you anticipate that off the balance sheets by quarter end or is there a possibility that could stick around a bit longer than perhaps we expected at an outset? Thanks.

No, we do expect it to be off the balance sheet by the end of the quarter.

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

Thanks.

One moment for our next question. And that will come from the line of Matthew Clark with Piper Sandler. Your line is open.

Hey, good morning, guys. I want to start on the CNI credit that you assigned some specific reserves to, and then the other classified credits that migrated. I know classified overall still sub 1%, but just wanted to get some color on what happened there and plans for resolution and timing if possible.

Yeah, so I'll start with the non-performer. So that CNI loan was impacted for bankruptcy position. You know, we did put a position in the way that we wanted to. So I don't really anticipate, you know, there could be some challenges. that we grade things and when we look at things and how we classify them. So just being very transparent, you know, it's a marketing company for a larger organization and they sell agricultural products. So, you know, it's something that we've been involved with since one of these customers, but we just wanted to make sure that we elevated it to that level. As far as the classified loans, it's really centered in two relationships. They both happen to be C&I. We're in very good collateral positions in both of those deals. That makes up the majority of the increase in the classified loans. One of the companies is in the midst of a sale, and that could happen. I mean, we're, you know, obviously prepared if it doesn't, but they're both within their collateral guidelines and and you know we think one of them it's just a situation with the operations and they're working hard on that so again just being very proactive and it's a you know it's something that happens now and again and but nothing you know systematic or endemic of the rest of the portfolio these are just two separate situations okay great and then just a few housekeeping items.

Do you plan to do the CECL double count here in 2Q, resulting in outsized provision, or are you going to opt out of that? Okay, great. And then accretion expectations. I know the marks can still move around a little bit, but I assume you have preliminary marks at this stage. Any guesstimate? I mean, we have our own, but I just wanted to check in to see what you thought maybe quarterly or normal accretion might be per quarter?

Too early, Matt.

And then just the – I think there was a special FHLB dividend. Can you just quantify that this quarter? Great.

And 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. Hey, so I maybe just wanted to start off. I know you guys don't generally guide, but, you know, with the merger close in the second quarter, the kind of range of forecasts for the margin for 2Q are pretty widespread. I was hoping you could maybe just help us out. You know, I don't know if you have kind of day one pro forma margin, what the general kind of impact is to your reported margin when you layer in Heritage. Just any kind of guardrails you could put kind of around margin expectations for us. Okay. Okay. Does the yield on page 31 of the deck for HTPK loans, the 560, does that include the single family yield? And I'm assuming the 560 is pre-unic out of Mark. Got it. Okay. You know, we talked some in the past just about maybe some of the opportunity to upsize, you know, some of the legacy heritage relationships, and maybe that some of that was, you know, already occurring, pre-deal close, just can you remind us, you know, general kind of opportunity set there, how that influences kind of how you're thinking about loan growth throughout the year?

Yeah, Andrew, obviously, having significantly. So, there's great opportunities in terms of our largest, Dave said, there's, you know, additional synergies amongst the two firms, wealth services, international services. So, there's just a wide variety of opportunities that our relationship management teams and calling officers are engaged in. Yeah, and I would just say, you know, I wanted Clay to answer that first just from the perspective of the former Heritage offices, but from the overall perspective, Andrew, just to your question, you know, a lot of this is, you know, four days in, you know, they're drinking through the fire hose trying to, you know, figure out everything, and so we're working on it. But just overall, you know, pipelines have remained strong, the relationships, you know, know, we haven't had a lot of turnover in relationships, you know, we're seeing opportunities for us to, you know, do maybe a little bit better than we did last year as far as long growth, but I do think that, you know, as we get through the second quarter idea, and as you're right, I mean, I've always said sort of low single-digit growth. I mean, that could be mid-single-digit growth, but, you know, we just need to make sure that we understand, you know, the relationships as we look at them, the opportunities that are out there but you know for now we're sort of sticking with uh with what we've been doing um and what's been you know done in the past i don't know if that gives you a better answer but uh you know we're still kind of in we want quality stuff and we're having to price it you know aggressively and so i think that you know is going to be somewhat of a limiting factor as well but uh on the positive side are definitely the things clay said not just on the loan side but on the overall great um thank

you for taking the questions. I appreciate it.

Thank you. As a reminder, if you would like to ask a question, please press star one one. One moment for our next question. And that will come from the line of Gary Tenner with DA Davidson. Your line is open.

Thanks. Good morning. One follow up on the initial loan growth commentary in terms of the strengthening of the commercial real estate segment from a demand and production perspective. How much, can you kind of parse that a little bit in terms of more, is it more customer activity? Is it, you know, borrowers getting more comfortable with the right environment we're in and moving forward on projects? Is it, you know, CBB getting more competitive on pricing? Just kind of parse out kind of the moving parts that's attributed to that strength.

Well, I deal with our existing customers. It's, you know, our banker's ability to go and attract new relationships to the bank. So I think that's so, Gary, you know, a new loan origination has creeped up a little bit as well. A number of things that are sort of assisting us in, you know, reaching that low single-digit. So I think that's part of it. I don't know that we're getting more aggressive on pricing than we have been in the past. We were always aggressive for the right relationships. obviously the loan pricing is just one component of the overall relationship. We have to look at the deposit side, we look at the income side, we look at how we monetize the entire relationship. And so, I don't know that we're getting more aggressive, but I definitely think customers are more used to the rate environment, and money can't sit on the sidelines for that long. So there are people that are doing things and we're seeing some of that activity and capturing a good part of it. But, yeah, I think it's all of those things that are sort of contributing to, you know, those opportunities. And, you know, we just – 90% new loan originations in the first quarter over the first quarter of last year, you know, it's basically double what we did last year. And that's, you know, I think that speaks to just the opportunities that we're seeing and the opportunities that we're winning.

Appreciate that. And actually, as a follow-up there, any particular asset class within CR-E that you're seeing more activity in? or maybe is driving more of the activity?

Yeah, I don't, you know, it's probably easier to parse it out. The thing that was really missing real estate really across all classes, multifamily, industrial, retail. I mean, we are seeing much more investor commercial real estate than we have in the past really seeing any investor commercial real estate. Nobody was doing anything. So I think it's just more investor real estate across and those opportunities we've been doing.

All right, thanks, Seth.

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.

Great. Thank you, Cherie. First, I would like to welcome Heritage Bank of Commerce customers, associates, and shareholders to Citizens Business Bank's acquisition by asset size in our history, bringing together two premier relationship-focused business banks and advancing our longstanding objective of expanding citizens throughout California by entering the Bay Area. Our team is eager to build on the strong customer and community relationships that Heritage has established in the first quarter demonstrates our continued financial strength and focus on our vision of serving the comprehensive financial needs of small to medium-sized businesses and their owners. Our consistent financial performance is highlighted by our 196 consecutive quarters of profitability and our 146 consecutive quarters of paying cash dividends. I would like to thank our customers and associates for their continuing commitment and loyalty. Thank you for joining us this quarter. We appreciate your interest and look forward to speaking with you in July for our second quarter 2026 earnings call. Please let Alan or I know if you have any questions. Have a great day.

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