HERITAGE COMMERCE CORP — Call Transcript 2025

Good afternoon, ladies and gentlemen. Welcome to today's conference call to discuss the all-stock merger transaction between CVB Financial Corporation and Heritage Commerce Corporation. My name is Ashia, and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer period. Please note this call is being recorded. I would now like to turn the presentation over to your host for today's call, Allen Nicholson, Executive Vice President and Chief Financial Officer of CVB Financial Corporation. You may proceed. Thank you, Ashia. Good afternoon, everyone. Thank you for joining us today to discuss the announcement of a definitive merger agreement between CVB Financial Corporation and Heritage Commerce Corporation. A press release and an investor slide presentation are available on the investor relations section of each company's website at cbbank.com and heritagecommercecorp.com. Joining me this afternoon is Dave Brager, President and Chief Executive Officer of CVB Financial Corporation, and Clay Jones, Chief Executive Officer and President of Heritage Commerce Corp. Our comments today will refer to the investor slide presentation for today's announced merger. 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 slide two and three of the company's investor presentation. I will now turn the call over to Dave Brager. Thank you, Allen. Good afternoon, everyone. Today's announcement of the merger between CVB Financial Corporation and Heritage Commerce Corp. marks the most strategic acquisition in our company's history and the largest by asset size. It brings together two premier relationship-focused banks and provides Citizens with a tremendous opportunity to expand into the Bay Area, which has long been an important strategic objective for us. The combined company will have comprehensive geographic coverage of all the major business banking markets in California. We are excited to welcome Clay and key members of his banking team to Citizens Business Bank. On page four of our investor presentation, you'll see that the combined organization is positioned to have the scale and earnings potential to generate industry-leading performance metrics, including a projected 2027 return on average assets of 1.5% and a projected 2027 return on average tangible common equity of approximately 17%. We believe this is a compelling financial transaction for both companies' shareholders. We expect the transaction to initially generate 13.2% earnings per share accretion in 2027 and an internal rate of return above 20%. Excluding rate marks, the transaction is expected to be accretive to tangible book value. When including rate marks, we anticipate a 7.7% dilution with a projected earn-back of two and a half years. I would now like to turn the call over to Clay Jones. Thanks, Dave. Heritage and Citizens share a similar culture and focus on small and medium business customers with a history of pristine credit quality and low-cost deposits. I am incredibly proud of the Heritage team and what we've achieved together. This merger is a testament to the hard work of our employees and our reputation with our customers. Citizens Business Bank is one of the top-performing business banks in the country, and this combination rewards our shareholders, creates opportunities for our employees, and expands the products and services available to our customers. I'd now like to return it to Allen. Thanks, Clay. Turning to page seven of our investor presentation, this merger is projected to exceed a number of the key financial thresholds that we've previously communicated. A projected internal rate of return of 20%, which would exceed our 15% minimum threshold. Projected earnings per share accretion of 13.2%, which would meet our double-digit EPS accretion threshold. And a projected tangible book dilution earn-back of 2.5 years, which would be below our threshold three-year earn-back. This is a 100% stock deal with a fixed exchange ratio of 0.65 CVBF shares for each Heritage share. The transaction represents a total deal value of approximately $811 million based on yesterday's closing stock prices for CVBF and HTBK, and would represent pro forma ownership in the combined organization of approximately 77% CVBF and 23% Heritage. The pricing multiples at these levels would represent 12.6x 2027 earnings per share and 1.51x Heritage tangible book value. Key transaction assumptions are set forth on page eight of the investor presentation. Our earnings forecast is based on a consensus analysts' estimates for both companies. Based on our track record and prior acquisitions, we expect to achieve approximately 35% cost saves. And while we have not modeled any revenue synergies into the financial metrics that I've mentioned, we see opportunities to deepen relationships with Heritage's customers through our broader suite of services and larger balance sheet. On page nine of the investor presentation, we highlight why we believe this is a compelling opportunity to deploy CVBF's capital. Importantly, the pro forma company would be estimated to have 14.6% CET1 at close and ongoing strong capital generation, which should enable us to provide meaningful capacity to continue returning capital to shareholders through both dividends and share repurchases. I'd now like to turn the call back to Dave for some closing remarks. Dave? Thank you, Allen. Over the last 18 months, we've evaluated several acquisition opportunities and remained focused and disciplined in our approach. Heritage is a like-minded banking partner with a similar business model, and this combination uniquely aligns with both of our strategic and financial goals. Our extensive past experience with due diligence and merger integration has enabled us to outperform our core financial projections in past mergers. We believe this is a highly strategic and financially compelling transaction for both groups of our shareholders. On behalf of all of us at Citizens Business Bank, I want to welcome Heritage's talented employees and loyal customers. We look forward to working together to obtain a timely closing and smooth integration. This concludes today's presentation. We are happy to take your questions. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up a handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from Matthew Clark with Piper Sandler. Please go ahead. Hey, good afternoon, Dave, Allen, and Clay. Hi, Matthew. Hi, Matthew. Hey. First one for me, just wanted to get some color on how this came together. I'm sure Heritage was on your priority list for a number of years, and whether or not this was negotiated or whether or not there were some other bidders involved. I'll start, and then Clay can jump in. And look, Clay and I have known each other for a little while. We've had conversations. We've talked about the similarities of our banks and just our business models, the types of clients we go after, the markets that we serve. And I think for us, it was just an idea that, "Hey, look, let's create something bigger than each of us individually. Let's create an opportunity to be able to compete with the larger banks." It was not a process. It was a negotiated deal between us. And Clay and his team did a great job in helping us get to the conclusions. And obviously, we're really looking forward to the future together with his team and our team as one. I don't know, Clay, if you want to add anything, you can go for it. Yeah. No, Matthew, the only thing I would add is we've made great strides to build our kind of leading commercial community bank here in our area, but combining the two expands the breadth and depth to which we can serve our clients. It's obviously, as Dave mentioned, a strategically important combination and financially very compelling transaction for our shareholders. So we see a lot of synergies and a lot of value created here. Okay. Thank you. And then the other one on your pro forma CET1 of 14.6%, still very healthy and likely to quickly grow beyond that after the merger. I guess, how does this change your M&A appetite once you integrate this one from a size and geographic perspective? Yeah. So I think first and foremost, we want to make sure we do the integration correct. We're going to make sure that we're doing everything we can to make this as seamless as possible. There's always going to be issues that arise, but Clay and the existing Heritage folks and our folks are going to work closely together to make sure that we do a good job of combining the two organizations. Once we get through that, I think then we'll probably have a little bit better idea. But you're correct. It will generate a lot of capital. We like running with a little more capital, but at the end of the day, we'll just have to evaluate the opportunities as they present themselves. And Clay and I and Allen and the rest of our team will make those determinations. But what we're really focused on is just putting the two banks together and making an even better bank together. I don't know, Allen or Clay, if you want to add anything. Nope. Well said. Yeah. I mean, Matthew, we'll obviously reevaluate sort of our criteria based on what we've said in the past, and it's possible that the lower end of our range may certainly move up as a $22 billion institution. Yep. Understood. Thanks again, and congrats. Thank you. Thanks, Matthew. The next question comes from David Feaster with Raymond James. Please go ahead. Hey. Congrats on the deal, everybody. Thank you, David. Thanks, David. So look, I know you guys both pretty well. I mean, this is obviously a really good fit in a lot of ways. I can see the cultural similarities, but look, I'm just kind of curious for Clay and Dave, as you both have gotten to know each other, the cultures and kind of seen behind the curtains, if you will. Could you maybe just compare and contrast the businesses to some degree, the similarities that you see from a cultural standpoint, and maybe, Clay, where you see opportunities to CBB across your platform, and Dave, maybe things that you saw that Heritage does well that you'd like to implement across your platform? Go ahead, Clay. You can start. Yeah. No question about it, David. We've got a tremendous amount of similarities in terms of cultures, our client-first stance, growing with our clients, excellence in people. There's just a lot of similarities in how we run our business banks. I think there's just not too many differences there. The opportunities that we at Heritage see in this combination is, one, just size and scale to be able to bring more to our clients, those in trust and wealth and mortgage. I mean, there's just a number of things that Citizens brings to the table to expand our product offering for our clients here. And so while those aren't built into the models, there are inherent synergies that we've been looking in our long-term strategic plan to build out here at Heritage, and this just accelerates that strategic planning footprint and timeline. Yeah. I would just add we look at it the same way. I mean, for the things that we offer, a little bit wider product array, there's opportunities for us to help Clay's clients achieve whatever goals and objectives they have in their businesses. And I think for us, it's sort of been what we've done in every single acquisition we've done in our history is just have the opportunity to sell deeper into that relationship. Obviously, the capacity to grow with our clients is important. Having access to Northern California, the Bay Area, is very important for us. I mean, we've done that in very small steps over the last acquisition we did. So again, just like Clay, I think it just accelerates our opportunity to be more meaningful in all of the markets we serve. So I'm really excited about it. I'm excited that Clay's joining the team as the president. We have a good personal relationship. We have a good business relationship. We've shared things over the years and talked things through. So it's just going to be great to be on the same team. That's terrific, and following up kind of on Matt's question, just talking about capital, in the presentation, you talked about optimization of the balance sheet. There's some opportunities to sell Heritage's purchase mortgages. Obviously, there's other opportunities. I'm curious, how do you think about other balance sheet optimization strategies, whether it be on the security side, other asset? Just kind of curious what you guys are contemplating there? Go ahead, Allen. Take that one. Well, David, I would say at this point, the only thing we've really communicated, and we'll continue to evaluate everything, but we do anticipate it's likely we will sell the single-family mortgage loans at Heritage. They're not associated with any of their customers. So it'll be an opportunity to reinvest those, probably in securities. But there's a lot of things we'll evaluate as we go through the integration, but nothing else is contemplated in set in stone at this point. Okay. And then maybe just last one for me. You guys touched on this. This is the largest deal that you've done. Obviously, both of y'all are proven acquirer. It's great. Clay sticking around, I mean, is a huge help. But how do you think about the integration and the conversion here? Are there any guardrails or safety nets or different policies and procedures that you're putting in place to protect the bank in this deal and minimize execution risk in any type of attrition or anything? Yeah. So David, as you know, I mean, we've done 18, 19 transactions in our history, so we've done quite a number of them. I mean, we have a very thorough and disciplined playbook for these types of things. We'll be working closely with Clay and his team to ensure that we're able to execute on all of that. But we've proven that we've been able to do it. It is the largest in asset size deal that we've done. So obviously, there's some nuance in that, but that doesn't concern me just based on the conversations we've already had through the due diligence and the process because everybody wants the same thing. And so as long as we're working together to make it happen, we believe that we'll be able to keep the vast, vast majority of both parts of the bank that we want to keep. And I just think from my perspective, we'll work hard to ensure that happens. And I don't know, Clay, if you have anything to add, but I think from his perspective, he's kind of looking at it the same way. Yeah. No, the only thing I would add, and Dave, you said it. I mean, we both have veteran teams on both sides here in the companies that have pretty extensive experience on integration and combination. And obviously, our client-centric and service delivery model is the guiding post to make sure that goes well. So I think both companies have the people and execution teams to get this done correctly. That's great. Congrats to everybody on the deal. Excited to see what's in store for y'all. Thanks, David. Thanks, Dave. Yep. The next question comes from