Tier 1 Risk-Based Capital Ratio

, equal to the ratio of Tier 1 capital to risk-weighted assets. Tier 1 capital is primarily comprised of CET1 capital, perpetual preferred stock and certain qualifying capital instruments.

•

Total Risk-Based Capital Ratio

, equal to the ratio of total capital, including CET1 capital, Tier 1 capital and Tier 2 capital, to risk-weighted assets. Tier 2 capital primarily includes qualifying subordinated debt and qualifying allowance for credit losses. Tier 2 capital also includes, among other things, certain trust preferred securities.

The total minimum regulatory capital ratios and well-capitalized minimum ratios are reflected in the charts below. For purposes of the Federal Reserve’s Regulation Y, including determining whether a bank holding company meets the requirements to be a financial holding company, bank holding companies, such as the Company, must maintain a Tier 1 Risk-Based Capital Ratio of 6.0% or greater and a Total Risk-Based Capital Ratio of 10.0% or greater. The Federal Reserve may require bank holding companies, including the Company, to maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.

Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material adverse effect on our operations or financial condition. Failure to be well-capitalized or to meet minimum capital requirements could also result in restrictions on the Company’s or the Bank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications.

In addition to meeting the minimum capital requirements, under the Basel III Capital Rules, the Company and the Bank must also maintain the required Capital Conservation Buffer to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. The Capital Conservation Buffer is calculated as a ratio of CET1 capital to risk-weighted assets, and it effectively increases the required minimum risk-based capital ratios. The Capital Conservation Buffer requirement was phased in over a three-year period that began on January 1, 2016. The

phase-in

period ended on January 1, 2019, and the Capital Conservation Buffer is now at its fully

phased-in

level of 2.5%.

The Tier 1 Leverage Ratio is not impacted by the Capital Conservation Buffer, and a banking institution may be considered well-capitalized while remaining out of compliance with the Capital Conservation Buffer.

The table below summarizes the capital requirements that the Company and the Bank must satisfy to avoid limitations on capital distributions and certain discretionary bonus payments (i.e., the required minimum capital ratios plus the Capital Conservation Buffer):


	Minimum Basel III Regulatory Capital Ratio Plus Capital Conservation Buffer
	Effective January 1, 2019
CET1 risk-based capital ratio		7.0	%
Tier 1 risk-based capital ratio		8.5	%
Total risk-based capital ratio		10.5	%

As of December 31, ~~2020~~2021 the Company and the Bank are well-capitalized for regulatory purposes. For a tabular presentation of the Company’s and Bank’s capital ratios as of December 31, ~~2020,~~2021, see Note 1817 —

Regulatory Matters

of the notes to the consolidated financial statements.

In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable

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commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company and the Bank. The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.

Prompt Corrective Action Provisions

The Federal Deposit Insurance Act requires the federal bank regulatory agencies to take “prompt corrective action” with respect to a depository institution if that institution does not meet certain capital adequacy standards, including requiring the prompt submission of an acceptable capital restoration plan. Depending on the bank’s capital ratios, the agencies’ regulations define five categories in which an insured depository institution will be placed: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At each successive lower capital category, an insured bank is subject to more restrictions, including restrictions on the bank’s activities, operational practices or the ability to pay dividends or executive bonuses. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.

The prompt corrective action standards were changed to conform with the New Capital Rules. Under the new standards, in order to be considered well-capitalized, the bank will be required to meet the new common equity Tier 1 ratio of 6.5%, an increased Tier 1 ratio of 8% (increased from 6%), a total capital ratio of 10% (unchanged) and a leverage ratio of 5% (unchanged).

The federal banking agencies also may require banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed well capitalized, in which case institutions may no longer be deemed to be well capitalized and may therefore be subject to certain restrictions such as taking brokered deposits.

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

In response to the

COVID-19

pandemic, the CARES Act was signed into law on March 27, 2020 to provide national emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as the Company and the Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve and other federal banking agencies, including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as the

on-going

COVID-19

pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for

COVID-19.

On December 21, 2020, Congress passed, and on December 27, 2020 the President ~~Trump~~ signed, a $900 billion aid package which ~~provides~~provided additional funds for the PPP and ~~extends~~extended the time of the PPP to March 31, 2021. This legislation also permits second PPP loans to certain entities which are subject to forgiveness subject to meeting certain required criteria. ~~In addition, it~~It is possible that Congress ~~will~~could enact supplementary

COVID-19

response legislation, including amendments to the CARES Act or new bills comparable in scope to the CARES Act. The Company continues to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to the

COVID-19

pandemic.

Paycheck Protection Program.

The CARES Act amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations and self-employed persons during

COVID-19.

In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which among other things, gave borrowers additional time and flexibility to

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use PPP loan proceeds. The PPP Second Draw loan program was authorized by the Economic Aid Act enacted on December 27, 2020. Further, on January 13, 2021, the SBA reopened the PPP for Second Draw loans to small businesses and

non-profit

organizations that did receive a loan through the initial PPP phase. At least $25 billion has been set aside for Second Draw PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods. Generally speaking, businesses with more than 300 employees and/or less than a 25% reduction in gross receipts between comparable quarters in 2019 and 2020 are not eligible for Second Draw loans. Further, maximum loan amounts have been increased for accommodation and food service businesses.

Troubled Debt Restructuring and Loan Modifications for Affected Borrowers.

The CARES Act permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by

COVID-19

that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the

COVID-19

emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. The federal banking agencies also issued guidance to encourage banks to make loan modifications for borrowers affected by

COVID-19

and to assure banks that they will not be criticized by examiners for doing so. The Company applied this guidance to qualifying loan modifications. See Note 6 —

Loans and Lease Finance Receivables and Allowance for Credit Losses

of the Notes to the consolidated financial statements included in this report, which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form

10-K

for further information about the

COVID-19-related

loan modifications completed by the Company.

Federal Reserve Programs and Other Recent Initiatives Related to

COVID-19

Main Street Lending Program.

The CARES Act encouraged the Federal Reserve, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities. On April 9, 2020, the Federal Reserve proposed the creation of the Main Street Lending Program (“MSLP”) to implement certain of these recommendations. On June 15, 2020, the Federal Reserve Bank of Boston opened the MSLP for lender registration. The MSLP ~~supports~~supported lending to small and

medium-sized

businesses that were in sound financial condition before the onset of the

COVID-19

pandemic. The MSLP operates through five facilities: the Main Street New Loan Facility, the Main Street Priority Loan Facility, the Main Street Expanded Loan Facility, the Nonprofit Organization New Loan Facility, and the Nonprofit Organization Expanded Loan Facility. On July 28, 2020, the Federal Reserve announced it was extending the MSLP through December 31, 2020. The MSLP originally was scheduled to expire on or around September 30, 2020. The MSLP ceased issuing commitment letters under the

~~condition-of-funding~~

~~model as of December 23, 2020. No loans submitted under the~~

~~condition-of-funding~~

~~model can be purchased by the MSLP unless a commitment letter is issued on or before December 23, 2020.~~

Temporary Regulatory Capital Relief related to Impact of CECL.

Concurrent with enactment of the CARES Act, federal banking agencies issued an interim final rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined

under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial

two-year

delay. The federal banking agencies have since issued a final rule that makes certain technical changes to the interim final rule. The changes in the final rule apply only to those banking organizations that elect the CECL transition relief provided under the rule. The Company did not elect this option.

Volcker Rule

In December 2013, the federal bank regulatory agencies adopted final rules that implement a part of the Dodd-Frank Act commonly referred to as the “Volcker Rule.” Under these rules and subject to certain exceptions, banking entities are restricted from engaging in activities that are considered proprietary trading and from sponsoring or investing in certain entities, including hedge or private equity funds that are considered “covered funds.” These rules became effective on April 1, 2014, although certain provisions are subject to

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delayed effectiveness under rules promulgated by the FRB. The Company and the Bank held no investment positions at December 31, ~~2020~~2021 which were subject to the final rule. Therefore, while these new rules may require us to conduct certain internal analysis and reporting to ensure continued compliance, they did not require any material changes in our operations or business.

Brokered Deposits

The FDIC limits the ability to accept brokered deposits to those insured depository institutions that are well capitalized. Institutions that are less than well capitalized cannot accept, renew or roll over any brokered deposit unless they have applied for and been granted a waiver by the FDIC. The FDIC has defined the “national rate” for all interest-bearing deposits held by less-than-well-capitalized institutions as “a simple average of rates paid by all insured depository institutions and branches for which data are available” and has stated that its presumption is that this national rate is the prevailing rate in any market. As such, institutions that are less than well capitalized that are permitted to accept, renew or rollover brokered deposits via FDIC waiver generally may not pay an interest rate in excess of the national rate plus 75 basis points on such brokered deposits. As of December 31, ~~2020,~~2021, the Bank ~~categorized $32.2 million, or 0.27% of its~~had no deposit liabilities categorized as brokered deposits.

The FDIC has previously published industry guidance in the form of Frequently Asked Questions with respect to the categorization of deposit liabilities as brokered deposits. The FDIC published a proposed rule to modify the “national rate” definition that would apply to insured depository institutions that are less than well-capitalized in August 2019. In addition, in December 2019 and in connection with the Regulatory Relief Act, the FDIC published proposed revisions to its regulations relating to the brokered deposits restrictions. Specifically, the FDIC proposed to (i) revise the definition of the “facilitation” prong of the “deposit broker” definition; (ii) provide that a wholly-owned operating subsidiary be eligible for the insured depository institution exception to the deposit broker definition under certain circumstances; and (iii) amend the “primary purpose” exception. On December 15, 2020, the FDIC released a final rule, effective April 1, 2021 (with full compliance by January 1, 2022), which may encourage the update of certain bank services. The changes introduced by the final rule include, among other things, (i) adding definitions of “engaged in the business of placing deposits” and “engaged in the business of facilitating the placement of deposits,” (ii) establishing certain designated business exceptions that would automatically meet the “primary purpose” exception from the deposit broker definition (Designated Business Exceptions), and (iii) formalizing an application process for the “primary purpose” exception for parties that do not qualify for the Designated Business Exceptions. ~~The Company does not believe the final rule will have a material effect on its brokered deposits.~~

Bank Holding Company Regulation

Bank holding companies and their subsidiaries are subject to significant regulation and restrictions by Federal and State laws and regulatory agencies, which may affect the cost of doing business, and may limit permissible activities and expansion or impact the competitive balance between banks and other financial services providers.

A wide range of requirements and restrictions are contained in both federal and state banking laws, which together with implementing regulatory authority:

•

Require periodic reports and such additional reports of information as the Federal Reserve may require;

•

Require bank holding companies to meet or exceed increased levels of capital (See “Capital Adequacy Requirements”);

•

Require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank;

•

Limit of dividends payable to shareholders and restrict the ability of bank holding companies to obtain dividends or other distributions from their subsidiary banks. The Company’s ability to pay dividends on both its common and preferred stock is subject to legal and regulatory restrictions. Substantially all of CVB’s funds to

pay dividends or to pay principal and interest on our debt obligations are derived from dividends paid by the ~~Bank;~~

Bank to CVB;

•

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•

Require a bank holding company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary;

•

Require the prior approval of senior executive officer or director changes and prohibit golden parachute payments, including change in control agreements, or new employment agreements with such payment terms, which are contingent upon termination if an institution is in “troubled condition”;

•

Regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem securities in certain situations;

•

Require prior approval for the acquisition of 5% or more of the voting stock of a bank or bank holding company by bank holding companies or other acquisitions and mergers with banks and consider certain competitive, management, financial, anti-money-laundering compliance, potential impact on U.S. financial stability or other factors in granting these approvals, in addition to similar California or other state banking agency approvals which may also be required; and

•

Require prior notice and/or prior approval of the acquisition of control of a bank or a bank holding company by a shareholder or individuals acting in concert with ownership or control of certain percentage thresholds of the voting stock being a presumption of control.

Change in Bank Control

Federal law and regulation set forth the types of transactions that require prior notice under the Change in Bank Control Act (“CIBCA”). Pursuant to CIBCA and Regulation Y, any person (acting directly or indirectly) that seeks to acquire control of a bank or its holding company must provide prior notice to the Federal Reserve. A “person” includes an individual, bank, corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of entity. A person acquires “control” of a banking organization whenever the person acquires ownership, control, or the power to vote 25 percent or more of any class of voting securities of the institution. The applicable regulations also provide for certain other “rebuttable” presumptions of control.

In April 2020, the Federal Reserve adopted a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHCA. The final rule expands and codifies the presumptions for use in such determinations. By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve generally views as supporting a

facts-and-circumstances

determination that one company controls another company. The Federal ~~Reserve��s~~Reserve’s final rule applies to questions of control under the BHCA, but does not extend to CIBCA or applicable provisions of California law.

Other Restrictions on the Company’s Activities

Subject to prior notice or Federal Reserve approval, bank holding companies may generally engage in, or acquire shares of companies engaged in, activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Bank holding companies which elect and retain “financial holding company” status pursuant to the Gramm-Leach-Bliley Act of 1999 (“GLBA”) may engage in these nonbanking activities and broader securities, insurance, merchant banking and other activities that are determined to be “financial in nature” or are incidental or complementary to activities that are financial in nature without prior Federal Reserve approval. Pursuant to GLBA and Dodd-Frank, in order to elect and retain financial holding company status, a bank holding company and all depository institution subsidiaries of a bank holding company must be considered well capitalized and well managed, and, except in limited circumstances, depository subsidiaries must be in satisfactory compliance with the Community Reinvestment Act (“CRA”), which requires banks to help meet the credit needs of the communities in which they operate. Failure to sustain compliance with these requirements or correct any

non-compliance

within a fixed time period could lead to

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divestiture of subsidiary banks or require all activities to conform to those permissible for a bank holding company. CVB has not elected financial holding company status and neither CVB nor the Bank has engaged in any activities determined by the Federal Reserve to be financial in nature or incidental or complementary to activities that are financial in nature.

CVB is also a bank holding company within the meaning of Section 3700 of the California Financial Code. Therefore, CVB and any of its subsidiaries are subject to examination by, and may be required to file reports with, the California DFPI. DFPI approvals may also be required for certain mergers and acquisitions.

Securities Exchange Act of 1934

CVB’s common stock is publicly held and listed on the NASDAQ Stock Market (“NASDAQ”), and CVB is subject to the periodic reporting, information, proxy solicitation, insider trading, corporate governance and other requirements and restrictions of the Securities Exchange Act of 1934 and the regulations of the Securities and Exchange Commission (“SEC”) promulgated thereunder as well as listing requirements of NASDAQ.

Sarbanes-Oxley Act

The Company is subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002, including, among other things, required executive certification of financial presentations, requirements for board audit committees and their members, and disclosure of controls and procedures and internal control over financial reporting.

Bank Regulation

As a California commercial bank whose deposits are insured by the FDIC, the Bank is subject to regulation, supervision, and regular examination by the DFPI and by the FDIC, as the Bank’s primary Federal regulator, and must additionally comply with certain applicable regulations of the Federal Reserve. Specific federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, investments, loans, the nature and amount of and collateral for certain loans, servicing and foreclosing on loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions. California banks are also subject to statutes and regulations including Federal Reserve Regulation O and Federal Reserve Act Sections 23A and 23B and Regulation W, which restrict or limit loans or extensions of credit to “insiders”, including officers, directors, and principal shareholders, and loans or extension of credit by banks to affiliates or purchases of assets from affiliates, including parent bank holding companies, except pursuant to certain exceptions and only on terms and conditions at least as favorable to those prevailing for comparable transactions with unaffiliated parties. Failure to comply with applicable bank regulation or adverse results from any examinations of the Bank could affect the cost of doing business, and may limit or impede otherwise permissible activities and expansion activities by the Bank.

Pursuant to the Federal Deposit Insurance Act (“FDI Act”) and the California Financial Code, California state chartered commercial banks may generally engage in any activity permissible for national banks. Therefore, the Bank may form subsidiaries to engage in the many

so-called

~~“closely~~ “closely related to banking” or “nonbanking” activities commonly conducted by national banks in operating subsidiaries or in subsidiaries of bank holding companies. Further, California banks may conduct certain “financial” activities permitted under GLBA in a “financial subsidiary” to the same extent as may a national bank, provided the bank is and remains “well-capitalized,” “well-managed” and in satisfactory compliance with the CRA. The Bank currently has no financial subsidiaries.

FDIC and DFPI Enforcement Authority

The federal and California regulatory structure gives the bank regulatory agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with

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respect to the classification of assets and the establishment of appropriate loan loss reserves for regulatory purposes. The regulatory agencies have adopted guidelines to assist in identifying and addressing potential safety and soundness concerns before an institution’s capital becomes impaired. The guidelines establish operational and managerial standards generally relating to: (1) internal controls, information systems, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest-rate exposure; (5) asset growth and asset quality; and (6) compensation, fees, and benefits. Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves. If, as a result of an examination, the DFPI or the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the DFPI and the FDIC, and separately the FDIC as insurer of the Bank’s deposits, have residual authority to:

•

Require affirmative action to correct any conditions resulting from any violation or practice;

•

Direct an increase in capital and the maintenance of higher specific minimum capital ratios, which could preclude the Bank from being deemed well capitalized and restrict its ability to accept certain brokered deposits;

•

Restrict the Bank’s growth geographically, by products and services, or by mergers and acquisitions, including bidding in FDIC receiverships for failed banks;

•

Enter into or issue informal or formal enforcement actions, including required Board resolutions, Matters Requiring Board Attention (MRBA), written agreements and consent or cease and desist orders or prompt corrective action orders to take corrective action and cease unsafe and unsound practices;

•

Require prior approval of senior executive officer or director changes; remove officers and directors and assess civil monetary penalties; and

•

Terminate FDIC insurance, revoke the charter and/or take possession of and close and liquidate the Bank or appoint the FDIC as receiver.

Mergers and Acquisitions

On July 9, 2021, President Biden signed an “Executive Order on Promoting Competition in the American Economy.” Included within the order is a sweeping recommendation that the Attorney General, in consultation with the heads of the FRB, FDIC and OCC review current practices and adopt a plan within 180 days for the “revitalization” of bank merger oversight to provide more extensive scrutiny of mergers. We will continue to evaluate the impact of any changes to the regulations implementing this executive order and their impact to our financial condition, results of operations and/or business strategies, which cannot be predicted at this time.

Deposit Insurance

The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and savings institutions and safeguards the safety and soundness of the banking and savings industries. The FDIC insures our customer deposits through the DIF up to prescribed limits for each depositor. The Dodd-Frank Act revised the FDIC’s DIF management authority by setting requirements for the Designated Reserve Ratio (the DIF balance divided by estimated insured deposits) and redefining the assessment base, which is used to calculate banks’ quarterly assessments. The amount of FDIC assessments paid by each DIF member institution is based on its asset size and relative risk of default as measured by regulatory capital ratios and other supervisory factors. The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank’s depositors. The termination of deposit insurance for a bank would also result in the revocation of the bank’s charter by the DFPI.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance, which can be affected by the cost of bank failures to the FDIC among other factors. The FDIC is an independent federal agency that insures deposits through the DIF up to prescribed statutory limits of federally insured banks and savings institutions and safeguards the safety and soundness of the banking and savings industries. The Dodd-Frank Act revised the FDIC’s DIF management authority by setting requirements for the Designated Reserve Ratio (the “DRR”, calculated as the DIF balance divided by estimated insured deposits) and redefining the assessment base which is used to calculate banks’ quarterly assessments. The amount of FDIC assessments paid by each DIF member institution is based on its asset size and its relative risk of default as measured by regulatory capital ratios and other supervisory factors.

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On September 30, 2018, the DRR reached 1.36%. Because the reserve ratio has exceeded 1.35%, two deposit insurance assessment changes occurred under the FDIC regulations: 1) surcharges on large banks (total consolidated assets of $10 billion or more) ended; the last surcharge on large banks was collected on December 28, 2018. and 2) small banks (total consolidated assets of less than $10 billion) were awarded assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from 1.15% to 1.35%, to be applied when the reserve ratio is at least 1.38%. The FDIC will, at least semi-annually, update its income and loss projections for the Deposit Insurance Fund and, if necessary, propose rules to further increase assessment rates. Any future increases in FDIC insurance premiums may have a material and adverse effect on our earnings and could have a material adverse effect on the value of, or market for, our common stock.

Dividends

It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. The Federal Reserve also discourages dividend payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. In addition, a bank holding company may be unable to pay dividends on its common stock if it fails to maintain an adequate capital conservation buffer under the Current Capital Rules.

The Federal Reserve also maintains a policy that redemptions of instruments included in regulatory capital and repurchases of common stock from investors be consistent with an organization’s current and prospective capital needs. We consult with the Federal Reserve regarding our plans for common stock repurchases.

The Bank is a legal entity that is separate and distinct from its holding company. CVB relies on dividends received from the Bank for use in the operation of the Company and the ability of CVB to pay dividends to shareholders. Future cash dividends by the Bank will also depend upon management’s assessment of future capital requirements, contractual restrictions, and other factors. The Current Capital Rules may restrict dividends by the Bank if the additional capital conservation buffer is not achieved. See “Capital Adequacy Requirements”.

The ability of the Bank to declare a cash dividend to CVB is subject to California law, which restricts the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to shareholders made during such period). Where the above test is not met, cash dividends may still be paid, with the prior approval of the DFPI, in an amount not exceeding the greatest of (1) retained earnings of the bank; (2) the net income of the bank for its last fiscal year; or (3) the net income of the bank for its current fiscal year.

Compensation

~~The~~

Under regulatory guidance applicable to all banking organizations, incentive compensation policies must be consistent with safety and soundness principles. Under this guidance, financial institutions must review their compensation programs to ensure that they: (i) provide employees with incentives that appropriately balance risk and reward and that do not encourage imprudent risk, (ii) are compatible with effective controls and risk management, and (iii) are supported by strong corporate governance, including active and effective oversight by the banking organization’s board of directors. Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation. During 2016, as required by the Dodd-Frank Act, ~~requires~~ the federal bank ~~regulators~~regulatory agencies and the SEC ~~to establish joint regulations or guidelines prohibiting~~proposed revised rules on incentive-based payment arrangements at specified regulated entities ~~including the Company and the Bank,~~ having at least $1 billion inof total assets (including the Company and Citizens Business Bank). These proposed rules have not been finalized. In October 2021, the SEC reopened the comment period on its 2015 proposed rule to implement its provisions on incentive compensation which would require (i) national securities exchanges to establish listing standards that ~~encourage inappropriate risks by~~would require each issuer to develop and implement a policy providing ~~an executive officer, employee, director or principal stockholder with excessive compensation, fees or benefits or that could lead to material financial loss to~~for the ~~entity. In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators~~recovery of incentive-based compensation ~~arrangements. The agencies proposed such regulations initially in April 2011~~based on financial information required to be reported under the securities laws that is received by current or former executive officers and ~~in April 2016, the Federal Reserve and other federal financial agencies~~

~~re-proposed~~

restrictions on incentive-based compensation. For institutions with at least $1 billion but less than $50 billion in total consolidated assets, such as the Company and the Bank, the proposal would impose principles-based restrictions that are broadly consistent with existing interagency guidance on incentive-based compensation. Such institutions would be prohibited from entering into incentive compensation arrangements that encourage inappropriate risks by the institution (1) by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits, or (2) that could lead to material financial loss to the institution. The proposal would also impose certain governance and recordkeeping requirements on institutions(ii) disclosure of the ~~Company’s and the Bank’s size. The regulatory organizations would reserve the authority to impose more stringent requirements on institutions of the Company’s and the Bank’s size.~~

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policy.

Cybersecurity and Data Breaches

Federal regulators have issued multiple statements regarding cybersecurity and that financial institutions need to design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. In addition, a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations in the event of a cyber-attack. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or one of its critical service providers fall victim to a cyber-attack. In November 2021, the federal banking agencies adopted a final rule, with compliance required by May 1, 2022, that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states, notably including California where we conduct substantially all our banking business, have adopted laws and/or regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many such states have also implemented or modified their data breach notification and data privacy requirements including California and New York. We expect this trend of state-level activity in those areas to continue, and we continue to monitor relevant legislative and regulatory developments in California where nearly all our customers are located.

In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ a layered, defensive approach that leverages people, processes and

technology to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date we have not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers. In addition, to the extent we experience any data breaches, we may become subject to governmental fines or enforcement actions as well as potential liability arising out of governmental or private litigation. See Item 1A. Risk Factors for a further discussion of risks related to cybersecurity and data breaches.

Operations and Consumer Compliance Laws

The Bank must comply with numerous federal and state anti-money laundering and consumer protection statutes and implementing regulations, including the USA PATRIOT Act of 2001, the Bank Secrecy Act, the Foreign Account Tax Compliance Act, the CRA, the California Consumer Privacy Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, the California Homeowner Bill of Rights and various federal and state privacy protection laws, including the Telephone Consumer Protection Act ,

CAN-SPAM

Act. Noncompliance with any of these laws could subject the Bank to compliance enforcement actions as well as lawsuits and could also result in administrative penalties, including, fines and reimbursements. The Bank and the Company are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition.

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These laws and regulations mandate certain disclosure and reporting requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, servicing, collecting and foreclosure of loans, and providing other services. Failure to comply with these laws and regulations can subject the Bank and the Company to various penalties, including but not limited to enforcement actions, injunctions, fines or criminal penalties, punitive damages to consumers, and the loss of certain contractual rights.

The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.

The Bank received an overall “Satisfactory” rating in its most recent FDIC CRA performance evaluation, which measures how financial institutions support their communities in the areas of lending, investment and service tests. The Bank received a “High Satisfactory” rating for both the lending and the investment tests and an “Outstanding” rating for the service test.

In December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) jointly proposed rules that would significantly change existing CRA regulations. The proposed rules are intended to increase bank activity in

low-

and moderate-income communities where there is significant need for credit, more responsible lending, greater access to banking services, and improvements to critical infrastructure. The proposals change four key areas: (i) clarifying what activities qualify for CRA credit; (ii) updating where activities count for CRA credit; (iii) providing a more transparent and objective method for measuring CRA performance; and (iv) revising

CRA-related

data collection, record keeping, and reporting. However, the Federal Reserve Board did not join in that proposed rulemaking. ~~While~~In June 2020, the OCC issued its final CRA rule, effective October 1, 2020, while the FDIC ~~has~~did not ~~finalized the~~finalize any revisions to its CRA rule. In September 2020, the Federal Reserve Board issued an Advance Notice of Proposed Rulemaking (“ANPR”) that ~~invites~~invited public comment on an approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core purpose of the CRA. The ANPR ~~seeks~~sought feedback on ways to evaluate how banks meet the needs of

low-

and moderate-income communities and address inequities in credit access. ~~As such, we~~In December 2021, the OCC issued a final rule to rescind its June 2020 final rule in favor of working with other agencies to put forward a joint rule. We will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.

The Dodd-Frank Act provided for the creation of the Bureau of Consumer Finance Protection (“CFPB”) as an independent entity within the Federal Reserve with broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards. The CFPB’s functions include investigating consumer complaints, conducting market research, rulemaking, and enforcing rules related to consumer financial products and services. CFPB regulations and guidance apply to all covered persons and banks with $10 billion or more in assets, such as the Bank. Accordingly, the Bank is subject to CFPB supervision including examination by the CFPB.

The CFPB has finalized a number of significant rules which impact nearly every aspect of the lifecycle of a residential mortgage loan. These rules implement the Dodd-Frank Act amendments to the Equal Credit Opportunity Act, the Truth in Lending Act and the Real Estate Settlement Procedures Act. Among other things, the rules adopted by the CFPB require covered persons including banks making residential mortgage loans to: (i) develop and implement procedures to ensure compliance with an

~~“ability-to-repay”~~

“ability-to-repay” test and identify whether a loan meets a new definition for a “qualified mortgage”, in which case a rebuttable presumption exists that the creditor extending the loan has satisfied the

ability-to-repay

test; (ii) implement new or revised disclosures, policies and procedures for originating and servicing mortgages including, but not limited to,

pre-loan

counseling, early intervention with delinquent borrowers and specific loss mitigation procedures for loans

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secured by a borrower’s principal residence; (iii) comply with additional restrictions on mortgage loan originator hiring and compensation; (iv) comply with new disclosure requirements and standards for appraisals and certain financial products; and (v) maintain escrow accounts for higher-priced mortgage loans for a longer period of time.

The review of products and practices to prevent unfair, deceptive or abusive acts or practices (“UDAAP”) is a continuing focus of the CFPB, and of banking regulators more broadly. The ultimate impact of this heightened scrutiny is uncertain but could result in changes to pricing, practices, products and procedures. It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible penalties. In addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged violations of UDAAP and other legal requirements and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices. The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. State regulation of financial products and potential enforcement actions could also adversely affect the Bank’s business, financial condition or results of operations.

The federal bank regulators have adopted rules limiting the ability of banks and other financial institutions to disclose

non-public

information about consumers to unaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.

Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions.

Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Under the final rules, the maximum permissible interchange fee is equal to no more than 21 cents plus 5 basis points of the transaction value for many types of debit interchange transactions. The Federal Reserve also adopted a rule to allow a debit card issuer to recover one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements required by the Federal Reserve. The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.

Commercial Real Estate Concentration Limits

In December 2006, the federal banking regulators issued guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” to address increased concentrations in commercial real estate, or CRE, loans. In addition, in December 2015, the federal bank agencies issued additional guidance entitled “Statement on Prudent Risk Management for Commercial Real Estate Lending.” Together, these guidelines describe the criteria the agencies will

use as indicators to identify institutions potentially exposed to CRE concentration risk. An institution that has (i) experienced rapid growth in CRE lending, (ii) notable exposure to a specific type of CRE, (iii) total reported loans for construction, land development, and other land representing 100% or more of the institution’s capital, or (iv) total CRE loans (which excludes owner-occupied CRE loans) representing 300% or more of the institution’s capital, and the outstanding balance of the institutions CRE portfolio has increased by 50% or more in the prior 36 months, may be identified for further supervisory

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analysis of the level and nature of its CRE concentration risk. As of December 31, ~~2020,~~2021, the Bank’s total CRE loan concentration based on total outstanding loans is ~~254% of risk-based capital; adding unfunded loan commitments, the CRE loan concentration increases to 275%~~ 263% of risk-based capital.

Office of Foreign Assets Control Regulation

The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. We are responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”)

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“Tax Reform Act”) was signed into law. The Tax Reform Act included a number of provisions that impact us, including the following:

•

Tax Rate. The Tax Reform Act replaces the corporate tax rates applicable under prior law, which imposed a maximum tax rate of 35%, with a reduced 21% tax rate for 2018. Although the reduced tax rate generally should be favorable to us by resulting in lower tax expense in future periods, it decreased the value of our existing deferred tax assets as of December 31, 2017. Generally accepted accounting principles (“GAAP”) requires that the impact of the provisions of the Tax Reform Act be accounted for in the period of ~~enactment. Accordingly, the incremental income tax expense recorded by the Company in the fourth quarter of 2017 related to the Tax Reform Act was $13.2 million, resulting primarily from a~~

~~re-measurement~~

~~of deferred tax assets;~~enactment;

•

FDIC Insurance Premiums. The Tax Reform Act prohibits taxpayers with consolidated assets over $50 billion from deducting any FDIC insurance premiums and prohibits taxpayers with consolidated assets between $10 and $50 billion from deducting the portion of their FDIC premiums equal to the ratio, expressed as a percentage, that (i) the taxpayer’s total consolidated assets over $10 billion, as of the close of the taxable year, bears to (ii) $40 ~~billion;~~

billion. As a result our ability to deduct FDIC premiums is limited;

•

Employee Compensation. A “publicly held company” is not permitted to deduct compensation in excess of $1 million per year paid to certain employees. The Tax Reform Act eliminates certain exceptions to the $1 million limit applicable under prior law related to performance-based compensation, such as equity grants and cash bonuses that are paid only on the attainment of performance goals. As a result, our ability to deduct certain compensation paid to our most highly compensated employees is limited; and

•

Business Asset Expensing. The Tax Reform Act allows taxpayers immediately to expense the entire cost (instead of only 50%, as under prior law) of certain depreciable tangible property and real property improvements acquired and placed in service after September 27, 2017 and before January 1, 2023 (with an additional year for certain property). This 100% “bonus” depreciation is phased out proportionately for property placed in service on or after January 1, 2023 and before January 1, 2027 (with an additional year for certain property).

The foregoing description of the impact of the Tax Reform Act on us should be read in conjunction with Note 11 —

Income Taxes

of the notes to consolidated financial statements for more information.

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Future Legislation and Regulation

Congress may enact, modify or repeal legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact, modify or repeal legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of proposed legislation (or modification or repeal of existing legislation) could impact the regulatory structure under which the Company and Bank operate and may significantly increase its costs, impede the efficiency of its internal business processes, require the Bank to increase its regulatory capital and modify its business strategy, and limit its ability to pursue business opportunities

in an efficient manner. The Company’s business, financial condition, results of operations or prospects may be adversely affected, perhaps materially.

Available Information

Reports filed with the SEC include our proxy statements, annual reports on Form

10-K,

quarterly reports on Form

10-Q

and current reports on Form

8-K.

The SEC maintains a website that contains the reports, proxy and information statements and other information we file with them. The address of the site is http://www.sec.gov. The Company also maintains an Internet website at http://www.cbbank.com. We make available, free of charge through our website, our Proxy Statement, Annual Report on Form

10-K,

Quarterly Reports on Form

10-Q,

and Current Reports on Form

8-K,

and any amendments thereto, as soon as reasonably practicable after we file such reports with the SEC. None of the information contained in or hyperlinked from our website is incorporated into this Form

10-K.

Executive Officers of the Company

The following sets forth certain information regarding our executive officers, their positions and their ages.


		~~Executive Officers:~~

~~Name~~	Executive Officers:	~~Position~~	~~Age~~

Name	Position	Age

David A. Brager		President and Chief Executive Officer of the Company and the Bank	53 54
E. Allen Nicholson		Chief Financial Officer of the Company and Executive Vice President and Chief Financial Officer of the Bank	53 54
David F. Farnsworth		Executive Vice President and Chief Credit Officer of the Bank	64 65
David C. Harvey		Executive Vice President and Chief Operations Officer of the Bank	53 54
Richard H. Wohl		Executive Vice President and General Counsel	62 63
Yamynn DeAngelis		Executive Vice President and Chief Risk Officer	64 65

Mr.

Brager

was appointed Chief Executive Officer of the Company and the Bank on March 16, 2020. ~~Mr. Brager’s appointment followed the previously announced retirement of Christopher D. Myers, the Company’s President and Chief Executive Officer, effective as of March 15, 2020. In addition,~~Effective November 19, 2021, Mr. Brager was ~~appointed to~~also named President of the Company and the Bank. Mr. Brager also serves on the Board of Directors of ~~CVB~~the Company and the ~~Bank as of March 16, 2020.~~Bank. Mr. Brager

assumed the position of Executive Vice President and Sales Division Manager of the Bank on November 22, 2010. From 2007 to 2010, he served as Senior Vice President and Regional Manager of the Central Valley Region for the Bank. From 2003 to 2007, he served as Senior Vice President and Manager of the Fresno Business Financial Center for the Bank. From 1997 to 2003, Mr. Brager held management positions with Westamerica Bank.

Mr.

Nicholson

was appointed Chief Financial Officer of the Company and Executive Vice President and Chief Financial Officer of the Bank on May 4, 2016. Previously, Mr. Nicholson served as Executive Vice President and Chief Financial Officer of Pacific Premier Bank and its holding company, Pacific Premier Bancorp Inc. from June of 2015 to May of 2016, and from 2008 to 2014, Mr. Nicholson was Chief Financial Officer of 1st Enterprise Bank. From 2005 to 2008, he was the Chief Financial Officer of Mellon First Business Bank.

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Mr.

Farnsworth

was appointed Executive Vice President and Chief Credit Officer of the Bank on July 18, 2016. Prior to his appointment, Mr. Farnsworth was Executive Vice President, Global Risk Management, and National CRE Risk Executive at BBVA Compass. Previously, Mr. Farnsworth held senior credit management positions with US Bank and AmSouth.

Mr.

Harvey

was appointedExecutive Vice President and Chief Operating Officer of the Bank on February 23, 2022. He previously assumed the position of Executive Vice President and Chief Operations Officer of the Bank on December 31, 2009. From 2000 to 2008, he served as Senior Vice President and Operations Manager at Bank of the West. From 2008 to 2009 he served as Executive Vice President and Commercial and Treasury Services Manager at Bank of the West.

Mr.

Wohl

was initially appointed Executive Vice President and General Counsel of the Company and the Bank on October 11, 2011, and he rejoined the Company and the Bank in the same position on July 10, 2017 after a

one-year

hiatus at another financial institution. Prior to his initial appointment in 2011, Mr. Wohl served in senior business and legal roles at Indymac Bank, the law firm of Morrison & Foerster, and the U.S. Department of State.

Ms.

DeAngelis

assumed the position of Executive Vice President and Chief Risk Officer of the Bank on January 5, 2009. From 2006 to 2008, she served as Executive Vice President and Service Division Manager for the Bank. From 1995 to 2005, she served as Senior Vice President and Division Service Manager for the Bank.

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~~ITEM 1A.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

Risk Factors That May Affect Future Results — Together with the other information on the risks we face and our management of risk contained in this Annual Report or in our other SEC filings, the following presents significant risks which may affect us. Events or circumstances arising from one or more of these risks could adversely affect our business, financial condition, operating results and prospects and the value and price of our common stock could decline. The risks identified below are not intended to be a comprehensive list of all risks we face, and additional risks that we may currently view as not material may also impair our business operations and results.

Risks relating to the

COVID-19

Pandemic

The COVID-19

pandemic has significantly impacted the banking industry and our business. The ultimate impact on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19

pandemic has negatively impacted the global, U.S., California and local economies, disrupted supply chains, ~~lowered~~affected equity market valuations, and created significant volatility and disruption in financial markets, although economic growth and ~~sharply increased unemployment levels. In addition,~~employment levels had largely rebounded by the ~~pandemic has resulted in~~end of 2021. Similarly, the initial imposition of temporary business closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities ~~including in California and~~have been relaxed or rescinded as the ~~principal counties and cities in which our banking centers are located.~~COVID-19 pandemic has become more endemic. Our operations, like those of other financial institutions that operate in our markets, are significantly influenced by economic conditions in California, including the strength of the real estate market and business conditions in the industries to which we lend or from which we gather deposits.

The COVID-19

pandemic has resulted in ~~a substantial decline in~~heightened volatility with respect to the revenues of many business sectors as well as in commercial and residential property sales and construction activities. As a result, the demand for our products and services has been, and may continue to be, significantly ~~impacted.~~

~~Furthermore,~~impacted, depending on developments related to the pandemic ~~could further influence~~and the ~~recognition~~actions of ~~credit losses~~federal, state and local governments in response to the pandemic.

As there continues to be a degree of uncertainty around the epidemiological assumptions and impact of government responses to the pandemic that impact our ~~loan portfolios and further increase our~~economic forecast, no assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in an increased allowance for credit losses particularly as many businesses remain closed or partially open. Our customers could be expected to draw further on their lines of credit or to seek deferments of scheduled loan payments to help mitigate the effects of lost revenues. We implemented CECL, for determining our overall provision for credit losses, at the beginning of the first quarter of 2020.in future periods. For the year ended December 31, ~~2020,~~2021, our allowance for credit losses ~~increased by~~decreased $25.5 million, compared to an increase of $23.5 million in provision for credit losses ~~primarily~~for 2020. The decrease in our allowance for credit losses was due to the ~~forecasted impact~~

improved outlook in our forecast of ~~COVID-19~~

on certain ~~economic~~macroeconomic variables that ~~may cause distress to our loan portfolios. In addition, through January 15, 2021 we have temporary payment deferments~~were influenced by the economic impact of ~~interest or~~the pandemic: including various government responses, availability of ~~principal~~vaccines, and ~~interest to customers for six loans, with a gross balance of $10 million, or 0.12% of our total loan portfolio at December 31, 2020.~~fiscal and monetary stimulus. Depending on the scope and duration of

the COVID-19

pandemic, ~~we believe~~ there is a possibility that increased provisions for credit losses ~~could prove~~may be necessary in the future.

Similarly, because of changing economic and market conditions affecting bond issuers, we may be required to recognize credit losses in future periods on the securities we hold as well as reductions in other comprehensive income. Our business operations may also be disrupted if significant or critical portions of our workforce or managers are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. In response to the pandemic, and to comply with or follow various government recommendations or mandates, we have also suspended certain real property foreclosure actions and sales, and in certain instances, we are providing fee waivers, payment deferrals, and other expanded assistance for our business and mortgage customers.

We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of the COVID-19 pandemic in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. In addition, we rely upon our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers.

The extent to which

the COVID-19

pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are ~~highly~~ uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness, distribution and uptake rates of vaccines, boosters and medical treatments, and actions taken by governmental authorities and other third parties in response to the pandemic.

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Our bank ~~has~~ elected to participate as a lender in the Small Business Administration’s Paycheck Protection Program (PPP) and to register as an Eligible Lender under the Federal Reserve’s Main Street Lending Program (MSLP), and has accordingly become subject to a number of significant risks applicable to lenders under the PPP and MSLP, respectively.

As one set of responses to

the COVID-19

pandemic, our federal, state and local governments have promulgated a wide variety of laws, regulations, executive orders and programs designed to ameliorate the severe and widespread economic distress caused by the mandatory closings of many businesses throughout the State of California and counties in which we operate. One such program is the PPP enacted under the federal CARES Act and Economic Aid Act. This program is designed, among other things, to provide employee payroll maintenance support for small and

medium-sized

businesses throughout the United States, including in the State of California, through loans made by authorized lenders and guaranteed by the federal Small Business Administration (SBA). Because the Company is an authorized SBA lender and our primary customer base consists of small and

medium-sized

businesses, the Company has actively participated in the PPP. Including the second round of funding, after legislation passed on April 24, 2020, we originated and funded approximately 4,100 PPP loans totaling approximately ~~$1.10~~$1.1 billion, of which ~~$883.0 million~~$1.1 billion was ~~outstanding at~~forgiven through December 31, ~~2020.~~

2021.On January 13, 2021, the SBA reopened the PPP for Second Draw loans to small businesses and

non-profit

approximately $420 million, of which $186.6 million was outstanding at December 31, 2021.

Under interim final regulations promulgated by the SBA, PPP lenders are entitled to rely on borrower certifications with respect to issues such as program eligibility and eligible loan amounts, and PPP loans are designed to be subsequently forgivable, in whole or part, if certain additional criteria are met by the borrower with respect to employee payroll maintenance. However, in view of the fact that the PPP was by design intended to support economically distressed businesses, the SBA’s guarantee of PPP loan amounts to participating lenders is a critical feature of the program. In this regard, because the PPP was quickly implemented into operation and the SBA’s interim regulations have been repeatedly revised and are continuing to evolve, there are significant risks to the Company’s participation in the PPP, including whether certain borrowers will ultimately be found to have been eligible for PPP loans, whether eligible PPP loan amounts for certain borrowers were correctly calculated, whether certain PPP loans will ultimately be determined to be forgivable, and if not, whether the SBA’s guarantee will continue to apply to any unforgiven PPP loan amounts. ~~As of January 15, 2021, approximately 1,100 loans, representing nearly $260 million, were submitted to the SBA and granted forgiveness.~~ To date, our customers who have had their forgiveness requests reviewed by the SBA have received nearly 100% loan forgiveness.

~~Another program enacted pursuant to the federal CARES Act and designed to help provide support to small and~~

~~medium-sized~~

~~businesses and their employees throughout the U.S., including California, is the Federal Reserve’s MSLP. The Company has elected to participate as an Eligible Lender under at least~~

~~three sub-facilities~~

of the MSLP, including the Main Street New Loan Facility, the Main Street Priority Loan Facility and the Nonprofit Organization New Loan Facility. Each of these lending facilities offers different terms and conditions, including with respect to borrower eligibility criteria, maximum loan amounts, whether loan proceeds can be utilized to refinance borrower indebtedness to other lenders, contractual

~~priority, non-subordination~~

and collateralization requirements, etc. Eligible Lenders may extend new MSLP loans to eligible borrowers and sell a 95% participation in each MSLP loan to a special purpose vehicle established by the Federal Reserve Bank of Boston (“Main Street SPV”), subject to numerous borrower and lender certifications and covenants and the terms of a Loan Participation Agreement and a Servicing Agreement.

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In contrast to the PPP, loans under the MSLP are not forgivable, carry an adjustable rate of interest at LIBOR (one or three month) plus 300 basis points, require the payment of specified fees, and must be repaid in full at the end of a five-year maturity period, with principal repayment commencing after a deferment period consisting of the first two years following loan origination. In addition, Eligible Lenders must retain five percent of each MSLP loan and continue to service such loan until it matures or the Main Street SPV sells all of its 95% participation interest. In this regard, because the MSLP is a newly constituted program without any established operating history, there are significant risks to the Company’s participation in the MSLP, including whether certain borrowers will ultimately be found to have been eligible for MSLP loans, whether the numerous required lender and borrower certifications will be found to have been made in good faith, whether the borrower will remain in compliance with the terms and conditions of its MSLP loan throughout its applicable term, whether any given lender or MSLP loan will be found to have been in compliance with the terms of the Main Street SPV’s Loan Participation Agreement and/or Servicing Agreement, and whether any individual MSLP loan will be repaid by the borrower on schedule, and, if not, whether the Main Street SPV will seek recourse against the originating lender. As of December 31, ~~2020, we~~2021, approximately 99% of PPP loans originated ~~three loans under this program.~~

in Round 1 have received forgiveness and a total of $239 million of Second Draw PPP have been submitted to the SBA and granted forgiveness.

Credit Risks

Our allowance for credit losses may not be sufficient to cover actual losses

A significant source of risk arises from the possibility that we could sustain losses because borrowers, guarantors, and related parties may fail to perform in accordance with the terms of their loans and leases. The underwriting and credit monitoring policies and procedures that we have adopted to address this risk may not prevent unexpected losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. We maintain an allowance for credit losses to provide for loan and lease defaults and

non-performance,

which also includes increases for new loan growth. While we believe that our allowance for credit losses is appropriate to cover expected losses, we cannot assure you that we will not increase the allowance for credit losses further or that regulators will not require us to increase this allowance.

We may be required to make additional provisions for credit losses and

charge-off

additional loans in the future, which could adversely affect our results of operations

For the year ended December 31, ~~2020,~~2021, we recorded ~~$23.5~~$25.5 million in recapture of loan loss provision. During ~~2020~~2021, we experienced charge-offs of ~~$666,000~~$3.4 million and recoveries of ~~$358,000.~~$198,000. Because we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as ~~collateral.~~collateral for our loans. As of December 31, ~~2020,~~2021, we had ~~$5.50~~$5.79 billion in commercial real estate loans, ~~$85.1~~$62.3 million in construction loans, and ~~$270.5~~$240.7 million in single-family residential mortgages. Although the U.S. economy has emerged from a prior period of severe recession followed by slower than normal growth, business activity and real estate values continue to grow more slowly than in past economic recoveries, and may not recover fully or could again decline from current levels, and this in turn could

affect the ability of our loan customers to service their debts, including those customers whose loans are secured by commercial or residential real estate. This, in turn, could result in loan charge-offs and provisions for credit losses in the future, which could have a material adverse effect on our financial condition, net income and capital. In addition, the Federal Reserve Board and other government officials have expressed concerns about banks’ concentration in commercial real estate lending and the ability of commercial real estate borrowers to perform pursuant to the terms of their loans.

Dairy & livestock and agribusiness lending presents unique credit risks.

As of December 31, ~~2020,~~2021, approximately ~~4.4%~~4.9% of our total gross loan portfolio was comprised of dairy & livestock and agribusiness loans. As of December 31, ~~2020,~~2021, we had ~~$361.1~~$386.2 million in dairy & livestock and agribusiness loans, including ~~$320.1~~$351.7 million in dairy & livestock loans and ~~$41.0~~$34.5 million in agribusiness loans. Repayment of dairy & livestock and agribusiness loans depends primarily on the successful raising and feeding of livestock or planting and harvest of crops and marketing the harvested commodity (including milk production). Collateral securing these loans may be illiquid. In addition, the limited purpose of some

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agricultural-related

collateral affects credit risk because such collateral may have limited or no other uses to support values when loan repayment problems emerge. Our dairy & livestock and agribusiness lending staff have specific technical expertise that we depend on to mitigate our lending risks for these loans and we may have difficulty retaining or replacing such individuals. Many external factors can impact our agricultural borrowers’ ability to repay their loans, including adverse weather conditions, water issues, commodity price volatility (i.e. milk prices), diseases, land values, production costs, changing government regulations and subsidy programs, changing tax treatment, technological changes, labor market shortages/increased wages, and changes in consumers’ preferences, over which our borrowers may have no control. These factors, as well as recent volatility in certain commodity prices, including milk prices, could adversely impact the ability of those to whom we have made dairy & livestock and agribusiness loans to perform under the terms of their borrowing arrangements with us, which in turn could result in credit losses and adversely affect our business, financial condition and results of operations.

Our loan portfolio is predominantly secured by real estate in California and thus we have a higher degree of risk from a downturn in our real estate markets

A renewed downturn in our real estate markets could hurt our business because ~~many~~most of our loans are secured by real estate. Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies, and acts of nature, such as earthquakes, prolonged drought and disasters particular to California. Substantially all of our real estate collateral is located in the state of California. If real estate values, including values of land held for development, should again start to decline, the value of real estate collateral securing our loans could be significantly reduced. Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and we would be more likely to suffer losses on defaulted loans. Commercial real estate loans typically involve large balances to single borrowers or a group of related borrowers. Since payments on these loans are often dependent on the successful operation or management of the properties, as well as the business and financial condition of the borrower(s), repayment of such loans may be subject to adverse conditions in the real estate market, adverse economic conditions or changes in applicable government regulations.

Additional risks associated with our real estate construction loan portfolio include failure of developers and/or contractors to complete construction on a timely basis or at all, market deterioration during construction, cost overruns and failure to sell or lease the security underlying the construction loans so as to generate the cash flow anticipated by our borrower.

A decline in the economy may cause renewed declines in real estate values and increases in unemployment, which may result in higher than expected loan delinquencies or problem assets, a decline in demand for our products and services, or a lack of growth or decrease in deposits, which may cause us to incur losses, adversely affect our capital or hurt our business.

