CVB Financial Corp. (CVBF) Earnings

Management highlights

### Historical Performance Milestones - The company marked its 197th consecutive quarter of profitability (over 49 years of consistent positive earnings), and its 147th consecutive quarter of paying a cash dividend to shareholders, with a Q2 2026 dividend of 20 cents per share declared. ### Heritage Bank of Commerce Acquisition and Integration - The acquisition closed on April 17, 2026, with total consideration of approximately $845 million, generating $450 million in intangible assets including $334 million of goodwill. Core banking system integration was completed successfully the weekend of June 19-21, 2026, with full process integration expected by September 2026. As of Q2, the company operates as one bank with an expanded footprint across all major California economic markets. - Post-acquisition balance sheet optimization actions included selling $490 million of the $1 billion in acquired investment securities, reinvesting $500 million in new securities with an average 4.7% yield; selling the acquired $327 million single-family residential (SFR) mortgage pool at fair value; and allowing $600 million in higher-cost wholesale borrowings to mature without replacement, eliminating all brokered CDs from the balance sheet. ### Loan Portfolio Performance - Q2 2026 loan originations were 85% higher than Q2 2025 and 40% higher than Q1 2026, with new originations yielding an average 6% (in line with Q1). Strong loan pipelines persist despite intense competition for high-quality credits. The average loan yield for the portfolio was 5.53% in Q2, up from 5.32% in Q1 and 5.22% in the year-ago quarter. Net charge-offs totaled only $137,000 in Q2, with no provision for credit losses required; non-performing assets totaled $16.8 million (8 basis points of total assets), with nearly all of the QoQ increase from acquired Heritage classified assets. ### Capital Management - As of June 30, 2026, common equity tier 1 capital ratio was 14.7% and tangible common equity ratio was 9.8%, down from 16.3% and 10.5% respectively pre-merger, still remaining well above regulatory requirements. The board authorized a new 15 million share repurchase program in June 2026; between June 18 and July 21, 2026, the company repurchased 409,000 shares for $8.9 million at an average price of $21.72. ### Cost of Funds Improvement - Despite a modest increase in deposit costs QoQ, balance sheet optimization after the acquisition reduced the overall cost of funds from 0.97% in Q1 to 0.96% in Q2. Cost of deposits and repurchase agreements was 86 basis points in Q2, compared to 82 basis points in Q1 and 87 basis points in the year-ago quarter.

Guidance

- Full cost synergy savings from the Heritage acquisition will be fully realized by the beginning of 2027. 90-95% of projected cost savings will be achieved by Q4 2026, with reduced acquisition-related expenses in Q3 2026 (down more than 50% from Q2 2026's $31.4 million) and Q4 2026 expected to have a clean run rate with minimal acquisition costs. - Management confirmed it remains confident in achieving its previously stated targets of 150 basis points ROA and 17% ROTC from the Heritage acquisition. Management believes ROA can potentially outperform the original target, while ROTC may take additional time to hit the goal due to the company's strong internal capital generation. - The company's baseline economic forecast as of Q2 end remains consistent with Q1: real GDP growth is projected to stay below 2% through the end of 2027, unemployment will reach 5% by early 2027 and remain above 5% through 2028, and commercial real estate prices will continue declining through 2027 before returning to growth in 2028. - Management continues to expect strong organic loan growth driven by the combined company's increased lending capacity and strong pipelines, though recent increases in long-term Treasury yields could potentially impact customer borrowing demand in the near term.

