CVB Financial Corporation
11/06/2026 | Press release | Distributed by Public on 11/06/2026 15:02
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of CVB Financial Corp. (referred to herein on an unconsolidated basis as "CVB" and on a consolidated basis as "we," "our" or the "Company") and its wholly owned bank subsidiary, Citizens Business Bank, National Association (the "Bank" or "CBB"). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025 (the "2025 Form 10-K") and the unaudited condensed consolidated financial statements and accompanying notes presented elsewhere in this report.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of the Company's unaudited condensed consolidated financial statements are based upon the Company's unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures at the date of and for the periods presented in the financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Certain accounting policies include critical accounting estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company's financial condition or results of operations. The following is a summary of the Company's critical accounting estimates. In each area, we have identified the variables we believe are most important in our estimation process. We utilize information available to us to make the necessary estimates to value the related assets and liabilities. Actual results may differ from our estimates, and future changes in significant assumptions or other information used in making these estimates could change future valuations and affect the results of operations.
•
Allowance for Credit Losses ("ACL")
•
Business Combinations
•
Valuation and Recoverability of Goodwill
There have been no material changes to the methodologies used in developing these estimates during the three and nine months ended September 30, 2026. Our critical accounting estimates and significant accounting policies are described in greater detail in our 2025 Form 10-K in the "Critical Accounting Policies" section of Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 3 - Summary of Significant Accounting Policies included in the 2025 Form 10-K.
Acquisition of Heritage Commerce Corp.
On April 17, 2026, the Company completed its previously announced acquisition of Heritage Commerce Corp and its wholly-owned banking subsidiary, Heritage Bank of Commerce (collectively, "Heritage"). The systems conversion was also completed during the second quarter of 2026. The acquisition was an all-stock transaction accounted for under the acquisition method of accounting as a business combination pursuant to the Agreement and Plan of Reorganization and Merger, dated December 17, 2025 (the "Merger Agreement"), by and between CVB and Heritage. Under the terms of the Merger Agreement, Heritage shareholders received 0.65 shares of the Company's common stock for each share of Heritage common stock owned. Total merger consideration was $845.5 million. Upon closing, the Company acquired loans with a fair value of $3.4 billion and investment securities with a fair value of $1.0 billion, and assumed $1.2 billion of noninterest-bearing deposits, $3.5 billion of interest-bearing deposits, and $38.7 million of subordinated debt. The preliminary purchase price allocation resulted in $450.7 million of intangible assets, consisting of a core deposit intangible asset of $116.6 million and goodwill of $334.1 million.
For additional information on the acquisition of Heritage, see Note 4 - Business Combination.
OVERVIEW
The Company's financial results for the three and nine months ended September 30, 2026 include the results of operations of Heritage from the April 17, 2026 acquisition date, which affects the comparability of the current periods to prior periods.
For the third quarter of 2026, we reported net earnings of $78.1 million, or diluted earnings per share of $0.44, compared with $52.6 million, or diluted earnings per share of $0.38 for the third quarter of 2025. Net earnings for the third quarter of 2026 generated an annualized return on average equity ("ROAE") of 9.70%, an annualized return on average tangible common equity ("ROATCE") of 16.22%, and an annualized return on average assets ("ROAA") of 1.48%, compared with 9.19%, 14.11%, and 1.35%, respectively, for the third quarter of 2025. Our net interest margin ("NIM"), on a tax-equivalent basis, was 3.89% for the third quarter of 2026, while our efficiency ratio was 46.27%, compared with a NIM of 3.33% and an efficiency ratio of 45.56% for the same period last year. Excluding acquisition expense and provision for unfunded commitments, our adjusted efficiency ratio was 42.10% for the third quarter of 2026, compared with 45.17% for the third quarter of 2025. ROATCE and the adjusted efficiency ratio are non-GAAP financial measures. For additional details, refer to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") - GAAP to Non-GAAP Reconciliation in this Form 10-Q.
For the nine months ended September 30, 2026, net earnings were $177.4 million, or diluted earnings per share of $1.11, compared with $154.3 million, or diluted earnings per share of $1.11 for the nine months ended September 30, 2025. Net earnings for the nine months ended September 30, 2026 generated an annualized ROAE of 8.31%, ROATCE of 13.55%, and ROAA of 1.26%, compared with 9.18%, 14.23%, and 1.35%, respectively, for the same period last year. Our NIM, on a tax-equivalent basis, was 3.71% for the nine months ended September 30, 2026, while our efficiency ratio was 52.34%, compared with a NIM of 3.32% and an efficiency ratio of 45.93% for the same period last year. Excluding acquisition expense and the provision for unfunded commitments, our adjusted efficiency ratio was 43.38% for the nine months ended September 30, 2026, compared with 45.67% for the same period last year.
For the third quarter of 2026, net interest income was $179.1 million, an increase of $63.5 million, or 54.9%, from the third quarter of 2025. The increase was primarily attributable to a $70.5 million increase in interest income driven by a $4.58 billion increase in average interest-earning assets and a 47 basis point increase in the yield on interest-earning assets. The increase in interest income was partially offset by a $7.0 million increase in interest expense primarily attributable to a $2.86 billion increase in average interest-bearing deposits and customer repurchase agreements, partially offset by a 7 basis point decrease in the cost of deposits and customer repurchase agreements. For the nine months ended September 30, 2026, net interest income was $459.3 million, an increase of $121.7 million, or 36.0%, from the same period last year.
Noninterest income for the third quarter of 2026 was $16.5 million, an increase of $3.5 million, or 26.8%, from $13.0 million for the third quarter of 2025, primarily reflecting the impact of the Heritage acquisition. The increase included higher BOLI income and service charges on deposit accounts. The increase was also impacted by an $8.2 million loss on the sale of available-for-sale ("AFS") investment securities in the third quarter of 2025, partially offset by other income from a $6.0 million legal settlement received in the third quarter of 2025. For the nine months ended September 30, 2026, noninterest income was $47.8 million, an increase of $3.8 million, or 8.7%, from $44.0 million for the same period last year.
Noninterest expense for the third quarter of 2026 was $90.5 million, an increase of $31.9 million, or 54.5%, from $58.6 million for the third quarter of 2025. The increase was primarily attributable to acquisition related expenses and the addition of Heritage's operations, personnel, and banking centers. For the nine months ended September 30, 2026, noninterest expense was $265.4 million, an increase of $90.2 million, or 51.4%, from the same period last year.
At September 30, 2026, total assets were $20.52 billion, an increase of $4.89 billion, or 31.3%, from $15.63 billion at December 31, 2025. Interest-earning assets were $18.02 billion at September 30, 2026, an increase of $4.03 billion, or 28.8%, from $13.99 billion at December 31, 2025. The increase in interest-earning assets was primarily due to a $3.42 billion increase in total loans and a $769.7 million increase in investment securities, partially offset by a $120.3 million decrease in cash and cash equivalents. The increase in total assets primarily reflected the impact of the Heritage acquisition completed on April 17, 2026, which added approximately $5.41 billion of assets, partially offset by balance sheet optimization activities following the acquisition.
Total investment securities were $5.72 billion at September 30, 2026, an increase of $769.7 million, or 15.5%, from $4.95 billion at December 31, 2025. The increase was primarily attributable to $1.02 billion of investment securities acquired in the Heritage acquisition, of which $528.2 million was retained and $488.2 million was sold following completion of the acquisition as part of the Company's balance sheet optimization strategy, as well as approximately $796.9 million of purchases of AFS securities during the first nine months of 2026. At September 30, 2026, investment securities held-to-maturity ("HTM") totaled $2.20 billion, a decrease of $75.1 million, or 3.3%, from $2.27 billion at December 31, 2025. At September 30, 2026, AFS investment securities totaled $3.53 billion, inclusive of a pre-tax net unrealized loss of $439.0 million. AFS securities increased by $844.8 million, or 31.5%, from $2.68 billion at December 31, 2025. The pre-tax unrealized loss increased by $131.2 million from December 31, 2025. Our average tax-equivalent yield on investments was 2.97% for the third quarter of 2026, compared to 2.66% for the third quarter of 2025.
Pay-fixed interest rate swaps designated as fair value hedges with an aggregate notional amount of $700 million had a fair value which totaled $23.7 million and was reflected as an asset at September 30, 2026. At December 31, 2025, the fair value of these instruments totaled $8.6 million and was reflected as a liability. These instruments resulted in negative interest income of $165,000 for the third quarter of 2026, compared to interest income of $1.3 million for the third quarter of 2025. Refer to Note 11 - Derivative Financial Instruments of the notes to the consolidated financial statements of this report for additional information.
Total loans and leases, at amortized cost, of $12.12 billion at September 30, 2026, increased by $3.42 billion, or 39.4%, from December 31, 2025. The increase was primarily attributable to the Heritage acquisition, which added $3.10 billion of loans held for investment recorded at fair value as of the acquisition date, as well as organic loan growth. To further optimize the balance sheet, the Company sold SFR mortgage loan pools acquired from Heritage at their fair value of $327.5 million during the second quarter of 2026 and redeployed the proceeds into higher-yielding investment securities. The increase in total loans and leases included increases of $2.46 billion in commercial real estate loans, $466.2 million in commercial and industrial loans, $191.2 million in construction loans, $187.9 million in SBA loans, $158.0 million in consumer and other loans, and $56.6 million in SFR mortgage loans. Our average loan yields were 5.66% for the quarter ended September 30, 2026, compared with 5.25% for the third quarter of 2025.
The allowance for credit losses totaled $125.6 million at September 30, 2026, compared with $77.2 million at December 31, 2025. The $48.4 million increase was primarily the result of the $46.6 million initial allowance for credit losses established for the loans acquired from Heritage.
Noninterest-bearing deposits were $8.42 billion at September 30, 2026, an increase of $1.62 billion, or 23.8%, compared with $6.80 billion at December 31, 2025. The increase was primarily the result of $1.2 billion of noninterest-bearing deposits assumed in the Heritage acquisition. At September 30, 2026, noninterest-bearing deposits were 53.50% of total deposits, compared with 56.33% at December 31, 2025. The decline in the proportion of noninterest-bearing deposits primarily reflected the deposit mix acquired in the Heritage acquisition, which included a higher proportion of interest-bearing deposits.
Interest-bearing deposits were $7.31 billion at September 30, 2026, an increase of $2.04 billion, or 38.8%, when compared with $5.27 billion at December 31, 2025. The increase in interest-bearing deposits primarily reflected $3.5 billion of interest-bearing deposits assumed in connection with the Heritage acquisition, partially offset by the maturity of $300 million of brokered CDs that were not renewed during the second quarter of 2026 and decreases in legacy deposits. Customer repurchase agreements totaled $571.9 million at September 30, 2026, compared with $490.6 million at December 31, 2025.
Total deposits and customer repurchase agreements totaled $16.30 billion at September 30, 2026, an increase of $3.74 billion from December 31, 2025. The Heritage acquisition added approximately $4.75 billion of total deposits at acquisition date. There were no brokered deposits at September 30, 2026, compared to $300 million at December 31, 2025. Our average cost of total deposits including customer repurchase agreements was 0.83% for the quarter ended September 30, 2026, compared to 0.90% for the quarter ended September 30, 2025.
At September 30, 2026, total FHLB and other borrowings were $579.3 million, consisting of $540 million of FHLB advances and $39.3 million of subordinated debt assumed in the Heritage acquisition, compared with $500 million of FHLB advances at December 31, 2025. At September 30, 2026, FHLB advances consisted of two $150 million three-month FHLB advances bearing a weighted average fixed interest rate of 4.22%, a $200 million advance bearing a fixed rate of 4.27% and maturing in May 2027, and a $40.0 million overnight advance bearing interest at 4.36%, which matured on October 1, 2026. The two $150 million three-month advances replaced maturing brokered CDs during the second quarter of 2026 and were designated as hedged transactions under the related pay-fixed, receive-floating interest rate swaps, which mature in the first quarter of 2027.
Total stockholders' equity was $3.13 billion at September 30, 2026, an increase of $835.1 million compared with $2.30 billion at December 31, 2025. The increase was primarily attributable to $840.2 million of common shares issued and exchanged as a result of the Heritage acquisition and $177.4 million in net earnings, partially offset by $97.8 million in cash dividends declared and $22.7 million of common stock repurchases. During the first nine months of 2026, the Company purchased approximately 1.0 million shares under the 2026 Repurchase Program, at an average price of $22.22 per share for an aggregate purchase price of $22.6 million. Our tangible book value per share was $10.92 at September 30, 2026, compared with $11.24 at December 31, 2025. Tangible book value per share is a non-GAAP financial measure. For additional details, refer to Item 2. - MD&A - GAAP to Non-GAAP Reconciliation.
Our regulatory capital ratios remained well above applicable regulatory requirements at September 30, 2026. As of September 30, 2026, the Company's Tier 1 leverage capital ratio was 11.24%, Common Equity Tier 1 ("CET1") ratio was 14.82%, Tier 1 risk-based capital ratio was 14.82%, and total risk-based capital ratio was 15.69%. Refer to Item 2. - MD&A -Analysis of Financial Condition - Capital Resources.
