Earnings call transcript: CVB Financial Q2 2025 shows steady EPS growth

CVB Financial Corporation (CVBF) reported its second-quarter earnings for 2025, revealing a steady performance with earnings per share (EPS) of $0.36, surpassing the forecast of $0.3483. Despite this earnings beat, the company faced a slight revenue shortfall, posting $126.35 million against an expected $127.88 million. Trading at a P/E ratio of 14x, the stock appears reasonably valued compared to regional banking peers. The market responded with a 2.96% drop in CVBF’s stock price, closing at $20.93, reflecting a cautious investor sentiment.

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Key Takeaways

• CVBF achieved its 193rd consecutive quarter of profitability.
• EPS exceeded forecasts by 3.36%, but revenue fell short by 1.2%.
• Stock price declined by 2.96% post-earnings, closing at $20.93.
• The company continues to invest in technology and maintain disciplined underwriting standards.

Company Performance

CVB Financial demonstrated consistent profitability, marking its 193rd consecutive quarter of positive earnings. The company reported net earnings of $50.6 million, maintaining a robust return on average tangible common equity of 14.08% and a return on average assets of 1.34%. Notable is the company’s impressive 37-year track record of consecutive dividend payments, currently offering a 3.82% yield. The net interest margin stood at 3.31%, and the efficiency ratio improved to 45.6% from 46.9% in the previous quarter.

Financial Highlights

• Revenue: $126.35 million, down 1.2% from forecast.
• Earnings per share: $0.36, up 3.36% from forecast.
• Total deposits and customer repurchase agreements: $12.4 billion, a 123% increase from Q1.

Earnings vs. Forecast

CVB Financial’s EPS of $0.36 surpassed the forecast of $0.3483, representing a 3.36% surprise. However, the revenue of $126.35 million fell short of expectations by 1.2%, which may have tempered investor enthusiasm despite the earnings beat.

Market Reaction

Following the earnings announcement, CVBF’s stock price fell by 2.96%, closing at $20.93. This decline brings the stock closer to its 52-week low of $16.01, indicating cautious investor sentiment amidst the revenue miss. With a market capitalization of $2.81 billion and a "Fair" overall financial health score from InvestingPro, the company maintains a solid position in the regional banking sector. According to InvestingPro’s Fair Value analysis, CVBF currently appears undervalued, presenting a potential opportunity for value investors. The broader market and sector trends also showed similar patterns, suggesting external economic factors may have influenced the stock’s performance.

Outlook & Guidance

Looking ahead, CVB Financial forecasts steady EPS growth, with projections of $0.36 for Q4 2025 and $0.38 by Q3 2026. Revenue is expected to reach $131.8 million in Q4 2025, with analysts projecting a 3% growth for fiscal year 2025. The company is considering potential mergers and acquisitions, possibly expanding beyond California, while continuing to focus on expense management and technology investments.

For deeper insights into CVBF’s growth potential and comprehensive financial analysis, investors can access the detailed Pro Research Report available on InvestingPro, which provides expert analysis and actionable intelligence for informed investment decisions.

Executive Commentary

CEO Dave Breger emphasized the company’s consistent performance across various operating environments, stating, "Citizens Business Bank continues to perform consistently in all operating environments." Breger highlighted competitive loan pricing, noting, "We’re absolutely seeing things priced at 130 to 170 over like treasuries."

Risks and Challenges

• Economic forecasts predict real GDP growth below 1% until 2026, which could impact loan demand.
• Rising unemployment rates, expected to reach 5% by 2026, may affect consumer and business confidence.
• Intense competition from regional banks could pressure margins and market share.
• Potential declines in commercial real estate prices may affect the bank’s loan portfolio.

Q&A

During the earnings call, analysts inquired about the low loan utilization rates, attributed to customers holding excess cash. The management reiterated its focus on relationship-based banking and openness to out-of-state M&A opportunities, signaling strategic flexibility in its growth approach.

Full transcript - CVB Financial Corporation (CVBF) Q2 2025:

Operator: Good morning, ladies and gentlemen, and welcome to the 2025 CVB Financial Corporation and its subsidiary Citizens Business Bank Earnings Conference Call. My name is Sherry, and I am 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.

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: Thank you, Sri, and good morning, everyone. Thank you for joining us today to review our financial results for the second quarter of twenty twenty five. Joining me this morning is Dave Breger, President and Chief Executive Officer. 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.