Andrew Terrell with Stephens. Please go ahead. Hey, good afternoon. Hey, Andrew. Hey. I wanted to start just, Dave. We recently had a conversation just about kind of the lift-out strategy or LPO strategy in the absence of M&A. Just curious, now that you've got a deal announced, how should we expect you to approach new LPO activity moving forward? Does that slow down from here? Yeah. Well, I think the LPO strategy, I mean, obviously, if we have the opportunity to get good people, we're going to evaluate that just as we did with our Temecula Murrieta team. So we want to make sure we do both things right. And if the right opportunity presents itself with a team that's interested in coming to the premier business bank in California, we're obviously going to take a look at that and make a determination if it's something that makes sense for us. But again, I'll just kind of go back to my earlier answer. We want to make sure the combination of Citizens and Heritage goes well first. We're very focused on that, both sides becoming one and doing it the right way. But I do think that if the right team came along, we would look at it. Clay's going to be running as president. He's going to be running everything that touches customer. So he and I and other members of the sales leadership team, some from his current team, some from my current team, we'll make those determinations if it makes sense. Great. I appreciate it. And just wanted to make sure I heard right. I think you mentioned in the prepared remarks, it sounds like buybacks continue post the close of the acquisition. Was that correct? Yeah. We have the capacity to continue doing that. Obviously, we'll look at it once we get through this, but we do have the capacity based on our capital position. Yep. Okay. And I think it's probably pretty minimal, but I didn't see anything called out around Durbin impact in the presentation. Is that anything notable we should be aware of? It's really not notable. They're not a retail bank. They're a business bank like we are, so it's nothing of significance. Okay. Great. Well, congrats on the deal, and Dave, enjoy your dinner at Javier's. Thank you. Thanks, Andrew. The next question comes from Kelly Motta with KBW. Please go ahead. Hey, congrats on the deal announcement. Very exciting. Dave, you have been a very conservative lender, stick to your knitting, and kind of one thing you've talked about is in finding a partner is someone who has kind of the same approach to lending. You guys clearly did a fairly significant overview of the Heritage Commerce's loan book. Can you discuss kind of your thoughts on kind of the growth profile of the bank and any you noted in the deck, the potential mortgage sale or anything else that we should be thinking about in terms of potential paring down of the balance sheet here? Yeah. So we did. We did a very thorough due diligence on the credit side. And what I would say is what we found is our credit folks that were doing the due diligence felt very strongly that Clay and his team had built a very solid bank. Obviously, we've had pristine credit quality pretty much for the history of the bank. Clay's bank is very similar in their approach to that. There are some minor differences, and we'll be able to work through those things. And between the two teams, I mean, we're going to be keeping a lot, I mean, pretty much all of their sales folks, and we're going to be keeping a lot of the credit folks, if not all, or most of the credit folks as well. So I think we're going to meld that credit culture very well. There wasn't anything we found that really stood out to us as something they did that we wouldn't do. They do have a factoring business, and we're going to always look at that. But Clay and his team have done an outstanding job in that business. So we'll evaluate it. But other than that, I would say it's pretty much very similar. Clay, I don't know if you have any comments on any of that, but you're welcome to add on. Yeah. I think the Citizens and Heritage team start with excellence in client selection, and it starts from the very beginning, and then you overlay that with strict credit disciplines and attention to detail. But as Dave said, the credit cultures of both banks are very strong. And I would echo the sentiments. Citizens has been an inviolable player in the California market, and the credit is outstanding. We pride ourselves on our own credit, and we greatly appreciate like-minded credit folks. Got it. That's a really helpful overview. One minor housekeeping item for me. I'm looking at slide 15, which is helpful. I just wanted to confirm it looks like this is the case, but that 7.7% tangible book value dilution includes all kind of one-time costs baked in since we've seen some deals announce that exclude some items. I just want to make sure that's a fully baked number. Is that the correct read? It's fully baked. Thank you. Appreciate it. Congrats again. Looks very exciting. I'll step back. Thank you, Kelly. Thanks, Kelly. The next question comes from Tim Coffey with Janney. Please go ahead. Good afternoon, gentlemen. How are you doing, Tim? Doing well. Doing well. Thank you. So Dave, look, you know commercial real estate pretty well. Clay knows it pretty well. I'm wondering, Dave, what your take is on the San Francisco Bay Area commercial real estate market and how comfortable you are with that sector right now. Clay, do you want to start, and then I'll just add on? Yeah. No, I think, Tim, as we've said, the credit discipline that Heritage has put on the overlay of our CRE in the Bay Area market here has been strong, and the performance has weathered some real storms. The client stability is extremely strong here at the bank. I think what Dave and I have spent some time on is just the resurgence in the marketplace and where that marketplace has rebounded from post-pandemic in terms of just vacancy absorption, reputational improvement here in the Bay Area, resurgence of funding flows in the venture community. And so I just think all those things have provided a lot of comfort. Starts with a foundation of strong credit and good client selection, as I mentioned, but I think the Bay Area economy here has improved greatly since the coming out of the pandemic. Dave? Yeah. The only thing I would add to what he said, Tim, is that, look, and just like Heritage, we evaluate individual deals, and we're going to look at the strength of the cash flow, the strength of the guarantor, the stability and quality of those cash flows. And so I don't think any of that's going to change. I just recall back a story during the pandemic when we did the largest office loan in the history of our bank. And I called it out on our calls just saying, "Look, I'd make that loan again today." And so I think we're not a cookie-cutter lender. We're evaluating the strength of the deal, and we make determination. And through our due diligence, that's what we saw with Heritage. I know through Heritage's reverse due diligence, that's what they saw in us. And so I think it's going to be a good opportunity for us to take a look at it where it makes sense. Okay. Speaking with you, Dave, if I could, you know how to operate in big markets, right? LA is a perfect example. The Bay Area is a bit smaller than LA, but still a big market. Do you feel that you have enough scale in the market and will have enough scale in the San Francisco Bay Area market to be competitive? Yeah. I mean, I think we're competitive in every market, from the most rural market to the largest metropolitan area. And as you know, Tim, we're not trying to be everything to everybody. We have a very disciplined approach to the type of client we're looking for. This will allow us to potentially make larger loans to evaluate opportunities that we might not have had a chance to evaluate. So I'm very bullish on the fact that I think we can take advantage of that. And I actually spent a little bit of my life up in the Bay Area, so I don't know it nearly as well as Clay, but I believe it's going to create a great opportunity for us in those markets where it makes sense with the right customers to really make an impact. And we compete, as you know, with the big boys all the time. That's where we do our best work because we, as Clay said, have a customer service approach. We want to take care of that client. We really focus on that. That customer focus is one of our core values. And so I just think it's something for us that with the bigger capacity for Clay, his people will have a better opportunity to compete against some of those larger banks in the combined organization. Yeah. And that actually kind of feeds into my next question for Clay. So I'll clear out for you that there's been a lot of movement from clients, bank clients in the Bay Area because of what happened in the spring of 2023. Heritage Commerce has definitely benefited from some of that client movement. Do you feel that having a bigger balance sheet now could accelerate some of that tailwind for you? Yeah. I think to your point, I think we've capitalized well in terms of kind of the disruption that we've seen here in the Bay Area, and we've been a beneficiary of that. And it's principally because of how we handle clients and the service delivery there. I think, as Dave said, no question about it, size and scale matters, and having a bigger balance sheet, as well as the additional product sets and service delivery that we're bringing together with Citizens, those are all very good upside for our existing footprint and our go-to-market strategy here. Okay. Those are my questions. Thank you very much. Thank you, Tim. The next question comes from Gary Tenner with D.A. Davidson. Please go ahead. Thanks. Good afternoon. Hey, Gary. Hey. So my first question probably treads a little bit on what Tim just asked. If you look back over several years, Dave, CVBF has always been a pretty modest grower in terms of net loans, kind of low single digit, and maybe a bit better than that in a good year. Heritage has been a little better than that over time. So as you think of the combined organization, would you envision kind of the Heritage franchise mirroring more of the way CVBF grows, or do you look at it as a net benefit to growth at CVBF? Yeah. Well, I think both of the banks' commitment to quality credit is going to influence that a lot. And so as we evaluate these opportunities, in Clay's markets and my markets, there's a lot of competition, and we're only really looking for the best. In our parlance, we say the top 25% of clients in their respective industries and building long-term relationships. And I envision, as we meld the two organizations, we're going to try to do the best of both. We're going to work hard at that. It's really hard for me to say just off the top of my head that it's going to be more closer to Clay's growth rate or more closer to my growth rate. We just want to make good deals to the right people. And when those deals present themselves, whether it's in Southern California or Northern California, we're going to evaluate it and if it makes sense. I think to your other part of that question, obviously, the increased balance sheet size and capacity should be a net benefit for both of us because we will have a larger balance sheet down here. They will have a larger balance sheet up there. So I think there are definitely tailwinds with respect to that for both of us. We're a very disciplined grower, and we're going to be that in the long run as a combined organization as well. But we want to make sure that we're doing the right thing from a credit perspective, from a customer perspective, and we'll see how it all melds together. But I think that as we look at this, it's going to be a disciplined process and disciplined growth going forward. And Clay and I and the rest of our management team will evaluate that as we go along. We need to obviously get to the close date, and then we can start getting a little better handle on what we think the exact opportunities are. But just generally, I'm, again, very optimistic about the opportunities for both of us. Okay. Great, and then just one question as it relates to the potential sale of the purchased mortgages. As you look at, and I don't know if this is a question you can answer on this call, but as it relates to the rate mark specific to those credits, could you give a sense at all proportionally of where that is? Because obviously, if you were to sell some, that would accelerate some of that long-term accretion. So Gary, we've assumed in our projections that the single-family are sold at close. They're fairly low-coupon assets in the mid-threes to low-threes. And we looked at them from a fair value on a couple of different ways. And we think conservatively, and that's how we built it into the model. But basically, $0.83 on the dollar is how we value them at current value. Great. Thank you. This concludes the question and answer session. I would like to turn the conference back over to Dave Brager. For any closing remarks, please go ahead. Great. Thank you. Thank you for joining us this afternoon. We appreciate your interest. Look forward to speaking with you again in January for CVBF's fourth quarter 2025 earnings call. Please let Allen, Clay, or myself know if you have any questions. Have a great day, and thanks for showing up on quick notice. We really appreciate it. Have a great day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker 6: Good afternoon, ladies and gentlemen. Welcome to today's conference call to discuss the all-stock merger transaction between CVB Financial Corporation and Heritage Commerce Corporation. My name is Ashia, and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer period. Please note this call is being recorded. I would now like to turn the presentation over to your host for today's call, Allen Nicholson, Executive Vice President and Chief Financial Officer of CVB Financial Corporation. You may proceed. Good afternoon, ladies and gentlemen. good afternoon ladies and gentlemen Welcome to today's conference call to discuss the all-stock merger transaction between CVB Financial Corporation and Heritage Commerce Corporation. welcome to today's conference call to discuss the all-stock merger transaction between cvb financial corporation and heritage commerce corporation My name is Ashia, and I'll be your operator for today. my name is ashia and i'll be your operator for today At this time, all participants are in listen-only mode. at this time all participants are in 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. please note this call is being recorded I would now like to turn the presentation over to your host for today's call, Allen Nicholson, Executive Vice President and Chief Financial Officer of CVB Financial Corporation. i would now like to turn the presentation over to your host for today's call allen nicholson executive vice president and chief financial officer of cvb financial corporation You may proceed. you may proceed