ANALYSIS OF THE RESULTS OF OPERATIONS
Summary of Operations, Per Common Share Data and Performance Ratios
|
Three Months Ended |
Variance |
||||||||||||||
|
September 30, |
June 30, |
||||||||||||||
|
(Dollars in thousands, except per share amounts) |
2026 |
2026 |
$ |
% |
|||||||||||
|
Net interest income |
$ |
179,066 |
$ |
162,415 |
$ |
16,651 |
10.25 |
% |
|||||||
|
Recapture of credit losses |
1,000 |
- |
1,000 |
100.00 |
% |
||||||||||
|
Noninterest income |
16,494 |
17,010 |
(516 |
) |
-3.03 |
% |
|||||||||
|
Noninterest expense |
(90,480 |
) |
(114,378 |
) |
23,898 |
20.89 |
% |
||||||||
|
Income taxes |
(27,982 |
) |
(16,786 |
) |
(11,196 |
) |
-66.70 |
% |
|||||||
|
Net earnings |
$ |
78,098 |
$ |
48,261 |
$ |
29,837 |
61.82 |
% |
|||||||
|
Earnings per common share: |
|||||||||||||||
|
Basic |
$ |
0.44 |
$ |
0.29 |
$ |
0.15 |
|||||||||
|
Diluted |
$ |
0.44 |
$ |
0.29 |
$ |
0.15 |
|||||||||
|
Return on average assets |
1.48 |
% |
0.97 |
% |
0.51 |
% |
|||||||||
|
Return on average shareholders' equity |
9.70 |
% |
6.41 |
% |
3.29 |
% |
|||||||||
|
Efficiency ratio |
46.27 |
% |
63.75 |
% |
-17.48 |
% |
|||||||||
|
Noninterest expense to average assets |
1.71 |
% |
2.31 |
% |
-0.60 |
% |
|||||||||
|
Three Months Ended |
|||||||||||||||
|
September 30, |
Variance |
||||||||||||||
|
(Dollars in thousands, except per share amounts) |
2026 |
2025 |
$ |
% |
|||||||||||
|
Net interest income |
$ |
179,066 |
$ |
115,577 |
$ |
63,489 |
54.93 |
% |
|||||||
|
Recapture of (provision for) credit losses |
1,000 |
(1,000 |
) |
2,000 |
-200.00 |
% |
|||||||||
|
Noninterest income |
16,494 |
13,006 |
3,488 |
26.82 |
% |
||||||||||
|
Noninterest expense |
(90,480 |
) |
(58,576 |
) |
(31,904 |
) |
-54.47 |
% |
|||||||
|
Income taxes |
(27,982 |
) |
(16,421 |
) |
(11,561 |
) |
-70.40 |
% |
|||||||
|
Net earnings |
$ |
78,098 |
$ |
52,586 |
$ |
25,512 |
48.51 |
% |
|||||||
|
Earnings per common share: |
|||||||||||||||
|
Basic |
$ |
0.44 |
$ |
0.38 |
$ |
0.06 |
|||||||||
|
Diluted |
$ |
0.44 |
$ |
0.38 |
$ |
0.06 |
|||||||||
|
Return on average assets |
1.48 |
% |
1.35 |
% |
0.13 |
% |
|||||||||
|
Return on average shareholders' equity |
9.70 |
% |
9.19 |
% |
0.51 |
% |
|||||||||
|
Efficiency ratio |
46.27 |
% |
45.56 |
% |
0.71 |
% |
|||||||||
|
Noninterest expense to average assets |
1.71 |
% |
1.50 |
% |
0.21 |
% |
|||||||||
|
Nine Months Ended |
|||||||||||||||
|
September 30, |
Variance |
||||||||||||||
|
(Dollars in thousands, except per share amounts) |
2026 |
2025 |
$ |
% |
|||||||||||
|
Net interest income |
$ |
459,321 |
$ |
337,629 |
$ |
121,692 |
36.04 |
% |
|||||||
|
(Provision for) recapture of credit losses |
(2,000 |
) |
1,000 |
(3,000 |
) |
-300.00 |
% |
||||||||
|
Noninterest income |
47,783 |
43,978 |
3,805 |
8.65 |
% |
||||||||||
|
Noninterest expense |
(265,426 |
) |
(175,276 |
) |
(90,150 |
) |
-51.43 |
% |
|||||||
|
Income taxes |
(62,317 |
) |
(53,077 |
) |
(9,240 |
) |
-17.41 |
% |
|||||||
|
Net earnings |
$ |
177,361 |
$ |
154,254 |
$ |
23,107 |
14.98 |
% |
|||||||
|
Earnings per common share: |
|||||||||||||||
|
Basic |
$ |
1.11 |
$ |
1.12 |
$ |
(0.01 |
) |
||||||||
|
Diluted |
$ |
1.11 |
$ |
1.11 |
$ |
- |
|||||||||
|
Return on average assets |
1.26 |
% |
1.35 |
% |
-0.09 |
% |
|||||||||
|
Return on average shareholders' equity |
8.31 |
% |
9.18 |
% |
-0.87 |
% |
|||||||||
|
Efficiency ratio |
52.34 |
% |
45.93 |
% |
6.41 |
% |
|||||||||
|
Noninterest expense to average assets |
1.89 |
% |
1.53 |
% |
0.36 |
% |
|||||||||
GAAP to Non-GAAP Reconciliation
The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.
Return on Average Tangible Common Equity Reconciliation (Non-GAAP)
The return on average tangible common equity is a non-GAAP disclosure. The following is a reconciliation of net income, adjusted for tax-effected amortization of intangibles, to net income computed in accordance with GAAP, a reconciliation of average tangible common equity to the Company's average stockholders' equity computed in accordance with GAAP, as well as a calculation of return on average tangible common equity.
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||
|
September 30, |
June 30, |
September 30, |
September 30, |
September 30, |
||||||||||||||||
|
(Dollars in thousands) |
2026 |
2026 |
2025 |
2026 |
2025 |
|||||||||||||||
|
Net Income |
$ |
78,098 |
$ |
48,261 |
$ |
52,586 |
$ |
177,361 |
$ |
154,254 |
||||||||||
|
Add: Amortization of intangible assets |
3,980 |
3,577 |
1,003 |
8,407 |
3,312 |
|||||||||||||||
|
Less: Tax effect of amortization of intangible assets (1) |
(1,157 |
) |
(1,040 |
) |
(297 |
) |
(2,444 |
) |
(979 |
) |
||||||||||
|
Tangible net income |
$ |
80,921 |
$ |
50,798 |
$ |
53,292 |
$ |
183,324 |
$ |
156,587 |
||||||||||
|
Average stockholders' equity |
$ |
3,195,906 |
$ |
3,019,704 |
$ |
2,271,151 |
$ |
2,853,579 |
$ |
2,245,511 |
||||||||||
|
Less: Average goodwill |
(1,099,936 |
) |
(1,041,190 |
) |
(765,822 |
) |
(970,207 |
) |
(765,822 |
) |
||||||||||
|
Less: Average intangible assets |
(116,459 |
) |
(100,373 |
) |
(7,111 |
) |
(74,465 |
) |
(8,278 |
) |
||||||||||
|
Average tangible common equity |
$ |
1,979,511 |
$ |
1,878,141 |
$ |
1,498,218 |
$ |
1,808,907 |
$ |
1,471,411 |
||||||||||
|
Return on average equity, annualized |
9.70 |
% |
6.41 |
% |
9.19 |
% |
8.31 |
% |
9.18 |
% |
||||||||||
|
Return on average tangible common equity, annualized |
16.22 |
% |
10.85 |
% |
14.11 |
% |
13.55 |
% |
14.23 |
% |
||||||||||
(1)
Tax effected at respective statutory rates.
Tangible Book Value (Non-GAAP)
The tangible book value per share is a non-GAAP financial measure derived from GAAP-based amounts. The following is a reconciliation of tangible book value to the Company stockholders' equity computed in accordance with GAAP, as well as a calculation of tangible book value per share.
|
Three Months Ended |
||||||||||||
|
September 30, |
June 30, |
December 31, |
||||||||||
|
(Dollars in thousands, except per share amounts) |
2026 |
2026 |
2025 |
|||||||||
|
Stockholders' equity |
$ |
3,130,322 |
$ |
3,169,689 |
$ |
2,295,224 |
||||||
|
Less: Goodwill |
(1,099,936 |
) |
(1,099,936 |
) |
(765,822 |
) |
||||||
|
Less: Intangible assets |
(113,947 |
) |
(117,927 |
) |
(5,774 |
) |
||||||
|
Tangible book value |
$ |
1,916,439 |
$ |
1,951,826 |
$ |
1,523,628 |
||||||
|
Total assets |
$ |
20,522,193 |
$ |
21,182,781 |
$ |
15,631,054 |
||||||
|
Less: Goodwill |
(1,099,936 |
) |
(1,099,936 |
) |
(765,822 |
) |
||||||
|
Less: Intangible assets |
(113,947 |
) |
(117,927 |
) |
(5,774 |
) |
||||||
|
Tangible assets |
$ |
19,308,310 |
$ |
19,964,918 |
$ |
14,859,458 |
||||||
|
Common shares issued and outstanding |
175,493,977 |
176,247,135 |
135,551,799 |
|||||||||
|
Tangible book value per share |
$ |
10.92 |
$ |
11.07 |
$ |
11.24 |
||||||
Adjusted Efficiency Ratio (Non-GAAP)
Adjusted efficiency ratio is a non-GAAP financial measure derived from GAAP-based amounts. This figure represents the ratio of noninterest expense, less acquisition-related expense and the provision for unfunded loan commitments, where applicable, to the sum of net interest income before provision for credit losses and total noninterest income. Management believes that the exclusion of such items from this financial measure provides useful information to gain an understanding of the operating results of our core business.
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||
|
(Dollars in thousands) |
September 30, |
June 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||||
|
Total noninterest expense |
$ |
90,480 |
$ |
114,378 |
$ |
58,576 |
$ |
265,426 |
$ |
175,276 |
||||||||||
|
Less: Provision for unfunded loan commitments |
- |
(4,250 |
) |
(500 |
) |
(4,750 |
) |
(1,000 |
) |
|||||||||||
|
Less: Acquisition related expenses |
(8,140 |
) |
(31,400 |
) |
- |
(40,669 |
) |
- |
||||||||||||
|
Adjusted noninterest expense |
$ |
82,340 |
$ |
78,728 |
$ |
58,076 |
$ |
220,007 |
$ |
174,276 |
||||||||||
|
Net interest income before provision for credit losses |
$ |
179,066 |
$ |
162,415 |
$ |
115,577 |
$ |
459,321 |
$ |
337,629 |
||||||||||
|
Add: total noninterest income |
16,494 |
17,010 |
13,006 |
47,783 |
43,978 |
|||||||||||||||
|
Total revenue |
$ |
195,560 |
$ |
179,425 |
$ |
128,583 |
$ |
507,104 |
$ |
381,607 |
||||||||||
|
Efficiency ratio |
46.27 |
% |
63.75 |
% |
45.56 |
% |
52.34 |
% |
45.93 |
% |
||||||||||
|
Adjusted efficiency ratio, excluding provision for unfunded loan commitments and acquisition related expenses |
42.10 |
% |
43.88 |
% |
45.17 |
% |
43.38 |
% |
45.67 |
% |
||||||||||
Net Interest Income
The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax-equivalent ("TE") basis by adjusting interest income utilizing the federal statutory corporate tax rates of 21% in effect for the three and nine months ended September 30, 2026 and 2025. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. We manage interest rate risk within policy limits approved by the Board of Directors, which guides and limits the interest rate risk over short-term and long-term horizons. Sources of interest rate risk include differences in maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, and embedded options in assets or liabilities. The mix of interest-earning assets as well as the mix of noninterest-bearing deposits and interest-bearing liabilities impacts our ability to manage net interest income during changing interest rate conditions. We also utilize certain derivative instruments to partially hedge interest rate risk. See Item 2 - MD&A - Asset/Liability and Market Risk Management - Interest Rate Sensitivity Management included herein.
The tables below present the interest rate spread, net interest margin and the composition of average interest-earning assets and average interest-bearing liabilities by category for the periods indicated, including the changes in average balance, composition, and average yield/rate between these respective periods.
|
Three Months Ended September 30, |
|||||||||||||||||||||||
|
2026 |
2025 |
||||||||||||||||||||||
|
Average |
Yield/ |
Average |
Yield/ |
||||||||||||||||||||
|
(Dollars in thousands) |
Balance |
Interest |
Rate |
Balance |
Interest |
Rate |
|||||||||||||||||
|
INTEREST-EARNING ASSETS |
|||||||||||||||||||||||
|
Investment securities (1) |
|||||||||||||||||||||||
|
Available-for-sale securities: |
|||||||||||||||||||||||
|
Taxable |
$ |
3,534,806 |
$ |
29,237 |
3.38 |
% |
$ |
2,501,923 |
$ |
18,722 |
2.99 |
% |
|||||||||||
|
Tax-advantaged |
20,513 |
147 |
3.57 |
% |
20,797 |
145 |
3.33 |
% |
|||||||||||||||
|
Held-to-maturity securities: |
|||||||||||||||||||||||
|
Taxable |
1,856,601 |
9,926 |
2.14 |
% |
1,953,725 |
10,494 |
2.15 |
% |
|||||||||||||||
|
Tax-advantaged |
348,594 |
2,254 |
3.27 |
% |
359,483 |
2,318 |
3.12 |
% |
|||||||||||||||
|
Investment in FHLB, FRB, and other stock |
81,753 |
2,039 |
9.90 |
% |
18,012 |
377 |
8.30 |
% |
|||||||||||||||
|
Interest-earning deposits with other institutions |
590,860 |
5,546 |
3.72 |
% |
646,979 |
7,231 |
4.43 |
% |
|||||||||||||||
|
Loans (2) |
12,024,828 |
171,500 |
5.66 |
% |
8,372,383 |
110,825 |
5.25 |
% |
|||||||||||||||
|
Total interest-earning assets |
18,457,955 |
220,649 |
4.78 |
% |
13,873,302 |
150,112 |
4.32 |
% |
|||||||||||||||
|
Total noninterest-earning assets |
2,482,481 |
1,625,088 |
|||||||||||||||||||||
|
Total assets |
$ |
20,940,436 |
$ |
15,498,390 |
|||||||||||||||||||
|
INTEREST-BEARING LIABILITIES |
|||||||||||||||||||||||
|
Savings deposits (3) |
$ |
6,981,165 |
$ |
28,314 |
1.61 |
% |
$ |
4,311,097 |
$ |
22,060 |
2.03 |
% |
|||||||||||
|
Time deposits |
632,149 |
3,651 |
2.29 |
% |
582,117 |
4,036 |
2.75 |
% |
|||||||||||||||
|
Total interest-bearing deposits |
7,613,314 |
31,965 |
1.67 |
% |
4,893,214 |
26,096 |
2.12 |
% |
|||||||||||||||
|
Customer repurchase agreements |
598,857 |
3,030 |
2.01 |
% |
456,230 |
2,299 |
2.00 |
% |
|||||||||||||||
|
FHLB advances and other borrowings |
500,440 |
5,552 |
4.38 |
% |
500,005 |
5,810 |
4.61 |
% |
|||||||||||||||
|
Subordinated debentures |
39,100 |
780 |
7.98 |
% |
- |
- |
- |
||||||||||||||||
|
Interest expense - Other interest-bearing liabilities |
27,358 |
256 |
3.66 |
% |
30,029 |
330 |
4.30 |
% |
|||||||||||||||
|
Interest-bearing liabilities |
8,779,069 |
41,583 |
1.88 |
% |
5,879,478 |
34,535 |
2.33 |
% |
|||||||||||||||
|
Noninterest-bearing deposits |
8,454,481 |
7,123,511 |
|||||||||||||||||||||
|
Other liabilities |
510,980 |
224,250 |
|||||||||||||||||||||
|
Stockholders' equity |
3,195,906 |
2,271,151 |
|||||||||||||||||||||
|
Total liabilities and stockholders' equity |
$ |
20,940,436 |
$ |
15,498,390 |
|||||||||||||||||||
|
Net interest income |
$ |
179,066 |
$ |
115,577 |
|||||||||||||||||||
|
Net interest spread - tax equivalent |
2.90 |
% |
1.99 |
% |
|||||||||||||||||||
|
Net interest margin |
3.87 |
% |
3.31 |
% |
|||||||||||||||||||
|
Net interest margin - tax equivalent |
3.89 |
% |
3.33 |
% |
|||||||||||||||||||
(1)
Includes TE adjustments utilizing federal statutory corporate rates of 21% in effect for the three months ended September 30, 2026 and September 30, 2025. The non-TE rates for total investment securities were 2.92% and 2.62% for the three months ended September 30, 2026 and September 30, 2025, respectively.