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 ks for the year ended 12/31/2024, 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.

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Thank you, Alan. Good morning, everyone. For the second quarter of twenty twenty five, we reported net earnings of $50,600,000 or $0.36 per share, representing our one hundred and ninety third consecutive quarter of profitability, which equates to more than forty eight years of consecutive quarters of profitability. We previously declared a $0.20 per share dividend for the second quarter of twenty twenty five, representing our one hundred and forty third consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.08% and a return on average assets of 1.34 percent for the second quarter of twenty twenty five.

Our net earnings of $50,600,000 or $0.36 per share compares with $51,100,000 for the 2025 or $0.36 per share and $50,000,000 or $0.36 per share for the prior year quarter. The $540,000 decline in net income in the first quarter excuse me, in the second quarter compared to the prior quarter was a result of the first quarter including both a $2,200,000 gain from the sale of OREO properties and a recapture of allowance of credit losses of $2,000,000 Pretax pre provision income in the 2025 was $68,800,000 which was $1,300,000 higher than the 2025 and remained flat compared to the second quarter of twenty twenty four. Net interest income for the 2025 was $1,200,000 higher than the prior quarter and $760,000 higher than the second quarter of twenty twenty four. Our earning assets remained stable between the 2025 and our net interest margin remained at 3.31%. The increase in net interest income was primarily due to an additional day of interest income in the second quarter compared to the first quarter of the year.

As a result of our deleveraging strategy executed during the second half of twenty twenty four, our net interest margin increased by 26 basis points from 3.05% in the second quarter of twenty twenty four, while earning assets declined by $1,100,000,000 from the prior year quarter. Non interest income was $14,700,000 in the second quarter, which was $1,500,000 lower than the first quarter. We realized a 2,200,000 net gain from the sale of $19,300,000 of OREO in the first quarter of this year. Excluding this gain, second quarter non interest income increased by $700,000 from the prior quarter, driven by higher trust and international fee income. Non interest expense was $57,000,000 in the second quarter, which was $1,600,000 lower than the first quarter.

Salary and benefits were lower by $1,500,000 and there was a $500,000 provision for off balance sheet reserves in the first quarter. This improved the efficiency ratio to 45.6% in the second quarter compared to 46.9% in the first quarter. At 06/30/2025, our total deposits and customer repurchase agreements totaled $12,400,000,000 a 123,000,000 increase from 03/31/2025 and a $330,000,000 higher than 06/30/2024. The year over year net growth was net of a $200,000,000 decrease in brokered CDs. Our non interest bearing deposits grew by $63,000,000 compared to the first quarter and were $157,000,000 or 2.2% higher than the end of the second quarter of twenty twenty four.

On average, non interest bearing deposits were 60.5% of total deposits for the second quarter of twenty twenty five, compared to 59.9% for the first quarter of twenty twenty five. Second quarter average deposits and customer repos were basically flat from both the prior quarter and the same quarter of last year. However, core deposits excluding brokered CDs grew on average by $173,000,000 over the prior year. Our cost of deposits and repos remained at 87 basis points for the second quarter, which is the same as the 2025 and the year ago quarter. Our current deposit pipelines are strong and focused on operating companies.

In addition, the deposit pipeline in our specialty banking group, which is focused on title escrow property management and fiduciaries continues to be strong. Now, let’s discuss loans. Total loans at 06/30/2025 were $8,360,000,000 a $5,000,000 decline from the end of the 2025 and a $178,000,000 or 2.1% decline from 12/31/2024. Commercial real estate and single family loans grew by 27,000,000 and $19,000,000 respectively from the end of the first quarter. The quarter over quarter decrease in total loans was largely due to reductions in line utilization for C and I and dairy and livestock lines of credit.

A quarter over quarter decrease of $30,000,000 in C and I reflects a decrease in line utilization from 29% at 03/31/2025 to 26% at June 30. In addition, dairy livestock loans declined by $18,000,000 compared to the first quarter, driven by a reduction in line utilization from 64% at the end of the first quarter to 62% at the end of the second quarter. The $178,000,000 decrease in loans from the 2024 was driven by dairy and livestock loans declining by $186,000,000 as these lines experienced their seasonally high utilization at year end. C and I loans declined over the period by $13,000,000 as line utilization decreased from 30% at the 2024 to 26% at June 30. Commercial real estate loans and single family loans increased by 10,000,000 and $19,000,000 respectively from the end of twenty twenty four.

