CVB FINANCIAL CORP

Financial Performance

Return on Average Tangible Common Equity Reconciliations (Non-GAAP)

The return on average tangible common equity is a non-GAAP disclosure. The Company uses certain non-GAAP financial measures commonly used by banking analysts and investors to provide supplemental information regarding the Company’s performance. 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.

(1)

Tax effected at respective statutory rates.

(2)

Annualized where applicable.

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, investments and interest earning cash (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 tax rates of 21% in effect for the years ended December 31, 2025, 2024 and 2023. 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 policy, and the strength of the global, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, the growth and maturity of earning assets, and derivative financial instruments. See Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations — 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.

Interest-Earning Assets and Interest-Bearing Liabilities

(1)

Includes tax equivalent (TE) adjustments utilizing a federal statutory rate of 21% in effect for the years ended December 31, 2025, 2024 and 2023. The non-TE rates for total investment securities was 2.61%, 2.61% and 2.48% for the years ended December 31, 2025, 2024 and 2023, respectively.

(2)

Includes loan fees of $3.1 million, $2.9 million and $3.1 million for the years ended December 31, 2025, 2024 and 2023, respectively. Prepayment penalty fees of $3.9 million, $2.6 million and $2.5 million are included in interest income for the years ended December 31, 2025, 2024 and 2023, respectively.

(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 changes attributable to interest rate and volume changes are calculated by multiplying the change in rate times the change in volume and reflect an adjustment for the number of days as appropriate.

Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income

Net interest income before provision for credit losses of $460.3 million for 2025 increased $12.9 million, or 2.89%, compared to $447.3 million for 2024. Interest income decreased by $36.8 million, or 5.84% in 2025, while interest expense decreased by $49.8, or 27.22% year-over-year. Cost of funds for 2025 decreased by 29 basis points over 2024, while the earning asset yield decreased by two basis points. Interest-earning assets decreased on average by $798.3 million, or 5.49%, from $14.55 billion for 2024 to $13.76 billion for 2025. Our net interest margin (TE) was 3.36% for 2025, compared to 3.09% for 2024.

Total interest income for 2025 of $593.3 million decreased by $36.8 million, or 5.84%, when compared to 2024. Compared to 2024, average interest-earning assets decreased $798.3 million and the yield on interest-earning assets decreased by two basis point from 4.35% for 2024 to 4.33% for 2025. The $798.3 million year-over-year decrease in average earning assets resulted from a $298.1 million decrease in average earning balances due from the Federal Reserve, a $259.9 million decrease in investment securities and a decrease of $242.5 million in average loans. The decrease in the overall earning asset yield was primarily impacted by the 107 basis point decrease in the yield on balances held at the Federal Reserve and the decrease in average earning balances due from the Federal Reserve as a percentage of earning assets from approximately 5% in 2024 to 3% in 2025. Balances due from the Federal Reserve earned 5.38% on average in 2024 compared to 4.31% in 2025. The decrease in the earning asset yield was also impacted by a $10.1 million decrease in the interest income derived from the positive carry on fair value hedges. A three basis point increase in loan yields, from 5.26% for 2024 to 5.29% for 2025 and 19 basis point increase in the yield on investment securities, from 2.37% for 2024 to 2.56% for 2025, partially offset the decline in earnings from the fair value hedges and funds held at the Federal Reserve.

Total interest income and fees on loans for 2025 of $446.2 million decreased $9.6 million, or 2.11%, when compared to 2024. This decrease in income was due to a decrease in average loans of $242.5 million partially offset by a higher loan yield. Loan yields were 5.29% for 2025, compared to 5.26% for 2024. Loan yields grew year-over-year, due to higher rates from adjustable rate loans and newly originated loans, as well as an increase in interest paid on nonaccrual loans.

In general, we stop accruing interest on a loan after its principal or interest becomes 90 days or more past due. When a loan is placed on nonaccrual, all interest previously accrued but not collected is charged against earnings. There was no interest income that was accrued and not reversed on nonaccrual loans at December 31, 2025 and 2024. As of December 31, 2025 and 2024, we had $4.7 million and $27.8 million of nonaccrual loans, respectively.

Interest income from investment securities was $127.3 million for 2025, a $6.7 million, or 5.01%, decrease from $134.0 million for 2024, including a $4.9 million decrease for AFS securities. This decrease was driven by a decline in the average balance of investment securities of $259.9 million, or 5.05%. The $4.9 million decrease in interest income on AFS securities was the net result of the decrease in interest income from the positive carry on fair value hedges and the 19 basis point increase in the yield on AFS securities. The positive carry on these fair value hedges resulted in approximately $4.3 million of interest income in 2025 compared to $14.4 million of interest income in 2024. The yield on investment securities was impacted positively by the sale of $467 million and $104 million of lower-yielding investment securities combined with the purchase of $418.5 million and $482 million of higher-yielding securities in 2024 and 2025 respectively.