Speaker 3: Thank you, Ashia. Good afternoon, everyone. Thank you for joining us today to discuss the announcement of a definitive merger agreement between CVB Financial Corporation and Heritage Commerce Corporation. A press release and an investor slide presentation are available on the investor relations section of each company's website at cbbank.com and heritagecommercecorp.com. Joining me this afternoon is Dave Brager, President and Chief Executive Officer of CVB Financial Corporation, and Clay Jones, Chief Executive Officer and President of Heritage Commerce Corp. Our comments today will refer to the investor slide presentation for today's announced merger. The speakers on this call claim the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Thank you, Ashia. thank you ashia Good afternoon, everyone. good afternoon everyone Thank you for joining us today to discuss the announcement of a definitive merger agreement between CVB Financial Corporation and Heritage Commerce Corporation. thank you for joining us today to discuss the announcement of a definitive merger agreement between cvb financial corporation and heritage commerce corporation A press release and an investor slide presentation are available on the investor relations section of each company's website at cbbank.com and heritagecommercecorp.com. a press release and an investor slide presentation are available on the investor relations section of each company's website at cbbank.com and heritagecommercecorp.com Joining me this afternoon is Dave Brager, President and Chief Executive Officer of CVB Financial Corporation, and Clay Jones, Chief Executive Officer and President of Heritage Commerce Corp. joining me this afternoon is dave brager president and chief executive officer of cvb financial corporation and clay jones chief executive officer and president of heritage commerce corp Our comments today will refer to the investor slide presentation for today's announced merger. our comments today will refer to the investor slide presentation for today's announced merger The speakers on this call claim the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. 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 slide two and three of the company's investor presentation. I will now turn the call over to Dave Brager. 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 slide two and three of the company's investor presentation. 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 slide two and three of the company's investor presentation I will now turn the call over to Dave Brager. i will now turn the call over to dave brager

Speaker 2: Thank you, Allen. Good afternoon, everyone. Today's announcement of the merger between CVB Financial Corporation and Heritage Commerce Corp. marks the most strategic acquisition in our company's history and the largest by asset size. It brings together two premier relationship-focused banks and provides Citizens with a tremendous opportunity to expand into the Bay Area, which has long been an important strategic objective for us. The combined company will have comprehensive geographic coverage of all the major business banking markets in California. We are excited to welcome Clay and key members of his banking team to Citizens Business Bank. On page four of our investor presentation, you'll see that the combined organization is positioned to have the scale and earnings potential to generate industry-leading performance metrics, including a projected 2027 return on average assets of 1.5% and a projected 2027 return on average tangible common equity of approximately 17%. Thank you, Allen. thank you allen Good afternoon, everyone. good afternoon everyone Today's announcement of the merger between CVB Financial Corporation and Heritage Commerce Corp. marks the most strategic acquisition in our company's history and the largest by asset size. today's announcement of the merger between cvb financial corporation and heritage commerce corp marks the most strategic acquisition in our company's history and the largest by asset size It brings together two premier relationship-focused banks and provides Citizens with a tremendous opportunity to expand into the Bay Area, which has long been an important strategic objective for us. it brings together two premier relationship-focused banks and provides citizens with a tremendous opportunity to expand into the bay area which has long been an important strategic objective for us The combined company will have comprehensive geographic coverage of all the major business banking markets in California. the combined company will have comprehensive geographic coverage of all the major business banking markets in california We are excited to welcome Clay and key members of his banking team to Citizens Business Bank. we are excited to welcome clay and key members of his banking team to citizens business bank On page four of our investor presentation, you'll see that the combined organization is positioned to have the scale and earnings potential to generate industry-leading performance metrics, including a projected 2027 return on average assets of 1.5% and a projected 2027 return on average tangible common equity of approximately 17%. on page four of our investor presentation you'll see that the combined organization is positioned to have the scale and earnings potential to generate industry-leading performance metrics including a projected 2027 return on average assets of 1.5% and a projected 2027 return on average tangible common equity of approximately 17% We believe this is a compelling financial transaction for both companies' shareholders. We expect the transaction to initially generate 13.2% earnings per share accretion in 2027 and an internal rate of return above 20%. Excluding rate marks, the transaction is expected to be accretive to tangible book value. When including rate marks, we anticipate a 7.7% dilution with a projected earn-back of two and a half years. I would now like to turn the call over to Clay Jones. We believe this is a compelling financial transaction for both companies' shareholders. we believe this is a compelling financial transaction for both companies' shareholders We expect the transaction to initially generate 13.2% earnings per share accretion in 2027 and an internal rate of return above 20%. we expect the transaction to initially generate 13.2% earnings per share accretion in 2027 and an internal rate of return above 20% Excluding rate marks, the transaction is expected to be accretive to tangible book value. excluding rate marks the transaction is expected to be accretive to tangible book value When including rate marks, we anticipate a 7.7% dilution with a projected earn-back of two and a half years. when including rate marks we anticipate a 7.7% dilution with a projected earn-back of two and a half years I would now like to turn the call over to Clay Jones. i would now like to turn the call over to clay jones

Speaker 1: Thanks, Dave. Heritage and Citizens share a similar culture and focus on small and medium business customers with a history of pristine credit quality and low-cost deposits. I am incredibly proud of the Heritage team and what we've achieved together. This merger is a testament to the hard work of our employees and our reputation with our customers. Citizens Business Bank is one of the top-performing business banks in the country, and this combination rewards our shareholders, creates opportunities for our employees, and expands the products and services available to our customers. I'd now like to return it to Allen. Thanks, Dave. thanks dave Heritage and Citizens share a similar culture and focus on small and medium business customers with a history of pristine credit quality and low-cost deposits. heritage and citizens share a similar culture and focus on small and medium business customers with a history of pristine credit quality and low-cost deposits I am incredibly proud of the Heritage team and what we've achieved together. i am incredibly proud of the heritage team and what we've achieved together This merger is a testament to the hard work of our employees and our reputation with our customers. this merger is a testament to the hard work of our employees and our reputation with our customers Citizens Business Bank is one of the top-performing business banks in the country, and this combination rewards our shareholders, creates opportunities for our employees, and expands the products and services available to our customers. citizens business bank is one of the top-performing business banks in the country and this combination rewards our shareholders creates opportunities for our employees and expands the products and services available to our customers I'd now like to return it to Allen. i'd now like to return it to allen

Speaker 3: Thanks, Clay. Turning to page seven of our investor presentation, this merger is projected to exceed a number of the key financial thresholds that we've previously communicated. A projected internal rate of return of 20%, which would exceed our 15% minimum threshold. Projected earnings per share accretion of 13.2%, which would meet our double-digit EPS accretion threshold. And a projected tangible book dilution earn-back of 2.5 years, which would be below our threshold three-year earn-back. This is a 100% stock deal with a fixed exchange ratio of 0.65 CVBF shares for each Heritage share. The transaction represents a total deal value of approximately $811 million based on yesterday's closing stock prices for CVBF and HTBK, and would represent pro forma ownership in the combined organization of approximately 77% CVBF and 23% Heritage. Thanks, Clay. thanks clay Turning to page seven of our investor presentation, this merger is projected to exceed a number of the key financial thresholds that we've previously communicated. turning to page seven of our investor presentation this merger is projected to exceed a number of the key financial thresholds that we've previously communicated A projected internal rate of return of 20%, which would exceed our 15% minimum threshold. a projected internal rate of return of 20% which would exceed our 15% minimum threshold Projected earnings per share accretion of 13.2%, which would meet our double-digit EPS accretion threshold. projected earnings per share accretion of 13.2% which would meet our double-digit eps accretion threshold And a projected tangible book dilution earn-back of 2.5 years, which would be below our threshold three-year earn-back. and a projected tangible book dilution earn-back of 2.5 years which would be below our threshold three-year earn-back This is a 100% stock deal with a fixed exchange ratio of 0.65 CVBF shares for each Heritage share. this is a 100% stock deal with a fixed exchange ratio of 0.65 cvbf shares for each heritage share The transaction represents a total deal value of approximately $811 million based on yesterday's closing stock prices for CVBF and HTBK, and would represent pro forma ownership in the combined organization of approximately 77% CVBF and 23% Heritage. the transaction represents a total deal value of approximately $811 million based on yesterday's closing stock prices for cvbf and htbk and would represent pro forma ownership in the combined organization of approximately 77% cvbf and 23% heritage The pricing multiples at these levels would represent 12.6x 2027 earnings per share and 1.51x Heritage tangible book value. Key transaction assumptions are set forth on page eight of the investor presentation. Our earnings forecast is based on a consensus analysts' estimates for both companies. Based on our track record and prior acquisitions, we expect to achieve approximately 35% cost saves. And while we have not modeled any revenue synergies into the financial metrics that I've mentioned, we see opportunities to deepen relationships with Heritage's customers through our broader suite of services and larger balance sheet. On page nine of the investor presentation, we highlight why we believe this is a compelling opportunity to deploy CVBF's capital. The pricing multiples at these levels would represent 12.6x 2027 earnings per share and 1.51x Heritage tangible book value. the pricing multiples at these levels would represent 12.6x 2027 earnings per share and 1.51x heritage tangible book value Key transaction assumptions are set forth on page eight of the investor presentation. key transaction assumptions are set forth on page eight of the investor presentation Our earnings forecast is based on a consensus analysts' estimates for both companies. our earnings forecast is based on a consensus analysts' estimates for both companies Based on our track record and prior acquisitions, we expect to achieve approximately 35% cost saves. based on our track record and prior acquisitions we expect to achieve approximately 35% cost saves And while we have not modeled any revenue synergies into the financial metrics that I've mentioned, we see opportunities to deepen relationships with Heritage's customers through our broader suite of services and larger balance sheet. and while we have not modeled any revenue synergies into the financial metrics that i've mentioned we see opportunities to deepen relationships with heritage's customers through our broader suite of services and larger balance sheet On page nine of the investor presentation, we highlight why we believe this is a compelling opportunity to deploy CVBF's capital. on page nine of the investor presentation we highlight why we believe this is a compelling opportunity to deploy cvbf's capital Importantly, the pro forma company would be estimated to have 14.6% CET1 at close and ongoing strong capital generation, which should enable us to provide meaningful capacity to continue returning capital to shareholders through both dividends and share repurchases. I'd now like to turn the call back to Dave for some closing remarks. Dave? Importantly, the pro forma company would be estimated to have 14.6% CET1 at close and ongoing strong capital generation, which should enable us to provide meaningful capacity to continue returning capital to shareholders through both dividends and share repurchases. importantly the pro forma company would be estimated to have 14.6% cet1 at close and ongoing strong capital generation which should enable us to provide meaningful capacity to continue returning capital to shareholders through both dividends and share repurchases I'd now like to turn the call back to Dave for some closing remarks. i'd now like to turn the call back to dave for some closing remarks Dave? dave

