CVB Financial Q4 2025 CVB Financial Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 CVB Financial Corp Earnings Call
Speaker #2: Good morning, ladies and gentlemen, and welcome to the fourth quarter of 2025 CVB Financial Corporation and its subsidiary, Citizens Business Bank, earnings conference call.
Speaker #2: My name is Cherie, and I'm your operator for today. At this time, all participants are on listen-only mode. Later, we will conduct a question-and-answer period.
Later, we will conduct a question-and-answer period. Please note this call is being recorded. I would now like to turn the presentation over to your host for today's call, Alan Nicholson, Executive Vice President and Chief Financial Officer. You may proceed.
Speaker #2: Please note this call is being recorded. I would now like to turn the presentation over to your host for today's call, Alan Nicholson, Executive Vice President and Chief Financial Officer.
Speaker #2: You may
Speaker #2: Proceed. Thank you, Cherie, and good morning,
Allen Nicholson: Thank you, Cherie, and good morning, everyone. Thank you for joining us today to review our financial results for the fourth quarter of 2025. Joining me this morning is Dave Brager, President and Chief Executive Officer. Our comments today will refer to the financial information that was included in the earnings announcement released yesterday.
Speaker #3: everyone. Thank you for joining us today to review our financial results for the fourth quarter of 2025. Joining me this morning is Dave Brager, President and Chief Executive Officer.
Speaker #3: Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy, please visit our website at www.cbbank.com and click on the Investors tab.
Operator: To obtain a copy, please visit our website at www.cbbank.com and click on the Investors tab. The speakers on this call claim the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company's annual report on Form 10-K for the year ended 31 December 2024. In particular, the information set forth in Item 1A, Risk Factors, therein. For a more complete version of the company's safe harbor disclosure, please see the company's earnings release issued in connection with this call. I'll now turn the call over to Dave Brager. Dave? Thank you, Alan. Good morning, everyone.
To obtain a copy, please visit our website at www.cbbank.com and click on the Investors tab. The speakers on this call claim the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the company's annual report on Form 10-K for the year ended 31 December 2024.
Speaker #3: The speakers on this call claim the protection of the safe harbor provisions contained in the private securities litigation reform act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially, from our forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2024.
In particular, the information set forth in Item 1A, Risk Factors, therein. For a more complete version of the company's safe harbor disclosure, please see the company's earnings release issued in connection with this call. I'll now turn the call over to Dave Brager. Dave?
Speaker #3: And in particular, the information set forth in Item 1A, risk factors therein. For a more complete version of the company's safe harbor disclosure, please see the company's earnings release issued in connection with this call.
Speaker #3: I'll now turn the call over to Dave Brager. Dave? Thank you, Alan. Good morning, everyone. For the fourth quarter of 2025, we reported net earnings of $55 million, or $0.40 per share, representing our 195th consecutive quarter of profitability.
Dave Brager: Thank you, Alan. Good morning, everyone. For the fourth quarter of 2025, we reported net earnings of $55 million, or $0.40 per share, representing our 195th consecutive quarter of profitability, which equates to more than 48 years. We previously declared a $0.20 per share dividend for the fourth quarter of 2025, representing our 145th consecutive quarter of paying a cash dividend to our shareholders.
Operator: For the fourth quarter of 2025, we reported net earnings of $55 million, or $0.40 per share, representing our 195th consecutive quarter of profitability, which equates to more than 48 years. We previously declared a $0.20 per share dividend for the fourth quarter of 2025, representing our 145th consecutive quarter of paying a cash dividend to our shareholders. We produced a return on average tangible common equity of 14.4% and a return on average assets of 1.40% for the fourth quarter of 2025. Our net earnings of $55 million, or $0.40 per share, compares with $52.6 million for the third quarter of 2025, or $0.38 per share, and $50.9 million, or $0.36 per share for the prior year quarter. Pre-tax income grew by $5.4 million quarter over quarter and $6.3 million over the prior year quarter.
Speaker #3: Which equates to more than 48 years. We previously declared a $0.20 per share dividend for the fourth quarter of 2025, representing our 145th consecutive quarter of paying a cash dividend to our shareholders.
We produced a return on average tangible common equity of 14.4% and a return on average assets of 1.40% for the fourth quarter of 2025. Our net earnings of $55 million, or $0.40 per share, compares with $52.6 million for the third quarter of 2025, or $0.38 per share, and $50.9 million, or $0.36 per share for the prior year quarter. Pre-tax income grew by $5.4 million quarter over quarter and $6.3 million over the prior year quarter.
Speaker #3: We produced a return on average tangible common equity of 14.4% and a return on average assets of 1.40% for the fourth quarter of 2025.
Speaker #3: Our net earnings of $55 million, or $0.40 per share, compares with $52.6 million for the third quarter of 2025, or $0.38 per share, and $50.9 million, or $0.36 per share, for the prior year quarter.
Speaker #3: Pre-tax income grew by $5.4 million quarter over quarter and $6.3 million over the prior year quarter. Both the quarter-over-quarter increase in pre-tax income, as well as the increase from the fourth quarter of 2024, were primarily the result of growth in net interest income.
Operator: Both the quarter over quarter increase in pre-tax income, as well as the increase from the fourth quarter of 2024, were primarily the result of growth in net interest income. Net interest income grew by $7 million, or 6%, over the third quarter of 2025, and by $12.2 million, or 11%, over the fourth quarter of 2024. During the fourth quarter, we collected $3.2 million of interest on a non-performing loan that was paid off during the quarter and incurred a $2.8 million loss on sale of investment securities. We also incurred $1.6 million of acquisition expense related to the pending merger with Heritage Bank of Commerce.
Both the quarter over quarter increase in pre-tax income, as well as the increase from the fourth quarter of 2024, were primarily the result of growth in net interest income. Net interest income grew by $7 million, or 6%, over the third quarter of 2025, and by $12.2 million, or 11%, over the fourth quarter of 2024.
Speaker #3: Net interest income grew by 7 million or 6% over the third quarter of 2025 and by 12.2 million or 11% over the fourth quarter of 2024.
During the fourth quarter, we collected $3.2 million of interest on a non-performing loan that was paid off during the quarter and incurred a $2.8 million loss on sale of investment securities. We also incurred $1.6 million of acquisition expense related to the pending merger with Heritage Bank of Commerce.
Speaker #3: During the fourth quarter, we collected 3.2 million of interest on a non-performing loan that was paid off during the quarter and incurred a 2.8 million loss on sale of investment securities.
Speaker #3: We also incurred $1.6 million of acquisition expense related to the pending merger with Heritage Bank of Commerce. Changes during the fourth quarter to our allowance for credit losses and reserve for unfunded loan commitments had the net impact of increasing pre-tax income by $3 million compared to the prior quarter and pre-tax income decreasing by $1.5 million compared to the fourth quarter of 2024.
Operator: Changes during the fourth quarter to our allowance for credit losses, and reserve for unfunded loan commitments had the net impact of increasing pre-tax income by $3 million compared to the prior quarter and pre-tax income decreasing by $1.5 million compared to the fourth quarter of 2024. Non-interest income was $11.2 million in the fourth quarter, which was $1.8 million lower than the third quarter and $1.9 million lower than the fourth quarter of 2024. Trust and investment services income grew by $156,000, or 4%, from the third quarter of 2025, and grew by $519,000, or 15%, over the fourth quarter of 2024. Bank-owned life insurance income decreased by $1.1 million from the third to fourth quarters due to the annual amortization of revenue enhancements. In addition, other income declined by $800,000 from the prior quarter.
Changes during the fourth quarter to our allowance for credit losses, and reserve for unfunded loan commitments had the net impact of increasing pre-tax income by $3 million compared to the prior quarter and pre-tax income decreasing by $1.5 million compared to the fourth quarter of 2024. Non-interest income was $11.2 million in the fourth quarter, which was $1.8 million lower than the third quarter and $1.9 million lower than the fourth quarter of 2024.
Speaker #3: Non-interest income was $11.2 million in the fourth quarter, which was $1.8 million lower than the third quarter and $1.9 million lower than the fourth quarter of 2024.
Trust and investment services income grew by $156,000, or 4%, from the third quarter of 2025, and grew by $519,000, or 15%, over the fourth quarter of 2024. Bank-owned life insurance income decreased by $1.1 million from the third to fourth quarters due to the annual amortization of revenue enhancements. In addition, other income declined by $800,000 from the prior quarter.
Speaker #3: Trust and investment services income grew by $156,000, or 4%, from the third quarter of 2025, and grew by $519,000, or 15%, over the fourth quarter of 2024.
Speaker #3: Bank-owned life insurance income decreased by $1.1 million from the third to fourth quarters due to the annual amortization of revenue enhancements. In addition, other income declined by $800,000 from the prior quarter.
Speaker #3: This decrease in other income was the result of a smaller loss on sale of investments during the fourth quarter, as we incurred a $2.8 million loss during the fourth quarter compared to the $8 million loss on sale incurred in the third quarter and the $6 million of income earned in the third quarter from a legal settlement.
Operator: This decrease in other income was the result of a smaller loss on sale of investments during Q4, as we incurred a $2.8 million loss during Q4 compared to the $8 million loss on sale incurred in Q3 and the $6 million of income earned in Q3 from a legal settlement. Now, let's discuss loans. Total loans at 31 December 2025 were $8.7 billion, a $228 million, or 2.7% increase from the end of Q3 2025, and a $163 million, or 2% increase from the end of 2024. The quarter-over-quarter increase in total loans was due to growth in nearly all loan categories. As typically happens at year-end, we experienced seasonal increases in dairy and livestock borrowings.
This decrease in other income was the result of a smaller loss on sale of investments during Q4, as we incurred a $2.8 million loss during Q4 compared to the $8 million loss on sale incurred in Q3 and the $6 million of income earned in Q3 from a legal settlement. Now, let's discuss loans.
Speaker #3: Now, let's discuss loans. Total loans at December 31, 2025, were 8.7 billion; a 228 million or 2.7% increase from the end of the third quarter of 2025; and a 163 million or 2% increase from the end of 2024.
Total loans at 31 December 2025 were $8.7 billion, a $228 million, or 2.7% increase from the end of Q3 2025, and a $163 million, or 2% increase from the end of 2024. The quarter-over-quarter increase in total loans was due to growth in nearly all loan categories. As typically happens at year-end, we experienced seasonal increases in dairy and livestock borrowings.
Speaker #3: The quarter-over-quarter increase in total loans was due to growth in nearly all loan categories. As typically happens at year-end, we experienced seasonal increases in dairy and livestock borrowings.
Speaker #3: Dairy and livestock loans grew by $139 million compared to the end of the third quarter, driven by higher line utilization—from 64% at the end of the third quarter to 78% at the end of the fourth quarter.
Operator: Dairy and livestock loans grew by $139 million compared to the end of Q3, driven by higher line utilization from 64% at the end of Q3 to 78% at the end of Q4. Loan growth was also positively impacted by increases in line utilization for C&I lines of credit, increasing from 28% at the end of Q3 to 32% at the end of the year. Compared to the end of Q3, C&I loans grew by $34 million, CRE loans grew by more than $39 million, and SBA 504 loans grew by $17 million. The $163 million year-over-year increase in loans includes growth in CRE loans of $67 million, $49 million of growth in C&I loans, $25 million of growth in SBA 504 loans, and $22 million of growth in construction loans.