Our commercial real estate loan portfolio exposes us to risks that may be greater than the risks related to our other loans

Federal and state banking regulators are examining commercial real estate lending activity with heightened scrutiny and may require banks with higher levels of commercial real estate loans to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels as a result of commercial real estate lending growth and exposures. Because a significant portion of our loan portfolio is comprised of commercial real estate loans, the banking regulators may require us to maintain higher levels of

capital than we would otherwise be expected to maintain, which could limit our ability to leverage our capital and have a material adverse effect on our business, financial condition, results of operations and prospects.

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We are exposed to risk of environmental liabilities with respect to properties to which we take title

In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. While we will take steps to mitigate this risk, we may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and

clean-up

costs incurred by these parties in connection with environmental contamination, or we may be required to investigate or

clean-up

hazardous or toxic substances, or chemical releases at one or more properties. The costs associated with investigation or remediation activities could be substantial. In addition, while there are certain statutory protections afforded lenders who take title to property through foreclosure on a loan, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we become subject to significant environmental liabilities, our business, financial condition, results of operations and prospects could be adversely affected.

Liquidity and Interest Rate Risks

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole. Many if not all of these same factors could also significantly raise the cost of deposits to our Company and/or to the banking industry in general. This in turn could negatively affect the amount of interest we pay on our interest-bearing liabilities, which could have an adverse impact on our interest rate spread and profitability.

The actions and commercial soundness of other financial institutions could affect our ability to engage in routine funding transactions

Financial service institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to different industries and counterparties, and execute transactions with various counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual funds, and other institutional clients. Defaults by financial services institutions, even rumors or questions about one or more financial institutions or the financial services industry in general, could lead to market wide liquidity problems and further, could lead to losses or defaults by the Company or other institutions. Many of these transactions expose us to credit risk in the event of default of the applicable counterparty or client. In addition, our credit risk may increase when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to us. Any such losses could materially and adversely affect our consolidated financial statements.

Changes in interest rates could reduce the value of our investment securities holdings.

The Bank maintains an investment portfolio consisting of various high quality liquid fixed-income securities. The total book value of the securities portfolio as of December 31, ~~2020~~2021 was ~~$2.98~~$5.11 billion, of which ~~$2.40~~$3.18 billion is available for sale. The nature of fixed-income securities is such that changes in market interest rates impact the value of these assets.

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Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance

A substantial portion of our income is derived from the differential or “spread” between the interest earned on loans, securities and other interest-earning assets, and the interest paid on deposits, borrowings and other interest-bearing liabilities. Because of the differences in the maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. At December 31, ~~2020~~2021 our balance sheet was positioned with an asset sensitive bias over both a one and

two-year

horizon assuming no balance sheet growth, and as a result, our net interest margin tends to expand in a rising interest rate environment and decrease in a declining interest rate environment. Accordingly, fluctuations

in interest rates could adversely affect our interest rate spread and, in turn, our profitability. Loan origination volumes may be affected by changes in market interest rates. In addition, in rising interest rate environments, loan repayment rates may decline and in falling interest rate environments, loan repayment rates may increase. In addition, in a rising interest rate environment, we may need to accelerate the pace of rate increases on our deposit accounts as compared to the pace of future increases in short-term market rates. Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, as well as loan origination and prepayment volume.

We may be adversely impacted by the transition from LIBOR as a reference rate

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“

LIBOR

”). This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments.

We have a number of loans, derivative contracts, ~~borrowings~~ and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The Company established a LIBOR Transition Task Force in 2020, which has inventoried our instruments that reflect exposure to LIBOR, created a framework to manage the transition and established a timeline for key decisions and actions to complete the transition from ~~LIBOR in 2021.~~LIBOR. The transition from LIBOR could create additional costs and risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition could change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.

Operational Risks

Failure to manage our growth may adversely affect our performance

Our financial performance and profitability depend on our ability to manage past and possible future ~~growth, including the significant growth we experienced following the acquisition of Community Bank.~~growth. Future acquisitions and our continued growth may present operating, integration, regulatory, management and other issues that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition and results of operations

As a financial institution, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, including by our own employees, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation, or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud,

on-line

banking, takeover, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us or our clients, denial or degradation of service attacks, and malware or other cyber-attacks. There continues to be a rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. In recent periods, several large corporations, including financial institutions, medical providers and retail companies, have suffered major data breaches, in some cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their customers and employees and subjecting them to potential fraudulent activity. Some of our clients may have been affected by these breaches, which increase their risks of identity theft, credit card fraud and other fraudulent activity that could involve their accounts with us.

Information pertaining to us and our clients is maintained, and transactions are executed, such as our online banking or core systems on the networks and systems of ours, our clients and certain of our third party providers. The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect us and our clients against fraud and security breaches and to maintain our clients’ confidence. In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies (including browsers and operating systems) or other developments could result in a compromise or

breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our clients and underlying transactions, as well as the technology used by our clients to access our systems. Although we continue to invest in systems and processes that are designed to detect and prevent security breaches and cyber-attacks and periodically test our security, our inability to anticipate, or failure to adequately mitigate, breaches of security could result in: losses to us or our clients; our loss of business and/or clients; damage to our reputation; the incurrence of additional expenses; disruption to our business; our inability to grow our online services or other businesses; additional regulatory scrutiny or penalties; or our exposure to civil litigation and possible financial liability — any of which could have a material adverse effect on our business, financial condition and results of operations.

More generally, continued publicized information concerning security and cyber-related problems could inhibit the use or growth of electronic or

web-based

applications or solutions as a means of conducting commercial transactions for us and other financial institutions. Such publicity may also cause damage to our reputation as a financial institution. As a result, our business, financial condition and results of operations could be adversely affected.

Our business is exposed to the risk of changes in technology

The rapid pace of technology changes and the impact of such changes on financial services generally and on our Company specifically could impact our cost structure and our competitive position with our customers. Such developments include the rapid movement by customers and some competitor financial institutions to

web-based

services, mobile banking and cloud computing. Our failure or inability to anticipate, plan for or implement technology change could adversely affect our competitive position, financial condition and profitability.

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Our controls and procedures could fail or be circumvented

Management regularly reviews and updates our internal controls, disclosure controls and procedures and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and on the conduct of individuals, and can provide only reasonable, but not absolute, assurances of the effectiveness of these systems and controls, and that the objectives of these controls have been met. Any failure or circumvention of our controls and procedures, and any failure to comply with regulations related to controls and procedures could adversely affect our business, results of operations and financial condition.

Failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely affect our ability to report our financial condition and results of operations accurately and on a timely basis

A failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely affect our ability to report our financial results accurately and on a timely basis, which could result in a loss of investor confidence in our financial reporting or adversely affect our access to sources of liquidity. Furthermore, because of the inherent limitations of any system of internal control over financial reporting, including the possibility of human error, the circumvention or overriding of controls and fraud, even effective internal controls may not prevent or detect all misstatements.

We rely on communications, information, operating and financial control systems technology from third-party service providers, and we may suffer an interruption in those systems

We rely heavily on third-party service providers for much of our communications, information, operating and financial control systems technology, including our internet banking services and data processing systems. Any failure or interruption of these services or systems or breaches in the security of these systems could result in failures or interruptions to serve our customers, including deposit, servicing and/or loan origination systems. The occurrence of any failures or interruptions may require us to identify alternative sources of such services, which may result in increased costs or other consequences that in turn could have an adverse effect on our business, including damage to the Bank’s reputation.

We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects

Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the California community banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. In addition, legislation and regulations which impose restrictions on executive compensation may make it more difficult for us to retain and recruit key personnel. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, risk management, marketing and technical personnel and upon the

continued contributions of our management and personnel. In particular, our success has been and continues to be highly dependent upon the abilities of key executives, including our President and Chief Executive Officer, and certain other employees.

If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be materially adversely affected.

Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing shareholder value. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including credit, liquidity, operational, regulatory, compliance and reputational risks. However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately managed, anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses and our business and results of operations could be materially adversely affected.

Changes in stock market prices could reduce fee income from our brokerage, asset management and investment advisory businesses

We earn wealth management fee income for managing assets for our clients and also providing brokerage and investment advisory services. Because investment management and advisory fees are often based on the value of assets under management, a fall in the market prices of those assets could reduce our fee income. Changes in stock market prices could affect the trading activity of investors, reducing commissions and other fees we earn from our brokerage business.

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We may experience goodwill impairment

If our estimates of fair value change due to changes in our businesses or other factors, we may determine that impairment charges on goodwill recorded as a result of acquisitions are necessary. Estimates of fair value are determined based on a complex model using cash flows, the fair value of our Company as determined by our stock price, and peer company comparisons. If management’s estimates of future cash flows are inaccurate, fair value determined could be inaccurate and impairment may not be recognized in a timely manner. If the fair value of the Company declines, we may need to recognize goodwill impairment in the future which would have a material adverse effect on our results of operations and capital levels.

Our accounting estimates and risk management processes rely on analytical and forecasting models

The processes we use to estimate our expected credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for determining our expected credit losses are inadequate, the allowance for credit losses may not be sufficient to support future charge-offs. If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.

Our decisions regarding the fair value of assets acquired could be different than initially estimated, which could materially and adversely affect our business, financial condition, results of operations, and future prospects

In business combinations, we acquire significant portfolios of loans that are marked to their estimated fair value. The fluctuations in national, regional and local economic conditions, including those related to local residential, commercial real estate and construction markets, may increase the level of charge-offs or the allowance for credit losses in the loan portfolio that we acquire and correspondingly reduce our net income. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on our operations and financial condition, even if other favorable events occur.

Strategic and External Risks

Changes in economic, market and political conditions can adversely affect our liquidity, results of operations and financial condition.

Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary policies. Conditions such as an economic recession, rising unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings. Because we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which could have an adverse impact on our earnings. In addition, we may face the following risks in connection with any downward turn in the economy:

•

The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans. The level of uncertainty

concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of the process;

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~~concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of the process;~~

•

The Company’s commercial, residential and consumer borrowers may be unable to make timely repayments of their loans, or the decrease in value of real estate collateral securing the payment of such loans could result in significant credit losses, increasing delinquencies, foreclosures and customer bankruptcies, any of which could have a material adverse effect on the Company’s operating results;

•

A sustained environment of low interest rates would continue to cause lending margins to stay compressed, which in turn may limit our revenues and profitability;

•

The value of the portfolio of investment securities that we hold may be adversely affected by increasing interest rates and defaults by debtors;

•

Further disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations, may result in changes in applicable rates of interest, difficulty in accessing capital or an inability to borrow on favorable terms or at all from other financial institutions; and

•

Increased competition among financial services companies due to expected further consolidation in the industry may adversely affect the Company’s ability to market its products and services.

Although the Company and the Bank exceed the minimum capital ratio requirements to be deemed “well-capitalized” for regulatory purposes and have not suffered any significant liquidity issues as a result of these types of events, the cost and availability of funds may be adversely affected by illiquid credit markets and the demand for our products and services may decline ~~as our borrowers and customers continue to realize the impact of~~if we experience slower than ~~customary~~expected economic growth ~~after-effects~~or higher rates of ~~the previous recession and ongoing underemployment of the workforce.~~unemployment. In view of the concentration of our operations and the collateral securing our loan portfolio in Central and Southern California, we may be particularly susceptible to adverse economic conditions in the state of California, where our business is concentrated. In addition, adverse economic conditions may exacerbate our exposure to credit risk and adversely affect the ability of borrowers to perform, and thereby, adversely affect our liquidity, financial condition, results or operations and profitability.

Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.

The policies of the Federal Reserve impact us significantly. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. As an example, monetary tightening and increases in the federal funds rate by the Federal Reserve could adversely affect our borrowers’ earnings and ability to repay their loans, which could have a material adverse effect on our financial condition and results of operations. In addition, the Federal Reserve’s recent actions to reduce its own balance sheet of government and mortgage-backed securities could impact the credit markets and thus prevailing interest rates.

Future legislation, regulatory reform or policy changes under the new U.S. administration could have a material effect on our business and results of operations.

New legislation, regulatory reform or policy changes under the new U.S. administration led by President Biden, including financial services regulatory reform, enforcement priorities, antitrust and merger review policies, and increased

infrastructure spending, could impact our business. At this time, we cannot predict the scope or nature of these changes or assess what the overall effect of such potential changes could be on our results of operations or cash flows.

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We face strong competition from financial services companies and other companies that offer banking services

We conduct most of our operations in the state of California. The banking and financial services businesses in the state of California are highly competitive and increased competition in our primary market area may adversely impact the level of our loans and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. These competitors include national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including savings and loan associations, finance companies, brokerage firms, insurance companies, credit unions, mortgage companies and other financial intermediaries. In addition, as noted below, we face competition from certain

non-traditional

entities, including so called “FinTech” companies which specialize in the provision of technology-based financial services, such as payment processing and lending marketplaces, and which may offer or be perceived to offer more responsive or currently desirable financial products and services.

In particular, our competitors include major financial companies whose greater resources may afford them a marketplace advantage by enabling them to offer products at lower costs, maintain numerous locations, provide more extensive on-line products and services, and mount extensive promotional and advertising campaigns. Areas of competition include interest rates for loans and deposits, efforts to obtain loan and deposit customers and a range in quality of products and services provided, including new technology driven products and services. If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and level of deposits.

Potential acquisitions may disrupt our business and dilute shareholder value

We generally seek merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services. Acquiring other banks, businesses, or branches including our acquisition of ~~Community~~Suncrest Bank in ~~2018,~~early 2022, involves various risks commonly associated with acquisitions, including, among other things:

•

Potential exposure to unknown or contingent liabilities of the target company;

•

Exposure to potential asset quality issues of the target company;

•

Potential disruption to our business;

•

Potential diversion of our management’s time and attention;

•

The possible loss of key employees and customers of the target company;

•

Difficulty in estimating the value of the target company; and

•

Potential changes in banking or tax laws or regulations that may affect the target company.

Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our business, financial condition and results of operations.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions, such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

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Legal, Regulatory, Compliance and Reputational Risks

We are subject to extensive government regulation that could limit or restrict our activities, which, in turn, may hamper our ability to increase our assets and earnings

Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the FDIC, FRB, DFPI and CFPB, and we are subject to various laws and judicial and administrative decisions imposing

requirements and restrictions on part or all of our operations. Similarly, the lending, credit and deposit products we offer are subject to broad oversight and regulation. Because our business is highly regulated, the laws, rules, regulations and supervisory guidance and policies applicable to us are subject to regular modification and change. Perennially, various laws, rules and regulations are proposed, which, if adopted, could impact our operations by making compliance much more difficult or expensive, restricting our ability to originate or sell loans or further restricting the amount of interest or other charges or fees earned on loans or other products. Current and future federal and state legal and regulatory requirements, restrictions and regulations, including those imposed under Dodd-Frank and those adopted to facilitate data privacy or consumer protection, may adversely impact our profitability and may have a material and adverse effect on our business, financial condition, and results of operations, may require us to invest significant management attention and resources to evaluate and make any changes required by the legislation and accompanying rules, and may make it more difficult for us to attract and retain qualified executive officers and employees. The implementation of certain final Dodd-Frank rules is delayed or phased in over several years; therefore, as yet we cannot definitively assess what may be the short or longer term specific or aggregate effect of the full implementation of Dodd-Frank on us.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations

The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. We are also subject to scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control and compliance with the Foreign Corrupt Practices Act. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could materially and adversely affect our business, financial condition and results of operations.

Mortgage regulations may adversely impact our business

Revisions made pursuant to Dodd-Frank to Regulation Z, which implements the Truth in Lending Act (TILA), effective in January 2014, apply to all consumer mortgages (except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans), and mandate specific underwriting criteria and “ability to repay” requirements for home loans. This may impact our offering and underwriting of single family residential loans in our residential mortgage lending operation and could have a resulting unknown effect on potential delinquencies. In addition, the relatively uniform requirements may make it difficult for regional and community banks to compete against the larger national banks for single family residential loan originations.

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The impact of current capital rules imposed enhanced capital adequacy requirements on us and may materially affect our operations

We are subject to more stringent capital requirements. Pursuant to Dodd-Frank and to implement for U.S. banking institutions the principles of the international “Basel III” standards, the federal banking agencies have adopted a set of rules on minimum leverage and risk-based capital that will apply to both insured banks and their holding companies.

The current capital rules, which have now been fully implemented, may adversely affect our ability to pay dividends, or require us to reduce business levels or raise capital, including in ways that may adversely affect our business, liquidity, financial condition and results of operations.

Under the current capital standards, if our Common Equity Tier 1 Capital does not include the required “capital conservation buffer,” we will be prohibited from making distributions to our stockholders. The capital conservation buffer requirement, which is measured in addition to the minimum Common Equity Tier 1 capital of 4.5%, was phased in over four years, starting at 0.625% for 2016, and is now 2.5%. Additionally, under the capital standards, if our Common Equity Tier 1 Capital does not include the “capital conservation buffer,” we will also be prohibited from paying discretionary bonuses to our executive employees. This may affect our ability to attract or retain employees, or alter the nature of the compensation arrangements that we may enter into with them.

Managing reputational risk is important to attracting and maintaining customers, investors and employees

Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee mistakes, misconduct or fraud, failure to deliver minimum standards of service or quality, failure of any product or service offered by us to meet our customers’ expectations, compliance deficiencies, privacy or information security breaches, government investigations, litigation, and questionable or fraudulent activities of our employees or customers. We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental scrutiny and regulation.

We depend on the accuracy and completeness of information provided by customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by, or on behalf of, customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information. In deciding whether to extend credit, we may rely upon our customers’ representations that their financial statements are accurate. We also may rely on customer representations and certifications, or other audit or accountants’ reports, with respect to the business and financial condition of our commercial clients. Our financial condition, results of operations, financial reporting and reputation could be materially adversely affected if we rely on materially misleading, false, inaccurate or fraudulent information.

We are subject to legal and litigation risk which could adversely affect us

Because our Company is extensively regulated by a variety of federal and state agencies, and because we are subject to a wide range of business, consumer and employment laws and regulations at the federal, state and local levels, we are at risk of governmental investigations and lawsuits as well as claims and litigation from private parties. We are from time to time involved in disputes with and claims from investors, customers, government agencies, vendors, employees and other business parties, and such disputes and claims may result in investigations, litigation or settlements, any one of which or in the aggregate could have an adverse impact on the Company’s operating flexibility, employee relations, financial condition or results of operations, as a result of the costs of any judgment, the terms of any settlement and/or the expenses incurred in defending the applicable claim.

We are unable, at this time, to estimate our potential liability in these matters, but we may be required to pay judgments, settlements or other penalties and incur other costs and expenses in connection with any one or more of these investigations or lawsuits, which in turn could have a material adverse effect on our business, results of operations and financial condition. In addition, responding to requests for information in connection with discovery demanded by a government agency or private plaintiffs in any of these lawsuits may be costly and divert internal resources away from managing our business. See Item 3 —

Legal Proceedings

below.

We may be subject to customer claims and government or legal actions pertaining to our ability to safeguard our customers’ information and the performance of our fiduciary responsibilities. Whether or not such

~~Table of Contents~~

customer claims and legal actions are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services, as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

Federal and state laws and regulations may restrict our ability to pay dividends

The ability of the Bank to pay dividends to the Company and of the Company to pay dividends to its shareholders is limited by applicable federal and California law and regulations. . If the Bank is unable to meet regulatory requirements to pay dividends or make other distributions to CVB, CVB will be unable to pay dividends to its shareholders.

See “Business — Regulation and Supervision” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Cash Flow.”

Risks Associated with our Common Stock

The price of our common stock may be volatile or may decline

The trading price of our common stock may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in its share prices and trading volumes that affect the market prices of the shares of many companies. These specific and broad market fluctuations could adversely affect the market price of our common stock. Among the factors that could affect our stock price are:

•

actual or anticipated fluctuations in our operating results and financial condition;

•

changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;

•

credit events or losses;

•

failure to meet analysts’ revenue or earnings estimates;

•

speculation in the press or investment community;

•

strategic actions by us or our competitors, such as acquisitions or restructurings;

•

actions or trades by institutional shareholders or other large shareholders;

•

our capital position;

•

fluctuations in the stock price and operating results of our competitors;

•

actions by hedge funds, short term investors, activist shareholders or shareholder representative organizations;

•

general market conditions and, in particular, developments related to market conditions for the financial services industry;

•

proposed or adopted regulatory changes or developments;

•

anticipated or pending investigations, proceedings or litigation that involve or affect the Company and/or the Bank;

•

fraud losses or data or privacy breaches; or

•

domestic and international economic factors, whether related or unrelated to the Company’s performance.

The market price of our common stock and the trading volume in our common stock may fluctuate and cause significant price variations to occur. The trading price of the shares of our common stock and the value of our other securities will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity related securities, and other factors identified above in “Cautionary Note Regarding Forward-Looking Statements”. A significant decline in our stock price could result in substantial losses for individual shareholders and could lead to costly and disruptive securities litigation. Extensive sales by large shareholders could also exert sustained downward pressure on our stock price.

~~Table of Contents~~

An investment in our common stock is not an insured deposit

Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you could lose some or all of your investment.

Our common stock is subordinate to our existing and future indebtedness and preferred stock.

Shares of our common stock are equity interests and do not constitute indebtedness. As such, our common stock ranks junior to all our customer deposits and indebtedness, whether now existing or hereafter incurred, and other

non-equity

claims on us, with respect to assets available to satisfy claims. Additionally, holders of common stock are subject to the prior liquidation rights of the holders of any debt we may issue in the future and may be subject to the prior dividend and liquidation rights of any series of preferred stock we may issue in the future.

Anti-takeover provisions and federal law may limit the ability of another party to acquire us, which could cause our stock price to decline

Various provisions of our articles of incorporation and

by-laws

and certain other actions we have taken could delay or prevent a third-party from acquiring us, even if doing so might be beneficial to our shareholders. The Bank Holding Company Act of 1956, as amended, and the Change in Bank Control Act of 1978, as amended, together with federal

regulations, require that, depending on the particular circumstances, regulatory approval and/or appropriate regulatory filings may be required from either or all the Federal Reserve, the FDIC, the DFPI prior to any person or entity acquiring “control” (as defined in the applicable regulations) of a state

non-member

bank, such as the Bank. These provisions may prevent a merger or acquisition that would be attractive to shareholders and could limit the price investors would be willing to pay in the future for our common stock.

We may face other risks

From time to time, we detail other risks with respect to our business and/or financial results in our filings with the SEC. For further discussion on additional areas of risk, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

.”

~~Table of Contents~~

~~ITEM 1B.~~

~~UNRESOLVED STAFF COMMENTS~~

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

~~ITEM 2.~~

~~PROPERTIES~~

ITEM 2. PROPERTIES

The principal executive offices of the Company and the Bank are located in Ontario, California, and are owned by the Company.

As of December 31, ~~2020,~~2021, the Bank occupied a total of 60 premises consisting of (i) 5758 Banking Centers (“Centers”) of which one Center is located at our Corporate Headquarters in Ontario California, and (ii) three operation and technology ~~centers, and (iii) one loan production office in Modesto, California.~~centers. We own 1514 of these locations and the remaining properties are leased under various agreements with expiration dates ranging from ~~2020~~2022 through 2028. All properties are located in Southern and Central California.

For additional information concerning properties, see Note 98 —

Premises and Equipment

of the Notes to the consolidated financial statements included in this report. See “Item 8 —

Financial Statements and Supplemental Data

.”

~~ITEM 3.~~

~~LEGAL PROCEEDINGS~~

ITEM 3.LEGAL PROCEEDINGS

The Company and its subsidiaries are parties to various lawsuits and threatened lawsuits in the ordinary and

non-ordinary

course of business. From time to time, such lawsuits and threatened lawsuits may include, but are not limited to, actions involving securities litigation, employment matters, wage-hour and labor law claims, consumer claims, regulatory compliance claims, data privacy claims, lender liability claims and negligence claims, some of which may be styled as “class action” or representative cases. Some of these lawsuits may be similar in nature to other lawsuits pending against the Company’s competitors. For additional information concerning legal proceedings, see Note 14

13 Commitments and Contingencies

of the Notes to the consolidated financial statements included in this report.

For lawsuits where the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded in accordance with FASB guidance over loss contingencies (ASC 450). However, as a result of inherent uncertainties in judicial interpretation and application of a myriad of laws and regulations applicable to the Company’s business, and the unique, complex factual issues presented in any given lawsuit, the Company often cannot determine the probability of loss or estimate the amount of damages which a plaintiff might successfully prove if the Company were found to be liable. For lawsuits or threatened lawsuits where a claim has been asserted or the Company has determined that it is probable that a claim will be asserted, and there is a reasonable possibility that the outcome will be unfavorable, the Company will disclose the existence of the loss contingency, even if the Company is not able to make an estimate of the possible loss or range of possible loss with respect to the action or potential action in question, unless the Company believes that the nature, potential magnitude or potential timing (if known) of the loss contingency is not reasonably likely to be material to the Company’s liquidity, consolidated financial position, and/or results of operations.

Our accruals and disclosures for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose a loss contingency and/or the amount accrued if we believe it is reasonably likely to be material or if we believe such disclosure is necessary for our financial statements to not be misleading. If we determine that an exposure to loss exists in excess of an amount previously accrued or disclosed, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred, and we adjust our accruals and disclosures accordingly.

~~Table of Contents~~

We do not presently believe that the ultimate resolution of any lawsuits currently pending against the Company will have a material adverse effect on the Company’s results of operations, financial condition, or cash flows. The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal matters currently pending or threatened against the Company could have a material adverse effect on our results of operations, financial condition or cash flows.

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

~~Table of Contents~~

PART II

~~ITEM 5.~~

~~MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~

ITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

CVB’s common stock is traded on the NASDAQ Global Select National Market under the symbol “CVBF.” CVB had approximately ~~135,873,607~~141,920,400 shares of common stock outstanding with ~~1,573~~1,741 registered shareholders of record as of February ~~12, 2021.~~

11, 2022.

For information on the statutory and regulatory limitations on the ability of the Company to pay dividends to its shareholders and on the Bank to pay dividends to CVB, see “Item 1.

Business-Regulation and Supervision — Dividends

” and “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Cash Flow

.”

Issuer Purchases of Equity Securities

On August 11, 2016, our Board of Directors approved a program to repurchase up to 10,000,000 shares of CVB common stock in the open market or in privately negotiated transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations. ~~There is no expiration date for this repurchase program.~~ For the year ended December 31, ~~2020,~~2021, the Company repurchased ~~4,944,290~~390,336 shares of CVB common stock outstanding under this program. ~~During the fourth quarter ended December 31, 2020, the Company did not repurchase any shares of common stock under this program.~~ As of December 31, ~~2020,~~2021, we ~~have 4,585,145~~had 4,194,809 shares of CVB common stock remaining that ~~are~~were eligible for repurchase under the common stock repurchase program.

~~Table~~ On February 1, 2022 we announced a new repurchase program authorizing the Company to repurchase up to 10,000,000 shares of ~~Contents~~

our common stock. This new program replaces in its entirety our 2016 stock repurchase program. There is no expiration date for this repurchase program.

Performance Graph

The following Performance Graph and related information shall not be deemed “soliciting material” or be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

The following graph compares the yearly percentage change in CVB’s cumulative total shareholder return (stock price appreciation plus reinvested dividends) on common stock (i) the cumulative total return of the Nasdaq Composite Index; and (ii) a published index comprised by Morningstar (formerly Hemscott, Inc.) of banks and bank holding companies in the Pacific region (the peer group line depicted below). The graph assumes an initial investment of $100 on December 31, ~~2015,~~2016, and reinvestment of dividends through December 31, ~~2020.~~2021. Points on the graph represent the performance as of the last business day of each of the years indicated. The graph is not necessarily indicative of future price performance.

ASSUMES $100 INVESTED ON DECEMBER 31, 2015

ASSUMES DIVIDEND REINVESTED

FISCAL YEAR ENDING DECEMBER 31, ~~2020~~

Company/Market/Peer Group

12/31/2015

12/31/2016

12/31/2017

12/31/2018

12/31/2019

12/31/2020

CVB Financial Corp.

100.00

138.47

145.52

128.08

141.16

133.78

NASDAQ Composite

100.00

108.87

141.13

137.12

187.44

271.64

Peer Group Index

100.00

138.17

158.23

127.37

159.28

163.05

2021


Company/Market/Peer Group	12/31/2016		12/31/2017		12/31/2018		12/31/2019		12/31/2020		12/31/2021
CVB Financial Corp.		100.00		105.09		92.50		101.95		96.62		109.74
NASDAQ Composite		100.00		129.64		125.96		172.17		249.51		304.85
Peer Group Index		100.00		114.39		92.17		115.34		118.34		178.40

Source: Research Data Group, Inc., www.researchdatagroup.com

~~Table of Contents~~

~~ITEM 6.~~

~~SELECTED FINANCIAL DATA~~

The following table reflects selected financial information at and for the five years ended December 31. Throughout the past five years, the Company has acquired other banks. This may affect the comparability of the data.

Year Ended December 31,


2020

2019

2018

2017

2016


(Dollars in thousands, except per share amounts)

Interest income
   $ 430,337    $ 457,850    $ 361,860    $ 287,226 $ 265,050
Interest expense
   14,284    22,078    12,815    8,296 7,976








Net interest income before provision for (recapture of) credit losses
   416,053    435,772    349,045    278,930 257,074








Provision for (recapture of) credit losses
   23,500    5,000    1,500    (8,500 ) (6,400 )
Net interest income after provision for (recapture of) credit losses
   392,553    430,772    347,545    287,430 263,474
Noninterest income
   49,870    59,042    43,481    42,118 35,552
Noninterest expense
   192,903    198,740    179,911    140,753 136,740








Earnings before income taxes
   249,520    291,074    211,115    188,795 162,286
Income taxes
   72,361    83,247    59,112    84,384 60,857








Net Earnings
   $ 177,159    $ 207,827    $ 152,003    $ 104,411 $ 101,429








Basic earnings per common share
   $ 1.30    $ 1.48    $ 1.25    $ 0.95 $ 0.94
Diluted earnings per common share
   $ 1.30    $ 1.48    $ 1.24    $ 0.95 $ 0.94
Cash dividends declared per common share
   $ 0.72    $ 0.72    $ 0.56    $ 0.54 $ 0.48
Dividend
pay-out
ratio (1)
   55.13%    48.57%    46.19%    56.97% 51.12%
Weighted average common shares:

Basic
   136,030,613    139,757,355    121,670,113    109,409,301 107,282,332
Diluted
   136,206,210    139,934,211    121,957,364    109,806,710 107,686,955
Common Stock Data:

Common shares outstanding at year end
     135,600,501      140,102,480      140,000,017      110,184,922   108,251,981
Book value per share
   $ 14.81    $ 14.23    $ 13.22    $ 9.70 $ 9.15
Financial Position:

Assets
   $ 14,419,314    $ 11,282,450    $ 11,529,153    $ 8,270,586 $ 8,073,707
Investment securities
   2,977,549    2,414,709    2,478,525    2,910,875 3,182,142
Net loans (2)
   8,255,116    7,495,917    7,700,998    4,771,046 4,333,524
Deposits
   11,736,501    8,704,928    8,827,490    6,546,853 6,309,680
Borrowings
   444,406    428,659    722,255    553,773 656,028
Junior subordinated debentures
   25,774    25,774    25,774    25,774 25,774
Stockholders’ equity
   2,007,990    1,994,098    1,851,190    1,069,266 990,862
Equity-to-assets
ratio (3)
   13.93%    17.67%    16.06%    12.93% 12.27%
Financial Performance:

Return on average equity (ROAE)
   8.90%    10.71%    11.00%    9.84% 10.26%
Return on average assets (ROAA)
   1.37%    1.84%    1.60%    1.26% 1.26%
Net interest margin,
tax-equivalent
(TE) (4)
   3.59%    4.36%    4.03%    3.63% 3.46%
Efficiency ratio (5)
   41.40%    40.16%    45.83%    43.84% 46.73%
Noninterest expense to average assets
   1.49%    1.76%    1.89%    1.70% 1.70%
Credit Quality:

Allowance for credit losses
   $ 93,692    $ 68,660    $ 63,613    $ 59,585 $ 61,540
Allowance/total loans
   1.12%    0.91%    0.82%    1.23% 1.40%
Total nonaccrual loans
   $ 14,347    $ 5,277    $ 19,951    $ 10,716 $ 7,152
Nonaccrual loans/total loans, net of deferred loan fees
   0.17%    0.07%    0.26%    0.22% 0.16%
Allowance/nonaccrual loans
   653.04%    1301.12%    318.85%    556.04% 860.46%
Net (charge-offs) recoveries/average loans
   -0.004%    0.001%    0.04%    0.14% 0.21%
Regulatory Capital Ratios:

Company:

Tier 1 leverage ratio
   9.90%    12.33%    10.98%    11.88% 11.49%
Common equity Tier 1 risk-based capital ratio
   14.77%    14.83%    13.04%    16.43% 16.48%
Tier 1 risk-based capital ratio
   15.06%    15.11%    13.32%    16.87% 16.94%
Total risk-based capital ratio
   16.24%    16.01%    14.13%    18.01% 18.19%
Bank:

Tier 1 leverage ratio
   9.58%    12.19%    10.90%    11.77% 11.36%
Common equity Tier 1 risk-based capital ratio
   14.57%    14.94%    13.22%    16.71% 16.76%
Tier 1 risk-based capital ratio
   14.57%    14.94%    13.22%    16.71% 16.76%
Total risk-based capital ratio
   15.75%    15.83%    14.03%    17.86% 18.01%

~~(1)~~

~~Dividends declared on common stock divided by net earnings.~~

~~(2)~~

~~2016-2018 includes purchased credit-impaired (“PCI”) loans.~~

~~(3)~~

~~Stockholders’ equity divided by total assets.~~

~~(4)~~

~~Net interest income (TE) divided by average interest-earning assets.~~

~~(5)~~

~~Noninterest expense divided by net interest income before provision for credit losses plus noninterest income. Also refer to “Noninterest Expense and Efficiency Ratio Reconciliation~~

~~(non-GAAP)”~~

~~under~~

~~Analysis of the Results of Operations~~

~~of Item 7 of this Form~~

~~10-K.~~

~~Table of Contents~~

~~ITEM 7.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 6.RESERVED

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of CVB Financial Corp. and its wholly owned subsidiary. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with this Annual Report on Form

10-K,

and the audited consolidated financial statements and accompanying notes presented elsewhere in this report.

IMPACT OF

COVID-19

The spread of

COVID-19

~~has~~ created a global public health crisis that has resulted in unprecedented volatility and disruption in financial markets and deterioration in economic activity and market conditions in the markets we serve. The pandemic ~~has already~~ affected our customers and the communities we ~~serve and depending on the duration of the crisis, the adverse impact on our financial position and results of operations could be significant.~~serve. In response to the anticipated effects of the pandemic on the U.S. economy, the Board of Governors of the Federal Reserve System (“FRB”) ~~has taken~~took significant actions, including a reduction in the target range of the federal funds rate to 0.0% to 0.25% and ~~an indeterminate amount~~established a program of purchases of Treasury and mortgage-backed securities.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. It ~~contains~~contain substantial tax and spending provisions intended to address the impact of the

COVID-19

pandemic. The CARES Act includes the Paycheck Protection Program (“PPP”), a $349 billion program designed to aid small- and

medium-sized

businesses through 100% ~~SBA~~Small Business Administration (“SBA”) guaranteed loans distributed through banks. These loans were intended to guarantee 24 weeks of payroll and other costs to help those businesses remain viable and keep their workers employed. ~~The SBA exhausted the initial funding for this program on April 15, 2020, but legislation~~Legislation passed on April 24, 2020 ~~to provide~~provided additional PPP funds of $310 billion. During 2020, we originated and funded ~~about~~approximately 4,100 loans, totaling ~~approximately $1.10~~$1.1 billion. Greater than 99% of these loans have been granted forgiveness as of December 31, 2021. In response to the

COVID-19

pandemic and the CARES Act, we also implemented a short-term loan modification program to provide temporary payment relief to certain of our borrowers who meet the program’s qualifications. This program allows for a deferral of payments for 90 days. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. As of January 15, 2021, we had remaining temporary payment deferments of principal or of principal and interest in response to the CARES Act for six loans totaling $10 million. These deferments were primarily for 90 days, with 85% of these loans being rated special mention or classified. Further, onOn January 13, 2021, the SBA reopened the PPP for Second Draw loans to small businesses and

non-profit

organizations that did receive a loan through the initial PPP phase. At least $25 billion ~~has been~~was set aside for Second Draw (“round two”) PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods. Generally speaking, businesses with more than 300 employees and/or less than a 25% reduction in gross receipts between comparable quarters in 2019 and 2020 are not eligible for Second Draw loans. Further, maximum loan amounts have been increased for accommodation and food service businesses. ~~Recently, the Bank began accepting applications for the second round of PPP loans.~~ As of ~~January 25,~~December 31, 2021, we ~~have received~~had originated approximately ~~1,400 applications~~1,900 round two loans totaling ~~$340 million.~~

$420 million, with a remaining loan balance, at amortized cost, of $183.6 million at December 31, 2021. The ~~fourth~~Paycheck Protection Program officially ended on May 31, 2021. As of December 31, 2021, approximately 4,800 loans, representing approximately $1.3 billion in PPP loan balances were submitted to the SBA and ~~third quarters~~granted forgiveness.

No recapture of ~~2020 did not include a~~ provision for credit losses was recorded in the fourth quarter of 2021, compared to a recapture of $4.0 million of provision for credit losses in the third quarter of 2021. For the year ended December 31, 2021, a $25.5 million recapture of provision for credit losses was recorded as ~~the economic outlook was generally consistent with the forecast from the end~~a result of the ~~second quarter.~~improvements in our economic forecast of certain macroeconomic variables. In comparison, the Company recorded a provision for credit losses of $23.5 million in 2020 due to the ~~first half~~forecast of ~~2020.~~a severe economic downturn as a result of the onset of the COVID-19 pandemic. We continue to monitor the impact of

COVID-19

~~closely, as well as any effects that may result from the CARES Act.~~ closely. The extent to which the

COVID-19

pandemic will impact our future operations and financial results ~~during 2021~~ is ~~highly~~ uncertain, but we may experience increased provision for credit losses if this pandemic results in future economic stress greater than forecasted on our borrowers and loan portfolios and lower interest income if the current low interest rate environment continues.

~~Table of Contents~~

CRITICAL ACCOUNTING POLICIES

The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following is a summary of the more judgmental and complex accounting estimates and principles. In each area, we have identified the variables most important in the estimation process. We have used the best information available to make the necessary estimates to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in the key variables could change future valuations and impact the results of operations.

Adoption of New Accounting Standard

Allowance for Credit Losses (“ACL”)

— On January 1, 2020, the Company adopted ASU

No. 2016-13,

2016-13,

resulted in a reduction to our opening retained earnings of approximately $1.3 million, net of tax.

This ASU ~~replaces~~replaced the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the Current Expected Credit Loss (“CECL”) model, applies to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off balance sheet credit exposures. This includes, but is not limited to, loans,

held-to-maturity

(“HTM”) securities, loan commitments, and financial guarantees. For loans and HTM debt securities, this ASU requires a CECL measurement to estimate the allowance for credit losses (“ACL”) for the remaining contractual term, adjusted for prepayments, of the financial asset (including

off-balance

sheet credit exposures) using historical experience, current conditions, and reasonable and supportable forecasts. This ASU also eliminated the existing guidance for purchased credit-impaired (“PCI”) loans, but requires an allowance for purchased financial assets with more than an insignificant deterioration of credit since origination. Purchase Credit Deteriorated (“PCD”) assets are recorded at their purchase price plus an ACL estimated at the time of acquisition. Under this ASU, there is no provision for credit losses recognized at acquisition; instead, there is a

gross-up

of the purchase price of the financial asset for the estimate of expected credit losses and a corresponding ACL recorded. Changes in estimates of expected credit losses after acquisition are recognized as provision for credit losses (or reversal of provision for credit losses) in subsequent periods. In addition, this ASU modifies the OTTI model for

available-for-sale

(“AFS”) debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. As a policy election, we excluded the accrued interest receivable balance from the amortized cost basis of financing receivables and HTM securities, as well as AFS securities, and disclose total accrued interest receivable separately on the condensed consolidated balance sheet.

For a full discussion of our methodology of assessing the adequacy of the allowance for credit losses, see “Item 7,

Management’s Discussion and Analysis of Financial Condition and Results of Operation — Risk Management

” and Note 3 —

Summary of Significant Accounting Policies

and Note 65 —

Loans and Lease Finance Receivables and Allowance for Credit Losses

of our consolidated financial statements presented elsewhere in this report.

~~Table of Contents~~

Business Combinations

— The Company applies the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business combination recognizes the assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values. These fair values are estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain would be recognized. Acquisition related costs are expensed as incurred. ~~Refer to Note 4 —~~

~~Business Combinations~~

~~of our consolidated financial statements presented elsewhere in this report~~

Valuation and Recoverability of Goodwill

— Goodwill represented $663.7 million of our ~~$14.42~~$15.88 billion in total assets as of December 31, ~~2020.~~2021. The Company has one reportable segment. Goodwill has an indefinite useful life and is not amortized, but is tested for impairment at least annually, or more frequently, if events and circumstances exist that indicate that a goodwill impairment test should be performed. Such events and circumstances may include among others, a significant adverse change in legal factors or in the general business climate, significant decline in our stock price and market capitalization, unanticipated competition, the testing for recoverability of a significant asset group within the reporting unit, and an adverse action or assessment by a regulating body. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements.

Based on the results of our annual goodwill impairment test, we determined that no goodwill impairment charges were required as our single reportable segment’s fair value exceeded its carrying amount. As of December 31, ~~2020,~~2021, we determined there were no events or circumstances which would more likely than not reduce the fair value of our reportable segment below its carrying amount. Note 3 —

Summary of Significant Accounting Policies

of our consolidated financial statements presented elsewhere in this report

Income Taxes

— Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. Based on historical and future expected taxable earnings, the Company considers the future realization of these deferred tax assets more likely than not.

The tax effects from an uncertain tax position are recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities.

For complete discussion and disclosure of other accounting policies see Note 3 —

Summary of Significant Accounting Policies

of the Company’s consolidated financial statements presented elsewhere in this report.

~~Table of Contents~~

Recently Issued Accounting Pronouncements but Not Adopted as of December 31, ~~2020~~

2021


~~Standard~~		~~Description~~
Standard	Description	Adoption Timing	Impact on Financial Statements
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting Issued March 2020		The FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide temporary, optional guidance to ease the potential burden in accounting for transitioning away from reference rates such as LIBOR. The amendments provide optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance is effective immediately and the amendments may be applied prospectively through December 31, 2022.	1st Quarter 2020 through the 4th Quarter 2022	The Company established a LIBOR Transition Task Force in 2020, which has inventoried our instruments that reflect exposure to LIBOR, created a framework to manage the transition and established a timeline for key decisions and actions, ~~to complete~~and started the transition from LIBOR in 2021. Although the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR for various financial instruments, primarily related to our variable-rate loans and our ~~subordinated debentures, and~~ interest rate swap derivatives that are indexed to LIBOR, we do not expect this ASU to have a material impact on the ~~Company’s~~Company's consolidated financial statements.

~~ASU~~ ~~2019-12,~~ ~~“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”~~ ~~Issued December 2019~~		~~The FASB issued ASU~~ ~~2019-12,~~ ~~“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This~~ ASU removes certain exceptions for: recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ~~ASU 2019-12~~ ~~is effective for interim and annual reporting periods beginning after December 15, 2020; early adoption is permitted.~~	~~1st Quarter 2021~~	~~We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.~~

~~Table of Contents~~


~~Standard~~		~~Description~~		~~Adoption Timing~~	~~Impact on Financial Statements~~

~~ASU~~ ~~2020-01,~~ ~~Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)~~ ~~Issued January 2020~~		~~The FASB issued ASU~~ ~~2020-01,~~ Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). This ASU clarifies the interactions between ASC 321, ASC 323 and ASC 815 and addresses accounting for the transition into and out of the equity method and also provides guidance on whether equity method accounting would be applied to certain purchased options and forward contracts upon settlement.		~~1st Quarter 2021~~	~~The adoption of this ASU will not have an impact on our consolidated financial statements.~~

~~ASU~~ 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and ~~Hedging —~~ Hedging—Contracts in Entity’s Own Equity ~~(Subtopic~~ (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity Issued August 2020		The FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and ~~Hedging —~~ Hedging—Contracts in Entity’s Own Equity ~~(Subtopic~~ (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification.		1st Quarter 2022	The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

~~ASU~~ ~~2020-08~~ ~~Codification Improvements to Subtopic~~ ~~310-20,~~ ~~Receivables — Nonrefundable Fees and Other Costs~~ ~~Issued October 2020~~		~~The FASB issued this amendment to clarify that an entity should reevaluate whether a callable debt security is within the scope of paragraph~~ ~~310-20-35-33~~ for each reporting period. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is not permitted.
	~~1st Quarter 2021~~		~~The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.~~

~~Table of Contents~~

OVERVIEW

For the year ended December 31, ~~2020,~~2021, we reported net earnings of ~~$177.2~~$212.5 million, compared with ~~$207.8~~$177.2 million for ~~2019.~~2020. This represented a ~~$30.7~~$35.4 million, or ~~14.76%~~19.96%, ~~decrease~~increase from the prior year. Diluted earnings per share were $1.56 for 2021, compared to $1.30 for ~~2020, compared to $1.48 for 2019.~~

2020.

The Company adopted ASU

2016-13,

commonly referred to as CECL which replaced the “incurred loss” approach with an “expected loss” model over the life of the loan, effective on January 1, 2020. A $23.5 million provision for credit losses was recorded in ~~the first half of~~ 2020, due to the severe economic disruption and forecasted impact resulting from

~~COVID-19.~~

No the initial onset of the COVID-19 pandemic. Based on the magnitude of government economic stimulus and the wide availability of vaccines, our economic forecasts in 2021 reflected improvements in key macroeconomic variables and therefore lower projected loan losses, which resulted in a $25.5 million recapture of provision for credit losses ~~was recorded in either~~for the ~~third or fourth quarter of 2020. The Company’s economic forecast of macro-economic variables was generally consistent, with modest changes, from the end of the second quarter of 2020 to~~year ended December 31, ~~2020. In comparison to the prior year, a $5.0 million loan loss provision was incurred for 2019.~~2021. For the year ended December 31, ~~2020,~~2021, we experienced ~~minimal credit~~ charge-offs of ~~$666,000~~$3.4 million and total recoveries of ~~$358,000,~~$198,000, resulting in net charge-offs of ~~$308,000. During~~$3.2 million for the year. Of the approximately 4,100 SBA PPP loans we originated in 2020, $1.1 billion have been forgiven. As of December 31, 2021, the Company originated ~~under the SBA Paycheck Protection Program,~~ approximately ~~4,100~~1,900 PPP loans in round two, with a remaining loan balance, at amortized cost, of ~~which $883.0~~$183.6 million ~~was outstanding~~ at December 31, ~~2020.~~2021. Interest and fee income from all PPP loans was approximately $30.5 million for 2021, compared to $28.5 million for 2020.

At December 31, ~~2020,~~2021, total assets of ~~$14.4~~$15.88 billion increased ~~$3.14~~$1.46 billion, or ~~27.80%~~10.16%, from total assets of ~~$11.28~~$14.42 billion at December 31, ~~2019.~~2020. Interest-earning assets of $14.68 billion at December 31, 2021 increased $1.46 billion, or 11.04%, when compared with $13.22 billion at December 31, ~~2020 increased $3.20 billion, or 31.88%, when compared with $10.03 billion at December 31, 2019.~~2020. The increase in interest-earning assets includes a ~~$1.81~~$2.13 billion increase in investment securities, partially offset by a $461.1 million decrease in total loans and a $193.3 million decrease in interest-earning balances due from the Federal ~~Reserve, a $784.2 million increase in total loans, and a $562.8 million increase in investment securities.~~Reserve. The ~~increase~~decrease in total loans was due to ~~the origination of approximately $1.1 billion~~a $696.4 million decrease in PPP ~~loans with a remaining outstanding balance totaling $883.0 million at December 31, 2020.~~loans. Excluding PPP loans, total loans ~~declined~~increased by ~~$98.8~~$235.3 million, or 3.15%, from December 31, ~~2019.~~2020. Our tax equivalent yield on interest-earning assets was 3.02% for 2021, compared to 3.71% for 2020. This decline reflects the net impact of lower loan yields, lower yields on investment securities, and a reduction in average loans as a percentage of average earning assets from 69.02% in 2020 ~~compared~~ to ~~4.58% for 2019.~~

57.22% in 2021.

Total investment securities were $5.11 billion at December 31, 2021, an increase of $2.13 billion, or 71.61%, from $2.98 billion at December 31, ~~2020, an increase~~2020. We deployed some of ~~$562.8 million, or 23.31%, from $2.41~~our excess liquidity during 2021 by purchasing $3.16 billion ~~at December 31, 2019.~~of additional investment securities with a non-tax equivalent weighted average yield of approximately 1.61%. At December 31, ~~2020,~~2021, investment securities HTM totaled ~~$578.6 million.~~$1.93 billion. At December 31, ~~2020,~~2021, investment securities AFS totaled ~~$2.40~~$3.18 billion, inclusive of a

pre-tax

net unrealized ~~gain~~loss of ~~$54.7~~$1.3 million, ~~an increase of $32.8~~which decreased $56.1 million from December 31, ~~2019.~~2020. HTM securities ~~declined~~increased by ~~$95.8 million,~~$1.35 billion, or ~~14.21%~~232.85%, and AFS securities increased by ~~$658.7~~$785.0 million, or ~~37.85%~~32.72%, from December 31, ~~2019.~~2020. During the fourth quarter of 2021, we purchased approximately $452 million in new AFS securities with an average tax equivalent yield of approximately 1.61% and $259 million in new HTM securities with an expected average tax equivalent yield of approximately 1.84%. Our tax equivalent yield on investments was 1.56% for 2021, compared to 2.10% for ~~2020, compared to 2.50% for 2019.~~

2020.