Speaker 2: Thank you, Allen. Over the last 18 months, we've evaluated several acquisition opportunities and remained focused and disciplined in our approach. Heritage is a like-minded banking partner with a similar business model, and this combination uniquely aligns with both of our strategic and financial goals. Our extensive past experience with due diligence and merger integration has enabled us to outperform our core financial projections in past mergers. We believe this is a highly strategic and financially compelling transaction for both groups of our shareholders. On behalf of all of us at Citizens Business Bank, I want to welcome Heritage's talented employees and loyal customers. We look forward to working together to obtain a timely closing and smooth integration. This concludes today's presentation. We are happy to take your questions. Thank you, Allen. thank you allen Over the last 18 months, we've evaluated several acquisition opportunities and remained focused and disciplined in our approach. over the last 18 months we've evaluated several acquisition opportunities and remained focused and disciplined in our approach Heritage is a like-minded banking partner with a similar business model, and this combination uniquely aligns with both of our strategic and financial goals. heritage is a like-minded banking partner with a similar business model and this combination uniquely aligns with both of our strategic and financial goals Our extensive past experience with due diligence and merger integration has enabled us to outperform our core financial projections in past mergers. our extensive past experience with due diligence and merger integration has enabled us to outperform our core financial projections in past mergers We believe this is a highly strategic and financially compelling transaction for both groups of our shareholders. we believe this is a highly strategic and financially compelling transaction for both groups of our shareholders On behalf of all of us at Citizens Business Bank, I want to welcome Heritage's talented employees and loyal customers. on behalf of all of us at citizens business bank i want to welcome heritage's talented employees and loyal customers We look forward to working together to obtain a timely closing and smooth integration. we look forward to working together to obtain a timely closing and smooth integration This concludes today's presentation. this concludes today's presentation We are happy to take your questions. we are happy to take your questions

Speaker 6: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up a handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from Matthew Clark with Piper Sandler. Please go ahead. We will now begin the question and answer session. we will now begin the question and answer session To ask a question, you may press star then one on your telephone keypad. to ask a question you may press star then one on your telephone keypad If you're using a speakerphone, please pick up a handset before pressing the keys. if you're using a speakerphone please pick up a handset before pressing the keys If at any time your question has been addressed and you would like to withdraw your question, please press star then two. if at any time your question has been addressed and you would like to withdraw your question please press star then two The first question comes from Matthew Clark with Piper Sandler. the first question comes from matthew clark with piper sandler Please go ahead. please go ahead

Speaker 10: Hey, good afternoon, Dave, Allen, and Clay. Hey, good afternoon, Dave, Allen, and Clay. hey good afternoon dave allen and clay

Speaker 2: Hi, Matthew. Hi, Matthew. hi matthew

Speaker 3: Hi, Matthew. Hi, Matthew. hi matthew

Speaker 10: Hey. First one for me, just wanted to get some color on how this came together. I'm sure Heritage was on your priority list for a number of years, and whether or not this was negotiated or whether or not there were some other bidders involved. Hey. hey First one for me, just wanted to get some color on how this came together. first one for me just wanted to get some color on how this came together I'm sure Heritage was on your priority list for a number of years, and whether or not this was negotiated or whether or not there were some other bidders involved. i'm sure heritage was on your priority list for a number of years and whether or not this was negotiated or whether or not there were some other bidders involved

Speaker 2: I'll start, and then Clay can jump in. And look, Clay and I have known each other for a little while. We've had conversations. We've talked about the similarities of our banks and just our business models, the types of clients we go after, the markets that we serve. And I think for us, it was just an idea that, "Hey, look, let's create something bigger than each of us individually. Let's create an opportunity to be able to compete with the larger banks." It was not a process. It was a negotiated deal between us. And Clay and his team did a great job in helping us get to the conclusions. And obviously, we're really looking forward to the future together with his team and our team as one. I don't know, Clay, if you want to add anything, you can go for it. I'll start, and then Clay can jump in. i'll start and then clay can jump in And look, Clay and I have known each other for a little while. and look clay and i have known each other for a little while We've had conversations. we've had conversations We've talked about the similarities of our banks and just our business models, the types of clients we go after, the markets that we serve. we've talked about the similarities of our banks and just our business models the types of clients we go after the markets that we serve And I think for us, it was just an idea that, "Hey, look, let's create something bigger than each of us individually. and i think for us it was just an idea that "hey look let's create something bigger than each of us individually Let's create an opportunity to be able to compete with the larger banks." It was not a process. let's create an opportunity to be able to compete with the larger banks." it was not a process It was a negotiated deal between us. it was a negotiated deal between us And Clay and his team did a great job in helping us get to the conclusions. and clay and his team did a great job in helping us get to the conclusions And obviously, we're really looking forward to the future together with his team and our team as one. and obviously we're really looking forward to the future together with his team and our team as one I don't know, Clay, if you want to add anything, you can go for it. i don't know clay if you want to add anything you can go for it

Speaker 1: Yeah. No, Matthew, the only thing I would add is we've made great strides to build our kind of leading commercial community bank here in our area, but combining the two expands the breadth and depth to which we can serve our clients. It's obviously, as Dave mentioned, a strategically important combination and financially very compelling transaction for our shareholders. So we see a lot of synergies and a lot of value created here. Yeah. yeah No, Matthew, the only thing I would add is we've made great strides to build our kind of leading commercial community bank here in our area, but combining the two expands the breadth and depth to which we can serve our clients. no matthew the only thing i would add is we've made great strides to build our kind of leading commercial community bank here in our area but combining the two expands the breadth and depth to which we can serve our clients It's obviously, as Dave mentioned, a strategically important combination and financially very compelling transaction for our shareholders. it's obviously as dave mentioned a strategically important combination and financially very compelling transaction for our shareholders So we see a lot of synergies and a lot of value created here. so we see a lot of synergies and a lot of value created here

Speaker 10: Okay. Thank you. And then the other one on your pro forma CET1 of 14.6%, still very healthy and likely to quickly grow beyond that after the merger. I guess, how does this change your M&A appetite once you integrate this one from a size and geographic perspective? Okay. okay Thank you. thank you And then the other one on your pro forma CET1 of 14.6%, still very healthy and likely to quickly grow beyond that after the merger. and then the other one on your pro forma cet1 of 14.6% still very healthy and likely to quickly grow beyond that after the merger I guess, how does this change your M&A appetite once you integrate this one from a size and geographic perspective? i guess how does this change your m&a appetite once you integrate this one from a size and geographic perspective

Speaker 2: Yeah. So I think first and foremost, we want to make sure we do the integration correct. We're going to make sure that we're doing everything we can to make this as seamless as possible. There's always going to be issues that arise, but Clay and the existing Heritage folks and our folks are going to work closely together to make sure that we do a good job of combining the two organizations. Once we get through that, I think then we'll probably have a little bit better idea. But you're correct. It will generate a lot of capital. We like running with a little more capital, but at the end of the day, we'll just have to evaluate the opportunities as they present themselves. And Clay and I and Allen and the rest of our team will make those determinations. Yeah. yeah So I think first and foremost, we want to make sure we do the integration correct. so i think first and foremost we want to make sure we do the integration correct We're going to make sure that we're doing everything we can to make this as seamless as possible. we're going to make sure that we're doing everything we can to make this as seamless as possible There's always going to be issues that arise, but Clay and the existing Heritage folks and our folks are going to work closely together to make sure that we do a good job of combining the two organizations. there's always going to be issues that arise but clay and the existing heritage folks and our folks are going to work closely together to make sure that we do a good job of combining the two organizations Once we get through that, I think then we'll probably have a little bit better idea. once we get through that i think then we'll probably have a little bit better idea But you're correct. but you're correct It will generate a lot of capital. it will generate a lot of capital We like running with a little more capital, but at the end of the day, we'll just have to evaluate the opportunities as they present themselves. we like running with a little more capital but at the end of the day we'll just have to evaluate the opportunities as they present themselves And Clay and I and Allen and the rest of our team will make those determinations. and clay and i and allen and the rest of our team will make those determinations But what we're really focused on is just putting the two banks together and making an even better bank together. I don't know, Allen or Clay, if you want to add anything. But what we're really focused on is just putting the two banks together and making an even better bank together. but what we're really focused on is just putting the two banks together and making an even better bank together I don't know, Allen or Clay, if you want to add anything. i don't know allen or clay if you want to add anything

Speaker 1: Nope. Well said. Nope. nope Well said. well said

Speaker 3: Yeah. I mean, Matthew, we'll obviously reevaluate sort of our criteria based on what we've said in the past, and it's possible that the lower end of our range may certainly move up as a $22 billion institution. Yeah. yeah I mean, Matthew, we'll obviously reevaluate sort of our criteria based on what we've said in the past, and it's possible that the lower end of our range may certainly move up as a $22 billion institution. i mean matthew we'll obviously reevaluate sort of our criteria based on what we've said in the past and it's possible that the lower end of our range may certainly move up as a $22 billion institution

Speaker 10: Yep. Understood. Thanks again, and congrats. Yep. yep Understood. understood Thanks again, and congrats. thanks again and congrats

Speaker 2: Thank you. Thank you. thank you

Speaker 1: Thanks, Matthew. Thanks, Matthew. thanks matthew

Speaker 6: The next question comes from David Feaster with Raymond James. Please go ahead. The next question comes from David Feaster with Raymond James. the next question comes from david feaster with raymond james Please go ahead. please go ahead