Segment performance

CVB Financial is a commercial banking organization operating through its subsidiary Citizens Business Bank, with all results reflecting consolidated banking performance after the Q2 2026 acquisition of Heritage Bank of Commerce. For Q2 2026: reported net earnings were $48.3 million ($0.29 per diluted share), compared to $51.0 million ($0.38 per share) in Q1 2026 and $50.6 million ($0.37 per share) in Q2 2025. Pre-tax income was $65.0 million, with $31.4 million in one-time acquisition-related expenses and a $4.25 million provision for acquired unfunded commitments; adjusted pre-tax income excluding these items was $100.7 million. Net interest income increased $44.6 million quarter-over-quarter, driven by $3.7 billion in higher average earning assets (from the Heritage acquisition) and a 28 basis point expansion in net interest margin. Non-interest income was $17.0 million, a $2.7 million quarter-over-quarter increase, with growth across all categories: deposit/service fees +$0.85 million, trust/investment services +$0.46 million (12% QoQ growth), international banking +$0.2 million, and bank-owned life insurance +$0.35 million. Non-interest expense totaled $114.4 million, including $31.4 million in acquisition expenses; adjusted core non-interest expense (excluding acquisition costs, intangible amortization, and the unfunded commitment provision) was $75.2 million, resulting in an adjusted efficiency ratio of 43.9% (compared to 44.6% in Q1 2026 and 45.5% in Q2 2025). Balance sheet as of June 30, 2026: total assets $21.2 billion (up from $15.5 billion at March 31, 2026), total loans $12.1 billion (up from $8.64 billion), total deposits $16.9 billion (up from $12.4 billion), non-interest-bearing deposits 53% of total deposits (down from 59% pre-merger).

Risks & headwinds

- Intense pricing competition for high-quality loans persists in the current market environment, which could pressure loan yields and future net interest margin expansion. - Recent increases in long-term interest rates may dampen customer loan demand and borrowing activity in the near term. - Commercial real estate prices are forecast to continue declining through the end of 2027, which creates credit risk exposure for the bank's loan portfolio. - Elevated unemployment projected through 2028 could increase future credit losses and require higher provisions for credit losses. - Integration of the Heritage Bank of Commerce acquisition involves residual process and customer transition work through September 2026, with potential for temporary execution risks during this period.

Analyst Q&A

• Q: What is the timeline for cost savings from the Heritage acquisition, and how should we expect near-term loan growth to trend after integration? /

  A: Q3 2026 will still have some acquisition-related expense, though much lower than Q2, with the full impact of cost synergies arriving in early 2027. Loan pipelines are very strong after the merger, with increased lending capacity that opens new opportunities for the combined bank. Management noted that rising long-term Treasury rates could potentially dampen customer demand, but near-term growth prospects remain positive as the firm prioritizes high-quality credit relationships.

• Q: What drove the unexpected strong organic loan growth this quarter, and how will you deploy excess liquidity from the sale of acquired assets? /

  A: Strong momentum from both pre-merger organizations combined with the larger lending capacity of the combined bank drove the growth, with a rebound in commercial real estate originations filling gaps from previous years. Most excess liquidity was already deployed by the end of Q3, with the remaining cash deployed after quarter end. The firm's investment portfolio generates $150-$200 million in quarterly cash flow that can be reinvested in new loans if demand holds.

• Q: What are the near-term priority opportunities for the former Heritage team post-integration, and how will you manage deposit growth amid rising competition? /

  A: Key near-term opportunities include cross-selling CBB's existing trust, wealth management, international banking, and mortgage products to Heritage's legacy customer base, which was not able to offer these services previously. The firm will maintain its disciplined approach to deposit pricing, protecting low-cost core deposit relationships while growing core deposits in line with its historical 3% annual growth rate. The enhanced online banking platform for legacy Heritage customers is also expected to support core deposit retention and growth.

• Q: Should we prioritize the ROA or ROTC target for the merged company, and what is your outlook for net interest margin in Q3? /

  A: Management expects to potentially outperform the 150 basis point ROA target, while ROTC will take longer to achieve due to the bank's strong internal capital generation. The firm is actively repurchasing shares to optimize capital levels and will continue evaluating all capital return options to hit ROTC targets. Management provided detailed disclosures in the investor deck on base loan yields, investment portfolio runoff, and deposit costs to allow analysts to build their own margin forecasts, noting that continued 6% yields on new originations support stable margin performance.