Dairy and livestock loans grew by $139 million compared to the end of Q3, driven by higher line utilization from 64% at the end of Q3 to 78% at the end of Q4. Loan growth was also positively impacted by increases in line utilization for C&I lines of credit, increasing from 28% at the end of Q3 to 32% at the end of the year.
Speaker #3: Loan growth was also positively impacted by increases in line utilization for C&I lines of credit, increasing from 28% at the end of the third quarter to 32% at the end of the year.
Speaker #3: Compared to the end of the third quarter, C&I loans grew by $34 million; CRE loans grew by more than $39 million; and SBA 504 loans grew by $17 million.
Compared to the end of Q3, C&I loans grew by $34 million, CRE loans grew by more than $39 million, and SBA 504 loans grew by $17 million. The $163 million year-over-year increase in loans includes growth in CRE loans of $67 million, $49 million of growth in C&I loans, $25 million of growth in SBA 504 loans, and $22 million of growth in construction loans.
Speaker #3: The 163 million year-over-year increase in loans includes growth of CRE loans of 67 million; 49 million of growth in C&I loans; 25 million of growth in SBA 504 loans; and 22 million of growth in construction loans.
Speaker #3: Loan originations were approximately 70% higher in 2025 than in 2024. The fourth quarter production was approximately 15% higher than the third quarter of 2025.
Operator: Loan originations were approximately 70% higher in 2025 than 2024, and the fourth quarter production was approximately 15% higher than the third quarter of 2025. Our loan pipelines remain strong going into 2026, although rate competition for the quality of loans we compete for continues to be intense. Loan originations in the fourth quarter had average yields of approximately 6.25%, which was consistent with the prior quarter. We experienced $325,000 of net recoveries during the fourth quarter compared to $333,000 of net recoveries for the third quarter of 2025. Net recoveries for the full year of 2025 were $539,000. Total non-performing and delinquent loans decreased by $20 million to $8 million at 31 December 2025. A $20 million non-performing loan was paid in full at the beginning of the fourth quarter.
Loan originations were approximately 70% higher in 2025 than 2024, and the fourth quarter production was approximately 15% higher than the third quarter of 2025. Our loan pipelines remain strong going into 2026, although rate competition for the quality of loans we compete for continues to be intense. Loan originations in the fourth quarter had average yields of approximately 6.25%, which was consistent with the prior quarter.
Speaker #3: Our loan pipelines remain strong going into 2026, although rate competition for the quality of loans we compete for continues to be intense. Loan originations in the fourth quarter had average yields of approximately 6.25%, which was consistent with the prior quarter.
Speaker #3: We experienced $325,000 of net recoveries during the fourth quarter, compared to $333,000 of net recoveries for the third quarter of 2025. Net recoveries for the full year of 2025 were $539,000.
We experienced $325,000 of net recoveries during the fourth quarter compared to $333,000 of net recoveries for the third quarter of 2025. Net recoveries for the full year of 2025 were $539,000. Total non-performing and delinquent loans decreased by $20 million to $8 million at 31 December 2025. A $20 million non-performing loan was paid in full at the beginning of the fourth quarter.
Speaker #3: Total non-performing and delinquent loans decreased by $20 million to $8 million at December 31, 2025. A $20 million non-performing loan was paid in full at the beginning of the fourth quarter.
Speaker #3: The sale of the building collateralizing this loan resulted in the bank receiving all principal and $3.2 million of interest income. Classified loans were $52.7 million at December 31, 2025, compared to $78.2 million at September 30, 2025, and $89.5 million at December 31, 2024.
Operator: The sale of the building collateralizing this loan resulted in the bank receiving all principal and $3.2 million of interest income. Classified loans were $52.7 million at 31 December 2025, compared to $78.2 million at 30 September 2025, and $89.5 million at 31 December 2024. Classified loans, as a percentage of total loans, were 0.6% at 31 December 2025. Now, on the deposits. Our average total deposits and customer repurchase agreements were $12.6 billion during Q4, which compares to $12.5 billion for Q3. Our non-interest-bearing deposits declined on average by $122 million compared to Q3 of 2025, while interest-bearing non-maturity deposits in customer repos grew by $234 million. On average, non-interest-bearing deposits were 58% of total deposits for Q4 of 2025, compared to 59% for both Q3 of 2025 and Q4 of 2024.
The sale of the building collateralizing this loan resulted in the bank receiving all principal and $3.2 million of interest income. Classified loans were $52.7 million at 31 December 2025, compared to $78.2 million at 30 September 2025, and $89.5 million at 31 December 2024. Classified loans, as a percentage of total loans, were 0.6% at 31 December 2025. Now, on the deposits.
Speaker #3: Classified loans' percentage of total loans were 0.6% at December 31, 2025. Now, on the deposits. Our average total deposits in customer repurchase agreements were 12.6 billion during the fourth quarter, which compares to 12.5 billion for the third quarter.
Our average total deposits and customer repurchase agreements were $12.6 billion during Q4, which compares to $12.5 billion for Q3. Our non-interest-bearing deposits declined on average by $122 million compared to Q3 of 2025, while interest-bearing non-maturity deposits in customer repos grew by $234 million. On average, non-interest-bearing deposits were 58% of total deposits for Q4 of 2025, compared to 59% for both Q3 of 2025 and Q4 of 2024.
Speaker #3: Our non-interest-bearing deposits declined on average by 122 million compared to the third quarter of 2025, while interest-bearing non-maturity deposits in customer repos grew by 234 million.
Speaker #3: On average, non-interest-bearing deposits were 58% of total deposits for the fourth quarter of 2025, compared to 59% for both the third quarter of 2025 and the fourth quarter of 2024.
Speaker #3: At December 31, 2025, our total deposits in customer repurchase agreements totaled $12.6 billion. Non-interest-bearing deposits declined from the end of the third quarter to the end of the year by approximately $440 million, as we typically experience seasonal deposit declines at year-end.
Operator: At 31 December 2025, our total deposits in customer repurchase agreements totaled $12.6 billion. Non-interest-bearing deposits declined from the end of Q3 to the end of the year by approximately $440 million, as we typically experience seasonal deposit declines at year-end. However, interest-bearing deposits and customer repurchase agreements increased by $430 million between Q3 and Q4. Our cost of deposits and repos was 86 basis points for Q4, compared to 90 basis points in Q3 2025 and 97 basis points for the year-ago quarter. I will now turn the call over to Alan to further discuss additional aspects of our balance sheet and our net interest income. Alan. Thanks, Dave. Net interest income was $122.7 million in Q4 2025.
At 31 December 2025, our total deposits in customer repurchase agreements totaled $12.6 billion. Non-interest-bearing deposits declined from the end of Q3 to the end of the year by approximately $440 million, as we typically experience seasonal deposit declines at year-end.
However, interest-bearing deposits and customer repurchase agreements increased by $430 million between Q3 and Q4. Our cost of deposits and repos was 86 basis points for Q4, compared to 90 basis points in Q3 2025 and 97 basis points for the year-ago quarter. I will now turn the call over to Alan to further discuss additional aspects of our balance sheet and our net interest income. Alan. Thanks, Dave. Net interest income was $122.7 million in Q4 2025.
Speaker #3: However, interest-bearing deposits and customer repurchase agreements increased by $430 million between the third and fourth quarter. Our cost of deposits and repos was 86 basis points for the fourth quarter, compared to 90 basis points in the third quarter of 2025, and 97 basis points for the year-ago quarter.
Speaker #3: I will now turn the call over to Alan to further discuss additional aspects of our balance sheet and our net interest income. Alan.
Speaker #2: Thanks, Dave. Net interest income was $122.7 million in the fourth quarter of 2025. This compares to $115.6 million in the third quarter of 2025 and $110.4 million in the fourth quarter of 2024.
Operator: This compares to $115.6 million in the third quarter of 2025 and $110.4 million in the fourth quarter of 2024. Interest income was $156 million in the fourth quarter of 2025, compared to $150.1 million in the third quarter and $147.6 million in the fourth quarter of last year. Average earning assets increased by $153 million in the fourth quarter when compared to the third quarter, and the earning asset yield increased by 11 basis points, from 4.32% to 4.43%. The fourth quarter loan yield was 5.47%, compared to 5.25% in the prior quarter. Excluding the $3.2 million of interest income on the non-performing loan we previously discussed, the yield on loans would have increased quarter over quarter by 7 basis points. Interest expense was $33.3 million in the fourth quarter and $34.5 million in the third quarter of 2025.
This compares to $115.6 million in the third quarter of 2025 and $110.4 million in the fourth quarter of 2024. Interest income was $156 million in the fourth quarter of 2025, compared to $150.1 million in the third quarter and $147.6 million in the fourth quarter of last year. Average earning assets increased by $153 million in the fourth quarter when compared to the third quarter, and the earning asset yield increased by 11 basis points, from 4.32% to 4.43%.
Speaker #2: Interest income was $156 million in the fourth quarter of 2025, compared to $150.1 million in the third quarter, and $147.6 million in the fourth quarter of last year.
Speaker #2: Average earning assets increased by $153 million in the fourth quarter when compared to the third quarter, and the earning asset yield increased by 11 basis points, from 4.32% to 4.43%.
The fourth quarter loan yield was 5.47%, compared to 5.25% in the prior quarter. Excluding the $3.2 million of interest income on the non-performing loan we previously discussed, the yield on loans would have increased quarter over quarter by 7 basis points. Interest expense was $33.3 million in the fourth quarter and $34.5 million in the third quarter of 2025.
Speaker #2: The fourth quarter loan yield was 5.47%, compared to 5.25% in the prior quarter. Excluding the $3.2 million of interest income on the non-performing loan we previously discussed, the yield on loans would have increased quarter-over-quarter by 7 basis points.
Speaker #2: Interest expense was $33.3 million in the fourth quarter, and $34.5 million in the third quarter of 2025. Our cost of funds decreased from 1.05% for the third quarter of 2025 to 1.01% in the fourth quarter of 2025.
Operator: Our cost of funds decreased from 1.05% for Q3 2025 to 1.01% in Q4 2025. The average balances of interest-bearing deposits and repos increased by $232 million over the prior quarter. However, interest expense decreased as interest-bearing deposit costs declined by 17 basis points, and the cost of customer repurchase agreements decreased by 24 basis points. Our allowance for credit loss was $77 million at 31 December 2025, or 0.89% of gross loans. In comparison, our allowance for credit losses as of 30 September 2025, was $79 million, or 0.94% of gross loans. The decrease in the ACL resulted from a $2.5 million recapture of credit loss and net recoveries of $325,000. Our $77 million ACL is 133% of our combined non-performing assets and classified loans. Our economic forecast continues to be a blend of multiple forecasts produced by Moody's.