Total loans and leases, ~~net~~at amortized cost, of ~~deferred fees and discount, of~~$7.89 billion at December 31, 2021, decreased by $461.1 million, or 5.52%, from $8.35 billion at December 31, ~~2020, increased by $784.2 million, or 10.37%, from $7.56 billion at December 31, 2019.~~2020. The ~~increase~~decrease in total loans included ~~$883.0~~a $696.4 million decline in PPP loans. ~~Excluding PPP loans, total loans declined by $98.8 million, or 1.31%.~~ The ~~$98.8~~$461.1 million decrease in loans also included decreases of ~~$123.1~~$29.9 million in ~~commercial and industrial~~SFR mortgage loans, ~~$31.8~~$22.9 million in construction loans, ~~$30.3~~$15.3 million in SBA loans, and $11.3 million in consumer and other loans. Partially offsetting these declines were increases in commercial real estate loans ~~$22.6~~of $288.2 million, as well as a $25.1 million increase in dairy & livestock and agribusiness loans. Our core loans, ~~$13.0~~excluding PPP loans, grew by $235.3 million, ~~in SFR mortgage loans, and $4.9 million in other loans. Partially offsetting these declines was an increase in commercial real estate loans of $126.9 million.~~or 3.15% from December 31, 2020. Our yield on loans was ~~4.68%~~4.42% for the year ended December 31, ~~2020,~~2021, compared to ~~5.26%~~4.68% for ~~2019. This decline was primarily due to the impact of the Federal Reserve’s rate decreases and the decline in discount accretion income for acquired loans.~~2020. Interest income for yield adjustments related to discount accretion on acquired loans was $12.3 million for 2021, compared to $17.4 million for ~~2020,~~2020. The significant decline in interest rates since the start of the pandemic has had a negative impact on loan yields, which, after excluding discount accretion, nonaccrual interest income and the impact from PPP loans (“core loan yield”), declined by 27 basis points for the year ended December 31, 2021 when compared to ~~$28.8 million for 2019.~~

the same period of 2020.

Noninterest-bearing deposits were $8.10 billion at December 31, 2021, an increase of $648.7 million, or 8.70%, compared to $7.46 billion at December 31, ~~2020, an increase of $2.21 billion, or 42.13%, compared to $5.25 billion at December 31, 2019.~~2020. The ~~significant~~ deposit growth in ~~2020~~2021 was ~~primarily~~partly due to our customers maintaining greater ~~liquidity.~~liquidity in their bank accounts. At December 31, ~~2020,~~2021, noninterest-bearing deposits were ~~63.52%~~62.45% of total deposits, compared to ~~60.26%~~63.52% at December 31, ~~2019.~~2020. Our average cost of total deposits for ~~2020~~2021 was ~~0.12%~~0.04%, compared to ~~0.20%~~0.12% for ~~2019.~~

~~Table of Contents~~

2020.

Customer repurchase agreements totaled $642.4 million at December 31, 2021, compared to $439.4 million at December 31, ~~2020, compared to $428.7 million at December 31, 2019.~~2020. Our average cost of total deposits including customer repurchase agreements was 0.05% for 2021, compared to 0.13% for ~~2020, compared to 0.21% for 2019.~~

2020.

At December 31, ~~2020,~~2021, we had $2.3 million in overnight borrowings, compared to $5.0 million in short short-term ~~borrowing~~borrowings with 0% cost, ~~compared to no borrowings~~ at December 31, ~~2019. At December 31, 2020, we had~~2020. We redeemed our $25.8 million of junior subordinated debentures ~~unchanged from December 31, 2019. These~~on June 15, 2021. The debentures, ~~bear~~bearing interest at three-month LIBOR plus 1.38%, had an original maturity of 2036. These debentures had a borrowing cost of 2.10% for the year ended December 31, 2020. The Bank’s funding is now entirely core customer deposits and ~~mature in 2036.~~customer repurchase agreements. Our average cost of funds was 0.05% for 2021, compared to 0.13% for ~~2020, compared to 0.24% for 2019.~~

2020.

The allowance for credit losses totaled $65.0 million at December 31, 2021, compared to $93.7 million at December 31, ~~2020, compared to $68.7 million at December 31, 2019. Due to the adoption of CECL, effective on January 1, 2020, a transition adjustment of $1.8 million was added to the beginning balance of the~~2020. The allowance ~~and was increased by $23.5 million in provision~~ for credit losses was decreased by $25.5 million in ~~2020~~2021, due to the ~~severe~~improved outlook in our forecast of certain macroeconomic variables that were influenced by the economic ~~disruption forecasted to result from~~impact of the

~~COVID-19~~

~~pandemic.~~ pandemic and government stimulus, and by $3.2 million in year-to-date net charge-offs. At December 31, ~~2020,~~2021, ACL as a percentage of total loans and leases outstanding was ~~1.12%~~0.82%, or ~~1.25%~~0.84% when PPP loans are excluded. This compares to ~~0.91%~~1.12% at December 31, ~~2019.~~2020, or 1.25% when PPP loans are excluded. As of December 31, ~~2020,~~2021, total discounts remaining on acquired loans were ~~$30.9~~$18.6 million.

The Company’s total equity was $2.08 billion at December 31, 2021. This represented an increase of $73.5 million, or 3.66%, from total equity of $2.01 billion at December 31, 2020. ~~This represented an increase of $13.9 million, or 0.70%, from total equity of $1.99 billion at December 31, 2019.~~ This increase was primarily due to net earnings of ~~$177.2~~$212.5 million, partially offset by $97.8 million in cash dividends and a ~~$22.7~~$39.3 million ~~increase~~decrease in other comprehensive income ~~resulting~~ from the tax effected impact of the ~~increase~~decline in market value of ~~our~~

available-for-sale

~~investment securities portfolio, partially offset by repurchases~~ securities. During the third quarter of 2021, we repurchased 390,336 shares of common stock for $7.4 million, or an average repurchase price of ~~$91.7 million under our~~

~~10b5-1~~

~~stock repurchase program, and $97.7 million in cash dividends.~~$18.97. Our tangible ~~common equity ratio was 9.6%~~book value per share at December 31, ~~2020.~~

2021 was $10.27.

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of December 31, ~~2020,~~2021, the Company’s Tier 1 leverage capital ratio totaled ~~9.90%~~9.18%, our common equity Tier 1 ratio totaled ~~14.77%~~14.86%, our Tier 1 risk-based capital ratio totaled ~~15.06%~~14.86%, and our total risk-based capital ratio totaled ~~16.24%~~15.63%. We did not elect to phase in the impact of CECL on regulatory capital, as allowed under the interim final rule of the FDIC and other U.S. banking agencies. Refer to our

Analysis of Financial Condition — Capital Resources.

Acquisition Related

On January 7, 2022, the Company completed the previously announced merger transaction whereby Suncrest Bank (“Suncrest”) merged with and into the Company’s wholly-owned subsidiary Citizens Business Bank (“Citizens”), in accordance with the terms and conditions of that certain Agreement and Plan of Reorganization and Merger (“Merger Agreement”), dated as of July 27, 2021, by and among the Company, Citizens and Suncrest, in a stock and cash transaction valued at approximately $237 million in aggregate, or $18.63 per Suncrest share based on CVB Financial Corp.’s closing stock price of $22.87 on January 7, 2022. Under the terms of the Merger Agreement, the Company issued approximately 8.6 million shares of Company common stock and approximately $39.6 million in aggregate cash consideration, including cash paid out in settlement of outstanding incentive stock option awards at Suncrest.

Suncrest Bank, headquartered in Visalia, California, had approximately $1.4 billion in total assets, $0.8 billion in net loans, $1.2 billion in total deposits and $179.0 million in total equity as of December 31, 2021. Tangible book value per share was $11.16 at December 31, 2021. Suncrest’s seven branch locations and two loan production offices in California’s Central Valley and the Sacramento area opened as Citizens Business Bank locations on January 10, 2022. Citizens Business Bank will consolidate two of the former Suncrest branch locations during the second quarter of 2022.

ANALYSIS OF THE RESULTS OF OPERATIONS

Financial Performance

Variance

Year Ended December 31,

2020

2019

  2020

  2019

  2018

    $

    %

    $

    %

(Dollars in thousands, except per share amounts)

Net interest income
$ 416,053 $ 435,772    $ 349,045 $ (19,719 ) -4.53%    $ 86,727    24.85%
Provision for credit losses
(23,500 ) (5,000 )    (1,500 ) (18,500 ) -370.00%    (3,500 )    -233.33%
Noninterest income
49,870 59,042    43,481 (9,172 ) -15.53%    15,561    35.79%
Noninterest expense
(192,903 ) (198,740 )    (179,911 ) 5,837 2.94%    (18,829 )    -10.47%
Income taxes
(72,361 ) (83,247 )    (59,112 )    10,886 13.08%    (24,135 )    -40.83%







Net earnings
$ 177,159 $ 207,827    $ 152,003 $ (30,668 ) -14.76%    $ 55,824    36.73%







Earnings per common share:

Basic
$ 1.30 $ 1.48    $ 1.25 $ (0.18 )    $ 0.23
Diluted
$ 1.30 $ 1.48    $ 1.24 $ (0.18 )    $ 0.24
Return on average assets
1.37% 1.84%    1.60% -0.47%    0.24%
Return on average shareholders’ equity
8.90% 10.71%    11.00% -1.81%    -0.29%
Efficiency ratio
41.40% 40.16%    45.83% 1.24%    -5.67%
Noninterest expense to average assets
1.49% 1.76%    1.89% -0.27%    -0.13%

~~Table of Contents~~


										Variance
	Year Ended December 31,									2021						2020
	2021			2020			2019			$			%			$			%
	(Dollars in thousands, except per share amounts)
Net interest income	$	414,550		$	416,053		$	435,772		$	(1,503	)		-0.36	%	$	(19,719	)		-4.53	%
Recapture of (provision for) credit losses		25,500			(23,500	)		(5,000	)		49,000			208.51	%		(18,500	)		-370.00	%
Noninterest income		47,385			49,870			59,042			(2,485	)		-4.98	%		(9,172	)		-15.53	%
Noninterest expense		(189,787	)		(192,903	)		(198,740	)		3,116			1.62	%		5,837			2.94	%
Income taxes		(85,127	)		(72,361	)		(83,247	)		(12,766	)		-17.64	%		10,886			13.08	%
Net earnings	$	212,521		$	177,159		$	207,827		$	35,362			19.96	%	$	(30,668	)		-14.76	%
Earnings per common share:
Basic	$	1.57		$	1.30		$	1.48		$	0.27					$	(0.18	)
Diluted	$	1.56		$	1.30		$	1.48		$	0.26					$	(0.18	)
Return on average assets		1.38	%		1.37	%		1.84	%		0.01	%					-0.47	%
Return on average shareholders’ equity		10.30	%		8.90	%		10.71	%		1.40	%					-1.81	%
Efficiency ratio		41.09	%		41.40	%		40.16	%		-0.31	%					1.24	%
Noninterest expense to average assets		1.24	%		1.49	%		1.76	%		-0.25	%					-0.27	%

Return on Average Tangible Common Equity Reconciliations

(Non-GAAP)

The return on average tangible common equity is a

non-GAAP

disclosure. The Company uses certain

non-GAAP

financial measures to provide supplemental information regarding the Company’s performance. The following is a reconciliation of net income, adjusted for

tax-effected

amortization of intangibles, to net income computed in accordance with GAAP; a reconciliation of average tangible common equity to the Company’s average stockholders’ equity computed in accordance with GAAP; as well as a calculation of return on average tangible common equity.


	Year Ended December 31,
	2021			2020			2019
	(Dollars in thousands)
Net Income	$	212,521		$	177,159		$	207,827
Add: Amortization of intangible assets		8,240			9,352			10,798
Less: Tax effect of amortization of intangible assets (1)		(2,436	)		(2,765	)		(3,192	)
Tangible net income	$	218,325		$	183,746		$	215,433

Average stockholders’ equity	$	2,063,360		$	1,991,664		$	1,939,961
Less: Average goodwill		(663,707	)		(663,707	)		(665,026	)
Less: Average intangible assets		(29,328	)		(38,203	)		(48,296	)
Average tangible common equity	$	1,370,325		$	1,289,754		$	1,226,639

Return on average equity, annualized		10.30	%		8.90	%		10.71	%
Return on average tangible common equity		15.93	%		14.25	%		17.56	%

(1)

Tax effected at respective statutory rates.

Year Ended December 31,


2020

2019

2018


(Dollars in thousands)

Net Income
   $ 177,159    $ 207,827 $ 152,003
Add: Amortization of intangible assets
   9,352    10,798 5,254
Less: Tax effect of amortization of intangible assets (1)
   (2,765 )    (3,192 ) (1,553 )




Tangible net income
   $ 183,746    $ 215,433 $ 155,704




Average stockholders’ equity
   $   1,991,664    $   1,939,961 $   1,382,392
Less: Average goodwill
   (663,707 )    (665,026 ) (330,613 )
Less: Average intangible assets
   (38,203 )    (48,296 ) (26,055 )




Average tangible common equity
   $ 1,289,754    $ 1,226,639 $ 1,025,724




Return on average equity, annualized
   8.90%    10.71% 11.00%
Return on average tangible common equity
   14.25%    17.56% 15.18%

~~(1)~~

~~Tax effected at respective statutory rates.~~

Net Interest Income

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the years ended December 31, 2021, 2020 ~~2019~~ and ~~2018.~~2019. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in

proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 7 —

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Asset/Liability and Market Risk Management — Interest Rate Sensitivity Management

included herein.

~~Table of Contents~~

The ~~table~~tables below ~~presents~~present the interest rate spread, net interest margin and the composition of average interest-earning assets and average interest-bearing liabilities by category for the periods indicated, including the changes in average balance, composition, and average yield/rate between these respective periods.

Interest-Earning Assets and Interest-Bearing Liabilities


	Year Ended December 31,
	2021							2020							2019
	Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate
	(Dollars in thousands)
INTEREST-EARNING ASSETS
Investment securities (1)
Available-for-sale securities:
Taxable	$	2,820,050	$	37,532		1.36	%	$	1,854,964	$	35,129		1.94	%	$	1,580,850	$	38,189		2.42	%
Tax-advantaged		29,855		741		2.97	%		37,110		923		3.50	%		41,991		1,141		3.76	%
Held-to-maturity securities:
Taxable		1,007,982		17,747		1.86	%		438,190		9,542		2.18	%		504,814		11,498		2.28	%
Tax-advantaged		200,572		4,428		2.67	%		173,756		4,681		3.26	%		211,899		5,890		3.36	%
Investment in FHLB stock		17,688		1,019		5.76	%		17,688		978		5.53	%		17,688		1,235		6.98	%
Interest-earning deposits with other institutions		1,953,209		2,569		0.13	%		1,098,814		1,682		0.15	%		120,247		2,269		1.89	%
Loans (2)		8,065,877		356,594		4.42	%		8,066,483		377,402		4.68	%		7,552,505		397,628		5.26	%
Total interest-earning assets		14,095,233		420,630		3.02	%		11,687,005		430,337		3.71	%		10,029,994		457,850		4.58	%
Total noninterest-earning assets		1,255,288							1,242,808							1,272,907
Total assets	$	15,350,521						$	12,929,813						$	11,302,901
INTEREST-BEARING LIABILITIES
Savings deposits (3)	$	4,249,379		4,145		0.10	%	$	3,530,606		8,803		0.25	%	$	3,048,785		12,698		0.42	%
Time deposits		375,666		1,201		0.32	%		445,962		3,799		0.85	%		487,221		4,422		0.91	%
Total interest-bearing deposits		4,625,045		5,346		0.12	%		3,976,568		12,602		0.32	%		3,536,006		17,120		0.48	%
FHLB advances, other borrowings, and customer repurchase agreements		624,068		734		0.12	%		511,404		1,682		0.33	%		537,964		4,958		0.91	%
Interest-bearing liabilities		5,249,113		6,080		0.12	%		4,487,972		14,284		0.32	%		4,073,970		22,078		0.54	%
Noninterest-bearing deposits		7,817,627							6,281,989							5,177,035
Other liabilities		220,421							168,188							111,935
Stockholders’ equity		2,063,360							1,991,664							1,939,961
Total liabilities and stockholders’ equity	$	15,350,521						$	12,929,813						$	11,302,901
Net interest income			$	414,550						$	416,053						$	435,772
Net interest spread - tax equivalent						2.90	%						3.39	%						4.04	%
Net interest margin						2.96	%						3.57	%						4.35	%
Net interest margin - tax equivalent						2.97	%						3.59	%						4.36	%

(1)

Includes tax equivalent (TE) adjustments utilizing a federal statutory rate of 21% in effect for the years ended December 31, 2021, 2020 and 2019. The non TE rates for tax-advantaged HTM investment securities were 2.21%, 2.69% and 2.78% for the years ended December 31, 2021, 2020 and 2019, respectively. The non-tax equivalent (TE) rates for total investment securities was 1.53%, 2.04% and 2.43% for the years ended December 31, 2021, 2020 and 2019, respectively.

(2)

Year Ended December 31,

2020

2019

2018

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

(Dollars in thousands)

INTEREST-EARNING ASSETS

Investment securities (1)

Available-for-sale
securities:

Taxable
$ 1,854,964 $ 35,129 1.94% $ 1,580,850 $ 38,189 2.42% $ 1,869,842 $ 44,423 2.38%
Tax-advantaged
37,110 923 3.50% 41,991 1,141 3.76% 52,550 1,565 3.98%
Held-to-maturity
securities:

Taxable
438,190 9,542 2.18% 504,814 11,498 2.28% 534,642 11,848 2.22%
Tax-advantaged
173,756 4,681 3.26% 211,899 5,890 3.36% 243,955 7,053 3.50%
Investment in FHLB stock
17,688 978 5.53% 17,688 1,235 6.98% 19,441 2,045 (4) 10.52%
Interest-earning deposits with other institutions
1,098,814 1,682 0.15% 120,247 2,269 1.89% 97,266 1,642 1.69%
Loans (2)
8,066,483 377,402 4.68% 7,552,505 397,628 5.26% 5,905,674 293,284 4.97%

Total interest-earning assets
11,687,005 430,337 3.71% 10,029,994 457,850 4.58% 8,723,370 361,860 4.17%
Total noninterest-earning assets
1,242,808 1,272,907 789,299

Total assets
$ 12,929,813 $ 11,302,901 $ 9,512,669

INTEREST-BEARING LIABILITIES

Savings deposits (3)
$ 3,530,606 8,803 0.25% $ 3,048,785 12,698 0.42% $ 2,656,660 7,250 0.27%
Time deposits
445,962 3,799 0.85% 487,221 4,422 0.91% 453,031 2,575 0.57%

Total interest-bearing deposits
3,976,568 12,602 0.32% 3,536,006 17,120 0.48% 3,109,691 9,825 0.32%
FHLB advances, other borrowings, and customer repurchase agreements
511,404 1,682 0.33% 537,964 4,958 0.91% 499,526 2,990 0.60%

Interest-bearing liabilities
4,487,972 14,284 0.32% 4,073,970 22,078 0.54% 3,609,217 12,815 0.35%

Noninterest-bearing deposits
6,281,989 5,177,035 4,449,110
Other liabilities
168,188 111,935 71,950
Stockholders’ equity
1,991,664 1,939,961 1,382,392

Total liabilities and stockholders’ equity
$ 12,929,813 $ 11,302,901 $ 9,512,669

Net interest income
$ 416,053 $ 435,772 $ 349,045

  Net interest spread - tax equivalent
3.39% 4.04% 3.82%
  Net interest margin
3.57% 4.35% 4.00%
  Net interest margin - tax equivalent
3.59% 4.36% 4.03%

Includes loan fees of $27.5 million, $23.9 million and $3.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. Prepayment penalty fees of $9.0 million, $8.2 million and $5.4 million are included in interest income for the years ended December 31, 2021, 2020 and 2019, respectively.

(3)

Includes interest-bearing demand and money market accounts.

~~(1)~~

~~Includes tax equivalent (TE) adjustments utilizing a federal statutory rate of 21% in effect for the years ended December 31, 2020, 2019 and 2018.~~

~~Non-tax~~

~~equivalent (TE) rate was 2.04%, 2.43% and 2.41% for the years ended December 31, 2020, 2019 and 2018, respectively.~~

~~(2)~~

Includes loan fees of $23.9 million, $3.1 million and $3.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Prepayment penalty fees of $8.2 million, $5.4 million and $3.0 million are included in interest income for the years ended December 31, 2020, 2019 and 2018, respectively.

~~(3)~~

~~Includes interest-bearing demand and money market accounts.~~

~~(4)~~

~~Includes a special dividend from the FHLB of $520,000.~~

~~Table of Contents~~

The following table presents a comparison of interest income and interest expense resulting from changes in the volumes and rates on average interest-earning assets and average interest-bearing liabilities for the periods indicated. Changes in interest income or expense attributable to volume changes are calculated by multiplying the change in volume by the initial average non TE interest rate. The change in interest income or expense attributable to changes in interest rates is calculated by multiplying the change in non TE interest rate by the initial volume. The changes attributable to interest rate and volume changes are calculated by multiplying the change in rate times the change in volume.

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

Comparision of Year Ended December 31,

2020 Compared to 2019

Increase (Decrease) Due to

2019 Compared to 2018

Increase (Decrease) Due to

Volume

Rate

Rate/
Volume

Total

Volume

Rate

Rate/
Volume

Total

(Dollars in thousands)

Interest income:

Available-for-sale
securities:

Taxable investment securities
$ 5,679 $ (7,608 ) $ (1,131 ) $ (3,060 ) $ (6,919 ) $ 811 $ (126 ) $ (6,234 )
Tax-advantaged
investment securities
(132 ) (97 ) 11 (218 ) (315 ) (137 ) 28 (424 )
Held-to-maturity
securities:

Taxable investment securities
(1,499 ) (525 ) 68 (1,956 ) (706 ) 377 (21 ) (350 )
Tax-advantaged
investment securities
(1,061 ) (181 ) 33 (1,209 ) (927 ) (272 ) 36 (1,163 )
Investment in FHLB stock
- (257 ) - (257 ) (184 ) (688 ) 62 (810 )
Interest-earning deposits with other institutions
18,465 (2,085 ) (16,967 ) (587 ) 388 193 46 627
Loans
27,060 (44,273 ) (3,013 ) (20,226 ) 81,775 17,648 4,921 104,344

Total interest income
48,512 (55,026 ) (20,999 ) (27,513 ) 73,112 17,932 4,946 95,990

Interest expense:

Savings deposits
2,007 (5,097 ) (805 ) (3,895 ) 1,070 3,815 563 5,448
Time deposits
(374 ) (272 ) 23 (623 ) 194 1,537 116 1,847
FHLB advances, other borrowings, and customer repurchase agreements
(245 ) (3,188 ) 157 (3,276 ) 234 1,610 124 1,968

Total interest expense
1,388 (8,557 ) (625 ) (7,794 ) 1,498 6,962 803 9,263

Net interest income
$ 47,124 $ (46,469 ) $ (20,374 ) $ (19,719 ) $ 71,614 $ 10,970 $ 4,143 $ 86,727


	Comparison of Year Ended December 31,
	2021 Compared to 2020 Increase (Decrease) Due to												2020 Compared to 2019 Increase (Decrease) Due to
	Volume			Rate			Rate/ Volume			Total			Volume			Rate			Rate/ Volume			Total
	(Dollars in thousands)
Interest income:
Available-for-sale securities:
Taxable investment securities	$	18,449		$	(10,522	)	$	(5,524	)	$	2,403		$	5,679		$	(7,608	)	$	(1,131	)	$	(3,060	)
Tax-advantaged investment securities		(180	)		(2	)		0			(182	)		(132	)		(97	)		11			(218	)
Held-to-maturity securities:
Taxable investment securities		11,119			(1,267	)		(1,647	)		8,205			(1,499	)		(525	)		68			(1,956	)
Tax-advantaged investment securities		721			(844	)		(130	)		(253	)		(1,061	)		(181	)		33			(1,209	)
Investment in FHLB stock		—			41			—			41			—			(257	)		—			(257	)
Interest-earning deposits with other institutions		1,308			(237	)		(184	)		887			18,465			(2,085	)		(16,967	)		(587	)
Loans		(28	)		(20,782	)		2			(20,808	)		27,060			(44,273	)		(3,013	)		(20,226	)
Total interest income		31,389			(33,613	)		(7,483	)		(9,707	)		48,512			(55,026	)		(20,999	)		(27,513	)
Interest expense:
Savings deposits		1,792			(5,359	)		(1,091	)		(4,658	)		2,007			(5,097	)		(805	)		(3,895	)
Time deposits		(599	)		(2,373	)		374			(2,598	)		(374	)		(272	)		23			(623	)
FHLB advances, other borrowings, and customer repurchase agreements		372			(1,081	)		(239	)		(948	)		(245	)		(3,188	)		157			(3,276	)
Total interest expense		1,565			(8,813	)		(956	)		(8,204	)		1,388			(8,557	)		(625	)		(7,794	)
Net interest income	$	29,824		$	(24,800	)	$	(6,527	)	$	(1,503	)	$	47,124		$	(46,469	)	$	(20,374	)	$	(19,719	)

2021 Compared to 2020

Net interest income of $414.6 million for 2021 decreased $1.5 million, or 0.36%, compared to $416.1 million for 2020. Interest-earning assets increased on average by $2.41 billion, or 20.61%, from $11.69 billion for 2020 to $14.10 billion for 2021. Our net interest margin (TE) was 2.97% for 2021, compared to 3.59% for 2020.

Interest income for 2021 of $420.6 million declined by $9.7 million, or 2.26%, when compared to 2020, as interest income and fees on loans declined by $20.8 million, or 5.51%, year-over-year. Compared to 2020, average interest-earning assets increased by $2.41 billion and the yield on average earning assets was 3.02% for 2021, compared to 3.71% for 2020. The 69 basis point decrease in the interest-earning asset yield over 2020 resulted from a 26 basis point decrease in loan yields from 4.68% for 2020 to 4.42% for 2021, and a 51 basis point decline in the non-tax equivalent investment yields, as well as a change in mix of earning assets, resulting from an $857.5 million increase in average balances at the Federal Reserve. The decrease in earning asset yield was impacted by a change in asset mix with average loan balances declining to 57.22% of earning assets for 2021, compared to 69.02% for 2020, as well as lower loan and investment yields. Conversely the average balances at the Federal Reserve grew as a percentage of average earning assets to 13.64% for 2021, compared to 9.11% for 2020.

Interest income and fees on loans for 2021 of $356.6 million decreased $20.8 million, or 5.51% when compared to 2020. The average balance of loans was essentially the same in 2021 when compared to 2020, as core loans grew on average by $85.1 million, while PPP loans on average decreased $85.7 million. Loan yields decreased by 26 basis points from 2020. PPP loans resulted in approximately $24.3 million in fee income and $6.2 million in loan interest during 2021, compared to $21.4 million in fee income and $7.1 million in loan interest during 2020. Discount accretion on acquired loans and nonrecurring nonaccrual interest paid decreased by $5.2 million compared to 2020. The decline in interest rates since the start

of the pandemic has had a negative impact on loan yields, which, after excluding discount accretion, nonaccrual interest income and the impact from PPP loans, declined by 27 basis points compared to 2020. The decline in loan yields was due to lower rates on loans indexed to variable interest rates such as the Bank’s prime rate and lower yields on new loans in the low rate environment experienced for much of the last two years.

In general, we stop accruing interest on a loan after its principal or interest becomes 90 days or more past due. When a loan is placed on nonaccrual, all interest previously accrued but not collected is charged against earnings. There was no interest income that was accrued and not reversed on nonaccrual loans at December 31, 2021 and 2020. As of December 31, 2021 and 2020, we had $6.9 million and $14.3 million of nonaccrual loans, respectively.

Interest income from investment securities was $60.4 million for 2021, a $10.2 million, or 20.23%, increase from $50.3 million for 2020. Investment income growth resulted from higher levels of investment securities as a result of purchases of investment securities funded by the growth in the Bank's deposits. This increase was the net result of a $1.55 billion increase in average investment securities, partially offset by a 51 basis point decline in the non TE yield on securities, compared to 2020. The significant decline in interest rates over the past two years decreased yields on investment securities due partly to higher levels of premium amortization, as well as lower yields on investments purchased during the past two years. We continued to maintain a significant amount of funds at the Federal Reserve. Our Federal Reserve balance averaged more than $1.9 billion for 2021, which was $857,000 greater than the average for 2020.

Interest expense of $6.1 million for 2021 decreased $8.2 million, or 57.43%, compared to $14.3 million for 2020. The average rate paid on interest-bearing liabilities decreased by 20 basis points, to 0.12% for 2021, from 0.32% for 2020. Average interest-bearing liabilities were $761.1 million higher for 2021 when compared to 2020. Noninterest-bearing deposits grew on average by $1.54 billion, or 24.45% compared to 2020, while interest-bearing deposits and customer repurchase agreements grew on average by $779.0 million for 2021. On average, noninterest-bearing deposits were 62.83% of our total deposits for 2021, compared to 61.24% for 2020. Total cost of funds was 0.05% for 2021, compared with 0.13% for 2020.

2020 Compared to 2019

Net interest income ~~before provision for credit losses,~~ of $416.1 million for 2020 decreased $19.7 million, or 4.53%, compared to $435.8 million for 2019. Interest-earning assets increased on average by $1.66 billion, or 16.52%, from $10.03 billion for 2019 to $11.69 billion for 2020. Our net interest margin (TE) was 3.59% for 2020, compared to 4.36% for 2019.

Interest income for 2020 was $430.3 million, which represented a $27.5 million, or 6.01%, decrease when compared to 2019. Average interest-earning assets increased to $11.69 billion and the average earning asset yield was 3.71% for 2020, compared to 4.58% for 2019. The 87 basis point decrease in the interest-earning asset yield over 2019 was primarily due to a combination of a 58 basis point decrease in loan yields, a 39 basis point decline in the

non-tax

equivalent investment yields, and a change in mix of earning assets, with average balances at the Federal Reserve growing to 9.11% of earning assets for 2020, compared to 1.14% for 2019. The increase in balances at the Federal Reserve was impacted by $1.54 billion in average deposit growth for 2020. The net interest margin for 2020 would have been about 30 basis points higher without the $950.7 million year-over-year increase in average deposits at the Federal Reserve, earning just 10 basis points.

Interest income and fees on loans for 2020 of $377.4 million decreased $20.2 million, or 5.09% when compared to 2019 Average loans increased $514.0 million for 2020 when compared to 2019, primarily due to

~~Table of Contents~~

~~$702.1~~ $702.1 million in average PPP loans originated in the second quarter of 2020. The PPP loans we originated resulted in approximately $21.4 million in fee income and $7.1 million in loan interest during 2020. Discount accretion on acquired loans and nonrecurring nonaccrual interest paid decreased by $12.6 million compared to 2019. Loan yields decreased by 58 basis points from 2019. The significant decline in interest rates since the start of the pandemic has had a negative impact on loan yields, which after excluding the impact from PPP loans, discount accretion and nonaccrual interest income, causing loan yields to decline by 36 basis points from 2019.

There was no interest income that was accrued and not reversed on nonaccrual loans at December 31, 2020 and 2019. As of December 31, 2020 and 2019, we had $14.3 million and $5.3 million of nonaccrual loans, respectively. Had these nonaccrual loans for which interest was no longer accruing complied with the original terms and conditions, interest income would have been approximately $843,000 and $526,000 greater for 2020 and 2019, respectively.

Interest income from investment securities was $50.3 million for 2020, a $6.4 million, or 11.36%, decrease from $56.7 million for 2019. The decrease was primarily the result of a 39 basis point decline in the

non-tax

equivalent yield on investments as the decline in interest rates over the past four quarters decreased yields on investment securities due to higher

levels of premium amortization, as well as lower yields on investments purchased during 2020. Partially offsetting the decline from lower rates was a $164.5 million increase in the average investment securities for 2020 compared to 2019.

Interest expense of $14.3 million for 2020 decreased $7.8 million, or 35.30%, compared to $22.1 million for 2019. The average rate paid on interest-bearing liabilities decreased by 22 basis points, to 0.32% for 2020, from 0.54% for 2019. The rate on interest-bearing deposits for 2020 decreased by 16 basis points from 2019. Average interest-bearing liabilities were $414.0 million higher for 2020 when compared to 2019. On average, noninterest-bearing deposits were 61.24% of our total deposits for 2020, compared to 59.42% for 2019. In comparison to 2020, our overall cost of funds decreased 11 basis points, as our average noninterest-bearing deposits grew by $1.10 billion. Average interest-bearing deposits increased by $440.6 million for 2020, while the cost of interest-bearing deposits decreased by 16 basis points.

~~2019 Compared to 2018~~

~~Net interest income, before~~

Provision for (Recapture of) Credit Losses

The provision for loan losses, of $435.8 million for 2019 increased $86.7 million, or 24.85%, compared to $349.0 million for 2018. Interest-earning assets increased on average by $1.31 billion, or 14.98%, from $8.72 billion for 2018 to $10.03 billion for 2019. The growth in interest-earning assets was primarily the result of loan growth from the acquisition of Community Bank (“CB”). Our net interest margin (TE) was 4.36% for 2019, compared to 4.03% for 2018.

Interest income for 2019 was $457.9 million, which represented a $96.0 million, or 26.53%, increase when compared to 2018. Average interest-earning assets increased by $1.31 billion and the average interest-earning asset yield of 4.58%, compared to 4.17% for 2018. The 41 basis point increase in the interest-earning asset yield over 2018 resulted from the combination of a 29 basis point increase in loan yields and the change in mix of earning assets. Average loans as a percentage of earning assets grew from 67.7% in 2018 to 75.3% in 2019. Conversely, average investment securities declined as a percentage of earning assets from 31.0% in the prior year to 23.3% in 2019.

Interest income and fees on loans for 2019 of $397.6 million increased $104.3 million, or 35.58% when compared to 2018 primarily due to loans acquired from CB. Average loans increased $1.65 billion for 2019 when compared with 2018. Discount accretion on acquired loans and nonrecurring nonaccrual interest paid was $30.8 million for 2019, compared to $16.9 million for 2018, which increased loan yields by nine basis points. In addition, loan yields increased by an additional 20 basis points from the prior year primarily due to higher rates on loans indexed to variable interest rates, such as the Bank’s prime rate.

~~Table of Contents~~

There was no interest income that was accrued and not reversed on nonaccrual loans at December 31, 2019 and 2018. As of December 31, 2019 and 2018, we had $5.3 million and $20.0 million of nonaccrual loans, respectively. Had these nonaccrual loans for which interest was no longer accruing complied with the original terms and conditions, interest income would have been approximately $526,000 and $1.3 million greater for 2019 and 2018, respectively.

Interest income from investment securities was $56.7 million for 2019, an $8.2 million, or 12.59%, decrease from $64.9 million for 2018. This decrease was the net result of a $361.4 million decrease in the average investment securities for 2019 compared to 2018, partially offset by a two basis point increase in the non

~~tax-equivalent~~

~~yield on securities. Dividend income from FHLB stock decreased by $810,000 from 2019, primarily due to a special dividend of $520,000 received from the FHLB in the fourth quarter of 2018.~~

Interest expense of $22.1 million for 2019 increased $9.3 million, or 72.28%, compared to $12.8 million for 2018. The average rate paid on interest-bearing liabilities increased by 19 basis points, to 0.54% for 2019, from 0.35% for 2018. The rate on interest-bearing deposits for 2019 increased by 16 basis points from 2018, as a result of higher rates on deposits acquired from CB and competition from higher interest rates offered by our competitors. Average interest-bearing liabilities increased by $464.8 million when compared to 2018, primarily due to deposits assumed from CB. Average noninterest-bearing deposits represented 59.42% of our total deposits for 2019, compared to 58.86% for 2018. The overall cost of funds increased by only eight basis points due to the continued strength and growth of noninterest-bearing deposits, during a period of higher short-term interest rates.

~~Provision for Credit Losses~~

~~The provision for~~(recapture of) credit losses is a charge (credit) to earnings to ~~maintain~~reflect the allowance for credit losses at a level consistent with management’s assessment of expected lifetime losses in the loan portfolio at the balance sheet date. On January 1, 2020, we adopted ASU

2016-13,

commonly referred to as CECL, which ~~replaces~~replaced the “incurred loss” approach with an “expected loss” model over the life of the loan.

The allowance for credit losses totaled $65.0 million at December 31, 2021, compared to $93.7 million at December 31, ~~2020, compared to $68.7 million at December 31, 2019.~~2020. Upon adoption of CECL, a transition adjustment of $1.8 million was added to the beginning balance of the allowance, with no impact on the consolidated statement of earnings, and was increased by $23.5 million in provision for credit losses in the first half of 2020, due to the severe economic disruption forecasted as a result of the

onset of the COVID-19

pandemic. NoWe recorded a recapture of provision for credit losses ~~was recorded~~of $25.5 million in 2021, as our economic forecasts reflected continual improvements in key macroeconomic variables throughout the ~~third or fourth quarter of 2020.~~year, resulting in lower projected loan losses. For ~~2020,~~2021, we experienced ~~minimal~~ credit charge-offs of ~~$666,000~~$3.4 million and total recoveries of ~~$358,000,~~$198,000, resulting in net charge-offs of ~~$308,000.~~$3.2 million. This compares to a $23.5 million loan loss provision and net charge-offs of $308,000 for 2020 and a $5.0 million loan loss provision and net recoveries of $47,000 for ~~2019 and a $1.5 million loan loss provision and net recoveries of $2.5 million for 2018.~~2019. The ratio of the allowance for credit losses to total loans and leases outstanding, ~~net~~at amortized cost, as of ~~deferred fees~~December 31, 2021, was 0.82%. This compares to 1.12% and ~~discount,~~0.91%, as of December 31, 2020 ~~was 1.12%, or 1.25% when~~and 2019, respectively. When PPP loans are ~~excluded. This compares to 0.91%~~excluded, allowance for credit losses as a percentage of total adjusted loans and ~~0.82%, as of~~leases outstanding was 0.84% at December 31, ~~2019~~2021, compared to 1.25% at December 31, 2020 and ~~2018,~~0.91%, at December 31, 2019, respectively. As of December 31, ~~2020,~~2021, remaining discounts on acquired loans were ~~$30.9~~$18.6 million.

No assurance can be given that economic conditions which adversely affect the Company’s service areas or other circumstances will or will not be reflected in increased provisions for credit losses in the future, as the nature of this process requires considerable judgment. We may experience increases in the provision for credit losses, in future periods, due to further deterioration in economic conditions, ~~from~~including the

impact of the COVID-19

pandemic. See “Allowance for Credit Losses” under

Analysis of Financial Condition

herein.

Noninterest Income

Noninterest income includes income derived from financial services offered to our customers, such as CitizensTrust, BankCard services, international banking, and other business services. Also included in noninterest income are service charges and fees, primarily from deposit accounts, gains (net of losses) from the disposition of investment securities when applicable, loans, other real estate owned, and fixed assets, and other revenues not included as interest on earning assets.

~~Table of Contents~~

The following table sets forth the various components of noninterest income for the periods presented.

Variance

Year Ended December 31,

2020

2019

    2020

    2019

    2018

    $

    %

    $

    %

(Dollars in thousands)

Noninterest income:

Service charges on deposit accounts
$ 16,561 $ 20,010 $ 17,070 $ (3,449 ) -17.24% $ 2,940 17.22%
Trust and investment services
9,978 9,525 8,774 453 4.76% 751 8.56%
Bankcard services
1,886 3,163 3,485 (1,277 ) -40.37% (322 ) -9.24%
BOLI income
8,100 5,798 4,018 2,302 39.70% 1,780 44.30%
Swap fee income
5,025 1,806 340 3,219 178.24% 1,466 431.18%
Gain on OREO, net
388 129 3,546 259 200.78% (3,417 ) -96.36%
Gain on sale of building, net
1,680 4,776 - (3,096 ) -64.82% 4,776 -
Gain on eminent domain condemnation, net
- 5,685 - (5,685 ) -100.00% 5,685 -
Other
6,252 8,150 6,248 (1,898 ) -23.29% 1,902 30.44%

Total noninterest income
$ 49,870 $ 59,042 $ 43,481 $ (9,172 ) -15.53% $ 15,561 35.79%


							Variance
	Year Ended December 31,						2021						2020
	2021		2020		2019		$			%			$			%
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	17,152	$	16,561	$	20,010	$	591			3.57	%	$	(3,449	)		-17.24	%
Trust and investment services		11,571		9,978		9,525		1,593			15.97	%		453			4.76	%
Bankcard services		1,789		1,886		3,163		(97	)		-5.14	%		(1,277	)		-40.37	%
BOLI income		8,500		8,100		5,798		400			4.94	%		2,302			39.70	%
Swap fee income		382		5,025		1,806		(4,643	)		-92.40	%		3,219			178.24	%
Gain on OREO, net		1,177		388		129		789			203.35	%		259			200.78	%
Gain on sale of building, net		189		1,680		4,776		(1,491	)		-88.75	%		(3,096	)		-64.82	%
Gain on eminent domain condemnation, net		—		—		5,685		—			—			(5,685	)		-100.00	%
Other		6,625		6,252		8,150		373			5.97	%		(1,898	)		-23.29	%
Total noninterest income	$	47,385	$	49,870	$	59,042	$	(2,485	)		-4.98	%	$	(9,172	)		-15.53	%

2021 Compared to 2020

The $2.5 million decrease in noninterest income was primarily due to a $4.6 million decrease in swap fee income from 2020 due to lower volume of swap transactions. Partially offsetting the overall decrease in noninterest income was a $1.6 million increase in Trust and investment services income and a $591,000 year-over-year increase in service charges on deposit accounts. Noninterest income for 2021 also included $1.2 million in net gain on the sale of three OREO properties, while 2020 included $1.7 million net gain on the sale of one of our owned buildings and a $365,000 net gain on the sale of two OREO properties. The $373,000 increase in other income in 2021 included $890,000 for recovery of an acquired loan charged off prior to a previous acquisition.

The Bank enters into interest rate swap agreements with our customers to manage our interest rate risk and enters into identical offsetting swaps with a counterparty. The changes in the fair value of the swaps primarily offset each other resulting in swap fee income (refer to Note 20 — Derivative Financial Instruments of the notes to the consolidated financial statements of this report for additional information). Swap fee income decreased $4.6 million compared to 2020, due to lower volume of swap transactions. We executed on swap agreements related to new loan originations with a notional amount totaling $25.3 million for 2021, compared to $280.4 million for 2020. The volume of interest rate swaps can be impacted by competitive factors, as well as the current and forecasted interest rate environment.

CitizensTrust consists of Wealth Management and Investment Services income. The Wealth Management group provides a variety of services, which include asset management, financial planning, estate planning, retirement planning, private, and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other non-insured investment products. At December 31, 2021, CitizensTrust had approximately $3.45 billion in assets under management and administration, including $2.50 billion in assets under management. CitizensTrust generated fees of $11.6 million for 2021, an increase of $1.6 million compared to $10.0 million for 2020, due to the growth in assets under management.

The Bank’s investment in BOLI includes life insurance policies acquired through acquisitions and the purchase of life insurance by the Bank on a selected group of employees. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at its cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income tax, as long as they are held for the life of the covered parties. Income from our BOLI policies for 2021 included $3.9 million of death benefits that exceeded cash surrender values, compared to $2.8 million of death benefits for 2020.

2020 Compared to 2019

Noninterest income for 2019 included a $5.7 million net gain from the legal settlement of an eminent domain condemnation of one of our banking center buildings in Bakersfield and $4.8 million in net gains on the sale of bank owned buildings, compared with a $1.7 million net gain on the sale of one of our owned buildings in 2020. Service charges on deposit accounts decreased by $3.4 million from 2019. This decrease was primarily due to the higher earnings credits generated by the significant increase in our customer’s noninterest-bearing deposits held at the Bank. In addition, bankcard services decreased by approximately $1.3 million when compared to 2019, primarily due to the Durbin Amendment’s cap on debit card interchange fees. The $1.9 million decrease in other income in 2020 included decreases in dividend income from various equity investments, other banking fee income and SBA servicing income when compared to 2019.

~~Derivative Financial Instruments~~

~~of the notes to the unaudited condensed consolidated financial statements of this report for additional information).~~

Swap fee income increased $3.2 million compared to 2019, due to higher volume of swap transactions. We executed on swap agreements related to new loan originations with a notional amount totaling $280.4 million for 2020, compared to $96.4 million for 2019.

~~non-insured~~

~~investment products.~~

At December 31, 2020, CitizensTrust had approximately $3.04 billion in assets under management and administration, including $2.18 billion in assets under management. CitizensTrust generated fees of $10.0 million for 2020, an increase of $453,000 compared to $9.5 million for 2019, due to the growth in assets under management.

Income from our BOLI policies for 2020 included $2.8 million of death benefits that exceeded cash surrender values, compared to $502,000 of death benefits for 2019.

~~Table of Contents~~

~~2019 Compared to 2018~~

The $15.6 million growth in noninterest income was primarily due to a $5.7 million net gain from the legal settlement of an eminent domain condemnation of one of our business financial center buildings in Bakersfield and a $4.8 million net gain on the sale of our bank owned buildings, compared with a $3.5 million net gain on the sale of one OREO in 2018. Service charges on deposit accounts increased by $2.9 million from 2018, primarily due to growth in service charges on deposits assumed in the acquisition of CB. The $3.4 million increase in other income included increases of $1.5 million in swap fee income, $1.0 million increase in international banking fee income, and $1.1 million in SBA servicing income and dividend income from various equity investments. For 2019, the Durbin Amendment’s cap on interchange fees became effective for the Company, which reduced our debit card interchange fee income for bankcard services by approximately $600,000 when compared to 2018.

At December 31, 2019, CitizensTrust had approximately $2.86 billion in assets under management and administration, including $2.01 billion in assets under management. CitizensTrust generated fees of $9.5 million for 2019, an increase of $751,000 compared to $8.8 million for 2018, due to the growth in assets under management.

The $1.8 million increase in BOLI income included a $1.2 million increase in income from $70.9 million of BOLI policies acquired from CB in the third quarter of 2018. Death benefits of $502,000 were included in our BOLI policies for 2019.

Noninterest Expense

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


										Variance
	Year Ended December 31,									2021						2020
	2021			2020			2019			$			%			$			%
	(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	117,871		$	119,759		$	119,475		$	(1,888	)		-1.58	%	$	284			0.24	%
Occupancy		16,765			16,677			16,565			88			0.53	%		112			0.68	%
Equipment		2,991			3,945			3,892			(954	)		-24.18	%		53			1.36	%
Professional services		7,967			9,460			7,752			(1,493	)		-15.78	%		1,708			22.03	%
Computer software expense		11,584			11,302			10,658			282			2.50	%		644			6.04	%
Marketing and promotion		4,623			4,488			5,890			135			3.01	%		(1,402	)		-23.80	%
Amortization of intangible assets		8,240			9,352			10,798			(1,112	)		-11.89	%		(1,446	)		-13.39	%
Telecommunications expense		2,105			2,566			2,785			(461	)		-17.97	%		(219	)		-7.86	%
Regulatory assessments		4,695			2,375			1,958			2,320			97.68	%		417			21.30	%
Insurance		1,840			1,636			1,475			204			12.47	%		161			10.92	%
Loan expense		1,113			1,159			1,439			(46	)		-3.97	%		(280	)		-19.46	%
OREO expense		49			1,247			64			(1,198	)		-96.07	%		1,183			1848.44	%
Recapture of provision for unfunded loan commitments		(1,000	)		—			—			(1,000	)		—			—			—
Directors’ expenses		1,539			1,420			1,230			119			8.38	%		190			15.45	%
Stationery and supplies		962			1,172			1,179			(210	)		-17.92	%		(7	)		-0.59	%
Acquisition related expenses		962			—			6,447			962		-				(6,447	)		-100.00	%
Other		7,481			6,345			7,133			1,136			17.90	%		(788	)		-11.05	%
Total noninterest expense	$	189,787		$	192,903		$	198,740		$	(3,116	)		-1.62	%	$	(5,837	)		-2.94	%

Noninterest expense to average assets		1.24	%		1.49	%		1.76	%
Efficiency ratio (1)		41.09	%		41.40	%		40.16	%

(1)

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

Variance

Year Ended December 31,

2020

2019

2020

2019

2018

$

%

$

%

(Dollars in thousands)

Noninterest expense:

Salaries and employee benefits
$ 119,759 $ 119,475 $ 100,601 $ 284 0.24% $ 18,874 18.76%
Occupancy
16,677 16,565 16,386 112 0.68% 179 1.09%
Equipment
3,945 3,892 3,767 53 1.36% 125 3.32%
Professional services
9,460 7,752 6,477 1,708 22.03% 1,275 19.69%
Computer software expense
11,302 10,658 9,343 644 6.04% 1,315 14.07%
Marketing and promotion
4,488 5,890 5,302 (1,402 ) -23.80% 588 11.09%
Amortization of intangible assets
9,352 10,798 5,254 (1,446 ) -13.39% 5,544 105.52%
Telecommunications expense
2,566 2,785 2,564 (219 ) -7.86% 221 8.62%
Regulatory assessments
2,375 1,958 3,218 417 21.30% (1,260 ) -39.15%
Insurance
1,636 1,475 1,735 161 10.92% (260 ) -14.99%
Loan expense
1,159 1,439 1,103 (280 ) -19.46% 336 30.46%
OREO expense
1,247 64 7 1,183 1848.44% 57 814.29%
Recapture of provision for unfunded loan commitments
- - (250 ) - - 250 100.00%
Directors’ expenses
1,420 1,230 1,073 190 15.45% 157 14.63%
Stationery and supplies
1,172 1,179 1,207 (7 ) -0.59% (28 ) -2.32%
Acquisition related expenses
- 6,447 16,404 (6,447 ) -100.00% (9,957 ) -60.70%
Other
6,345 7,133 5,720 (788 ) -11.05% 1,413 24.70%

Total noninterest expense
$ 192,903 $ 198,740 $ 179,911 $ (5,837 ) -2.94% $ 18,829 10.47%

Noninterest expense to average assets
1.49% 1.76% 1.89%
Efficiency ratio (1)
41.40% 40.16% 45.83%

~~(1)~~

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

Our ability to control noninterest expenses in relation to asset growth can be measured in terms of total noninterest expenses as a percentage of average assets. Noninterest expense as a percentage of average assets was 1.24% for 2021, compared to 1.49% for 2020 ~~compared to~~and 1.76% ~~and 1.89%~~ for 2019, ~~and 2018,~~ respectively. The ~~decrease~~decline in this ratio for ~~2020 was significantly impacted by~~2021 reflects the ~~$950 million increase~~$2.42 billion growth in average ~~balances at the Federal Reserve.~~

~~Table of Contents~~

assets that resulted primarily from $2.18 billion in average deposit growth.