Although we have seen a relative increase in loan originations so far in 2025, we also experienced a higher level of unscheduled loan payoffs in addition to the line, the reduced line utilization. We’ve experienced an uptick in recent loan originations and our loan pipelines remain strong, although rate competition for the quality of loans we focus on has been intense. Loan originations in the 2025 were approximately 58% higher than the 2025 and seventy nine percent higher than the second quarter of twenty twenty four. The increase in loan originations was across both C and I and commercial real estate loans with a notable increase in investor commercial real estate. We average yields of 6.6% on new originations during the second quarter.

Although loan yields were 5.22% in both the second and first quarters of twenty twenty five, The yield on our loan portfolio would have expanded by five basis points, if not for lower line utilization during the second quarter of higher yielding ABL and dairy and livestock loans, as well as lower prepayment penalty income in the second quarter of this year. We experienced $249,000 of net charge offs for the 2025 compared to net recoveries in the first quarter of $180,000 Total non performing and delinquent loans increased by $3,200,000 to $30,000,000 at 06/30/2025. This increase was primarily due to an SBA loan that was greater than thirty days past due on June 30. Non performing and delinquent loans were $17,600,000 lower than the $47,600,000 at the end of twenty twenty four. Classified loans were $73,420,000 at 06/30/2025, compared to $94,200,000 at 03/31/2025, and $89,500,000 at 12/31/2024.

Classified loans as a percentage of total loans was 0.9% at 06/30/2025. The decrease from the 2025 was primarily due to a $17,000,000 decline in classified owner occupied commercial real estate loans resulting from these loans being upgraded. I will now turn the call over to Alan to further discuss additional aspects of our balance sheet and our net interest income. Alan?

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: Thanks, Dave. Net interest income was $111,600,000 in the second quarter of twenty twenty five. This compares to $110,400,000 in the 2025 and $110,800,000 in the second quarter of twenty twenty four. Interest income was $144,200,000 in the 2025 compared to $143,000,000 in the first quarter and $159,100,000 in the second quarter of last year. Average earning assets increased by a modest $1,700,000 in the second quarter in comparison to the first quarter, while the earning asset yield remained constant at 4.28.

Compared to the second quarter of twenty twenty four, our earning assets decreased by $1,100,000,000 and the earning asset yield declined by nine basis points. Interest expense was $32,600,000 in both the second and first quarters. Our cost of funds decreased from 1.04% for the 2025 to 1.03% in the second quarter of twenty twenty five. The average balances of deposits and repos decreased slightly by $6,000,000 over the prior quarter while increasing by 15,000,000 over the second quarter of twenty twenty four. Interest expense decreased from the 2024 by $15,600,000 primarily due to a $1,340,000,000 decline in average borrowings.

With this reduction in borrowings, our cost of funds decreased by 35 basis points from the second quarter of last year. Our allowance for credit loss was $78,000,000 at 06/30/2025 or 0.93% of gross loans. In comparison, our allowance for credit losses as of 03/31/2025 was $78,300,000 or 0.94% of gross loans. The decrease was due to net charge offs of $249,000 Comparatively, we had a $2,000,000 recapture provision for credit losses during

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: the first quarter of the year.

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. We continue to have the largest individual scenario waiting on Moody’s baseline forecast with both upside and downside risks weighted among multiple forecasts. The resulting economic forecast at 06/30/2025 was marginally different from our forecast at the end of the first quarter of twenty twenty five. The updated economic forecast reflects lower GDP growth, higher unemployment and lower commercial real estate prices. Real GDP is forecasted to stay below 1% until the 2026 and not reach 2% until the end of twenty twenty seven.

The unemployment rate is forecasted to reach 5% by the 2026 and remain above 5% until 2028. Commercial real estate prices are forecasted to continue their decline through the 2026 before experiencing growth through the year 2028. Switching to our investment portfolio, available for sale or AFS investment securities were approximately $2,490,000,000 at 06/30/2025. The unrealized loss on AFS securities decreased by 24,700,000 from $388,000,000 as of 03/31/2025 to $364,000,000 on 06/30/2025. Hedging the market risk of our AFS portfolio, we have $700,000,000 of fair value hedges.