Operator: Our cost of funds decreased from 1.05% for Q3 2025 to 1.01% in Q4 2025. The average balances of interest-bearing deposits and repos increased by $232 million over the prior quarter. However, interest expense decreased as interest-bearing deposit costs declined by 17 basis points, and the cost of customer repurchase agreements decreased by 24 basis points. Our allowance for credit loss was $77 million at 31 December 2025, or 0.89% of gross loans. In comparison, our allowance for credit losses as of 30 September 2025, was $79 million, or 0.94% of gross loans. The decrease in the ACL resulted from a $2.5 million recapture of credit loss and net recoveries of $325,000. Our $77 million ACL is 133% of our combined non-performing assets and classified loans. Our economic forecast continues to be a blend of multiple forecasts produced by Moody's.
Speaker #2: The average balances of interest-bearing deposits and repos increased by 232 million over the prior quarter. However, interest expense decreased as interest-bearing deposit costs declined by 17 basis points, and the cost of customer repurchase agreements decreased by 24 basis points.
Speaker #2: Our allowance for credit loss was $77 million at December 31, 2025, or 0.89% of gross loans. In comparison, our allowance for credit losses as of September 30, 2025, was $79 million, or 0.94% of gross loans.
Speaker #2: The decrease in the ACL resulted from a $2.5 million recapture of credit loss and net recoveries of $325,000. Our $77 million ACL is 133% of our combined non-performing assets and classified loans.
Speaker #2: Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. We continue to have the largest individual scenario weighting on Moody's baseline forecast, with both upside and downside risks weighted among multiple forecasts.
Operator: We continue to have the largest individual scenario weighting on Moody's baseline forecast, with both upside and downside risks weighted among multiple forecasts. The resulting economic forecast at 31 December 2025 was modestly different from our forecast at the end of the third quarter, with loss rate assumptions for C&I loans experiencing a negative impact from the economic forecast. Real GDP is forecasted to stay below 1.5% through 2027 and not reach 2% until 2029. The unemployment rate is forecasted to reach 5% by the beginning of 2026 and remain above 5% through 2028. Commercial real estate prices are forecasted to continue their decline through the third quarter of 2026 before experiencing growth through 2029. So now, switching to our investment portfolio available for sale, or AFS investment securities, were $2.68 billion at 31 December 2025.
We continue to have the largest individual scenario weighting on Moody's baseline forecast, with both upside and downside risks weighted among multiple forecasts. The resulting economic forecast at 31 December 2025 was modestly different from our forecast at the end of the third quarter, with loss rate assumptions for C&I loans experiencing a negative impact from the economic forecast.
Speaker #2: The resulting economic forecast at December 31, 2025, was modestly different from our forecast at the end of the third quarter, with loss rate assumptions for C&I loans experiencing a negative impact from the economic forecast.
Speaker #2: Real GDP is forecasted to stay below 1.5% through 2027 and not reach 2% until 2029. The unemployment rate is forecasted to reach 5% by the beginning of 2026 and remain above 5% through 2028.
Real GDP is forecasted to stay below 1.5% through 2027 and not reach 2% until 2029. The unemployment rate is forecasted to reach 5% by the beginning of 2026 and remain above 5% through 2028. Commercial real estate prices are forecasted to continue their decline through the third quarter of 2026 before experiencing growth through 2029. So now, switching to our investment portfolio available for sale, or AFS investment securities, were $2.68 billion at 31 December 2025.
Speaker #2: Commercial real estate prices are forecasted to continue their decline through the third quarter of 2026 before experiencing growth through 2029. So now switching to our investment portfolio available for sale, or AFS investment securities, which were $2.68 billion at December 31, 2025.
Speaker #2: During the fourth quarter, we sold 30 million of securities with an average book yield of 1.5%. Realizing a 2.8 million loss, and then purchased 239 million of new securities at an average book value yield of approximately 4.75%.
Operator: During the fourth quarter, we sold $30 million of securities with an average book yield of 1.5%, realizing a $2.8 million loss, and then purchased $239 million of new securities at an average book value yield of approximately 4.75%. The unrealized loss on AFS securities decreased by $26 million from $334 million at 30 September 2025, to $308 million on 31 December 2025. The net after-tax impact of changes in both the fair value of our AFS securities and our derivatives resulted in a $20 million increase in other comprehensive income for the fourth quarter. Our held-to-maturity investments totaled $2.27 billion at 31 December 2025, which is $109 million lower than the balance at 31 December 2024.
During the fourth quarter, we sold $30 million of securities with an average book yield of 1.5%, realizing a $2.8 million loss, and then purchased $239 million of new securities at an average book value yield of approximately 4.75%. The unrealized loss on AFS securities decreased by $26 million from $334 million at 30 September 2025, to $308 million on 31 December 2025.
Speaker #2: The unrealized loss on AFS securities decreased by $26 million from $334 million at September 30, 2025, to $308 million on December 31, 2025. The net after-tax impact of changes in both the fair value of our AFS securities and our derivatives resulted in a $20 million increase in other comprehensive income for the fourth quarter.
The net after-tax impact of changes in both the fair value of our AFS securities and our derivatives resulted in a $20 million increase in other comprehensive income for the fourth quarter. Our held-to-maturity investments totaled $2.27 billion at 31 December 2025, which is $109 million lower than the balance at 31 December 2024.
Speaker #2: Our held-to-maturity investments totaled $2.27 billion at December 31, 2025, which is $109 million lower than the balance at December 31, 2024. Now turning to the capital position, at December 31, 2025, our shareholders' equity was $2.3 billion.
Operator: Now, turning to the capital position, at 31 December 2025, our shareholders' equity was $2.3 billion, a $109 million increase from the end of 2024, including the $84 million increase in other comprehensive income. There were 1.96 million shares of common stock repurchased during Q4 2025 at an average purchase price of $18.80. For all of 2025, we repurchased 4.3 million shares at an average share price of $18.60. The company's tangible common equity ratio was 10.3% at 31 December 2025, while our common equity tier-one capital ratio was 15.9%, and our total risk-based capital ratio was 16.7%. I'll now turn the call back to Dave for further discussion of our expenses. Thank you, Alan. Non-interest expense for Q4 2025 was $62 million, compared to $58.6 million in Q3 2025 and $58.5 million in Q4 2024.
Now, turning to the capital position, at 31 December 2025, our shareholders' equity was $2.3 billion, a $109 million increase from the end of 2024, including the $84 million increase in other comprehensive income. There were 1.96 million shares of common stock repurchased during Q4 2025 at an average purchase price of $18.80.
Speaker #2: A 109 million increase from the end of 2024, including the 84 million increase in other comprehensive income. There were 1.96 million shares of common stock repurchased during the fourth quarter of 2025 at an average purchase price of $18.80.
For all of 2025, we repurchased 4.3 million shares at an average share price of $18.60. The company's tangible common equity ratio was 10.3% at 31 December 2025, while our common equity tier-one capital ratio was 15.9%, and our total risk-based capital ratio was 16.7%. I'll now turn the call back to Dave for further discussion of our expenses. Thank you, Alan. Non-interest expense for Q4 2025 was $62 million, compared to $58.6 million in Q3 2025 and $58.5 million in Q4 2024.
Speaker #2: For all of 2025, we repurchased 4.3 million shares at an average share price of $18.60. The company's tangible common equity ratio was 10.3% at December 31, 2025, while our common equity Tier 1 capital ratio was 15.9%, and our total risk-based capital ratio was 16.7%.
Speaker #2: I'll now turn the call back to Dave for further discussion of our results.
Speaker #2: expenses. Thank you, Alan.
Speaker #1: Monitor's expense for the fourth quarter of 2025 was $62 million, compared to $58.6 million in the third quarter of 2025 and $58.5 million in the fourth quarter of 2024.
Speaker #1: During the fourth quarter, we incurred $1.6 million of one-time merger-related expenses associated with the pending merger with Heritage Bank Commerce. The fourth quarter of 2025 also included a $1 million provision for off-balance sheet reserves, compared to a $500,000 provision in the third quarter.
Operator: During the fourth quarter, we incurred $1.6 million of one-time merger-related expenses associated with the pending merger with Heritage Bank of Commerce. The fourth quarter of 2025 also included a $1 million provision for off-balance sheet reserves compared to a $500,000 provision in the third quarter. Excluding acquisition expense and the provision for off-balance sheet reserves, operating expenses grew by 2.3%, or $1.4 million over the third quarter of 2025, and by 1.6%, or $1 million over the fourth quarter of 2024. Excluding the impact of acquisition expense and the provision for off-balance sheet reserves, we achieved positive operating leverage from both the prior quarter and the year-ago quarter of 2% and 6%, respectively. Non-interest expense, excluding acquisition expense, totaled 1.53% as a percentage of average assets in the fourth quarter of 2025, compared to 1.50% for the third quarter of 2025 and 1.49% for the fourth quarter of 2024.
During the fourth quarter, we incurred $1.6 million of one-time merger-related expenses associated with the pending merger with Heritage Bank of Commerce. The fourth quarter of 2025 also included a $1 million provision for off-balance sheet reserves compared to a $500,000 provision in the third quarter. Excluding acquisition expense and the provision for off-balance sheet reserves, operating expenses grew by 2.3%, or $1.4 million over the third quarter of 2025, and by 1.6%, or $1 million over the fourth quarter of 2024.
Speaker #1: Excluding acquisition expense and the provision for off-balance sheet reserves, operating expenses grew by 2.3%, or $1.4 million, over the third quarter of 2025 and by 1.6%, or $1 million, over the fourth quarter of 2024.
Speaker #1: Excluding the impact of acquisition expense and the provision for off-balance sheet reserves, we achieved positive operating leverage from both the prior quarter and the year-ago quarter of 2% and 6%, respectively.
Excluding the impact of acquisition expense and the provision for off-balance sheet reserves, we achieved positive operating leverage from both the prior quarter and the year-ago quarter of 2% and 6%, respectively. Non-interest expense, excluding acquisition expense, totaled 1.53% as a percentage of average assets in the fourth quarter of 2025, compared to 1.50% for the third quarter of 2025 and 1.49% for the fourth quarter of 2024.
Speaker #1: Non-interest expense excluding acquisition expense totaled 1.53% as a percentage of average assets in the fourth quarter of 2025 compared to 1.50% for the third quarter of 2025 and 1.49% for the fourth quarter of 2024.
Speaker #1: This concludes today's presentation. Now, Alan and I will be happy to take any questions that you may have.
Operator: This concludes today's presentation. Now, Alan and I will be happy to take any questions that you may have. Thank you. If you would like to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Matthew Clark with Piper Sandler. Your line is open. Hey, good morning, guys. Good morning, Matthew. I just want to start on the non-interest-bearing deposits. You mentioned some seasonality. It looked also like some mixed change toward savings money market.
Operator: This concludes today's presentation. Now, Alan and I will be happy to take any questions that you may have. Thank you. If you would like to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Matthew Clark with Piper Sandler. Your line is open.
Speaker #1: have. Thank
Speaker #2: If you would like to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, press *11 again.
Speaker #2: Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster.
Speaker #2: And our first question will come from the line of Matthew Clark with Piper Sandler. Your line is open.