(2)
Includes loan fees of $922,000 and $781,000 for the three months ended September 30, 2026 and 2025, respectively. Prepayment penalty fees of $790,000 and $643,000 are included in interest income for the three months ended September 30, 2026 and 2025, respectively. Average balances include nonperforming loans.
(3)
Includes interest-bearing demand and money market accounts.
|
Nine Months Ended September 30, |
|||||||||||||||||||||||
|
2026 |
2025 |
||||||||||||||||||||||
|
Average |
Yield/ |
Average |
Yield/ |
||||||||||||||||||||
|
(Dollars in thousands) |
Balance |
Interest |
Rate |
Balance |
Interest |
Rate |
|||||||||||||||||
|
INTEREST-EARNING ASSETS |
|||||||||||||||||||||||
|
Investment securities (1) |
|||||||||||||||||||||||
|
Available-for-sale securities: |
|||||||||||||||||||||||
|
Taxable |
$ |
3,066,135 |
$ |
71,575 |
3.15 |
% |
$ |
2,501,899 |
$ |
55,466 |
2.96 |
% |
|||||||||||
|
Tax-advantaged |
20,783 |
438 |
3.50 |
% |
20,552 |
434 |
3.36 |
% |
|||||||||||||||
|
Held-to-maturity securities: |
|||||||||||||||||||||||
|
Taxable |
1,881,613 |
30,134 |
2.14 |
% |
1,978,043 |
31,690 |
2.14 |
% |
|||||||||||||||
|
Tax-advantaged |
352,085 |
6,834 |
3.27 |
% |
363,260 |
7,029 |
3.12 |
% |
|||||||||||||||
|
Investment in FHLB, FRB, and other stock |
71,958 |
4,577 |
8.50 |
% |
18,012 |
1,167 |
8.66 |
% |
|||||||||||||||
|
Interest-earning deposits with other institutions |
517,954 |
14,345 |
3.70 |
% |
384,208 |
12,796 |
4.45 |
% |
|||||||||||||||
|
Loans (2) |
10,744,979 |
443,984 |
5.52 |
% |
8,397,900 |
328,741 |
5.23 |
% |
|||||||||||||||
|
Total interest-earning assets |
16,655,507 |
571,887 |
4.61 |
% |
13,663,874 |
437,323 |
4.29 |
% |
|||||||||||||||
|
Total noninterest-earning assets |
2,157,475 |
1,620,955 |
|||||||||||||||||||||
|
Total assets |
$ |
18,812,982 |
$ |
15,284,829 |
|||||||||||||||||||
|
INTEREST-BEARING LIABILITIES |
|||||||||||||||||||||||
|
Savings deposits (3) |
$ |
5,998,440 |
$ |
73,070 |
1.63 |
% |
$ |
4,265,958 |
$ |
64,344 |
2.02 |
% |
|||||||||||
|
Time deposits |
696,107 |
14,066 |
2.70 |
% |
572,593 |
11,903 |
2.78 |
% |
|||||||||||||||
|
Total interest-bearing deposits |
6,694,547 |
87,136 |
1.74 |
% |
4,838,551 |
76,247 |
2.11 |
% |
|||||||||||||||
|
Customer repurchase agreements |
568,710 |
7,836 |
1.84 |
% |
383,903 |
4,829 |
1.68 |
% |
|||||||||||||||
|
FHLB advances and other borrowings |
461,581 |
15,424 |
4.42 |
% |
507,033 |
17,481 |
4.61 |
% |
|||||||||||||||
|
Subordinated debentures |
23,841 |
1,419 |
4.46 |
% |
- |
- |
- |
||||||||||||||||
|
Interest expense - Other interest-bearing liabilities |
27,009 |
751 |
3.67 |
% |
34,697 |
1,137 |
4.32 |
% |
|||||||||||||||
|
Interest-bearing liabilities |
7,775,688 |
112,566 |
1.93 |
% |
5,764,184 |
99,694 |
2.31 |
% |
|||||||||||||||
|
Noninterest-bearing deposits |
7,829,965 |
7,060,953 |
|||||||||||||||||||||
|
Other liabilities |
353,750 |
214,181 |
|||||||||||||||||||||
|
Stockholders' equity |
2,853,579 |
2,245,511 |
|||||||||||||||||||||
|
Total liabilities and stockholders' equity |
$ |
18,812,982 |
$ |
15,284,829 |
|||||||||||||||||||
|
Net interest income |
$ |
459,321 |
$ |
337,629 |
|||||||||||||||||||
|
Net interest spread - tax equivalent |
2.68 |
% |
1.98 |
% |
|||||||||||||||||||
|
Net interest margin |
3.69 |
% |
3.30 |
% |
|||||||||||||||||||
|
Net interest margin - tax equivalent |
3.71 |
% |
3.32 |
% |
|||||||||||||||||||
(1)
Includes TE adjustments utilizing federal statutory corporate rates of 21% in effect for the nine months ended September 30, 2026 and 2025. The non-TE rates for total investment securities were 2.80% and 2.59% for the nine months ended September 30, 2026 and 2025, respectively.
(2)
Includes loan fees of $3.3 million and $2.1 million for the nine months ended September 30, 2026 and 2025, respectively. Prepayment penalty fees of $1.8 million and $2.3 million were included in interest income for the nine months ended September 30, 2026 and 2025, respectively. Average balances include nonperforming loans.
(3)
Includes interest-bearing demand and money market accounts.
The following table presents a comparison of interest income and interest expense resulting from changes in the volumes and rates on average interest-earning assets and average interest-bearing liabilities for the periods indicated. Changes in interest income or expense attributable to volume changes are calculated by multiplying the change in volume by the initial average interest rate. The change in interest income or expense attributable to changes in interest rates is calculated by multiplying the change in interest rate by the initial volume. The net change resulting from the combined impact of volume and interest rate changes has been allocated proportionately between changes attributable to volume and changes attributable to rates.
Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income
|
Comparison of Three Months Ended September 30, |
|||||||||||
|
2026 Compared to 2025 |
|||||||||||
|
Increase (Decrease) Due to |
|||||||||||
|
(Dollars in thousands) |
Volume |
Rate |
Total |
||||||||
|
Interest income: |
|||||||||||
|
Available-for-sale securities: |
|||||||||||
|
Taxable investment securities |
$ |
7,847 |
$ |
2,668 |
$ |
10,515 |
|||||
|
Tax-advantaged investment securities |
(2 |
) |
4 |
2 |
|||||||
|
Held-to-maturity securities: |
|||||||||||
|
Taxable investment securities |
(527 |
) |
(41 |
) |
(568 |
) |
|||||
|
Tax-advantaged investment securities |
(70 |
) |
6 |
(64 |
) |
||||||
|
Investment in FHLB, FRB, and other stock |
1,577 |
85 |
1,662 |
||||||||
|
Interest-earning deposits with other institutions |
(592 |
) |
(1,093 |
) |
(1,685 |
) |
|||||
|
Loans |
51,529 |
9,146 |
60,675 |
||||||||
|
Total interest income |
59,762 |
10,775 |
70,537 |
||||||||
|
Interest expense: |
|||||||||||
|
Savings deposits |
11,540 |
(5,286 |
) |
6,254 |
|||||||
|
Time deposits |
327 |
(712 |
) |
(385 |
) |
||||||
|
Repurchase agreements |
722 |
9 |
731 |
||||||||
|
FHLB advances and other borrowings |
6 |
(264 |
) |
(258 |
) |
||||||
|
Subordinated debentures |
390 |
390 |
780 |
||||||||
|
Interest expense - Other interest-bearing liabilities |
(28 |
) |
(46 |
) |
(74 |
) |
|||||
|
Total interest expense |
12,957 |
(5,909 |
) |
7,048 |
|||||||
|
Net interest income |
$ |
46,805 |
$ |
16,684 |
$ |
63,489 |
|||||
|
Comparison of Nine Months Ended September 30, |
|||||||||||
|
2026 Compared to 2025 |
|||||||||||
|
Increase (Decrease) Due to |
|||||||||||
|
(Dollars in thousands) |
Volume |
Rate |
Total |
||||||||
|
Interest income: |
|||||||||||
|
Available-for-sale securities: |
|||||||||||
|
Taxable investment securities |
$ |
12,383 |
$ |
3,726 |
$ |
16,109 |
|||||
|
Tax-advantaged investment securities |
19 |
(15 |
) |
4 |
|||||||
|
Held-to-maturity securities: |
|||||||||||
|
Taxable investment securities |
(1,552 |
) |
(4 |
) |
(1,556 |
) |
|||||
|
Tax-advantaged investment securities |
(17 |
) |
(178 |
) |
(195 |
) |
|||||
|
Investment in FHLB, FRB, and other stock |
3,447 |
(37 |
) |
3,410 |
|||||||
|
Interest-earning deposits with other institutions |
4,927 |
(3,378 |
) |
1,549 |
|||||||
|
Loans |
96,136 |
19,107 |
115,243 |
||||||||
|
Total interest income |
115,344 |
19,220 |
134,564 |
||||||||
|
Interest expense: |
|||||||||||
|
Savings deposits |
28,381 |
(19,655 |
) |
8,726 |
|||||||
|
Time deposits |
2,703 |
(540 |
) |
2,163 |
|||||||
|
Repurchase agreements |
2,510 |
497 |
3,007 |
||||||||
|
FHLB advances and other borrowings |
(1,415 |
) |
(642 |
) |
(2,057 |
) |
|||||
|
Subordinated debentures |
709 |
709 |
1,418 |
||||||||
|
Interest expense - Other interest-bearing liabilities |
(228 |
) |
(157 |
) |
(385 |
) |
|||||
|
Total interest expense |
32,660 |
(19,788 |
) |
12,872 |
|||||||
|
Net interest income |
$ |
82,684 |
$ |
39,008 |
$ |
121,692 |
|||||
Third Quarter of 2026 Compared to the Third Quarter of 2025
Net interest income, before provision for credit losses, was $179.1 million for the third quarter of 2026, an increase of $63.5 million, or 54.9%, from the third quarter of 2025. The increase was driven by a $70.5 million increase in interest income, partially offset by a $7.0 million increase in interest expense, and largely reflected the impact of operating as a combined company for the full quarter following the Heritage acquisition.
Our tax-equivalent net interest margin increased 56 basis points to 3.89% for the third quarter of 2026, compared with the third quarter of 2025. The increase was primarily due to a 47 basis point increase in the yield on average interest-earning assets and a nine basis point decrease in the cost of funds.
Total interest income was $220.6 million for the third quarter of 2026, an increase of $70.5 million, or 47.0%, from the third quarter of 2025. The increase was primarily due to a $4.58 billion increase in average interest-earning assets and a 47 basis point increase in the yield on interest-earning assets.
Total interest income and fees on loans for the third quarter of 2026 were $171.5 million, an increase of $60.7 million, or 54.7%, from the third quarter of 2025. The increase was attributable to the $3.65 billion increase in average loan balances and a 41 basis point increase in average loan yields from 5.25% for the third quarter of 2025 to 5.66% for the third quarter of 2026. The increase in average loan yields reflected new loan originations at yields higher than the existing loan portfolio, adjustable rate loans resetting at higher interest rates, and the Heritage acquisition and the addition of higher-yielding acquired assets, including factored receivables that averaged approximately $103.4 million during the third quarter of 2026. During the third quarter of 2026, the average yield on factored receivables was 17.21%.
Interest income from investment securities was $41.6 million for the third quarter of 2026, an increase of $9.9 million, or 31.2%, from the third quarter of 2025. The increase was attributable to a $924.6 million increase in average investment securities balances and a 31 basis point increase in average yields on investment securities from 2.66% for the third quarter of 2025 to 2.97% for the third quarter of 2026, partially offset by lower interest income from the pay-fixed swaps designated as fair value hedges on AFS securities. The spread between daily SOFR and the fixed rate paid on these swaps decreased from 0.52% in the third quarter of 2025 to negative 0.09% in the third quarter of 2026, resulting in a $1.5 million decrease in interest income. Excluding the impact of the pay-fixed swaps, the average yield on investment securities increased 42 basis points, reflecting higher yield on investment securities purchased and acquired during the first nine months of 2026. These increases were partially offset by a 75 basis point decrease in the yield on funds deposited at the Federal Reserve, reflecting Federal Open Market Committee ("FOMC") rate cuts during the latter part of 2025. The 25 basis point increase in the federal funds target rate at the end of the third quarter of 2026 had minimal impact on the third quarter's interest income.
Interest expense was $41.6 million for the third quarter of 2026, an increase of $7.0 million, from the third quarter of 2025. Average interest-bearing deposits increased $2.72 billion, while average customer repurchase agreements and borrowings increased $142.6 million. The cost of funds decreased nine basis points to 0.96% for the third quarter of 2026 from 1.05% for the third quarter of 2025. The decrease was primarily driven by a 45 basis point decrease in the cost of interest-bearing deposits and a 23 basis point decrease in the cost of FHLB advances. These decreases were partially offset by a shift in deposit mix, as noninterest-bearing deposits declined as a percentage of average total deposits to 52.6% in the third quarter of 2026 from 59.3% in the third quarter of 2025.
Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025
Net interest income, before provision for credit losses, was $459.3 million for the nine months ended September 30, 2026, an increase of $121.7 million, or 36.0%, from $337.6 million for the same period last year. The increase was attributable to higher balances and yields on average interest-earning assets and a lower cost of funds, partially offset by higher average interest-bearing liabilities. The increases in average interest-earning assets and interest-bearing liabilities primarily reflected the impact of interest-earning assets and interest-bearing liabilities acquired in connection with the Heritage acquisition, as well as organic growth.
Our net interest margin (TE) was 3.71% for the nine months ended September 30, 2026, compared with 3.32% for the same period last year. The increase was primarily due to a 32 basis point increase in the yield on average interest-earning assets and an eight basis point decrease in the cost of funds.
Total interest income was $571.9 million for the nine months ended September 30, 2026, an increase of $134.6 million, or 30.8%, from the same period last year. The increase was primarily attributable to a $2.99 billion increase in average interest-earning assets and a 32 basis point increase in the yield on interest-earning assets.
Total interest income and fees on loans for the nine months ended September 30, 2026 were $444.0 million, an increase of $115.2 million, or 35.0%, from the same period last year. The increase was attributable to a $2.35 billion increase in average loan balances and a 29 basis point increase in average loan yields to 5.52% for the nine months ended September 30, 2026 from 5.23% for the same period last year.
Interest income from investment securities was $109.0 million for the nine months ended September 30, 2026, an increase of $14.4 million, or 15.2%, from the same period last year. The increase reflected a 16 basis point increase in yields on investment securities, partially offset by lower interest income derived from the pay-fixed swaps designated as fair value hedges of AFS securities. The spread between daily SOFR and the fixed rate paid on these swaps decreased to negative 0.08% for the nine months ended September 30, 2026 from 0.69% for the same period in 2025, resulting in a $4.0 million decrease in interest income.
Interest expense was $112.6 million for the nine months ended September 30, 2026, an increase of $12.9 million, or 12.9%, from the same period last year. Average interest-bearing deposits increased $1.86 billion, while average customer repurchase agreements and borrowings increased $184.8 million. The cost of funds decreased eight basis points to 0.96% from 1.04% for the same period last year. The decrease was primarily driven by a 37 basis point decrease in the cost of interest-bearing deposits and a 24 basis point decrease in the cost of FHLB advances. These decreases were partially offset by a shift in deposit mix, as noninterest-bearing deposits decreased to 53.9% of average total deposits for the nine months ended September 30, 2026 from 59.3% for the same period last year and a 16 basis point increase in the cost of customer repurchase agreements.
Provision for (Recapture of) Credit Losses
The provision for (recapture of) credit losses is an adjustment to earnings to maintain the allowance for credit losses at a level consistent with management's assessment of expected lifetime credit losses in the loan portfolio as of the balance sheet date.
The Company recorded a $1.0 million recapture of credit losses in the third quarter of 2026, compared with a $1.0 million provision for credit losses in the third quarter of 2025. Net charge-offs for the third quarter of 2026 were $20,000, compared with net recoveries of $333,000 for the third quarter of 2025.
For the nine months ended September 30, 2026, the provision for credit losses was $2.0 million, compared with a $1.0 million recapture of credit losses for the same period last year. Net charge-offs were $148,000 for the nine months ended September 30, 2026, compared with net recoveries of $214,000 for the same period last year.
No assurance can be given that economic conditions affecting the Company's service areas or other circumstances will or will not be reflected in future changes in the level of our allowance for credit losses and the resulting provision for, or recapture of, credit losses. The process to estimate the allowance for credit losses requires considerable judgment, and economic forecasts may vary as a result of uncertainty related to geopolitical events, trade barriers, including tariff policies, inflationary pressures, interest rates, unemployment levels, and overall economic conditions, all of which may impact our customers. Refer to Item 2 - MD&A - Analysis of Financial Condition - Allowance for Credit Losses for a discussion of changes in the credit quality of our loan portfolio as well as refinements to the Company's ACL methodology.
Noninterest Income
Noninterest income includes income derived from financial services offered to our customers, such as CitizensTrust, merchant processing and card services, international banking, and other business services. Also included in noninterest income are service charges and fees, primarily from deposit accounts, gains (net of losses) from the disposition of investment securities, loans, other real estate owned, and fixed assets, and other revenues not included as interest on earning assets.
The following table sets forth the various components of noninterest income for the periods presented.
|
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||||||||||||
|
September 30, |
Variance |
September 30, |
Variance |
||||||||||||||||||||||||||||
|
(Dollars in thousands) |
2026 |
2025 |
$ |
% |
2026 |
2025 |
$ |
% |
|||||||||||||||||||||||
|
Noninterest income: |
|||||||||||||||||||||||||||||||
|
Service charges on deposit accounts |
$ |
5,562 |
$ |
4,859 |
$ |
703 |
14.47 |
% |
$ |
15,715 |
$ |
14,726 |
$ |
989 |
6.72 |
% |
|||||||||||||||
|
Trust and investment services |
3,825 |
3,875 |
(50 |
) |
-1.29 |
% |
$ |
11,733 |
11,002 |
731 |
6.64 |
% |
|||||||||||||||||||
|
Bankcard services |
718 |
684 |
34 |
4.97 |
% |
$ |
2,009 |
1,961 |
48 |
2.45 |
% |
||||||||||||||||||||
|
BOLI income |
4,072 |
3,267 |
805 |
24.64 |
% |
$ |
10,703 |
9,326 |
1,377 |
14.77 |
% |
||||||||||||||||||||
|
Loss on sale of AFS investment securities |
- |
(8,185 |
) |
8,185 |
NM |
- |
(8,185 |
) |
8,185 |
NM |
|||||||||||||||||||||
|
(Loss) gain on OREO, net |
(134 |
) |
- |
(134 |
) |
NM |
(134 |
) |
2,183 |
(2,317 |
) |
NM |
|||||||||||||||||||
|
Other |
2,451 |
8,506 |
(6,055 |
) |
-71.19 |
% |
7,757 |
12,965 |
(5,208 |
) |
-40.17 |
% |
|||||||||||||||||||
|
Total noninterest income |
$ |
16,494 |
$ |
13,006 |
$ |
3,488 |
26.82 |
% |
47,783 |
$ |
43,978 |
$ |
3,805 |
8.65 |
% |
||||||||||||||||
(1)
NM - not meaningful
Third Quarter of 2026 Compared to the Third Quarter of 2025
Noninterest income for the third quarter of 2026 increased by $3.5 million, or 26.8%, compared with the third quarter of 2025, including the impact of the Heritage acquisition. The increase was driven by higher fee income and higher BOLI income associated with policies acquired from Heritage, as well as the impact of an $8.2 million loss on the sale of AFS investment securities in the third quarter of 2025. These increases were partially offset by a $6.1 million reduction in other income, which primarily reflected a $6.0 million legal settlement received in the third quarter of 2025.
Trust and investment services revenue is generated through the Company's CitizensTrust division, which provides wealth management, investment management, financial planning, estate planning, retirement planning, trustee, and probate services. Investment Services offers self-directed brokerage, 401(k) plans, mutual funds, insurance products, and other non-insured investment products. At September 30, 2026, CitizensTrust had approximately $4.94 billion in assets under management and administration, including $3.81 billion in assets under management. CitizensTrust generated fee income of $3.8 million for the third quarter of 2026, compared with $3.9 million for the same period last year.
Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025
Noninterest income for the nine months ended September 30, 2026 increased by $3.8 million, or 8.7%, compared with the same period last year. The increase was primarily driven by higher BOLI income, service charges on deposit accounts, and trust and investment service revenue. The first nine months of 2025 included the impact of an $8.2 million loss on the sale of AFS investment securities, revenue from a $6.0 million legal settlement and a $2.2 million gain on sale of OREO. Service charges on deposits increased by $989,000, due primarily to the acquisition of Heritage. Trust and investment services revenue grew by $731,000 or 6.6%, primarily due to increased assets under management. BOLI income increased by $1.4 million, or 14.8%, reflecting changes in the net asset value of insurance policies.
Noninterest Expense
The following table summarizes the various components of noninterest expense for the periods presented.
|
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||||||||||||
|
September 30, |
Variance |
September 30, |
Variance |
||||||||||||||||||||||||||||
|
(Dollars in thousands) |
2026 |
2025 |
$ |
% |
2026 |
2025 |
$ |
% |
|||||||||||||||||||||||
|
Noninterest expense: |
|||||||||||||||||||||||||||||||
|
Salaries and employee benefits |
$ |
47,608 |
$ |
35,876 |
$ |
11,732 |
32.70 |
% |
$ |
131,637 |
$ |
107,352 |
$ |
24,285 |
22.62 |
% |
|||||||||||||||
|
Occupancy |
6,984 |
4,703 |
2,281 |
48.50 |
% |
18,412 |
14,331 |
4,081 |
28.48 |
% |
|||||||||||||||||||||
|
Equipment |
1,526 |
1,120 |
406 |
36.25 |
% |
4,466 |
3,596 |
870 |
24.19 |
% |
|||||||||||||||||||||
|
Professional services |
3,708 |
2,350 |
1,358 |
57.79 |
% |
9,476 |
6,622 |
2,854 |
43.10 |
% |
|||||||||||||||||||||
|
Computer software expense |
5,744 |
4,350 |
1,394 |
32.05 |
% |
16,183 |
12,981 |
3,202 |
24.67 |
% |
|||||||||||||||||||||
|
Marketing and promotion |
2,692 |
1,738 |
954 |
54.89 |
% |
6,851 |
5,543 |
1,308 |
23.60 |
% |
|||||||||||||||||||||
|
Amortization of intangible assets |
3,980 |
1,003 |
2,977 |
296.81 |
% |
8,407 |
3,312 |
5,095 |
153.83 |
% |
|||||||||||||||||||||
|
Telecommunications expense |
702 |
520 |
182 |
35.00 |
% |
1,999 |
1,574 |
425 |
27.00 |
% |
|||||||||||||||||||||
|
Regulatory assessments |
2,721 |
2,030 |
691 |
34.04 |
% |
5,705 |
6,065 |
(360 |
) |
-5.94 |
% |
||||||||||||||||||||
|
Insurance |
489 |
494 |
(5 |
) |
-1.01 |
% |
1,420 |
1,468 |
(48 |
) |
-3.27 |
% |
|||||||||||||||||||
|
Provision for unfunded loan commitments |
- |
500 |
(500 |
) |
NM |
4,750 |
1,000 |
3,750 |
375.00 |
% |
|||||||||||||||||||||
|
Directors' expenses |
401 |
316 |
85 |
26.90 |
% |
1,116 |
913 |
203 |
22.23 |
% |
|||||||||||||||||||||
|
Acquisition related expenses |
8,140 |
- |
8,140 |
NM |
40,669 |
- |
40,669 |
NM |
|||||||||||||||||||||||
|
Other |
5,785 |
3,576 |
2,209 |
61.77 |
% |
14,335 |
10,519 |
3,816 |
36.28 |
% |
|||||||||||||||||||||
|
Total noninterest expense |
$ |
90,480 |
$ |
58,576 |
$ |
31,904 |
54.47 |
% |
$ |
265,426 |
$ |
175,276 |
$ |
90,150 |
51.43 |
% |
|||||||||||||||
|
Noninterest expense to average assets |
1.71 |
% |
1.50 |
% |
1.89 |
% |
1.53 |
% |
|||||||||||||||||||||||
|
Efficiency ratio (1) |
46.27 |
% |
45.56 |
% |
52.34 |
% |
45.93 |
% |
|||||||||||||||||||||||
(1)
Noninterest expense divided by net interest income before provision for credit losses plus noninterest income.
(2)
NM = not meaningful
Our ability to control noninterest expense in relation to asset growth can be measured by total noninterest expense as a percentage of average assets. Noninterest expense as a percentage of average assets was 1.71% for the third quarter of 2026, compared with 1.50% for the third quarter of 2025. Noninterest expense as a percentage of average assets was 1.89% for the nine months ended September 30, 2026, compared with 1.53% for the same period last year. The increases in the ratios of noninterest expense to average assets primarily reflected acquisition-related expenses and the provision for unfunded loan commitments.
Our ability to control noninterest expense in relation to total revenue (net interest income before provision for credit losses plus noninterest income) can be measured by the efficiency ratio, which indicates the percentage of total revenue used to cover noninterest expenses. The efficiency ratio was 46.27% for the third quarter of 2026, compared with 45.56% for the third quarter of 2025. For the nine months ended September 30, 2026, the efficiency ratio was 52.34%, compared with 45.93% for the same period last year. Our efficiency ratio adjusted for acquisition expense and the provision for unfunded loan commitments was 42.10% in the third quarter of 2026, compared with 45.17% in the third quarter of 2025. The adjusted efficiency ratio is a non-GAAP measure. For additional details, refer to Item 2.-MD&A-GAAP to Non-GAAP Reconciliation.
Third Quarter of 2026 Compared to the Third Quarter of 2025
Noninterest expense for the third quarter of 2026 was $90.5 million, an increase of $31.9 million, or 54.5%, from $58.6 million for the third quarter of 2025. The increase was primarily attributable to acquisition related expenses and the addition of personnel, facilities, technology platforms, and other operating costs associated with the Heritage acquisition. During the third quarter of 2026, the Company incurred $8.1 million of acquisition related expenses. Excluding acquisition expense and the provision for unfunded loan commitments, noninterest expense increased $24.3 million compared with the third quarter of 2025. This increase was primarily driven by an $11.7 million increase in salaries and employee benefits, a $3.0 million increase in amortization of intangible assets related to core deposit intangibles, a $2.7 million increase in occupancy and equipment, a $1.4 million increase in computer software expense and a $1.4 million increase in professional services expense.
Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025
For the nine months ended September 30, 2026, noninterest expense was $265.4 million, an increase of $90.2 million, or 51.4%, from the same period last year. The increase was primarily attributable to acquisition related expenses and the addition of personnel, facilities, technology platforms, and other operating costs associated with the Heritage acquisition. During the nine months ended September 30, 2026, the Company incurred $40.7 million of acquisition related expenses and $4.8 million of provision for unfunded loan commitments, including a $4.3 million initial reserve established for unfunded commitments acquired in the Heritage acquisition. Excluding acquisition expense and the provision for unfunded loan commitments, noninterest expense increased $45.7 million from the nine months ended September 30, 2025. This increase was primarily driven by a $24.3 million increase in salaries and employee benefits, a $5.1 million increase in amortization of intangible assets, a $5.0 million increase in occupancy and equipment, a $3.2 million increase in computer software expense, and a $2.8 million increase in professional services expense.