The net after tax impact of changes in both the fair value of our AFS securities and our derivatives resulted in a $9,700,000 increase in other comprehensive income for the second quarter. In May, we terminated pay fixed swaps with a total nominal value of $700,000,000 that was issued in June 2023 and were scheduled to mature in June 2028 and replaced them for the same $700,000,000 nominal value with new paid fixed swaps that mature in May, 2030 and 02/1931. The swap replacement resulted in a three basis point lower weighted average fixed rate. The positive carry on receiving daily SOFR compared to the fixed rate paid on the swaps generated $1,300,000 of interest income in the second quarter of twenty twenty five. Our held to maturity investments totaled $2,330,000,000 at 06/30/2025, which is a $31,900,000 lower balance than the end of the first quarter.

Our level of wholesale funding at 06/30/2025 did not change from the end of the first quarter. Our wholesale funds consisted of $300,000,000 of brokered CDs that have been swapped as cash flow hedges and $500,000,000 of Federal Home Loan Bank advances. As of 06/30/2025, the $500,000,000 of Federal Home Loan Bank advances had a weighted average rate of 4.55% and the $300,000,000 of brokered CDs had an average rate of 4.4%. Now I’m going to turn to the capital position. At 06/30/2025, our shareholders’ equity was $2,240,000,000 an $11,000,000 increase from the March, including a $9,000,000 increase in other comprehensive income.

Retained earnings was $23,000,000 for the second quarter. Our Board of Directors authorized a new $10,000,000 share repurchase plan in November. In conjunction with the share repurchase, we also approved a 10b5-one plan. There were 1,280,000.00 shares repurchased during the 2025 at an average purchase price of $17.3 Year to date, we repurchased 2,060,000.00 shares at an average share price of $18.15 The company’s tangible common equity ratio remained at 10% at 06/30/2025, the same as 03/31/2025. At 06/30/2025, our common equity Tier one capital ratio was 16.5% and our total risk based capital ratio was 17.3%.

I’ll now turn

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: the call back to Dave for some further discussion of our second quarter earnings. Thanks, Alan. Moving on to non interest income, our non interest income was $14,700,000 for the 2025 compared to $16,200,000 for the first quarter and $14,400,000 in the second quarter of twenty twenty four. The 2025 included the $2,200,000 gain on sale of OREO. OLE income increased by $397,000 from the 2025 and increased by $285,000 compared to the second quarter of twenty twenty four.

Our trust and wealth management fees increased by $304,000 or eight point nine percent and $287,000 or 8.4% from the 2025 and the 2024 respectively. International fees also increased from the first quarter by more than $150,000 Now expenses. Non interest expense for the 2025 was $57,600,000 compared to $59,100,000 in the 2025 and $56,500,000 in the second quarter of twenty twenty four. The 2025 included a $500,000 provision for off balance sheet reserves. There was no provision or recapture of off balance sheet reserves in the second quarter of twenty twenty five.

The 2024 also included approximately $700,000 of lower expense related to an accrual adjustment for the estimated cost of the FDIC special assessment. Staff related expenses decreased by $1,500,000 or 4.05% over the first quarter of twenty twenty five, primarily due to higher payroll taxes that occur at the beginning of each calendar year. Staff expense decreased by $430,000 or 1.2 percent compared to the second quarter of twenty twenty four. Occupancy and equipment expenses grew by $108,000 when compared with the 2025 and by $335,000 compared to the second quarter of twenty twenty four. The increase in occupancy expense includes the impact of the higher rent expense for the four offices involved in the sale leaseback transactions in the second half of twenty twenty four.

We continue to invest in technology infrastructure and automation as reflected in our growth in software expense of 4.5% or $190,000 higher than the 2025 and twelve percent or $460,000 higher than the second quarter of twenty twenty four. Non interest expense totaled 1.52% as a percentage of average assets in the 2025 compared to 1.58% for the 2025 and one point four percent for the second quarter of twenty twenty four. Our efficiency ratio of 45.6% was lower in the 2025 compared to 46.7% for the first quarter of twenty twenty five, but slightly higher than the 45.1% in the second quarter of twenty twenty four. This concludes today’s presentation. Now, Alan and I will be happy to take any questions.

Operator: Thank And our first question will come from the line of Matthew Clark from Piper Sandler. Your line is open.

Matthew Clark, Analyst, Piper Sandler: Hey, good morning.