Our ability to control noninterest expenses in relation to the level of total revenue (net interest income before provision for credit losses plus noninterest income) is measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. The efficiency ratio was 41.09% for 2021, compared to 41.40% for 2020 and 40.16% for 2019.

2021 Compared to 2020

Noninterest expense of $189.8 million for the year ended December 31, 2021 was $3.1 million, or 1.62% lower than 2020. This year-over-year decrease included a $1.9 million decrease in salaries and employee benefits, partially due to a $1.1 million in additional bonus expense for “Thank You Awards” paid to all Bank employees during the third quarter of 2020. The year-over-year decrease also included a $1.5 million decrease in professional services expense, a $1.1 million decrease in Core Deposit Intangible ("CDI") amortization, a $1.2 million decrease in OREO expense primarily due to a $700,000 write-down of one OREO property in 2020, and a $1.0 million recapture of provision for unfunded loan commitments recorded in

2021, compared to ~~40.16%~~no recapture of provision in 2020. These decreases were partially offset by a $2.3 million increase in regulatory assessment expense compared to the prior year, which resulted from the final application of assessment credits provided by the FDIC at the end of the second quarter of 2020. Additionally, there were $962,000 in acquisition related expenses for ~~2019 and 45.83%~~the year ended December 31, 2021, compared to no merger related expenses for ~~2018.~~

2020.

2020 Compared to 2019

Noninterest expense of $192.9 million for the year ended December 31, 2020 was $5.8 million, or 2.9% lower than 2019. There were no merger related expenses related to the Community Bank acquisition for 2020, compared to $6.4 million for 2019 and the year-over-year decrease also included a $1.4 million decrease in CDI amortization. A decrease in marketing and promotion expense in 2020 of $1.4 million was primarily due to

COVID-19

restrictions on travel and entertainment. These decreases were partially offset by a $1.7 million increase in professional services expense, related to legal, audit, and other professional services. OREO expense also increased in 2020 by $1.2 million primarily due to a $700,000 write-down of one OREO property.

~~2019 Compared to 2018~~

Noninterest expense of $198.7 million for the year ended December 31, 2019 was $18.8 million higher than 2018. Salaries and employee benefit costs increased $18.9 million primarily due to additional compensation related to the newly hired and former CB employees who were retained after the merger and $1.9 million in higher stock related compensation expense. Higher expense for accelerated vesting of stock grants related to the amended employment agreement and additional stock grants related to the consulting agreement for the Company’s retiring Chief Executive Officer contributed to the increase in compensation costs for 2019. The year-over-year increase also included a $5.5 million increase in CDI amortization as a result of core deposits assumed from CB. Increases of $1.3 million in professional services, $1.2 million in software licenses and maintenance, and $1.5 million in other expense was primarily related to higher expenses related to the operations of a larger bank after the merger with CB. These increases were partially offset by a $10.0 million decrease in merger related expenses.

Income Taxes

The Company’s effective tax rate for the year ended December 31, ~~2020~~2021 was ~~29.00%~~28.60%, compared with ~~28.60%~~29.00% and ~~28.00%~~28.60% for the year ended December 31, ~~2019~~2020 and ~~2018,~~2019, respectively. Our estimated annual effective tax rate also varies depending upon the level of

tax-advantaged

income as well as available tax credits. Refer to Note 1110 —

Income Taxes

of the notes to consolidated financial statements for more information.

The effective tax rates are below the nominal combined Federal and State tax rate as a result of

tax-advantaged

income from certain municipal security investments, municipal loans and leases and BOLI, as well as available tax credits for each period.

~~Table of Contents~~

ANALYSIS OF FINANCIAL CONDITION

Total assets of $15.88 billion at December 31, 2021 increased $1.46 billion, or 10.16%, from total assets of $14.42 billion at December 31, ~~2020 increased $3.14 billion, or 27.80%, from total~~2020. Interest-earning assets ~~of $11.28~~totaled $14.68 billion at December 31, ~~2019. Interest-earning assets totaled~~2021, an increase of $1.46 billion, or 11.04%, when compared with $13.22 billion at December 31, ~~2020, an increase of $3.20 billion, or 31.88%, when compared with $10.03 billion at December 31, 2019.~~2020. The increase in interest-earning assets includes a ~~$1.81~~$2.13 billion increase in investment securities, that was partially offset by a $461.1 million decrease in total loans and a $193.3 million decrease in interest-earning balances due from the Federal ~~Reserve, a $784.2 million increase in total loans, and a $562.8 million increase in investment securities.~~Reserve. The ~~increase~~decrease in total loans was due to ~~the origination of approximately $1.10 billion~~a $696.4 million decrease in PPP loans with a remaining outstanding balance totaling ~~$883.0~~$186.6 million as of December 31, ~~2020.~~2021. Excluding PPP loans, total loans ~~declined~~increased by ~~$98.8~~$235.3 million, or 3.15%, from December 31, ~~2019.~~

2020.

Total liabilities were $13.80 billion at December 31, 2021, an increase of $1.39 billion, or 11.21%, from total liabilities of $12.41 billion at December 31, ~~2020, an increase of $3.12 billion, or 33.62%, from total liabilities of $9.29 billion at December 31, 2019.~~2020. Total deposits grew by ~~$3.03~~$1.24 billion, or ~~34.83%~~10.56%. ~~This significant deposit~~Deposit growth in ~~2020~~2021 was ~~primarily~~partly due to our customers maintaining greater liquidity in their deposit accounts. Total equity increased ~~$13.9~~$73.5 million, or ~~0.70%~~3.66%, to $2.08 billion at December 31, 2021, compared to total equity of $2.01 billion at December 31, ~~2020, compared to total equity of $1.99 billion at December 31, 2019.~~2020. The ~~$13.9~~$73.5 million increase in equity was primarily due to net earnings of ~~$177.2~~$212.5 million, partially offset by $97.8 million in cash dividends and a ~~$22.7~~$39.3 million ~~increase~~decrease in other comprehensive income from the tax effected impact of the ~~increase~~decline in market value of

available-for-sale

~~investment securities, partially offset by $97.7 million in cash dividends and~~ securities. During the ~~repurchase~~third quarter of ~~4.9 million~~2021, we repurchased 390,336 shares of common stock for ~~$91.7~~$7.4 million, or an average repurchase price of $18.97, under our

10b5-1

stock repurchase program. ~~Our equity also decreased by $1.3 million as a result of a cumulative effect adjustment to beginning retained earnings, net of tax, due to the adoption of CECL on January 1, 2020.~~

Investment Securities

The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. At December 31, ~~2020,~~2021, total investment securities were ~~$2.98~~$5.11 billion. This represented an increase of ~~$562.8 million,~~$2.13 billion, or ~~23.31%~~71.61%, from total investment securities of ~~$2.41~~$2.98 billion at December 31, ~~2019.~~2020. The increase in investment securities was primarily due to new securities purchased exceeding the cash outflow from the portfolio in ~~2020.~~2021. At December 31, ~~2020,~~2021, investment securities HTM totaled ~~$578.6 million.~~$1.93 billion. At December 31, ~~2020,~~2021, our AFS investment securities totaled ~~$2.40~~$3.18 billion, inclusive of a

pre-tax

net unrealized ~~gain~~loss of ~~$54.7~~$1.3 million. The

after-tax

unrealized ~~gain~~loss reported in AOCI on AFS investment securities was ~~$38.6 million.~~$934,000. The changes in the net unrealized holding gain (loss) resulted primarily from fluctuations in market interest rates. For the years ended December 31, ~~2020~~2021 and ~~2019,~~2020, repayments/maturities of investment securities totaled ~~$798.7~~$928.4 million and ~~$485.8~~$798.7 million, respectively. The Company purchased additional investment securities totaling ~~$1.28~~$3.16 billion and ~~$540.6 million~~$1.28 billion for the years ended December 31, 2021 and 2020, ~~and 2019,~~ respectively. We deployed some of our excess liquidity during 2021 by purchasing $3.16 billion of additional investment securities with a non-tax equivalent weighted average yield of approximately 1.61%. There were no investment securities sold during the ~~year~~years ended December 31, 2021 and 2020. ~~During 2019, we sold 14 investment securities at book value of approximately $152.6 million.~~

The tables below set forth our investment securities AFS and HTM portfolio by type for the dates presented.

December 31,


2020

2019


Fair Value

Percent

Fair Value

Percent


(Dollars in thousands)

Investment securities
available-for-sale

Mortgage-backed securities
   $ 1,904,935    79.41%    $ 1,206,313    69.32%
CMO/REMIC
   462,814    19.29%    493,710    28.37%
Municipal bonds
   30,285    1.26%    39,354    2.26%
Other securities
   889    0.04%    880    0.05%








Total
available-for-sale
securities
   $   2,398,923    100.00%    $   1,740,257    100.00%


	December 31,
	2021					2020
	Fair Value		Percent			Fair Value		Percent
	(Dollars in thousands)
Investment securities available-for-sale
Mortgage-backed securities	$	2,563,214		80.50	%	$	1,904,935		79.41	%
CMO/REMIC		590,158		18.53	%		462,814		19.29	%
Municipal bonds		29,468		0.93	%		30,285		1.26	%
Other securities		1,083		0.04	%		889		0.04	%
Total available-for-sale securities	$	3,183,923		100.00	%	$	2,398,923		100.00	%


	December 31,
	2021					2020
	Amortized Cost		Percent			Amortized Cost		Percent
	(Dollars in thousands)
Investment securities held-to-maturity
Government agency/GSE	$	576,899		29.95	%	$	98,663		17.05	%
Mortgage-backed securities		647,390		33.61	%		146,382		25.30	%
CMO/REMIC		490,670		25.48	%		145,309		25.11	%
Municipal bonds		211,011		10.96	%		188,272		32.54	%
Total held-to-maturity securities	$	1,925,970		100.00	%	$	578,626		100.00	%
Fair Value	$	1,921,693				$	604,223

~~Table of Contents~~

December 31,


2020

2019


Amortized
Cost

Percent

Amortized
Cost

Percent


(Dollars in thousands)

Investment securities
held-to-maturity

Government agency/GSE
   $ 98,663    17.05%    $ 117,366    17.40%
Mortgage-backed securities
   146,382    25.30%    168,479    24.98%
CMO/REMIC
   145,309    25.11%    192,548    28.55%
Municipal bonds
   188,272    32.54%    196,059    29.07%

Total
held-to-maturity
securities
   $ 578,626    100.00%    $ 674,452    100.00%

Fair Value
   $ 604,223       $ 678,948

The maturity distribution of the AFS and HTM portfolios consist of the following as of the date presented.


	December 31, 2021
	One Year or Less			After One Year Through Five Years			After Five Years Through Ten Years			After Ten Years			Total			Percent to Total
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	2,400		$	1,539,600		$	1,019,802		$	1,412		$	2,563,214			80.50	%
CMO/REMIC		15,590			203,493			36,947			334,128			590,158			18.54	%
Municipal bonds (1)	-				1,106			17,857			10,505			29,468			0.93	%
Other securities		1,083		-			-			-				1,083			0.03
Total	$	19,073		$	1,744,199		$	1,074,606		$	346,045		$	3,183,923			100.00	%
Weighted average yield:
Mortgage-backed securities		3.77	%		1.60	%		1.61	%		3.41	%		1.61	%
CMO/REMIC		1.42	%		1.76	%		1.77	%		1.42	%		1.56	%
Municipal bonds (1)	-				3.93	%		2.56	%		2.49	%		2.59	%
Other securities		2.74	%	-			-			-				2.74	%
Total		1.79	%		1.62	%		1.63	%		1.46	%		1.61	%

(1)

The weighted average yield for the portfolio is based on projected duration and is not tax-equivalent. The tax-equivalent yield at December 31, 2021 was 3.27%.


	December 31, 2021
	One Year or Less			After One Year Through Five Years			After Five Years Through Ten Years			After Ten Years			Total			Percent to Total
	(Dollars in thousands)
Investment securities held-to-maturity:
Government agency/GSE	$	—		$	—		$	72,510		$	504,389		$	576,899			29.95	%
Mortgage-backed securities		1,323			100,941			543,832			1,294			647,390			33.61	%
CMO/REMIC		—			280,854			209,816			—			490,670			25.48	%
Municipal bonds (1)		4,263			21,007			74,920			110,821			211,011			10.96	%
Total	$	5,586		$	402,802		$	901,078		$	616,504		$	1,925,970			100.00	%
Weighted average yield:
Government agency/GSE	-			-				1.37	%		1.87	%		1.81	%
Mortgage-backed securities		0.68	%		2.24	%		1.84	%		2.75	%		1.90	%
CMO/REMIC	-				1.88	%		1.68	%	-				1.79	%
Municipal bonds (1)		3.37	%		2.67	%		2.53	%		1.75	%		2.15	%
Total		2.73	%		2.01	%		1.82	%		1.85	%		1.87	%

(1)

The weighted average yield for the portfolio is based on projected duration and is not tax-equivalent. The tax equivalent yield at December 31, 2021 was 2.72%.

December 31, 2020

One Year or
Less

After One
Year
Through
Five Years

After
Five Years
Through
Ten Years

After Ten
Years

Total

Percent to
Total

(Dollars in thousands)

Investment securities
available-for-sale:

Mortgage-backed securities
$ 807 $ 1,903,307 $ 821 $ - $ 1,904,935 79.41%
CMO/REMIC
8,803 350,905 81,052 22,054 462,814 19.29%
Municipal bonds (1)
- 1,088 12,922 16,275 30,285 1.26%
Other securities
889 - - - 889 0.04%

Total
$ 10,499 $ 2,255,300 �� $ 94,795 $ 38,329 $ 2,398,923 100.00%

Weighted average yield:

Mortgage-backed securities
4.80% 1.83% 3.37% - 1.84%
CMO/REMIC
0.48% 1.50% 2.26% 2.52% 1.66%
Municipal bonds (1)
- 4.03% 2.48% 2.55% 2.58%
Other securities
2.74% - - - 2.74%
Total
1.00% 1.78% 2.30% 2.53% 1.81%

~~(1)~~

~~The weighted average yield for the portfolio is based on projected duration and is not~~

~~tax-equivalent.~~

~~The~~

~~tax-equivalent~~

~~yield at December 31, 2020 was 3.26%.~~

~~Table of Contents~~

December 31, 2020


One Year or
Less

After One
Year
Through
Five Years

After
Five Years
Through
Ten Years

After Ten
Years

Total

Percent to
Total


(Dollars in thousands)

Investment securities
held-to-maturity:

Government agency/GSE
   $ -    $ -    $ -    $ 98,663    $ 98,663    17.05%
Mortgage-backed securities
   262    134,978    9,031    2,111    146,382    25.30%
CMO/REMIC
   -    145,309    -    -    145,309    25.11%
Municipal bonds (1)
   2,462    24,961    66,530    94,319    188,272    32.54%

Total
   $ 2,724    $ 305,248    $ 75,561    $   195,093    $   578,626    100.00%

Weighted average yield:

Government agency/GSE
   -    -    -    1.92%    1.92%
Mortgage-backed securities
   3.16%    2.21%    2.43%    3.43%    2.25%
CMO/REMIC
   -    2.26%    -    -    2.26%
Municipal bonds (1)
   3.11%    2.80%    2.64%    2.10%    2.40%
Total
   3.12%    2.29%    2.61%    2.02%    2.24%

~~(1)~~

~~The weighted average yield for the portfolio is based on projected duration and is not~~

~~tax-equivalent.~~

~~The tax equivalent yield at December 31, 2020 was 3.03%.~~

The maturity of each security category is defined as the contractual maturity except for the categories of mortgage-backed securities and CMO/REMIC whose maturities are defined as the estimated average life. The final maturity of mortgage-backed securities and CMO/REMIC will differ from their contractual maturities because the underlying mortgages have the right to repay such obligations without penalty. The speed at which the underlying mortgages repay is influenced by many factors, one of which is interest rates. Mortgages tend to repay faster as interest rates fall and slower as interest rate rise. This will either shorten or extend the estimated average life. Also, the yield on mortgage-backed securities and CMO/REMIC are affected by the speed at which the underlying mortgages repay. This is caused by the change in the amount of amortization of premiums or accretion of discounts of each security as repayments increase or decrease. The Company obtains the estimated average life of each security from independent third parties.

The weighted-average yield on the total investment portfolio at December 31, ~~2020~~2021 was ~~1.92%~~1.71% with a weighted-average life of ~~2.9~~5.5 years. This compares to a weighted-average yield of ~~2.54%~~1.92% at December 31, ~~2019~~2020 with a weighted-average life of ~~3.6~~2.9 years. The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal

pay-downs.

Approximately ~~93%~~95% of the securities in the total investment portfolio, at December 31, ~~2020,~~2021, are issued by the U.S. government or U.S. government-sponsored agencies and enterprises, which have the implied guarantee of payment of principal and interest. As of December 31, ~~2020,~~2021, approximately ~~$64.4~~$49.6 million in U.S. government agency bonds are callable.

The Agency CMO/REMIC are backed by agency-pooled collateral. Municipal bonds, which represented approximately 7%5% of the total investment portfolio, are predominately AA or higher rated securities.

~~Table of Contents~~

The Company held investment securities in excess of 10% of shareholders’ equity from the following issuers as of the dates presented.

December 31,


2020

2019


Book Value

Market Value

Book Value

Market Value


(Dollars in thousands)

Major issuer:

Federal National Mortgage Association
   $   1,133,321    $ 1,166,735    $ 963,002    $ 976,431
Federal Home Loan Mortgage Corporation
   1,058,957    1,084,494    805,841    815,311
Government National Mortgage Association
   413,991    421,025    271,154    268,879


	December 31,
	2021				2020
	Book Value		Market Value		Book Value		Market Value
	(Dollars in thousands)
Major issuer:
Federal National Mortgage Association	$	1,889,580	$	1,894,361	$	1,133,321	$	1,166,735
Federal Home Loan Mortgage Corporation		1,459,217		1,461,769		1,058,957		1,084,494
Government National Mortgage Association		1,028,444		1,010,558		413,991		421,025

Municipal securities held by the Company are issued by various states and their various local municipalities. The following tables present municipal securities by the top holdings by state as of the dates presented.

December 31, 2020


Amortized
Cost

Percent of
Total

Fair Value

Percent of
Total


(Dollars in thousands)

Municipal Securities
available-for-sale:

Minnesota
   $ 11,055    38.5 % $ 11,588    38.3 %
Connecticut
   5,653    19.7 % 5,910    19.5 %
Massachusetts
   4,147    14.4 % 4,394    14.5 %
Iowa
   2,345    8.2 % 2,430    8.0 %
Ohio
   2,115    7.4 % 2,194    7.2 %
Maine
   1,506    5.2 % 1,598    5.3 %
All other states (2 states)
   1,886    6.6 % 2,171    7.2 %

Total
   $ 28,707    100.0 % $ 30,285    100.0 %

Municipal Securities
held-to-maturity:

Minnesota
   $ 44,820    23.8 % $ 46,243    23.7 %
Massachusetts
   22,361    11.9 % 23,573    12.1 %
Ohio
   17,781    9.4 % 18,502    9.5 %
Texas
   17,135    9.1 % 17,706    9.1 %
Wisconsin
   12,236    6.5 % 12,755    6.5 %
Connecticut
   8,759    4.7 % 9,001    4.6 %
All other states (20 states)
   65,180    34.6 % 67,398    34.5 %

Total
   $   188,272    100.0 % $   195,178    100.0 %


	December 31, 2021
	Amortized Cost		Percent of Total			Fair Value		Percent of Total
	(Dollars in thousands)
Municipal Securities available-for-sale:
Minnesota	$	11,043		38.9	%	$	11,387		38.7	%
Connecticut		5,639		19.9	%		5,816		19.7	%
Massachusetts		4,144		14.6	%		4,341		14.7	%
Iowa		2,341		8.2	%		2,378		8.1	%
Ohio		1,775		6.3	%		1,821		6.2	%
Maine		1,502		5.3	%		1,569		5.3	%
All other states (2 states)		1,921		6.8	%		2,156		7.3	%
Total	$	28,365		100.0	%	$	29,468		100.0	%
Municipal Securities held-to-maturity:
Minnesota	$	38,905		18.4	%	$	39,724		18.5	%
Texas		25,160		11.9	%		25,083		11.7	%
Massachusetts		20,667		9.8	%		21,508		10.0	%
Ohio		17,617		8.4	%		18,105		8.4	%
Washington		12,930		6.1	%		13,369		6.2	%
Tennessee		11,347		5.4	%		11,217		5.2	%
All other states (20 states)		84,385		40.0	%		85,564		40.0	%
Total	$	211,011		100.0	%	$	214,570		100.0	%

~~Table of Contents~~

December 31, 2019


Amortized
Cost

Percent
of Total

Fair Value

Percent
of Total


(Dollars in thousands)

Municipal Securities
available-for-sale:

Minnesota
   $ 11,067    28.7%    $ 11,274    28.6%
Connecticut
   5,976    15.5%    6,103    15.5%
Iowa
   5,831    15.1%    5,907    15.0%
California
   5,675    14.7%    5,845    14.9%
Massachusetts
   4,150    10.8%    4,260    10.8%
Ohio
   2,125    5.5%    2,219    5.6%
All other states (3 states)
   3,682    9.7%    3,746    9.6%

Total
   $ 38,506    100.0%    $ 39,354    100.0%

Municipal Securities
held-to-maturity:

Minnesota
   $ 47,999    24.5%    $ 48,695    24.4%
Massachusetts
   24,700    12.6%    25,328    12.7%
Texas
   21,586    11.0%    21,758    10.9%
Wisconsin
   12,276    6.2%    12,416    6.2%
Washington
   11,680    6.0%    11,873    6.0%
Ohio
   9,523    4.9%    9,909    5.0%
All other states (20 states)
   68,295    34.8%    69,382    34.8%

Total
   $   196,059      100.0%    $   199,361      100.0%


	December 31, 2020
	Amortized Cost		Percent of Total			Fair Value		Percent of Total
	(Dollars in thousands)
Municipal Securities available-for-sale:
Minnesota	$	11,055		38.5	%	$	11,588		38.3	%
Connecticut		5,653		19.7	%		5,910		19.5	%
Massachusetts		4,147		14.4	%		4,394		14.5	%
Iowa		2,345		8.2	%		2,430		8.0	%
Ohio		2,115		7.4	%		2,194		7.2	%
Maine		1,506		5.2	%		1,598		5.3	%
All other states (2 states)		1,886		6.6	%		2,171		7.2	%
Total	$	28,707		100.0	%	$	30,285		100.0	%
Municipal Securities held-to-maturity:
Minnesota	$	44,820		23.8	%	$	46,243		23.7	%
Massachusetts		22,361		11.9	%		23,573		12.1	%
Ohio		17,781		9.4	%		18,502		9.5	%
Texas		17,135		9.1	%		17,706		9.1	%
Wisconsin		12,236		6.5	%		12,755		6.5	%
Connecticut		8,759		4.7	%		9,001		4.6	%
All other states (20 states)		65,180		34.6	%		67,398		34.5	%
Total	$	188,272		100.0	%	$	195,178		100.0	%

We adopted ASU

2016-13

on January 1, 2020, on a prospective basis. Under ~~the new~~this guidance, once it is determined that a credit loss has occurred, an allowance for credit losses is established on our

available-for-sale

and

held-to-maturity

securities. Prior to adoption of this standard, when a decline in fair value of a debt security was determined to be other than temporary, an impairment charge for the credit component was recorded, and a new cost basis in the investment was established. As of December 31, 2021 and 2020, management determined that credit losses did not exist for securities in an unrealized loss position.

The following ~~table presents~~tables present the Company’s

available-for-sale

investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of December 31, 2021 and December 31, 2020.

December 31, 2020

Less Than 12 Months

12 Months or Longer

Total

Fair Value

Gross
Unrealized
Holding
Losses

Fair Value

Gross
Unrealized
Holding
Losses

Fair Value

Gross
Unrealized
Holding
Losses

(Dollars in thousands)

Investment securities
available-for-sale:

Mortgage-backed securities
$ 72,219 $ (101 ) $ - $ - $ 72,219 $ (101 )
CMO/REMIC
96,974 (249 ) - - 96,974 (249 )
Municipal bonds
- - - - - -

Total
available-for-sale
securities
$ 169,193 $ (350 ) $ - $ - $ 169,193 $ (350 )

~~The table below presents the Company’s investment securities’ gross unrealized~~


	December 31, 2021
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	1,465,647	$	(15,099	)	$	44,244	$	(806	)	$	1,509,891	$	(15,905	)
CMO/REMIC		450,393		(11,515	)		53,745		(2,468	)		504,138		(13,983	)
Municipal bonds		—		—			—		—			—		—
Total available-for-sale securities	$	1,916,040	$	(26,614	)	$	97,989	$	(3,274	)	$	2,014,029	$	(29,888	)


	December 31, 2020
	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	72,219	$	(101	)	$	—	$	—	$	72,219	$	(101	)
CMO/REMIC		96,974		(249	)		—		—		96,974		(249	)
Municipal bonds		—		—			—		—		—		—
Total available-for-sale securities	$	169,193	$	(350	)	$	—	$	—	$	169,193	$	(350	)

Once it is determined that a credit loss has occurred, an allowance for credit losses is established on our available-for-sale and ~~fair value by investment category and length of time~~held-to-maturity securities. Management determined that ~~individual~~credit losses did not exist for securities ~~have been~~ in ~~a continuous~~an unrealized loss position atas of December 31, ~~2019, prior to adoption of ASU~~

~~2016-13.~~

~~Table of Contents~~

~~have fluctuated in value since their purchase dates as market interest rates have fluctuated. However, we have the ability~~2021 and ~~the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be other-than-temporarily-impaired.~~

December 31, 2019

Less Than 12 Months

12 Months or Longer

Total

Fair Value

Gross
Unrealized
Holding
Losses

Fair Value

Gross
Unrealized
Holding
Losses

Fair Value

Gross
Unrealized
Holding
Losses

(Dollars in thousands)

Investment securities
available-for-sale:

Mortgage-backed securities
$ 20,289    $ (6 ) $ 97,964    $ (744 ) $ 118,253    $ (750 )
CMO/REMIC
177,517    (705 ) 34,565    (191 ) 212,082    (896 )
Municipal bonds
-    - 563    (2 ) 563    (2 )

Total
available-for-sale
securities
$ 197,806    $ (711 ) $ 133,092    $ (937 ) $ 330,898    $ (1,648 )

Investment securities
held-to-maturity:

Government agency/GSE
$ 28,359    $ (252 ) $ 19,405    $ (405 ) $ 47,764    $ (657 )
Mortgage-backed securities
10,411    (54 ) -    - 10,411    (54 )
CMO/REMIC
23,897    (104 ) 166,193    (2,354 ) 190,090    (2,458 )
Municipal bonds
7,583    (32 ) 29,981    (533 ) 37,564    (565 )

Total
held-to-maturity
securities
$ 70,250    $ (442 ) $ 215,579    $ (3,292 ) $ 285,829    $ (3,734 )

~~The Company did not record any charges for other-than-temporary impairment losses for the year ended December 31, 2019.~~

2020.

Loans

Total loans and leases, ~~net~~at amortized cost, of ~~deferred fees and discounts, of~~$7.89 billion at December 31, 2021, decreased by $461.1 million, or 5.52%, from $8.35 billion at December 31, ~~2020, increased by $784.2 million, or 10.37%, from $7.56 billion at December 31, 2019.~~2020. The ~~increase~~decrease in total loans included ~~$883.0~~$696.4 million in PPP ~~loans. Excluding PPP~~ loans, ~~total loans declined by $98.8 million, or 1.31%. The $98.8 million decrease in loans included decreases of $123.1~~$29.9 million in ~~commercial and industrial~~SFR mortgage loans, ~~$31.8~~$22.9 million in construction loans, ~~$26.5~~$15.3 million in SBA loans, and $11.3 million in consumer and other loans. Partially offsetting these declines were increases in commercial real estate loans ~~$22.6~~of $288.2 million and $25.1 million in dairy & livestock and agribusiness loans. Our core loans, ~~$13.0~~excluding PPP loans, grew by $235.3 million, ~~in SFR mortgage loans, $7.6 million in municipal lease financings, and $1.1 million in other SBA loans. Partially offsetting these declines was an increase in commercial real estate loans~~or 3.15%, from the end of ~~$126.9 million.~~

~~Table~~the fourth quarter of ~~Contents~~

2020.

Total loans, ~~net of deferred loan fees, comprise 63.14%~~at amortized cost, comprised 53.72% of our total earning assets as of December 31, ~~2020.~~2021. The following table presents our loan portfolio by type ~~for~~as of the ~~periods~~dates presented.

Distribution of Loan Portfolio by Type


	December 31,
	2021			2020			2019 (1)			2018			2017
	(Dollars in thousands)
Commercial real estate	$	5,789,730		$	5,501,509		$	5,374,617		$	5,394,229		$	3,376,713
Construction		62,264			85,145			116,925			122,782			77,982
SBA		288,600			303,896			305,008			350,043			122,055
SBA - PPP		186,585			882,986			—			—			—
Commercial and industrial		813,063			812,062			935,127			1,002,209			513,325
Dairy & livestock and agribusiness		386,219			361,146			383,709			393,843			347,289
Municipal lease finance receivables		45,933			45,547			53,146			64,186			70,243
SFR mortgage		240,654			270,511			283,468			296,504			236,202
Consumer and other loans		74,665			86,006			116,319			128,429			64,229
Gross loans (Non-PCI)		7,887,713			8,348,808			7,568,319			7,752,225			4,808,038
Less: Deferred loan fees, net (2)		—			—			(3,742	)		(4,828	)		(6,289	)
Total loans, at amortized cost (Non-PCI)		7,887,713			8,348,808			7,564,577			7,747,397			4,801,749
Less: Allowance for credit losses		(65,019	)		(93,692	)		(68,660	)		(63,409	)		(59,218	)
Net loans (Non-PCI)	$	7,822,694		$	8,255,116		$	7,495,917			7,683,988			4,742,531
PCI Loans											17,214			30,908
Discount on PCI loans											—			(2,026	)
Less: Allowance for credit losses											(204	)		(367	)
PCI loans, net											17,010			28,515
Total loans and lease finance receivables, net										$	7,700,998		$	4,771,046

(1)

Beginning with June 30, 2019, PCI loans were accounted for and combined with Non-PCI loans and were reflected in total loans and lease finance receivables.

(2)

Beginning with March 31, 2020, gross loans are presented net of deferred loan fees (at amortized cost) by respective class of financing receivables.

December 31,

2020

2019 (1)

2018

2017

2016

(Dollars in thousands)

Commercial real estate
$ 5,501,509 $ 5,374,617 $ 5,394,229 $ 3,376,713 $ 2,930,141
Construction
85,145 116,925 122,782 77,982 85,879
SBA
303,896 305,008 350,043 122,055 97,184
SBA - PPP
882,986 - - - -
Commercial and industrial
812,062 935,127 1,002,209 513,325 485,078
Dairy & livestock and agribusiness
361,146 383,709 393,843 347,289 338,631
Municipal lease finance receivables
45,547 53,146 64,186 70,243 64,639
SFR mortgage
270,511 283,468 296,504 236,202 250,605
Consumer and other loans
86,006 116,319 128,429 64,229 78,274

Gross loans
(Non-PCI)
8,348,808 7,568,319 7,752,225 4,808,038 4,330,431
Less: Deferred loan fees, net (2)
- (3,742 ) (4,828 ) (6,289 ) (6,952 )

Gross loans, net of deferred loan fees
(Non-PCI)
8,348,808 7,564,577 7,747,397 4,801,749 4,323,479
Less: Allowance for credit losses
(93,692 ) (68,660 ) (63,409 ) (59,218 ) (60,321 )

Net loans
(Non-PCI)
$ 8,255,116 $ 7,495,917 7,683,988 4,742,531 4,263,158

PCI Loans
17,214 30,908 73,093
Discount on PCI loans
- (2,026 ) (1,508 )
Less: Allowance for credit losses
(204 ) (367 ) (1,219 )

PCI loans, net
17,010 28,515 70,366

Total loans and lease finance receivables
$ 7,700,998 $ 4,771,046 $ 4,333,524

~~(1)~~

~~Beginning with June 30, 2019, PCI loans were accounted for and combined with~~

~~Non-PCI~~

~~loans and were reflected in total loans and lease finance receivables.~~

~~(2)~~

~~Beginning with March 31, 2020, gross loans are presented net of deferred loan fees by respective class of financing receivables.~~

As of December 31, ~~2020, $314.4~~2021, $364.4 million, or ~~5.72%~~6.29% of the total commercial real estate loans included loans secured by farmland, compared to ~~$241.8~~$314.4 million, or ~~4.50%~~5.72%, at December 31, ~~2019.~~2020. The loans secured by farmland included $134.9 million for loans secured by dairy & livestock land and $229.5 million for loans secured by agricultural land at December 31, 2021, compared to $132.9 million for loans secured by dairy & livestock land and $181.5 million for loans secured by agricultural land at December 31, ~~2020, compared to $125.9 million for loans secured by dairy & livestock land and $115.9 million for loans secured by agricultural land at December 31, 2019.~~2020. As of December 31, ~~2020,~~2021, dairy & livestock and agribusiness loans of ~~$361.1~~$386.2 million were comprised of ~~$320.1~~$351.7 million for dairy & livestock loans and $34.5 million for agribusiness loans, compared to $361.1 million for dairy & livestock loans and $41.0 million for agribusiness loans ~~compared to $323.5 million for dairy & livestock loans and $60.2 million for agribusiness loans~~ at December 31, ~~2019.~~

2020.

Real estate loans are loans secured by conforming trust deeds on real property, including property under construction, land development, commercial property and single-family and multi-family residences. Our real estate loans are comprised of industrial, office, retail, medical, single family residences, multi-family residences, and farmland. Consumer loans include installment loans to consumers as well as home equity loans, auto and equipment leases and other loans secured by junior liens on real property. Municipal lease finance receivables are leases to municipalities. Dairy & livestock and agribusiness loans are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers and farmers.

As of December 31, ~~2020,~~2021, the Company had ~~$190.2~~$200.6 million of total SBA 504 loans. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with

~~Table of Contents~~

the first lien is typically at a 50% advance to the acquisition costs and the second lien loan provides the financing for 40% of the acquisition costs with the borrower’s down payment of 10% of the acquisition costs. The Bank retains the first lien loan for its term and sells the second lien loan to the SBA subordinated debenture program. A majority of the Bank’s 504 loans are granted for the purpose of commercial real estate acquisition. As of December 31, ~~2020,~~2021, the Company had ~~$113.7~~$88.0 million of total SBA 7(a) loans that include a guarantee of payment from the SBA (typically 75% of the loan amount, but up to 90% in certain cases) in the event of default. The SBA 7(a) loans include revolving lines of credit (SBA Express) and term loans of up to ten (10) years to finance long-term working capital requirements, capital expenditures, and/or for the purchase or refinance of commercial real estate.

As an active participant in the SBA’s Paycheck Protection Program, we ~~have~~initially originated approximately 4,100 PPP loans totaling ~~$1.10~~$1.1 billion ("round one"), with a remaining outstanding balance of ~~$883.0~~$3.0 million as of December 31, ~~2020.~~

2021. We originated approximately 1,900 PPP loans in round two with a remaining outstanding balance of $183.6 million, as of December 31, 2021.

As of December 31, ~~2020,~~2021, the Company had ~~$85.1~~$62.3 million in construction loans. This represents ~~1.02%~~0.79% of total gross loans

held-for-investment.

Although our construction loans are located throughout our market footprint, the majority of construction loans consist of commercial land development and construction projects in Los Angeles County, Orange County, and the Inland Empire region of Southern California. There were no nonperforming construction loans at December 31, ~~2020.~~

2021.

Our loan portfolio is geographically disbursed throughout our marketplace. The following is the breakdown of our total

held-for-investment

commercial real estate loans, by region as of December 31, ~~2020.~~

December 31, 2020


Total Loans

Commercial Real Estate
Loans


(Dollars in thousands)

Los Angeles County
   $ 3,543,375    42.4 % $ 2,234,357    40.6 %
Central Valley
   1,401,683    16.8 % 997,819    18.1 %
Inland Empire
   1,150,925    13.8 % 833,012    15.2 %
Orange County
   1,072,852    12.8 % 658,303    12.0 %
Central Coast
   497,024    6.0 % 367,787    6.7 %
San Diego
   227,664    2.7 % 160,572    2.9 %
Other California
   131,998    1.6 % 77,418    1.4 %
Out of State
   323,287    3.9 % 172,241    3.1 %

   $   8,348,808    100.0 % $   5,501,509    100.0 %

2021.


	December 31, 2021
	Total Loans				Commercial Real Estate Loans
	(Dollars in thousands)
Los Angeles County	$	3,237,514	41.1	%	$	2,249,732	38.8	%
Central Valley		1,469,141	18.6	%		1,101,841	19.0	%
Orange County		1,019,756	12.9	%		678,081	11.7	%
Inland Empire		977,683	12.4	%		833,567	14.4	%
Central Coast		451,032	5.7	%		368,527	6.4	%
San Diego		261,551	3.3	%		229,445	4.0	%
Other California		148,431	1.9	%		93,954	1.6	%
Out of State		322,605	4.1	%		234,583	4.1	%
	$	7,887,713	100.0	%	$	5,789,730	100.0	%

The table below breaks down our real estate portfolio.


	December 31, 2021
	Loan Balance		Percent			Percent Owner- Occupied (1)			Average Loan Balance
Commercial real estate:	(Dollars in thousands)
Industrial	$	1,967,852		34.0	%		50.3	%	$	1,503
Office		1,034,854		17.9	%		23.8	%		1,664
Retail		820,021		14.2	%		10.2	%		1,741
Multi-family		644,484		11.1	%		1.1	%		1,534
Secured by farmland (2)		364,409		6.3	%		97.1	%		2,249
Medical		303,008		5.2	%		35.8	%		1,693
Other (3)		655,102		11.3	%		52.4	%		1,472
Total commercial real estate	$	5,789,730		100.0	%		36.8	%	$	1,605

(1)

Represents percentage of reported owner-occupied at origination in each real estate loan category.

(2)

December 31, 2020


Loan Balance

Percent

Percent
Owner-
Occupied (1)

Average
Loan Balance

Commercial real estate:
(Dollars in thousands)

Industrial
   $ 1,863,337    33.9%    53.0%    $ 1,399
Office
   998,673    18.1%    24.5%    1,608
Retail
   784,402    14.3%    13.2%    1,702
Multi-family
   618,333    11.2%    2.0%    1,627
Secured by farmland (2)
   314,429    5.7%    98.0%    2,139
Medical
   289,622    5.3%    44.8%    1,745
Other (3)
   632,713    11.5%    56.5%    1,403

Total commercial real estate
   $ 5,501,509    100.0%    39.0%    $ 1,546

~~(1)~~

~~Represents percentage of reported owner-occupied at origination in each real estate loan category.~~

~~(2)~~

~~The loans secured by farmland included $132.9 million for loans secured by dairy & livestock land and $181.5 million for loans secured by agricultural land at December 31, 2020.~~

~~(3)~~

~~Other loans consist of a variety of loan types, none of which exceeds 2.0% of total commercial real estate loans.~~

The loans secured by farmland included $134.9 million for loans secured by dairy & livestock land and $229.5 million for loans secured by agricultural land at December 31, 2021.

(3)

67Other loans consist of a variety of loan types, none of which exceeds 2.0% of total commercial real estate loans.

~~Table of Contents~~

~~The pandemic has had a greater impact on certain industries, such a retail, hospitality, and entertainment.~~

At December 31, ~~2020,~~2021, commercial real estate loans on retail properties comprised ~~$784.4~~$820.0 million and approximately ~~14.3%~~17.9% of total commercial real estate loans; none of these loans are on deferment ~~and $5~~and $3.6 million of these loans ~~are~~were classified. At origination, these loans on retail properties were underwritten with

loan-to-values

averaging approximately ~~49%~~48%. Approximately ~~51%~~36% of these loans were originated prior to 2017.

At December 31, 2020, commercial and industrial and SBA loans to customers in the hotel, restaurant, entertainment, retail trade, or recreation industries represented approximately $97 million in loans, or approximately 1% of total loans; $2.6 million of these loans are classified and $2.7 million are on deferment.

The table below provides the maturity distribution for

held-for-investment

total gross loans as of December 31, ~~2020.~~2021. The loan amounts are based on contractual maturities although the borrowers have the ability to prepay the loans. Amounts are also classified according to repricing opportunities or rate sensitivity.

Loan Maturities and Interest Rate Category

Within
One Year

After One
But Within
Five Years

After
Five Years

Total


(Dollars in thousands)

Types of Loans:

Commercial real estate
   $ 250,873    $ 1,654,783    $ 3,595,853    $ 5,501,509
Construction
   76,453    8,692    -    85,145
SBA
   11,522    23,002    269,372    303,896
SBA - PPP
   -    882,986    -    882,986
Commercial and industrial
     288,070    346,151    177,841    812,062
Dairy & livestock and agribusiness
   260,241    99,065    1,840    361,146
Municipal lease finance receivables
   96    6,223    39,228    45,547
SFR mortgage
   123    295    270,093    270,511
Consumer and other loans
   9,903    16,757    59,346    86,006

Total gross loans
   $ 897,281    $   3,037,954    $   4,413,573    $   8,348,808

Amount of Loans based upon:

Fixed Rates
   $ 174,052    $ 2,408,735    $ 2,308,500    $ 4,891,287
Floating or adjustable rates
   723,229    629,219    2,105,073    3,457,521

Total gross loans
   $ 897,281    $ 3,037,954    $ 4,413,573    $ 8,348,808


	Within One Year		After One But Within Five Years		After Five Years		Total
	(Dollars in thousands)
Loan Portfolio by Type:
Commercial real estate	$	288,737	$	1,429,549	$	4,071,444	$	5,789,730
Construction		52,214		10,050		—		62,264
SBA		17,808		22,437		248,355		288,600
SBA - PPP		2,929		183,656		—		186,585
Commercial and industrial		280,222		322,483		210,358		813,063
Dairy & livestock and agribusiness		251,591		134,126		502		386,219
Municipal lease finance receivables		538		6,708		38,687		45,933
SFR mortgage		2,515		69		238,070		240,654
Consumer and other loans		6,633		12,299		55,733		74,665
Total gross loans	$	903,187	$	2,121,377	$	4,863,149	$	7,887,713
Amount of Loans based upon:
Fixed Rates	$	226,612	$	1,426,808	$	2,935,999	$	4,589,419
Floating or adjustable rates		676,575		694,569		1,927,150		3,298,294
Total loans, at amortized cost	$	903,187	$	2,121,377	$	4,863,149	$	7,887,713

As a normal practice in extending credit for commercial and industrial purposes, we may accept trust deeds on real property as collateral. In some cases, when the primary source of repayment for the loan is anticipated to come from the cash flow from normal operations of the borrower, and real property has been taken as collateral, the real property is considered a secondary source of repayment for the loan. Since we lend primarily in Southern and Central California, our real estate loan collateral is concentrated in this region.

~~Table of Contents~~

Nonperforming Assets

The following table provides information on nonperforming assets as of the dates presented.


	December 31,
	2021			2020			2019			2018 (1)			2017 (1)
	(Dollars in thousands)
Nonaccrual loans	$	6,893		$	14,347		$	5,033		$	16,442		$	6,516
Loans past due 90 days or more and still accruing interest		—			—			—			—			—
Nonperforming troubled debt restructured loans (TDRs)		—			—			244			3,509			4,200
Total nonperforming loans		6,893			14,347			5,277			19,951			10,716
OREO, net		—			3,392			4,889			420			4,527
Total nonperforming assets	$	6,893		$	17,739		$	10,166		$	20,371		$	15,243
Performing TDRs	$	5,293		$	2,159		$	3,112		$	3,594		$	4,809

Total nonperforming loans and performing TDRs	$	12,186		$	16,506		$	8,389		$	23,545		$	15,525

Percentage of nonperforming loans and performing TDRs to total loans, at amortized cost		0.15	%		0.20	%		0.11	%		0.30	%		0.32	%

Percentage of nonperforming assets to total loans, at amortized cost, and OREO		0.09	%		0.21	%		0.13	%		0.26	%		0.32	%
Percentage of nonperforming assets to total assets		0.04	%		0.12	%		0.09	%		0.18	%		0.18	%

(1)

Excludes PCI loans.

December 31,


2020

2019

2018 (1)

2017 (1)

2016 (1)


(Dollars in thousands)

Nonaccrual loans
   $ 14,347 $ 5,033 $ 16,442 $ 6,516 $ 5,526
Loans past due 90 days or more and still accruing interest

Nonperforming troubled debt restructured loans (TDRs
   - 244 3,509 4,200 1,626

Total nonperforming loans
   14,347 5,277 19,951 10,716 7,152
OREO, net
   3,392 4,889 420 4,527 4,527

Total nonperforming assets
   $ 17,739 $ 10,166 $ 20,371 $ 15,243 $ 11,679

Performing TDRs
   $ 2,159 $ 3,112 $ 3,594 $ 4,809 $ 19,233

Total nonperforming loans and performing TDRs
   $ 16,506 $ 8,389 $ 23,545 $ 15,525 $ 26,385
Percentage of nonperforming loans and performing TDRs to total loans, net of deferred fees
   0.20 % 0.11 % 0.30 % 0.32 % 0.60 %
Percentage of nonperforming assets to total loans outstanding, net of deferred fees, and OREO
   0.21 % 0.13 % 0.26 % 0.32 % 0.27 %
Percentage of nonperforming assets to total assets
   0.12 % 0.09 % 0.18 % 0.18 % 0.14 %

~~(1)~~

~~Excludes PCI loans.~~

Troubled Debt Restructurings

Total TDRs were $5.3 million at December 31, 2021, compared to $2.2 million at December 31, ~~2020, compared to $3.4 million at December 31, 2019.~~2020. At December 31, ~~2020,~~2021, all of our TDRs were performing and accruing interest as restructured loans. Our performing TDRs were generally provided a modification of loan repayment terms in response to borrower financial difficulties. The performing restructured loans represent the only loans accruing interest at each respective reporting date. A performing restructured loan is categorized as such if we believe that it is reasonably assured of repayment and is performing in accordance with the modified terms.

In accordance with regulatory guidance, if borrowers ~~are~~were less than 30 days past due on their loans and ~~enter~~entered into loan modifications offered as a result of

COVID-19,

their loans generally ~~continue~~continued to be considered performing loans and ~~continue~~continued to accrue interest during the period of the loan modification. For borrowers who ~~are~~were 30 days or more past due when entering into loan modifications offered as a result of

COVID-19,

we ~~evaluate~~evaluated the loan modifications under our existing troubled debt restructuring framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan ~~will~~would be accounted for as a TDR and ~~will~~ generally would not accrue interest. For all borrowers who ~~enroll~~enrolled in these loan modification programs offered as a result of

COVID-19,

the delinquency status of the borrowers iswas frozen, resulting in a static delinquency metric during the deferral period. Upon exiting the deferral program, the measurement of loan delinquency ~~will resume~~resumed where it had left off upon entry into the program. As of January 15, 2021, we had temporary payment deferments of principal, or of principal and interest on six loans in the amount of $10.0 million. These deferments were primarily for 90 days, with 85% of these loans being rated special mention or classified.

~~Table of Contents~~

The following table provides a summary of TDRs as of the dates presented.

December 31,


2020

2019


    Balance

    Number of
Loans

    Balance

    Number of
Loans


(Dollars in thousands)

Performing TDRs:

Commercial real estate
     $ 320    1      $ 397    1
Construction
   -    -    -    -
SBA
   -    -    536    1
Commercial and industrial
   43    1    78    2
Dairy & livestock and agribusiness
   -    -    -    -
SFR mortgage
   1,796    7    2,101    8
Consumer and other
   -    -    -    -

Total performing TDRs
     $ 2,159    9      $ 3,112    12

Nonperforming TDRs:

Commercial real estate
     $ -    -      $ -    -
Construction
   -    -    -    -
SBA
   -    -    -    -
Commercial and industrial
   -    -    -    -
Dairy & livestock and agribusiness
   -    -    -    -
SFR mortgage
   -    -    -    -
Consumer and other
   -    -    244    1

Total nonperforming TDRs
     $ -    -      $ 244    1

Total TDRs
     $ 2,159    9      $ 3,356    13


	December 31,
	2021				2020
	Balance		Number of Loans		Balance		Number of Loans
	(Dollars in thousands)
Performing TDRs:
Commercial real estate	$	2,394		1	$	320		1
Construction		—		—		—		—
SBA		—		—		—		—
Commercial and industrial		1,885		3		43		1
Dairy & livestock and agribusiness		—		—		—		—
SFR mortgage		1,014		5		1,796		7
Consumer and other		—		—		—		—
Total performing TDRs	$	5,293		9	$	2,159		9

Nonperforming TDRs:
Commercial real estate	$	—		—	$	—		—
Construction		—		—		—		—
SBA		—		—		—		—
Commercial and industrial		—		—		—		—
Dairy & livestock and agribusiness		—		—		—		—
SFR mortgage		—		—		—		—
Consumer and other		—		—		—		—
Total nonperforming TDRs	$	—		—	$	—		—
Total TDRs	$	5,293		9	$	2,159		9

At December 31, ~~2020~~2021 and ~~2019,~~2020, there was no ACL specifically allocated to TDRs. Impairment amounts identified are typically charged off against the allowance at the time a probable loss is determined. There were no charge-offs on TDRs for ~~2020, compared to $78,000 for the same period of 2019.~~

2021 and 2020.

~~Table of Contents~~

Nonperforming Assets and Delinquencies

The table below provides trends in our nonperforming assets and delinquencies as of the dates presented.