Income Taxes
The Company's effective tax rate for the three and nine months ended September 30, 2026 was 26.38% and 26.00%, respectively, compared with 23.80% and 25.60% for the three and nine months ended September 30, 2025, respectively. Our estimated annual effective tax rate also varies depending upon the level of tax-advantaged income from municipal securities and BOLI, as well as available tax credits.
The Company's effective tax rates are below the nominal combined Federal and State tax rate primarily as a result of tax-advantaged income from certain municipal security investments, municipal loans and leases and BOLI, as well as available tax credits for each period.
ANALYSIS OF FINANCIAL CONDITION
Total assets were $20.52 billion at September 30, 2026, an increase of $4.89 billion, or 31.29%, from $15.63 billion at December 31, 2025. Interest-earning assets were $18.02 billion at September 30, 2026, an increase of $4.03 billion, or 28.81%, from $13.99 billion at December 31, 2025. The increase in interest-earning assets was primarily due to a $3.42 billion increase in total loans and a $769.7 million increase in investment securities, partially offset by decreases of $120.3 million in cash and cash equivalents and $12.6 million in interest-earning balances due from other depository institutions. The increase in total assets from prior year end primarily reflects the impact of the Heritage acquisition completed on Aprisl 17, 2026, partially offset by balance sheet optimization activities following the acquisition.
Total liabilities were $17.39 billion at September 30, 2026, an increase of $4.06 billion, or 30.41%, from total liabilities of $13.34 billion at December 31, 2025. Total deposits increased by $3.66 billion, or 30.30%, with interest-bearing deposits increasing by $2.04 billion, or 38.75%, and noninterest-bearing deposits increased by $1.62 billion, or 23.76%. Customer repurchase agreements increased by $81.3 million, or 16.57%. At September 30, 2026, total borrowings were $579.3 million, consisting of $540.0 million of FHLB advances and $39.3 million of subordinated debt assumed in the Heritage acquisition, compared with $500.0 million of FHLB advances at December 31, 2025.
Total stockholders' equity increased by $835.1 million to $3.13 billion at September 30, 2026, compared with total stockholders' equity of $2.30 billion at December 31, 2025. The increase was primarily attributable to $840.2 million of common shares issued in connection with the Heritage acquisition in the second quarter of 2026 and $177.4 million in net earnings, partially offset by $97.8 million of cash dividends declared and $22.7 million of common stock repurchases. During the first nine months of 2026, the Company repurchased approximately 1.0 million shares under the 2026 Repurchase Program, at an average price of $22.22 per share.
Investment Securities
The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. At September 30, 2026, total investment securities were $5.72 billion, an increase of $769.7 million, or 15.54%, from $4.95 billion at December 31, 2025. The increase was primarily attributable to approximately $528.2 million of investment securities acquired and retained in the Heritage acquisition, as well as purchases of $796.9 million of AFS securities and $9.3 million of HTM securities during the first nine months of 2026, partially offset by paydowns, amortization and accretion, and redemptions. As part of the Company's balance sheet strategy to improve portfolio yields and reduce asset duration, approximately $488.2 million of securities acquired from Heritage were sold following the completion of the acquisition and reinvested in higher-yielding securities.
At September 30, 2026, AFS investment securities totaled $3.53 billion, inclusive of a pre-tax net unrealized loss of $439.0 million, an increase of $844.8 million, or 31.48%, from $2.68 billion at December 31, 2025. The after-tax unrealized loss on our AFS investment securities reported in accumulated other comprehensive income ("AOCI") was $311.4 million, compared with $218.3 million at December 31, 2025. The changes in the net unrealized holding loss resulted primarily from fluctuations in market interest rates. At September 30, 2026, HTM investment securities totaled $2.20 billion, a decrease of $75.1 million, or 3.3%, from $2.27 billion at December 31, 2025. The end-of-period tax-equivalent yield on investments was 2.96% as of September 30, 2026.
There were no investment securities sold from the legacy securities portfolio during the nine months ended September 30, 2026 and 2025. During the nine months ended September 30, 2026 and 2025, the Company funded $3.3 million and $6.2 million, respectively, of Commercial Property Assessed Clean Energy ("C-PACE") bonds, which are included in our HTM securities.
The following table presents the fair value of AFS and the amortized cost of HTM investment securities as well as the weighted average yields on our investment securities portfolio by maturity as of the date indicated.
|
September 30, 2026 |
|||||||||||||||||||||||||||||||||||||||
|
One Year or Less |
After One Year Through Five Years |
After Five Years Through Ten Years |
After Ten Years |
Total |
|||||||||||||||||||||||||||||||||||
|
(Dollars in thousands) |
Amount |
Weighted Average Yield |
Amount |
Weighted Average Yield |
Amount |
Weighted Average Yield |
Amount |
Weighted Average Yield |
Amount |
Weighted Average Yield |
|||||||||||||||||||||||||||||
|
AFS investment securities |
|||||||||||||||||||||||||||||||||||||||
|
Government agency/GSE |
$ |
45,449 |
3.68 |
% |
$ |
- |
- |
$ |
- |
- |
$ |
- |
- |
$ |
45,449 |
3.68 |
% |
||||||||||||||||||||||
|
Mortgage-backed securities |
2,605 |
2.85 |
% |
95,888 |
0.07 |
% |
1,446,578 |
0.09 |
% |
948,320 |
8.30 |
% |
2,493,391 |
3.22 |
% |
||||||||||||||||||||||||
|
CMO/REMIC |
49 |
2.68 |
% |
- |
- |
3,707 |
0.34 |
% |
921,628 |
3.50 |
% |
925,384 |
3.49 |
% |
|||||||||||||||||||||||||
|
Municipal bonds (1) |
1,345 |
5.06 |
% |
10,860 |
3.53 |
% |
7,380 |
3.50 |
% |
- |
- |
19,585 |
3.62 |
% |
|||||||||||||||||||||||||
|
Collateralized loan obligations |
- |
- |
- |
- |
- |
- |
42,048 |
4.95 |
% |
42,048 |
4.95 |
% |
|||||||||||||||||||||||||||
|
Other securities |
1,976 |
2.33 |
% |
- |
- |
- |
- |
- |
- |
1,976 |
2.33 |
% |
|||||||||||||||||||||||||||
|
Total AFS investment securities (1) |
$ |
51,424 |
3.62 |
% |
$ |
106,748 |
0.43 |
% |
$ |
1,457,665 |
0.11 |
% |
$ |
1,911,996 |
5.91 |
% |
$ |
3,527,833 |
3.32 |
% |
|||||||||||||||||||
|
HTM investment securities |
|||||||||||||||||||||||||||||||||||||||
|
Government agency/GSE |
$ |
- |
- |
$ |
56,144 |
1.26 |
% |
$ |
377,212 |
1.86 |
% |
$ |
53,193 |
1.98 |
% |
$ |
486,549 |
1.80 |
% |
||||||||||||||||||||
|
Mortgage-backed securities |
- |
- |
10,083 |
2.46 |
% |
25,320 |
2.55 |
% |
492,153 |
2.44 |
% |
527,556 |
2.44 |
% |
|||||||||||||||||||||||||
|
CMO/REMIC |
- |
- |
- |
- |
3,504 |
- |
721,328 |
1.88 |
% |
724,832 |
1.87 |
% |
|||||||||||||||||||||||||||
|
Municipal bonds (1) |
3,256 |
4.12 |
% |
67,169 |
3.36 |
% |
119,337 |
3.12 |
% |
245,815 |
3.69 |
% |
435,577 |
3.49 |
% |
||||||||||||||||||||||||
|
Other securities |
- |
- |
- |
- |
- |
- |
20,778 |
8.44 |
% |
20,778 |
8.44 |
% |
|||||||||||||||||||||||||||
|
Total HTM investment securities (1) |
$ |
3,256 |
4.12 |
% |
$ |
133,396 |
2.41 |
% |
$ |
525,373 |
2.17 |
% |
$ |
1,533,267 |
2.44 |
% |
$ |
2,195,292 |
2.38 |
% |
|||||||||||||||||||
|
Total securities (1) |
$ |
54,680 |
3.65 |
% |
$ |
240,144 |
1.53 |
% |
$ |
1,983,038 |
0.66 |
% |
$ |
3,445,263 |
4.37 |
% |
$ |
5,723,125 |
2.96 |
% |
|||||||||||||||||||
(1)
Includes TE adjustments. The non-TE weighted average yields for securities were 2.89% and 2.49% at September 30, 2026 and December 31, 2025.
The maturity of each security category is based on contractual maturity, except for mortgage-backed securities and CMO/REMIC securities, for which maturity is based on estimated average life. The actual maturities of mortgage-backed securities and CMO/REMIC securities may differ from their contractual maturities because the underlying mortgages may be prepaid. Prepayment speeds are influenced by a number of factors, including changes in interest rates, and may shorten or extend the estimated average lives of these securities. Changes in prepayment speeds may also affect yields through the amortization of premiums or accretion of discounts. The Company obtains the estimated average life of each security from independent third parties.
The weighted-average TE yield on the total investment portfolio at September 30, 2026 was 2.96% with a weighted-average life of 6.7 years. This compares to a weighted-average TE yield of 2.59% at December 31, 2025 with a weighted-average life of 6.4 years. The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.
Approximately 91% of the investment securities portfolio at September 30, 2026 consisted of securities issued or guaranteed by the U.S. government or U.S. government-sponsored enterprises. As of September 30, 2026, $18.8 million in U.S. government agency securities are callable. Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds represented approximately 8% of the total investment portfolio and were predominantly rated AA or higher.
Refer to Note 5 - Investment Securities of the notes to the unaudited condensed consolidated financial statements of this report for additional information on our investment securities portfolio.
Loans
Total loans and leases, at amortized cost, were $12.12 billion at September 30, 2026, an increase of $3.42 billion, or 39.35%, from December 31, 2025. The increase in total loans was primarily attributable to the Heritage acquisition, which added $3.10 billion of loans held for investment at fair value on the acquisition date, as well as organic growth. The increase included $2.46 billion in commercial real estate loans, $466.2 million in commercial and industrial loans, $191.2 million in construction loans, $187.9 million in SBA loans, $158.0 million in consumer and other loans, and $56.6 million in SFR mortgage loans. These increases were partially offset by decreases of $89.8 million in dairy & livestock and agribusiness loans and a $5.7 million decrease in municipal lease finance receivables. The decrease in dairy & livestock and agribusiness loans primarily reflected a seasonal decline in line utilization of dairy & livestock loans from the year-end peak, with utilization decreasing from 78% at December 31, 2025 to 66% at September 30, 2026.
The following table presents the composition of our loan portfolio as of the dates presented.
|
September 30, 2026 |
December 31, 2025 |
||||||||||||||
|
(Dollars in thousands) |
Balance |
Percent of Total |
Balance |
Percent of Total |
|||||||||||
|
Commercial real estate |
$ |
9,032,741 |
74.52 |
% |
$ |
6,574,395 |
75.57 |
% |
|||||||
|
Construction |
229,046 |
1.89 |
% |
37,812 |
0.43 |
% |
|||||||||
|
SBA |
470,293 |
3.88 |
% |
282,401 |
3.25 |
% |
|||||||||
|
Commercial and industrial |
1,439,834 |
11.88 |
% |
973,631 |
11.19 |
% |
|||||||||
|
Dairy & livestock and agribusiness |
341,801 |
2.82 |
% |
431,577 |
4.96 |
% |
|||||||||
|
Municipal lease finance receivables |
53,800 |
0.44 |
% |
59,542 |
0.68 |
% |
|||||||||
|
SFR mortgage |
338,394 |
2.79 |
% |
281,766 |
3.24 |
% |
|||||||||
|
Consumer and other loans |
216,106 |
1.78 |
% |
58,069 |
0.67 |
% |
|||||||||
|
Total loans, at amortized cost |
12,122,015 |
100.00 |
% |
8,699,193 |
100.00 |
% |
|||||||||
|
Less: Allowance for credit losses |
(125,641 |
) |
(77,161 |
) |
|||||||||||
|
Total loans and lease finance receivables, net |
$ |
11,996,374 |
$ |
8,622,032 |
|||||||||||
Real estate loans are loans secured by conforming trust deeds on real property, including property under construction, land development, commercial property and single-family and multi-family residences. Our real estate loans are comprised of industrial, office, retail, medical, single family residences, multi-family residences, and farmland. Consumer loans include installment loans to consumers as well as home equity loans, auto and equipment leases and other loans secured by junior liens on real property. Municipal lease finance receivables are leases to municipalities. Dairy & livestock and agribusiness loans are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers and farmers. Through the Heritage acquisition, the Company acquired CSNK Working Capital Finance Corp., doing business as Bay View Funding ("BVF"), a wholly owned subsidiary of the Bank that provides working capital factoring financing to businesses throughout the United States. The portfolio of factored receivables is included in the Company's commercial loan portfolio. The average life of factored receivables was 33 days during the nine months ended September 30, 2026.
As of September 30, 2026, $430.5 million, or 4.8% of the total commercial real estate loans were secured by farmland, compared with $424.5 million, or 6.46%, at December 31, 2025. The loans secured by farmland included $123.0 million for loans secured by dairy & livestock land and $307.5 million for loans secured by agricultural land at September 30, 2026, compared with $119.0 million for loans secured by dairy & livestock land and $305.5 million for loans secured by agricultural land at December 31, 2025. As of September 30, 2026, dairy & livestock and agribusiness loans of $341.8 million were comprised of $300.9 million of dairy & livestock loans and $40.9 million of agribusiness loans, compared to $431.6 million comprised of $386.1 million of dairy & livestock loans and $45.5 million of agribusiness loans at December 31, 2025.
As of September 30, 2026, the Company had $393.6 million of SBA 504 loans, an increase of $164.8 million from $228.8 million of SBA 504 loans at December 31, 2025. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with the first lien is typically at a 50% advance to the acquisition costs and the second lien loan provides the financing for 40% of the acquisition costs with the borrower's down payment of 10% of the acquisition costs. The Bank retains the first lien loan for its term and sells the second lien loan to the SBA subordinated debenture program. A majority of the Bank's 504 loans are granted for the purpose of commercial real estate acquisition. As of September 30, 2026 and December 31, 2025, the Company had $76.7 million and $53.6 million of total SBA 7(a) loans, respectively, that include a guarantee of payment from the SBA (typically 75% of the loan amount, but up to 90% in certain cases) in the event of default. The SBA 7(a) loans include revolving lines of credit (SBA Express) and term loans of up to ten (10) years to finance long-term working capital requirements, capital expenditures, and/or for the purchase or refinance of commercial real estate.