Interest expense of $133.0 million for 2025 decreased $49.8 million, compared to $182.8 million for 2024. Total cost of funds for 2025 was 1.03%, compared with 1.32% for 2024. This 29 basis point decrease in cost of funds was primarily the result of the decrease in the average balance of higher cost borrowing of $1.01 billion, offset by a higher average balance and cost of customer repurchase agreements in 2025. The average rate paid on total deposits decreased by three basis points, to 0.85% for 2025 from 0.88% for 2024. Noninterest bearing deposits continued to be a significant portion of total deposits in 2025. Average noninterest-bearing deposits were 58.98% of our total deposits for 2025, compared to 59.92% for 2024.

Net interest income before provision for credit losses of $447.3 million for 2024 decreased $40.6 million, or 8.33%, compared to $488.0 million for 2023. Interest income increased by $23.8 million, or 3.92% in 2024, offset by a $64.4 million increase in interest expense year-over-year. Cost of funds for 2024 increased by 49 basis points over 2023, while the earning asset yield increased by 25 basis points. Interest-earning assets decreased on average by $275.6 million, or 1.86%, from $14.83 billion for 2023 to $14.55 billion for 2024. Our net interest margin (TE) was 3.09% for 2024, compared to 3.31% for 2023.

Total interest income for 2024 of $630.1 million grew by $23.8 million, or 3.92%, when compared to 2023. Compared to 2023, average interest-earning assets decreased $275.6 million and the yield on interest-earning assets increased by 25 basis point from 4.10% for 2023 to 4.35% for 2024. The $275.6 million year-over-year decrease in average earning assets resulted from a $434.9 million decrease in average investment securities and a decline of $222.9 million in average loans, offset by $386.4 million of growth in average earning balances due from the Federal Reserve. The 25 basis point increase in the earning asset yield over 2023 resulted primarily from a 22 basis point increase in loan yields, from 5.04% for 2023 to 5.26% for 2024, and from a 13 basis point increase in the yield on investment securities, from 2.52% for 2023 to 2.65% for 2024. The increase in the overall earning asset yield was also impacted by the increase in average earning balances due from the Federal Reserve as a percentage of earning assets, from 2.2% in 2023 to 5.0% in 2024. Balances due from the Federal Reserve earned 5.38% on average in 2024.

Total interest income and fees on loans for 2024 of $455.8 million increased $7.5 million, or 1.66%, when compared to 2023. This increase in income was due to a higher loan yield partially offset by a decrease in average loans of $222.9 million. Loan yields were 5.26% for 2024, compared to 5.04% for 2023. Loan yields grew year-over-year, as rising interest rates contributed to an increase in yields on loans indexed to the Prime rate or other short-term indexes, as well as higher rates from adjustable rate loans and newly originated loans.

In general, we stop accruing interest on a loan after its principal or interest becomes 90 days or more past due. When a loan is placed on nonaccrual, all interest previously accrued but not collected is charged against earnings. There was no interest income that was accrued and not reversed on nonaccrual loans at December 31, 2024 and 2023. As of December 31, 2024 and 2023, we had $27.8 million and $21.3 million of nonaccrual loans, respectively.

Interest income from investment securities was $134.0 million for 2024, a $4.3 million, or 3.09%, decrease from $138.3 million for 2023. This decrease was driven by a decline in the average balance of investment securities of $434.9 million, or 7.80%, partially offset by a 13 basis point increase in the yield on securities, compared to 2023. This 13 basis point increase in the yield on investment securities from the prior year period was impacted by the positive spread generated from the pay-fixed swaps we entered into at the end of the second quarter of 2023. The positive carry on these fair value hedges resulted in approximately $14.4 million of interest income in 2024. The yield on investment securities was also impacted positively by the sale of $467 million of lower-yielding investment securities combined with the purchase of $418.5 million of higher-yielding securities in 2024.