  December 31,
2020

  September 30,
2020

    June 30,
2020

    March 31,
2020

    December 31,
2019


(Dollars in thousands)

Nonperforming loans (1):

Commercial real estate
   $ 7,563    $ 6,481    $ 2,628    $ 947    $ 724
Construction
   -    -    -    -    -
SBA
   2,273    1,724    1,598    2,748    2,032
Commercial and industrial
   3,129    1,822    1,222    1,703    1,266
Dairy & livestock and agribusiness
   785    849    -    -    -
SFR mortgage
   430    675    1,080    864    878
Consumer and other loans
   167    224    289    166    377










Total

$
14,347


$
11,775


$
6,817


$
6,428


$
5,277











% of Total loans


0.17%



0.14%



0.08%



0.09%



0.07%

Past due
30-89
days:

Commercial real estate
   $ -    $ -    $ 4    $ 210    $ -
Construction
   -    -    -    -    -
SBA
   1,965    66    214    3,086    1,402
Commercial and industrial
   1,101    3,627    630    665    2
Dairy & livestock and agribusiness
   -    -    882    166    -
SFR mortgage
   -    -    446    233    249
Consumer and other loans
   -    67    413    -    -










Total

$
3,066


$
3,760


$
2,589


$
4,360


$
1,653











% of Total loans


0.04%



0.04%



0.03%



0.06%



0.02%

OREO:

Commercial real estate
   $ 1,575    $ 1,575    $ 2,275    $ 2,275    $ 2,275
SBA
   -    797    797    797    797
SFR mortgage
   1,817    1,817    1,817    1,817    1,817










Total

$
3,392


$
4,189


$
4,889


$
4,889


$
4,889











Total nonperforming, past due, and OREO

$
20,805


$
19,724


$
14,295


$
15,677


$
11,819











% of Total loans


0.25%



0.23%



0.17%



0.21%



0.16%

~~(1)~~

~~As of June 30, 2020, nonperforming loans included $25,000 of commercial and industrial loans past due 90 days or more and still accruing interest.~~


	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020
	(Dollars in thousands)
Nonperforming loans (1):
Commercial real estate	$	3,607		$	4,073		$	4,439		$	7,395		$	7,563
Construction		—			—			—			—			—
SBA		1,034			1,513			1,382			2,412			2,273
Commercial and industrial		1,714			2,038			1,818			2,967			3,129
Dairy & livestock and agribusiness		—			118			118			259			785
SFR mortgage		380			399			406			424			430
Consumer and other loans		158			305			308			312			167
Total	$	6,893		$	8,446		$	8,471		$	13,769		$	14,347
% of Total loans		0.09	%		0.11	%		0.10	%		0.17	%		0.17	%

Past due 30-89 days:
Commercial real estate	$	438		$	—			—		$	178		$	—
Construction		—			—			—			—			—
SBA		979			—			—			258			1,965
Commercial and industrial		—			122			415			952			1,101
Dairy & livestock and agribusiness		—			1,000			—			—			—
SFR mortgage		1,040			—			—			266			—
Consumer and other loans		—			—			—			21			—
Total	$	2,457		$	1,122		$	415		$	1,675		$	3,066
% of Total loans		0.03	%		0.01	%		0.01	%		0.02	%		0.04	%

OREO:
Commercial real estate	$	—		$	—		$	—		$	1,575		$	1,575
SBA		—			—			—			—			—
SFR mortgage		—			—			—			—			1,817
Total	$	—		$	—		$	—		$	1,575		$	3,392
Total nonperforming, past due, and OREO	$	9,350		$	9,568		$	8,886		$	17,019		$	20,805
% of Total loans		0.12	%		0.12	%		0.11	%		0.21	%		0.25	%

Nonperforming loans, defined as nonaccrual loans, nonperforming TDR loans and loans past due 90 days or more and still accruing interest, were ~~$14.3~~$6.9 million at December 31, ~~2020,~~2021, or ~~0.17%~~0.09% of total loans. ~~Total nonperforming loans at December 31, 2020 included $11.0 million of nonperforming loans acquired from CB in the third quarter of 2018.~~ This compares to nonperforming loans of ~~$5.3~~$14.3 million, or ~~0.07%~~0.17% of total loans, at December 31, ~~2019.~~2020. The ~~$9.1~~$7.5 million ~~increase~~decrease in nonperforming loans was primarily due to ~~increases~~decreases of ~~$6.8~~$4.0 million in nonperforming commercial real estate loans, ~~$1.9~~$1.4 million in nonperforming commercial and industrial loans, $1.2 million in nonperforming SBA loans, and $785,000 in nonperforming dairy & livestock and agribusiness ~~loans, and $241,000 in nonperforming SBA~~ loans. ~~This was partially offset by a $448,000 decrease in nonperforming SFR mortgage loans and a $210,000 decrease in nonperforming consumer and other loans.~~

At December 31, ~~2020,~~2021, we had no OREO properties, compared to two OREO properties with a carrying value of $3.4 million, ~~compared to four properties with a carrying value of $4.9 million~~ at December 31, ~~2019. We reflected a $700,000 write-down~~2020. During the fourth quarter of ~~one~~2021, we acquired an OREO property, inwhich was sold during the ~~third~~fourth quarter ~~of 2020. During 2020, we sold two OREO properties, realizing~~at a net gain ~~on sale~~ of ~~$365,000. There were no additions to OREO for the year ended December 31, 2020.~~

~~Table of Contents~~

approximately $700,000.

Changes in economic and business conditions have had an impact on our market area and on our loan portfolio. We continually monitor these conditions in determining our estimates of needed reserves. However, we cannot predict the extent to which the deterioration in general economic conditions, real estate values, changes in general rates of interest and changes in the financial conditions or business of a borrower may adversely affect a specific borrower’s ability to pay or the value of our collateral. See “

Risk Management – Credit Risk Management

” included herein.

Allowance for Credit Losses

We adopted CECL on January 1, 2020, which ~~replaces~~replaced the “incurred loss” approach with an “expected loss” model over the life of the loan, as further described in Note 3 –

Summary of Significant Accounting Policies

of the notes to the unaudited condensed consolidated financial statements. The allowance for credit losses totaled $65.0 million as of December 31, 2021, compared to $93.7 million as of December 31, ~~2020, compared to $68.7 million as of December 31, 2019.~~2020. Our allowance for credit losses at December 31, ~~2020~~2021 was ~~1.12%~~0.82%, or ~~1.25%~~0.84% of total loans when excluding the ~~$883.0~~$186.6 million in PPP loans. The allowance for credit losses for 2021 was decreased by $25.5 million, due to the improved outlook in our forecast of certain macroeconomic variables that were influenced by the economic impact of the pandemic: including various government responses, availability of vaccines, and fiscal and monetary stimulus, as well as $3.2 million in year-to-date net charge-offs. Upon implementation of CECL, a transition adjustment of $1.8 million was added to the beginning balance of the allowance and was increased by a $23.5 million credit loss provision for 2020 due to the forecast of severe economic disruption resulting from the

initial onset of the COVID-19

pandemic. Net charge-offs were $308,000 for 2020. ~~This compares to a $5.0 million loan loss provision and $47,000 in net recoveries for the same period of 2019.~~

The allowance for credit losses as of December 31, ~~2020~~2021 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. The allowance for credit loss is sensitive to both changes in these portfolio characteristics and the forecast of macroeconomic variables. Risk attributes for commercial real estate loans include OLTV, origination year, loan seasoning, and macroeconomic variables that include GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of Small Business Administration (SBA) loans (excluding Payment Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.

~~For~~

Based on the ~~year ended December 31, 2020,~~magnitude of government economic stimulus and the ~~ACL increased by $25.0 million, including a $1.8 million increase from the adoption~~wide availability of ~~CECL on January 1, 2020. The increase~~vaccines, our latest economic forecast reflects continued improvement in ~~the ACL was primarily due to $23.5 million in provision for credit losses recorded in the first half of 2020 resulting from the forecasted changes in~~key macroeconomic variables, ~~related to~~including GDP, the

~~COVID-19~~

~~pandemic.~~ commercial real estate price index and the unemployment rate. Our economic forecast continues to be a blend of multiple forecasts produced by ~~Moody’s, including Moody’s~~Moody’s. These U.S. economic forecasts include a baseline forecast, as well as upside and downside forecasts. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, ~~while due to economic uncertainty a greater weighting was placed on~~with downside risks weighted heavier than the ~~downside economic forecast, relative to the upside forecast.~~more optimistic forecasts. Our weighted forecast assumes GDP will increase by ~~2.5%~~2.7% in ~~2021~~2022, 2% for 2023 and then grow by ~~3.6%~~3% in ~~2022 and 2023.~~2024. The unemployment rate is forecasted to be ~~7.7% in 2021, before declining to 7.2% percent~~over 5% in 2022 and ~~5.7%~~2023 and then declining to 4.8% in ~~2023.~~2024. Management believes that the ACL was appropriate at December 31, ~~2020~~2021 and ~~2019.~~2020. As there iscontinues to be a ~~high~~ degree of uncertainty around the epidemiological assumptions and impact of government responses to the pandemic that impact our economic forecast, no assurance can be given that

~~Table of Contents~~

economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in an increased allowance for credit losses in future periods.

The table below presents a summary of ~~net~~ charge-offs and recoveries by type, the provision for credit losses on loans, and the resulting allowance ~~for loan losses and recapture of provision~~ for credit losses for the periods presented.


	Year Ended December 31,
	2021			2020			2019			2018			2017
	(Dollars in thousands)
Allowance for credit losses at beginning of period	$	93,692		$	68,660		$	63,613		$	59,585		$	61,540
Impact of adopting ASU 2016-13		—			1,840			—			—			—
Charge-offs:
Commercial real estate		—			—			—			—			—
Construction		—			—			—			—			—
SBA		(223	)		(362	)		(321	)		(257	)		—
Commercial and industrial		(3,019	)		(195	)		(48	)		(10	)		(138	)
Dairy & livestock and agribusiness		(118	)		—			(78	)		—			—
SFR mortgage		—			—			—			(13	)		—
Consumer and other loans		(11	)		(109	)		(7	)		(11	)		(13	)
Total charge-offs		(3,371	)		(666	)		(454	)		(291	)		(151	)
Recoveries:
Commercial real estate		—			—			—			—			154
Construction		58			11			12			2,506			6,036
SBA		23			72			9			20			78
Commercial and industrial		12			10			255			82			118
Dairy & livestock and agribusiness		—			—			19			19			19
SFR mortgage		79			206			196			51			212
Consumer and other loans		26			59			10			141			79
Total recoveries		198			358			501			2,819			6,696
Net (charge-offs) recoveries		(3,173	)		(308	)		47			2,528			6,545
(Recapture of) provision for credit losses		(25,500	)		23,500			5,000			1,500			(8,500	)
Allowance for credit losses at end of period	$	65,019		$	93,692		$	68,660		$	63,613		$	59,585
Summary of reserve for unfunded loan commitments:
Reserve for unfunded loan commitments at beginning of period	$	9,000		$	8,959		$	8,959		$	6,306		$	6,706
Impact of adopting ASU 2016-13				41
Estimated fair value of reserve for unfunded loan commitment assumed from Community Bank		—			—			—			2,903			—
(Recapture of) provision for unfunded loan commitments		(1,000	)		—			—			(250	)		(400	)
Reserve for unfunded loan commitments at end of period	$	8,000		$	9,000		$	8,959		$	8,959		$	6,306
Reserve for unfunded loan commitments to total unfunded loan commitments		0.49	%		0.54	%		0.56	%		0.51	%		0.66	%
Amount of total loans at end of period (1)	$	7,887,713		$	8,348,808		$	7,564,577		$	7,764,611		$	4,830,631
Average total loans outstanding (1)	$	8,065,877		$	8,066,483		$	7,552,505		$	5,905,674		$	4,623,244
Net (charge-offs) recoveries to average total loans		(0.04	)%		(0.00	)%		0.00	%		0.04	%		0.14	%
Net (charge-offs) recoveries to total loans at end of period		(0.04	)%		(0.00	)%		0.00	%		0.03	%		0.14	%
Allowance for credit losses to average total loans		0.81	%		1.16	%		0.91	%		1.08	%		1.29	%
Allowance for credit losses to total loans at end of period		0.82	%		1.12	%		0.91	%		0.82	%		1.23	%
Net (charge-offs) recoveries to allowance for credit losses		(4.88	)%		(0.33	)%		0.07	%		3.97	%		10.98	%
Net (charge-offs) recoveries to (recapture of) provision for credit losses		12.44	%		(1.31	)%		0.94	%		168.53	%		(77.00	)%

(1)

Net of deferred loan origination fees, costs and discounts (amortized cost).

Year Ended December 31,

2020

2019

2018

2017

2016

(Dollars in thousands)

Allowance for credit losses at beginning of period
$ 68,660 $ 63,613 $ 59,585 $ 61,540 $ 59,156
Impact of adopting ASU
2016-13
1,840 -     -     -     -
Charge-offs:

Commercial real estate
-     -     -     -     -
Construction
-     -     -     -     -
SBA
(362) (321) (257) -     -
Commercial and industrial
(195) (48) (10) (138) (120)
Dairy & livestock and agribusiness
-     (78) -     -     -
SFR mortgage
-     -     (13) -     (102)
Consumer and other loans
(109) (7) (11) (13) (16)

Total charge-offs
(666) (454) (291) (151) (238)

Recoveries:

Commercial real estate
-     -     -     154 792
Construction
11 12 2,506 6,036 7,174
SBA
72 9 20 78 40
Commercial and industrial
10 255 82 118 630
Dairy & livestock and agribusiness
-     19 19 19 216
SFR mortgage
206 196 51 212 -
Consumer and other loans
59 10 141 79 170

Total recoveries
358 501 2,819 6,696 9,022

Net recoveries
(308) 47 2,528 6,545 8,784
Provision for (recapture of) credit losses
23,500 5,000 1,500 (8,500) (6,400)

Allowance for credit losses at end of period
$ 93,692 $ 68,660 $ 63,613 $ 59,585 $ 61,540

Summary of reserve for unfunded loan commitments:

Reserve for unfunded loan commitments at beginning of period
$ 8,959 $ 8,959 $ 6,306 $ 6,706 $ 7,156
Impact of adopting ASU
2016-13
41
Estimated fair value of reserve for unfunded loan commitment assumed from Community Bank
-     -     2,903 -     -
Recapture of provision for unfunded loan commitments
-     -     (250) (400) (450)

Reserve for unfunded loan commitments at end of period
$ 9,000 $ 8,959 $ 8,959 $ 6,306 $ 6,706

Reserve for unfunded loan commitments to total unfunded loan commitments
0.54% 0.56% 0.51% 0.66% 0.76%
Amount of total loans at end of period (1)
$ 8,348,808 $ 7,564,577 $ 7,764,611 $ 4,830,631 $ 4,395,064
Average total loans outstanding (1)
$ 8,066,483 $ 7,552,505 $ 5,905,674 $ 4,623,244 $ 4,195,129
Net (charge-offs) recoveries to average total loans
-0.004% 0.00% 0.04% 0.14% 0.21%
Net (charge-offs) recoveries to total loans at end of period
-0.004% 0.00% 0.03% 0.14% 0.20%
Allowance for credit losses to average total loans
1.16% 0.91% 1.08% 1.29% 1.47%
Allowance for credit losses to total loans at end of period
1.12% 0.91% 0.82% 1.23% 1.40%
Net (charge-offs) recoveries to allowance for credit losses
-0.33% 0.07% 3.97% 10.98% 14.27%
Net (charge-offs) recoveries to provision for (recapture of) credit losses
-1.31% 0.94% 168.53% -77.00% -137.25%

~~(1)~~

~~Net of deferred loan origination fees, costs and discounts.~~

~~Table of Contents~~

The ACL/Total Loan Coverage Ratio as of December 31, ~~2020 increased~~2021 decreased to ~~1.12%~~0.82%, compared to ~~0.93%~~1.12% as of ~~January 1,~~December 31, 2020 due to the forecasted impact of improved economic conditions on ~~the economy from the~~

~~COVID-19~~

~~crisis.~~

~~At implementation~~future life of ~~CECL on January 1, 2020, the reserve for unfunded~~ loan ~~commitments included a transition adjustment of $41,000 for our~~

~~off-balance~~

~~sheet credit exposures.~~ loss rates.

The Bank’s ACL methodology also produced an allowance of ~~$9.0~~$8.0 million for our

off-balance

sheet credit exposures ~~which was unchanged from~~as of December 31, 2021, compared to $9.0 million as of December 31, 2020. The year-over-year decrease included a $1.0 million recapture of provision for unfunded loan commitments in the ~~allowance at January 1, 2020.~~

second quarter of 2021.

While we believe that the allowance at December 31, ~~2020~~2021 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that economic conditions, interest rate fluctuations, conditions of our borrowers (including fraudulent activity), or natural disasters, which adversely affect our service areas or other circumstances or conditions, including those defined above, will not be reflected in increased provisions for credit losses in the future.

The following table provides a summary of the allocation of the allowance for credit losses ~~for specific~~by loan ~~categories~~type at the dates indicated for total loans. The allocations presented should not be interpreted as an indication that loans charged to the allowance for credit losses will occur in these amounts or ~~proportions, or that the portion of the allowance allocated to each loan category, represents the total amount available for future losses that may occur within these categories.~~

proportions.

Allowance for Credit Losses by Loan Type

December 31,

2020

2019

2018

2017

2016

Allowance
Amount

Loans
as % of
Total
Loans

Allowance
Amount

Loans
as % of
Total
Loans

Allowance
Amount

Loans
as % of
Total
Loans

Allowance
Amount

Loans
as % of
Total
Loans

Allowance
Amount

Loans
as % of
Total
Loans

(Dollars in thousands)

Commercial real estate
$ 75,439 65.9% $ 48,629 71.0% $ 44,934 69.4% $ 41,722 69.8% $ 37,443 66.6%
Construction
1,934 1.0% 858 1.5% 981 1.6% 984 1.6% 1,096 1.9%
SBA
2,992 3.6% 1,453 4.0% 1,062 4.5% 869 2.5% 871 2.2%
SBA - PPP
- 10.6% - - - - - - - -
Commercial and industrial
7,142 9.7% 8,880 12.4% 7,520 12.9% 7,280 10.6% 8,154 11.0%
Dairy & livestock and agribusiness
3,949 4.4% 5,255 5.1% 5,215 5.1% 4,647 7.2% 8,541 7.7%
Municipal lease finance receivables
74 0.5% 623 0.7% 775 0.8% 851 1.5% 941 1.5%
SFR mortgage
367 3.2% 2,339 3.8% 2,196 3.8% 2,112 4.9% 2,287 5.7%
Consumer and other loans
1,795 1.1% 623 1.5% 726 1.7% 753 1.3% 988 1.8%
PCI loans
- - - - 204 0.2% 367 0.6% 1,219 1.6%

Total
$ 93,692 100.0% $ 68,660 100.0% $ 63,613 100.0% $ 59,585 100.0% $ 61,540 100.0%

~~Table of Contents~~


	December 31,
	2021					2020					2019					2018					2017
	Allowance Amount		Loans as % of Total Loans			Allowance Amount		Loans as % of Total Loans			Allowance Amount		Loans as % of Total Loans			Allowance Amount		Loans as % of Total Loans			Allowance Amount		Loans as % of Total Loans
	(Dollars in thousands)
Commercial real estate	$	50,950		73.4	%	$	75,439		65.9	%	$	48,629		71.0	%	$	44,934		69.4	%	$	41,722		69.8	%
Construction		765		0.8	%		1,934		1.0	%		858		1.5	%		981		1.6	%		984		1.6	%
SBA		2,668		3.6	%		2,992		3.6	%		1,453		4.0	%		1,062		4.5	%		869		2.5	%
SBA - PPP		—		2.4	%		—		10.6	%		—		—			—		—			—		—
Commercial and industrial		6,669		10.3	%		7,142		9.7	%		8,880		12.4	%		7,520		12.9	%		7,280		10.6	%
Dairy & livestock and agribusiness		3,066		4.9	%		3,949		4.4	%		5,255		5.1	%		5,215		5.1	%		4,647		7.2	%
Municipal lease finance receivables		100		0.6	%		74		0.5	%		623		0.7	%		775		0.8	%		851		1.5	%
SFR mortgage		188		3.1	%		367		3.2	%		2,339		3.8	%		2,196		3.8	%		2,112		4.9	%
Consumer and other loans		613		0.9	%		1,795		1.1	%		623		1.5	%		726		1.7	%		753		1.3	%
PCI loans		—		—			—		—			—		—			204		0.2	%		367		0.6	%
Total	$	65,019		100.0	%	$	93,692		100.0	%	$	68,660		100.0	%	$	63,613		100.0	%	$	59,585		100.0	%

Deposits

The primary source of funds to support earning assets (loans and investments) is the generation of deposits.

Total deposits were $12.98 billion at December 31, 2021. This represented an increase of $1.24 billion, or 10.56%, over total deposits of $11.74 billion at December 31, 2020. ~~This represented an increase of $3.03 billion, or 34.83%, over total deposits of $8.70 billion at December 31, 2019.~~

The average balance of deposits by category and the average effective interest rates paid on deposits is summarized for the periods presented in the table below.

Year Ended December 31,


2020

2019

2018


Average


Balance

Rate

Balance

Rate

Balance

Rate


(Dollars in thousands)

Noninterest-bearing deposits
     $     6,281,989    -      $     5,177,035    -      $     4,449,110    -
Interest-bearing deposits

Investment checking
   478,458    0.08%    452,437    0.11%    438,112    0.08%
Money market
   2,599,553    0.31%    2,197,194    0.54%    1,834,540    0.36%
Savings
   452,595    0.09%    399,154    0.10%    384,008    0.10%
Time deposits
   445,962    0.85%    487,221    0.91%    453,031    0.57%







Total deposits
     $     10,258,557         $     8,713,041         $     7,558,801


	Year Ended December 31,
	2021					2020					2019
	Average
	Balance		Rate			Balance		Rate			Balance		Rate
	(Dollars in thousands)
Noninterest-bearing deposits	$	7,817,627		—		$	6,281,989		—		$	5,177,035		—
Interest-bearing deposits
Investment checking		599,978		0.03	%		478,458		0.08	%		452,437		0.11	%
Money market		3,114,222		0.12	%		2,599,553		0.31	%		2,197,194		0.54	%
Savings		535,179		0.05	%		452,595		0.09	%		399,154		0.10	%
Time deposits		375,666		0.32	%		445,962		0.85	%		487,221		0.91	%
Total deposits	$	12,442,672				$	10,258,557				$	8,713,041

The amount of noninterest-bearing deposits in relation to total deposits is an integral element in our strategy of seeking to achieve a low cost of funds. Average noninterest-bearing deposits totaled ~~$6.28~~$7.82 billion for ~~2020,~~2021, representing an increase of ~~$1.10~~$1.54 billion, or ~~21.34%~~24.45%, from average demand deposits of ~~$5.18~~$6.28 billion for ~~2019.~~2020. Average noninterest-bearing deposits represented 62.83% of total average deposits for 2021, compared to 61.24% of total average deposits for ~~2020, compared to 59.42% of total average deposits for 2019.~~

2020.

Average savings deposits, which include savings, interest-bearing demand, and money market accounts, were ~~$3.53~~$4.25 billion for ~~2020,~~2021, representing an increase of ~~$481.8~~$718.8 million, or ~~15.80%~~20.36%, from average savings deposits of ~~$3.05~~$3.53 billion for ~~2019.~~

2020.

Average time deposits totaled ~~$446.0~~$375.7 million for ~~2020,~~2021, representing a decrease of ~~$41.3~~$70.3 million, or ~~8.47%~~15.76%, from total average time deposits of ~~$487.2~~$446.0 million for ~~2019.~~

2020.

The following table provides the remaining maturities of large denomination ($250,000 or more) time deposits, including public funds, at December 31, ~~2020.~~

2021.

Maturity Distribution of Large Denomination Time Deposits


	~~December 31, 2020~~
	~~(Dollars in thousands)~~
~~3 months or less~~	$	~~35,384~~
~~Over 3 months through 6 months~~		~~15,277~~
~~Over 6 months through 12 months~~		~~27,685~~
~~Over 12 months~~		~~21,954~~

~~Total~~	$	~~100,300~~


	December 31, 2021
	(Dollars in thousands)
3 months or less	$	29,201
Over 3 months through 6 months		16,366
Over 6 months through 12 months		23,558
Over 12 months		12,476
Total	$	81,601

Time deposits totaled ~~$401.7~~$327.7 million at December 31, ~~2020,~~2021, representing a decrease of ~~$44.6~~$74.0 million, or ~~10.00%~~18.42%, from total time deposits of ~~$446.3~~$401.7 million for December 31, ~~2019.~~

~~Table of Contents~~

2020.

Borrowings

The following table summarizes information about our term FHLB advances, repurchase agreements and other borrowings outstanding for the periods presented.

Repurchase
      Agreements

      FHLB Advances

Other
      Borrowings

      Total

(Dollars in thousands)

At December 31, 2020

Amount outstanding
$     439,406 $ - $ 5,000 $     444,406
Weighted-average interest rate
0.10 % - - 0.10 %
Year ended December 31, 2020

Highest amount at
month-end
$ 501,881 $ - $ 10,000 $ 511,881
Daily-average amount outstanding
$ 479,956 $ - $ 5,674 $ 485,630
Weighted-average interest rate
0.24 % - 0.04 % 0.23 %
At December 31, 2019

Amount outstanding
$ 428,659 $ - $ - $ 428,659
Weighted-average interest rate
0.44 % - - 0.44 %
Year ended December 31, 2019

Highest amount at
month-end
$ 547,730 $ - $ 295,000 $ 842,730
Daily-average amount outstanding
$ 435,317 $ - $ 76,873 $ 512,190
Weighted-average interest rate
0.47 % - 2.51 % 0.77 %
At December 31, 2018

Amount outstanding
$ 442,255 $ - $ 280,000 $ 722,255
Weighted-average interest rate
0.39 % - 2.53 % 1.22 %
Year ended December 31, 2018

Highest amount at
month-end
$ 556,356 $ - $ 280,000 $ 836,356
Daily-average amount outstanding
$ 439,658 $ 2,446 $ 31,648 $ 473,752
Weighted-average interest rate
0.31 % 1.59 % 2.09 % 0.44 %


	Repurchase Agreements			FHLB Advances		Other Borrowings			Total
	(Dollars in thousands)
At December 31, 2021
Amount outstanding	$	642,388		$	—	$	2,281		$	644,669
Weighted-average interest rate		0.08	%		—		1.45	%		0.09	%
Year ended December 31, 2021
Highest amount at month-end	$	659,579		$	—	$	5,000		$	664,579
Daily-average amount outstanding	$	610,479		$	—	$	2,008		$	612,487
Weighted-average interest rate		0.09	%		—		0.01	%		0.09	%
At December 31, 2020
Amount outstanding	$	439,406		$	—	$	5,000		$	444,406
Weighted-average interest rate		0.10	%		—		—			0.10	%
Year ended December 31, 2020
Highest amount at month-end	$	501,881		$	—	$	10,000		$	511,881
Daily-average amount outstanding	$	479,956		$	—	$	5,674		$	485,630
Weighted-average interest rate		0.24	%		—		0.04	%		0.23	%
At December 31, 2019
Amount outstanding	$	428,659		$	—	$	—		$	428,659
Weighted-average interest rate		0.44	%		—		—			0.44	%
Year ended December 31, 2019
Highest amount at month-end	$	547,730		$	—	$	295,000		$	842,730
Daily-average amount outstanding	$	435,317		$	—	$	76,873		$	512,190
Weighted-average interest rate		0.47	%		—		2.51	%		0.77	%

At December 31, 2021, our borrowings included $642.4 million of repurchase agreements and $2.3 million in overnight borrowings. At December 31, 2020, our borrowings included $439.4 million ofin repurchase agreements and $5.0 million in other short-term borrowing at an interest rate of 0%. ~~At December 31, 2019, our borrowings included $428.7 million in repurchase agreements.~~

We offer a repurchase agreement product to our deposit customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price which reflects the market value of the use of funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a

pre-determined

balance in a demand deposit account, in order to earn interest. As of December 31, ~~2020,~~2021, total funds borrowed under these agreements were ~~$439.4~~$642.4 million with a

weighted average interest rate of ~~0.10%~~0.08%, compared to ~~$428.7~~$439.4 million with a weighted average rate of ~~0.44%~~0.10% as of December 31, ~~2019.~~

At2020.

We had $2.3 million in overnight borrowings at December 31, ~~2020, we had~~2021, compared to $5.0 million in zero-interest rate short-term ~~borrowings that were interest free advances from the FHLB, compared to no~~ borrowings at December ~~31. 2019.~~

~~At December~~ 31, ~~2020,~~2020.

On June 15, 2021, we redeemed our junior subordinated debentures of $25.8 million, ~~represent~~representing the amounts that are due from the Company to CVB Statutory Trust ~~III.~~III, which had a borrowing cost of approximately 1.60% at the time of repayment. The debentures ~~have the same maturity as~~and the Trust Preferred ~~Securities. These~~Securities had an original maturity date of 2036. The interest rate on these debentures ~~bear interest at~~were based on three-month LIBOR plus 1.38% ~~and mature in 2036.~~. Refer to Note 1312 —

Borrowings

of the notes to the consolidated financial statements for a more detailed discussion.

At December 31, ~~2020, $6.07~~2021, $3.96 billion of loans and ~~$1.81~~$2.18 billion of investment securities, at carrying value, were pledged to secure public deposits of $718.9, short and long-term borrowings, and for other purposes as required or permitted by ~~law.~~

~~Table~~law, with a remaining borrowing capacity at December 31, 2021 of ~~Contents~~

$4.52 billion.

Aggregate Contractual Obligations

The following table summarizes the aggregate contractual obligations as of December 31, ~~2020.~~2021.


			Maturity by Period
	Total		Less Than One Year		One Year Through Three Years		Four Years Through Five Years		Over Five Years
	(Dollars in thousands)
Deposits (1)	$	12,976,442	$	12,952,767	$	13,138	$	10,005	$	532
Customer repurchase agreements (1)		642,388		642,388		—		—		—
Deferred compensation		21,111		652		767		621		19,071
Operating leases		21,908		6,515		8,742		5,213		1,438
Affordable housing investment		1,350		1,259		55		30		6
Total	$	13,663,199	$	13,603,581	$	22,702	$	15,869	$	21,047

(1)

Amounts exclude accrued interest.

Maturity by Period

Total

Less Than

One

Year

One Year
Through
Three Years

Four Years
Through
Five Years

Over

Five

Years

(Dollars in thousands)

Deposits (1)
$ 11,736,501 $ 11,697,276 $ 29,251 $ 9,362 $ 612
Customer repurchase agreements (1)
439,406 439,406 - - -
Junior subordinated debentures (1)
25,774 - - - 25,774
Deferred compensation
22,142 689 1,098 619 19,736
Operating leases
22,382 6,800 9,389 4,472 1,721
Affordable housing investment
1,950 1,026 864 47 13

Total
$ 12,248,155 $ 12,145,197 $ 40,602 $ 14,500 $ 47,856

~~(1)~~

~~Amounts exclude accrued interest.~~

Deposits represent noninterest-bearing, money market, savings, NOW, certificates of deposits, brokered and all other deposits held by the Bank.

Customer repurchase agreements represent excess amounts swept from customer demand deposit accounts, which mature the following business day and are collateralized by investment securities. These amounts are due to customers.

Junior subordinated debentures represent the amounts that are due from the Company to CVB Statutory Trust III. The debentures have the same maturity as the Trust Preferred Securities. These debentures bear interest at three-month LIBOR plus 1.38% and mature in 2036.

Deferred compensation represents the amounts that are due to former employees based on salary continuation agreements as a result of acquisitions and amounts due to current and retired employees under our deferred compensation plans.

Operating leases represent the total minimum lease payments due under

non-cancelable

operating leases. Refer to Note 2322 —

Leases

of the notes to the consolidated financial statements for a more detailed discussion about leases.

~~Table of Contents~~

Off-Balance

Sheet Arrangements

The following table summarizes the

off-balance

sheet items at December 31, ~~2020.~~

2021.


			Maturity by Period
	Total		Less Than One Year		One Year to Three Years		Four Years to Five Years		After Five Years
	(Dollars in thousands)
Commitment to extend credit:
Commercial real estate	$	330,045	$	—	$	107,736	$	145,152	$	77,157
Construction		81,319		—		81,319		—		—
SBA		1,872		—		1,275		—		597
SBA - PPP		—		—		—		—		—
Commercial and industrial		891,508		29,604		785,997		11,649		64,258
Dairy & livestock and agribusiness (1)		143,236		—		143,236		—		—
Municipal lease finance receivables		17,948		—		—		—		17,948
SFR Mortgage		5,585		—		2,550		—		3,035
Consumer and other loans		113,204		—		18,935		3,724		90,545
Total commitment to extend credit		1,584,717		29,604		1,141,048		160,525		253,540
Obligations under letters of credit		44,914		5,753		39,161		—		—
Total	$	1,629,631	$	35,357	$	1,180,209	$	160,525	$	253,540

(1)

Total commitments to extend credit to agribusiness were $23.9 million at December 31, 2021.

Maturity by Period

Total

Less Than
One
Year

One Year
to Three
Years

Four Years
to Five
Years

After
Five
Years

(Dollars in thousands)

Commitment to extend credit:

Commercial real estate
$ 309,966 $ 50,755 $ 91,502 $ 136,108 $ 31,601
Construction
89,987 62,964 27,023 —   —
SBA
257 41 —   —   216
SBA - PPP
—   —   —   —   —
Commercial and industrial
928,767 623,258 193,791 5,793 105,925
Dairy & livestock and agribusiness (1)
140,926 109,823 31,049 —   54
SFR Mortgage
3,786 —   500 —   3,286
Consumer and other loans
131,604 9,227 13,389 3,186 105,802

Total commitment to extend credit
1,605,293 856,068 357,254 145,087 246,884
Obligations under letters of credit
53,164 51,856 1,308 —   —

Total
$     1,658,457 $     907,924 $     358,562 $     145,087 $     246,884

~~(1)~~

~~Total commitments to extend credit to agribusiness were $19.5 million at December 31, 2020.~~

As of December 31, ~~2020,~~2021, we had commitments to extend credit of approximately ~~$1.61~~$1.58 billion, and obligations under letters of credit of ~~$53.2~~$44.9 million. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit underwriting policies in granting or accepting such commitments or contingent obligations as we do for

on-balance

sheet instruments, which consist of evaluating customers’ creditworthiness individually. Due to the adoption of CECL on January 1, 2020, a transition adjustment of $41,000 was added to the beginning balance of the reserve for unfunded loan commitments. As of December 31, 2021 and 2020, the balance in this reserve was $8.0 million and $9.0 million, respectively, and was included in other liabilities. The ~~Company recorded~~year-over-year decrease included a $1.0 million recapture of provision for unfunded loan commitments in the second quarter of 2021. There was no provision or recapture of provision for unfunded ~~loan~~ commitments for the year ended December 31, ~~2020 and 2019. The Company had a reserve for unfunded loan commitments of $9.0 million as of December 31, 2020 and 2019 included in other liabilities.~~

2020.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing or purchase arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. When deemed necessary, we hold appropriate collateral supporting those commitments.

Capital Resources

Our primary source of capital has been the retention of operating earnings and issuance of common stock in connection with periodic acquisitions. In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources, needs and uses of capital in conjunction with projected increases in assets and the level of risk. As part of this ongoing assessment, the Board of Directors reviews the various components of our capital.

Total equity increased ~~$13.9~~$73.5 million, or ~~0.70%~~3.66%, to $2.08 billion at December 31, 2021, compared to total equity of $2.01 billion at December 31, ~~2020, compared to total equity of $1.99 billion at December 31, 2019.~~2020. The ~~$13.9~~$73.5 million increase in equity was primarily due to ~~$177.2~~$212.5 million, partially offset by $97.8 million in ~~net earnings,~~cash dividends and a ~~$22.7~~$39.3 million ~~increase~~decrease in other comprehensive income ~~resulting~~ from the tax

~~Table of Contents~~

effected impact of the ~~increase~~decline in market value of ~~our investment securities portfolio, and $4.7~~available-for-sale securities. During the third quarter of 2021, we repurchased 390,336 shares of common stock for $7.4 million, ~~for various stock based compensation items. This was offset by $91.7 million in stock repurchases~~or an average repurchase price of $18.97, under our

10b5-1

stock repurchase ~~program, $97.7 million in cash dividends declared and a cumulative effect adjustment to beginning retained earnings of $1.3 million, net of tax, due to the adoption of CECL on January 1, 2020.~~program. Our tangible common equity ratio was ~~9.55%~~9.16% at December 31, ~~2020.~~

2021.

During ~~2020,~~2021, the Board of Directors of CVB declared quarterly cash dividends totaling $0.72 per share. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB’s ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the Federal Reserve, and covenants set forth in various agreements we are a party to including covenants set forth in our junior subordinated debentures.

On August 11, 2016, our Board of Directors approved a program to repurchase up to 10,000,000 shares of CVB common stock in the open market or in privately negotiated transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations. ~~There is no expiration date for this repurchase program. For the year ended~~As of December 31, ~~2020,~~2021, the Company had cumulatively repurchased ~~4,944,290~~5,805,191 shares of CVB common stock outstanding under this program. As of December 31, ~~2020,~~2021, we ~~have 4,585,145~~had 4,194,809 shares of CVB common stock remaining ~~that are~~ eligible for repurchase under the common stock repurchase program.

On February 1, 2022, the Company announced that our Board of Directors approved a new program (the "2022 Repurchase Program") to repurchase up to 10,000,000 shares of CVB common stock, replacing the previous 2016 repurchase plan. The 2022 Repurchase Program includes an initial accelerated share repurchase agreement involving $70 million of the Company's common stock and one or more rule 10b5-1 plans or other appropriate buy-back arrangements, including open market and private transactions.

The Bank and the Company are required to meet risk-based capital standards under the revised capital framework referred to as Basel III set by their respective regulatory authorities. The risk-based capital standards require the achievement of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital ratio of 6.0% and a common equity Tier 1 (“CET1”) capital ratio of 4.5%. In addition, the regulatory authorities require the highest rated institutions to maintain a minimum leverage ratio of 4.0%. To be considered “well-capitalized” for bank regulatory purposes, the Bank and the Company are required to have a CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%. At December 31, ~~2020,~~2021, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios required to be considered “well-capitalized” for regulatory purposes. For further information about capital requirements and our capital ratios, see “Item 1.

Business—Regulation and Supervision—Capital Adequacy Requirements

”.

At December 31, ~~2020,~~2021, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios, under the revised capital framework referred to as Basel III, required to be considered “well-capitalized” for regulatory purposes. We did not elect to phase in the impact of CECL on regulatory capital, as allowed under the interim final rule of the FDIC and other U.S. banking agencies.

The table below presents the Company’s and the Bank’s risk-based and leverage capital ratios for the periods presented.

Minimum
Required
Plus Capital
Conservation
Buffer

December 31, 2020

December 31, 2019
Capital Ratios

Adequately
Capitalized
Ratios

Well
Capitalized
Ratios

CVB Financial
Corp.
Consolidated

Citizens
Business
Bank

CVB Financial
Corp.
Consolidated

Citizens
Business
Bank
Tier 1 leverage capital ratio
4.00% 4.00% 5.00% 9.90% 9.58% 12.33% 12.19%
Common equity Tier 1 capital ratio
4.50% 7.00% 6.50% 14.77% 14.57% 14.83% 14.94%
Tier 1 risk-based capital ratio
6.00% 8.50% 8.00% 15.06% 14.57% 15.11% 14.94%
Total risk-based capital ratio
8.00% 10.50% 10.00% 16.24% 15.75% 16.01% 15.83%

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				December 31, 2021		December 31, 2020
Capital Ratios	Adequately Capitalized Ratios	Minimum Required Plus Capital Conservation Buffer	Well Capitalized Ratios	CVB Financial Corp. Consolidated	Citizens Business Bank	CVB Financial Corp. Consolidated	Citizens Business Bank
Tier 1 leverage capital ratio	4.00%	4.00%	5.00%	9.18%	8.90%	9.90%	9.58%
Common equity Tier 1 capital ratio	4.50%	7.00%	6.50%	14.86%	14.41%	14.77%	14.57%
Tier 1 risk-based capital ratio	6.00%	8.50%	8.00%	14.86%	14.41%	15.06%	14.57%
Total risk-based capital ratio	8.00%	10.50%	10.00%	15.63%	15.18%	16.24%	15.75%

RISK MANAGEMENT

All financial institutions must manage and control a variety of business risks that can significantly affect their financial performance. Our Board of Directors (Board) and executive management team have overall and ultimate responsibility for management of these risks, which they carry out through committees with specific and well-defined risk management functions. The Risk Management Plan that we have adopted seeks to implement the proper control and management of key risk factors inherent in the operation of the Company and the Bank. Some of the key risks that we must manage are credit risks, ~~asset/liability,~~ interest rate ~~and~~risk, liquidity risk, market risks, ~~counterparty risk,~~ transaction risk, compliance risk, strategic risk, ~~cybersecurity risk, price risk~~ and ~~foreign exchange~~cybersecurity risk. These specific risk factors are not mutually exclusive. It is recognized that any product or service offered by us may expose the Bank to one or more of these risks. Our Risk Management Committee and Risk Management Division monitor these risks to minimize exposure to the Company. The Board and its committees work closely with management in overseeing risk. Each Board committee receives reports and information regarding risk issues directly from management.

Credit Risk Management

Loans represent the largest component of assets on our balance sheet and their related credit risk is among the most significant risks we manage. We define credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms). Credit risk is found in all activities where success depends on a counter party, issuer, or borrower performance. Credit risk arises through the extension of loans and leases, certain securities, and letters of credit.

Natural disasters, such as storms, earthquakes, drought and other weather conditions, effects of pandemics, as well as natural disasters and problems related to possible climate changes, may from

time-to-time

cause or create the risk of damage to facilities, buildings, property or other assets of Bank customers, borrowers or municipal debt issuers. This could in turn affect their financial condition or results of operations and as a consequence their ability or capacity to repay debt or fulfill other obligations to the Bank.

Credit risk in the investment portfolio and correspondent bank accounts is in part addressed through defined limits in the Company’s policy statements. In addition, certain securities carry insurance to enhance the credit quality of the bond. Limitations on industry concentration, aggregate customer borrowings, geographic boundaries and standards on loan quality also are designed to reduce loan credit risk. Senior Management, Directors’ Committees, and the Board of Directors are provided with information to appropriately identify, measure, control and monitor the credit risk of the Company.

The Bank’s loan policy is updated annually and approved by the Board of Directors. It prescribes underwriting guidelines and procedures for all loan categories in which the Bank participates to establish risk tolerance and parameters that are communicated throughout the Bank to ensure consistent and uniform lending practices. The underwriting guidelines include, among other things, approval limitation and hierarchy, documentation standards,

loan-to-value

limits, debt coverage ratio, overall credit-worthiness of the borrower, guarantor support, etc. All loan requests considered by the Bank should be for a clearly defined legitimate purpose with a determinable primary source, as well as alternate sources of repayment. All loans should be supported by appropriate documentation including, current financial statements, credit reports, collateral information, guarantor asset verification, tax returns, title reports, appraisals (where appropriate), and other documents of quality that will support the credit.

The major lending categories are commercial and industrial loans, SBA loans, owner-occupied and non owner-occupied commercial real estate loans, construction loans, dairy & livestock and agribusiness loans, residential real estate loans, and various consumer loan products. Loans underwritten to borrowers within these diverse categories require underwriting and documentation suited to the unique characteristics and inherent risks involved.

~~Table of Contents~~

Commercial and industrial loans require credit structures that are tailored to the specific purpose of the business loan, involving a thorough analysis of the borrower’s business, cash flow, collateral, industry risks, economic risks, credit, character, and guarantor support. Owner-occupied real estate loans are primarily based upon the capacity and stability of the cash flow generated by the occupying business and the market value of the collateral, among other things. Non owner-occupied real estate is typically underwritten to the income produced by the subject property and many considerations unique to the various types of property (i.e. office, retail, warehouse, shopping center, medical, etc.), as well as, the financial support provided by sponsors in recourse transactions. Construction loans will often depend on the specific characteristics of the project, the market for the specific development, real estate values, and the equity and financial strength of the sponsors. Dairy & livestock and agribusiness loans are largely predicated on the revenue cycles and demand for milk and crops, commodity prices, collateral values of herd, feed, and income-producing dairies or croplands, and the financial support of the guarantors. Underwriting of residential real estate and consumer loans are generally driven by personal income and debt service capacity, credit history and scores, and collateral values.

SBA loans require credit structures that conform to the various requirements of the SBA programs specific to the type of loan request and the Bank’s loan policy as it relates to these loans. The SBA 7(a) loans are similar to the commercial and industrial loans that are tailored to the specific purpose of the business loan, involving a thorough analysis of the borrower’s business, cash flow, collateral, industry risks, economic risks, credit, character, and guarantor support for both the Bank and the SBA. Once granted the SBA 7(a) loans require the Bank to follow SBA servicing guidelines to maintain the SBA guaranty which typically ranges from 75% to 90% depending on the type of 7(a) loan. SBA 504 loans are similar to the Bank’s Owner-occupied real estate loans. As such they are primarily based upon the capacity and stability of the cash flow generated by the occupying business and the market value of the collateral, among other things. When the Bank funds an SBA 504 transaction, which includes the 50% first trust deed loan and the 40% second trust deed loan, the initial risk is centered in completing the SBA’s requirements to provide for the payoff of the second trust deed loan from the subordinated debenture. Once the 504 second is paid off, the remaining first trust deed loan is then managed under the same requirements applied to the Bank’s owner-occupied commercial real estate loan. It should be noted that both the SBA 7(a) and 504

programs provide loans for commercial real estate acquisition. However, the terms and advances rates available under the 7(a) program are outside of the Bank’s standard loan programs and risk profile and therefore require a credit enhancement in the form of the SBA guaranty. Additionally, the interest rates for the 7(a) program are typically variable and can adjust as often as monthly with quarterly adjustment the most typical. SBA 504 loan interest rates for the first trust deed loan are at the Bank’s discretion and subject to competitive pressures from other banks.

Implicit in lending activities is the risk that losses will occur and that the amount of such losses will vary over time. Consequently, we maintain an allowance for credit losses by charging a provision for credit losses to earnings. Loans determined to be losses are charged against the allowance for credit losses. In this regard, it is important to note that the Bank’s practice with regard to these loans, including modified loans or troubled debt restructurings that are classified as impaired, is to generally charge off any loss amount against the ACL upon evaluating the loan at the time a probable loss becomes recognized. As such, the Bank’s specific allowance for loans, including troubled debt restructurings, is relatively low since any known loss amount will generally have been charged off.

Central to our credit risk management is its loan risk rating system. The originating credit officer assigns borrowers an initial risk rating, which is reviewed and possibly changed by credit management. The risk rating is based primarily on an analysis of each borrower’s financial capacity in conjunction with industry and economic trends. Credit approvals are made based upon our evaluation of the inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings may be adjusted as necessary.

Loans are risk rated into the following categories: Pass, Special Mention, Substandard, Doubtful, and Loss. Each of these groups is assessed and appropriate amounts used in determining the adequacy of our allowance for

~~Table of Contents~~

losses. The Impaired and Doubtful loans are analyzed on an individual basis for allowance amounts. The other categories have formulae used to determine the needed allowance amount.

The Company obtains a semi-annual independent credit review by engaging an outside party to review a sample of our loans and leases. The primary purpose of this review is to evaluate our existing loan ratings.

Refer to additional discussion concerning loans, nonperforming assets, allowance for credit losses and related tables under the Analysis of Financial Condition contained herein.

Transaction Risk

Transaction risk is the risk to earnings or capital arising from problems in service, activity or product delivery. This risk is significant within any bank and is interconnected with other risk categories in most activities throughout the Company. Transaction risk is a function of internal controls, information systems, associate integrity, and operating processes. It arises daily throughout the Company as transactions are processed. It pervades all divisions, departments and centers and is inherent in all products and services we offer.

In general, transaction risk is defined as high, medium or low by the Company. The audit plan ensures that high risk areas are reviewed annually. We utilize internal auditors and independent audit firms to test key controls of operational processes and to audit information systems, compliance management programs, loan credit reviews and trust services.

The key to monitoring transaction risk is in the design, documentation and implementation of well-defined procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, but not absolute, assurances of the effectiveness of these systems and controls, and that the objectives of these controls have been met.

Compliance Risk Management

Compliance risk is the risk to earnings or capital arising from violations of, or

non-conformance

with, laws, rules, regulations, prescribed practices, or ethical standards. Compliance risk also arises in situations where the laws or rules governing certain products or activities of the Bank’s customers, vendors or business partners may be ambiguous or untested. Compliance risk exposes us to fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can also lead to a diminished reputation, reduced business value, limited business opportunities, lessened expansion potential, and lack of contract enforceability. The Company utilizes independent compliance audits as a means of identifying weaknesses in the compliance program.

There is no single or primary source of compliance risk. It is inherent in every activity. Frequently, it blends into operational risk and transaction risk. A portion of this risk is sometimes referred to as legal risk. This is not limited solely to risk from failure to comply with consumer protection laws; it encompasses all laws, as well as prudent ethical standards and contractual obligations. It also includes the exposure to litigation from all aspects of banking, traditional and

non-traditional.

Our Risk Management Policy and Program and the Code of Ethical Conduct are cornerstones for controlling compliance risk. An integral part of controlling this risk is the proper training of associates. The Chief Risk Officer is responsible for developing and executing a comprehensive compliance training program. The Chief Risk Officer, in consultation with our internal and external legal counsel, seeks to provide our associates with adequate training commensurate to their job functions to ensure compliance with banking laws and regulations.

Our Risk Management Policy and Program includes a risk-based audit program aimed at identifying internal control deficiencies and weaknesses. The Compliance Management Program includes ~~two levels~~a monitoring process to address external and internal risks, including regulatory change management, the evolving products and services, and strategies of ~~review. One is~~

the front-line units and control functions. Additionally, in-depth

audits performed by our internal audit department under the direction of ~~the~~our Chief ~~Auditor~~Audit Executive and supplemented by independent external ~~firms, and the other is periodic monitoring performed by the Risk Management Division.~~firms. Annually, an Audit Plan for the Company is developed and presented for approval to the Audit Committee of the Board.

~~Table of Contents~~

The Risk Management Division conducts periodic monitoring of our compliance efforts with a special focus on ~~those areas~~business and control functions, assessing the inherent compliance risk of activities and the effectiveness of controls, and identifying control weaknesses that ~~expose us~~are to ~~compliance risk. The purpose of the periodic monitoring is to verify whether our associates are adhering to established policies and procedures.~~be strengthened or enhanced. Any material exceptions identified are brought forward to the appropriate department head, and appropriate management and board committees. This reporting provides an independent view of compliance risk across the ~~Audit Committee~~company, support transparent communication and ~~the Risk Management Committee.~~

management awareness of compliance risk.