Speaker 4: Hey. Congrats on the deal, everybody. Hey. hey Congrats on the deal, everybody. congrats on the deal everybody

Speaker 2: Thank you, David. Thank you, David. thank you david

Speaker 1: Thanks, David. Thanks, David. thanks david

Speaker 4: So look, I know you guys both pretty well. I mean, this is obviously a really good fit in a lot of ways. I can see the cultural similarities, but look, I'm just kind of curious for Clay and Dave, as you both have gotten to know each other, the cultures and kind of seen behind the curtains, if you will. Could you maybe just compare and contrast the businesses to some degree, the similarities that you see from a cultural standpoint, and maybe, Clay, where you see opportunities to CBB across your platform, and Dave, maybe things that you saw that Heritage does well that you'd like to implement across your platform? So look, I know you guys both pretty well. so look i know you guys both pretty well I mean, this is obviously a really good fit in a lot of ways. i mean this is obviously a really good fit in a lot of ways I can see the cultural similarities, but look, I'm just kind of curious for Clay and Dave, as you both have gotten to know each other, the cultures and kind of seen behind the curtains, if you will. i can see the cultural similarities but look i'm just kind of curious for clay and dave as you both have gotten to know each other the cultures and kind of seen behind the curtains if you will Could you maybe just compare and contrast the businesses to some degree, the similarities that you see from a cultural standpoint, and maybe, Clay, where you see opportunities to CBB across your platform, and Dave, maybe things that you saw that Heritage does well that you'd like to implement across your platform? could you maybe just compare and contrast the businesses to some degree the similarities that you see from a cultural standpoint and maybe clay where you see opportunities to cbb across your platform and dave maybe things that you saw that heritage does well that you'd like to implement across your platform

Speaker 2: Go ahead, Clay. You can start. Go ahead, Clay. go ahead clay You can start. you can start

Speaker 1: Yeah. No question about it, David. We've got a tremendous amount of similarities in terms of cultures, our client-first stance, growing with our clients, excellence in people. There's just a lot of similarities in how we run our business banks. I think there's just not too many differences there. The opportunities that we at Heritage see in this combination is, one, just size and scale to be able to bring more to our clients, those in trust and wealth and mortgage. I mean, there's just a number of things that Citizens brings to the table to expand our product offering for our clients here. And so while those aren't built into the models, there are inherent synergies that we've been looking in our long-term strategic plan to build out here at Heritage, and this just accelerates that strategic planning footprint and timeline. Yeah. yeah No question about it, David. no question about it david We've got a tremendous amount of similarities in terms of cultures, our client-first stance, growing with our clients, excellence in people. we've got a tremendous amount of similarities in terms of cultures our client-first stance growing with our clients excellence in people There's just a lot of similarities in how we run our business banks. there's just a lot of similarities in how we run our business banks I think there's just not too many differences there. i think there's just not too many differences there The opportunities that we at Heritage see in this combination is, one, just size and scale to be able to bring more to our clients, those in trust and wealth and mortgage. the opportunities that we at heritage see in this combination is one just size and scale to be able to bring more to our clients those in trust and wealth and mortgage I mean, there's just a number of things that Citizens brings to the table to expand our product offering for our clients here. i mean there's just a number of things that citizens brings to the table to expand our product offering for our clients here And so while those aren't built into the models, there are inherent synergies that we've been looking in our long-term strategic plan to build out here at Heritage, and this just accelerates that strategic planning footprint and timeline. and so while those aren't built into the models there are inherent synergies that we've been looking in our long-term strategic plan to build out here at heritage and this just accelerates that strategic planning footprint and timeline

Speaker 2: Yeah. I would just add we look at it the same way. I mean, for the things that we offer, a little bit wider product array, there's opportunities for us to help Clay's clients achieve whatever goals and objectives they have in their businesses. And I think for us, it's sort of been what we've done in every single acquisition we've done in our history is just have the opportunity to sell deeper into that relationship. Obviously, the capacity to grow with our clients is important. Having access to Northern California, the Bay Area, is very important for us. I mean, we've done that in very small steps over the last acquisition we did. So again, just like Clay, I think it just accelerates our opportunity to be more meaningful in all of the markets we serve. So I'm really excited about it. Yeah. yeah I would just add we look at it the same way. i would just add we look at it the same way I mean, for the things that we offer, a little bit wider product array, there's opportunities for us to help Clay's clients achieve whatever goals and objectives they have in their businesses. i mean for the things that we offer a little bit wider product array there's opportunities for us to help clay's clients achieve whatever goals and objectives they have in their businesses And I think for us, it's sort of been what we've done in every single acquisition we've done in our history is just have the opportunity to sell deeper into that relationship. and i think for us it's sort of been what we've done in every single acquisition we've done in our history is just have the opportunity to sell deeper into that relationship Obviously, the capacity to grow with our clients is important. obviously the capacity to grow with our clients is important Having access to Northern California, the Bay Area, is very important for us. having access to northern california the bay area is very important for us I mean, we've done that in very small steps over the last acquisition we did. i mean we've done that in very small steps over the last acquisition we did So again, just like Clay, I think it just accelerates our opportunity to be more meaningful in all of the markets we serve. so again just like clay i think it just accelerates our opportunity to be more meaningful in all of the markets we serve So I'm really excited about it. so i'm really excited about it I'm excited that Clay's joining the team as the president. We have a good personal relationship. We have a good business relationship. We've shared things over the years and talked things through. So it's just going to be great to be on the same team. I'm excited that Clay's joining the team as the president. i'm excited that clay's joining the team as the president We have a good personal relationship. we have a good personal relationship We have a good business relationship. we have a good business relationship We've shared things over the years and talked things through. we've shared things over the years and talked things through So it's just going to be great to be on the same team. so it's just going to be great to be on the same team

Speaker 4: That's terrific, and following up kind of on Matt's question, just talking about capital, in the presentation, you talked about optimization of the balance sheet. There's some opportunities to sell Heritage's purchase mortgages. Obviously, there's other opportunities. I'm curious, how do you think about other balance sheet optimization strategies, whether it be on the security side, other asset? Just kind of curious what you guys are contemplating there? That's terrific, and following up kind of on Matt's question, just talking about capital, in the presentation, you talked about optimization of the balance sheet. that's terrific and following up kind of on matt's question just talking about capital in the presentation you talked about optimization of the balance sheet There's some opportunities to sell Heritage's purchase mortgages. there's some opportunities to sell heritage's purchase mortgages Obviously, there's other opportunities. obviously there's other opportunities I'm curious, how do you think about other balance sheet optimization strategies, whether it be on the security side, other asset? i'm curious how do you think about other balance sheet optimization strategies whether it be on the security side other asset Just kind of curious what you guys are contemplating there? just kind of curious what you guys are contemplating there

Speaker 2: Go ahead, Allen. Take that one. Go ahead, Allen. go ahead allen Take that one. take that one

Speaker 3: Well, David, I would say at this point, the only thing we've really communicated, and we'll continue to evaluate everything, but we do anticipate it's likely we will sell the single-family mortgage loans at Heritage. They're not associated with any of their customers. So it'll be an opportunity to reinvest those, probably in securities. But there's a lot of things we'll evaluate as we go through the integration, but nothing else is contemplated in set in stone at this point. Well, David, I would say at this point, the only thing we've really communicated, and we'll continue to evaluate everything, but we do anticipate it's likely we will sell the single-family mortgage loans at Heritage. well david i would say at this point the only thing we've really communicated and we'll continue to evaluate everything but we do anticipate it's likely we will sell the single-family mortgage loans at heritage They're not associated with any of their customers. they're not associated with any of their customers So it'll be an opportunity to reinvest those, probably in securities. so it'll be an opportunity to reinvest those probably in securities But there's a lot of things we'll evaluate as we go through the integration, but nothing else is contemplated in set in stone at this point. but there's a lot of things we'll evaluate as we go through the integration but nothing else is contemplated in set in stone at this point

Speaker 4: Okay. And then maybe just last one for me. You guys touched on this. This is the largest deal that you've done. Obviously, both of y'all are proven acquirer. It's great. Clay sticking around, I mean, is a huge help. But how do you think about the integration and the conversion here? Are there any guardrails or safety nets or different policies and procedures that you're putting in place to protect the bank in this deal and minimize execution risk in any type of attrition or anything? Okay. okay And then maybe just last one for me. and then maybe just last one for me You guys touched on this. you guys touched on this This is the largest deal that you've done. this is the largest deal that you've done Obviously, both of y'all are proven acquirer. obviously both of y'all are proven acquirer It's great. it's great Clay sticking around, I mean, is a huge help. clay sticking around i mean is a huge help But how do you think about the integration and the conversion here? but how do you think about the integration and the conversion here Are there any guardrails or safety nets or different policies and procedures that you're putting in place to protect the bank in this deal and minimize execution risk in any type of attrition or anything? are there any guardrails or safety nets or different policies and procedures that you're putting in place to protect the bank in this deal and minimize execution risk in any type of attrition or anything

Speaker 2: Yeah. So David, as you know, I mean, we've done 18, 19 transactions in our history, so we've done quite a number of them. I mean, we have a very thorough and disciplined playbook for these types of things. We'll be working closely with Clay and his team to ensure that we're able to execute on all of that. But we've proven that we've been able to do it. It is the largest in asset size deal that we've done. So obviously, there's some nuance in that, but that doesn't concern me just based on the conversations we've already had through the due diligence and the process because everybody wants the same thing. And so as long as we're working together to make it happen, we believe that we'll be able to keep the vast, vast majority of both parts of the bank that we want to keep. Yeah. yeah So David, as you know, I mean, we've done 18, 19 transactions in our history, so we've done quite a number of them. so david as you know i mean we've done 18 19 transactions in our history so we've done quite a number of them I mean, we have a very thorough and disciplined playbook for these types of things. i mean we have a very thorough and disciplined playbook for these types of things We'll be working closely with Clay and his team to ensure that we're able to execute on all of that. we'll be working closely with clay and his team to ensure that we're able to execute on all of that But we've proven that we've been able to do it. but we've proven that we've been able to do it It is the largest in asset size deal that we've done. it is the largest in asset size deal that we've done So obviously, there's some nuance in that, but that doesn't concern me just based on the conversations we've already had through the due diligence and the process because everybody wants the same thing. so obviously there's some nuance in that but that doesn't concern me just based on the conversations we've already had through the due diligence and the process because everybody wants the same thing And so as long as we're working together to make it happen, we believe that we'll be able to keep the vast, vast majority of both parts of the bank that we want to keep. and so as long as we're working together to make it happen we believe that we'll be able to keep the vast vast majority of both parts of the bank that we want to keep And I just think from my perspective, we'll work hard to ensure that happens. And I don't know, Clay, if you have anything to add, but I think from his perspective, he's kind of looking at it the same way. And I just think from my perspective, we'll work hard to ensure that happens. and i just think from my perspective we'll work hard to ensure that happens And I don't know, Clay, if you have anything to add, but I think from his perspective, he's kind of looking at it the same way. and i don't know clay if you have anything to add but i think from his perspective he's kind of looking at it the same way