Matthew Clark: Hey, good morning, guys.
Speaker #3: Hey, good morning,
Speaker #3: guys. Good morning,
Dave Brager: Good morning, Matthew.
Matthew Clark: I just want to start on the non-interest-bearing deposits. You mentioned some seasonality. It looked also like some mixed change toward savings money market. Can you just speak to what you saw there and maybe whether or not there was some behavioral change among customers seeking rate?
Speaker #3: I just want to start on Matthew. the non-interest-bearing deposits. You mentioned some seasonality. It looks also like some mixed change toward savings, money market.
Speaker #3: Can you just speak to what you saw there and maybe whether or not there was some behavioral change among customers seeking
Operator: Can you just speak to what you saw there and maybe whether or not there was some behavioral change among customers seeking rate? Yeah, no, I don't think there was any behavioral change. It's pretty standard for us. People pay bonuses, accrue for taxes, do different things. I don't really think there was any major change. There wasn't any movement of any large relationships or deposits from non-interest-bearing to interest-bearing. I think for the most part, it just was normal seasonality. The part that was different was that we actually grew the non-interest-bearing deposits, and that is something that is a little different, but it wasn't necessarily coming from the non-interest-bearing and moving to the interest-bearing. I mean, Matthew, I would just consistently say, look at quarterly averages. Our deposit customers move fairly large amounts of money at any point in time.
Speaker #3: rate? Yeah.
Dave Brager: Yeah, no, I don't think there was any behavioral change. It's pretty standard for us. People pay bonuses, accrue for taxes, do different things. I don't really think there was any major change. There wasn't any movement of any large relationships or deposits from non-interest-bearing to interest-bearing. I think for the most part, it just was normal seasonality.
Speaker #4: No, I don't think there was any behavioral change. It's pretty standard for us. People pay bonuses, accrue for taxes, do different things. So I don't really think there was any major change.
Speaker #4: There wasn't any movement of any large relationships or deposits from non-interest-bearing to interest-bearing. I think for the most part, it just was normal seasonality.
The part that was different was that we actually grew the non-interest-bearing deposits, and that is something that is a little different, but it wasn't necessarily coming from the non-interest-bearing and moving to the interest-bearing. I mean, Matthew, I would just consistently say, look at quarterly averages. Our deposit customers move fairly large amounts of money at any point in time. So point-in-time balances don't necessarily reflect exactly what's going on. So average balances, I think, are just more informative.
Speaker #4: The part that was different was that we actually grew the non-interest-bearing deposits. And that is something that is a little different. But it wasn't necessarily coming from the non-interest-bearing and moving to
Speaker #4: the interest-bearing. I
Speaker #5: I mean, Matthew, I would just consistently say, look at quarterly averages. Our deposit customers move fairly large amounts of money at any point in time.
Speaker #5: So, point-in-time balances don't necessarily reflect exactly what's going on. So, average balances, I think, are just more—
Operator: So point-in-time balances don't necessarily reflect exactly what's going on. So average balances, I think, are just more informative. Yep. Yep. Okay. And then just on the non-dairy and livestock loan growth, if you excluded, it's up over 4% annualized this quarter. I know some of it was higher line utilization, but maybe speak to the higher line utilization, whether or not you think that might be more sustainable, and your thoughts overall on kind of non-dairy and livestock loan growth this year. Yeah. It's kind of interesting. I think we ended the year year-over-year up about 2% in total loans, and it's kind of in line with what I thought at the beginning of the year. It just took us a little while to get there point to point, but loan pipelines remain strong. I think the utilization is normalizing.
Speaker #5: informative. Yep.
Matthew Clark: Yep. Yep. Okay. And then just on the non-dairy and livestock loan growth, if you excluded, it's up over 4% annualized this quarter. I know some of it was higher line utilization, but maybe speak to the higher line utilization, whether or not you think that might be more sustainable, and your thoughts overall on kind of non-dairy and livestock loan growth this year.
Speaker #3: Yep. Okay. And then just on the non-dairy and livestock loan growth, if you exclude it, it's up over 4% annualized this quarter. I know some of it was higher line utilization, but maybe speak to the higher line utilization—whether or not you think that might be more sustainable.
Speaker #3: And your thoughts overall on non-dairy and livestock loan growth this year.
Dave Brager: Yeah. It's kind of interesting. I think we ended the year year-over-year up about 2% in total loans, and it's kind of in line with what I thought at the beginning of the year. It just took us a little while to get there point to point, but loan pipelines remain strong. I think the utilization is normalizing.
Speaker #4: Yeah, it's kind of interesting. I think we ended the year year-over-year up about 2% in total loans, and it's kind of in line with what I thought at the beginning of the year.
Speaker #4: It just took us a little while to get there, point to point. But loan pipelines remain strong. I think the utilization is normalizing. I think people are a little more positive.
Operator: I think people are a little more positive, I mean, as evidenced by just some of the GDP growth that we're seeing. So I think that that's probably going to remain a little more stable than it has been over the last year and a half or so. And candidly, that's anecdotal, but everybody we talk to is basically saying that they're ready to go and they think things are going to be okay. So that's a good sign. That's also evidenced, obviously, by the classified loans and the non-performing loans that we reported at the end of the quarter. So I think all in all, the pipelines are strong, at least for the foreseeable future, and I believe that we'll be able to do more with our existing customers, and we're still attracting some pretty good relationships going forward.
I think people are a little more positive, I mean, as evidenced by just some of the GDP growth that we're seeing. So I think that that's probably going to remain a little more stable than it has been over the last year and a half or so. And candidly, that's anecdotal, but everybody we talk to is basically saying that they're ready to go and they think things are going to be okay. So that's a good sign.
Speaker #4: I mean, as evidenced by just some of the GDP growth that we're seeing. So I think that that's probably going to remain a little more stable than it has been over the last year and a half or so.
Speaker #4: And candidly, that's anecdotal. But everybody we talk to is basically saying that they're ready to go, and they think things are going to be okay.
Speaker #4: So that's a good sign. That's also evidenced, obviously, by the classified loans and the non-performing loans that we reported at the end of the quarter.
That's also evidenced, obviously, by the classified loans and the non-performing loans that we reported at the end of the quarter. So I think all in all, the pipelines are strong, at least for the foreseeable future, and I believe that we'll be able to do more with our existing customers, and we're still attracting some pretty good relationships going forward. So all in all, I'm cautiously optimistic, maybe even positive and optimistic about 2026 so far.
Speaker #4: So I think, all in all, the pipelines are strong—at least for the foreseeable future. And I believe that we'll be able to do more with our existing customers.
Speaker #4: And we're still attracting some pretty good relationships going forward. So, all in all, I'm cautiously optimistic—maybe even positive—and optimistic about 2026.
Operator: So all in all, I'm cautiously optimistic, maybe even positive and optimistic about 2026 so far. Great. And then last one from me, just on the Heritage deal, any update and how it's progressing? Yeah. So everything's going well. We've toured their offices and their headquarters, almost all of their offices. We're getting ready from an application perspective and the proxy perspective, but everything's going according to plan right now. We still anticipate a Q2 close and a Q2 systems conversion, and I think that's where we are. Obviously, there's still game to be played there, but everything's looking good so far. Okay. Great. Thank you. You're welcome. One moment for our next question. And that will come from the line of David Feaster with Raymond James. Your line is open. Hi. Good morning, everybody. Good morning, Dave. I wanted to circle back to the core deposit side.
Speaker #4: far. Great.
Matthew Clark: Great. And then last one from me, just on the Heritage deal, any update and how it's progressing?
Speaker #3: And then, last one for me—just on the Heritage deal, any update on how it's progressing?
Dave Brager: Yeah. So everything's going well. We've toured their offices and their headquarters, almost all of their offices. We're getting ready from an application perspective and the proxy perspective, but everything's going according to plan right now. We still anticipate a Q2 close and a Q2 systems conversion, and I think that's where we are. Obviously, there's still game to be played there, but everything's looking good so far.
Speaker #4: Yeah. So everything's going well. We've toured their offices and their headquarters almost all of their offices. We are getting ready from an application perspective and the proxy perspective.
Speaker #4: But everything's going according to plan right now. We still anticipate a second quarter close and a second quarter systems conversion. And I think that's where we are.
Speaker #4: Obviously, there's still game to be played there, but everything's looking good so far.
Matthew Clark: Okay. Great. Thank you.
Speaker #3: Okay. Great. Thank you.
Dave Brager: You're welcome.
Speaker #4: You're welcome.
Operator: One moment for our next question. And that will come from the line of David Feaster with Raymond James. Your line is open.
Speaker #2: One moment for our next question. And that will come from the line of David Feaster with Raymond James. Your line is open.
Speaker #2: open. Hi.
David Feaster: Hi. Good morning, everybody. Good morning, Dave. I wanted to circle back to the core deposit side. Obviously, we talked about the seasonal dynamics within NIB, but wanted to get your thoughts on the competitive landscape for deposits from your standpoint. Where are you winning deposit business and your thoughts on the obviously, you saw good interest-bearing deposit growth, and then just your thoughts on the ability to push through the Fed cuts and expectations for betas near term?
Speaker #6: Good morning, everybody.
Speaker #4: Good morning.
Speaker #6: I wanted to circle back to the quarter deposit side. Obviously, we talked about the seasonal dynamics within NIB, but I wanted to get your thoughts on the competitive landscape for deposits from your standpoint.
Operator: Obviously, we talked about the seasonal dynamics within NIB, but wanted to get your thoughts on the competitive landscape for deposits from your standpoint. Where are you winning deposit business and your thoughts on the obviously, you saw good interest-bearing deposit growth, and then just your thoughts on the ability to push through the Fed cuts and expectations for betas near term? Yeah. So I think just from the first part of your question, I think the type of client that we go after generally is an operating company. And so the majority of the new deposit relationships that we're bringing to the bank are 75% plus non-interest-bearing. If you look back over the last 10 years of the bank, we always seem to have this sort of dip.
Speaker #6: Where are you winning deposit business? And your thoughts on the obviously, you saw good interest-bearing deposit growth. And then just your thoughts on the ability to push through the Fed cuts and expectations for betas near
Speaker #6: Where are you winning deposit business? And your thoughts on the obviously, you saw good interest-bearing deposit growth. And then just your thoughts on the ability to push through the Fed cuts and expectations for betas near term.
Dave Brager: Yeah. So I think just from the first part of your question, I think the type of client that we go after generally is an operating company. And so the majority of the new deposit relationships that we're bringing to the bank are 75% plus non-interest-bearing. If you look back over the last 10 years of the bank, we always seem to have this sort of dip.
Speaker #4: Yeah, so I think just from the first part of your question, I think the type of client that we go after generally is an operating company.
Speaker #4: And so, the majority of the new deposit relationships that we're bringing to the bank are 75% plus non-interest-bearing. If you look back over the last 10 years of the bank, we always seem to have this sort of dip.
Speaker #4: And as Alan said, on any one given day, that money can move out and move back. And there's a number of things that happen.