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Good morning, Matthew. Sounds

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: like

Matthew Clark, Analyst, Piper Sandler: the prepays and line utilization weighed on your loan yields this quarter. Can you quantify the prepay income this quarter versus last? How that compares to kind of a typical quarter? And then the pickup in activity you’re seeing in July, whether or not you’ve seen some increase in line utilization to date?

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: I’ll take the first part of it and then Alan can I’ll take your second question and Alan will take part of the first question there. So, we’re not seeing any changes in line utilization at this point. In some ways, it’s a good thing. It means our customers are doing well, particularly in dairy and livestock. On the C and I side, people have cash, it’s most of those lines are priced at prime or silver plus the spread.

And it’s just a better financial decision for them to utilize their cash or pay down the line if they have excess cash. So we’re not seeing an increase in the line utilization. I do expect that in the fourth quarter specifically on the dairy and livestock loans. We’ll see how everything goes relative to the C and I side of that. So I think, Alan, you want to take the prepayment penalty

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: Yeah, mean, Matthew, I guess, maybe the best way to answer the beginning of your question is that we did see, and really throughout the year, but particularly in the second quarter, we have seen elevated, payoffs. That’s impacted more the volume than I would say the yield. And so if the yield impact is really our higher yielding loans, asset based loans, dairy and livestock, but utilization has dropped quite a bit. And so that’s been very impactful on the overall mix of the loans from a yield perspective. Without that and without and prepayment penalties were down as well, I think Dave indicated that we would have been up about five basis points on loan yields, everything else equal.

And really the repricing of the portfolio just from the natural payoff and resets of adjustables is really a couple of basis points a month. So like six basis points is what I would expect, but the mix of the assets and, some of the timing of some of the fee income, as I said, prepayments sort of overset that and did not see that come through in the financials this quarter.

Matthew Clark, Analyst, Piper Sandler: And on the repurchase agreements that were up, I think on an end of period basis, can you just remind us of the cost of those and the outlook there, whether or there was anything unusual?

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: Are you referring to our customer repos? Yes. We view those as deposits, I would first say, but these are basically customers have a peg balance on their checking account and anything over that gets swept into the repos. And so I think on average, it was a couple like 400,000,000, I think for the quarter and the cost of that was probably around 170 ish.

Matthew Clark, Analyst, Piper Sandler: Okay, thanks again.

Gary Tenner, Analyst, D.A. Davidson: You’re welcome.

Operator: Thank you. One moment for our next question. And that will come from the line of Gary Tenner with D. A. Davidson.

Your line is open.

Gary Tenner, Analyst, D.A. Davidson: Thanks. Good morning. Morning. I wanted to go back to the C and I comments you made on the non dairy and livestock loans. You’ve always talked about how your customers are the best business owners and operators, and you reiterated that in your comments a few minutes ago.

I’m just curious, it seems like the headwind there maybe remains a little bit higher than what we’ve seen through this earnings season. The commentary has generally been a bit more positive. Do you think that some of kind of a lag perhaps is more customer specific? Or do you think it is a little more regional in terms of California business opportunities?

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Yes, I don’t think it’s a regional impact. I think we have obviously high credit quality customers that have low balance sheet leverage and have a lot of excess deposits. I think that’s probably been the headwind for us relative to the utilization on the lines. It doesn’t mean that they won’t take advantage of opportunities or there aren’t opportunities in California. So I do think that, that’s I think it’s just a little bit of a, I’ll say temporary.

I mean, we’ve never had a high utilization rate, but that point to point $5,000,000 decrease in loans, if we would have just kept the same utilization rate that we had in the first quarter, we would have grown loans from point to point. So I think that will turn around a little bit Gary. I don’t think it’s indicative of a lack of confidence or a lack of anything. I mean, customers are feeling relatively positive about everything. So, I don’t think it’s indicative of the entire portfolio.

I think it is more customer specific and just the fact that they’re sitting on a lot of cash and the cost of that from their perspective is better to utilize their cash as evidenced by our 87 basis points cost of deposits. I mean, all things being equal, it’s cheaper for them to give up the 87 basis points than pay 7.5% on borrowings on a line of prime plus something. So I just think that’s something that is hopefully something temporary and dairy and know you said excluding dairy, but dairy is important part of this. I mean, they’re making a lot of money right now. And I think we may even start to see on the dairy and livestock in the third quarter, start to see some of those deferral loans that they would normally do in the fourth quarter.