We recognize that customer complaints can often identify weaknesses in our compliance program which could expose us to risk. Therefore, we attempt to ensure that all complaints are given prompt attention. Our Compliance Management Policy and Program include provisions on how customer complaints are to be addressed. The Chief Risk Officer reviews formal complaints to determine if a significant compliance risk exists and communicates those findings to the Compliance Management and Risk Management Committees.

Strategic Risk

Strategic risk is the risk to earnings or capital arising from adverse decisions or improper implementation of strategic decisions. This risk is a function of the compatibility between an organization’s goals, the resources deployed against those goals and the quality of implementation.

Strategic risks are identified as part of the strategic planning process. Strategic planning sessions, with members of the Board of Directors and Executive Leadership, are held annually. The strategic review consists of results of strategic initiatives, an assessment of the economic outlook, competitive analysis, and an industry outlook, including a legislative and regulatory review.

Cybersecurity Risk

Cybersecurity and fraud risk refers to the risk of failures, interruptions of services, or breaches of security with respect to the Company’s or the Bank’s communication, information, operations, devices, financial control, customer internet banking, customer information, email, data processing systems, or other bank or third party applications. The ability of the Company’s customers to bank remotely, including online and through mobile devices, requires secure transmission of confidential information and increases the risk of data security breaches. In addition, the Company and the Bank rely primarily on third party providers to develop, manage, maintain and protect ~~these~~our systems and applications. Any such failures, interruptions or fraud or security breaches, depending on the scope, duration, affected system(s) or customers(s), could expose the Company and/or the Bank to financial loss, reputation damage, litigation, or regulatory action. We continue to invest in technologies and training to protect our associates, our clients and our assets. While we have implemented various detective and preventative measures which seek to protect our Company, our customers’ information and the Bank from the risk of fraud, data security breaches or service interruptions, there can be no assurance that these measures will be effective in preventing potential breaches or losses for us or our customers.

~~Table of Contents~~

ASSET/LIABILITY AND MARKET RISK MANAGEMENT

Liquidity and Cash Flow

The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations when they come due without incurring unnecessary cost or risk, or causing a disruption to our normal operating activities. This includes the ability to manage unplanned decreases or changes in funding sources, accommodating loan demand and growth, funding investments, repurchasing securities, paying creditors as necessary, and other operating or capital needs.

We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual customer funding needs, as well as current and planned business activities. Management has an Asset/Liability Committee that meets monthly. This committee analyzes the cash flows from loans, investments, deposits and borrowings. In addition, the Company has a Balance Sheet Management Committee of the Board of Directors that meets quarterly to review the Company’s balance sheet and liquidity position. This committee provides oversight to the balance sheet and liquidity management process and recommends policy guidelines for the approval of our Board of Directors, and courses of action to address our actual and projected liquidity needs.

Our primary sources and uses of funds for the Company are deposits, investment securities and loans. Our deposit levels and cost of deposits may fluctuate from

period-to-period

due to a variety of factors, including the stability of our deposit base, prevailing interest rates, and market conditions. Total deposits of $12.98 billion at December 31, 2021 increased $1.24 billion, or 10.56%, over total deposits of $11.74 billion at December 31, ~~2020 increased $3.03 billion, or 34.83%, over total deposits of $8.70 billion at December 31, 2019.~~2020. This ~~significant~~ deposit growth was ~~primarily~~partly due to our customers maintaining greater ~~liquidity.~~

liquidity during the current pandemic induced economic cycle.

In general, our liquidity is managed daily by controlling the level of liquid assets as well as the use of funds provided by the cash flow from the investment portfolio, loan demand and deposit fluctuations. Our definition of liquid assets includes cash and cash equivalents in excess of minimum levels needed to fulfill normal business operations, short-term investment securities, and other anticipated near term cash flows from investments. Our balance sheet has significant liquidity and our assets are funded almost entirely with core deposits. Furthermore, we have significant off-balance sheet sources of liquidity. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal Reserve, although availability under these lines of credit are subject to certain conditions. The Bank has available lines of credit exceeding $4 billion, most of which is secured by pledged loans. The sale of investment securities can also serve as a contingent source of funds. We can obtain additional liquidity from deposit growth by offering competitive interest rates on deposits from both our local and national wholesale markets.

At December 31, ~~2020, we~~2021, the Bank had $25.8 million in subordinated debt and $5.0 million in FHLB short-term borrowings at 0% cost. The Bank has available lines of credit exceeding $4 billion, most of which is secured by pledged loans. Our balance sheet has significant liquidity and our assets are funded almost entirely with core deposits. Furthermore, we have significant

~~off-balance~~

~~sheet sources of liquidity.~~

no borrowings.

CVB is a holding company separate and apart from the Bank that must provide for its own liquidity and must service its own obligations. On June 15, 2021, we redeemed our $25.8 million in subordinated debt with an interest rate of three month LIBOR plus 1.38% at par. Substantially all of CVB’s revenues are obtained from dividends declared and paid by the Bank to CVB. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. In addition, our regulators could limit the ability of the Bank or CVB to pay dividends or make other distributions. For the Bank, sources of funds include principal payments on loans and investments, growth in deposits, FHLB advances, and other borrowed funds. Uses of funds include withdrawal of deposits, interest paid on deposits, increased loan balances, purchases, and noninterest expenses.

~~Table of Contents~~

Below is a summary of our average cash position and statement of cash flows for the years ended December 31, ~~2020~~2021 and ~~2019.~~2020. For further details, see our “

Consolidated Statements of Cash Flows

” under Part IV consolidated financial statements of this report.

Consolidated Summary of Cash Flows

  Year Ended December 31,


2020

2019


(Dollars in thousands)

Average cash and cash equivalents
   $ 1,226,262    $ 288,425
Percentage of total average assets
   9.48%    2.55%
Net cash provided by operating activities
   $ 185,096    $ 208,182
Net cash (used in) provided by investing activities
   (1,268,758 )    325,323
Net cash provided by (used in) financing activities
   2,856,304    (511,935 )

Net increase in cash and cash equivalents
   $ 1,772,642    $ 21,570


	Year Ended December 31,
	2021			2020
	(Dollars in thousands)
Average cash and cash equivalents	$	2,078,439		$	1,226,262
Percentage of total average assets		13.54	%		9.48	%
Net cash provided by operating activities	$	195,242		$	185,096
Net cash (used in) provided by investing activities		(1,730,491	)		(1,268,758	)
Net cash provided by (used in) financing activities		1,309,637			2,856,304
Net (decrease) increase in cash and cash equivalents	$	(225,612	)	$	1,772,642

Average cash and cash equivalents increased by ~~$937.8~~$852.2 million, or ~~325.16%~~69.49%, to ~~$1.23~~$2.08 billion for the year ended December 31, ~~2020,~~2021, compared to ~~$288.4 million~~$1.23 billion for ~~2019.~~

2020.

At December 31, ~~2020,~~2021, cash and cash equivalents totaled ~~$1.96~~$1.73 billion. This represented ~~an increase~~a decrease of ~~$1.78 billion,~~$225.6 million, or ~~955.51%~~11.52%, from ~~$185.5 million~~$1.96 billion at December 31, ~~2019.~~

2020.

Market Risk

In the normal course of its business activities, we are exposed to market risks, including price and liquidity risk. Market risk is the potential for loss from adverse changes in market rates and prices, such as interest rates (interest rate risk). Liquidity risk arises from the possibility that we may not be able to satisfy current or future commitments or that we may be more reliant on alternative funding sources such as long-term debt. Financial products that expose us to market risk include securities, loans, deposits, debt, and derivative financial instruments.

The table below provides the actual balances as of December 31, ~~2020~~2021 of interest-earning assets and interest-bearing liabilities, including the average rate earned or incurred for ~~2020,~~2021, the projected contractual maturities over the next five years, and the estimated fair value of each category determined using available market information and appropriate valuation methodologies.


						Maturing
	December 31, 2021		Average Rate			One Year		Two Years		Three Years		Four Years		Five Years and Beyond		Estimated Fair Value
										(Dollars in thousands)
Interest-earning assets:
Investment securities available-for-sale (1)	$	3,183,923		1.38	%	$	19,073	$	315,386	$	605,595	$	234,084	$	2,009,785	$	3,183,923
Investment securities held-to-maturity (1)		1,925,970		1.89	%		5,586		27,336		122,168		114,251		1,656,629		1,921,693
Investment in FHLB stock		17,688		5.76	%		—		—		—		—		17,688		17,688
Interest-earning deposits due from Federal Reserve and with other institutions		1,668,535		0.13	%		1,667,795		740		—		—		—		1,668,535
Loans and lease finance receivables (2)		7,887,713		4.42	%		903,187		609,421		354,685		453,789		5,566,631		7,761,229
Total interest-earning assets	$	14,683,829				$	2,595,641	$	952,883	$	1,082,448	$	802,124	$	9,250,733	$	14,553,068
Interest-bearing liabilities:
Interest-bearing deposits	$	4,872,386		0.12	%	$	4,848,711	$	11,457	$	1,681	$	7,984	$	2,553	$	4,871,531
Borrowings		644,669		0.09	%		644,669		—		—		—		—		586,645
Junior subordinated debentures		—		1.58	%		—		—		—		—		—		—
Total interest-bearing liabilities	$	5,517,055				$	5,493,380	$	11,457	$	1,681	$	7,984	$	2,553	$	5,458,176

(1)

These include mortgage-backed securities which generally prepay before maturity.

(2)

Gross loans, at amortized cost.

Maturing

December 31,
2020

Average
Rate

One Year

Two Years

Three Years

Four Years

Five Years

and Beyond

Estimated Fair
Value

(Dollars in thousands)

Interest-earning assets:

Investment securities
available-for-sale
(1)
$ 2,398,923 1.97 % $ 12,694 $ 149,991 $ 613,608 $ 686,367 $ 936,263 $ 2,398,923
Investment securities
held-to-maturity (1)
578,626 2.48 % 34,306 42,548 84,513 149,053 268,206 604,223
Investment in FHLB stock
17,688 5.53 % - - - - 17,688 17,688
Interest-earning deposits due from

Federal
1,879,418 0.15 % 1,878,678 - 740 - - 1,879,455
Reserve and with other institutions

Loans and lease finance receivables (2)
8,348,808 4.68 % 897,281 1,413,759 555,899 483,212 4,998,657 8,349,870

Total interest-earning assets
$ 13,223,463 $ 2,822,959 $ 1,606,298 $ 1,254,760 $ 1,318,632 $ 6,220,814 $ 13,250,159

Interest-bearing liabilities:

Interest-bearing deposits
$ 4,281,114 0.32 % $ 4,241,889 $ 24,154 $ 5,096 $ 1,312 $ 8,663 $ 4,281,952
Borrowings
444,406 0.23 % 444,406 - - - - 444,349
Junior subordinated debentures
25,774 2.10 % - - - - 25,774 19,431

Total interest-bearing liabilities
$ 4,751,294 $ 4,686,295 $ 24,154 $ 5,096 $ 1,312 $ 34,437 $ 4,745,732

~~(1)~~

~~These include mortgage-backed securities which generally prepay before maturity.~~

~~(2)~~

~~Gross loans, net of deferred loan fees, costs and discounts.~~

~~Table of Contents~~

Interest Rate Sensitivity Management

During periods of changing interest rates, the ability to

re-price

interest-earning assets and interest-bearing liabilities can influence net interest income, the net interest margin, and consequently, our earnings. Interest rate risk is managed by attempting to control the spread between rates earned on interest-earning assets and the rates paid on interest-bearing liabilities within the constraints imposed by market competition in our service area. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the Board of Directors. These limits and guidelines reflect our risk appetite for interest rate risk over both short-term and long-term horizons. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models, which, as described in additional detail below, are employed by management to understand net interest income (NII) at risk and economic value of equity (EVE) at risk. Net interest income at risk sensitivity captures asset and liability repricing mismatches and is considered a shorter term measure, while EVE sensitivity captures mismatches within the period end balance sheets through the financial instruments’ respective maturities or estimated durations and is considered a longer term measure.

One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model NII from the Company’s balance sheet under various interest rate scenarios. We use simulation analysis to project rate sensitive income under many scenarios. The analyses may include rapid and gradual ramping of interest rates, rate shocks, basis risk analysis, and yield curve scenarios. Specific balance sheet management strategies are also analyzed to determine their impact on NII and EVE. Key assumptions in the simulation analysis relate to the behavior of interest rates and pricing spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments. This analysis incorporates several assumptions, the most material of which relate to the

re-pricing

characteristics and balance fluctuations of deposits with indeterminate or

non-contractual

maturities, and prepayment of loans and securities.

Our interest rate risk policy measures the sensitivity of our net interest income over both a

one-year

and

two-year

cumulative time horizon.

The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a

one-year

horizon assuming no balance sheet growth, given a 200 basis point upward and ~~either~~ a 100 ~~or 200~~ basis point downward shift in interest rates depending on the level of current market rates. The simulation model uses a parallel yield curve shift that ramps rates up or down on a pro rata basis over the

12-month

and

24-month

time horizon.

The following depicts the Company’s net interest income sensitivity analysis for the periods presented below, when rates are ramped up 200bps or ramped down 100bps over a

12-month

time horizon.


	Estimated Net Interest Income Sensitivity (1)
	December 31, 2021							December 31, 2020
Interest Rate Scenario	12-month Period			24-month Period (Cumulative)			Interest Rate Scenario	12-month Period			24-month Period (Cumulative)
+ 200 basis points		9.85	%		16.84	%	+ 200 basis points		11.10	%		19.60	%
- 100 basis points		-4.30	%		-4.99	%	- 100 basis points		-1.20	%		-2.40	%

(1)

Percentage change from base scenario, but the current low interest rate environment limits the absolute decline in rates as the model does not assume rates go below zero.

Estimated Net Interest Income Sensitivity (1)

December 31, 2020

December 31, 2019
Interest Rate Scenario

12-month Period

24-month Period

(Cumulative)

  Interest Rate Scenario

12-month Period

24-month Period

(Cumulative)
+ 200 basis points
11.10%         19.60%      + 200 basis points 5.20%         10.00%
- 100 basis points
-1.20%         -2.40%      - 100 basis points -2.10%         -4.60%

~~(1)~~

~~Percentage change from base scenario, but the current low interest rate environment limits the absolute decline in rates as the model does not assume rates go below zero.~~

Based on our current simulation models, we believe that the interest rate risk profile of the balance sheet is asset sensitive over both a

one-year

and a

two-year

horizon. The estimated sensitivity does not necessarily represent a forecast and the results may not be indicative of actual changes to our net interest income. These

~~Table of Contents~~

estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape,

re-pricing

characteristics and balance fluctuations of deposits with indeterminate or

non-contractual

maturities, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change. Our exposure in the rates down scenario is impacted by the current low interest rate environment and the model does not assume that rates go below ~~0.01%.~~

zero.

We also perform valuation analysis, which incorporates all cash flows over the estimated remaining life of all material balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows minus the discounted present value of all liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term

re-pricing

risk and options risk embedded in the balance sheet. EVE uses instantaneous changes in rates, as shown in the table below. Assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected duration and pricing of the indeterminate deposit portfolios. EVE sensitivity is reported in both upward and downward rate shocks. At December 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the EVE profile indicates a decline in net balance sheet value due to instantaneous downward changes in rates, compared to an increase resulting from an increase in rates.

Economic Value of Equity Sensitivity

Instantaneous Rate Change

December 31, 2020

December 31, 2019
100 bp decrease in interest rates
-21.0% -17.5%
100 bp increase in interest rates
16.1% 14.2%
200 bp increase in interest rates
28.4% 25.5%
300 bp increase in interest rates
34.4% 30.0%
400 bp increase in interest rates
41.6% 36.2%


Instantaneous Rate Change	December 31, 2021			December 31, 2020
100 bp decrease in interest rates		-14.1	%		-21.0	%
100 bp increase in interest rates		5.3	%		16.1	%
200 bp increase in interest rates		11.8	%		28.4	%
300 bp increase in interest rates		13.6	%		34.4	%
400 bp increase in interest rates		16.8	%		41.6	%

As EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in asset and liability mix, changes in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.

Counterparty Risk

Recent developments in the financial markets have placed an increased awareness of Counterparty Risks. These risks occur when a financial institution has an indebtedness or potential for indebtedness to another financial institution. We have assessed our Counterparty Risk with the following results:

•

We do not have any investments in the preferred stock of any other company;

•

Most of our investment securities are either municipal securities or securities either issued or guaranteed by government, agencies, including Fannie Mae, Freddie Mac, SBA or FHLB;

•

All of our commercial line insurance policies are with companies with the highest AM Best ratings of A or above;

•

We have no significant exposure to our Cash Surrender Value of Life Insurance since the Cash Surrender Value balance is predominately supported by insurance companies that carry an AM Best rating of B+ or greater;

•

We have no significant Counterparty exposure related to derivatives such as interest rate swaps. Our Counterparty is a major financial institution and our agreement requires the Counterparty to post cash collateral for

mark-to-market

balances due to us;

•

~~Table of Contents~~

•

We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is generally mitigated as the loans with swaps are underwritten to take into account potential additional exposure;

•

As of December 31, ~~2020,~~2021, we had $389.0 million in Fed Funds lines of credit with other major U.S. banks. These lines of credit are available for overnight borrowings; and

•

At December 31, ~~2020,~~2021, we had ~~$5.0 million in~~no FHLB short-term ~~borrowing at 0% cost.~~borrowings. Our secured borrowing capacity with the FHLB ~~was $4.29~~and FRB totaled $4.14 billion, of which ~~$4.29~~$4.14 billion was available as of December 31, ~~2020.~~2021.

Price and Foreign Exchange Risk

Price risk arises from changes in market factors that affect the value of traded instruments. Foreign exchange risk is the risk to earnings or capital arising from movements in foreign exchange rates.

Our current exposure to price risk is nominal. We do not have trading accounts. Consequently, the level of price risk within the investment portfolio is limited to the need to sell securities for reasons other than trading.

We maintain limited deposit accounts with various foreign banks. Our Interbank Liability Policy seeks to limit the balance in any of these accounts to an amount that does not in our judgment present a significant risk to our earnings from changes in the value of foreign currencies.

Our asset liability model seeks to calculate the market value of the Bank’s equity. In addition, management prepares, on a monthly basis, a capital volatility report that compares changes in the market value of the investment portfolio. We have as our target to always be well-capitalized by regulatory standards.

~~ITEM 7A.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in the market prices and interest rates. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. We currently do not enter into futures, forwards, or option contracts. LIBOR is expected to be completely phased out by 2023, as such the Company continues to assess the impacts of this transition and exploring alternatives to use in place of LIBOR for various financial instruments, primarily related to our variable-rate loans and interest rate swap derivatives that are indexed to LIBOR. The Bank will use multiple alternative indices as replacements for LIBOR for new instruments originated after 2021. For further quantitative and qualitative disclosures about market risks in our portfolio, see “Asset/Liability Management and Interest Rate Sensitivity Management” included in Item 7 —

Management’s Discussion and Analysis of Financial Condition and the Results of Operations

presented elsewhere in this report. Our analysis of market risk and market-sensitive financial information contain forward looking statements and is subject to the disclosure at the beginning of Part I regarding such forward-looking information.

~~Table of Contents~~

~~ITEM 8.~~

~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CVB Financial Corp.

Index to Consolidated Financial Statements

and Financial Statement Schedules


		~~Page~~
	Page
Consolidated Financial Statements
Consolidated Balance Sheets — December 31, ~~2020~~2021 and ~~2019~~2020			99	82
Consolidated Statements of Earnings and Comprehensive Income — Years Ended December 31, 2021, 2020 ~~2019~~ and ~~2018~~2019			~~100~~	83
Consolidated Statements of Stockholders’ Equity — Three Years Ended December 31, 2021, 2020 ~~2019~~ and ~~2018~~2019			~~101~~	84
Consolidated Statements of Cash Flows — Years Ended December 31, 2021, 2020 ~~2019~~ and ~~2018~~2019			~~102~~	85
Notes to Consolidated Financial Statements			~~104~~	87
Report of Independent Registered Public Accounting Firm			~~156~~	134

All schedules are omitted because they are not applicable, not material or because the information is included in the financial statements or the notes thereto.

For information about the location of management’s annual reports on internal control, our financial reporting and the audit report of KPMG LLP thereon. See “Item 9A.

Controls and Procedures

.”

~~ITEM 9.~~

~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

~~ITEM 9A.~~

~~CONTROLS AND PROCEDURES~~

1)	~~Management’s Report on Internal Control over Financial Reporting~~

ITEM 9A.CONTROLS AND PROCEDURES

1)Management’s Report on Internal Control over Financial Reporting

Management of CVB Financial Corp., together with its consolidated subsidiaries (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.

As of December 31, ~~2020,~~2021, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2020 is effective. KPMG LLP, an independent registered public accounting firm, has issued their report on the effectiveness of internal control over financial reporting as of December 31, ~~2020.~~

2021.

~~Table of Contents~~

2)	~~Auditor attestation~~

2)Auditor attestation

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

CVB Financial Corp.:

Opinion on Internal Control Over Financial Reporting

We have audited CVB Financial Corp. and ~~subsidiaries’~~subsidiaries' (the Company) internal control over financial reporting as of December 31, ~~2020,~~2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2020,~~2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, ~~2020~~2021 and ~~2019,~~2020, the related consolidated statements of earnings and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, ~~2020,~~2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, ~~2021~~2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying ~~Management’s~~Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Los Angeles, California

March 1, ~~2021~~

2022

~~Table~~

3)Evaluation of ~~Contents~~

3)	~~Evaluation of Disclosure Controls and Procedures; Changes in Internal Control over Financial Reporting~~

Disclosure Controls and Procedures; Changes in Internal Control over Financial Reporting

We maintain controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such information is reported to our management, including our Chief Executive Officer and Chief Financial Officer to allow timely and accurate disclosure based on the definition of “disclosure controls and procedures” in SEC Rule

13a-15(e)

and

15d-15(e)

promulgated pursuant to the Exchange Act.

As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of our disclosure controls and procedures under the supervision and with the participation of our management, including our Chief Executive Officer and the Chief Financial Officer. Based on the foregoing, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

During the fiscal quarter ended December 31, ~~2020,~~2021, there have been no changes in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

~~ITEM 9B.~~

~~OTHER INFORMATION~~

ITEM 9B.OTHER INFORMATION

None.

ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

~~Table of Contents~~

PART III

~~ITEM 10.~~

~~DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE~~

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Except as hereinafter noted, the information concerning directors and executive officers of the Company, corporate governance and our audit committee financial experts is incorporated by reference from the section entitled “Discussion of Proposals recommended by the Board — Proposal 1: Election of Directors” and “Beneficial Ownership Reporting Compliance,” “Corporate Governance Principles and Board Matters,” and “Audit Committee” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. For information concerning the executive officers of the Company, see Item I of Part I hereto.

The Company has adopted a Code of Ethics that applies to all of the Company’s employees, including the Company’s principal executive officer, the principal financial officer, accounting officers, and all employees who perform these functions. A copy of the Code of Ethics is available to any person without charge by submitting a request to the Company’s Chief Financial Officer at 701 N. Haven Avenue, Suite 350, Ontario, CA 91764. If the Company shall amend its Code of Ethics as it applies to the principal executive officer, principal financial officer, principal accounting officer or controller (or persons performing similar functions) or shall grant a waiver from any provision of the code of ethics to any such person, the Company shall disclose such amendment or waiver on its website at www.cbbank.com under the tab “Investor Relations.”

~~ITEM 11.~~

~~EXECUTIVE COMPENSATION~~

ITEM 11.EXECUTIVE COMPENSATION

Information concerning management remuneration and transactions is incorporated by reference from the section entitled “Election of Directors” and “Executive Compensation — Certain Relationships and Related Transactions” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.

~~ITEM 12.~~

~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS~~

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table summarizes information as of December 31, ~~2020~~2021 relating to our equity compensation plans pursuant to which grants of options, restricted stock, or other rights to acquire shares may be granted from time to time.

Equity Compensation Plan Information

Plan category

Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants, and Rights (a)

Weighted-Average

Exercise Price of
Outstanding
Options, Warrants,
and Rights (b)

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a)) (c)

Equity compensation plans approved by security holders
428,320 $ 17.57 7,322,206
Equity compensation plans not approved by security holders
- - -

Total
428,320 $ 17.57 7,322,206


Plan category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a)		Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (b)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)
Equity compensation plans approved by security holders		414,300	$	17.98		6,607,285
Equity compensation plans not approved by security holders		—		—		—
Total		414,300	$	17.98		6,607,285

Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the sections entitled “Stock Ownership” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.

~~Table of Contents~~

~~ITEM 13.~~

~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE~~

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information concerning certain relationships and related transactions with management and others and information regarding director independence is incorporated by reference from the section entitled “Executive Compensation — Certain Relationships and Related Transactions” and “Director Independence” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.

~~ITEM 14.~~

~~PRINCIPAL ACCOUNTANT FEES AND SERVICES~~

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning principal accounting fees and services is incorporated by reference from the section entitled “Ratification of Appointment of Independent Public Accountants” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.

~~Table of Contents~~

PART IV

~~ITEM 15.~~

~~EXHIBITS AND FINANCIAL STATEMENT SCHEDULES~~

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements


(a)	(1)		~~(1)~~		All Financial Statements Reference is made to the Index to Financial Statements on page 8982 for a list of financial statements filed as part of this Annual Report on Form 10-K.

	(2)	~~(2)~~		Financial Statement Schedules Reference is made to the Index to Financial Statements on page 8982 for the listing of supplementary financial statement schedules required by this item.

	(3)	~~(3)~~		Exhibits The listing of exhibits required by this item is set forth in the Index to Exhibits on page 9579 of this Annual Report on Form 10-K.

(b)			Exhibits See Index to Exhibits on Page 9579 of this Form 10-K.

(c)			Financial Statement Schedules There are no financial statement schedules required by Regulation S-X that have been excluded from the annual report to shareholders.

~~ITEM 16.~~

~~FORM~~

~~10-K~~

~~SUMMARY~~

ITEM 16.FORM 10-K SUMMARY

None

~~Table of Contents~~

INDEX TO EXHIBITS


Exhibit No.
2.1		Agreement and Plan of Reorganization and Merger by and among CVB Financial Corp., Citizens Business Bank and ~~Community~~Suncrest Bank, dated ~~February 26, 2018 (1)~~July 27, 2021(1)
3.1		Articles of Incorporation of CVB Financial Corp., as amended (2)
3.2		Amended and Restated Bylaws of CVB Financial Corp. (3)
4.1		Form of CVB Financial Corp.’s Common Stock certificate (4)
4.2		Description of CVB Financial Corp. Common Stock (5)
10.1		CVB Financial Corp. 401(k) & Profit Sharing Plan, as amended†(6)
10.2		Form of Indemnification Agreement (7)
10.3(a)		CVB Financial Corp. 2008 Equity Incentive Plan†(8)
10.3(b)		CVB Financial Corp. Amendment No. 1 to the 2008 Equity Incentive Plan†(9)
10.3(c)		CVB Financial Corp. Amendment No. 2 to the 2008 Equity Incentive Plan†(10)
10.3(d)		CVB Financial Corp. Amendment No. 3 to the 2008 Equity Incentive Plan†(11)
10.3(e)		CVB Financial Corp. Amendment No. 4 to the 2008 Equity Incentive Plan†(12)
10.3(f)		CVB Financial Corp. Amendment No. 5 to the 2008 Equity Incentive Plan†(13)
10.3(g)		Form of Notice of Non-Qualified Stock Option Grant and Agreement pursuant to the 2008 Equity Incentive Plan†(14)
10.3(h)		Form of Notice of Grant and Restricted Stock Agreement pursuant to the 2008 Equity Incentive Plan†(15)
10.4(a)		CVB Financial Corp. 2018 Equity Incentive Plan†(16)
10.4(b)		Form of Stock Option Agreement under 2018 Equity Incentive Plan†(17)
10.4(c)		Form of Restricted Stock Agreement under 2018 Equity Incentive Plan†(18)
10.4(d)		Form of Restricted Stock Unit Agreement under 2018 Equity Incentive Plan†(19)
10.5(a)		The Executive Non Qualified Excess Plan(SM) Plan Document effective February 21, 2007†(20)
10.5(b)		CVB Financial Corp. Deferred Compensation Plan effective December 1, 2020†*(27)
10.6		CVB Financial Corp. 2015 Executive Incentive Plan†(21)
~~10.7(a)~~ 10.7		~~Employment Agreement, dated as of September 12, 2018, by and between Christopher D. Myers, on the one hand, and CVB Financial Corp. and Citizens Business Bank, on the other hand †(22)~~
~~10.7(b)~~		~~Deferred Compensation Plan for Christopher D. Myers, effective January 1, 2007†(23)~~
~~10.7(c)~~		~~Retirement and Consulting Agreement for Christopher D. Myers, dated July 17, 2019†(24)~~
~~10.7(d)~~		~~Amendment to Employment Agreement for Christopher D. Myers, Dated July 17, 2019†(25)~~
~~10.8~~		Employment Agreement by and among CVB Financial Corp. and Citizens Business Bank, on the one hand, and David A. Brager, on the other hand, dated as of February 14, 2020. ~~†(26)~~†(22)
~~10.9(a)~~ 10.8(a)		Offer letter for David C. Harvey, dated December 7, 2009†~~(27)~~(23)
~~10.9(b)~~ 10.9(a)		~~Severance Compensation Agreement by and between David C. Harvey and Citizens Business Bank, effective January 28, 2021†(28)~~
~~10.10(a)~~		Offer Letter for E. Allen Nicholson executed April 30, 2016†~~(29)~~(24)
~~10.10(b)~~ 10.10(a)		~~Severance Compensation Agreement by and between E. Allen Nicholson and Citizens Business Bank, effective January 28, 2021†(28)~~
~~10.11(a)~~		Offer Letter for David Farnsworth dated July 1, 2016†~~(30)~~(25)
~~10.11(b)~~ 10.11		Form of Severance Compensation Agreement by and between ~~David Farnsworth and Citizens Business Bank, effective January 28, 2021†(28)~~
~~10.12~~		~~Severance Compensation Agreement by and between~~each of Yamynn De Angelis, ~~and Citizens Business Bank, effective January 28, 2021†(28)~~
~~10.13~~		~~Severance Compensation Agreement by and between~~David Farnsworth, David C. Harvey, E. Allen Nicholson, Richard H. Wohl and Citizens Business Bank, effective ~~January 28, 2021†(28)~~February 1, 2022*, †
21 10.16	Offer Letter for Former President Brian Mauntel, dated March 24, 2021† (26)
21	Subsidiaries of the CompanyCompany
23		Consent of KPMG LLP*
31.1		Certification of David A. Brager pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

~~Table of Contents~~


~~Exhibit No.~~ 31.2
~~31.2~~		Certification of E. Allen Nicholson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1		Certification of David A. Brager pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2		Certification of E. Allen Nicholson pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS		Inline XBRL Instance Document*
101.SCH		Inline XBRL Taxonomy Extension Schema Document*
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104		The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, has been formatted in Inline XBRL

* Filed herewith.

** Furnished herewith.

† Indicates a management contract or compensation plan.

‡ Except as noted below, Form 8-A12G, Form 8-K, Form 10-Q, Form 10-K and Form DEF 14A

identified in the exhibit index have SEC file number 001-10140.

(1)

*	~~Filed herewith.~~

**	~~Furnished herewith.~~

†	~~Indicates a management contract or compensation plan.~~

‡	~~Except as noted below, Form~~ ~~8-A12G,~~ ~~Form~~ ~~8-K,~~ ~~Form~~ ~~10-Q,~~ ~~Form~~ ~~10-K~~ ~~and Form DEF 14A identified in the exhibit index have SEC file number~~ ~~001-10140.~~

D	~~We have entered into the following trust preferred security issuances and agree to furnish a copy to the SEC upon request:~~

~~(a)~~

~~Indenture by and between CVB Financial Corp. and U.S. Bank, National Association, as Trustee, dated as of January 31, 2006 (CVB Statutory Trust III).~~

~~(1)~~

~~Incorporated herein by reference to Exhibit 2.1 to our Form~~

~~8-K~~

~~filed with the SEC on February 27, 2018.~~

~~(2)~~

~~Incorporated herein by reference to Exhibit 3.1 to our Form~~

~~10-Q~~

~~filed with the SEC on August 9, 2010.~~

~~(3)~~

~~Incorporated herein by reference to Exhibits 3.1 to our Form~~

~~8-K~~

~~filed with the SEC on January 23, 2020.~~

~~(4)~~

~~Incorporated herein by reference to Exhibit 4.1 to our Form~~

~~8-A12G~~

~~filed with the SEC on June 11, 2001.~~

~~(5)~~

~~Incorporated herein by reference to Exhibit 4.2 to our Annual Report on Form~~

~~10-K~~

~~filed with the SEC on March 2, 2020.~~

~~Incorporated herein by reference to Exhibit 10.2 to the Annual Report on Form~~

~~10-K~~

~~filed with the SEC on February 29, 2016.~~

~~(6)~~

~~Incorporated herein by reference to Exhibit 10.2 to the Annual Report on Form~~

~~10-K~~

~~filed with the SEC on February 29, 2016.~~

~~(7)~~

~~Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form~~

~~8-K~~

~~filed June 29, 2016.~~

~~(8)~~

~~Incorporated herein by reference to Annex A to our Definitive Proxy Statement on Form DEF 14A filed with the SEC on April 16, 2008.~~

~~(9)~~

~~Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form~~

~~8-K~~

~~filed with the SEC on September 22, 2009~~

~~(10)~~

~~Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form~~

~~8-K~~

~~filed with the SEC on November 24, 2009.~~

~~(11)~~

~~Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form~~

~~8-K~~

~~filed with the SEC on February 6, 2014.~~

~~(12)~~

~~Incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form~~

~~10-Q~~

~~filed with the SEC on May 10, 2017.~~

~~(13)~~

~~Incorporated herein by reference to Exhibit 10.2 to our Quarterly Report on Form~~

~~10-Q~~

~~filed with the SEC on May 10, 2017.~~

Incorporated herein by reference to Exhibit 2.1 to our Form 8-K filed with the SEC on July 28, 2021.

(2)

Incorporated herein by reference to Exhibit 3.1 to our Form 10-Q filed with the SEC on August 9, 2010.

(3)

~~Table of Contents~~

~~(14)~~

~~Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form~~

~~8-K~~

~~filed with the SEC on May 23, 2008.~~

~~(15)~~

~~Incorporated herein by reference to Exhibit 10.3 to our Current Report on Form~~

~~8-K~~

~~filed with the SEC on May 23, 2008.~~

~~(16)~~

~~Incorporated herein by reference to Annex A to our Definitive Proxy Statement on Form DEF 14A filed with the SEC on April 4, 2018.~~

~~(17)~~

~~Incorporated herein by reference to Exhibit 10.2 to our Form~~

~~8-K~~

~~filed with the SEC on May 24, 2018.~~

~~(18)~~

~~Incorporated herein by reference to Exhibit 10.3 to our Form~~

~~8-K~~

~~filed with the SEC on May 24, 2018.~~

~~(19)~~

~~Incorporated hereby by reference to Exhibit 10.4 to our Form~~

~~8-K~~

~~filed with the SEC on May 24, 2018.~~

~~(20)~~

~~Incorporated herein by reference to Exhibit 10.26 to our Annual Report on Form~~

~~10-K~~

~~filed with the SEC on March 1, 2007.~~

~~(21)~~

~~Incorporated herein by reference to Exhibit A to our Definitive Proxy Statement on Form DEF 14A filed with the SEC on April 3, 2015~~

~~(22)~~

~~Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form~~

~~8-K~~

~~filed with the SEC on September 13, 2018.~~

~~(23)~~

~~Incorporated herein by reference to Exhibit 10.23 to our Annual Report on Form~~

~~10-K~~

~~filed with the SEC on March 1, 2007.~~

~~(24)~~

~~Incorporated herein by reference to Exhibit 10.1 to our Form~~

~~8-K~~

~~filed with the SEC on July 19, 2019.~~

~~(25)~~

~~Incorporated herein by reference to Exhibit 10.2 to our Form~~

~~8-K~~

~~filed with the SEC on July 19, 2019.~~

~~(26)~~

~~Incorporated herein by reference to Exhibit 10.1 to our~~

~~Form 8-K~~

~~filed with the SEC on February 20, 2020~~

~~(27)~~

~~Incorporated herein by reference to Exhibit 10.21(A) to our Annual Report on Form~~

~~10-K~~

~~filed with the SEC on March 4, 2010.~~

~~(28)~~

~~Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form~~

~~8-K~~

~~filed with the SEC on January 28, 2021.~~

~~(29)~~

~~Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form~~

~~8-K~~

~~filed May 5, 2016.~~

~~(30)~~

~~Incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form~~

~~10-Q~~

~~filed November 9, 2016.~~

Incorporated herein by reference to Exhibits 3.1 to our Form 8-K filed with the SEC on January 23, 2020.

(4)

Incorporated herein by reference to Exhibit 4.1 to our Form 8-A12G filed with the SEC on June 11, 2001.

(5)

~~Table of Contents~~

~~SIGNATURES~~

Incorporated herein by reference to Exhibit 4.2 to our Annual Report on Form 10-K filed with the SEC on March 2, 2020.

(6)

Incorporated herein by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed with the SEC on February 29, 2016.

(7)

Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed June 29, 2016.

(8)

Incorporated herein by reference to Annex A to our Definitive Proxy Statement on Form DEF 14A filed with the SEC on April 16, 2008.

(9)

Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on September 22, 2009

(10)

Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 24, 2009.

(11)

Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on February 6, 2014.

(12)

Incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on May 10, 2017.

(13)

Incorporated herein by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed with the SEC on May 10, 2017.

(14)

Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on May 23, 2008.

(15)

Incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on May 23, 2008.

(16)

Incorporated herein by reference to Annex A to our Definitive Proxy Statement on Form DEF 14A filed with the SEC on April 4, 2018.

(17)

Incorporated herein by reference to Exhibit 10.2 to our Form 8-K filed with the SEC on May 24, 2018.

(18)

Incorporated herein by reference to Exhibit 10.3 to our Form 8-K filed with the SEC on May 24, 2018.

(19)

Incorporated hereby by reference to Exhibit 10.4 to our Form 8-K filed with the SEC on May 24, 2018.

(20)

Incorporated herein by reference to Exhibit 10.26 to our Annual Report on Form 10-K filed with the SEC on March 1, 2007.

(21)

Incorporated herein by reference to Exhibit A to our Definitive Proxy Statement on Form DEF 14A filed with the SEC on April 3, 2015

(22)

Incorporated herein by reference to Exhibit 10.1 to our Form 8-K filed with the SEC on February 20, 2020

(23)

Incorporated herein by reference to Exhibit 10.21(A) to our Annual Report on Form 10-K filed with the SEC on March 4, 2010.

(24)

Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed May 5, 2016.

(25)

Incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed November 9, 2016.

(26)

Incorporated herein by reference to Exhibit 10.1 to Current Report on Form 8-K filed April 13. 2021.

(27)

Incorporated herein by reference to Exhibit 10.5(b) to our Annual Report on Form 10-K filed with the SEC on March 1, 2021.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 1st day of March ~~2021.~~

2022.


~~CVB FINANCIAL CORP.~~

~~By:~~ CVB FINANCIAL CORP.

By:	/s/ DAVID A. BRAGER
		David A. Brager
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.


~~Signature~~		~~Title~~	~~Date~~


Signature	Title	Date

/s/ RAYMOND V. O’BRIEN III		Chairman of the Board	March 1, ~~2021~~2022
Raymond V. O’Brien III

/s/ GEORGE A. BORBA, JR.	Vice Chairman	March 1, 2022
George A. Borba, Jr.

/s/ STEPHEN A. DEL GUERCIO	Director	March 1, 2022
Stephen A. Del Guercio

/s/ RODRIGO GUERRA, JR.	Director	March 1, 2022
Rodrigo Guerra, Jr.

/s/ ANNA KAN	Director	March 1, 2022
Anna Kan

/s/ MARSHALL V. LAITSCH	Director	March 1, 2022
Marshall V. Laitsch

/s/ KRISTINA M. LESLIE	Director	March 1, 2022
Kristina M. Leslie

/s/ JANE OLVERA	Director	March 1, 2022
Jane Olvera

/s/ HAL W. OSWALT	Director	March 1, 2022
Hal W. Oswalt	Director	March 1, 2022

/s/ DAVID A. BRAGER	Director and Chief Executive Officer (Principal Executive Officer)	March 1, 2022
David A. Brager		March 1, 2022


/s/ E. ALLEN NICHOLSON	Chief Financial Officer (Principal Financial Officer )	March 1, 2022
E. Allen Nicholson		March 1, 2022


/s/ ~~GEORGE A. BORBA, JR.~~ F. LaPOINT	Chief Accounting Officer (Principal Accounting Officer)	~~Vice Chairman~~	March 1, ~~2021~~2022
~~George A. Borba, Jr.~~ Francene LaPoint	Chief Accounting Officer (Principal Accounting Officer)	~~Vice Chairman~~

~~/s/ STEPHEN A. DEL GUERCIO~~		~~Director~~	~~March 1, 2021~~
~~Stephen A. Del Guercio~~

~~/s/ RODRIGO GUERRA, JR.~~		~~Director~~	~~March 1, 2021~~
~~Rodrigo Guerra, Jr.~~

~~/s/ ANNA KAN~~		~~Director~~	~~March 1, 2021~~
~~Anna Kan~~

~~/s/ MARSHALL V. LAITSCH~~		~~Director~~	~~March 1, 2021~~
~~Marshall V. Laitsch~~

~~/s/ KRISTINA M. LESLIE~~		~~Director~~	~~March 1, 2021~~
~~Kristina M. Leslie~~

~~/s/ JANE OLVERA~~		~~Director~~	~~March 1, 2021~~
~~Jane Olvera~~

~~/s/ HAL W. OSWALT~~		~~Director~~	~~March 1, 2021~~
~~Hal W. Oswalt~~		~~Director~~	~~March 1, 2021~~

~~/s/ DAVID A. BRAGER~~		~~Director and~~ ~~Chief Executive Officer~~ ~~(Principal Executive Officer)~~	~~March 1, 2021~~
~~David A. Brager~~			~~March 1, 2021~~


~~/s/ E. ALLEN NICHOLSON~~		~~Chief Financial Officer~~ ~~(Principal Financial and~~ ~~Accounting Officer)~~	~~March 1, 2021~~
~~E. Allen Nicholson~~			~~March 1, 2021~~

~~Table of Contents~~

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

    December 31,
2020

    December 31,
2019

Assets

Cash and due from banks
   $ 122,305 $ 158,310
Interest-earning balances due from Federal Reserve
   1,835,855 27,208

Total cash and cash equivalents
   1,958,160 185,518

Interest-earning balances due from depository institutions
   43,563 2,931
Investment securities
available-for-sale,
at fair value (with amortized cost of $2,344,174 at December 31, 2020,
and $1,718,357 at December 31, 2019)
   2,398,923 1,740,257
Investment securities
held-to-maturity
(with fair value of $604,223 at December 31, 2020, and $678,948 at December 31, 2019)
   578,626 674,452

Total investment securities
   2,977,549 2,414,709

Investment in stock of Federal Home Loan Bank (FHLB)
   17,688 17,688
Loans and lease finance receivables
   8,348,808 7,564,577
Allowance for credit losses
   (93,692 ) (68,660 )

Net loans and lease finance receivables
   8,255,116 7,495,917

Premises and equipment, net
   51,144 53,978
Bank owned life insurance (BOLI)
   226,818 226,281
Accrued interest receivable
   31,306 28,122
Intangibles
   33,634 42,986
Goodwill
   663,707 663,707
Other real estate owned (OREO)
   3,392 4,889
Income taxes
   29,540 35,587
Other assets
   127,697 110,137

Total assets
   $ 14,419,314 $ 11,282,450

Liabilities and Stockholders’ Equity

Liabilities:

Deposits:

Noninterest-bearing
   $ 7,455,387 $ 5,245,517
Interest-bearing
   4,281,114 3,459,411

Total deposits
   11,736,501 8,704,928
Customer repurchase agreements
   439,406 428,659
Other borrowings
   5,000 -
Deferred compensation
   21,611 22,666
Junior subordinated debentures
   25,774 25,774
Payable for securities purchased
   60,113 -
Other liabilities
   122,919 106,325

Total liabilities
   12,411,324 9,288,352

Commitments and Contingencies

Stockholders’ Equity

Common stock, authorized, 225,000,000 shares
without
par; issued and outstanding 135,600,501 at December 31, 2020, and 140,102,480 at December 31, 2019
   1,211,780 1,298,792
Retained earnings
   760,861 682,692
Accumulated other comprehensive income, net of tax
   35,349 12,614

Total stockholders’ equity
   2,007,990 1,994,098

Total liabilities and stockholders’ equity
   $ 14,419,314 $ 11,282,450


	December 31,			December 31,
	2021			2020
Assets
Cash and due from banks	$	90,012		$	122,305
Interest-earning balances due from Federal Reserve		1,642,536			1,835,855
Total cash and cash equivalents		1,732,548			1,958,160
Interest-earning balances due from depository institutions		25,999			43,563
Investment securities available-for-sale, at fair value (with amortized cost of $3,185,249 at December 31, 2021, and $2,344,174 at December 31, 2020)		3,183,923			2,398,923
Investment securities held-to-maturity (with fair value of $1,921,693 at December 31, 2021, and $604,223 at December 31, 2020)		1,925,970			578,626
Total investment securities		5,109,893			2,977,549
Investment in stock of Federal Home Loan Bank (FHLB)		17,688			17,688
Loans and lease finance receivables		7,887,713			8,348,808
Allowance for credit losses		(65,019	)		(93,692	)
Net loans and lease finance receivables		7,822,694			8,255,116
Premises and equipment, net		49,096			51,144
Bank owned life insurance (BOLI)		251,570			226,818
Accrued interest receivable		34,204			31,306
Intangibles		25,394			33,634
Goodwill		663,707			663,707
Other real estate owned (OREO)		0			3,392
Income taxes		32,603			29,540
Other assets		118,301			127,697
Total assets	$	15,883,697		$	14,419,314
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	8,104,056		$	7,455,387
Interest-bearing		4,872,386			4,281,114
Total deposits		12,976,442			11,736,501
Customer repurchase agreements		642,388			439,406
Other borrowings		2,281			5,000
Deferred compensation		20,879			21,611
Junior subordinated debentures		0			25,774
Payable for securities purchased		50,340			60,113
Other liabilities		109,864			122,919
Total liabilities		13,802,194			12,411,324
Commitments and Contingencies
Stockholders' Equity
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 135,526,025 at December 31, 2021 and 135,600,501 at December 31, 2020		1,209,903			1,211,780
Retained earnings		875,568			760,861
Accumulated other comprehensive (loss) income, net of tax		(3,968	)		35,349
Total stockholders' equity		2,081,503			2,007,990
Total liabilities and stockholders' equity	$	15,883,697		$	14,419,314

See accompanying notes to the consolidated financial statements.

~~Table of Contents~~

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

Year Ended December 31,


        2020

        2019

        2018

Interest income:

Loans and leases, including fees
   $ 377,402 $ 397,628 $ 293,284
Investment securities:

Investment securities
available-for-sale
   36,052 39,330 45,988
Investment securities
held-to-maturity
   14,223 17,388 18,901

Total investment income
   50,275 56,718 64,889

Dividends from FHLB stock
   978 1,235 2,045
Interest-earning deposits with other institutions
   1,682 2,269 1,642

Total interest income
   430,337 457,850 361,860

Interest expense:

Deposits
   12,602 17,120 9,825
Borrowings and customer repurchase agreements
   1,131 3,959 2,067
Junior subordinated debentures
   551 999 923

Total interest
expense
   14,284 22,078 12,815

Net interest income before provision for credit losses
   416,053 435,772 349,045
Provision for credit losses
   23,500 5,000 1,500

Net interest income after provision for credit losses
   392,553 430,772 347,545

Noninterest income:

Service charges on deposit accounts
   16,561 20,010 17,070
Trust and investment services
   9,978 9,525 8,774
Bankcard services
   1,886 3,163 3,485
BOLI income
   8,100 5,798 4,018
Gain on OREO, net
   388 129 3,546
Gain on sale of building, net
   1,680 4,776 0
Gain on eminent domain condemnation, net
   0 5,685 0
Other
   11,277 9,956 6,588

Total noninterest income
   49,870 59,042 43,481

Noninterest expense:

Salaries and employee benefits
   119,759 119,475 100,601
Occupancy and equipment
   20,622 20,457 20,153
Professional services
   9,460 7,752 6,477
Computer software expense
   11,302 10,658 9,343
Marketing and promotion
   4,488 5,890 5,302
Recapture of provision for unfunded loan commitments
   0 0 (250 )
Amortization of intangible assets
   9,352 10,798 5,254
Acquisition related expenses
   0 6,447 16,404
Other
   17,920 17,263 16,627

Total noninterest expense
   192,903 198,740 179,911

Earnings before income taxes
   249,520 291,074 211,115
Income taxes
   72,361 83,247 59,112

Net earnings
   $ 177,159 $ 207,827 $ 152,003

Other comprehensive income (loss):

Unrealized gain (loss) on securities arising during the period, before tax
   $ 32,277 $ 43,872 $ (28,526 )

Less: Reclassification adjustment for net gain on securities included in net income
   0 (5 ) 0

Other comprehensive income (loss), before tax
   32,277 43,867 (28,526 )
Less: Income tax (expense) benefit related to items of other comprehensive income
   (9,542 ) (12,969 ) 8,434

Other comprehensive income (loss), net of tax
   22,735 30,898 (20,092 )

Comprehensive income
   $ 199,894 $ 238,725 $ 131,911

Basic earnings per common share
   $ 1.30 $ 1.48 $ 1.25
Diluted earnings per common share
   $ 1.30 $ 1.48 $ 1.24


	Year Ended December 31,
	2021			2020			2019
Interest income:
Loans and leases, including fees	$	356,594		$	377,402		$	397,628
Investment securities:
Investment securities available-for-sale		38,273			36,052			39,330
Investment securities held-to-maturity		22,175			14,223			17,388
Total investment income		60,448			50,275			56,718
Dividends from FHLB stock		1,019			978			1,235
Interest-earning deposits with other institutions		2,569			1,682			2,269
Total interest income		420,630			430,337			457,850
Interest expense:
Deposits		5,346			12,602			17,120
Borrowings and customer repurchase agreements		548			1,131			3,959
Junior subordinated debentures		186			551			999
Total interest expense		6,080			14,284			22,078
Net interest income before (recapture of) provision for credit losses		414,550			416,053			435,772
(Recapture of) provision for credit losses		(25,500	)		23,500			5,000
Net interest income after (recapture of) provision for credit losses		440,050			392,553			430,772
Noninterest income:
Service charges on deposit accounts		17,152			16,561			20,010
Trust and investment services		11,571			9,978			9,525
Bankcard services		1,789			1,886			3,163
BOLI income		8,500			8,100			5,798
Gain on OREO, net		1,177			388			129
Gain on sale of building, net		189			1,680			4,776
Gain on eminent domain condemnation, net		0			0			5,685
Other		7,007			11,277			9,956
Total noninterest income		47,385			49,870			59,042
Noninterest expense:
Salaries and employee benefits		117,871			119,759			119,475
Occupancy and equipment		19,756			20,622			20,457
Professional services		7,967			9,460			7,752
Computer software expense		11,584			11,302			10,658
Marketing and promotion		4,623			4,488			5,890
(Recapture of) provision for unfunded loan commitments		(1,000	)		—			—
Amortization of intangible assets		8,240			9,352			10,798
Acquisition related expenses		962			0			6,447
Other		19,784			17,920			17,263
Total noninterest expense		189,787			192,903			198,740
Earnings before income taxes		297,648			249,520			291,074
Income taxes		85,127			72,361			83,247
Net earnings	$	212,521		$	177,159		$	207,827
Other comprehensive (loss) income:
Unrealized (loss) gain on securities arising during the period, before tax	$	(55,819	)	$	32,277		$	43,872
Less: Reclassification adjustment for net gain on securities included in net income		0			0			(5	)
Other comprehensive (loss) income, before tax		(55,819	)		32,277			43,867
Less: Income tax benefit (expense) related to items of other comprehensive income		16,502			(9,542	)		(12,969	)
Other comprehensive (loss) income, net of tax		(39,317	)		22,735			30,898
Comprehensive income	$	173,204		$	199,894		$	238,725
Basic earnings per common share	$	1.57		$	1.30		$	1.48
Diluted earnings per common share	$	1.56		$	1.30		$	1.48

See accompanying notes to the consolidated financial statements.