As of September 30, 2026, the Company had $229.0 million in construction loans, representing 1.89% of total loans. As of December 31, 2025, the Company had $37.8 million in construction loans, representing 0.43% of total loans. At September 30, 2026, there was one nonperforming construction loan of $685,000. At December 31, 2025, there were no nonperforming construction loans.
Our loan portfolio is geographically dispersed across our market areas. The following tables present our total loans held-for-investment and commercial real estate loans by geographic region as of September 30, 2026 and December 31, 2025.
|
September 30, 2026 |
|||||||||||||||
|
(Dollars in thousands) |
Balance |
Percent of Total |
Commercial Real |
Percent of Total |
|||||||||||
|
Los Angeles County |
$ |
3,300,436 |
27.2 |
% |
$ |
2,340,610 |
25.9 |
% |
|||||||
|
Central Valley & Sacramento |
2,088,426 |
17.2 |
% |
1,697,940 |
18.8 |
% |
|||||||||
|
Orange County |
1,298,246 |
10.7 |
% |
722,193 |
8.0 |
% |
|||||||||
|
Santa Clara |
1,033,583 |
8.5 |
% |
625,361 |
6.9 |
% |
|||||||||
|
Inland Empire |
1,060,287 |
8.8 |
% |
963,635 |
10.7 |
% |
|||||||||
|
San Mateo |
556,500 |
4.6 |
% |
306,107 |
3.4 |
% |
|||||||||
|
Central Coast |
570,162 |
4.7 |
% |
526,285 |
5.8 |
% |
|||||||||
|
Alameda |
498,578 |
4.1 |
% |
523,174 |
5.8 |
% |
|||||||||
|
San Diego |
414,627 |
3.4 |
% |
366,545 |
4.1 |
% |
|||||||||
|
Other California |
900,695 |
7.5 |
% |
596,889 |
6.6 |
% |
|||||||||
|
Out of State |
400,475 |
3.3 |
% |
364,002 |
4.0 |
% |
|||||||||
|
$ |
12,122,015 |
100.0 |
% |
$ |
9,032,741 |
100.0 |
% |
||||||||
|
December 31, 2025 |
|||||||||||||||
|
(Dollars in thousands) |
Balance |
Percent of Total |
Commercial Real |
Percent of Total |
|||||||||||
|
Los Angeles County |
$ |
3,078,557 |
35.4 |
% |
$ |
2,258,787 |
34.4 |
% |
|||||||
|
Central Valley and Sacramento |
2,039,693 |
23.4 |
% |
1,511,983 |
23.0 |
% |
|||||||||
|
Orange County |
1,292,970 |
14.9 |
% |
771,320 |
11.7 |
% |
|||||||||
|
Inland Empire |
1,013,602 |
11.7 |
% |
878,132 |
13.4 |
% |
|||||||||
|
Central Coast |
433,147 |
5.0 |
% |
375,770 |
5.7 |
% |
|||||||||
|
San Diego |
343,058 |
3.9 |
% |
325,167 |
4.9 |
% |
|||||||||
|
Other California |
146,207 |
1.7 |
% |
105,166 |
1.6 |
% |
|||||||||
|
Out of State |
351,959 |
4.0 |
% |
348,070 |
5.3 |
% |
|||||||||
|
$ |
8,699,193 |
100.0 |
% |
$ |
6,574,395 |
100.0 |
% |
||||||||
The tables below present the Company's commercial real estate loan portfolio by collateral type as of September 30, 2026 and December 31, 2025.
|
September 30, 2026 |
|||||||||||||||
|
(Dollars in thousands) |
Balance |
Percent of Total |
Percent |
Average |
|||||||||||
|
Commercial real estate: |
|||||||||||||||
|
Industrial |
$ |
2,708,376 |
30.0 |
% |
45.8 |
% |
$ |
1,725 |
|||||||
|
Office |
1,468,446 |
16.2 |
% |
25.5 |
% |
1,752 |
|||||||||
|
Retail |
1,387,683 |
15.4 |
% |
11.2 |
% |
1,732 |
|||||||||
|
Multi-family |
1,255,896 |
13.9 |
% |
0.1 |
% |
1,596 |
|||||||||
|
Secured by farmland (2) |
430,495 |
4.8 |
% |
99.3 |
% |
1,560 |
|||||||||
|
Medical |
429,019 |
4.7 |
% |
31.1 |
% |
1,595 |
|||||||||
|
Other (3) |
1,352,826 |
15.0 |
% |
38.1 |
% |
1,778 |
|||||||||
|
Total commercial real estate |
$ |
9,032,741 |
100.0 |
% |
31.5 |
% |
$ |
1,704 |
|||||||
|
December 31, 2025 |
|||||||||||||||
|
(Dollars in thousands) |
Balance |
Percent of Total |
Percent |
Average |
|||||||||||
|
Commercial real estate: |
|||||||||||||||
|
Industrial |
$ |
2,269,433 |
34.5 |
% |
47.3 |
% |
$ |
1,691 |
|||||||
|
Office |
989,752 |
15.1 |
% |
28.6 |
% |
1,644 |
|||||||||
|
Retail |
908,087 |
13.8 |
% |
11.1 |
% |
1,710 |
|||||||||
|
Multi-family |
829,752 |
12.6 |
% |
0.1 |
% |
1,542 |
|||||||||
|
Secured by farmland (2) |
424,531 |
6.5 |
% |
99.5 |
% |
1,490 |
|||||||||
|
Medical |
327,958 |
5.0 |
% |
33.1 |
% |
1,491 |
|||||||||
|
Other (3) |
824,882 |
12.5 |
% |
41.8 |
% |
1,845 |
|||||||||
|
Total commercial real estate |
$ |
6,574,395 |
100.0 |
% |
35.5 |
% |
$ |
1,658 |
|||||||
(1)
Represents the percentage of loans reported as owner-occupied at origination in each real estate loan category.
(2)
Loans secured by farmland included $123.0 million for loans secured by dairy & livestock land and $307.5 million for loans secured by agricultural land at September 30, 2026. At December 31, 2025, loans secured by farmland included $119.0 million for loans secured by dairy & livestock land and $305.5 million for loans secured by agricultural land.
(3)
Other loans consist of a variety of loan types, none of which represented more than 2.0% of total commercial real estate loans at September 30, 2026 or December 31, 2025.
Nonperforming Assets
The following table provides information on nonperforming assets as of the dates presented.
|
(Dollars in thousands) |
September 30, 2026 |
December 31, 2025 |
|||||
|
Nonaccrual loans |
$ |
18,725 |
$ |
4,685 |
|||
|
Total nonperforming loans |
18,725 |
4,685 |
|||||
|
OREO, net |
- |
163 |
|||||
|
Total nonperforming assets |
$ |
18,725 |
$ |
4,848 |
|||
|
Performing modified loans |
$ |
24,058 |
$ |
16,859 |
|||
|
Total nonperforming loans and performing modified loans |
$ |
42,783 |
$ |
21,544 |
|||
|
Percentage of nonperforming loans and performing modified loans to total loans, at amortized cost |
0.35 |
% |
0.25 |
% |
|||
|
Percentage of nonperforming assets to total loans and OREO |
0.15 |
% |
0.06 |
% |
|||
|
Percentage of nonperforming assets to total assets |
0.09 |
% |
0.03 |
% |
|||
Nonperforming Assets and Delinquencies
The table below provides trends in our nonperforming assets and delinquencies as of the dates presented.
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
||||||||||||||||
|
(Dollars in thousands) |
2026 |
2026 |
2026 |
2025 |
2025 |
|||||||||||||||
|
Nonperforming loans: |
||||||||||||||||||||
|
Commercial real estate |
$ |
4,299 |
$ |
4,905 |
$ |
2,094 |
$ |
4,186 |
$ |
23,707 |
||||||||||
|
Construction |
685 |
685 |
- |
- |
- |
|||||||||||||||
|
SBA |
2,652 |
918 |
477 |
21 |
3,952 |
|||||||||||||||
|
Commercial and industrial |
10,514 |
9,672 |
3,573 |
478 |
145 |
|||||||||||||||
|
Consumer and other loans |
575 |
462 |
- |
- |
- |
|||||||||||||||
|
Total |
$ |
18,725 |
$ |
16,642 |
$ |
6,144 |
$ |
4,685 |
$ |
27,804 |
||||||||||
|
% of Total loans |
0.15 |
% |
0.14 |
% |
0.07 |
% |
0.05 |
% |
0.33 |
% |
||||||||||
|
Past due 30-89 days (accruing): |
||||||||||||||||||||
|
Commercial real estate |
$ |
4,581 |
$ |
2,762 |
$ |
4,715 |
$ |
2,887 |
$ |
43 |
||||||||||
|
SBA |
11 |
785 |
1,553 |
30 |
42 |
|||||||||||||||
|
Commercial and industrial |
500 |
75 |
88 |
261 |
- |
|||||||||||||||
|
SFR mortgage |
596 |
- |
249 |
- |
- |
|||||||||||||||
|
Consumer and other loans |
- |
123 |
- |
- |
- |
|||||||||||||||
|
Total |
$ |
5,688 |
$ |
3,745 |
$ |
6,605 |
$ |
3,178 |
$ |
85 |
||||||||||
|
% of Total loans |
0.05 |
% |
0.08 |
% |
0.08 |
% |
0.04 |
% |
0.00 |
% |
||||||||||
|
OREO: |
||||||||||||||||||||
|
Commercial real estate |
$ |
- |
$ |
206 |
$ |
206 |
$ |
163 |
$ |
661 |
||||||||||
|
Total |
$ |
- |
$ |
206 |
$ |
206 |
$ |
163 |
$ |
661 |
||||||||||
|
Total nonperforming, past due, and OREO |
$ |
24,413 |
$ |
20,593 |
$ |
12,955 |
$ |
8,026 |
$ |
28,550 |
||||||||||
|
% of Total loans |
0.20 |
% |
0.17 |
% |
0.15 |
% |
0.09 |
% |
0.34 |
% |
||||||||||
|
Classified Loans |
$ |
113,912 |
$ |
109,718 |
$ |
83,058 |
$ |
52,701 |
$ |
78,180 |
||||||||||
Nonperforming assets consist of loans for which we have ceased accruing interest (i.e., nonaccrual loans), OREO, and other repossessed assets owned. Nonperforming loans, defined as nonaccrual loans, including modified loans on nonaccrual, generally consist of loans that are 90 days or more past due and loans for which, in the opinion of management, there is reasonable doubt as to the full collection of principal and interest, regardless of the length of past due status.
Nonperforming loans totaled $18.7 million at September 30, 2026, or 0.15% of total loans, compared with $4.7 million, or 0.05% of total loans, at December 31, 2025. The $13.9 million increase in nonperforming loans was primarily due to the addition of 24 nonperforming commercial and industrial loans totaling $10.4 million, seven nonperforming commercial real estate loans totaling $4.3 million, and five SBA loans totaling $2.3 million, partially offset by the payoffs and paydowns. Of the total nonperforming loans at September 30, 2026, $3.6 million related to loans acquired from Heritage.
Classified loans are loans that are graded "substandard" or worse. Classified loans increased $61.2 million from December 31, 2025, largely driven by $30.8 million of classified loans acquired in the Heritage acquisition and changes in loan risk ratings, partially offset by loan payoffs and paydowns.
Despite the increase in nonperforming and classified loans following the Heritage acquisition, nonperforming loans remained at 0.15% of total loans at September 30, 2026.
At September 30, 2026, the Company had no OREO properties, compared with one OREO property valued at $163,000 at December 31, 2025. During the third quarter of 2026, the Company sold two OREO properties and recognized a loss on OREO of $134,000.
Modifications of Loans to Borrowers Experiencing Financial Difficulty
There were seven loans to borrowers experiencing financial difficulty that were modified during the nine months ended September 30, 2026 with an amortized cost totaling $26.8 million at September 30, 2026, including four commercial and industrial loans totaling $13.9 million, two dairy & livestock and agribusiness loans totaling $4.8 million, and one commercial real estate loan of $1.7 million.
During the three and nine months ended September 30, 2026, there were no modified loans that subsequently defaulted within 12 months of the modification date. During the three and nine months ended September 30, 2025, a commercial real estate loan with an amortized cost of $244,300 subsequently defaulted within 12 months after the loan was modified through a term extension.
At September 30, 2026 and December 31, 2025, there was no ACL allocated to modified loans to borrowers experiencing financial difficulty. Impairment amounts identified are typically charged off against the allowance at the time the loan is considered uncollectible. There were no charge-offs on loans to borrowers experiencing financial difficulty for the nine months ended September 30, 2026 and 2025.
See Note 3 - Summary of Significant Accounting Policies - Modification of Loans to Borrowers Experiencing Financial Difficulty of the 2025 Form 10-K and Note 6 - Loans and Lease Finance Receivables and Allowance for Credit Losses of the notes to this Quarterly Report on Form 10-Q for additional information.
Allowance for Credit Losses
The allowance for credit losses totaled $125.6 million as of September 30, 2026, compared to $77.2 million as of December 31, 2025. Our allowance for credit losses at September 30, 2026 was 1.04% of total loans, compared to 0.89% at December 31, 2025. The $48.4 million increase in our allowance for credit losses from December 31, 2025 reflected the initial ACL of $46.6 million on the purchased credit deteriorated ("PCD") loans and purchased seasoned loans ("PSL") acquired in the Heritage acquisition as well as a provision for credit losses of $2.0 million during the nine months ended September 30, 2026. Net charge-offs were $148,000 for the nine months ended September 30, 2026, compared to net recoveries of $214,000 for the same period last year.
The allowance for credit losses as of September 30, 2026 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. The allowance for credit loss is sensitive to both changes in these portfolio characteristics and the forecast of macroeconomic variables. Risk attributes for commercial real estate loans include original loan to value ratios, origination year, loan seasoning, and macroeconomic variables that include Real GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans. The Commercial and Industrial methodology is applied over a substantial portion of the Company's commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA loans. The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.
Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with both upside and downside risks weighted among multiple forecasts. The resulting weighted average forecast as of September 30, 2026 reflects GDP growth declining throughout 2026 and staying below 2% the first half of 2028. The unemployment rate is forecasted to increase, reaching 5% by the beginning of 2027 and remaining above 5% through 2028. Commercial real estate prices are forecasted to decline through the end of 2027, before experiencing growth in 2028.