We should start to see some of that in the third quarter because they are making so much money for tax planning. They need to expense things and they’re going to borrow to do that. So, I think the outlook is positive from that perspective. And I do think that our customers will utilize their lines more, but I think this was just, I’ll say a blip in some ways in that, sitting on a lot of cash, still taking advantage of things. I mean, we had, as I mentioned, we had the highest month in the history or an increase in our international group.

I mean, that’s basically transactions, that’s importing, exporting. So people are doing things, it’s just that they’re utilizing their cash first.

Gary Tenner, Analyst, D.A. Davidson: Thank you for that color. Certainly a high class problem for your customers Just at this on the deposit side, real quickly, I think your interest bearing deposit beta through the first 100 basis points sits right around 30% without knowing when the next or series of additional rate cuts will come. Do you think

Andrew Terrell, Analyst, Stephens: you could continue that kind

Gary Tenner, Analyst, D.A. Davidson: of pace? Or given how low your funding costs already are, do you think it kind of the next leg is a little bit lighter from a beta perspective?

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: I actually think it’s going to be a little bit better from a beta perspective and just to refresh everybody’s memory. In the first 50 basis point rate cut, we basically reduced our special priced money market accounts by only 25 basis points and we only did that on deposit accounts over 2.5%. So it didn’t capture anything below 2.5. On the second and third cuts of 25 basis points, we did 100% of it. We went down to 2% on the second cut and we went down to 1.5% on the third cut.

If we have another cut, we will capture for the most part everything over 1% with 100% decrease. There may be some people that come back and push back a little bit on that, but all in all, I think we’ll do better than 30% beta on that.

Gary Tenner, Analyst, D.A. Davidson: Appreciate it. You’re welcome.

Operator: Thank you. One moment for our next question. And that will come from the line of Andrew Terrell with Stephens. Your line is open.

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Hey, good morning. Good morning.

Andrew Terrell, Analyst, Stephens: Maybe sticking with high class problems to have, you guys had a pretty big build in cash at end of period. Just wanted to get your thoughts on any interest in putting cash to work in the bond book, barring a pickup in loan growth or any kind of FHLB reduction or deposit optimization that could take place in the back half of the year?

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: So Andrew, would think the most likely scenario would be building the investment book. At this point, just the way we’re managing interest rate risk, I don’t see us reducing the wholesale funding. So yes, we’ve built up some cash. We’ll be judicious about utilizing it because there is a lot of seasonality to our assets and our liabilities, but it’s probably more likely than anything we do start to grow the investment book.

Andrew Terrell, Analyst, Stephens: Got it. Okay, thanks. And then maybe for Dave, I think you mentioned in some of the prepared comments just the competitive environment today was, I think you said fierce. I was hoping you could just talk a little bit more about what you’re seeing from a competitive standpoint today, any pockets where you’re seeing more or less competition? And then how is that impacting new loan origination yields?

And I’d love to tie that in with do you feel like the competitive environment could at least partially offset that static kind of fixed repricing benefit you guys are anticipating?

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Yes, I think I said intense. I should have used fierce. That sounds better. So I’ll have my speech writers work on that for next quarter. But no, it has been intense and we’re seeing spreads anywhere from 130 to 170 over like treasuries on fixed rate stuff.

It’s in some ways kind of ridiculous that people are willing to do that and maybe they believe rates are coming down, longer term rates are coming down. I’m not sure I share that same feeling. So we’ll see how that plays out. But we try and stick to at least 2% to 2.5% over like indexes for the right relationship, for the right customer, obviously we have to be competitive. But when we’re looking at new relationships to the bank, the focus is really on what’s the overall relationship loan, deposits, fee income opportunities, all of those things.

And so we just have to price it based on that. But we’re absolutely seeing things priced at 130 to 170 over like treasuries. So, the mid fives, I do think our origination yields will come down a little bit in the third quarter and we’ll see how that plays out as we get to the fourth quarter. But we’re probably somewhere closer to 6.25% to 6.5% origination rate so far this quarter. So we’ll see how that all plays out.

And it’s across the board, it’s big banks, it’s a lot of people on it. And we’re going to be disciplined in our underwriting first and foremost. So we’re going to choose the best customers and they’re hopefully going to choose us as well. But we’re also seeing competition on the underwriting side, on the structure side. We just were competing for a deal that was a restaurant that wanted money basically unsecured money to remodel their locations.