Speaker 1: Yeah. No, the only thing I would add, and Dave, you said it. I mean, we both have veteran teams on both sides here in the companies that have pretty extensive experience on integration and combination. And obviously, our client-centric and service delivery model is the guiding post to make sure that goes well. So I think both companies have the people and execution teams to get this done correctly. Yeah. yeah No, the only thing I would add, and Dave, you said it. no the only thing i would add and dave you said it I mean, we both have veteran teams on both sides here in the companies that have pretty extensive experience on integration and combination. i mean we both have veteran teams on both sides here in the companies that have pretty extensive experience on integration and combination And obviously, our client-centric and service delivery model is the guiding post to make sure that goes well. and obviously our client-centric and service delivery model is the guiding post to make sure that goes well So I think both companies have the people and execution teams to get this done correctly. so i think both companies have the people and execution teams to get this done correctly

Speaker 4: That's great. Congrats to everybody on the deal. Excited to see what's in store for y'all. That's great. that's great Congrats to everybody on the deal. congrats to everybody on the deal Excited to see what's in store for y'all. excited to see what's in store for y'all

Speaker 2: Thanks, David. Thanks, David. thanks david

Speaker 4: Thanks, Dave. Yep. Thanks, Dave. thanks dave Yep. yep

Speaker 6: The next question comes from Andrew Terrell with Stephens. Please go ahead. The next question comes from Andrew Terrell with Stephens. the next question comes from andrew terrell with stephens Please go ahead. please go ahead

Speaker 8: Hey, good afternoon. Hey, good afternoon. hey good afternoon

Speaker 2: Hey, Andrew. Hey, Andrew. hey andrew

Speaker 8: Hey. I wanted to start just, Dave. We recently had a conversation just about kind of the lift-out strategy or LPO strategy in the absence of M&A. Just curious, now that you've got a deal announced, how should we expect you to approach new LPO activity moving forward? Does that slow down from here? Hey. hey I wanted to start just, Dave. i wanted to start just dave We recently had a conversation just about kind of the lift-out strategy or LPO strategy in the absence of M&A. we recently had a conversation just about kind of the lift-out strategy or lpo strategy in the absence of m&a Just curious, now that you've got a deal announced, how should we expect you to approach new LPO activity moving forward? just curious now that you've got a deal announced how should we expect you to approach new lpo activity moving forward Does that slow down from here? does that slow down from here

Speaker 2: Yeah. Well, I think the LPO strategy, I mean, obviously, if we have the opportunity to get good people, we're going to evaluate that just as we did with our Temecula Murrieta team. So we want to make sure we do both things right. And if the right opportunity presents itself with a team that's interested in coming to the premier business bank in California, we're obviously going to take a look at that and make a determination if it's something that makes sense for us. But again, I'll just kind of go back to my earlier answer. We want to make sure the combination of Citizens and Heritage goes well first. We're very focused on that, both sides becoming one and doing it the right way. But I do think that if the right team came along, we would look at it. Clay's going to be running as president. Yeah. yeah Well, I think the LPO strategy, I mean, obviously, if we have the opportunity to get good people, we're going to evaluate that just as we did with our Temecula Murrieta team. well i think the lpo strategy i mean obviously if we have the opportunity to get good people we're going to evaluate that just as we did with our temecula murrieta team So we want to make sure we do both things right. so we want to make sure we do both things right And if the right opportunity presents itself with a team that's interested in coming to the premier business bank in California, we're obviously going to take a look at that and make a determination if it's something that makes sense for us. and if the right opportunity presents itself with a team that's interested in coming to the premier business bank in california we're obviously going to take a look at that and make a determination if it's something that makes sense for us But again, I'll just kind of go back to my earlier answer. but again i'll just kind of go back to my earlier answer We want to make sure the combination of Citizens and Heritage goes well first. we want to make sure the combination of citizens and heritage goes well first We're very focused on that, both sides becoming one and doing it the right way. we're very focused on that both sides becoming one and doing it the right way But I do think that if the right team came along, we would look at it. but i do think that if the right team came along we would look at it Clay's going to be running as president. clay's going to be running as president He's going to be running everything that touches customer. So he and I and other members of the sales leadership team, some from his current team, some from my current team, we'll make those determinations if it makes sense. He's going to be running everything that touches customer. he's going to be running everything that touches customer So he and I and other members of the sales leadership team, some from his current team, some from my current team, we'll make those determinations if it makes sense. so he and i and other members of the sales leadership team some from his current team some from my current team we'll make those determinations if it makes sense

Speaker 8: Great. I appreciate it. And just wanted to make sure I heard right. I think you mentioned in the prepared remarks, it sounds like buybacks continue post the close of the acquisition. Was that correct? Great. great I appreciate it. i appreciate it And just wanted to make sure I heard right. and just wanted to make sure i heard right I think you mentioned in the prepared remarks, it sounds like buybacks continue post the close of the acquisition. i think you mentioned in the prepared remarks it sounds like buybacks continue post the close of the acquisition Was that correct? was that correct

Speaker 2: Yeah. We have the capacity to continue doing that. Obviously, we'll look at it once we get through this, but we do have the capacity based on our capital position. Yeah. yeah We have the capacity to continue doing that. we have the capacity to continue doing that Obviously, we'll look at it once we get through this, but we do have the capacity based on our capital position. obviously we'll look at it once we get through this but we do have the capacity based on our capital position

Speaker 8: Yep. Okay. And I think it's probably pretty minimal, but I didn't see anything called out around Durbin impact in the presentation. Is that anything notable we should be aware of? Yep. yep Okay. okay And I think it's probably pretty minimal, but I didn't see anything called out around Durbin impact in the presentation. and i think it's probably pretty minimal but i didn't see anything called out around durbin impact in the presentation Is that anything notable we should be aware of? is that anything notable we should be aware of

Speaker 3: It's really not notable. They're not a retail bank. They're a business bank like we are, so it's nothing of significance. It's really not notable. it's really not notable They're not a retail bank. they're not a retail bank They're a business bank like we are, so it's nothing of significance. they're a business bank like we are so it's nothing of significance

Speaker 8: Okay. Great. Well, congrats on the deal, and Dave, enjoy your dinner at Javier's. Okay. okay Great. great Well, congrats on the deal, and Dave, enjoy your dinner at Javier's. well congrats on the deal and dave enjoy your dinner at javier's

Speaker 2: Thank you. Thank you. thank you

Speaker 1: Thanks, Andrew. Thanks, Andrew. thanks andrew

Speaker 6: The next question comes from Kelly Motta with KBW. Please go ahead. The next question comes from Kelly Motta with KBW. the next question comes from kelly motta with kbw Please go ahead. please go ahead

Speaker 5: Hey, congrats on the deal announcement. Very exciting. Dave, you have been a very conservative lender, stick to your knitting, and kind of one thing you've talked about is in finding a partner is someone who has kind of the same approach to lending. You guys clearly did a fairly significant overview of the Heritage Commerce's loan book. Can you discuss kind of your thoughts on kind of the growth profile of the bank and any you noted in the deck, the potential mortgage sale or anything else that we should be thinking about in terms of potential paring down of the balance sheet here? Hey, congrats on the deal announcement. hey congrats on the deal announcement Very exciting. very exciting Dave, you have been a very conservative lender, stick to your knitting, and kind of one thing you've talked about is in finding a partner is someone who has kind of the same approach to lending. dave you have been a very conservative lender stick to your knitting and kind of one thing you've talked about is in finding a partner is someone who has kind of the same approach to lending You guys clearly did a fairly significant overview of the Heritage Commerce's loan book. you guys clearly did a fairly significant overview of the heritage commerce's loan book Can you discuss kind of your thoughts on kind of the growth profile of the bank and any you noted in the deck, the potential mortgage sale or anything else that we should be thinking about in terms of potential paring down of the balance sheet here? can you discuss kind of your thoughts on kind of the growth profile of the bank and any you noted in the deck the potential mortgage sale or anything else that we should be thinking about in terms of potential paring down of the balance sheet here

Speaker 2: Yeah. So we did. We did a very thorough due diligence on the credit side. And what I would say is what we found is our credit folks that were doing the due diligence felt very strongly that Clay and his team had built a very solid bank. Obviously, we've had pristine credit quality pretty much for the history of the bank. Clay's bank is very similar in their approach to that. There are some minor differences, and we'll be able to work through those things. And between the two teams, I mean, we're going to be keeping a lot, I mean, pretty much all of their sales folks, and we're going to be keeping a lot of the credit folks, if not all, or most of the credit folks as well. So I think we're going to meld that credit culture very well. Yeah. yeah So we did. so we did We did a very thorough due diligence on the credit side. we did a very thorough due diligence on the credit side And what I would say is what we found is our credit folks that were doing the due diligence felt very strongly that Clay and his team had built a very solid bank. and what i would say is what we found is our credit folks that were doing the due diligence felt very strongly that clay and his team had built a very solid bank Obviously, we've had pristine credit quality pretty much for the history of the bank. obviously we've had pristine credit quality pretty much for the history of the bank Clay's bank is very similar in their approach to that. clay's bank is very similar in their approach to that There are some minor differences, and we'll be able to work through those things. there are some minor differences and we'll be able to work through those things And between the two teams, I mean, we're going to be keeping a lot, I mean, pretty much all of their sales folks, and we're going to be keeping a lot of the credit folks, if not all, or most of the credit folks as well. and between the two teams i mean we're going to be keeping a lot i mean pretty much all of their sales folks and we're going to be keeping a lot of the credit folks if not all or most of the credit folks as well So I think we're going to meld that credit culture very well. so i think we're going to meld that credit culture very well There wasn't anything we found that really stood out to us as something they did that we wouldn't do. They do have a factoring business, and we're going to always look at that. But Clay and his team have done an outstanding job in that business. So we'll evaluate it. But other than that, I would say it's pretty much very similar. Clay, I don't know if you have any comments on any of that, but you're welcome to add on. There wasn't anything we found that really stood out to us as something they did that we wouldn't do. there wasn't anything we found that really stood out to us as something they did that we wouldn't do They do have a factoring business, and we're going to always look at that. they do have a factoring business and we're going to always look at that But Clay and his team have done an outstanding job in that business. but clay and his team have done an outstanding job in that business So we'll evaluate it. so we'll evaluate it But other than that, I would say it's pretty much very similar. but other than that i would say it's pretty much very similar Clay, I don't know if you have any comments on any of that, but you're welcome to add on. clay i don't know if you have any comments on any of that but you're welcome to add on