Operator: And as Alan said, on any one given day, that money can move out and move back, and there's a number of things that happen, and that's why I think the average number is better as well. But we are winning relationships. As you know, we are not a bank that goes out and offers the highest rate on our deposit accounts, and we're not really trying to attract that type of customer. So I think for the most part, it's pretty standard on the type of relationship. As far as the Fed rate cuts are concerned, we basically, during the last cut, we basically lowered everything by 0.25% that was earning over 1%. And so we're trying to capture as much of that as possible.
And as Alan said, on any one given day, that money can move out and move back, and there's a number of things that happen, and that's why I think the average number is better as well. But we are winning relationships. As you know, we are not a bank that goes out and offers the highest rate on our deposit accounts, and we're not really trying to attract that type of customer.
Speaker #4: And that's why I think the average number is better as well. But we are winning relationships. As you know, we are not a bank that goes out and offers the highest rate on our deposit accounts.
Speaker #4: And we're not really trying to attract that type of customer, so I think for the most part it's pretty standard on the type of relationship.
So I think for the most part, it's pretty standard on the type of relationship. As far as the Fed rate cuts are concerned, we basically, during the last cut, we basically lowered everything by 0.25% that was earning over 1%. And so we're trying to capture as much of that as possible.
Speaker #4: As far as the Fed rate cuts are concerned, during the last cut, we basically lowered everything by a quarter percent that was earning over 1%.
Speaker #4: And so we're trying to capture as much of that as possible. I think the combination of, on the interest-bearing deposit side, with trying to offset, to the extent we can, on the asset side of the rate cuts.
Operator: I think the combination of, on the interest-bearing deposit side, with trying to offset to the extent we can on the asset side of those rate cuts, I mean, I think it was a good sign for us that our asset, our loan yield still went up despite a Fed rate cut. And we added a slide in our investor deck in the appendix that really gives a very good overview of sort of the repricing/reset timeframes, both on the truly variable stuff as well as the fixed-rate stuff that's maturing or resetting over the next, I think it's we go all the way up to 10 years and over. It's a very small number in that category, but there's a lot more granularity there than we had in the previous deck as well. But on the deposit side, David, it's pretty much the same type of thing.
I think the combination of, on the interest-bearing deposit side, with trying to offset to the extent we can on the asset side of those rate cuts, I mean, I think it was a good sign for us that our asset, our loan yield still went up despite a Fed rate cut.
Speaker #4: I mean, I think it was a good sign for us that our asset and loan yields still went up despite a Fed rate cut.
And we added a slide in our investor deck in the appendix that really gives a very good overview of sort of the repricing/reset timeframes, both on the truly variable stuff as well as the fixed-rate stuff that's maturing or resetting over the next, I think it's we go all the way up to 10 years and over. It's a very small number in that category, but there's a lot more granularity there than we had in the previous deck as well. But on the deposit side, David, it's pretty much the same type of thing.
Speaker #4: And we added a slide in our investor deck in the appendix that really gives a very good overview of sort of the repricing/reset timeframes, both on the truly variable stuff as well as the fixed-rate stuff that's maturing or resetting over the next—I think we go all the way up to 10 years and over.
Speaker #4: It's a very small number in that category. But there's a lot more granularity there than we had in the previous deck as well. But on the deposit side, David, it's pretty much the same type of thing.
Speaker #4: And I think from a competition standpoint, we are seeing more competition utilizing earnings credit and that ability to pay. I mean, we just had a relationship that came to us and said that there was a bank, and I won't mention the name, but there was a bank that was offering them a 3% guaranteed ETR rate for five years, with paying their accounting system, which is 120 grand a year, as part of that five-year deal.
Operator: I think from a competition standpoint, we are seeing more competition utilizing earnings credit and that ability to pay. I mean, we just had a relationship that came to us and said that there was a bank, and I won't mention the name, but there was a bank that was offering them a 3% guaranteed ETR rate for five years with paying their accounting system, which is $120,000 a year as part of that five-year deal. I don't know the outcome of that one yet, but that's not something we would do. So that's what I'm seeing out there. And I don't know if that's just for the other banks to drive their non-interest-bearing or just deposits in general, but there is loan growth, so there's going to be funding pressure. I think that's something that we need to stay on top of.
I think from a competition standpoint, we are seeing more competition utilizing earnings credit and that ability to pay. I mean, we just had a relationship that came to us and said that there was a bank, and I won't mention the name, but there was a bank that was offering them a 3% guaranteed ETR rate for five years with paying their accounting system, which is $120,000 a year as part of that five-year deal.
I don't know the outcome of that one yet, but that's not something we would do. So that's what I'm seeing out there. And I don't know if that's just for the other banks to drive their non-interest-bearing or just deposits in general, but there is loan growth, so there's going to be funding pressure. I think that's something that we need to stay on top of. But for the most part, it's pretty much status quo and business as usual for us.
Speaker #4: I don't know the outcome of that one yet. But that's not something we would do. So that's what I'm seeing out there. And I don't know if that's just for the other banks to drive their non-interest-bearing, or just deposits in general.
Speaker #4: But there is loan growth, so there's going to be funding pressure. I think that's something that we need to stay on top of.
Speaker #4: But, for the most part, it's pretty much status quo and business as usual for us.
Operator: But for the most part, it's pretty much status quo and business as usual for us. Okay. That's helpful. And to that point on the growth side, I was hoping you could touch on the competitive landscape there. It sounds like you're seeing primarily just on the pricing side. I wanted to see if you're getting any more aggressiveness from competitors on the underwriting side. And then just how do you think about payoffs and paydowns? Obviously, there's pretty significant backbook repricing in your story, but I'm just curious, with competition and potential Fed cuts still on the horizon, how do you think about payoffs and paydowns next year? Is that something that you would expect could be a headwind? Yeah. Well, it's always a little bit of a headwind. The payoff and prepayment penalty activity in Q4 was lower than Q3.
Speaker #4: us. Okay.
David Feaster: Okay. That's helpful. And to that point on the growth side, I was hoping you could touch on the competitive landscape there. It sounds like you're seeing primarily just on the pricing side. I wanted to see if you're getting any more aggressiveness from competitors on the underwriting side. And then just how do you think about payoffs and paydowns?
Speaker #6: That's helpful. And to that point on the growth side, I was hoping you could touch on the competitive landscape there. It sounds like you're seeing it primarily just on the pricing side, but I wanted to see if you're getting any more aggressiveness from competitors on the underwriting side, and then just how you think about payoffs and payouts?
Speaker #6: Obviously, there's pretty significant backbook repricing in your story. But I'm just curious with competition and potential Fed cuts, still on the horizon, how do you think about payoffs and payouts next year?
Obviously, there's pretty significant backbook repricing in your story, but I'm just curious, with competition and potential Fed cuts still on the horizon, how do you think about payoffs and paydowns next year? Is that something that you would expect could be a headwind?
Speaker #6: Is that something that you would expect could be a
Speaker #6: headwind? Yeah.
David Feaster: Yeah. Well, it's always a little bit of a headwind. The payoff and prepayment penalty activity in Q4 was lower than Q3. But it's always something we have to deal with, and we anticipate that happening when we model and forecast internally. We look at those numbers just sort of from a historical perspective. The one thing to your comment about the backbook repricing, the one thing that is becoming, or not in a major way, but is an issue, is that when there is a reset, we still have prepayment penalties in our loan.
Speaker #4: Well, it's always a little bit of a headwind. The payoffs and prepayment penalty activity in the fourth quarter was lower than the third quarter.
Speaker #4: But it's always something we have to deal with, and we anticipate that happening when we model and forecast internally. We look at those numbers and just sort of from a historical perspective.
Operator: But it's always something we have to deal with, and we anticipate that happening when we model and forecast internally. We look at those numbers just sort of from a historical perspective. The one thing to your comment about the backbook repricing, the one thing that is becoming, or not in a major way, but is an issue, is that when there is a reset, we still have prepayment penalties in our loan. But when there is a reset, there are people that are getting quotes theoretically from competitors that are lower than ours. I don't always see the actual quotes, so I always question whether that's true or not, but they're theoretically getting quotes from competitors out there saying they'll do the loan at a lower rate than what our repricing rate would be or reset rate would be.
Speaker #4: The one thing to your comment about the backbook repricing, the one thing that is becoming or not in a major way, but is an issue is that when there is a reset, we still have prepayment penalties in our loan.
Speaker #4: But when there is a reset, there are people that are getting quotes, theoretically, from competitors that are lower than ours. I don't always see the actual quotes.
But when there is a reset, there are people that are getting quotes theoretically from competitors that are lower than ours. I don't always see the actual quotes, so I always question whether that's true or not, but they're theoretically getting quotes from competitors out there saying they'll do the loan at a lower rate than what our repricing rate would be or reset rate would be.
Speaker #4: So I always question whether that's true or not. But they're theoretically getting quotes from competitors out there, saying they'll do the loan at a lower rate than what our repricing rate would be, or reset rate would be.
Speaker #4: And so, we have a little protection with the prepayment penalty. But on the maturing book, we don't have any protection there, so we have to be a little more aggressive.
Operator: So we have a little protection with the prepayment penalty, but on the maturing book, we don't have any protection there, so we have to be a little more aggressive. I was candidly very happy that our Q4 average yield was 6.25 because I would say some of the stuff we're doing now is closer to the six range just to be competitive on that. And look, treasuries are going up, at least in the last week or so. They're going up pretty good. So hopefully, people will remain disciplined, but it's really more pricing than credit. We're not going to go into do something that we wouldn't do from a credit underwriting perspective, but we, especially to protect relationships, will be a little more aggressive on the pricing aspect of it. Are you seeing more? Yeah. Sorry. I'm sorry.
So we have a little protection with the prepayment penalty, but on the maturing book, we don't have any protection there, so we have to be a little more aggressive. I was candidly very happy that our Q4 average yield was 6.25 because I would say some of the stuff we're doing now is closer to the six range just to be competitive on that. And look, treasuries are going up, at least in the last week or so.
Speaker #4: I was candidly very happy that our fourth quarter average yield was 6 and a quarter, because I would say some of the stuff we're doing now is closer to the 6 range.
Speaker #4: Just to be competitive on that. And look, Treasuries are going up, at least in the last week or so. They're going up pretty good.
They're going up pretty good. So hopefully, people will remain disciplined, but it's really more pricing than credit. We're not going to go into do something that we wouldn't do from a credit underwriting perspective, but we, especially to protect relationships, will be a little more aggressive on the pricing aspect of it.
Speaker #4: So hopefully, people will remain disciplined. But it's really more about pricing than credit. We're not going to do something that we wouldn't do from a credit underwriting perspective.
Speaker #4: But especially to protect relationships, we'll be a little more aggressive on the pricing aspect of it.
David Feaster: Are you seeing more? Yeah. Sorry. I'm sorry.
Speaker #6: Are you seeing more? Yep, sorry.
Speaker #4: Are you seeing more short-term loans as well? So people are doing 5, 3-year instead of going out 7 or 10 years. So I think that's also part of the yields we're seeing.