Interest expense of $182.8 million for 2024 increased $64.4 million, compared to $118.3 million for 2023. Total cost of funds for 2024 was 1.32%, compared with 0.83% for 2023. This 49 basis point increase in cost of funds was primarily the result of the increase in the cost of deposits. The average rate paid on deposits increased by 47 basis points, to 0.88% for 2024 from 0.41% for 2023. The increase in interest expense was also driven by a $134.6 million increase in average interest-bearing deposits in 2024 as compared to 2023. Noninterest bearing deposits continued to be a significant portion of total deposits in 2024. Average noninterest-bearing deposits were 59.92% of our total deposits for 2024, compared to 62.66% for 2023.

Provision for (Recapture of) Credit Losses

The provision for (recapture of) credit losses is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected lifetime losses in the loan portfolio as of the balance sheet date.

We recorded a recapture of credit losses of $3.5 million in 2025, and experienced credit charge-offs of $642,000 and recoveries of $1.2 million, resulting in net recoveries of $539,000. The year-to-date recapture of credit losses of $3.5 million was the result of continued improvement in credit quality and lower nonperforming loans at December 31, 2025 as compared to the prior year-end and an overall decrease in projected loss rates from 0.94% at the end of 2024 to 0.89% at December 31, 2025. For 2024, we recorded $3.0 million recapture of credit losses, and experienced credit charge-offs of $4.4 million and total recoveries of $688,000, resulting in net charge-offs of $3.7 million. Specific credit reserves for nonperforming loans declined by $5.9 million during 2024 and modest changes in projected loss rates on performing loans were driven by economic forecast changes to various macroeconomic variables such as GDP growth, commercial real estate values and the rate of unemployment. Refer to the discussion of “Allowance for Credit Losses” in Item 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.

No assurance can be given that economic conditions which affect 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 or recapture of provision for credit losses. The process to estimate the allowance for credit losses requires considerable judgment and our economic forecasts may continue to vary due to the uncertainty of the future impact from changes in rates by the Federal Reserve, geopolitical events in Europe and the Middle East, and impacts of changes in global trade and inflation will have on future interest rates, unemployment, the overall economy and resulting impact on our customers. See “Allowance for Credit Losses” under Analysis of Financial Condition herein.

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, bank owned life insurance (“BOLI”) income, gains/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.

The $0.7 million increase in noninterest income in 2025 was impacted by $11.0 million in losses on the sale of AFS securities, a $6.0 million legal settlement, and a $2.3 million gain on OREO, while 2024 included $28.3 million in losses from the sale of AFS securities that were partially offset by gains of $25.9 million from the sale and leaseback of four properties in 2024. Trust and investment management fees increased by $1.3 million, or 9.50% compared to 2024. Service charges on deposit accounts decreased by $910,000, or 4.47% from the year ended December 31, 2024. BOLI income decreased by $953,000, or 7.67% from the prior year, as additional income from death benefits decreased by $855,000.

Trust and Investment Services represents our CitizensTrust group. The CitizensTrust group is made up of wealth management and investment services. They provide a variety of services, which include asset management, financial planning, estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other non-insured investment products. At December 31, 2025, CitizensTrust had approximately $5.11 billion in assets under management and administration, including $3.75 billion in assets under management. CitizensTrust generated fees of $15.0 million for 2025, compared to $13.7 million for 2024. The increase in fees in 2025 included both the impact on market values of changes in equity and fixed income markets but also increased flows of funds from customers, including liquidity management of funds formerly on deposit with the Bank.

The Bank’s investment in BOLI includes life insurance policies generally acquired through acquisitions or the purchase of life insurance by the Bank on a select group of employees to fund deferred compensation plans. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at its cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income tax, as long as they are held for the life of the covered parties. Income from our BOLI policies declined by $953,000 for 2025 as compared to 2024, as 2024 included death benefits that exceeded cash surrender values of $1.4 million.

The $4.9 million decrease in noninterest income included $28.3 million in losses from the sale of AFS securities partially offset by gains of $25.9 million from the sale and leaseback of four properties in 2024, while 2023 included a $2.6 million gain from an equity fund distribution related to a CRA investment. Service charges on deposit accounts increased by $0.2 million, or 0.75% from the year ended December 31, 2023. Trust management fees increased by $1.2 million, or 9.34% compared to 2023. Income from Bank-Owned Life Insurance (“BOLI”) decreased by $0.3 million, or 2.60% from the prior year.

Trust and Investment Services represents our CitizensTrust group. The CitizensTrust group is madeup of wealth management and investment services. They provide a variety of services, which include asset management, financial planning, estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other non-insured investment products. At December 31, 2024, CitizensTrust had approximately $4.6 billion in assets under management and administration, including $3.3 billion in assets under management. CitizensTrust generated fees of $13.7 million for 2024, compared to $12.6 million for 2023. The increase in fees in 2024 included both the impact on market values of changes in equity and fixed income markets but also increased flows of funds from customers, including liquidity management of funds formerly on deposit with the Bank.

