CVB Financial NASDAQ: CVBF reported third-quarter 2026 net income of $78.1 million, or $0.44 per share, as the company recorded its first full calendar quarter including the operations of Heritage Bank of Commerce following its acquisition.
The result compared with net income of $48.3 million, or $0.29 per share, in the second quarter and $52.6 million, or $0.38 per share, a year earlier. Chief Executive Officer Dave Brager said the company’s third-quarter profit marked its 198th consecutive profitable quarter, extending a streak of more than 49 years.
The company previously declared a quarterly cash dividend of $0.20 per share, its 148th consecutive quarter of dividend payments. Pretax income totaled $106.1 million, compared with $65 million in the prior quarter.
Heritage Integration Drives Lower Merger Costs
CVB Financial completed the core banking systems integration with Heritage at the end of the second quarter. The prior period included 74 days of combined operations, while the third quarter reflected a full quarter after the merger and system conversion.
Acquisition-related expenses fell to $8.1 million in the third quarter from $31.4 million in the second quarter. Total non-interest expense declined to $90.5 million from $114.4 million. Excluding acquisition expense and provisions for unfunded commitments, core non-interest expense increased $3.6 million from the second quarter, which management attributed in part to 18 additional calendar days of combined operations.
Staff expense rose by $1 million sequentially, while marketing and promotion expense increased about $600,000. The adjusted efficiency ratio improved to 42.1%, compared with 43.9% in the second quarter and 45.2% in the year-earlier period.
Brager said earnings per share increased 16% year over year, exceeding the company’s previously announced target of 13% EPS growth by 2027 related to the Heritage transaction. Return on average assets was 1.48%, or 1.59% after adjusting for acquisition expenses, while return on average tangible common equity was 16.2%.
Loans Rise as Higher Rates Temper Demand
Total loans stood at $12.1 billion as of Sept. 30, up $105 million from June 30. President Clay Jones said loan originations remained strong but declined 15% from the second quarter, while remaining roughly 20% above first-quarter levels.
New loan origination yields approached 6.25% and were about 20 basis points above the prior quarter. Jones said competition for high-quality credits remained intense, while higher interest rates have led some borrowers to reconsider transactions or use internal cash instead of borrowing.
The average loan portfolio yield increased to 5.66% from 5.53% in the second quarter and 5.25% a year earlier. Excluding loan fees and discount accretion on acquired loans, the base loan yield rose to 5.46% from 5.37%.
Management said loan pipelines remained relatively strong, though demand has slowed as borrowing costs increased. Brager said the company is seeing opportunities in the Bay Area, including international banking and expanded lending capacity for former Heritage customers.
Credit metrics remained relatively stable. Net charge-offs totaled $20,000, down from $137,000 in the second quarter. Non-performing assets rose to $18.7 million from $16.8 million, representing 9 basis points of total assets. Classified loans increased to $113.9 million, or 94 basis points of total loans, primarily due to the addition of two classified commercial real estate loans totaling about $5 million.
The allowance for credit losses declined to $125.6 million from $126.7 million following a $1 million recapture of credit losses. The allowance represented 1.04% of loans at quarter-end, compared with 1.05% three months earlier.
Deposits Decline at Quarter-End, Stabilize in October
Total deposits and customer repurchase agreements were $16.3 billion at Sept. 30, down $550 million from June 30. Interest-bearing deposits and repurchase agreements declined by $360 million, while non-interest-bearing deposits fell by $190 million.
Non-interest-bearing deposits accounted for 53.5% of total deposits, up from 52.8% in the prior quarter. On an average basis, total deposits and customer repurchase agreements increased by $578 million from the second quarter, including a $256 million decline in average time deposits concentrated in brokered certificates of deposit.
On a pro forma basis assuming Heritage deposits had been included for all 91 days of the second quarter, deposits and customer repurchase agreements would have declined by about $300 million in the third quarter. Management said non-interest-bearing deposits would have increased by $100 million on an average pro forma basis, while customer interest-bearing deposits and repurchase agreements would have decreased by $170 million.
Jones said interest-bearing deposit balances had stabilized in October, while non-interest-bearing deposit levels had strengthened modestly. Still, management expects continued deposit pressure if the Federal Reserve raises rates further. The cost of deposits and repurchase agreements was 0.83% during the quarter, down from 0.86% in the second quarter and 0.90% a year ago.
Margin Expansion and Capital Actions
Average earning assets increased by $900 million sequentially to $18.5 billion. A 16-basis-point increase in earning-asset yield helped drive a 9%, or $18.5 million, increase in interest income from the second quarter. The company’s cost of funds was unchanged at 0.96%.
During the call, Chief Financial Officer Allen Nicholson said approximately $160 million of securities are expected to run off each quarter at yields in the 2% range, compared with an overall investment portfolio yield of about 3%. He said the company remained modestly asset sensitive and could have opportunities in 2027 to reduce funding costs as higher-cost wholesale funding matures.
Shareholders’ equity declined to $3.13 billion from $3.17 billion, including a $67 million decline in accumulated other comprehensive income associated with rising interest rates. CVB Financial repurchased 775,000 shares for about $17.5 million during the third quarter and said it repurchased 1.8 million shares for roughly $40 million between June 18 and Oct. 19, at an average price of $22.05 per share.
The company’s tangible common equity ratio was 9.9% at Sept. 30, while its common equity Tier 1 capital ratio was 14.8%. Management said it remains open to additional acquisitions if the right opportunity arises, while continuing to prioritize the Heritage integration and organic growth in the Bay Area.
About CVB Financial (NASDAQ:CVBF)
CVB Financial Corp. is a bank holding company headquartered in Ontario, California. Its principal subsidiary, Citizens Business Bank, provides banking and financial services to businesses, professionals, and individuals, with a focus on relationship-based commercial banking.
Citizens Business Bank offers business checking and savings accounts, commercial and real estate loans, lines of credit, equipment financing, treasury management, cash management, and international banking services.
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