Executive Summary / Key Takeaways

• Enduring Profitability and Shareholder Returns: CVB Financial Corp. (CVBF) stands out with 194 consecutive quarters of profitability and 144 consecutive quarterly cash dividends, underscoring its consistent financial strength and commitment to shareholders.
• Strategic Balance Sheet Optimization: Recent deleveraging and asset repositioning efforts have significantly improved CVBF's net interest margin, demonstrating proactive management in a dynamic interest rate environment.
• Robust Capital and Opportunistic Deployment: With exceptionally strong capital ratios, CVBF is well-positioned for both organic growth and strategic M&A, while also engaging in opportunistic share repurchases at attractive valuations.
• Disciplined Lending Amidst Competition: Despite intense rate competition and macroeconomic uncertainties, CVBF maintains its stringent underwriting standards, focusing on high-quality, relationship-based lending and anticipating low single-digit loan growth for 2025.
• Technological Efficiency as a Core Enabler: Continuous investment in technology and automation drives operational efficiency and cost control, reinforcing CVBF's competitive edge in service delivery and expense management.

A Legacy of Prudence in California's Dynamic Banking Sector

CVB Financial Corp., through its wholly-owned subsidiary Citizens Business Bank, has carved out a formidable niche as a relationship-based financial institution serving small to mid-sized businesses and individuals across California since its founding in 1974. This enduring legacy is built on a foundation of consistent profitability, evidenced by 194 consecutive quarters of positive earnings, and a steadfast commitment to shareholders, marked by 144 consecutive quarterly cash dividends. The bank's strategy centers on traditional banking activities—deposit gathering, lending, and investing—complemented by specialized services through its CitizensTrust Division.

The competitive landscape in California is intense, characterized by a mix of larger national banks, aggressive regional players, and innovative fintech companies. CVBF primarily competes with regional banks such as Pacific Western Bancorp (PACW), Banc of California (BANC), Western Alliance Bancorporation (WAL), and East West Bancorp (EWBC). While larger regional banks often engage in aggressive loan pricing, sometimes offering spreads as low as 130 to 170 basis points over treasuries, CVBF maintains its disciplined underwriting. The company's management notes that the "fiercest competition" often originates from regional banks with assets between $100 billion and $250 billion, rather than smaller institutions.

CVBF's competitive advantage lies in its deep regional expertise, strong local relationships, and specialized lending in areas like agriculture and municipal finance. These strengths foster customer loyalty and can lead to superior margins through efficient local operations. However, its regional focus can limit scalability compared to national players like WAL, and it faces potential gaps in digital innovation against more technologically advanced competitors like BANC. To counter these, CVBF strategically invests in technology and automation.

Technology as an Efficiency Engine

While CVB Financial Corp. does not articulate a single, proprietary "core technology" in the vein of a specialized manufacturing process, its strategic commitment to leveraging technology is a critical differentiator. The company consistently emphasizes its "continued investment in technology, infrastructure, and automation" as a cornerstone of its operational strategy. This focus is not merely about keeping pace but about actively enhancing efficiency and controlling costs across its banking operations.

The tangible benefits of these technology investments are evident in the company's expense management. Management explicitly states that technology helps "automate things" and "improve overall efficiencies," which in turn allows them to "manage expenses on the staff side pretty well." This strategic deployment of technology contributes directly to CVBF's ability to maintain a lean operating model, supporting its efficiency ratio. Despite lacking proprietary, quantifiable technology differentiators, the impact is seen in the company's ability to control overall expense growth, targeting "low single-digit type of growth" for expenses, with technology investments themselves expected to grow around 10%. This ongoing investment in technology and automation is crucial for CVBF to remain competitive, enhance service delivery, and build operational resilience in a banking sector increasingly driven by digital capabilities.

Financial Strength and Strategic Balance Sheet Management

CVB Financial Corp. continues to demonstrate robust financial performance, reflecting its disciplined approach to banking. For the third quarter of 2025, the company reported net earnings of $52.6 million, translating to diluted earnings per share of $0.38. This performance yielded an impressive annualized return on average tangible common equity (ROATCE) of 14.11% and a return on average assets (ROAA) of 1.35%.

Net interest income, a primary driver of earnings, reached $115.6 million in Q3 2025, marking a 3.56% increase quarter-over-quarter and a 1.72% increase year-over-year. This growth was largely attributable to a $5.9 million increase in interest income, driven by a $315 million rise in average earning assets and a four basis point improvement in the yield on average earning assets. The net interest margin (tax equivalent) expanded to 3.33% in Q3 2025, a notable 28 basis point increase from Q3 2024, a direct result of the company's strategic deleveraging efforts in the latter half of 2024.