The Bank’s investment in BOLI includes life insurance policies generally acquired through acquisitions or the purchase of life insurance by the Bank on a select group of employees to fund deferred compensation plans. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at its cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income tax, as long as they are held for the life of the covered parties. Income from our BOLI policies declined by $0.3 million for 2024 as compared to 2023, which consisted of lower cash surrender value income partially offset by higher gains and death benefits that exceeded cash surrender values.

The Bank has entered into interest rate swap agreements with our customers to manage our interest rate risk and enters into identical offsetting swaps with a counterparty. The changes in the fair value of these non-hedged swaps primarily offset each other resulting in swap fee income. Generally speaking, our volume of back-to-back interest rate swaps is impacted by the level and shape of the yield curve and the Bank's management of interest rate risk. Swap fee income was $0.4 million lower than 2023, primarily due to LIBOR indexed swaps that were converted to term SOFR in 2023 generating fee income of approximately $620,000. Refer to Note 18 —Derivative Financial Instruments of the notes to the consolidated financial statements of this report for additional information.

Noninterest Expense

The following table summarizes the various components of noninterest expense for the periods presented.

(1)

Noninterest expense divided by net interest income before provision for credit losses plus noninterest income.

Our ability to control noninterest expenses in relation to asset growth can be measured in terms of total noninterest expenses as a percentage of average assets. Noninterest expense as a percentage of average assets was 1.54% for 2025, compared to 1.45% for 2024 and 1.41% for 2023, respectively. The increase in this ratio in 2025 as compared to 2024 was due to both a reduction in average assets of $207 million resulting from the deleveraging strategy executed in the later half of 2024, as well as normal inflationary increases in most expense categories, partially offset by a decrease in regulatory assessment expense as 2023 included the $9.2 million FDIC Special Assessment. The increase in this ratio for 2024 compared with 2023 reflects the impact of inflationary pressures on staff related expenses and expense growth associated with investments in technology, partially offset by the impact in 2023 for a $9.2 million expense accrual for the FDIC Special Assessment.

Our ability to control noninterest expenses in relation to the level of total revenue (net interest income before provision for credit losses plus noninterest income) can be measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. The efficiency ratio was 46.03% for 2025, compared to 46.55% for 2024 and 42.00% for 2023. The decrease in the efficiency ratio in 2025 was due to the increase in our net interest margin in 2025, that resulted in a revenue growth rate that exceeded the 1.6% increase in noninterest expense. The increase in the efficiency ratio in 2024 compared to 2023 reflects the impact of a decline in the net interest margin in 2024.

Noninterest expense of $237.3 million for the year ended December 31, 2025 was $3.7 million, or 1.6% higher than 2024. The year-over-year increase included software expense increasing by $1.8 million, or 12.07%, due to continued investment in new technology. The increase in technology costs demonstrates our commitment to improving efficiencies and providing an excellent customer experience. The provision or recapture of unfunded loan commitments also increased by $3.3 million in 2025. Furthermore, the increase included acquisition related expenses of $1.6 million associated with the pending merger with Heritage announced in 2025.

Noninterest expense of $233.6 million for the year ended December 31, 2024 was $3.7 million, or 1.6% higher than 2023. Year-over-year increases included normal inflationary increases in most expense categories including $5.3 million in salaries and employee benefits, primarily due to inflationary pressures on salaries and benefits. As we continue to invest in new technology, software expense increased by $1.3 million, or 8.90%. Professional expense increased by $1.4 million, or 15.42%, as legal expense increased by $1.3 million or 80.7%. These increase were partially offset by a $7.6 million decrease in regulatory assessment expense, as 2023 included $9.2 million for the FDIC Special Assessment.

Income Taxes

The Company’s effective tax rate for the year ended December 31, 2025 was 25.70%, compared with 26.00% and 29.80% for the years ended December 31, 2024 and 2023, respectively. The decrease in the effective tax rate in 2025 and 2024 was a result of increased investments in tax credits and the impact on taxes in 2023 from the surrender of certain BOLI policies. During the fourth quarter and full year of 2023, our effective tax rate was impacted by more than $6 million in combined income tax expense and penalties resulting from the surrender of various BOLI policies. 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. Refer to Note 9 —Income Taxes of the notes to consolidated financial statements for more information.

The effective tax rates are below the nominal combined Federal and State tax rate 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.