Operator: We're seeing more short-term loans as well. So people are doing five- or three-year instead of going out seven or 10 years. So I think that's also part of the yields we're seeing. Okay. Have you started to see? I'm sorry, David. I was just going to add one thing, and that's a very good point that Alan brought up. I don't know that that's a good bet. Trying to keep things two or three years, we'll see. But if you just look at the forward rates, especially on the longer end, could be higher just based on a lot of different factors. Yeah. And so it doesn't sound like, other than the duration, that you've really seen much pressure on the underwriting structures or standards. No, not really. I mean, we wouldn't really consider it anyway, so it might not come all the way up to me, so.
Dave Brager: We're seeing more short-term loans as well. So people are doing five- or three-year instead of going out seven or 10 years. So I think that's also part of the yields we're seeing.
David Feaster: Okay. Have you started to see?
Speaker #6: Okay. Have you started to see?
Speaker #4: I'm sorry, David. I was just going to add one thing, and that's a very good point that Alan brought up. I don't know that that's a good bet.
Dave Brager: I'm sorry, David. I was just going to add one thing, and that's a very good point that Alan brought up. I don't know that that's a good bet. Trying to keep things two or three years, we'll see. But if you just look at the forward rates, especially on the longer end, could be higher just based on a lot of different factors.
Speaker #4: Trying to keep things two or three years, we’ll see. But if you just look at the forward rates, or especially on the longer end, it could be higher just based on a lot of different factors.
Speaker #6: Yeah, and so it doesn't sound like, other than the duration, that you've really seen much pressure on the underwriting structures or standards.
David Feaster: Yeah. And so it doesn't sound like, other than the duration, that you've really seen much pressure on the underwriting structures or standards. No, not really. I mean, we wouldn't really consider it anyway, so it might not come all the way up to me, so. That's a good point. All right. Thanks, everybody.
Speaker #4: No, not really. I mean, we wouldn't really consider it anyway. So, it might not come all the way up to me. So that's a good point.
Operator: That's a good point. All right. Thanks, everybody. Thank you. One moment for our next question. And that will come from the line of Andrew Terrell with Stevens. Your line is open. Hey, good morning. Good morning, Andrew. If I could just start maybe asking on expenses, I think post the adjustments you guys call out, it's around $59 million or so. But compensation up this quarter, was any of that incentive accrual adjustments kind of at year-end? And then maybe just looking for a little bit of help around thoughts on organic expense growth into 2026 or kind of run rate expectations you guys have. Yeah, Andrew, you're correct. There were some adjustments to our profit bonus share accruals that elevated the expense quarter over quarter. Every fourth quarter with the holiday season, there's extra benefit expense.
Speaker #6: All right. Thanks, everybody.
Dave Brager: Thank you.
Speaker #4: Thanks, guys.
Speaker #3: Thank
Speaker #3: You. One moment for our next
Operator: One moment for our next question. And that will come from the line of Andrew Terrell with Stevens. Your line is open.
Speaker #1: And that will come from the line of Andrew Terrell with Stevens. Your line is open.
Andrew Terrell: Hey, good morning. Good morning, Andrew. If I could just start maybe asking on expenses, I think post the adjustments you guys call out, it's around $59 million or so. But compensation up this quarter, was any of that incentive accrual adjustments kind of at year-end? And then maybe just looking for a little bit of help around thoughts on organic expense growth into 2026 or kind of run rate expectations you guys have.
Speaker #7: Hey, good morning.
Speaker #4: Good morning,
Speaker #4: Andrew, if I could just start, maybe...
Speaker #7: asking on expenses, I think post the adjustments you guys call out, it's around 59 million or so. But compensation, up this quarter, was any of that incentive accrual adjustments kind of a year-end?
Speaker #7: And then maybe just looking for a little bit of help around thoughts on organic expense growth into 2026, or kind of run rate expectations you guys have.
Dave Brager: Yeah, Andrew, you're correct. There were some adjustments to our profit bonus share accruals that elevated the expense quarter over quarter. Every fourth quarter with the holiday season, there's extra benefit expense.
Speaker #4: Yeah, Andrew, you're correct. There were some adjustments to our profit bonus share accruals that elevated the expense quarter over quarter. Also, every fourth quarter with the holiday season, there's extra benefit expense.
Speaker #4: So Q4 to Q4 might be a better indication of where expense growth is, and I think that was less than 2%. I think once again, particularly if you look at the full-year numbers, the only expense line that's really growing more than very low single digits is the technology side—the software expense.
Operator: So Q4 to Q4 might be a better indication of where expense growth is, and I think that was less than 2%. I think, once again, particularly if you look at the full-year numbers, the only expense line that's really growing more than very low single digits is the technology side, the software expense. We'll continue to invest in that. The percentages may not be quite as high as 24% to 25%, but that's an area we'll continue to invest in. Yep. Okay. Then just on the margin overall, I appreciate the slide you guys gave on the loan repricing in the presentation. But if we look at margins for the industry right now, a lot of the banks out there are approaching kind of that peak level or fairly close from back in 2019.
So Q4 to Q4 might be a better indication of where expense growth is, and I think that was less than 2%. I think, once again, particularly if you look at the full-year numbers, the only expense line that's really growing more than very low single digits is the technology side, the software expense. We'll continue to invest in that. The percentages may not be quite as high as 24% to 25%, but that's an area we'll continue to invest in.
Speaker #4: And we'll continue to invest in that. The percentages may not be quite as high as 24 to 25. But that's an area we'll continue to invest
Speaker #4: And we'll continue to invest in that. The percentages may not be quite as high as 24 to 25. But that's an area we'll continue to invest in.
Andrew Terrell: Yep. Okay. Then just on the margin overall, I appreciate the slide you guys gave on the loan repricing in the presentation. But if we look at margins for the industry right now, a lot of the banks out there are approaching kind of that peak level or fairly close from back in 2019. You guys were still 50, 75 basis points light versus that four and a quarter level from 2019.
Speaker #7: Yeah, okay. And then, just on the margin overall, I appreciate the slide you guys gave on the loan repricing in the presentation. But if we look at margins for the industry right now, a lot of the banks out there are approaching kind of that peak level, or fairly close, from back in 2019.
Speaker #7: You guys are still 50, 75 basis points light versus that 4.25% level from 2019. So I guess the kind of question is, have you structurally changed, preventing you from getting back there?
Operator: You guys were still 50, 75 basis points light versus that four and a quarter level from 2019. So I guess the kind of question is, has anything structurally changed preventing you from getting back there? And then just keeping that loan repricing in mind, I know some of it looks decently far out there up to 10 years. How long does it take you guys to get margin back to what you would view as a normalized level? Well, of course, the yield environment plays a lot into that, Andrew. But yeah, I mean, obviously, if you go back pre-pandemic, our securities book still has a much lower yield than it would have had back then. And so that's obviously going to play into it in the loan book still as well.
So I guess the kind of question is, has anything structurally changed preventing you from getting back there? And then just keeping that loan repricing in mind, I know some of it looks decently far out there up to 10 years. How long does it take you guys to get margin back to what you would view as a normalized level?
Speaker #7: And then, just keeping that loan repricing in mind—I know some of it looks decently far out there, up to 10 years—how long does it take you guys to get margin back to what you would view as a normalized level?
Dave Brager: Well, of course, the yield environment plays a lot into that, Andrew. But yeah, I mean, obviously, if you go back pre-pandemic, our securities book still has a much lower yield than it would have had back then. And so that's obviously going to play into it in the loan book still as well.
Speaker #4: Well, of course, the yield environment plays a lot into that, Andrew. But yeah, I mean, obviously, if you go back pre-pandemic, our securities books still have a much lower yield than it would have had back then.
Speaker #4: And so that's obviously going to play into it. And the loan book still as well. So it'll take a little time for both cash flows and the securities book to reprice, as well as the loan book to reprice.
Operator: So it'll take a little time for both cash flows and the security book to reprice as well as the loan book to reprice. And that's why we added that slide. So I mean, it's hard to tell, and I don't know if I have a comment on it knowing that there's so many variables. But I wouldn't be surprised if we get there over the next couple of years, but there's a lot of things that could change that. Yeah. And the only thing I would add to that, Andrew, is to the point that we have not done any large restructuring loss trade type transactions. And so in the fourth quarter, with the gain that we had or with the recapture of the interest income that we had, we used that to take advantage of.
So it'll take a little time for both cash flows and the security book to reprice as well as the loan book to reprice. And that's why we added that slide. So I mean, it's hard to tell, and I don't know if I have a comment on it knowing that there's so many variables. But I wouldn't be surprised if we get there over the next couple of years, but there's a lot of things that could change that.
Speaker #4: And that's why we added that slide. So, I mean, it's hard to tell. And I don't know if I have a comment on it, knowing that there's so many variables.
Speaker #4: But I wouldn't be surprised if we get there over the next couple of years. But there's a lot of things that could change that.
Yeah. And the only thing I would add to that, Andrew, is to the point that we have not done any large restructuring loss trade type transactions. And so in the fourth quarter, with the gain that we had or with the recapture of the interest income that we had, we used that to take advantage of.
Speaker #3: Yeah. And the only thing I would add to that, Andrew, is to the point that we have not done any large restructuring, lost trade-type transactions.
Speaker #3: And so in the fourth quarter, with the gain that we had or with the recapture of the interest income that we had, we used that to take advantage of.
Speaker #3: So, sort of all these one-time things that happened, we will still look at that and make determinations. And that's really part of the reason that we looked at the lost trade to utilize that $3.2 million we recaptured in interest.
Operator: So sort of all these one-time things that happen, we will still look at that and make determinations. And that's really part of the reason that we looked at the loss trade to utilize that $3.2 million we recaptured in interest. So we'll just continue to do that. It's more singles. We're not planning on doing anything, like we've said all along, anything larger than that. Yep. Okay. Yeah. My follow-up to that was going to be on the security, so I appreciate it. Thanks for taking the questions. Of course. One moment for our next question. And that will come from the line of Gary Tenner with D.A. Davidson. Your line is open. Thanks. Good morning. Good morning.
So sort of all these one-time things that happen, we will still look at that and make determinations. And that's really part of the reason that we looked at the loss trade to utilize that $3.2 million we recaptured in interest. So we'll just continue to do that. It's more singles. We're not planning on doing anything, like we've said all along, anything larger than that.
Speaker #3: So we'll just continue to do that. It's more singles; we're not planning on doing anything, like we've said all along, anything larger than—
Speaker #3: that. Yeah.
David Feaster: Yep. Okay. Yeah. My follow-up to that was going to be on the security, so I appreciate it. Thanks for taking the questions.
Speaker #7: Okay, yeah. My follow-up to that was going to be on the securities, so I appreciate it.
Speaker #7: Thanks for taking the questions. Of course.
Dave Brager: Of course.
Speaker #4: course. One moment for our next
Operator: One moment for our next question. And that will come from the line of Gary Tenner with D.A. Davidson. Your line is open.
Speaker #1: And that will come from the line of Gary Tenner with DA Davidson. Your line is open.
Speaker #1: open. Oh,
Speaker #8: thanks. Good morning. Good
Gary Tenner: Thanks. Good morning.
Dave Brager: Good morning.