~~100~~

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CVB FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars and shares in thousands)

Common
Shares
Outstanding

Common
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total

Balance, January 1, 2018
   110,185 $ 573,453 $ 494,361 $ 1,452 $ 1,069,266
Cumulative adjustment upon adoption of ASU
2018-02
   - - (356 ) 356 -
Repurchase of common stock
   (389 ) (7,760 ) - - (7,760 )
Issuance of common stock for acquisition of Community Bank
   29,842 722,767 - - 722,767
Exercise of stock options
   167 1,701 - - 1,701
Shares issued pursuant to stock-based compensation plan
   195 3,508 - - 3,508
Cash dividends declared on common stock ($0.56 per share)
   - - (70,203 ) - (70,203 )
Net earnings
   - - 152,003 - 152,003
Other comprehensive loss
   - - - (20,092 ) (20,092 )

Balance, December 31, 2018
   140,000 $ 1,293,669 $ 575,805 $ (18,284 ) $ 1,851,190
Repurchase of common stock
   (125 ) (2,640 ) - - (2,640 )
Exercise of stock options
   160 2,215 - - 2,215
Shares issued pursuant to stock-based compensation plan
   67 5,548 - - 5,548
Cash dividends declared on common stock ($0.72 per share)
   - - (100,940 ) - (100,940 )
Net earnings
   - - 207,827 - 207,827
Other comprehensive incom
e
   - - - 30,898 30,898

Balance, December 31, 2019
   140,102 $ 1,298,792 $ 682,692 $ 12,614 $ 1,994,098
Cumulative adjustment upon adoption of ASU
2016-13
   - - (1,325 ) - (1,325 )
Repurchase of common stock
   (5,008 ) (92,772 ) - - (92,772 )
Exercise of stock options
   20 231 - - 231
Shares issued pursuant to stock-based compensation plan
   487 5,529 - - 5,529
Cash dividends declared on common stock ($0.72 per share)
   - - (97,665 ) - (97,665 )
Net earnings
   - - 177,159 - 177,159
Other comprehensive income
   - - - 22,735 22,735

Balance, December 31, 2020
   135,601 $ 1,211,780 $ 760,861 $ 35,349 $ 2,007,990


	Common Shares Outstanding			Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2019		140,000		$	1,293,669		$	575,805		$	(18,284	)	$	1,851,190
Repurchase of common stock		(125	)		(2,640	)		—			—			(2,640	)
Exercise of stock options		160			2,215			—			—			2,215
Shares issued pursuant to stock-based compensation plan		67			5,548			—			—			5,548
Cash dividends declared on common stock ($0.72 per share)		—			—			(100,940	)		—			(100,940	)
Net earnings		—			—			207,827			—			207,827
Other comprehensive income		—			—			—			30,898			30,898
Balance, December 31, 2019		140,102		$	1,298,792		$	682,692		$	12,614		$	1,994,098
Cumulative adjustment upon adoption of ASU 2016-13		—			—			(1,325	)		—			(1,325	)
Repurchase of common stock		(5,008	)		(92,772	)		—			—			(92,772	)
Exercise of stock options		20			231			—			—			231
Shares issued pursuant to stock-based compensation plan		487			5,529			—			—			5,529
Cash dividends declared on common stock ($0.72 per share)		—			—			(97,665	)		—			(97,665	)
Net earnings		—			—			177,159			—			177,159
Other comprehensive income		—			—			—			22,735			22,735
Balance, December 31, 2020		135,601		$	1,211,780		$	760,861		$	35,349		$	2,007,990
Repurchase of common stock		(435	)		(8,337	)		—			—			(8,337	)
Exercise of stock options		68			1,277			—			—			1,277
Shares issued pursuant to stock-based compensation plan		292			5,183			—			—			5,183
Cash dividends declared on common stock ($0.72 per share)		—			—			(97,814	)		—			(97,814	)
Net earnings		—			—			212,521			—			212,521
Other comprehensive loss		—			—			—			(39,317	)		(39,317	)
Balance, December 31, 2021		135,526		$	1,209,903		$	875,568		$	(3,968	)	$	2,081,503

See accompanying notes to the consolidated financial statements.

~~101~~

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CVB FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Year Ended December 31,

    2020

    2019

    2018

Cash Flows from Operating Activities

Interest and dividends received
   $ 400,867 $ 438,795 $ 363,217
Service charges and other fees received
   39,525 42,489 35,915
Interest paid
   (13,627 ) (21,193 ) (13,241 )
Net cash paid to vendors, employees and others
   (168,036 ) (182,568 ) (171,998 )
Income taxes
   (73,633 ) (69,341 ) (48,876 )
Payments to FDIC, loss share agreement
   0

0

(64 )

Net cash provided by operating activities
   185,096 208,182 164,953

Cash Flows from Investing Activities

Proceeds from redemption of FHLB stock
   0     0     17,250
Net change in interest-earning balances from depository institutions
   (40,632 ) 4,739 13,076
Proceeds from sale of investment securities
held-for-sale
   0     152,644 716,996
Proceeds from repayment of investment securities
available-for-sale
   642,576 364,126 383,155
Proceeds from maturity of investment securities
available-for-sale
   9,807 7,109 24,651
Purchases of investment securities
available-for-sale
   (1,231,163 ) (492,995 ) (98,709 )
Proceeds from repayment and maturity of investment securities
held-to-maturity
   146,309 114,569 81,816
Purchases of investment securities
held-to-maturity
   (52,855 ) (47,587 ) 0
Net increase in equity investments
   (3,608 ) (16,488 ) (24,863 )
Net (increase) decrease in loan and lease finance receivables
   (743,290 ) 231,105 (179,054 )
Proceeds on eminent domain condemnation, net
   0     5,685 3,425
Proceeds from sale of building, net of selling costs
   2,131 5,755 0
Purchase of premises and equipment
   (4,672 ) (5,522 ) (4,194 )
Proceeds from BOLI death benefit
   5,477 1,660 2,383
Proceeds from sales of other real estate owned
   1,162 523 8,067
Cash acquired from acquisition, net of cash paid
   0

0

(132,918 )

Net cash (used in) provided by investing activities
   (1,268,758 ) 325,323 811,081

Cash Flows from Financing Activities

Net increase (decrease) in other deposits
   3,076,187 (36,926 ) (444,316 )
Net decrease in time deposits
   (44,614 ) (85,636 ) (145,033 )
Repayment of FHLB advances
   0

0

(297,571 )
Net increase (decrease) in other borrowings
   5,000 (280,000 ) 114,000
Net increase (decrease) in customer repurchase agreements
   10,747 (13,596 ) (111,518 )
Cash dividends on common stock
   (98,475 ) (95,352 ) (65,966 )
Repurchase of common stock
   (92,772 ) (2,640 ) (7,760 )
Proceeds from exercise of stock options
   231 2,215 1,701

Net cash provided by (used in) financing activities
   2,856,304 (511,935 ) (956,463 )

Net increase in cash and cash equivalents
   1,772,642 21,570 19,571
Cash and cash equivalents, beginning of period
   185,518 163,948 144,377

Cash and cash equivalents, end of period
   $ 1,958,160 $ 185,518 $ 163,948


	Year Ended December 31,
	2021			2020			2019
Cash Flows from Operating Activities
Interest and dividends received	$	410,155		$	400,867		$	438,795
Service charges and other fees received		37,782			39,525			42,489
Interest paid		(6,010	)		(13,627	)		(21,193	)
Net cash paid to vendors, employees and others		(176,807	)		(168,036	)		(182,568	)
Income taxes		(69,878	)		(73,633	)		(69,341	)
Net cash provided by operating activities		195,242			185,096			208,182
Cash Flows from Investing Activities
Net change in interest-earning balances from depository institutions		17,564			(40,632	)		4,739
Proceeds from sale of investment securities held-for-sale		—			—			152,644
Proceeds from repayment of investment securities available-for-sale		775,538			642,576			364,126
Proceeds from maturity of investment securities available-for-sale		330			9,807			7,109
Purchases of investment securities available-for-sale		(1,648,575	)		(1,231,163	)		(492,995	)
Proceeds from repayment and maturity of investment securities held-to-maturity		152,575			146,309			114,569
Purchases of investment securities held-to-maturity		(1,510,112	)		(52,855	)		(47,587	)
Net increase in equity investments		(4,010	)		(3,608	)		(16,488	)
Net decrease (increase) in loan and lease finance receivables		497,293			(743,290	)		231,105
Proceeds on eminent domain condemnation, net		—			—			5,685
Proceeds from sale of building, net of selling costs		1,157			2,131			5,755
Purchase of premises and equipment		(4,677	)		(4,672	)		(5,522	)
Purchase of BOLI		(25,000	)		—			—
Proceeds from BOLI death benefit		12,414			5,477			1,660
Proceeds from sales of other real estate owned		5,012			1,162			523
Net cash (used in) provided by investing activities		(1,730,491	)		(1,268,758	)		325,323
Cash Flows from Financing Activities
Net increase (decrease) in other deposits		1,313,953			3,076,187			(36,926	)
Net decrease in time deposits		(74,012	)		(44,614	)		(85,636	)
Net (decrease) increase in other borrowings		(2,719	)		5,000			(280,000	)
Net increase (decrease) in customer repurchase agreements		202,982			10,747			(13,596	)
Repayment of junior subordinated debentures		(25,774	)		—			—
Cash dividends on common stock		(97,733	)		(98,475	)		(95,352	)
Repurchase of common stock		(8,337	)		(92,772	)		(2,640	)
Proceeds from exercise of stock options		1,277			231			2,215
Net cash provided by (used in) financing activities		1,309,637			2,856,304			(511,935	)
Net (decrease) increase in cash and cash equivalents		(225,612	)		1,772,642			21,570
Cash and cash equivalents, beginning of period		1,958,160			185,518			163,948
Cash and cash equivalents, end of period	$	1,732,548		$	1,958,160		$	185,518

See accompanying notes to the consolidated financial statements.

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CVB FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

Year Ended December 31,


2020

2019

2018

Reconciliation of Net Earnings to Net Cash Provided by Operating Activities

Net earnings
   $ 177,159 $ 207,827 $ 152,003
Adjustments to reconcile net earnings to net cash provided by operating activities:

Gain on sale of investment securities, net
   0

(5 ) 0


Gain on eminent domain condemnation, net
   0

(5,685 ) 0


Gain on sale of building, net
   (1,680 ) (4,776 ) 0


Gain on sale of other real estate owned
   (365 ) (105 ) (3,540 )
Increase in BOLI
   (5,303 ) (5,670 ) (5,751 )
Net amortization of premiums and discounts on investment securities
   15,045 10,298 13,531
Accretion of discount for acquired loans, net
   (17,412 ) (28,831 ) (15,400 )
Provision for credit losses
   23,500 5,000 1,500
Recapture of provision for unfunded loan commitments
   0

0

(250 )
Valuation allowance on other real estate owned
   700 0

0


Payments to FDIC, loss share agreement
   0

0

(64 )
Stock-based compensation
   5,529 5,548 3,508
Depreciation and amortization, net
   (1,157 ) 22,036 8,349
Change in other assets and liabilities
   (10,920 ) 2,545 11,067
Total adjustments
   7,937 355 12,950
Net cash provided by operating activities
   $ 185,096 $ 208,182 $ 164,953
Supplemental Disclosure of
Non-cash
Investing Activities

Securities purchased and not settled
   $ 60,113 $ 0

$ 0


Transfer of loans to other real estate owned
   $ 0

$ 4,889 $ 420
Issuance of common stock for acquisition
   $ 0

$ 0

$ 722,767


	Year Ended December 31,
	2021			2020			2019
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
Net earnings	$	212,521		$	177,159		$	207,827
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gain on sale of investment securities, net		—			—			(5	)
Gain on eminent domain condemnation, net		—			—			(5,685	)
Gain on sale of building, net		(189	)		(1,680	)		(4,776	)
Gain on sale of other real estate owned		(1,177	)		(365	)		(105	)
Increase in BOLI		(8,500	)		(5,303	)		(5,670	)
Net amortization of premiums and discounts on investment securities		32,232			15,045			10,298
Accretion of discount for acquired loans, net		(12,270	)		(17,412	)		(28,831	)
(Recapture of) provision for credit losses		(25,500	)		23,500			5,000
(Recapture of) provision for unfunded loan commitments		(1,000	)		—			—
Valuation allowance on other real estate owned		—			700			—
Stock-based compensation		5,183			5,529			5,548
Depreciation and amortization, net		(6,426	)		(1,157	)		22,036
Change in other assets and liabilities		368			(10,920	)		2,545
Total adjustments		(17,279	)		7,937			355
Net cash provided by operating activities	$	195,242		$	185,096		$	208,182
Supplemental Disclosure of Non-cash Investing Activities
Securities purchased and not settled	$	50,340		$	60,113		$	—
Transfer of loans to other real estate owned	$	443		$	—		$	4,889

See accompanying notes to the consolidated financial statements.

~~103~~

~~Table of Contents~~

CVB FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE YEARS ENDED DECEMBER 31, 2020

1.	~~BUSINESS~~

1.BUSINESS

The consolidated financial statements include CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as ~~“we,”~~“we” “our” or the “Company”) and its wholly owned subsidiary: Citizens Business Bank (the “Bank” or “CBB”), after elimination of all intercompany transactions and balances. The Company has 1 inactive subsidiary, Chino Valley Bancorp. The Company is also the common stockholder of CVB Statutory Trust III. CVB Statutory Trust III was created in January 2006 to issue trust preferred securities in order to raise capital for the Company. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810,

~~Consolidation~~

~~, this trust does not meet the criteria for consolidation.~~

The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through its CitizensTrust Division. The Bank’s customers consist primarily of small to

mid-sized

businesses and individuals located in the Inland Empire, Los Angeles County, Orange County, San Diego County, Ventura County, Santa Barbara County, and the Central Valley area of California. ~~The~~As of December 31, 2021, the Bank ~~operates 57~~operated 58 banking centers, ~~1 loan production office in Modesto, California~~ and 3 trust office locations. The Company is headquartered in the city of Ontario, California.

On August 10, 2018, we completed the acquisition of Community Bank (“CB”), headquartered in Pasadena, California with 16 banking centers located throughout the greater Los Angeles and Orange County areas and total assets of approximately $4.09 billion. Our condensed consolidated financial statements for 2018 include CB operations, post-merger. See Note 4 —

~~Business Combinations~~

~~, included herein.~~

2.	~~BASIS OF PRESENTATION~~

2.BASIS OF PRESENTATION

The accompanying consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form

10-K

and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for financial reporting.

Reclassification

— Certain amounts in the prior periods’ financial statements and related footnote disclosures have been reclassified to conform to the current presentation with no impact on previously reported net income or stockholders’ equity.

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.	~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

Use of Estimates in the Preparation of Financial Statements

— The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for credit losses. Other significant estimates which may be subject to change include fair value determinations and disclosures, impairment of investments, goodwill,

and

loans, as well as valuation of deferred tax assets.

~~104~~

~~Table of Contents~~

Adoption of New Accounting Standard

— On January 1, 2020, the Company adopted ASU

No. 2016-13,

held-to-maturity

off-balance

gross-up

available-for-sale

(“AFS”) debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in

credit. As a policy election, we excluded the accrued interest receivable balance from the amortized cost basis of financing receivables and HTM securities, as well as AFS securities, and disclose total accrued interest receivable separately on the condensed consolidated balance sheet.

The Company adopted this ASU using the modified retrospective method for all financial assets measured at amortized cost and

off-balance

sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to beginning retained earnings of $1.3 million, net of tax as of January 1, 2020 for the cumulative adjustment upon adoption of ASC 326. The transition adjustment of $1.8 million was added to the beginning balance of the ACL for loans and $41,000 was added to the beginning balance of reserve for unfunded loan commitments. Upon adoption of CECL there was no impact on the accounting for AFS or HTM investment securities.

Business Segments

— We regularly assess our strategic plans, operations and reporting structures to identify our reportable segments. Changes to our reportable segments are expected to be infrequent.

As of December 31, ~~2020,~~2021, we operated as

one

reportable segment. The factors considered in making this determination included the nature of products and offered services, geographic regions in which we operate, the applicable regulatory environment, and the materiality of discrete financial information reviewed by our key decision makers. Through our network of banking centers, we provide relationship-based banking products, services and solutions for small to

mid-sized

companies, real estate investors,

non-profit

organizations, professionals and other individuals. Our products include loans for commercial businesses, commercial real estate, multi-family, construction, land, dairy & livestock and agribusiness, consumer and government-guaranteed small business loans. We also provide business deposit products and treasury cash management services, as well as deposit products to the owners and employees of the businesses we serve. ~~The decision to combine our 2 reportable segments~~

~~as of December 31, 2018~~

was made to align the segment reporting with the changes in our operations and reporting structure, and to be consistent with the level and materiality of information reviewed by our key decision makers.

Cash and cash equivalents

— Cash on hand, cash items in the process of collection, and amounts due from correspondent banks, the Federal Reserve Bank and interest-bearing balances due from depository institutions with initial terms of ninety days or less, are included in Cash and cash equivalents.

~~105~~

~~Table of Contents~~

Investment Securities

— The Company classifies as HTM those debt securities that the Company has the positive intent and ability to hold to maturity. Securities classified as trading are those securities that are bought and held principally for the purpose of selling them in the near term. All other debt and equity securities are classified as AFS. Securities

held-to-maturity

are accounted for at cost and adjusted for amortization of premiums and accretion of discounts. Trading securities are accounted for at fair value with the unrealized gains and losses being included in current earnings.

Available-for-sale

securities are accounted for at fair value, with the net unrealized gains and losses, net of income tax effects, presented as a separate component of stockholders’ equity. Realized gains and losses on sales of securities are recognized in earnings at the time of sale and are determined on a specific-identification basis. Purchase premiums and discounts are recognized in interest income using the effective-yield method over the estimated terms of the securities. For mortgage-backed securities (“MBS”), the amortization or accretion is based on estimated average lives of the securities. The lives of these securities can fluctuate based on the amount of prepayments received on the underlying collateral of the securities. The Company’s investment in the Federal Home Loan Bank of San Francisco (“FHLB”) stock is carried at cost.

Effective January 1, 2020, upon the adoption of ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, AFS debt securities are measured at fair value and are subject to impairment testing. A security is impaired if the fair value of the security is less than its amortized cost basis. When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize allowance for credit losses by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) non-credit related components of the fair value decline (if any). If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation allowance would be reduced, but not more than the amount of the current existing allowance for that security.

Prior to January 1, 2020, AFS debt securities were measured at fair value and declines in the fair value were reviewed to determine whether the impairment was other-than-temporary (“OTTI”). If the decline in fair value was considered temporary, the decline in fair value below the amortized cost basis of a security was recognized in other comprehensive income (loss). If the entire amortized cost basis of the security was not expected to be recovered, then an other-than-temporary impairment was considered to have occurred. The cost basis of the security was written down to its estimated fair value and the amount of the write-down was recognized through a charge to earnings. If the amount of the amortized cost basis expected to be recovered increased in a future period, the cost basis of the security would not be increased but rather recognized prospectively through interest income.

Loans and Lease Finance Receivables

— Loans and lease finance receivables that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of nonaccrual interest paid (“NAIP”), deferred loan origination fees and costs, and purchase price discounts and premiums (amortized cost basis). Refer to Note 65 —

Loans and Lease Finance Receivables and Allowance for Credit Losses

for total loans, by type.

In the ordinary course of business, the Company enters into commitments to extend credit to its customers. To the extent that such commitments are unfunded, the related unfunded amounts are not reflected in the accompanying consolidated financial statements.

The Company receives collateral to support loans, lease finance receivables, and commitments to extend credit for which collateral is deemed necessary. The most significant categories for which collateral is deemed necessary are real estate, principally commercial and industrial income-producing properties, Small Business Administration (“SBA”) loans, real estate mortgages, assets utilized in dairy & livestock and agribusiness, and various personal property assets utilized in commercial and industrial business governed by the Uniform Commercial Code.

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Nonrefundable fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The deferred net loan fees and costs and purchase price discounts are recognized in interest income over the loan term using the effective-yield method.

Nonaccrual, Past Due, Charge-Offs

and Recoveries

— Interest on loans and lease finance receivables, is credited to income based on the principal amounts of such loans or receivables outstanding. Loans are considered delinquent when principal or interest payments are past due 30 days or more and generally remain on accrual status between 30 and 89 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. In general, interest shall not accrue on any loan for which payment in full of principal and interest is not expected, or when the loan becomes 90 days past due, unless the loan is both well secured and in the process of collection. Factors considered in determining that the full collection of principal and interest is no longer probable include cash flow and liquidity of the borrower or property, the financial position of the guarantors and their willingness to support the loan as well as other factors, and this determination involves significant judgment. When an asset is placed on nonaccrual status, previously accrued but unpaid interest is reversed against income. Subsequent collections of cash are applied as reductions to the principal balance unless the loan is returned to accrual status. Interest is not recognized using a cash-basis method. Nonaccrual loans may be restored to accrual status when principal and interest become current and when the borrower is able to demonstrate payment performance for a sustained period, typically for six ~~months.~~months. A nonaccrual loan may return to accrual status sooner based on other significant events or mitigating circumstances. Interest income is not recognized on loans and lease finance receivables when collection of interest is deemed by management to be doubtful. Charge-offs are recognized in the period an obligation becomes uncollectible. The

charge-off

of a credit does not necessarily mean that the loan has no potential recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be affected in the future. When determining the amount of the

charge-off,

management considers all components of the loan’s amortized cost basis, excluding accrued interest receivable (as disclosed herein); however, the

non-principal

portion of charge-offs have been determined to be immaterial. This policy is consistently applied to all types of loans and lease finance receivables.

Charge-offs of unsecured consumer loans are recorded when the loan reaches 120 days past due or sooner as circumstances indicate.

Purchased Loans

— All purchased loans are initially measured and recorded at their fair value on the acquisition date. A component of the initial fair value measurement is an estimate of the credit losses over the life of the purchased loans. Purchased loans are also evaluated to determine if there is a more than insignificant deterioration of credit since origination. With the adoption of ASU

2016-13

on January 1, 2020, PCD assets are recorded at their purchase price plus an ACL estimated at the time of acquisition as described below.

Purchased Loans with Credit Deterioration

Effective January 1, 2020, ASU

2016-13

eliminated the existing guidance for PCI loans, but requires an allowance for purchased financial assets with more than an insignificant deterioration of credit since origination. The acquisition-date allowance for credit losses (“ACL”) for PCD loans will be allocated to the individual PCD loans (assuming it was originally determined on a collective basis). The sum of the purchase price of the loan (the acquisition date fair value for a loan acquired in a business combination) and the ACL becomes the loan’s new amortized cost basis. The difference between the new amortized cost basis and the unpaid principal balance of the loan represents the

non-credit

purchase premium or discount that will be amortized or accreted into interest income over the remaining life of the loan.

Subsequent to acquisition, the ACL for PCD loans will generally follow the same estimation, provision and

charge-off

process as

non-PCD

acquired and originated loans. Additionally, TDR identification for acquired loans (PCD and

non-PCD)

will be consistent with the TDR identification for originated loans.

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Prior to January 1, 2020, purchased credit impaired loans were accounted for in accordance with ASC Subtopic

310-30,

~~“Loans~~ “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” At the time of acquisition, these loans were recorded at estimated fair value based upon estimated future cash flows with no related allowance for credit losses.

Acquired non-impaired loans (prior to adoption of CECL) —

Acquired non-impaired loans are those loans for which there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments. Acquired non-impaired loans, together with originated loans, were referred to as Non-PCI loans. Purchase discounts or premiums on acquired non-impaired loans were recognized as an adjustment to interest income over the contractual life of such loans using the effective interest method or were taken into income when the related loans were paid off or sold.

Troubled Debt Restructurings

— Loans are reported as a Troubled Debt Restructuring (“TDR”) if the borrower is deemed to be financially troubled, and the Company grants a concession to the debtor that it would not otherwise consider. Types of modifications that may be considered concessions, which in turn result in a TDR include, but are not limited to, (i) a reduction of the stated interest rate for the remaining original life of the debt, (ii) an extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, or (iv) a reduction of interest. As a result of these concessions, restructured loans are considered impaired.

In situations where the Company has determined that the borrower is experiencing financial difficulties and is evaluating whether a concession is insignificant, and therefore does not result in a TDR, such analysis is based on an evaluation of both the amount and the timing of the restructured payments, including the following factors:

Whether the amount of the restructured payments subject to delay is insignificant relative to the unpaid principal balance or collateral value of the debt and will result in an insignificant shortfall in the contractual amount due; and

The delay is insignificant relative to any of the following:

•

The frequency of payments due;

•

The debt’s original contractual maturity; or

•

The debt’s original expected duration.

Nonaccrual restructured loans are included and treated with all other nonaccrual loans. In addition, all accruing restructured loans are reported as TDRs, which are considered and accounted for as impaired loans. A loan that has been placed on nonaccrual status that is subsequently restructured will remain on nonaccrual status until the borrower is able to demonstrate repayment performance in compliance with the restructured terms for a sustained period of time, generally for a minimum of six months. A restructured loan may return to accrual status sooner based on other significant events or circumstances.

Impaired Loans (prior to adoption of CECL)

— Following the adoption of CECL as of January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. Prior to January 1, 2020, a loan was generally considered impaired when based on current events and information it was probable that the Company would unable to collect all amounts due according to the contractual terms of the loan agreement. A loan, including a restructured loan, for which there is an insignificant delay relative to the frequency of payments due, and/or the original contractual maturity, was not considered an impaired loan. Generally, impaired loans include loans on nonaccrual status and TDRs.

The Company’s policy was to record a specific valuation allowance, which was included in the allowance for loan losses, or to charge off that portion of an impaired loan that represented the impairment or shortfall amount as determined utilizing one of the three methods described in ASC 310-10-35-22. Impairment on non-collateral dependent restructured loans was measured by comparing the present value of expected future cash

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flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan’s carrying value. The impairment amount, if any, was generally charged off and recorded against the allowance for loan losses at the time impairment was measurable and a probable loss was determined. The Company measured impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company may also have measured impairment based on an observable market price for the loan, or the value of the collateral, for collateral dependent loans. Impairment on collateral dependent restructured loans was measured by determining the amount by which our recorded investment in the

impaired loan exceeded the fair value of the collateral less estimated selling costs. The fair value was generally determined by one or more appraisals of the collateral, performed by a Company-approved third-party independent appraiser. The majority of impaired loans that were collateral dependent were charged off down to their estimated fair value of the collateral (less selling costs) at each reporting date based on current appraised value.

Charge-offs of unsecured consumer loans are recorded when the loan reaches 120 days past due or sooner as circumstances indicate. Except for the charge-offs of unsecured consumer loans, the

charge-off

policy is applied consistently across all portfolio segments. Impaired single-family mortgage loans that have been modified in accordance with the various government modification programs are also measured based on the present value of the expected cash flows discounted at the loan’s

pre-modification

interest rate. The Company recognizes the change in present value attributable to the passage of time as interest income on such performing SFR mortgage loans and the amount of interest income recognized to date has been insignificant.

Provision and Allowance for Credit Losses

— On January 1, 2020, the Company adopted ASU

No. 2016-13,

~~“Financial~~ “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. This ASU replaces the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the CECL model, applies to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off balance sheet credit exposures. This includes, but is not limited to, loans, HTM securities, loan commitments, and financial guarantees. AFS debt securities are measured at fair value and are subject to impairment testing. This ASU modifies the OTTI model for AFS debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. When an AFS debt security is considered impaired, and the Company determines that the decline in fair value has resulted from a credit-related loss (as described previously under

Investment Securities)

, then an allowance for credit losses will be recognized by a charge to earnings for the credit-related component of the decline in fair value. As a result, we will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as required prior to the adoption of CECL. As a policy election, we exclude the accrued interest receivable balance from the amortized cost basis of financing receivables and HTM securities, as well as AFS securities, and disclose total accrued interest receivable separately on the condensed consolidated balance sheet. If accrued interest is not received, it is reversed against interest income, which was zero for ~~2020~~

2021 and 2020.

The Company developed allowance models that calculate reserves over the average life of the loan, which includes the remaining time to maturity, adjusted for estimated prepayments applied as an adjustment to our commercial real estate and commercial and industrial loans. The allowance is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level, for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. A substantial portion of the ACL relates to loans within the Commercial Real Estate and Commercial and Industrial methodologies, each evaluated on a collective basis. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA

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loans (excluding Payment Protection Program loans). The collective ACL methodologies include an estimation framework that uses loss experiences of data sets of unique loans aggregated by each pool, respectively, to derive loss rates at the pool level during the average life of the underlying loans. Our ACL amounts are largely driven by portfolio characteristics, including loss history, Original Loan to Value Ratios (“OLTV”), internal risk grading, macroeconomic variables and the associated economic outlook, as well as other key methodology assumptions. The Company’s ACL estimate incorporates a reasonable and supportable forecast of various ~~macro-economic~~macroeconomic variables over the remaining average life of our loans. This forecast incorporates an assumption that each ~~macro-economic~~macroeconomic variable will revert to a long-term expectation, starting in years 2-3, of the reasonable and supportable forecast period, with the reversion largely completed within the first five years of the forecast. The economic forecast is based on probability weighted scenarios to address macroeconomic uncertainty. In addition to determining the quantitative life of loan loss rate to be applied against the amortized cost basis of the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.

We monitor credit quality by evaluating various risk attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses.

An important element of our approach to credit risk management is our loan risk rating system (Pass, Special Mention, Substandard, Doubtful and Loss). Loan risk ratings are updated as facts related to the loan or borrower become available. In addition, all term loans in excess of $1.0 million are subject to an annual

internal credit review process where all factors underlying the loan, borrower and guarantors are subject to review which may result in changes to the loan’s risk rating.

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 65 —

Loans and Lease Finance Receivables and Allowance for Credit Losses, Credit Quality Indicators

Provision and Allowance for Loan Losses (“ALLL”) —

Prior to adoption of CECL,

the allowance for loan losses was management’s estimate of probable losses inherent in the loan and lease receivables portfolio. The allowance was increased by the provision for loan losses and recoveries of prior loan losses, and it was decreased by recapture of provision for loan losses and by charge-offs taken when management believed the uncollectability of any loan was confirmed. Subsequent recoveries, if any, were added to the allowance. The determination of the balance in the allowance for loan losses was based on an analysis of the loan and lease finance receivables portfolio using a systematic methodology and reflected an amount that, in management’s judgment, was appropriate to provide for probable loan losses inherent in the portfolio, after giving consideration to the character of the loan portfolio, current economic conditions, past loan loss experience, and such other factors that would deserve current recognition in estimating inherent loan losses.

There were different qualitative risks for the loans in each portfolio segment. The construction and real estate segments’ predominant risk characteristic was the collateral and the geographic location of the property collateralizing the loan as well as the operating cash flow for commercial real estate properties. The commercial and industrial segment’s predominant risk characteristics were the cash flows of the businesses we lend to, the global cash flows and liquidity of the guarantors, as well as economic and market conditions. SBA 504 loans had risk characteristics that were similar to the real estate loan segment, while SBA 7(a) loans had risks that were similar to commercial and industrial loans. The dairy & livestock segment’s predominant risk characteristics were milk and beef prices in the market as well as the cost of feed and cattle. The Agribusiness segment’s predominant risk characteristics were the supply and demand conditions of the product, production seasonality, the scale of operations and ability to control costs, the availability and cost of water, and operator experience. The municipal lease segment’s predominant risk characteristics were the municipality’s general financial condition and tax revenues or if applicable the specific project related financial condition. The consumer, auto and other segment’s predominant risk characteristics were employment and income levels as they relate to consumers and cash flows of the businesses as they relate to equipment and vehicle leases to businesses.

The Company’s methodology is consistently applied across all portfolio segments taking into account the applicable historical loss rates and the qualitative factors applicable to each pool of loans. A key factor in the

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Company’s methodology is the loan risk rating (Pass, Special Mention, Substandard, Doubtful and Loss). Loan risk ratings are updated as facts related to the loan or borrower become available. In addition, all term loans in excess of $1.0 million are subject to an annual internal credit review process where all factors underlying the loan, borrower and guarantors are subject to review which may result in changes to the loan’s risk rating.

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Periodically, we assess various attributes utilized in adjusting our historical loss factors to reflect current economic conditions. The methodology is consistently applied across all the portfolio segments taking into account the applicable historical loss rates and the qualitative factors applicable to each pool of loans.

Prior to January 1, 2020, performing loans acquired through business combinations were evaluated separately by each acquired portfolio using the ALLL methodology. The results of the ALLL methodology were compared to the remaining fair value discounts by portfolio. If the remaining fair value discounts were determined to be insufficient, the allowance was increased to reflect the additional risk in the portfolio.

Reserve for Unfunded Loan Commitments

— The reserve for

off-balance

sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the

off-balance

sheet loan commitments in the same manner as it evaluates credit risk associated with the loan and lease portfolio. Effective January 1, 2020, the reserve iswas calculated on the expected portion of the commitment to be funded over its life and the life of the commitment loss expectation, utilizing the same three collective pool methodologies described for the Allowance for Credit Losses. We include the reserve for unfunded loan commitments in other liabilities and the related provision in other noninterest expense.

Prior to adoption of CECL, we used the historical loan loss factors described under our allowance for loan losses to calculate the loan loss experience if unfunded loan commitments were funded. Separately, we used historical trends to calculate a probability of an unfunded loan commitment being funded. We applied the loan funding probability factor to risk-factor adjusted unfunded loan commitments by credit risk-rating to derive the reserve for unfunded loan commitments,

similar to funded loans. The reserve for unfunded loan commitments also included certain qualitative allocations as deemed appropriate by management.

Other Real Estate Owned

— Other real estate owned (“OREO”) represents real estate acquired through foreclosure in lieu of repayment of commercial and real estate loans and is stated at fair value, less estimated costs to sell (fair value at time of foreclosure). Loan balances in excess of fair value of the real estate acquired at the date of acquisition are charged against the allowance for credit losses. Any subsequent operating expenses or income, reduction in estimated values, and gains or losses on disposition of such properties are charged to current operations. Gain recognition upon disposition of a property is dependent on the sale having met certain criteria relating to the buyer’s initial investment in the property sold.

Premises and Equipment

— Premises and equipment are stated at cost, less accumulated depreciation, which is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives of the respective asset and are computed on a straight-line basis. The ranges of useful lives of the principal classes of assets are as follows:


Bank premises		15 - 39 years
Leasehold improvements		Shorter of estimated economic lives of 15 years or term of the lease.
Computer equipment		3 - 7 years
Furniture, fixtures and equipment		5 - 10 years

Long-lived assets are reviewed periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. The existence of impairment is based on undiscounted cash flows. To the extent impairment exists, the impairment is calculated as the difference in fair value of assets and their carrying value. The impairment loss, if any, would be recorded in noninterest expense.

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Long-lived assets classified as

held-for-sale

are measured at the lower of its carrying amount or fair value less cost to sell.

Assets-held-for

sale include long-lived assets transferred from our

~~“held-and-used”~~

“held-and-used” portfolio in the period in which the following criteria are met:

•

Management, having the authority to approve the action, commits to a plan to sell the asset;

•

The asset is available for immediate sale, an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated;

•

The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year;

•

The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value;

•

Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Goodwill and Intangible Assets

— Goodwill resulting from business combinations prior to January 1, 2009, represents the excess of the purchase price over the fair value of the net assets of the businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any

non-controlling

interest in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized,

but

are

tested for impairment at least annually, or more frequently, if events and circumstances exist that indicate that a goodwill impairment test should be performed.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheets. Based on the Company’s annual impairment test, there was 0 recorded impairment as of December 31, ~~2020.~~2021.

Other intangible assets consist of core deposit intangible assets arising from business combinations and are amortized using an accelerated method over their estimated useful ~~lives.~~

lives.

Use of Fair Value

— We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Investment securities

available-for-sale

and interest-rate swaps are financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a

non-recurring

basis, such as impaired loans and OREO. These

non-recurring

fair value adjustments typically involve application of

lower-of-cost-or-market

accounting or write-downs of individual assets. Further,

we include in Note 1918 —

Fair Value Information

of the consolidated financial statements information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used and its impact to earnings. Additionally, for financial instruments not recorded at fair value we disclose the estimate of their fair value.

Bank Owned Life Insurance

— The Company invests in Bank Owned Life Insurance (“BOLI”). BOLI involves the purchasing of life insurance by the Company on a select group of employees. The Company is the owner and primary beneficiary of these policies. BOLI is recorded as an asset at the cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in other noninterest income and are not subject to income tax for as long as they are held for the life of the covered ~~employee~~

employee.

Income Taxes

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includes the enactment date. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. Based on historical and future expected taxable earnings, the Company considers the future realization of these deferred tax assets more likely than not.

Operating Leases —

The Company’s leasing portfolio consists of real estate leases, which are used primarily for the banking operations of the Company. All leases in the current portfolio have been classified as operating leases, although this may change in the future. Operating leases with a term of more than one year are included in operating lease

right-of-use

(“ROU”) assets and operating lease liabilities on the Company’s consolidated balance sheets. The Company made a policy election to apply the short-term lease exemption to any operating leases with an original term of less than 12 months, therefore no ROU asset or lease liability is recorded for these operating leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. The Company determines if an arrangement is a lease at inception by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration.

Operating lease ROU assets and lease liabilities are included in

other assets

and

other liabilities

, respectively, on the Company’s consolidated balance sheet. The Company uses its incremental borrowing rate, factoring in the lease term, to determine the lease liability, which is measured at the present value of future lease payments. The ROU asset, at adoption of this ASU, was recorded at the amount of the lease liability plus any prepaid rent and initial direct costs, less any lease incentives and accrued rent. The lease terms include periods covered by options to extend or terminate the lease depending on whether the Company is reasonably certain to exercise such options. Refer to Note 2322 —

Leases

for more information.

Earnings per Common Share

— The Company calculates earnings per common share (“EPS”) using the

two-class

method. The

two-class

method requires the Company to present EPS as if all of the earnings for the period are distributed to common shareholders and any participating securities. All outstanding unvested share-based payment awards that contain rights to

non-forfeitable

dividends are considered participating securities. The Company grants restricted shares under the 2008 Equity Incentive Plan that qualify as participating securities. Restricted shares issued under this plan are entitled to dividends at the same rate as common stock. A reconciliation of the numerator and the denominator used in the computation of basic and diluted earnings per common share is included in Note 1615 —

Earnings Per Share Reconciliation

of these consolidated financial statements.

Stock-Based Compensation

— Consistent with the provisions of ASC 718,

Stock Compensation

, we recognize expense for the grant date fair value of stock options and restricted shares issued to employees, officers and

non-employee

directors over the requisite service periods (generally the vesting period). The service periods may be subject to performance conditions.

The fair value of each stock option grant is estimated as of the grant date using the Black-Scholes option-pricing model. Management assumptions used at the time of grant impact the fair value of the option calculated under the Black-Scholes option-pricing model, and ultimately, the expense that will be recognized over the life of the option.

The grant date fair value of restricted stock awards is measured at the fair value of the Company’s common stock as if the restricted share was vested and issued on the date of grant.

Additional information is included in Note 1716 —

Stock-Based Compensation Plans

of the consolidated financial statements included herein.

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Derivative Financial Instruments

— All derivative instruments, including certain derivative instruments embedded in other contracts, are recognized on the consolidated balance sheets at fair value. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. Upon adoption of ASU

2017-12,

all changes in fair value for cash flow hedges, are recorded in “Other Comprehensive Income,” net of deferred taxes, including any ineffectiveness as long as the hedge remains highly effective. The Company currently does not designate any derivative financial instruments as qualifying hedging relationships, and therefore, does not utilize hedge accounting.

Statement of Cash Flows

— Cash and cash equivalents, as reported in the statements of cash flows, include cash and due from banks, interest-bearing balances due from depository institutions and federal funds sold with original maturities of three months or less. Cash flows from loans and deposits are reported net.

Other Contingencies

— In the ordinary course of business, the Company becomes involved in litigation. Based upon the Company’s internal records and discussions with legal counsel, the Company records accruals as appropriate, for estimates of the probable outcome of all cases brought against the Company. Except as discussed in Note 1413 —

Commitments and Contingencies

at December 31, ~~2020,~~2021, the Company does not have any material litigation accruals and is not aware of any material pending legal action or complaints asserted against the Company.

4.INVESTMENT SECURITIES

4.	~~BUSINESS COMBINATIONS~~

~~Community Bank Acquisition~~

On August 10, 2018, the Company completed the acquisition of CB, headquartered in Pasadena, California. The Company acquired all of the assets and assumed all of the liabilities of CB for $180.7 million in cash and $722.8 million in stock. As a result, CB was merged with the Bank, the principal subsidiary of CVB. The primary reason for the acquisition was to further strengthen the Company’s presence in Southern California. At close, CB had 16 banking centers located throughout the greater Los Angeles and Orange County areas. The systems integration of CB and CBB was completed in November 2018. The consolidation of banking centers was completed during the second quarter of 2019, in which four additional banking centers that were in close proximity were consolidated. For the first six months of 2019, a total of 10 banking centers were consolidated, including nine former CB centers.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the August 10, 2018 acquisition date. The purchase price allocation was finalized in the second quarter of 2019. The change in goodwill resulted from finalizing the fair value of impaired loans. The application of the acquisition method of accounting resulted in the recognition of goodwill of $547.1 million and a core deposit intangible (“CDI”) of $52.2 million, or 2.26% of core deposits. Goodwill represents the excess purchase price over the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.

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~~The table below summarizes the amounts recognized for the estimated fair value of assets acquired and the liabilities assumed as of the acquisition date~~

August 10, 2018


(Dollars in thousands)

Merger Consideration

Cash paid
   $ 180,719
CVBF common stock issued
   722,767

Total merger consideration
      $ 903,486

Identifiable net assets acquired, at fair value

Assets Acquired

Cash and cash equivalents
   47,802
Investment securities
   716,996
FHLB stock
   17,250
Loans
   2,738,100
Accrued interest receivable
   7,916
Premises and equipment
   14,632
BOLI
   70,904
Core deposit intangible
   52,200
Other assets
   53,291

Total assets acquired
              3,719,091

Liabilities assumed

Deposits
           2,869,986
FHLB advances
   297,571
Other borrowings
   166,000
Other liabilities
   29,192

Total liabilities assumed
      3,362,749

Total fair value of identifiable net assets, at fair value
      356,342

Goodwill

$
547,144

At the date of acquisition, the gross contractual loan amounts receivable, inclusive of all principal and interest, was approximately $3 billion. The Company’s best estimate of the contractual principal cash flows for loans not expected to be collected at the date of acquisition was approximately $4.5 million.

~~We have included the financial results of the business combination in the consolidated statement of earnings and comprehensive income beginning on the acquisition date.~~

For the year ended December 31, 2020, the Company did not incur any merger related expenses associated with the CB acquisition, compared to $6.4 million and $16.4 million for the years ended December 31, 2019 and 2018, respectively.

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For illustrative purposes only, the following table presents certain unaudited pro forma information for the year ended December 31, 2018. This unaudited estimated pro forma financial information was calculated as if CB had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of CB with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented.

Unaudited Pro Forma
Year Ended
December 31, 2018


(Dollars in thousands,

except per share amounts)

Total revenues (net interest income plus noninterest income)
   $ 488,620
Net income
   $ 181,433
Earnings per share - basic
   $ 1.30
Earnings per share - diluted
   $ 1.29

5.	~~INVESTMENT SECURITIES~~

The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are

available-for-sale

securities with fair value based on quoted prices for similar assets in active markets or quoted prices for identical assets in markets that are not active. Estimated fair values were obtained from an independent pricing service based upon market quotes.


	December 31, 2021
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	2,553,246	$	25,873	$	(15,905	)	$	2,563,214		80.50	%
CMO/REMIC		602,555		1,586		(13,983	)		590,158		18.53	%
Municipal bonds		28,365		1,103		-			29,468		0.93	%
Other securities		1,083		-		-			1,083		0.04	%
Total available-for-sale securities	$	3,185,249	$	28,562	$	(29,888	)	$	3,183,923		100.00	%
Investment securities held-to-maturity:
Government agency/GSE	$	576,899	$	5,907	$	(7,312	)	$	575,494		29.95	%
Mortgage-backed securities		647,390		4,109		(6,106	)		645,393		33.61	%
CMO/REMIC		490,670		596		(5,030	)		486,236		25.48	%
Municipal bonds		211,011		4,714		(1,155	)		214,570		10.96	%
Total held-to-maturity securities	$	1,925,970	$	15,326	$	(19,603	)	$	1,921,693		100.00	%


	December 31, 2020
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	1,857,030	$	48,006	$	(101	)	$	1,904,935		79.41	%
CMO/REMIC		457,548		5,515		(249	)		462,814		19.29	%
Municipal bonds		28,707		1,578		0			30,285		1.26	%
Other securities		889		—		—			889		0.04	%
Total available-for-sale securities	$	2,344,174	$	55,099	$	(350	)	$	2,398,923		100.00	%
Investment securities held-to-maturity:
Government agency/GSE	$	98,663	$	5,877	$	0		$	104,540		17.05	%
Mortgage-backed securities		146,382		7,644		(32	)		153,994		25.30	%
CMO/REMIC		145,309		5,202		0			150,511		25.11	%
Municipal bonds		188,272		6,980		(74	)		195,178		32.54	%
Total held-to-maturity securities	$	578,626	$	25,703	$	(106	)	$	604,223		100.00	%

December 31, 2020

  Amortized
Cost

Gross
  Unrealized
Holding
Gain

Gross
  Unrealized
Holding Loss

Fair Value

Total
Percent

(Dollars in thousands)

Investment securities
available-for-sale:

Mortgage-backed securities
$   1,857,030 $ 48,006 $ (101 ) $ 1,904,935 79.41 %
CMO/REMIC
457,548 5,515 (249 ) 462,814 19.29 %
Municipal bonds
28,707 1,578 - 30,285 1.26 %
Other securities
889 - - 889 0.04 %

Total
available-for-sale
securities
$ 2,344,174 $ 55,099 $ (350 ) $   2,398,923       100.00 %

Investment securities
held-to-maturity:

Government agency/GSE
$ 98,663 $ 5,877 $ - $ 104,540 17.05 %
Mortgage-backed securities
146,382 7,644 (32 ) 153,994 25.30 %
CMO/REMIC
145,309 5,202 - 150,511 25.11 %
Municipal bonds
188,272 6,980 (74 ) 195,178 32.54 %

Total
held-to-maturity
securities
$ 578,626 $ 25,703 $ (106 ) $ 604,223 100.00 %

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~~Table of Contents~~

December 31, 2019

   Amortized
Cost

Gross
  Unrealized
Holding
Gain

Gross
  Unrealized
Holding Loss

Fair Value

Total
Percent


(Dollars in thousands)

Investment securities
available-for-sale:

Mortgage-backed securities
   $   1,185,757 $ 21,306 $ (750 ) $ 1,206,313 69.32 %
CMO/REMIC
   493,214 1,392 (896 ) 493,710 28.37 %
Municipal bonds
   38,506 850 (2 ) 39,354 2.26 %
Other securities
   880 - - 880 0.05 %

Total
available-for-sale
securities
   $   1,718,357 $ 23,548 $ (1,648 ) $ 1,740,257 100.00 %

Investment securities
held-to-maturity:

Government agency/GSE
   $ 117,366 $ 2,280 $ (657 ) $ 118,989 17.40 %
Mortgage-backed securities
   168,479 2,083 (54 ) 170,508 24.98 %
CMO/REMIC
   192,548 - (2,458 ) 190,090 28.55 %
Municipal bonds
   196,059 3,867 (565 ) 199,361 29.07 %

Total
held-to-maturity
securities
   $ 674,452 $ 8,230 $ (3,734 ) $ 678,948 100.00 %

The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax.