Speaker 1: Yeah. I think the Citizens and Heritage team start with excellence in client selection, and it starts from the very beginning, and then you overlay that with strict credit disciplines and attention to detail. But as Dave said, the credit cultures of both banks are very strong. And I would echo the sentiments. Citizens has been an inviolable player in the California market, and the credit is outstanding. We pride ourselves on our own credit, and we greatly appreciate like-minded credit folks. Yeah. yeah I think the Citizens and Heritage team start with excellence in client selection, and it starts from the very beginning, and then you overlay that with strict credit disciplines and attention to detail. i think the citizens and heritage team start with excellence in client selection and it starts from the very beginning and then you overlay that with strict credit disciplines and attention to detail But as Dave said, the credit cultures of both banks are very strong. but as dave said the credit cultures of both banks are very strong And I would echo the sentiments. and i would echo the sentiments Citizens has been an inviolable player in the California market, and the credit is outstanding. citizens has been an inviolable player in the california market and the credit is outstanding We pride ourselves on our own credit, and we greatly appreciate like-minded credit folks. we pride ourselves on our own credit and we greatly appreciate like-minded credit folks

Speaker 5: Got it. That's a really helpful overview. One minor housekeeping item for me. I'm looking at slide 15, which is helpful. I just wanted to confirm it looks like this is the case, but that 7.7% tangible book value dilution includes all kind of one-time costs baked in since we've seen some deals announce that exclude some items. I just want to make sure that's a fully baked number. Is that the correct read? Got it. got it That's a really helpful overview. that's a really helpful overview One minor housekeeping item for me. one minor housekeeping item for me I'm looking at slide 15, which is helpful. i'm looking at slide 15 which is helpful I just wanted to confirm it looks like this is the case, but that 7.7% tangible book value dilution includes all kind of one-time costs baked in since we've seen some deals announce that exclude some items. i just wanted to confirm it looks like this is the case but that 7.7% tangible book value dilution includes all kind of one-time costs baked in since we've seen some deals announce that exclude some items I just want to make sure that's a fully baked number. i just want to make sure that's a fully baked number Is that the correct read? is that the correct read

Speaker 2: It's fully baked. It's fully baked. it's fully baked

Speaker 5: Thank you. Appreciate it. Congrats again. Looks very exciting. I'll step back. Thank you. thank you Appreciate it. appreciate it Congrats again. congrats again Looks very exciting. looks very exciting I'll step back. i'll step back

Speaker 2: Thank you, Kelly. Thank you, Kelly. thank you kelly

Speaker 1: Thanks, Kelly. Thanks, Kelly. thanks kelly

Speaker 6: The next question comes from Tim Coffey with Janney. Please go ahead. The next question comes from Tim Coffey with Janney. the next question comes from tim coffey with janney Please go ahead. please go ahead

Speaker 7: Good afternoon, gentlemen. Good afternoon, gentlemen. good afternoon gentlemen

Speaker 2: How are you doing, Tim? How are you doing, Tim? how are you doing tim

Speaker 7: Doing well. Doing well. Thank you. So Dave, look, you know commercial real estate pretty well. Clay knows it pretty well. I'm wondering, Dave, what your take is on the San Francisco Bay Area commercial real estate market and how comfortable you are with that sector right now. Doing well. doing well Doing well. doing well Thank you. thank you So Dave, look, you know commercial real estate pretty well. so dave look you know commercial real estate pretty well Clay knows it pretty well. clay knows it pretty well I'm wondering, Dave, what your take is on the San Francisco Bay Area commercial real estate market and how comfortable you are with that sector right now. i'm wondering dave what your take is on the san francisco bay area commercial real estate market and how comfortable you are with that sector right now

Speaker 2: Clay, do you want to start, and then I'll just add on? Clay, do you want to start, and then I'll just add on? clay do you want to start and then i'll just add on

Speaker 1: Yeah. No, I think, Tim, as we've said, the credit discipline that Heritage has put on the overlay of our CRE in the Bay Area market here has been strong, and the performance has weathered some real storms. The client stability is extremely strong here at the bank. I think what Dave and I have spent some time on is just the resurgence in the marketplace and where that marketplace has rebounded from post-pandemic in terms of just vacancy absorption, reputational improvement here in the Bay Area, resurgence of funding flows in the venture community. And so I just think all those things have provided a lot of comfort. Starts with a foundation of strong credit and good client selection, as I mentioned, but I think the Bay Area economy here has improved greatly since the coming out of the pandemic. Dave? Yeah. yeah No, I think, Tim, as we've said, the credit discipline that Heritage has put on the overlay of our CRE in the Bay Area market here has been strong, and the performance has weathered some real storms. no i think tim as we've said the credit discipline that heritage has put on the overlay of our cre in the bay area market here has been strong and the performance has weathered some real storms The client stability is extremely strong here at the bank. the client stability is extremely strong here at the bank I think what Dave and I have spent some time on is just the resurgence in the marketplace and where that marketplace has rebounded from post-pandemic in terms of just vacancy absorption, reputational improvement here in the Bay Area, resurgence of funding flows in the venture community. i think what dave and i have spent some time on is just the resurgence in the marketplace and where that marketplace has rebounded from post-pandemic in terms of just vacancy absorption reputational improvement here in the bay area resurgence of funding flows in the venture community And so I just think all those things have provided a lot of comfort. and so i just think all those things have provided a lot of comfort Starts with a foundation of strong credit and good client selection, as I mentioned, but I think the Bay Area economy here has improved greatly since the coming out of the pandemic. starts with a foundation of strong credit and good client selection as i mentioned but i think the bay area economy here has improved greatly since the coming out of the pandemic Dave? dave

Speaker 2: Yeah. The only thing I would add to what he said, Tim, is that, look, and just like Heritage, we evaluate individual deals, and we're going to look at the strength of the cash flow, the strength of the guarantor, the stability and quality of those cash flows. And so I don't think any of that's going to change. I just recall back a story during the pandemic when we did the largest office loan in the history of our bank. And I called it out on our calls just saying, "Look, I'd make that loan again today." And so I think we're not a cookie-cutter lender. We're evaluating the strength of the deal, and we make determination. And through our due diligence, that's what we saw with Heritage. I know through Heritage's reverse due diligence, that's what they saw in us. Yeah. yeah The only thing I would add to what he said, Tim, is that, look, and just like Heritage, we evaluate individual deals, and we're going to look at the strength of the cash flow, the strength of the guarantor, the stability and quality of those cash flows. the only thing i would add to what he said tim is that look and just like heritage we evaluate individual deals and we're going to look at the strength of the cash flow the strength of the guarantor the stability and quality of those cash flows And so I don't think any of that's going to change. and so i don't think any of that's going to change I just recall back a story during the pandemic when we did the largest office loan in the history of our bank. i just recall back a story during the pandemic when we did the largest office loan in the history of our bank And I called it out on our calls just saying, "Look, I'd make that loan again today." And so I think we're not a cookie-cutter lender. and i called it out on our calls just saying "look i'd make that loan again today." and so i think we're not a cookie-cutter lender We're evaluating the strength of the deal, and we make determination. we're evaluating the strength of the deal and we make determination And through our due diligence, that's what we saw with Heritage. and through our due diligence that's what we saw with heritage I know through Heritage's reverse due diligence, that's what they saw in us. i know through heritage's reverse due diligence that's what they saw in us And so I think it's going to be a good opportunity for us to take a look at it where it makes sense. And so I think it's going to be a good opportunity for us to take a look at it where it makes sense. and so i think it's going to be a good opportunity for us to take a look at it where it makes sense

Speaker 7: Okay. Speaking with you, Dave, if I could, you know how to operate in big markets, right? LA is a perfect example. The Bay Area is a bit smaller than LA, but still a big market. Do you feel that you have enough scale in the market and will have enough scale in the San Francisco Bay Area market to be competitive? Okay. okay Speaking with you, Dave, if I could, you know how to operate in big markets, right? speaking with you dave if i could you know how to operate in big markets right LA is a perfect example. la is a perfect example The Bay Area is a bit smaller than LA, but still a big market. the bay area is a bit smaller than la but still a big market Do you feel that you have enough scale in the market and will have enough scale in the San Francisco Bay Area market to be competitive? do you feel that you have enough scale in the market and will have enough scale in the san francisco bay area market to be competitive

Speaker 2: Yeah. I mean, I think we're competitive in every market, from the most rural market to the largest metropolitan area. And as you know, Tim, we're not trying to be everything to everybody. We have a very disciplined approach to the type of client we're looking for. This will allow us to potentially make larger loans to evaluate opportunities that we might not have had a chance to evaluate. So I'm very bullish on the fact that I think we can take advantage of that. And I actually spent a little bit of my life up in the Bay Area, so I don't know it nearly as well as Clay, but I believe it's going to create a great opportunity for us in those markets where it makes sense with the right customers to really make an impact. Yeah. yeah I mean, I think we're competitive in every market, from the most rural market to the largest metropolitan area. i mean i think we're competitive in every market from the most rural market to the largest metropolitan area And as you know, Tim, we're not trying to be everything to everybody. and as you know tim we're not trying to be everything to everybody We have a very disciplined approach to the type of client we're looking for. we have a very disciplined approach to the type of client we're looking for This will allow us to potentially make larger loans to evaluate opportunities that we might not have had a chance to evaluate. this will allow us to potentially make larger loans to evaluate opportunities that we might not have had a chance to evaluate So I'm very bullish on the fact that I think we can take advantage of that. so i'm very bullish on the fact that i think we can take advantage of that And I actually spent a little bit of my life up in the Bay Area, so I don't know it nearly as well as Clay, but I believe it's going to create a great opportunity for us in those markets where it makes sense with the right customers to really make an impact. and i actually spent a little bit of my life up in the bay area so i don't know it nearly as well as clay but i believe it's going to create a great opportunity for us in those markets where it makes sense with the right customers to really make an impact And we compete, as you know, with the big boys all the time. That's where we do our best work because we, as Clay said, have a customer service approach. We want to take care of that client. We really focus on that. That customer focus is one of our core values. And so I just think it's something for us that with the bigger capacity for Clay, his people will have a better opportunity to compete against some of those larger banks in the combined organization. And we compete, as you know, with the big boys all the time. and we compete as you know with the big boys all the time That's where we do our best work because we, as Clay said, have a customer service approach. that's where we do our best work because we as clay said have a customer service approach We want to take care of that client. we want to take care of that client We really focus on that. we really focus on that That customer focus is one of our core values. that customer focus is one of our core values And so I just think it's something for us that with the bigger capacity for Clay, his people will have a better opportunity to compete against some of those larger banks in the combined organization. and so i just think it's something for us that with the bigger capacity for clay his people will have a better opportunity to compete against some of those larger banks in the combined organization