Speaker #8: Hey, I had just a follow-up on morning—the loan yields in the quarter. Even excluding that interest recovery, as you pointed out, Alan, the loan yield was up 7 basis points.
Operator: Hey, I had just a follow-up on the loan yields in the quarter, even excluding that interest recovery, as you pointed out, Alan, that the loan yield was up seven basis points. Was that pretty exclusively driven by the increased C&I outstandings between general C&I and the ag portfolio? I just wanted to make sure there weren't any other dynamics during the quarter that impacted them. I mean, I wouldn't point to anything one thing. I mean, dairy goes up, but really, I think the dairy borrowing, the higher percentage of our overall loans probably drove about a basis point improvement in loan yields. So a little bit on the mix. But once again, I think the bulk of our loans are commercial real estate, and it really goes back to the backbook conversation. They're slowly repricing, and as we have the payoffs, we're replacing them with higher yield.
Gary Tenner: Hey, I had just a follow-up on the loan yields in the quarter, even excluding that interest recovery, as you pointed out, Alan, that the loan yield was up seven basis points. Was that pretty exclusively driven by the increased C&I outstandings between general C&I and the ag portfolio? I just wanted to make sure there weren't any other dynamics during the quarter that impacted them.
Speaker #8: Was that pretty exclusively driven by the increase CNI outstandings between general CNI and the ag portfolio? I just wanted to make sure there weren't any other dynamics during the quarter.
Speaker #8: That impacted banks.
Speaker #4: I mean, I wouldn't point to any one thing. I mean, Gary goes up. But really, I think the dairy borrowings as a higher percentage of our overall loans probably drove about a basis point.
Dave Brager: I mean, I wouldn't point to anything one thing. I mean, dairy goes up, but really, I think the dairy borrowing, the higher percentage of our overall loans probably drove about a basis point improvement in loan yields. So a little bit on the mix.
Speaker #4: Improvement in loan yields, so a little bit on the mix. But once again, I think the bulk of our loans are commercial real estate.
But once again, I think the bulk of our loans are commercial real estate, and it really goes back to the backbook conversation. They're slowly repricing, and as we have the payoffs, we're replacing them with higher yield. So that concept is probably still the biggest driver. And new production. Yeah. New production versus what's rolling off. Yeah.
Speaker #4: And it's really goes back to the backbook conversation. They're slowly repricing. And as we have the payoffs, we're replacing them with higher yields. So that concept
Operator: So that concept is probably still the biggest driver. And new production. Yeah. New production versus what's rolling off. Yeah. Great. Thanks. And then just looking forward to the HDBK transaction, any expectations at this point of kind of any day-one restructuring of their balance sheet or otherwise? The only thing we've announced, Gary, is that we do plan on selling approximately $400 million of single-family loans that Heritage has. These are not related to customers. They were purchased, and the duration is very long on them. So even though we'll get to mark them to market, and there's a lot of accretion there that if we kept them, that significant accretion, but still, they're very low coupon, 30-year mortgages. We don't really care for the duration, and they're not associated with customers. So we'll sell those, and we'll reinvest into investments with shorter durations. Okay.
Speaker #4: is probably still the biggest driver. And yeah.
Speaker #4: New production versus new production. what's rolling off. Yeah.
Gary Tenner: Great. Thanks. And then just looking forward to the HDBK transaction, any expectations at this point of kind of any day-one restructuring of their balance sheet or otherwise?
Speaker #3: Yeah. Great.
Speaker #8: Thanks. And then just looking forward to the HCBK transaction, any expectations at this point of kind of any day one restructuring of their balance sheet or otherwise?
Speaker #8: Thanks. And then just looking forward to the HCBK transaction, any expectations at this point of kind of any day one restructuring of their balance sheet or
Dave Brager: The only thing we've announced, Gary, is that we do plan on selling approximately $400 million of single-family loans that Heritage has. These are not related to customers. They were purchased, and the duration is very long on them.
Speaker #4: The only thing we've announced, Gary, is that we do plan on selling approximately $400 million of single-family loans that Heritage has. These are not related to customers.
Speaker #4: They were purchased. And the duration is very long on them. So even though we'll get to mark them to market and there's a lot of accretion there that if we kept them, that significant accretion.
So even though we'll get to mark them to market, and there's a lot of accretion there that if we kept them, that significant accretion, but still, they're very low coupon, 30-year mortgages. We don't really care for the duration, and they're not associated with customers. So we'll sell those, and we'll reinvest into investments with shorter durations.
Speaker #4: But still, they're very low-coupon, 30-year mortgages. We don't really care for the duration. And they're not associated with customers. So we'll sell those, and we'll reinvest into investments with shorter
Speaker #4: durations. Okay.
Gary Tenner: Okay. And that was in the merger announcement, but beyond that, nothing else contemplated at this point?
Speaker #8: And that was in the merger announcement. But beyond that, no, nothing else.
Operator: And that was in the merger announcement, but beyond that, nothing else contemplated at this point? Nothing at this point. Okay. Thank you. Thank you. One moment for our next question. And that will come from the line of Kelly Motta with KBW. Your line is open. Hey, good morning. Thanks for the question. Good morning. I apologize. I joined a little bit late. I may have missed this. But just circling back to the non-interest-bearing flows, with those balances down a bit, can you just elaborate? I know you guys sold an NPL. If there was any attrition of customers related to exits or anything like that, or if it was just normal seasonal movements post-COVID getting back to more normal trends. Thank you. Yeah. I think maybe you're just fact-checking me, Kelly. But yeah. But no, there was no loss of relationships that that represented.
Dave Brager: Nothing at this point.
Speaker #4: Nothing at this
Speaker #4: point.
Gary Tenner: Okay. Thank you.
Speaker #8: Okay.
Speaker #8: you. Thank
Dave Brager: Thank you.
Speaker #3: you. One moment for our next
Operator: One moment for our next question. And that will come from the line of Kelly Motta with KBW. Your line is open.
Speaker #1: And that will come from the line of Kelly Motta with KBW. Your line is open.
Speaker #1: open. Hey, good morning.
Kelly Motta: Hey, good morning. Thanks for the question. Good morning. I apologize. I joined a little bit late. I may have missed this. But just circling back to the non-interest-bearing flows, with those balances down a bit, can you just elaborate? I know you guys sold an NPL. If there was any attrition of customers related to exits or anything like that, or if it was just normal seasonal movements post-COVID getting back to more normal trends. Thank you.
Speaker #9: Thanks for
Speaker #9: the question. Good
Speaker #9: I joined a morning. little bit late. I may have missed this. But just circling back to the non-interest bearing. Flows with those balances down a bit, can you just elaborate?
Speaker #9: I know you guys sold an NPL. Was there any attrition of customers related to exits or anything like that, or was it just normal seasonal movements, post-COVID, getting back to more normal trends?
Speaker #9: Thank you.
Dave Brager: Yeah. I think maybe you're just fact-checking me, Kelly. But yeah. But no, there was no loss of relationships that that represented. The comment that we made was really just around the point in time on 31 December. There's a lot of movement around the deposits going back and forth or going out. And this is actually pretty standard. The part that was a little surprising, I mean, I watch it every day, but not surprising, but the part that was different is we did grow non-interest-bearing deposits.
Speaker #3: Yeah. I
Speaker #3: think maybe you're just fact-checking me, Kelly. But no, there was no loss of relationships that that represented. And the comment that we made was really just around the point in time on December 31st.
Operator: The comment that we made was really just around the point in time on 31 December. There's a lot of movement around the deposits going back and forth or going out. And this is actually pretty standard. The part that was a little surprising, I mean, I watch it every day, but not surprising, but the part that was different is we did grow non-interest-bearing deposits. The new relationships that we're attracting to the bank are probably in the 75% non-interest-bearing range, 25% interest-bearing. So this is really just kind of normal stuff. If you go back 10 years, we always have this seasonality in Q4 and Q1. I think, Alan, a while back, we had done an analysis of that. And I think in Q4, we normally lose about 4% of our deposits going back like 10 years. This, on average, that didn't occur this year.
Speaker #3: There's a lot of movement around the deposits going back and forth, or going out. And this is actually pretty standard. The part that was a little surprising—I mean, I watch it every day.
Speaker #3: That's not surprising. But the part that was different is we did grow non-interest-bearing deposits. The new relationships that we're attracting to the bank are probably in the 75% non-interest-bearing range.
The new relationships that we're attracting to the bank are probably in the 75% non-interest-bearing range, 25% interest-bearing. So this is really just kind of normal stuff. If you go back 10 years, we always have this seasonality in Q4 and Q1. I think, Alan, a while back, we had done an analysis of that. And I think in Q4, we normally lose about 4% of our deposits going back like 10 years. This, on average, that didn't occur this year.
Speaker #3: 25% interest-bearing. So this is really just kind of normal stuff. If you go back 10 years, we always have this seasonality in the fourth and first quarter.
Speaker #3: I think, Alan, a while back we had done an analysis of that. And I think in the fourth quarter, we normally lose about 4% of our deposits, going back like 10 years.
Speaker #3: This, on average, that didn't occur this year. We sort of had the normal non-interest-bearing stuff that went out for taxes or bonuses or whatever the case may be.
Operator: We sort of had the normal non-interest-bearing stuff that went out for taxes or bonuses or whatever the case may be. But no, there was nothing abnormal about it and no loss of relationship that, and I say no loss, meaning any material or significant relationship, nothing changed, so. And Kelly, I just mentioned that I think it's better to look at average balances. They're more indicative. Our customers move a lot of money. There's patterns, day of the week, and things like that that, depending on how a quarter end happens to land, you're not really getting probably the true picture. Got it. That's helpful. Maybe switching to the buyback, you were really active this quarter, and then obviously, you had announced Heritage Commerce late in the quarter. Wondering, is it fair to say that you're out of the market at least until the deal closes?
We sort of had the normal non-interest-bearing stuff that went out for taxes or bonuses or whatever the case may be. But no, there was nothing abnormal about it and no loss of relationship that, and I say no loss, meaning any material or significant relationship, nothing changed, so.
Speaker #3: But no, there was nothing abnormal about it and no loss of relationship that and I say no loss, meaning any material or significant relationship, nothing changed, so.
Speaker #3: But no, there was nothing abnormal about it and no loss of relationship that and I say no loss, meaning any material or significant relationship, nothing changed, so.
And Kelly, I just mentioned that I think it's better to look at average balances. They're more indicative. Our customers move a lot of money. There's patterns, day of the week, and things like that that, depending on how a quarter end happens to land, you're not really getting probably the true picture.
Speaker #4: And Kelly, I just mentioned that I think it's better to look at average balances that are more indicative—our customers move a lot of money.
Speaker #4: There's patterns day of the week and things like that that, depending on how a quarter end happens to land, you're not really getting probably the true picture.
Speaker #9: Got it. That's helpful. Maybe switching to the buyback—you were really active this quarter. And then, obviously, you had announced Heritage Commerce late in the quarter.
Kelly Motta: Got it. That's helpful. Maybe switching to the buyback, you were really active this quarter, and then obviously, you had announced Heritage Commerce late in the quarter. Wondering, is it fair to say that you're out of the market at least until the deal closes? Just wondering how that's worked out.