Total assets stood at $15.67 billion as of September 30, 2025, an increase of $512.6 million (3.38%) from December 31, 2024. This growth was primarily fueled by a $581.2 million increase in interest-earning balances due from the Federal Reserve. The loan portfolio, at an amortized cost of $8.47 billion, saw a slight decrease of $65.5 million (0.77%) from year-end 2024. However, on a quarter-over-quarter basis, total loans increased by $112 million, representing a 5% annualized growth, with broad-based increases across most loan categories. Notably, commercial and industrial (C&I) loans grew by $27 million, with line utilization increasing from 26% to 28%, and dairy and livestock loans increased by $47 million, with utilization rising from 62% to 64%. Loan originations have shown significant momentum, with Q3 2025 originations up 55% over Q3 2024, and year-to-date originations 57% higher than the same period in 2024.

Deposit growth remains a cornerstone of CVBF's funding strategy. Noninterest-bearing deposits increased by $207.9 million (2.95%) to $7.24 billion at September 30, 2025, constituting a robust 59.76% of total deposits. The average cost of total deposits, including customer repurchase agreements, was 0.90% for Q3 2025, a decrease from 1.01% in Q3 2024. This low cost of funds is a key competitive advantage, particularly as 79% of deposits are business-related, with 39% from analyzed business accounts utilizing treasury management products.

Credit Quality and Risk Management

CVBF maintains a conservative approach to credit risk, reflected in its robust allowance for credit losses (ACL). The ACL totaled $79.3 million at September 30, 2025, representing 0.94% of total loans and leases, consistent with year-end 2024 levels. The third quarter of 2025 saw net recoveries of $333,000, a positive shift from net charge-offs in the prior quarter. Total nonperforming and delinquent loans decreased by $1.5 million to $28.5 million at September 30, 2025, significantly lower than the $53.3 million reported in Q3 2024. Subsequent to the quarter, a $20 million nonperforming loan was fully paid off, with the bank expecting to recognize approximately $3 million in interest income in Q4 2025.

The company's economic forecast, a blend of Moody's scenarios, anticipates slower GDP growth (below 1.5% until late 2027), a rising unemployment rate (averaging 5% by early 2026 and remaining above 5% through 2028), and continued declines in commercial real estate prices through mid-2026. Despite these headwinds, management's underwriting philosophy remains consistent and disciplined, not loosening or tightening based on the environment, but rather adjusting debt yields in response to interest rate changes. The direct impact of recent wildfires in Los Angeles County on CVBF's loan portfolio has been assessed as limited, with potential upside from rebuilding efforts.

Market risk is actively managed through interest rate swap agreements. In May 2025, CVBF strategically terminated and replaced $700 million notional pay-fixed interest rate swaps to better align with the duration of its available-for-sale (AFS) portfolio, resulting in a 3 basis point lower weighted average fixed rate. While these swaps may become a "negative drag" on net interest income if the Fed's forecast for rate cuts materializes, they serve as a crucial fair value hedge for the company's equity and large AFS portfolio.

Capital Strength and Strategic Outlook

CVB Financial Corp. boasts an exceptionally strong capital position, with a Tier 1 leverage capital ratio of 11.80%, a common equity Tier 1 (CET1) ratio of 16.30%, and a total risk-based capital ratio of 17.10% as of September 30, 2025, all well above regulatory requirements. This capital strength provides significant flexibility for strategic initiatives.

Management is optimistic about achieving "low single-digit growth" in loans for 2025, driven by strong pipelines and increasing line utilization, particularly in C&I and dairy and livestock segments. They are willing to compete on price for quality relationships but will not compromise credit standards, noting the attractiveness of investment securities yielding over 5% with zero credit risk as an alternative to aggressively priced loans. On the deposit side, CVBF expects further reductions in deposit costs, anticipating a deposit beta "better than 30%" on future Fed rate cuts.

The company's capital deployment strategy is multi-faceted. While M&A remains a priority, management is disciplined on valuation, acknowledging that higher interest rates can make acquisition math challenging. They believe a favorable "regulatory window" and potential market disruption from larger bank mergers could present M&A opportunities in 2025. Concurrently, CVBF is actively engaged in opportunistic share repurchases under its $10 million program, having bought back 2.36 million shares year-to-date at an average price of $18.43. Beyond M&A, the company is also pursuing organic expansion, as evidenced by the recent hiring of a team of bankers and the opening of a de novo office in the growing Temecula-Murrieta area of California. Expense growth is targeted at "low single-digits," supported by ongoing technology investments aimed at enhancing efficiency.

Conclusion

CVB Financial Corp. presents a compelling investment thesis rooted in its unwavering commitment to stability, disciplined growth, and shareholder value. The company's long history of profitability and consistent dividends, coupled with its strategic balance sheet management and robust capital position, provides a strong foundation in a competitive and uncertain economic environment. While facing macroeconomic headwinds and intense competition, CVBF's focus on relationship-based banking, stringent credit underwriting, and continuous investment in technological efficiency positions it to capitalize on opportunities. The outlook for low single-digit loan growth, continued deposit cost optimization, and opportunistic capital deployment through buybacks and potential M&A underscores a forward-looking strategy designed to sustain its strong financial performance and expand its market presence in California. Investors seeking a resilient regional bank with a proven track record and a clear strategic roadmap should find CVBF an attractive consideration.