The table below presents a summary of charge-offs and recoveries by type, the provision for credit losses on loans, and the resulting allowance for credit losses for the periods presented.
|
As of and For the |
|||||||
|
Nine Months Ended |
|||||||
|
September 30, |
|||||||
|
(Dollars in thousands) |
2026 |
2025 |
|||||
|
Allowance for credit losses at beginning of period |
$ |
77,161 |
$ |
80,122 |
|||
|
Charge-offs: |
|||||||
|
SBA |
(26 |
) |
(118 |
) |
|||
|
Commercial and industrial |
(258 |
) |
(413 |
) |
|||
|
Consumer and other loans |
- |
(5 |
) |
||||
|
Total charge-offs |
(284 |
) |
(536 |
) |
|||
|
Recoveries: |
|||||||
|
Construction |
- |
171 |
|||||
|
SBA |
8 |
47 |
|||||
|
Commercial and industrial |
128 |
532 |
|||||
|
Total recoveries |
136 |
750 |
|||||
|
Net (charge-offs) recoveries |
(148 |
) |
214 |
||||
|
Initial ACL for PCD & PSL Loans at Acquisition |
46,628 |
- |
|||||
|
Provision for (recapture of) credit losses |
2,000 |
(1,000 |
) |
||||
|
Allowance for credit losses at end of period |
$ |
125,641 |
$ |
79,336 |
|||
|
Summary of reserve for unfunded loan commitments: |
|||||||
|
Reserve for unfunded loan commitments at beginning of period |
$ |
8,250 |
$ |
6,250 |
|||
|
Provision for unfunded loan commitments |
4,750 |
1,000 |
|||||
|
Reserve for unfunded loan commitments at end of period |
$ |
13,000 |
$ |
7,250 |
|||
|
Reserve for unfunded loan commitments to total unfunded loan |
0.41 |
% |
0.34 |
% |
|||
|
Amount of total loans at end of period (1) |
$ |
12,122,015 |
$ |
8,470,906 |
|||
|
Average total loans outstanding (1) |
$ |
12,024,828 |
$ |
8,397,900 |
|||
|
Net (charge-offs) recoveries to average total loans |
0.00 |
% |
0.00 |
% |
|||
|
Net (charge-offs) recoveries to total loans at end of period |
0.00 |
% |
0.00 |
% |
|||
|
Allowance for credit losses to average total loans |
1.04 |
% |
0.94 |
% |
|||
|
Allowance for credit losses to total loans at end of period |
1.04 |
% |
0.94 |
% |
|||
|
Allowance for credit losses to nonaccrual loans |
670.98 |
% |
285.34 |
% |
|||
|
Net (charge-offs) recoveries to allowance for credit losses |
-0.12 |
% |
0.27 |
% |
|||
|
Net (charge-offs) recoveries to provision for (recapture of) credit losses |
-7.40 |
% |
-21.40 |
% |
|||
(1)
Net of deferred loan origination fees, costs and discounts (amortized cost).
The Company's ACL methodology also produced an allowance of $13.0 million for our off-balance sheet credit exposures as of September 30, 2026, compared with $8.3 million as of December 31, 2025. The increase from the prior year end was primarily attributable to a $4.3 million initial reserve established for the unfunded commitments acquired in the Heritage acquisition through the provision for unfunded loan commitments.
While we believe that the allowance at September 30, 2026 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that future economic conditions, interest rate fluctuations, conditions of our borrowers (including fraudulent activity), or natural disasters, which adversely affect our service areas or other circumstances or conditions, including those defined above, will not be reflected in increased provisions for credit losses in the future.
Changes in economic and business conditions could have an impact on our market area and on our loan portfolio. We continually monitor these conditions in determining our estimates of needed reserves. However, we cannot predict the extent to which the deterioration in general economic conditions, real estate values, changes in general rates of interest and changes in the financial conditions or business of a borrower may adversely affect a specific borrower's ability to pay or the value of our collateral. See "Risk Management - Credit Risk Management" contained in the 2025 Form 10-K.
Deposits
Deposits are our primary source of funds to support earning assets, including loans and investments.
Total deposits were $15.73 billion at September 30, 2026, an increase of $3.66 billion, or 30.30%, compared with total deposits of $12.07 billion at December 31, 2025. The increase primarily reflected deposits assumed in connection with the Heritage acquisition completed in the second quarter of 2026, partially offset by the maturity of $300 million of brokered CDs and decreases in legacy deposits. At the acquisition date, Heritage added approximately $1.2 billion of noninterest-bearing deposits and $3.5 billion of interest-bearing deposits.
The composition of deposits is summarized as of the dates presented in the table below.
|
September 30, 2026 |
December 31, 2025 |
||||||||||||||
|
(Dollars in thousands) |
Balance |
Percent |
Balance |
Percent |
|||||||||||
|
Noninterest-bearing deposits |
$ |
8,416,327 |
53.50 |
% |
$ |
6,800,691 |
56.33 |
% |
|||||||
|
Interest-bearing deposits |
|||||||||||||||
|
Investment checking |
1,023,199 |
6.50 |
% |
509,272 |
4.22 |
% |
|||||||||
|
Money market |
5,265,744 |
33.48 |
% |
3,792,427 |
31.42 |
% |
|||||||||
|
Savings |
444,322 |
2.82 |
% |
392,817 |
3.25 |
% |
|||||||||
|
Time deposits |
580,587 |
3.70 |
% |
576,775 |
4.78 |
% |
|||||||||
|
Total Deposits |
15,730,179 |
100.00 |
% |
$ |
12,071,982 |
100.00 |
% |
||||||||
The amount of noninterest-bearing deposits in relation to total deposits is an integral element in our strategy of seeking to achieve a low cost of funds. Noninterest-bearing deposits totaled $8.42 billion at September 30, 2026, an increase of $1.62 billion, or 23.76%, from $6.80 billion at December 31, 2025. Noninterest-bearing deposits were 53.50% of total deposits at September 30, 2026, compared with 56.33% at December 31, 2025.
Interest-bearing non-maturity deposits, which include savings, interest-bearing demand checking, and money market accounts, totaled $6.73 billion at September 30, 2026, an increase of $2.04 billion, or 43.43%, compared to $4.69 billion at December 31, 2025.
Time deposits totaled $580.6 million at September 30, 2026, an increase of $3.8 million, or 0.66%, compared to $576.8 million at December 31, 2025.
In 2024, the Company issued $300 million of three-month term brokered CDs and entered into pay-fixed, receive-floating interest rate swaps with a notional amount of $300 million and maturities of three years. The swaps carry a weighted average fixed rate of approximately 4.10%, with the Company receiving daily SOFR, and mature in the first quarter of 2027. These interest rate derivative contracts are designated as qualifying cash flow hedges of variability in expected future cash flows attributable to changes in a contractually specified interest rate. During the second quarter of 2026, $300 million of brokered CDs matured and were replaced by $300 million of three-month FHLB advances. Concurrently, the Company re-designated the related pay-fixed, receive-floating interest rate swaps as cash flow hedges of the FHLB advances.
Our deposit relationships are primarily relationship-based and include deposits and customer repurchase agreements ("repos"). As of September 30, 2026, 84% of our deposits consisted of business deposits and 16% consisted of consumer deposits, with the majority of consumer deposits originating from the owners and employees of our business customers. Analyzed business accounts represented approximately 25% of total deposits and primarily consist of operating accounts that utilize a broad range of treasury management services. Because many of our business customers maintain operating account balances in excess of the FDIC insurance limit of $250,000, a significant portion of our deposits are uninsured. Our estimated uninsured deposits were $8.65 billion and $6.56 billion at September 30, 2026 and December 31, 2025, respectively. As of September 30, 2026, 47% of our total deposits and customer repos were uncollateralized and uninsured.
Our customer deposit relationships span a range of industries. Overall, 13 industry classifications each represent 2% or more of total deposits as of September 30, 2026. The largest industry concentration was finance & insurance, at 11% of total deposits, followed by construction at 9%. Our depositors have typically maintained long-standing banking relationships with us for many years.
Average total deposits and customer repurchase agreements for the third quarter of 2026 increased by $4.19 billion when compared to the third quarter of 2025. Average noninterest-bearing deposits represented 52.63% of average total deposits for the third quarter of 2026, compared with 59.28% for the third quarter of 2025.
Our cost of deposits averaged 79 basis points for the third quarter of 2026, compared with 86 basis points for the third quarter of 2025.
Borrowings
At September 30, 2026, our total borrowings were $1.15 billion, consisting of $571.9 million of customer repurchase agreements, $540.0 million of FHLB advances, and $39.3 million of subordinated debt assumed in the Heritage acquisition. At September 30, 2026, FHLB advances consisted of two $150.0 million three-month FHLB advances bearing a weighted average fixed interest rate of 4.22% that replaced brokered CDs that matured during the second quarter of 2026, a $200.0 million advance bearing a fixed rate of 4.27% and maturing in May 2027, and a $40.0 million overnight advance bearing interest at 4.36%, which matured on October 1, 2026. At December 31, 2025, our borrowings were $990.6 million, consisting of $490.6 million of customer repurchase agreements and $500.0 million of FHLB advances.
The Bank offers a repurchase agreement product to its customers known as Citizens Sweep Manager. Under this program, the Bank sells investment securities overnight to customers under an agreement to repurchase the securities the next business day at a price that reflects the market value of the use of these funds for the period. These repurchase agreements are entered into with customers seeking to invest excess demand deposit balances above a predetermined threshold to earn interest. As of September 30, 2026 and December 31, 2025, total funds borrowed under these agreements were $571.9 million and $490.6 million, respectively. The average balance for the third quarter of 2026 was $598.9 million with a weighted average interest rate of 2.01%, compared with an average balance of $456.2 million and a weighted average interest rate of 2.00% for the third quarter of 2025.
At September 30, 2026, investment securities with a carrying value of $2.68 billion were pledged to secure various types of deposits, including $1.02 billion of public funds. In addition, investment securities with carrying values of $2.62 billion were pledged to secure $682.3 million for repurchase agreements, $1.87 billion for unused borrowing capacity, and approximately $70.1 million for other purposes as required or permitted by law.
At September 30, 2026, loans with a carrying value of $7.60 billion were pledged to secure borrowings and available lines of credit from the FHLB and the Federal Reserve Bank. At September 30, 2026, the Bank had unused borrowing capacity of $4.62 billion with the FHLB and $1.61 billion with the FRB.
Refer to Note 8 - Borrowings of the notes to the consolidated financial statements for additional information.
Aggregate Contractual Obligations
The following table summarizes the aggregate contractual obligations as of September 30, 2026.
|
Maturity by Period |
|||||||||||||||||||
|
(Dollars in thousands) |
Total |
Less Than One Year |
One Year Through |
Four Years Through |
Over Five Years |
||||||||||||||
|
Deposits (1) |
$ |
15,730,179 |
$ |
15,695,945 |
$ |
32,169 |
$ |
1,617 |
$ |
448 |
|||||||||
|
Customer repurchase agreements (1) |
571,884 |
571,884 |
- |
- |
- |
||||||||||||||
|
Other borrowings |
540,000 |
540,000 |
- |
- |
- |
||||||||||||||
|
Subordinated debt (1) |
39,253 |
- |
- |
- |
39,253 |
||||||||||||||
|
Deferred compensation |
56,568 |
2,967 |
6,141 |
7,036 |
40,424 |
||||||||||||||
|
Operating leases |
91,133 |
17,007 |
28,473 |
17,190 |
28,463 |
||||||||||||||
|
Equity investments |
163,592 |
102,226 |
57,505 |
1,038 |
2,823 |
||||||||||||||
|
Total |
$ |
17,192,609 |
$ |
16,930,029 |
$ |
124,288 |
$ |
26,881 |
$ |
111,411 |
|||||||||
(1)
Amounts exclude accrued interest.
Deposits represent noninterest-bearing, money market, savings, NOW, certificates of deposits, brokered and other deposits held by the Bank.
Customer repurchase agreements represent excess amounts swept from customer demand deposit accounts, which mature the following business day and are collateralized by investment securities. These amounts are due to customers.
Other borrowings represent amounts due for FHLB advances based on their contractual maturity dates.
In connection with the Heritage acquisition, the Company assumed Heritage's $40 million subordinated debt, which bears a fixed rate of 5.0% until May 15, 2027 and had a market value of $38.7 million at the acquisition date. The Company currently expects to redeem the subordinated notes, in whole or in part, on or after May 15, 2027. See Note 8 - Borrowings for additional information.
Deferred compensation represents the amounts that are due to former employees based on salary continuation agreements as a result of acquisitions and amounts due to current and retired employees under our deferred compensation plans.
Operating leases represent the total minimum lease payments due under non-cancelable operating leases. Refer to Note 14 - Leases of the notes to the Company's unaudited condensed consolidated financial statements for a more detailed discussion about leases.
Equity investments represent commitments to contribute capital to low-income housing tax credit ("LIHTC"), solar tax funds and other CRA related investment partnerships.
Off-Balance Sheet Arrangements
The following table summarizes the off-balance sheet items at September 30, 2026.
|
Maturity by Period |
|||||||||||||||||||
|
(Dollars in thousands) |
Total |
Less Than One Year |
One Year Through |
Four Years Through |
After Five Years |
||||||||||||||
|
Commitment to extend credit: |
|||||||||||||||||||
|
Commercial real estate |
$ |
529,960 |
$ |
119,625 |
$ |
159,946 |
$ |
227,139 |
$ |
23,250 |
|||||||||
|
Construction |
221,828 |
116,639 |
105,190 |
- |
- |
||||||||||||||
|
SBA |
7,204 |
5,498 |
- |
- |
1,706 |
||||||||||||||
|
Commercial and industrial |
1,602,026 |
1,189,478 |
375,293 |
4,109 |
33,145 |
||||||||||||||
|
Dairy & livestock and agribusiness (1) |
300,379 |
145,914 |
154,230 |
235 |
- |
||||||||||||||
|
SFR Mortgage |
27,602 |
20,091 |
2,913 |
3,520 |
1,078 |
||||||||||||||
|
Consumer and other loans |
369,948 |
53,635 |
28,250 |
51,683 |
236,380 |
||||||||||||||
|
Total commitment to extend credit |
3,058,947 |
1,650,880 |
825,822 |
286,686 |
295,559 |
||||||||||||||
|
Letter of credit commitments |
88,906 |
59,401 |
29,487 |
- |
18 |
||||||||||||||
|
Total |
$ |
3,147,853 |
$ |
1,710,281 |
$ |
855,309 |
$ |
286,686 |
$ |
295,577 |
|||||||||
(1)
Total commitments to extend credit to agribusiness were $27.4 million at September 30, 2026.