They have multiple locations and a bank came in and did that totally unsecured, unguaranteed. And it’s a restaurant and it’s a good restaurant, but it’s still a restaurant. And so those are the kinds of things we’re seeing. And I think some of that is just pressure based on people saying that they can grow loans 10% or whatever the case may be. And I’m still confident in the production that we have and the pipelines look good for the next couple of months at least.

And so, I do believe we’ll still be able to grow notwithstanding the seasonality in the dairy. And we’ll see how the rest of the year plays out, but we will compete where we need to compete for the right relationship. But to Alan’s point about growing the investment book, if we can get five plus percent on investment security versus 5.5% all alone, I mean, the math says do the investment security.

Andrew Terrell, Analyst, Stephens: Great. I really appreciate all the color there. Thanks for taking the questions.

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Of course.

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

David Feaster, Analyst, Raymond James: Hi. Good morning, everybody.

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: Good morning. Maybe

David Feaster, Analyst, Raymond James: just kind of staying on the competitive side. First off, where are you seeing the most competition from? Is it the larger banks? Is it non banks? Just kind of curious where this competition is coming from.

And then maybe given a bit more competitive pricing on your side, do you think originations can start outpacing these elevated payoffs and paydowns kind of in the back half of the year?

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: So I’ll take the last part first. Yes, I still believe that originations can outpace the payoffs and that type of thing. I think we’ll get some more normalization in our utilization. So I think that will help. Obviously, have the seasonality of dairy.

And to answer your question as far as the competition, it’s not coming from private credit. Most of the private credit stuff is not stuff we would necessarily want to do anyway. And so I think that that’s something that we’re not seeing. I would say that the I’ll use Andrew’s word, the fiercest competition is coming from sort of the regional banks. To some degree, the larger banks, it’s not really the smaller banks that we’re seeing the ridiculous pricing from, that’s more of a structure challenge, would say.

So, I think the combination of all of those things, if I had to sort of characterize it, I would say it’s more of the regional bank, kind of the bank that’s that 100,000,000,000 to $250,000,000,000 in asset bank.

David Feaster, Analyst, Raymond James: Okay, that’s helpful. And we’ve talked in the past about the success that your specialty banking groups had. I’m curious kind of how that group’s contributed maybe this quarter to some of the solid deposit trends that you’re seeing and maybe more broadly the competitive side for funding, right? I mean, just curious what you’re seeing there, especially as industry growth seems to be improving.

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Yes, look, they had a record year last year. They’re not quite at record year pace this year, but they’re still having a good year. And very candidly, we could be even doing better there, but it’s similar to the loan pricing. We’re very conscientious about the cost of third party vendor payments and the related ECR rate, the earnings credit rate that we would have to pay. And so there are people out there that are paying extremely high ECR rates and then subsequently writing big checks through third party vendor payments.

That is not our model. Our model is more relationship based, service based, all of those things we’ve been successful. And I think I’ve mentioned this in the past, our ECR beta was lower than our deposit beta in the up cycle and has remained that. Are seeing competition there. There are banks that are willing to pay up.

And I can tell you of the customers that have left in that group, I would say at least 40% to 50% of them come back to us, because people are just throwing it out there to get deposits. But there’s a lot to that business and we have a great team that does a great job and has competed very well without having to give away the bank.

David Feaster, Analyst, Raymond James: That’s helpful. And maybe just last one for me, just always interested to hear your thoughts on the M and A side. I mean, we’ve seen some more maybe transactions happening, stronger currencies, curious how conversations are going and just kind of what you’re seeing on the M and A front?

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Yes, conversations are still happening. I agree with you that we are seeing more transactions. I think most of the transactions I’m seeing are being done at very reasonable pricing. I do believe that most of the conversations I’m having with people, there are expectations of better pricing and in some cases pricing that makes it a little more challenging for us. I do think that and I still believe that we can announce something by the end of the year.

It will probably take us pushing a little further outside of our box than we would want to in order to make that happen. But for the right organization, that’s something we would consider. And I just think that, we’ve had opportunities, we’ve looked at stuff, there’s nuances to the stuff we’ve looked at for that would include reasons on why we didn’t do something. But at the end of the day, we want to make sure that we keep Citizens Business Bank, Citizens Business Bank and do a good job at integrating and so there nuances. But David, most of those deals have been outside of California.

I mean, Sam’s the PPBI deal, there really hasn’t been anything in California, at least California centric.