Speaker #9: Wondering, is it fair to say that you're out of the market, at least until the deal closes? Just wondering.
Operator: Just wondering how that's worked out. Yeah. I mean, obviously, we'll be issuing an S-4 prospectus. So we've been out of the market since the beginning of December. And the board will reevaluate that once we close the merger. Great. Thank you so much. I'll step back. Thank you. As a reminder, if you would like to ask a question, please press star 11. And our next question will come from the line of Tim Coffey with Jani Montgomery Scott. Your line is open. Thank you. Good morning, gentlemen. Good morning. Question on the loan modifications. Is there anything special causing the balances in that bucket to rebound? Go ahead, Alan. Alan had a smile on his face. We need credit people. I wouldn't say there's anything abnormal about it, Tim. Okay. What causes somebody to fall into that bucket? I'm sorry. Sorry. You're talking about the loan modifications? Yeah.
Speaker #4: Yeah, obviously, we'll be issuing an S-4 perspective. So we've been out of the market since the beginning of December, and the board reevaluates that once we close the—
Dave Brager: Yeah. I mean, obviously, we'll be issuing an S-4 prospectus. So we've been out of the market since the beginning of December. And the board will reevaluate that once we close the merger.
Speaker #4: merger. Great.
Kelly Motta: Great. Thank you so much. I'll step back.
Speaker #9: Thank you so much. I'll step
Speaker #9: back. Thank you.
Operator: Thank you. As a reminder, if you would like to ask a question, please press star 11. And our next question will come from the line of Tim Coffey with Jani Montgomery Scott. Your line is open.
Speaker #1: As a reminder, if you would like to ask a question, please press star 11. And our next question will come from the line of Tim Coffey with Jannie Montgomery Scott.
Speaker #1: Your line is
Speaker #1: open. Thank you.
Tim Coffey: Thank you. Good morning, gentlemen.
Speaker #8: Good morning,
Speaker #8: Gentlemen, good morning. Good. Question on the loan modifications— is there anything special causing the balances in that bucket to rebound?
Dave Brager: Good morning.
Tim Coffey: Question on the loan modifications. Is there anything special causing the balances in that bucket to rebound? Go ahead, Alan. Alan had a smile on his face. We need credit people. I wouldn't say there's anything abnormal about it, Tim. Okay. What causes somebody to fall into that bucket?
Speaker #4: Go ahead, Alan.
Speaker #3: Alan had a smile on his face.
Speaker #4: We need credit people. I wouldn't say there's anything abnormal about it, Tim.
Speaker #8: Okay. What causes somebody to fall into that
Speaker #8: bucket?
Dave Brager: I'm sorry. Sorry. You're talking about the loan modifications?
Speaker #3: You're I'm sorry. talking about the loan
Speaker #3: modifications? Yeah. Yeah. Well, it depends. I mean, when we there's a lot of different reasons they can fall into that. If they come to us and ask for help and they need to do something to make the payment, that's one way that they would get in there.
Tim Coffey: Yeah.
Operator: Yeah. Well, it depends. I mean, there's a lot of different reasons they can fall into that. If they come to us and ask for help and they need to do something to make the payment, that's one way that they would get in there. Another way would be just through our normal evaluation when we're doing our annual term loan reviews. If we see something that's not accurate or that isn't meeting our minimum debt service coverage or some other covenant, that could cause it to go in there. That number in and of itself is still not a material number relative to the total loan portfolio. But there's a few different reasons that it could fall into that category. Okay. And then post the close of the deal with Heritage Bank of Commerce, we look out back half of this year and the next year.
Dave Brager: Yeah. Well, it depends. I mean, there's a lot of different reasons they can fall into that. If they come to us and ask for help and they need to do something to make the payment, that's one way that they would get in there. Another way would be just through our normal evaluation when we're doing our annual term loan reviews.
Speaker #3: Another way would be just through our normal evaluation when we're doing our annual term loan reviews. If we see something that's not accurate or that isn't meeting our minimum debt service coverage or some other covenant, that could cause us to go in there.
If we see something that's not accurate or that isn't meeting our minimum debt service coverage or some other covenant, that could cause it to go in there. That number in and of itself is still not a material number relative to the total loan portfolio. But there's a few different reasons that it could fall into that category.
Speaker #3: That number, in and of itself, is still not a material number relative to the total loan portfolio. But there are a few different reasons that it could fall into that category.
Speaker #8: Okay. And then post the closing of the deal with Heritage Commerce Bank, we look out to the back half of this year and the next year.
Tim Coffey: Okay. And then post the close of the deal with Heritage Bank of Commerce, we look out back half of this year and the next year. Do you anticipate the addition of Heritage Commerce to materially change your outlook for loan growth?
Speaker #8: Dave, do you anticipate the addition of Heritage Commerce to materially change your outlook for loan growth?
Operator: Do you anticipate the addition of Heritage Commerce to materially change your outlook for loan growth? Yeah. Well, look, I think it just depends on a couple of different factors. We are, as you know, sort of slow and steady wins the race. Heritage has been growing a little faster than we have. I'm sure there'll be some combination of that. We're going into new markets. We're going to be able to help their clients grow, even they'll be able to do more for their clients than they can do for them today. So I think there's some definite tailwinds with respect to that. But we got to make sure we get to close, we get it integrated, we go through the culture things to make sure they understand how we do things.
Dave Brager: Yeah. Well, look, I think it just depends on a couple of different factors. We are, as you know, sort of slow and steady wins the race. Heritage has been growing a little faster than we have. I'm sure there'll be some combination of that.
Speaker #3: Yeah. Well, look, I think it just depends on a couple of different factors. We are as you know, sort of slow and steady wins the race.
Speaker #3: Heritage has been growing a little faster than we have. I'm sure there'll be some combination of that. We're going into new markets. We're going to be able to help their clients grow even they'll be able to do more for their clients than they can do for them today.
We're going into new markets. We're going to be able to help their clients grow, even they'll be able to do more for their clients than they can do for them today. So I think there's some definite tailwinds with respect to that. But we got to make sure we get to close, we get it integrated, we go through the culture things to make sure they understand how we do things.
Speaker #3: So I think there's some definite tailwinds with respect to that. But we've got to make sure we get to close, we get it integrated.
Speaker #3: We go through the culture things to make sure they understand how we do things. So I think for the most part, there could be some benefit to that for our overall loan growth.
Operator: So I think for the most part, there could be some benefit to that for our overall loan growth. But we're going to maintain the same credit quality that we've maintained and the same credit quality that they've maintained. So we'll have to evaluate that as we combine everything and see where we are. But I do think there's a lot of opportunity in those markets for what we have to offer, not just from the loan perspective, but also from just the overall product array that we have relative to the product array they have. Sure. Yeah. And a bigger balance sheet will help them out a lot. Exactly. Yeah. And then just final note check from me, Alan. What was the core loan yield in the quarter? I would point you to the slide we added on page 43.
So I think for the most part, there could be some benefit to that for our overall loan growth. But we're going to maintain the same credit quality that we've maintained and the same credit quality that they've maintained. So we'll have to evaluate that as we combine everything and see where we are.
Speaker #3: But we're going to maintain the same credit quality that we've maintained, and the same credit quality that they've maintained. So we'll have to evaluate that as we combine everything and see where we are.
Speaker #3: But I do think there's a lot of opportunity in those markets for what we have to offer, not just from the loan perspective, but also from just the overall product array that we have relative to the product array they have.
But I do think there's a lot of opportunity in those markets for what we have to offer, not just from the loan perspective, but also from just the overall product array that we have relative to the product array they have.
Tim Coffey: Sure. Yeah. And a bigger balance sheet will help them out a lot.
Speaker #8: Sure. Yeah. And a bigger balance sheet will help them out a lot. Yeah.
Dave Brager: Exactly. Yeah. And then just final note check from me, Alan. What was the core loan yield in the quarter? I would point you to the slide we added on page 43.
Speaker #8: And Exactly. then just note check, final note check for me, Alan. What was the core loan yield in the quarter?
Speaker #4: I would point you to the slide we added on page 43. And that is what I would call a basic coupon—no loan fees, nothing else.
Operator: That is what I would call a basic coupon, no loan fees, nothing else. You can see where it ended the year. Then you can obviously see the relative repricing for the different buckets. And Tim, that number was 5.12. Okay. Yep. All right. That was my question. Thank you, gentlemen. You're welcome. Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Brager for any closing remarks. Great. Thank you. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by our 195 consecutive quarters or more than 48 years of profitability and 145 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the best small to medium-sized businesses and their owners through all economic cycles.
Dave Brager: That is what I would call a basic coupon, no loan fees, nothing else. You can see where it ended the year. Then you can obviously see the relative repricing for the different buckets. And Tim, that number was 5.12.
Speaker #4: And you can see where it ended the year. And then you can obviously see the relative
Speaker #4: Repricing for the different buckets. And
Speaker #3: Tim, that number was 5.12.
Speaker #8: Okay. Yep. All right. That was my question. Thank you,
Tim Coffey: Okay. Yep. All right. That was my question. Thank you, gentlemen.
Speaker #8: gentlemen. You're
Dave Brager: You're welcome.
Speaker #3: welcome. Thank you.
Operator: Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Brager for any closing remarks.
Speaker #1: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Brager for any closing remarks.
Dave Brager: Great. Thank you. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by our 195 consecutive quarters or more than 48 years of profitability and 145 consecutive quarters of paying cash dividends. We remain focused on our mission of banking the best small to medium-sized businesses and their owners through all economic cycles.
Speaker #3: Great, thank you. Citizens Business Bank continues to perform consistently in all operating environments. Our solid financial performance is highlighted by our 195 consecutive quarters, or more than 48 years, of profitability and 145 consecutive quarters of paying cash dividends.
Speaker #3: We remain focused on our mission of banking the best small to medium-sized businesses and their owners through all economic cycles. I'd like to thank our customers and associates for their commitment and loyalty and we look forward to a successful 2026 and the pending merger with Heritage Bank Commerce.
Operator: I'd like to thank our customers and associates for their commitment and loyalty. We look forward to a successful 2026 and the pending merger with Heritage Bank of Commerce. Thank you for joining us this quarter. We appreciate your interest and look forward to speaking to you in April for our first quarter 2026 earnings call. You can always let Alan and I know if you have any questions. Have a great day. Thank you. This concludes today's program. Thank you all for participating. You may now disconnect.
I'd like to thank our customers and associates for their commitment and loyalty. We look forward to a successful 2026 and the pending merger with Heritage Bank of Commerce. Thank you for joining us this quarter. We appreciate your interest and look forward to speaking to you in April for our first quarter 2026 earnings call. You can always let Alan and I know if you have any questions. Have a great day.
Speaker #3: Thank you for joining us this quarter. We appreciate your interest, and look forward to speaking to you in April for our first quarter 2026 earnings call.
Speaker #3: You can always let Alan and me know if you have any questions. Have a great day. Thank you.
Operator: Thank you. This concludes today's program. Thank you all for participating. You may now disconnect.