As of September 30, 2026, we had commitments to extend credit of approximately $3.15 billion, and obligations under letters of credit of $88.9 million. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Most commitments bear variable interest rates, and many are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. We apply the same credit underwriting standards to commitments and contingent obligations as we do to on-balance sheet lending activities, including evaluating customers' creditworthiness individually. As of September 30, 2026 and December 31, 2025, the reserve for unfunded loan commitments was $13.0 million and $8.3 million, respectively, and was included in other liabilities.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing or purchase arrangements. The credit risk involved in issuing letters of credit is substantially the same as that involved in extending loans to customers. When deemed necessary, the Bank holds appropriate collateral supporting those commitments.
Capital Resources
Our primary source of capital has been the retention of operating earnings and issuance of common stock in connection with periodic acquisitions. In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources, needs and uses of capital in conjunction with projected increases in assets and the level of risk. As part of this ongoing assessment, the Board of Directors reviews the various components of our capital plan and capital stress testing.
On September 16, 2026, the Board of Directors of CVB declared a quarterly cash dividend of $0.20 per share, payable on October 15, 2026. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB's ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the Federal Reserve, and covenants set forth in various agreements we are a party to.
On June 15, 2026, our Board of Directors approved a program to repurchase up to 15,000,000 shares (the "Maximum Amount") of CVB common stock including by means of one or more Rule 10b5-1 plans or other appropriate buy-back arrangements, including open market purchases and private transactions, based on the prices and timing considered appropriate due to prevailing market conditions and other corporate and legal considerations ("2026 Repurchase Program"). This 2026 Repurchase Program replaced in its entirety the Company's previous 2024 share repurchase program under which 5,678,223 shares remained available for repurchase prior to its termination. The 2026 Repurchase Program terminates on the earlier of the repurchase of the Maximum Amount, or five years from the date of authorization. During the first nine months of 2026, the Company purchased approximately 1.0 million shares under the 2026 Repurchase Program, at an average price of $22.22 per share for an aggregate purchase price of $22.6 million. As of September 30, 2026, an aggregate of 13,984,451 shares remained available for repurchase under our 2026 Repurchase Program.
Total stockholders' equity increased $835.1 million to $3.13 billion at September 30, 2026, compared with total stockholders' equity of $2.30 billion at December 31, 2025. The increase was primarily due to $840.2 million of common shares issued as a result of the Heritage acquisition in the second quarter of 2026 and $177.4 million in net earnings, partially offset by $97.8 million in cash dividends declared and $22.7 million in common stock repurchases.
The Bank and the Company are required to meet risk-based capital standards under the revised capital framework referred to as Basel III set by their respective regulatory authorities. The risk-based capital standards require the achievement of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital ratio of 6.0% and a CET1 capital ratio of 4.5%. In addition, the regulatory authorities require the highest rated institutions to maintain a minimum leverage ratio of 4.0%. To be considered "well-capitalized" for bank regulatory purposes, the Bank and the Company are required to have a CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%. At September 30, 2026, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios required to be considered "well-capitalized" for regulatory purposes. For further information about capital requirements and our capital ratios, see "Item 1. Business - Capital Adequacy Requirements" as described in our Annual Report on Form 10-K for the year ended December 31, 2025.
The table below presents the Company's and the Bank's risk-based and leverage capital ratios for the periods presented.
|
September 30, 2026 |
December 31, 2025 |
|||||||||||||
|
Capital Ratios |
Adequately Capitalized Ratios |
Minimum Required Plus Capital Conservation Buffer |
Well Capitalized Ratios |
CVB Financial Corp. Consolidated |
Citizens Business Bank, N.A. |
CVB Financial Corp. Consolidated |
Citizens Business Bank, N.A. |
|||||||
|
Tier 1 leverage capital ratio |
4.00% |
4.00% |
5.00% |
11.24% |
10.92% |
11.62% |
11.46% |
|||||||
|
Common equity Tier 1 capital ratio |
4.50% |
7.00% |
6.50% |
14.82% |
14.39% |
15.89% |
15.66% |
|||||||
|
Tier 1 risk-based capital ratio |
6.00% |
8.50% |
8.00% |
14.82% |
14.39% |
15.89% |
15.66% |
|||||||
|
Total risk-based capital ratio |
8.00% |
10.50% |
10.00% |
15.69% |
15.01% |
16.66% |
16.44% |
|||||||
ASSET/LIABILITY AND MARKET RISK MANAGEMENT
Liquidity and Cash Flow
The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations when they come due without incurring unnecessary cost or risk, or causing a disruption to our normal operating activities. This includes the ability to manage unplanned decreases or changes in funding sources, accommodate loan demand and growth, fund investments, repurchase securities, pay creditors as necessary, and meet other operating or capital needs.
We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, current and forecasted market and economic conditions, individual customer funding needs, as well as current and planned business activities. Management has an Asset/Liability Committee that meets monthly. This committee analyzes the cash flows from loans, investments, deposits and borrowings, as well as assumptions and results from various models. In addition, the Company has a Balance Sheet Management Committee of the Board of Directors that meets at least quarterly to review the Company's balance sheet and liquidity position. This committee provides oversight of the balance sheet and liquidity management process and recommends policy guidelines and courses of action to address our actual and projected liquidity needs for the approval of our Board of Directors.
In general, our liquidity is managed daily by controlling the level of liquid assets and utilizing cash flows from the investment portfolio, loan repayments, deposit fluctuations, and borrowings. Our definition of liquid assets includes cash and cash equivalents in excess of minimum levels needed to fulfill normal business operations, short-term investment securities, and other anticipated near-term cash flows from investments. In addition to on-balance sheet liquidity, we have significant off-balance sheet sources of liquidity. To meet unexpected demands, lines of credit are maintained with correspondent banks, FHLB and the Federal Reserve, although availability under these lines of credit is subject to certain conditions. In addition to $256.1 million of cash and cash equivalents at September 30, 2026, available sources of liquidity include $4.62 billion of unused secured borrowing capacity with FHLB, $1.61 billion of unused secured borrowing capacity at the Federal Reserve discount window, $398.9 million of unpledged AFS securities that could be pledged at the discount window and $305.0 million of unsecured lines of credit. In addition to these borrowing sources, the Bank has capacity to utilize additional brokered deposits as of September 30, 2026. We can also obtain additional liquidity from deposit growth and state and national wholesale funding markets.
Our primary sources of funds for the Company are deposits, customer repurchase agreements and borrowings. Total deposits and customer repos of $16.30 billion at September 30, 2026 increased $3.74 billion, or 29.8%, compared with total deposits and customer repos of $12.56 billion at December 31, 2025. As of September 30, 2026, total borrowings consisted of $540.0 million of FHLB advances with an average interest rate of approximately 4.24%, and $39.3 million of subordinated debt assumed in the Heritage acquisition. Our deposit levels and cost of deposits may fluctuate from period-to-period due to a variety of factors, including the stability of our deposit base, prevailing interest rates, and market conditions. At September 30, 2026, our deposits and customer repurchase agreements that are neither collateralized nor insured were approximately $7.64 billion, or 47% of our total deposits and customer repos.
Additional sources of liquidity include principal and interest payments from our investment portfolio. Our total investment portfolio totaled $5.72 billion at September 30, 2026, an increase of $769.7 million from $4.95 billion at December 31, 2025. The increase was primarily due to approximately $528.2 million of investment securities acquired and retained in the Heritage acquisition as well as approximately $796.3 million of purchases of AFS securities during the first nine months of 2026. At September 30, 2026, our AFS investment securities totaled $3.53 billion, inclusive of a pre-tax net unrealized loss of $439.0 million. The pre-tax unrealized loss increased by $131.2 million from prior year end, resulting primarily from fluctuation in market interest rates. Interest rate risk associated with certain AFS investment securities is partially managed through pay-fixed interest rate swaps with an aggregate notional amount of $700 million that are designated as fair value hedges. The decrease in fair value of the hedged AFS securities was partially offset by a $32.4 million increase in the fair value of the related derivatives.
CVB is a holding company separate and apart from the Bank and must provide for its own liquidity and service its own obligations. Substantially all of CVB's revenues are obtained from dividends declared and paid by the Bank to CVB. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. In addition, our regulators could limit the ability of the Bank or CVB to pay dividends or make other distributions.
Below is a summary of our average cash position and statement of cash flows for the nine months ended September 30, 2026 and 2025. For further details, see our "Condensed Consolidated Statements of Cash Flows (Unaudited)" under Part I, Item 1 of this report.
|
Nine Months Ended |
|||||||
|
(Dollars in thousands) |
2026 |
2025 |
|||||
|
Average cash and cash equivalents |
$ |
673,786 |
$ |
531,049 |
|||
|
Percentage of total average assets |
3.58 |
% |
3.47 |
% |
|||
|
Net cash provided by operating activities |
$ |
590,093 |
$ |
176,528 |
|||
|
Net cash provided by investing activities |
373,888 |
167,962 |
|||||
|
Net cash (used in) provided by financing activities |
(1,084,308 |
) |
234,732 |
||||
|
Net (decrease) increase in cash and cash equivalents |
$ |
(120,327 |
) |
$ |
579,222 |
||
For the nine months ended September 30, 2026, average cash and cash equivalents increased by $142.7 million, or 26.9%, to $673.8 million, compared to $531.0 million for the same period last year.
At September 30, 2026, cash and cash equivalents totaled $256.1 million. This represented a decrease of $120.3 million, or 31.97%, from $376.4 million at December 31, 2025. Of this total, cash on deposit at the Federal Reserve decreased by $174.9 million compared to December 31, 2025.
Interest Rate Sensitivity Management
During periods of changing interest rates, the ability to re-price interest-earning assets and interest-bearing liabilities can influence net interest income, the net interest margin, and consequently, our earnings. Interest rate risk is managed by attempting to control the spread between rates earned on interest-earning assets and the rates paid on interest-bearing liabilities within the constraints imposed by market competition in our service area. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the Board of Directors. These limits and guidelines reflect our risk appetite for interest rate risk over both short-term and long-term horizons. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models, which, as described in additional detail below, are employed by management to understand net interest income ("NII") at risk and economic value of equity ("EVE") at risk. Net interest income at risk sensitivity captures asset and liability repricing mismatches and is considered a shorter term measure, while EVE sensitivity captures mismatches within the period end balance sheets through the financial instruments' respective maturities or estimated durations and is considered a longer term measure.
One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model NII from the Company's balance sheet under various interest rate scenarios. We use simulation analysis to project rate sensitive income under many scenarios. The analyses may include rapid and gradual ramping of interest rates, rate shocks, basis risk analysis, and yield curve scenarios. Specific balance sheet management strategies are also analyzed to determine their impact on NII and EVE. Key assumptions in the simulation analysis relate to the behavior of interest rates and pricing spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments. This analysis incorporates several assumptions, the most material of which relate to the re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, and prepayment of loans and securities.
Our interest rate risk policy measures the sensitivity of our net interest income over both one-year and two-year horizons.
The simulation model estimates the impact of changes in interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over one-year and two-year periods, assuming no balance sheet growth, under instantaneous rate shock scenarios of plus or minus 100 and 200 basis points, subject to prevailing market rate conditions. The simulation model assumes parallel yield curve shifts that are ramped up or down over a 12-month period and measures the resulting sensitivity of net interest income during year 1, year 2, and the cumulative two-year period.
The following table presents the Company's projected net interest income sensitivity as of the dates indicated under various interest rate shock scenarios over the applicable measurement periods.
|
Estimated Net Interest Income Sensitivity (1) |
||||||
|
September 30, 2026 |
||||||
|
Interest Rate Scenario |
Year 1 |
Year 2 |
Year 1 + Year 2 (Cumulative) |
|||
|
+ 200 basis points |
2.94% |
6.03% |
4.54% |
|||
|
+ 100 basis points |
1.52% |
3.19% |
2.39% |
|||
|
- 100 basis points |
-0.96% |
-3.14% |
-2.09% |
|||
|
- 200 basis points |
-1.44% |
-6.43% |
-4.03% |
|||
|
Estimated Net Interest Income Sensitivity (1) |
||||
|
December 31, 2025 |
||||
|
Interest Rate Scenario |
12-month Period |
24-month Period (Cumulative) |
||
|
+ 200 basis points |
3.85% |
5.71% |
||
|
- 200 basis points |
-2.66% |
-6.19% |
||
(1)
Percentage change from base scenario.
Based on our current simulation models, we believe that the interest rate risk profile of the balance sheet is modestly asset sensitive over both a one-year and a two-year horizon. The estimated sensitivity does not necessarily represent a forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.
We also perform valuation analysis, which incorporates all cash flows over the estimated remaining life of all material balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows minus the discounted present value of all liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. EVE uses instantaneous changes in rates, as shown in the table below. Assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected duration and pricing of the indeterminate deposit portfolios. EVE sensitivity is reported in both upward and downward rate shocks. At September 30, 2026 and December 31, 2025, the EVE profile indicates a decline in net balance sheet value due to instantaneous downward changes in rates. From December 31, 2025 to September 30, 2026, our EVE sensitivity to rising interest rates increased modestly. Our overall sensitivity of EVE to changes in interest rates is generally modest.
Economic Value of Equity Sensitivity
|
September 30, 2026 |
December 31, 2025 |
|||
|
400 bp decrease in interest rates |
18.6% |
15.9% |
||
|
300 bp decrease in interest rates |
19.9% |
16.6% |
||
|
200 bp decrease in interest rates |
20.8% |
17.8% |
||
|
100 bp decrease in interest rates |
21.4% |
18.6% |
||
|
Base |
21.8% |
19.1% |
||
|
100 bp increase in interest rates |
22.1% |
19.3% |
||
|
200 bp increase in interest rates |
22.3% |
19.2% |
||
|
300 bp increase in interest rates |
22.3% |
18.6% |
||
|
400 bp increase in interest rates |
22.2% |
18.2% |
As EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in asset and liability mix, changes in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.
CVB Financial Corporation published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 21:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]