David Feaster, Analyst, Raymond James: Yeah, that’s a good point. All right, thanks everybody for the color. Appreciate it.

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: Of course, Joe.

Operator: Thank you. And that will come from the line of Kelly Motta with KBW. Your line is open.

Kelly Motta, Analyst, KBW: Hey, good morning. Thanks for the question.

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Good morning.

Kelly Motta, Analyst, KBW: Maybe piggybacking on that last point, The economic environment in California has had some headwinds. Are a California based bank and bank the best businesses in your footprint. But wondering, just given the macro challenges, would you consider going out of state or have you started to have those discussions more now relative to maybe a couple years ago? Thanks.

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: You’re welcome, Kelly, and it’s a great question. In our investor presentation, I don’t know if you guys noticed this or not, but we did sort of modify our acquisition strategy, which is on page 10. And you will notice that it now says in market and new geographic markets and we removed the word California. I think for the most part, we would still be looking for a California centric bank. And I would say in the past, we’ve been more hesitant to look at banks that have locations outside of California.

But I just think from a strategic perspective, we’re sort of opening the window a little bit more to look at other things as well. So obviously, there’s nothing imminent or nothing that it’s just more of a strategic decision to consider expanding beyond our borders currently. And to your point about California economic headwinds, I think there is some truth to that, but I also think there’s still so much opportunity here in the environment we’re in with the diversity of industry and the diversity of things here does create still allows us to take advantage of that from a market share perspective. So, and looking at de novo teams as well. So, it’s all on the table.

I guess I would answer your question by.

Kelly Motta, Analyst, KBW: Thanks for the color and pointing that out, I really appreciate it. Maybe last question from me, your expenses are really well controlled and it seems like the growth environment, there’s been a couple things that have been working, you know, in in the wrong direction even though your clients remain really healthy. And you’ve been able to control expenses, you know, very well in in light of that. Wondering, you know, given the the step down this quarter, if if there’s any nuances around that, that we should be mindful of when thinking about the run rate ahead and any flex there? Thank you.

Alan Nicholson, Executive Vice President and Chief Financial Officer, CVB Financial Corporation: Sure, Kelly. I mean, I would think about run rate a couple of ways. As Dave mentioned, Q1 to Q2 is always a little noisy because payroll taxes are always higher in the first quarter. As you get into the second half of the year, we do, do mid year salary increases for our associates in July. And so staff expense should grow a little bit from that perspective.

But we have done a really good job of, I think utilizing technology to automate things and it’s allowed us to manage expenses on the staff side pretty well. We’ll continue to see, I would say probably double digit, 10% growth in our technology side. That will be the one area that should continue to grow. But overall expense growth should still be low single digits as it typically is for us. And we’ll continue to be obviously we monitor that very, very closely.

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Kelly, I’m just going to add one little piece to that. And I think it’s an important piece. And there’s a lot of moving parts in some of these numbers, but even if you look at occupancy expense, when we did the sale leaseback transactions, the rental expense, the actual occupancy expense of the properties, we’re increasing by $2,200,000 to $2,400,000 And if you look at the numbers, I mean, they’ve only, I think they went up $335,000 in the second quarter. So we are consistently looking at our locations, how much space we’re in. We just relocated one of our offices.

We were in 7,500 square feet. We moved to 2,500 square feet. So every lease renewal is an opportunity for us to look at that with the perceived softness in office and a good tenant us, we’ve been able to negotiate reductions in lease rates on the remaining properties. So we’re working hard to maintain that. And I think Alan would normally say it’s low single digit expense growth per year.

And I think that’s something that we can continue execute on. And we have had positive operating leverage the last two quarters and we’re working hard to do that. And there’s two parts to that, obviously growing revenue and keeping expenses in line and or decreasing. So we’re working on all those things.

Kelly Motta, Analyst, KBW: Got it. Thanks so much for the color there. I’ll step back.

Operator: 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.

Dave Breger, President and Chief Executive Officer, CVB Financial Corporation: Thank you, Sherry. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by our one hundred and ninety three consecutive quarters or more than forty eight years of profitability and one hundred and forty three 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 our associates for their commitment and loyalty.

Thank you again for joining us this quarter. We appreciate the interest and look forward to speaking with you in October for our third quarter twenty twenty five earnings call. Please let Alan or I know if you have any questions. Have a great day.

Operator: This concludes today’s program. Thank you all for participating. You may now disconnect.

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