Speaker 7: Yeah. And that actually kind of feeds into my next question for Clay. So I'll clear out for you that there's been a lot of movement from clients, bank clients in the Bay Area because of what happened in the spring of 2023. Heritage Commerce has definitely benefited from some of that client movement. Do you feel that having a bigger balance sheet now could accelerate some of that tailwind for you? Yeah. yeah And that actually kind of feeds into my next question for Clay. and that actually kind of feeds into my next question for clay So I'll clear out for you that there's been a lot of movement from clients, bank clients in the Bay Area because of what happened in the spring of 2023. so i'll clear out for you that there's been a lot of movement from clients bank clients in the bay area because of what happened in the spring of 2023 Heritage Commerce has definitely benefited from some of that client movement. heritage commerce has definitely benefited from some of that client movement Do you feel that having a bigger balance sheet now could accelerate some of that tailwind for you? do you feel that having a bigger balance sheet now could accelerate some of that tailwind for you

Speaker 2: Yeah. I think to your point, I think we've capitalized well in terms of kind of the disruption that we've seen here in the Bay Area, and we've been a beneficiary of that. And it's principally because of how we handle clients and the service delivery there. I think, as Dave said, no question about it, size and scale matters, and having a bigger balance sheet, as well as the additional product sets and service delivery that we're bringing together with Citizens, those are all very good upside for our existing footprint and our go-to-market strategy here. Yeah. yeah I think to your point, I think we've capitalized well in terms of kind of the disruption that we've seen here in the Bay Area, and we've been a beneficiary of that. i think to your point i think we've capitalized well in terms of kind of the disruption that we've seen here in the bay area and we've been a beneficiary of that And it's principally because of how we handle clients and the service delivery there. and it's principally because of how we handle clients and the service delivery there I think, as Dave said, no question about it, size and scale matters, and having a bigger balance sheet, as well as the additional product sets and service delivery that we're bringing together with Citizens, those are all very good upside for our existing footprint and our go-to-market strategy here. i think as dave said no question about it size and scale matters and having a bigger balance sheet as well as the additional product sets and service delivery that we're bringing together with citizens those are all very good upside for our existing footprint and our go-to-market strategy here

Speaker 7: Okay. Those are my questions. Thank you very much. Okay. okay Those are my questions. those are my questions Thank you very much. thank you very much

Speaker 2: Thank you, Tim. Thank you, Tim. thank you tim

Speaker 6: The next question comes from Gary Tenner with D.A. Davidson. Please go ahead. The next question comes from Gary Tenner with D.A. the next question comes from gary tenner with d.a Davidson. davidson Please go ahead. please go ahead

Speaker 9: Thanks. Good afternoon. Thanks. thanks Good afternoon. good afternoon

Speaker 2: Hey, Gary. Hey, Gary. hey gary

Speaker 9: Hey. So my first question probably treads a little bit on what Tim just asked. If you look back over several years, Dave, CVBF has always been a pretty modest grower in terms of net loans, kind of low single digit, and maybe a bit better than that in a good year. Heritage has been a little better than that over time. So as you think of the combined organization, would you envision kind of the Heritage franchise mirroring more of the way CVBF grows, or do you look at it as a net benefit to growth at CVBF? Hey. hey So my first question probably treads a little bit on what Tim just asked. so my first question probably treads a little bit on what tim just asked If you look back over several years, Dave, CVBF has always been a pretty modest grower in terms of net loans, kind of low single digit, and maybe a bit better than that in a good year. if you look back over several years dave cvbf has always been a pretty modest grower in terms of net loans kind of low single digit and maybe a bit better than that in a good year Heritage has been a little better than that over time. heritage has been a little better than that over time So as you think of the combined organization, would you envision kind of the Heritage franchise mirroring more of the way CVBF grows, or do you look at it as a net benefit to growth at CVBF? so as you think of the combined organization would you envision kind of the heritage franchise mirroring more of the way cvbf grows or do you look at it as a net benefit to growth at cvbf

Speaker 2: Yeah. Well, I think both of the banks' commitment to quality credit is going to influence that a lot. And so as we evaluate these opportunities, in Clay's markets and my markets, there's a lot of competition, and we're only really looking for the best. In our parlance, we say the top 25% of clients in their respective industries and building long-term relationships. And I envision, as we meld the two organizations, we're going to try to do the best of both. We're going to work hard at that. It's really hard for me to say just off the top of my head that it's going to be more closer to Clay's growth rate or more closer to my growth rate. We just want to make good deals to the right people. Yeah. yeah Well, I think both of the banks' commitment to quality credit is going to influence that a lot. well i think both of the banks' commitment to quality credit is going to influence that a lot And so as we evaluate these opportunities, in Clay's markets and my markets, there's a lot of competition, and we're only really looking for the best. and so as we evaluate these opportunities in clay's markets and my markets there's a lot of competition and we're only really looking for the best In our parlance, we say the top 25% of clients in their respective industries and building long-term relationships. in our parlance we say the top 25% of clients in their respective industries and building long-term relationships And I envision, as we meld the two organizations, we're going to try to do the best of both. and i envision as we meld the two organizations we're going to try to do the best of both We're going to work hard at that. we're going to work hard at that It's really hard for me to say just off the top of my head that it's going to be more closer to Clay's growth rate or more closer to my growth rate. it's really hard for me to say just off the top of my head that it's going to be more closer to clay's growth rate or more closer to my growth rate We just want to make good deals to the right people. we just want to make good deals to the right people And when those deals present themselves, whether it's in Southern California or Northern California, we're going to evaluate it and if it makes sense. I think to your other part of that question, obviously, the increased balance sheet size and capacity should be a net benefit for both of us because we will have a larger balance sheet down here. They will have a larger balance sheet up there. So I think there are definitely tailwinds with respect to that for both of us. We're a very disciplined grower, and we're going to be that in the long run as a combined organization as well. But we want to make sure that we're doing the right thing from a credit perspective, from a customer perspective, and we'll see how it all melds together. And when those deals present themselves, whether it's in Southern California or Northern California, we're going to evaluate it and if it makes sense. and when those deals present themselves whether it's in southern california or northern california we're going to evaluate it and if it makes sense I think to your other part of that question, obviously, the increased balance sheet size and capacity should be a net benefit for both of us because we will have a larger balance sheet down here. i think to your other part of that question obviously the increased balance sheet size and capacity should be a net benefit for both of us because we will have a larger balance sheet down here They will have a larger balance sheet up there. they will have a larger balance sheet up there So I think there are definitely tailwinds with respect to that for both of us. so i think there are definitely tailwinds with respect to that for both of us We're a very disciplined grower, and we're going to be that in the long run as a combined organization as well. we're a very disciplined grower and we're going to be that in the long run as a combined organization as well But we want to make sure that we're doing the right thing from a credit perspective, from a customer perspective, and we'll see how it all melds together. but we want to make sure that we're doing the right thing from a credit perspective from a customer perspective and we'll see how it all melds together But I think that as we look at this, it's going to be a disciplined process and disciplined growth going forward. And Clay and I and the rest of our management team will evaluate that as we go along. We need to obviously get to the close date, and then we can start getting a little better handle on what we think the exact opportunities are. But just generally, I'm, again, very optimistic about the opportunities for both of us. But I think that as we look at this, it's going to be a disciplined process and disciplined growth going forward. but i think that as we look at this it's going to be a disciplined process and disciplined growth going forward And Clay and I and the rest of our management team will evaluate that as we go along. and clay and i and the rest of our management team will evaluate that as we go along We need to obviously get to the close date, and then we can start getting a little better handle on what we think the exact opportunities are. we need to obviously get to the close date and then we can start getting a little better handle on what we think the exact opportunities are But just generally, I'm, again, very optimistic about the opportunities for both of us. but just generally i'm again very optimistic about the opportunities for both of us

Speaker 9: Okay. Great, and then just one question as it relates to the potential sale of the purchased mortgages. As you look at, and I don't know if this is a question you can answer on this call, but as it relates to the rate mark specific to those credits, could you give a sense at all proportionally of where that is? Because obviously, if you were to sell some, that would accelerate some of that long-term accretion. Okay. okay Great, and then just one question as it relates to the potential sale of the purchased mortgages. great and then just one question as it relates to the potential sale of the purchased mortgages As you look at, and I don't know if this is a question you can answer on this call, but as it relates to the rate mark specific to those credits, could you give a sense at all proportionally of where that is? as you look at and i don't know if this is a question you can answer on this call but as it relates to the rate mark specific to those credits could you give a sense at all proportionally of where that is Because obviously, if you were to sell some, that would accelerate some of that long-term accretion. because obviously if you were to sell some that would accelerate some of that long-term accretion

Speaker 1: So Gary, we've assumed in our projections that the single-family are sold at close. They're fairly low-coupon assets in the mid-threes to low-threes. And we looked at them from a fair value on a couple of different ways. And we think conservatively, and that's how we built it into the model. But basically, $0.83 on the dollar is how we value them at current value. So Gary, we've assumed in our projections that the single-family are sold at close. so gary we've assumed in our projections that the single-family are sold at close They're fairly low-coupon assets in the mid-threes to low-threes. they're fairly low-coupon assets in the mid-threes to low-threes And we looked at them from a fair value on a couple of different ways. and we looked at them from a fair value on a couple of different ways And we think conservatively, and that's how we built it into the model. and we think conservatively and that's how we built it into the model But basically, $0.83 on the dollar is how we value them at current value. but basically $0.83 on the dollar is how we value them at current value

Speaker 9: Great. Thank you. Great. great Thank you. thank you

Speaker 6: This concludes the question and answer session. I would like to turn the conference back over to Dave Brager. For any closing remarks, please go ahead. This concludes the question and answer session. this concludes the question and answer session I would like to turn the conference back over to Dave Brager. i would like to turn the conference back over to dave brager For any closing remarks, please go ahead. for any closing remarks please go ahead

Speaker 2: Great. Thank you. Thank you for joining us this afternoon. We appreciate your interest. Look forward to speaking with you again in January for CVBF's fourth quarter 2025 earnings call. Please let Allen, Clay, or myself know if you have any questions. Have a great day, and thanks for showing up on quick notice. We really appreciate it. Have a great day. Great. great Thank you. thank you Thank you for joining us this afternoon. thank you for joining us this afternoon We appreciate your interest. we appreciate your interest Look forward to speaking with you again in January for CVBF's fourth quarter 2025 earnings call. look forward to speaking with you again in january for cvbf's fourth quarter 2025 earnings call Please let Allen, Clay, or myself know if you have any questions. please let allen clay or myself know if you have any questions Have a great day, and thanks for showing up on quick notice. have a great day and thanks for showing up on quick notice We really appreciate it. we really appreciate it Have a great day. have a great day

Speaker 6: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. The conference is now concluded. the conference is now concluded Thank you for attending today's presentation. thank you for attending today's presentation You may now disconnect. you may now disconnect