	Year Ended December 31,
	2021		2020		2019
	(Dollars in thousands)
Investment securities available-for-sale:
Taxable	$	37,532	$	35,129	$	38,189
Tax-advantaged		741		923		1,141
Total interest income from available-for-sale securities		38,273		36,052		39,330
Investment securities held-to-maturity:
Taxable		17,747		9,542		11,498
Tax-advantaged		4,428		4,681		5,890
Total interest income from held-to-maturity securities		22,175		14,223		17,388
Total interest income from investment securities	$	60,448	$	50,275	$	56,718

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Investment securities
available-for-sale:

Taxable
$ 35,129 $ 38,189 $ 44,423
Tax-advantaged
923 1,141 1,565

Total interest income from
available-for-sale
securities
36,052 39,330 45,988

Investment securities
held-to-maturity:

Taxable
9,542 11,498 11,848
Tax-advantaged
4,681 5,890 7,053

Total interest income from
held-to-maturity
securities
14,223 17,388 18,901

Total interest income from investment securities
$ 50,275 $ 56,718 $ 64,889

The adoption of CECL did not have a material impact on the accounting for investment securities, as approximately ~~93%~~95% of the total investment securities portfolio at December 31, ~~2020~~2021 represents securities issued by the U.S. government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest. The remaining securities are predominately

AA-

or better general-obligation municipal bonds. The allowance for credit losses for

held-to-maturity

investment securities under the new CECL model was 0 at December 31, ~~2020.~~

2021.

We adopted ASU

2016-13

on January 1, 2020, on a prospective basis. Under this ASU, once it is determined that a credit loss has occurred, an allowance for credit losses is established on our AFS and HTM securities. Prior to adoption of this standard, when a decline in fair value of a debt security was determined to be other than temporary, an impairment charge for the credit component was recorded, and a new cost basis in the investment was established. Management determined that there were no credit losses for securities in an unrealized loss position for 2021 and 2020.

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~~Table of Contents~~

The following table presents the Company’s

available-for-sale investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of December 31, 2021.


	December 31, 2021
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	1,465,647	$	(15,099	)	$	44,244	$	(806	)	$	1,509,891	$	(15,905	)
CMO/REMIC		450,393		(11,515	)		53,745		(2,468	)		504,138		(13,983	)
Municipal bonds		-		-			0		0			-		-
Total available-for-sale securities	$	1,916,040	$	(26,614	)	$	97,989	$	(3,274	)	$	2,014,029	$	(29,888	)

The following table presents the Company’s available-for-sale investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of December 31, 2020.


	December 31, 2020
	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Investment securities available-for- sale:
Mortgage-backed securities	$	72,219	$	(101	)	$	0	$	0	$	72,219	$	(101	)
CMO/REMIC		96,974		(249	)		0		0		96,974		(249	)
Municipal bonds		—		—			0		0		0		0
Total available-for-sale securities	$	169,193	$	(350	)	$	0	$	0	$	169,193	$	(350	)

December 31, 2020

Less Than 12 Months

12 Months or Longer

Total


  Fair Value

Gross
  Unrealized
Holding
Losses

  Fair Value

Gross
  Unrealized
Holding
Losses

  Fair Value

Gross
  Unrealized
Holding
Losses

(Dollars in thousands)

Investment securities
available-for-sale:

Mortgage-backed securities
$ 72,219 $ (101 ) $ 0 $ 0 $   72,219 $ (101 )
CMO/REMIC
96,974 (249 ) 0 0 96,974 (249 )
Municipal bonds
0 0 0 0 0 0

Total
available-for-sale
securities
$ 169,193 $ (350 ) $ 0 $ 0 $ 169,193 $ (350 )

The table below presents the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019, prior to adoption of ASU

~~2016-13.~~

Management previously reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be other-than-temporarily-impaired.

December 31, 2019


Less Than 12 Months

12 Months or Longer

Total


  Fair Value

Gross
  Unrealized
Holding
Losses

  Fair Value

Gross
  Unrealized
Holding
Losses

  Fair Value

Gross
  Unrealized
Holding
Losses


(Dollars in thousands)

Investment securities
available-for-sale:

Mortgage-backed securities    $ 20,289    $ (6 ) $ 97,964    $ (744 ) $   118,253    $ (750 )
CMO/REMIC    177,517    (705 ) 34,565    (191 ) 212,082    (896 )
Municipal bonds    0    0 563    (2 ) 563    (2 )

Total
available-for-sale
securities
   $ 197,806    $ (711 ) $ 133,092    $ (937 ) $ 330,898    $ (1,648 )

Investment securities
held-to-maturity:

Government agency/GSE    $ 28,359    $ (252 ) $ 19,405    $ (405 ) $ 47,764    $ (657 )
Mortgage-backed securities    10,411    (54 ) 0    0 10,411    (54 )
CMO/REMIC    23,897    (104 ) 166,193    (2,354 ) 190,090    (2,458 )
Municipal bonds    7,583    (32 ) 29,981    (533 ) 37,564    (565 )
         ��
Total
held-to-maturity
securities
   $ 70,250    $ (442 ) $ 215,579    $ (3,292 ) $ 285,829    $ (3,734 )

The following summarizes our analysis of these securities and the unrealized losses.

Government Agency & Government-Sponsored Enterprise (“GSE”) — The government agency bonds are backed by the full faith and credit of agencies of the U.S. Government. While the Government-Sponsored Enterprise bonds are not expressly guaranteed by the U.S. Government, they are currently being supported by the U.S. Government under a conservatorship arrangement. These securities are bullet securities, that is, they have a defined maturity date on which the principal is paid. The contractual term of these investments provides that the Company will receive the face value of the bond at maturity which will equal the amortized cost of the bond. Interest is received throughout the life of the security. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the bonds.

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~~Table of Contents~~

Mortgage-Backed Securities (“MBS”) and CMO/REMIC — Most of the Company’s mortgage-backed and CMO/REMIC securities are issued by Government Agencies or Government-Sponsored Enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac. These securities are collateralized or backed by the underlying residential or commercial mortgages. All mortgage-backed securities are considered to be rated investment grade with a weighted average life of approximately ~~2.6~~4.7 years. Of the total MBS/CMO, 100% have the implied guarantee of U.S. Government-Sponsored Agencies and Enterprises. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the bonds. There were 0 credit-related impairments for the year ended December 31, ~~2020~~2021 and ~~0 OTTI recognized in earnings for the year ended December 31, 2019.~~

2020.

Municipal Bonds — The majority of the Company’s municipal bonds, with maturities of approximately ~~10.2~~10.7 years, represented approximately 7%5% of the total investment portfolio and are predominately AA or higher rated securities. The Company diversifies its holdings by owning selections of securities from different issuers and by holding securities from geographically diversified municipal issuers, thus reducing the Company’s exposure to any single adverse event. The decline in fair value is primarily due to the changes in interest rates. Since the Company does not intend to sell the investments and it

is not more likely than not that the Company will be required to sell the investments before recovery of their amortized costs, these investments were not considered impaired ~~at December 31, 2020 and there were no losses recognized in earnings~~ for the year ended December 31, ~~2019.~~

2021 and December 31, 2020.

At December 31, ~~2020~~2021 and ~~2019,~~2020, investment securities having a carrying value of approximately ~~$1.81~~$2.18 billion and ~~$1.64~~$1.81 billion, respectively, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.

The amortized cost and fair value of debt securities at December 31, ~~2020,~~2021, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have weighted average remaining contractual maturities of approximately 1823 years, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. Mortgage-backed and CMO/REMIC securities are included in maturity categories based upon estimated average lives which incorporate estimated prepayment speeds.


	December 31, 2021
	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
			(Dollars in thousands)
Due in one year or less	$	18,887	$	19,073	$	5,586	$	5,701
Due after one year through five years		1,731,066		1,744,199		402,803		405,175
Due after five years through ten years		1,079,941		1,074,606		901,078		893,932
Due after ten years		355,355		346,045		616,503		616,885
Total investment securities	$	3,185,249	$	3,183,923	$	1,925,970	$	1,921,693

December 31, 2020


Available-for-sale

Held-to-maturity


    Amortized

Cost

    Fair Value

    Amortized

Cost

    Fair Value


(Dollars in thousands)

Due in one year or less

$
10,473


$
10,499


$
2,724


$
2,751

Due after one year through five years


2,204,046



2,255,300



305,248



317,994

Due after five years through ten years
   92,729    94,795    75,561    79,295
Due after ten years
   36,926    38,329    195,093    204,183

Total investment securities
   $ 2,344,174    $ 2,398,923    $ 578,626    $ 604,223

The investment in FHLB stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. NaN impairment losses have been recorded through December 31, ~~2020~~

2021.

5.LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

~~119~~

~~Table of Contents~~

6.	~~LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES~~

The following table provides a summary of total loans and lease finance receivables by type.


	December 31, 2021			December 31, 2020
	(Dollars in thousands)

Commercial real estate	$	5,789,730		$	5,501,509
Construction		62,264			85,145
SBA		288,600			303,896
SBA - Paycheck Protection Program (PPP)		186,585			882,986
Commercial and industrial		813,063			812,062
Dairy & livestock and agribusiness		386,219			361,146
Municipal lease finance receivables		45,933			45,547
SFR mortgage		240,654			270,511
Consumer and other loans		74,665			86,006
Total loans, at amortized cost		7,887,713			8,348,808
Less: Allowance for credit losses		(65,019	)		(93,692	)
Total loans and lease finance receivables, net	$	7,822,694		$	8,255,116

December 31,


            2020

            2019


(Dollars in thousands)

Commercial real estate

$
5,501,509
$
5,374,617
Construction


85,145

116,925
SBA


303,896

305,008
SBA - Paycheck Protection Program (PPP)


882,986

-

Commercial and industrial


812,062

935,127
Dairy & livestock and agribusiness


361,146

383,709
Municipal lease finance receivables


45,547

53,146
SFR mortgage


270,511

283,468
Consumer and other loans


86,006

116,319
Total loans


8,348,808

7,568,319
Less: Deferred loan fees, net (1)


0

(3,742 )
Total loans, net of deferred loan fees


8,348,808

7,564,577
Less: Allowance for credit losses


(93,692 )

(68,660 )
Total loans and lease finance receivables, net

$
8,255,116
$
7,495,917

~~(1)~~

~~Beginning with March 31, 2020, gross loans are presented net of deferred loan fees by respective class of financing receivables.~~

As of December 31, ~~2020, 70.16%~~2021, 77.24% of the Company’s total gross loan portfolio consisted of real estate loans, with commercial real estate loans representing ~~65.90%~~73.40% of total loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. As of December 31, ~~2020, $314.4~~2021, $364.4 million, or ~~5.72%~~6.29% of the total commercial real estate loans included loans secured by farmland, compared to ~~$241.8~~$314.4 million, or ~~4.50%~~5.72%, at December 31, ~~2019.~~2020. The loans secured by farmland included $134.9 million for loans secured by dairy & livestock land and $229.5 million for loans secured by agricultural land at December 31, 2021, compared to $132.9 million for loans secured by dairy & livestock land and $181.5 million for loans secured by agricultural land at December 31, ~~2020, compared to $125.9 million for loans secured by dairy & livestock land and $115.9 million for loans secured by agricultural land at December 31, 2019.~~2020. As of December 31, ~~2020,~~2021, dairy & livestock and agribusiness loans of $386.2 million were comprised of $351.7 million for dairy & livestock loans and $34.5 million for agribusiness loans, compared to $361.1 million ~~were~~ comprised of $320.1 million for dairy & livestock loans and $41.0 million for agribusiness loans ~~compared to $323.5 million for dairy & livestock loans and $60.2 million for agribusiness loans~~ at December 31, ~~2019.~~

2020.

At December 31, ~~2020~~2021 and ~~2019,~~2020, loans totaling ~~$6.07~~$3.96 billion and ~~$6.03~~$6.07 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

There were 0 outstanding loans

held-for-sale

as of December 31, ~~2020~~2021 and ~~2019.~~

2020.

Credit Quality Indicators

We monitor credit quality by evaluating various risk attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. Internal credit risk ratings, within our loan risk rating system, are the credit quality indicators that we most closely monitor.

An important element of our approach to credit risk management is our loan risk rating system. The originating officer assigns each loan an initial risk rating, which is reviewed and confirmed or changed, as appropriate, by credit management. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration or improvement in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary.

~~120~~

~~Table of Contents~~

Loans are risk rated into the following categories: Pass, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:

Pass — These loans, including loans on the Bank’s internal watch list, range from minimal credit risk to lower than average, but still acceptable, credit risk. Watch list loans usually require more than normal management attention. Loans on the watch list may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent.

Special Mention — Loans assigned to this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard — Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or the liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset with insignificant value even though partial recovery may be affected in the future.

~~121~~

~~Table of Contents~~

The following table summarizes loans by type and origination year, according to our internal risk ratings as of the dates presented.


	Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2021	2021		2020		2019		2018		2017		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass	$	1,137,714	$	963,697	$	591,202	$	534,468	$	484,721	$	1,704,267	$	156,841	$	33,564	$	5,606,474
Special Mention		3,133		20,640		14,477		16,097		43,262		44,045		6,970		6,800		155,424
Substandard		0		0		2,859		6,933		4,646		7,329		5,951		114		27,832
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Commercial real estate loans:	$	1,140,847	$	984,337	$	608,538	$	557,498	$	532,629	$	1,755,641	$	169,762	$	40,478	$	5,789,730

Construction loans:
Risk Rating:
Pass	$	10,511	$	15,896	$	7,236	$	0	$	0	$	0	$	25,262	$	0	$	58,905
Special Mention		0		0		0		3,359		0		0		0		0		3,359
Substandard		0		0		0		0		0		0		0		0		0
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Construction loans:	$	10,511	$	15,896	$	7,236	$	3,359	$	0	$	0	$	25,262	$	0	$	62,264

SBA loans:
Risk Rating:
Pass	$	70,929	$	36,468	$	11,129	$	36,068	$	38,504	$	78,527	$	0	$	0	$	271,625
Special Mention		0		0		0		0		4,056		2,700		0		0		6,756
Substandard		0		0		0		785		4,092		5,342		0		0		10,219
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total SBA loans:	$	70,929	$	36,468	$	11,129	$	36,853	$	46,652	$	86,569	$	0	$	0	$	288,600

SBA - PPP loans:
Risk Rating:
Pass	$	183,614	$	2,969	$	0	$	0	$	0	$	0	$	0	$	0	$	186,583
Special Mention		0		0		0		0		0		0		0		0		0
Substandard		0		2		0		0		0		0		0		0		2
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total SBA - PPP loans:	$	183,614	$	2,971	$	0	$	0	$	0	$	0	$	0	$	0	$	186,585

Commercial and industrial loans:
Risk Rating:
Pass	$	145,494	$	81,944	$	126,647	$	54,690	$	32,455	$	73,600	$	267,659	$	6,992	$	789,481
Special Mention		1,556		1,929		127		1,396		394		26		9,369		177		14,974
Substandard		244		6		602		1,712		505		475		1,991		3,073		8,608
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Commercial and industrial loans:	$	147,294	$	83,879	$	127,376	$	57,798	$	33,354	$	74,101	$	279,019	$	10,242	$	813,063

100


	Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2021	2021		2020		2019		2018		2017		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Dairy & livestock and agribusiness loans:
Risk Rating:
Pass	$	1,756	$	942	$	1,285	$	1,035	$	95	$	295	$	364,312	$	454	$	370,174
Special Mention		1,052		0		0		0		0		0		6,979		1,301		9,332
Substandard		0		-		0		37		0		0		0		6,676		6,713
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Dairy & livestock and agribusiness loans:	$	2,808	$	942	$	1,285	$	1,072	$	95	$	295	$	371,291	$	8,431	$	386,219

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	9,310	$	7,666	$	0	$	279	$	9,528	$	18,811	$	0	$	0	$	45,594
Special Mention		0		0		0		0		0		339		0		0		339
Substandard		0		0		0		0		0		0		0		0		0
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Municipal lease finance receivables loans:	$	9,310	$	7,666	$	0	$	279	$	9,528	$	19,150	$	0	$	0	$	45,933

SFR mortgage loans:
Risk Rating:
Pass	$	48,813	$	49,261	$	41,776	$	19,877	$	16,046	$	61,965	$	451	$	0	$	238,189
Special Mention		8		0		0		0		0		0		0		0		8
Substandard		0		0		0		0		0		2,052		0		405		2,457
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total SFR mortgage loans:	$	48,821	$	49,261	$	41,776	$	19,877	$	16,046	$	64,017	$	451	$	405	$	240,654

Consumer and other loans:
Risk Rating:
Pass	$	5,145	$	1,947	$	1,415	$	469	$	386	$	1,611	$	58,060	$	3,378	$	72,411
Special Mention		839		0		0		0		0		150		591		403		1,983
Substandard		0		0		0		0		0		15		5		251		271
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Consumer and other loans:	$	5,984	$	1,947	$	1,415	$	469	$	386	$	1,776	$	58,656	$	4,032	$	74,665

Total Loans:
Risk Rating:
Pass	$	1,613,286	$	1,160,790	$	780,690	$	646,886	$	581,735	$	1,939,076	$	872,585	$	44,388	$	7,639,436
Special Mention		6,588		22,569		14,604		20,852		47,712		47,260		23,909		8,681		192,175
Substandard		244		8		3,461		9,467		9,243		15,213		7,947		10,519		56,102
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Loans:	$	1,620,118	$	1,183,367	$	798,755	$	677,205	$	638,690	$	2,001,549	$	904,441	$	63,588	$	7,887,713

101


	Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2020	2020		2019		2018		2017		2016		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass	$	979,499	$	691,091	$	607,753	$	617,640	$	550,105	$	1,646,876	$	192,583	$	24,548	$	5,310,095
Special Mention		9,332		7,162		30,049		43,870		17,398		49,840		5,720		994		164,365
Substandard		0		491		2,157		7,382		2,528		13,790		360		341		27,049
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Commercial real estate loans:	$	988,831	$	698,744	$	639,959	$	668,892	$	570,031	$	1,710,506	$	198,663	$	25,883	$	5,501,509

Construction loans:
Risk Rating:
Pass	$	14,511	$	9,350	$	14,945	$	2,258	$	0	$	4	$	44,077	$	0	$	85,145
Special Mention		0		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0		0
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Construction loans:	$	14,511	$	9,350	$	14,945	$	2,258	$	0	$	4	$	44,077	$	0	$	85,145

SBA loans:
Risk Rating:
Pass	$	47,901	$	12,821	$	44,950	$	58,839	$	26,136	$	86,085	$	0	$	2,976	$	279,708
Special Mention		0		0		0		5,446		1,336		5,648		0		0		12,430
Substandard		0		0		904		5,503		1,554		3,797		0		0		11,758
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total SBA loans:	$	47,901	$	12,821	$	45,854	$	69,788	$	29,026	$	95,530	$	0	$	2,976	$	303,896

SBA - PPP loans:
Risk Rating:
Pass	$	882,986	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	882,986
Special Mention		0		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0		0
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total SBA - PPP loans:	$	882,986	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	882,986

Commercial and industrial loans:
Risk Rating:
Pass	$	104,478	$	168,050	$	62,453	$	56,043	$	32,149	$	76,019	$	257,250	$	6,058	$	762,500
Special Mention		1,995		1,081		1,892		1,028		95		4,882		17,395		1,132		29,500
Substandard		4,346		860		3,996		2,282		285		94		6,677		1,522		20,062
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Commercial and industrial loans:	$	110,819	$	169,991	$	68,341	$	59,353	$	32,529	$	80,995	$	281,322	$	8,712	$	812,062

102


	Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2020	2020		2019		2018		2017		2016		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Dairy & livestock and agribusiness loans:
Risk Rating:
Pass	$	1,041	$	1,765	$	1,199	$	5,680	$	120	$	320	$	319,211	$	363	$	329,699
Special Mention		878		0		364		0		0		0		13,255		1,511		16,008
Substandard		0		0		784		693		2,285		0		0		11,677		15,439
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Dairy & livestock and agribusiness loans:	$	1,919	$	1,765	$	2,347	$	6,373	$	2,405	$	320	$	332,466	$	13,551	$	361,146

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	8,478	$	0	$	2,556	$	10,249	$	3,586	$	20,266	$	0	$	0	$	45,135
Special Mention		0		0		0		0		0		412		0		0		412
Substandard		0		0		0		0		0		0		0		0		0
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Municipal lease finance receivables loans:	$	8,478	$	-	$	2,556	$	10,249	$	3,586	$	20,678	$	0	$	0	$	45,547

SFR mortgage loans:
Risk Rating:
Pass	$	65,463	$	59,596	$	29,142	$	22,452	$	27,192	$	62,593	$	3	$	0	$	266,441
Special Mention		0		0		0		0		0		452		0		0		452
Substandard		0		0		0		0		229		2,957		0		432		3,618
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total SFR mortgage loans:	$	65,463	$	59,596	$	29,142	$	22,452	$	27,421	$	66,002	$	3	$	432	$	270,511

Consumer and other loans:
Risk Rating:
Pass	$	8,557	$	2,077	$	871	$	969	$	1,586	$	961	$	67,774	$	1,688	$	84,483
Special Mention		0		0		0		0		0		91		517		22		630
Substandard		0		0		0		0		0		172		0		721		893
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Consumer and other loans:	$	8,557	$	2,077	$	871	$	969	$	1,586	$	1,224	$	68,291	$	2,431	$	86,006

Total Loans:
Risk Rating:
Pass	$	2,112,914	$	944,750	$	763,869	$	774,130	$	640,874	$	1,893,124	$	880,898	$	35,633	$	8,046,192
Special Mention		12,205		8,243		32,305		50,344		18,829		61,325		36,887		3,659		223,797
Substandard		4,346		1,351		7,841		15,860		6,881		20,810		7,037		14,693		78,819
Doubtful & Loss		0		0		0		0		0		0		0		0		0
Total Loans:	$	2,129,465	$	954,344	$	804,015	$	840,334	$	666,584	$	1,975,259	$	924,822	$	53,985	$	8,348,808

Origination Year

Revolving
loans
amortized

cost basis

Revolving
loans
converted
to term
loans

December 31, 2020

2020

2019

2018

2017

2016

Prior

Total

(Dollars in thousands)

Commercial real estate loans:

Risk Rating:

Pass
$ 979,499 $ 691,091 $ 607,753 $ 617,640 $ 550,105 $ 1,646,876 $ 192,583 $ 24,548 $ 5,310,095
Special Mention
9,332 7,162 30,049 43,870 17,398 49,840 5,720 994 164,365
Substandard
0 491 2,157 7,382 2,528 13,790 360 341 27,049
Doubtful & Loss
0 0 0 0 0 0 0 0 0

Total Commercial real estate loans:
$ 988,831 $ 698,744 $ 639,959 $ 668,892 $ 570,031 $ 1,710,506 $ 198,663 $ 25,883 $ 5,501,509

Construction loans:

Risk Rating:

Pass
$ 14,511 $ 9,350 $ 14,945 $ 2,258 $ 0 $ 4 $ 44,077 $ 0 $ 85,145
Special Mention
0 0 0 0 0 0 0 0 0
Substandard
0 0 0 0 0 0 0 0 0
Doubtful & Loss
0 0 0 0 0 0 0 0 0

Total Construction loans:
$ 14,511 $ 9,350 $ 14,945 $ 2,258 $ 0 $ 4 $ 44,077 $ 0 $ 85,145

SBA loans:

Risk Rating:

Pass
$ 47,901 $ 12,821 $ 44,950 $ 58,839 $ 26,136 $ 86,085 $ 0 $ 2,976 $ 279,708
Special Mention
0 0 0 5,446 1,336 5,648 0 0 12,430
Substandard
0 0 904 5,503 1,554 3,797 0 0 11,758
Doubtful & Loss
0 0 0 0 0 0 0 0 0

Total SBA loans:
$ 47,901 $ 12,821 $ 45,854 $ 69,788 $ 29,026 $ 95,530 $ 0 $ 2,976 $ 303,896

SBA - PPP loans:

Risk Rating:

Pass
$ 882,986 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 882,986
Special Mention
0 0 0 0 0 0 0 0 0
Substandard
0 0 0 0 0 0 0 0 0
Doubtful & Loss
0 0 0 0 0 0 0 0 0

Total SBA - PPP loans:
$ 882,986 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 882,986

Commercial and industrial loans:

Risk Rating:

Pass
$ 104,478 $ 168,050 $ 62,453 $ 56,043 $ 32,149 $ 76,019 $ 257,250 $ 6,058 $ 762,500
Special Mention
1,995 1,081 1,892 1,028 95 4,882 17,395 1,132 29,500
Substandard
4,346 860 3,996 2,282 285 94 6,677 1,522 20,062
Doubtful & Loss
0 0 0 0 0 0 0 0 0

Total Commercial and industrial loans:
$ 110,819 $ 169,991 $ 68,341 $ 59,353 $ 32,529 $ 80,995 $ 281,322 $ 8,712 $ 812,062

Dairy & livestock and agribusiness loans:

Risk Rating:

Pass
$ 1,041 $ 1,765 $ 1,199 $ 5,680 $ 120 $ 320 $ 319,211 $ 363 $ 329,699
Special Mention
878 0 364 0 0 0 13,255 1,511 16,008
Substandard
0 0 784 693 2,285 0 0 11,677 15,439
Doubtful & Loss
0 0 0 0 0 0 0 0 0

Total Dairy & livestock and agribusiness loans:
$ 1,919 $ 1,765 $ 2,347 $ 6,373 $ 2,405 $ 320 $ 332,466 $ 13,551 $ 361,146

Municipal lease finance receivables loans:

Risk Rating:

Pass
$ 8,478 $ 0 $ 2,556 $ 10,249 $ 3,586 $ 20,266 $ 0 $ 0 $ 45,135
Special Mention
0 0 0 0 0 412 0 0 412
Substandard
0 0 0 0 0 0 0 0 0
Doubtful & Loss
0 0 0 0 0 0 0 0 0

Total Municipal lease finance receivables loans:
$ 8,478 $ 0 $ 2,556 $ 10,249 $ 3,586 $ 20,678 $ 0 $ 0 $ 45,547

~~122~~

~~Table of Contents~~

Origination Year

Revolving
loans
amortized

cost basis

Revolving
loans
converted
to term
loans

December 31, 2020

2020

2019

2018

2017

2016

Prior

Total

(Dollars in thousands)

SFR mortgage loans:

Risk Rating:

Pass

$ 65,463 $ 59,596 $ 29,142 $ 22,452 $ 27,192 $ 62,593 $ 3 $ 0 $ 266,441
Special Mention

0 0 0 0 0 452 0 0 452
Substandard

0 0 0 0 229 2,957 0 432 3,618
Doubtful & Loss
0 0 0 0 0 0 0 0 0

Total SFR mortgage loans:

$ 65,463 $ 59,596 $ 29,142 $ 22,452 $ 27,421 $ 66,002 $ 3 $ 432 $ 270,511

Consumer and other loans:

Risk Rating:

Pass

$ 8,557 $ 2,077 $ 871 $ 969 $ 1,586 $ 961 $ 67,774 $ 1,688 $ 84,483
Special Mention

0 0 0 0 0 91 517 22 630
Substandard

0 0 0 0 0 172 0 721 893
Doubtful & Loss

0 0 0 0 0 0 0 0 0

Total Consumer and other loans:

$ 8,557 $ 2,077 $ 871 $ 969 $ 1,586 $ 1,224 $ 68,291 $

2,431
$ 86,006

��
Gross loans:

Risk Rating:

Pass

$ 2,112,914 $ 944,750 $ 763,869 $ 774,130 $ 640,874 $ 1,893,124 $ 880,898 $ 35,633 $ 8,046,192
Special Mention

12,205 8,243 32,305 50,344 18,829 61,325 36,887 3,659 223,797
Substandard

4,346 1,351 7,841 15,860 6,881 20,810 7,037 14,693 78,819
Doubtful & Loss

0 0 0 0 0 0 0 0 0

Total Gross loans:

$ 2,129,465 $ 954,344 $ 804,015 $ 840,334 $ 666,584 $ 1,975,259 $ 924,822 $ 53,985 $ 8,348,808

~~The following table summarizes loans by type, according to our internal risk ratings as of the date presented.~~

December 31, 2019


Pass

Special

Mention

Substandard

Doubtful &

Loss

Total


(Dollars in thousands)

Commercial real estate

Owner occupied
   $ 1,977,007    $ 78,208    $ 28,435    $ 0 $ 2,083,650
Non-owner
occupied
   3,280,580    10,005    382    0 3,290,967
Construction

Speculative
   106,895    0    0    0 106,895
Non-speculative
   10,030    0    0    0 10,030
SBA
   283,430    11,032    10,546    0 305,008
Commercial and industrial
   895,234    35,473    4,420    0 935,127
Dairy & livestock and agribusiness
   320,670    35,920    27,119    0 383,709
Municipal lease finance receivables
   52,676    470    0    0 53,146
SFR mortgage
   280,010    1,957    1,501    0 283,468
Consumer and other loans
   114,870    421    1,028    0 116,319

Total gross loans
   $ 7,321,402    $ 173,486    $ 73,431    $ 0 $ 7,568,319

~~123~~

~~Table of Contents~~

Allowance for Credit Losses

~~The~~

Our allowance for credit losses ~~for 2020~~ is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real estate loans include OLTV, origination year, loan seasoning, and macroeconomic variables that include GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA loans (excluding Payment Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the amortized cost basis of the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes. Our methodology for assessing the appropriateness of the allowance

103

is reviewed on a regular basis and considers overall risks in the Bank’s loan portfolio. Refer to Note 3 –

Summary of Significant Accounting Policies

contained herein for a more detailed discussion concerning the allowance for credit losses.

~~Our~~

The allowance for credit losses ~~decreased in the fourth quarter by $177,000,~~totaled $65.0 million as ~~a result~~ of ~~net charge-offs~~December 31, 2021, compared to $93.7 million as of ~~$177,000. There was 0 provision for credit losses in the fourth quarter of~~December 31, 2020. Our allowance for credit losses at December 31, ~~2020~~2021 was ~~$93.7 million~~0.82%, or ~~1.12%~~0.84% of total ~~loans. For~~loans when excluding the ~~year ended December 31, 2020, the ACL increased by $25.0 million, including a $1.8 million increase from the adoption of CECL on January 1, 2020. The increase in the ACL was primarily due to $23.5~~$186.6 million in ~~provision~~PPP loans. The allowance for credit losses ~~recorded~~for 2021 was decreased by $25.5 million, due to the improved outlook in our forecast of certain macroeconomic variables that were influenced by the ~~first half~~economic impact of the pandemic, including various government responses, availability of vaccines, and fiscal and monetary stimulus, as well as $3.2 million in year-to-date net charge-offs. Upon implementation of CECL, a transition adjustment of $1.8 million was added to the beginning balance of the allowance and was increased by a $23.5 million credit loss provision for 2020 due to the forecast of severe economic disruption resulting from the ~~forecasted changes~~initial onset of the COVID-19 pandemic. Net charge-offs were $308,000 for 2020. Based on the magnitude of government economic stimulus and the wide availability of vaccines, our latest economic forecast reflects continued improvement in key macroeconomic variables, ~~related to~~including GDP, the

~~COVID-19~~

~~pandemic.~~ commercial real estate price index and the unemployment rate. Our economic forecast continues to be a blend of multiple forecasts produced by ~~Moody~~

’s

~~including~~

~~Moody’s~~Moody’s. These U.S. economic forecasts include a baseline forecast,

as well as upside and downside forecasts. The baseline forecast

continues to

represent the largest

weighting in our multi-weighted forecast scenario,

~~while due to economic uncertainty a greater weighting was placed on~~ with downside risks weighted heavier than the ~~downside economic forecast, relative to the upside forecast.~~more optimistic forecasts. Our

weighted forecast assumes GDP will increase by

~~2.5~~

% 2.7% in

~~2021~~

2022, 2% for 2023 and then grow by

~~3.6~~

% 3% in ~~202~~

~~and~~

~~202~~

.2024. The unemployment rate is forecasted to be

~~7.7~~

~~% in 2021,~~

~~before declining to~~

~~7.2~~

~~% percent~~ over 5% in 2022

and

~~5.7~~

2023 and then declining to 4.8% in ~~2023.~~

2024.

Management believes that the ACL was appropriate at December 31, ~~2020~~2021 and ~~2019.~~

~~As t~~

~~here is a high degree of~~2020. Due to the uncertainty around the epidemiological assumptions and ongoing impact of government responses to the pandemic that impact our economic forecast, no assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for credit losses in the future.

~~124~~

~~Table of Contents~~

The following tables present the balance and activity related to the allowance for credit losses for

held-for-investment

loans by type for the periods presented.


	Year Ended December 31, 2021
	Ending Balance December 31, 2020		Charge-offs			Recoveries		(Recapture of) Provision for Credit Losses			Ending Balance December 31, 2021
	(Dollars in thousands)
Commercial real estate	$	75,439	$	0		$	0	$	(24,489	)	$	50,950
Construction		1,934		0			58		(1,227	)		765
SBA		2,992		(223	)		23		(124	)		2,668
SBA - PPP		0		0			0		0			0
Commercial and industrial		7,142		(3,019	)		12		2,534			6,669
Dairy & livestock and agribusiness		3,949		(118	)		0		(765	)		3,066
Municipal lease finance receivables		74		0			0		26			100
SFR mortgage		367		0			79		(258	)		188
Consumer and other loans		1,795		(11	)		26		(1,197	)		613
Total allowance for credit losses	$	93,692	$	(3,371	)	$	198	$	(25,500	)	$	65,019

104


	Year Ended December 31, 2020
	Ending Balance, prior to adoption of ASU 2016-13 December 31, 2019		Impact of Adoption of ASU 2016-13			Charge-offs			Recoveries		Provision for (Recapture of) Credit Losses			Ending Balance December 31, 2020
	(Dollars in thousands)
Commercial real estate	$	48,629	$	3,547		$	0		$	0	$	23,263		$	75,439
Construction		858		655			0			11		410			1,934
SBA		1,453		1,818			(362	)		72		11			2,992
SBA - PPP		0		—			—			—		0			0
Commercial and industrial		8,880		(2,442	)		(195	)		10		889			7,142
Dairy & livestock and agribusiness		5,255		(186	)		0			0		(1,120	)		3,949
Municipal lease finance receivables		623		(416	)		0			0		(133	)		74
SFR mortgage		2,339		(2,043	)		0			206		(135	)		367
Consumer and other loans		623		907			(109	)		59		315			1,795
Total allowance for credit losses	$	68,660	$	1,840		$	(666	)	$	358	$	23,500		$	93,692

105


	Year Ended December 31, 2019
	Ending Balance December 31, 2018		Charge-offs			Recoveries		Provision for (Recapture of) Loan Losses			Ending Balance December 31, 2019
	(Dollars in thousands)
Commercial real estate	$	45,097	$	0		$	0	$	3,532		$	48,629
Construction		981		0			12		(135	)		858
SBA		1,078		(321	)		9		687			1,453
Commercial and industrial		7,528		(48	)		255		1,145			8,880
Dairy & livestock and agribusiness		5,225		(78	)		19		89			5,255
Municipal lease finance receivables		775		0			0		(152	)		623
SFR mortgage		2,197		0			196		(54	)		2,339
Consumer and other loans		732		(7	)		10		(112	)		623
Total allowance for loan losses	$	63,613	$	(454	)	$	501	$	5,000		$	68,660

Year Ended December 31, 2020


Ending Balance,

prior to
adoption

of ASU
2016-13

December 31,
2019

Impact of
Adoption
of ASU
2016-13

Charge-
offs

Recoveries

Provision for
(Recapture
of) Credit
Losses

Ending Balance
December 31,
2020


(Dollars in thousands)

Commercial real estate

$
48,629


$
3,547

$
0

$
0


$
23,263

$
75,439

Construction


858



655

0

11



410

1,934

SBA


1,453



1,818

(362
)

72



11

2,992

SBA - PPP


0



0

0

0



0

0

Commercial and industrial


8,880



(2,442
)

(195
)

10



889

7,142

Dairy & livestock and agribusiness


5,255



(186
)

0

0



(1,120
)

3,949

Municipal lease finance receivables


623



(416
)

0

0



(133
)

74

SFR mortgage


2,339



(2,043
)

0

206



(135
)

367

Consumer and other loans


623



907

(109
)

59



315

1,795


Total allowance for credit losses

$
68,660


$
1,840

$
(666
)

$
358


$
23,500

$
93,692

Year Ended December 31, 2019


Ending Balance
December 31,
2018

Charge-
offs

Recoveries

Provision for

(Recapture of)

Loan Losses

Ending Balance
December 31,
2019


(Dollars in thousands)

Commercial real estate

$
45,097

$
0
$
0

$
3,532
$
48,629

Construction

981

0 12

(135
)
858

SBA

1,078

(321
)
9

687 1,453

Commercial and industrial

7,528

(48
)
255

1,145 8,880

Dairy & livestock and agribusiness

5,225

(78
)
19

89 5,255

Municipal lease finance receivables

775

0 0

(152
)
623

SFR mortgage

2,197

0 196

(54
)
2,339

Consumer and other loans

732

(7
)
10

(112
)
623







Total allowance for loan losses

$
63,613

$
(454
)
$
501

$
5,000
$
68,660

~~125~~

~~Table of Contents~~

Year Ended December 31, 2018


Ending Balance
December 31,
2017

Charge-
offs

Recoveries

Provision for

(Recapture of)

Loan Losses

Ending Balance
December 31,
2018


(Dollars in thousands)

Commercial real estate
   $ 41,722    $ 0 $ 0    $ 3,212 $ 44,934
Construction
   984    0 2,506    (2,509 ) 981
SBA
   869    (257 ) 20    430 1,062
Commercial and industrial
   7,280    (10 ) 82    168 7,520
Dairy & livestock and agribusiness
   4,647    0 19    549 5,215
Municipal lease finance receivables
   851    0 0    (76 ) 775
SFR mortgage
   2,112    (13 ) 51    46 2,196
Consumer and other loans
   753    (11 ) 141    (157 ) 726
PCI loans
   367    0 0    (163 ) 204

Total allowance for loan losses
   $ 59,585    $ (291 ) $ 2,819    $ 1,500 $ 63,613

~~The following table presents the recorded investment in loans~~

~~held-for-investment~~

~~and the related ACL by loan type, based on the Company’s methodology for determining the ACL for the periods presented.~~

December 31, 2019


Recorded Investment in
Loans

Allowance for Loan Losses


Individually
Evaluated for
Impairment

Collectively
Evaluated for
Impairment

Individually
Evaluated for
Impairment

Collectively
Evaluated for
Impairment


(Dollars in thousands)

Commercial real estate
   $ 1,121    $ 5,373,496    $ 0    $ 48,629
Construction
   0    116,925    0    858
SBA
   2,568    302,440    257    1,196
Commercial and industrial
   1,344    933,783    251    8,629
Dairy & livestock and agribusiness
   0    383,709    0    5,255
Municipal lease finance receivables
   0    53,146    0    623
SFR mortgage
   2,979    280,489    0    2,339
Consumer and other loans
   377    115,942    0    623

Total
   $ 8,389    $ 7,559,930    $ 508    $ 68,152

Past Due and Nonperforming Loans

We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for credit losses, ~~and to determine the adequacy of the ACL,~~ are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated credit losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 –

Summary of Significant Accounting Policies

, included herein, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

~~126~~

~~Table of Contents~~

The following table presents the recorded investment in, and the aging of, past due loans (including nonaccrual loans), by type of loans as of the date presented.


	December 31, 2021
	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	438	$	0	$	3,383	$	3,821	$	2,127,979	$	2,131,800
Non-owner occupied		0		0		0		0		3,657,930		3,657,930
Construction
Speculative (1)		0		0		0		0		44,859		44,859
Non-speculative		0		0		0		0		17,405		17,405
SBA		417		1,145		339		1,901		286,699		288,600
SBA - PPP		0		0		0		0		186,585		186,585
Commercial and industrial		-		16		1,356		1,372		811,691		813,063
Dairy & livestock and agribusiness		0		0		0		0		386,219		386,219
Municipal lease finance receivables		0		0		0		0		45,933		45,933
SFR mortgage		1,040		0		0		1,040		239,614		240,654
Consumer and other loans		0		0		42		42		74,623		74,665
Total loans	$	1,895	$	1,161	$	5,120	$	8,176	$	7,879,537	$	7,887,713

(1)

Speculative construction loans are generally for properties where there is no identified buyer or renter.

106


	December 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	0	$	0	$	7,208	$	7,208	$	2,136,051	$	2,143,259
Non-owner occupied		0		0		0		0		3,358,250		3,358,250
Construction
Speculative (1)		0		0		0		0		72,126		72,126
Non-speculative		0		0		0		0		13,019		13,019
SBA		531		2,415		1,025		3,971		299,925		303,896
SBA - PPP		0		0		0		0		882,986		882,986
Commercial and industrial		608		811		2,338		3,757		808,305		812,062
Dairy & livestock and agribusiness		0		0		784		784		360,362		361,146
Municipal lease finance receivables		0		0		0		0		45,547		45,547
SFR mortgage		0		0		229		229		270,282		270,511
Consumer and other loans		0		0		0		0		86,006		86,006
Total loans	$	1,139	$	3,226	$	11,584	$	15,949	$	8,332,859	$	8,348,808

(1)

Speculative construction loans are generally for properties where there is no identified buyer or renter.

December 31, 2020


30-59 Days

Past Due

60-89 Days

Past Due

Greater
than 89
Days Past
Due

Total Past
Due

Loans Not
Past Due

Total Loans
and Financing
Receivables


(Dollars in thousands)

Commercial real estate

Owner occupied
   $ 0    $ 0    $ 7,208    $ 7,208    $ 2,136,051    $ 2,143,259
Non-owner
occupied
   0    0    0    0    3,358,250    3,358,250
Construction

Speculative (1)
   0    0    0    0    72,126    72,126
Non-speculative
   0    0    0    0    13,019    13,019
SBA
   531    2,415    1,025    3,971    299,925    303,896
SBA - PPP
   0    0    0    0    882,986    882,986
Commercial and industrial
   608    811    2,338    3,757    808,305    812,062
Dairy & livestock and agribusiness
   0    0    784    784    360,362    361,146
Municipal lease finance receivables
   0    0    0    0    45,547    45,547
SFR mortgage
   0    0    229    229    270,282    270,511
Consumer and other loans
   0    0    0    0    86,006    86,006

Total gross loans
   $ 1,139    $ 3,226    $ 11,584    $ 15,949    $   8,332,859    $ 8,348,808

~~(1)~~

~~Speculative construction loans are generally for properties where there is no identified buyer or renter.~~

Following the adoption of CECL on January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. Under CECL, amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance, and are ~~presented~~reflected by loan type as of the dates presented.


	December 31, 2021
	Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1)		Loans Past Due Over 89 Days Still Accruing
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	3,607	$	3,607	$	0
Non-owner occupied		0		0		0
Construction
Speculative (2)		0		0		0
Non-speculative		0		0		0
SBA		521		1,034		0
SBA - PPP		0		0		0
Commercial and industrial		1,326		1,714		0
Dairy & livestock and agribusiness		0		0		0
Municipal lease finance receivables		0		0		0
SFR mortgage		380		380		0
Consumer and other loans		158		158		0
Total loans	$	5,992	$	6,893	$	0

(1)

As of December 31, 2021, $1.2 million of nonaccruing loans were current, $332,000 were 30-59 days past due, $267,000 were 60-89 days past due, and $5.1 million were 90+ days past due.

(2)

Speculative construction loans are generally for properties where there is no identified buyer or renter.

107


	December 31, 2020
	Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1) (3)		Loans Past Due Over 89 Days Still Accruing
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	7,563	$	7,563	$	0
Non-owner occupied		0		0		0
Construction
Speculative (2)		0		0		0
Non-speculative		0		0		0
SBA		2,035		2,273		0
SBA - PPP		0		0		0
Commercial and industrial		1,576		3,129		0
Dairy & livestock and agribusiness		785		785		0
Municipal lease finance receivables		430		0		0
SFR mortgage		0		430		0
Consumer and other loans		167		167		0
Total loans	$	12,556	$	14,347	$	0

(1)

As of December 31, 2020, ~~by type~~$1.4 million of ~~loan.~~

December 31, 2020


Nonaccrual
with No
Allowance for
Credit Losses

Total

Nonaccrual

(1) (3)

Loans Past
Due Over 89
Days Still
Accruing


(Dollars in thousands)

Commercial real estate

Owner occupied
   $ 7,563    $ 7,563    $ 0
Non-owner
occupied
   0    0    0
Construction

Speculative (2)
   0    0    0
Non-speculative
   0    0    0
SBA
   2,035    2,273    0
SBA - PPP
   0    0    0
Commercial and industrial
   1,576    3,129    0
Dairy & livestock and agribusiness
   785    785    0
Municipal lease finance receivables
   430    0    0
SFR mortgage
   0    430    0
Consumer and other loans
   167    167    0

Total gross loans
   $ 12,556    $ 14,347    $ 0

~~(1)~~

~~As of December 31, 2020, $1.4 million of nonaccruing loans were current, $2,000 were~~

~~30-59~~

nonaccruing loans were current, $2,000 were 30-59 days past due, $1.3 million were 60-89 days ~~past due, $1.3 million were~~

~~60-89~~

~~days past due, and $11.6 million were 90+ days past due.~~

~~(2)~~

~~Speculative construction loans are generally for properties where there is no identified buyer or renter.~~

~~(3)~~

~~Excludes $184,000 of guaranteed portion of nonaccrual SBA loans that are in process of collection.~~

~~127~~

~~Table of Contents~~

~~The following table presents the recorded investment in, and the aging of,~~ past due, and ~~nonaccrual loans, by type of loans as of the date presented.~~

December 31, 2019


30-59 Days

Past Due

60-89 Days

Past Due

Total Past Due
and Accruing

Nonaccrual

(1) (3)

Current

Total Loans
and Financing
Receivables


(Dollars in thousands)

Commercial real estate

Owner occupied
   $ 0    $ 0    $ 0    $ 479    $ 2,083,171    $ 2,083,650
Non-owner
occupied
   0    0    0    245    3,290,722    3,290,967
Construction

Speculative (2)
   0    0    0    0    106,895    106,895
Non-speculative
   0    0    0    0    10,030    10,030
SBA
   870    532    1,402    2,032    301,574    305,008
Commercial and industrial
   2    0    2    1,266    933,859    935,127
Dairy & livestock and agribusiness
   0    0    0    0    383,709    383,709
Municipal lease finance receivables
   0    0    0    0    53,146    53,146
SFR mortgage
   6    243    249    878    282,341    283,468
Consumer and other loans
   0    0    0    377    115,942    116,319

Total gross loans
   $ 878    $ 775    $ 1,653    $ 5,277    $ 7,561,389    $ 7,568,319

~~(1)~~

~~As of December 31, 2019, $1.2 million of nonaccruing loans were current, $59,000 were~~

~~30-59~~

~~days past due, $1.1 million were~~

~~60-89~~

~~days past due and $2.9~~$11.6 million were 90+ days past due.

~~(2)~~

~~Speculative construction loans are generally for properties where there is no identified buyer or renter.~~

~~(3)~~

~~Excludes $2.0 million of guaranteed portion of nonaccrual SBA loans that are in process of collection.~~

(2)

~~128~~

Speculative construction loans are generally for properties where there is no identified buyer or renter.

(3)

~~Table~~Excludes $184,000 of ~~Contents~~guaranteed portion of nonaccrual SBA loans that are in process of collection.

108

Impaired Loans (prior to adoption of CECL)

Following the adoption of CECL ~~as of~~on January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. As a result of the change, the following tables present information about our impaired loans and lease finance receivables, individually evaluated for Impairment by loan type, ~~of loans,~~ as of December 31, 2019, ~~and 2018,~~ prior to the date of adoption of the amendments to the credit loss standard.


	Year Ended December 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
					(Dollars in thousands)
With no related allowance recorded:
Commercial real estate
Owner occupied	$	479	$	613	$	0	$	505	$	0
Non-owner occupied		642		643		0		681		26
Construction
Speculative		0		0		0		0		0
Non-speculative		0		0		0		0		0
SBA		2,243		2,734		0		2,389		41
Commercial and industrial		1,091		1,261		0		1,369		4
Dairy & livestock and agribusiness		0		0		0		0		0
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		2,979		3,310		0		3,043		86
Consumer and other loans		377		514		0		396		0
Total		7,811		9,075		0		8,383		157
With a related allowance recorded:
Commercial real estate
Owner occupied		0		0		0		0		0
Non-owner occupied		0		0		0		0		0
Construction
Speculative		0		0		0		0		0
Non-speculative		0		0		0		0		0
SBA		325		324		257		327		0
Commercial and industrial		253		347		251		699		0
Dairy & livestock and agribusiness		0		0		0		0		0
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		0		0		0		0		0
Consumer and other loans		0		0		0		0		0
Total		578		671		508		1,026		0
Total impaired loans	$	8,389	$	9,746	$	508	$	9,409	$	157

(1)

Excludes PCI loans.

As of and For the Year Ended

December 31, 2019

Recorded

  Investment

Unpaid

Principal

    Balance

Related

  Allowance

Average

Recorded

  Investment

Interest

Income

  Recognized

(Dollars in thousands)

With no related allowance recorded:

Commercial real estate

Owner occupied
   $ 479    $ 613    $
0
   $ 505    $
0

Non-owner occupied
   642    643    0    681    26
Construction

Speculative
   0    0

   0    0    0
Non-speculative
   0    0

   0    0    0
SBA
   2,243    2,734    0    2,389    41
Commercial and industrial
   1,091    1,261    0    1,369    4
Dairy & livestock and agribusiness
   0    0

   0    0    0
Municipal lease finance receivables
   0    0

   0    0    0
SFR mortgage
   2,979    3,310    0    3,043    86
Consumer and other loans
   377    514    0    396    0

Total
   7,811    9,075    0    8,383    157

With a related allowance recorded:

Commercial real estate

Owner occupied
   0    0    0    0    0
Non-owner occupied
   0    0    0    0    0
Construction

Speculative
   0    0    0    0    0
Non-speculative
   0    0    0    0    0
SBA
   325    324    257    327    0
Commercial and industrial
   253    347    251    699    0
Dairy & livestock and agribusiness
   0    0    0    0    0
Municipal lease finance receivables
   0    0    0    0    0
SFR mortgage
   0    0    0    0    0
Consumer and other loans
   0    0    0    0    0

Total
   578    671    508    1,026    0

Total impaired loans
   $ 8,389    $ 9,746    $ 508    $ 9,409    $ 157

~~129~~

109

~~Table of Contents~~

As of and For the Year Ended

December 31, 2018 (1)


Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized


(Dollars in thousands)

With no related allowance recorded:

Commercial real estate

Owner occupied
   $ 589    $ 705    $ 0    $ 624    $ 0
Non-owner
occupied
   2,808    4,324    0    4,585    32
Construction

Speculative
   0    0    0    0    0
Non-speculative
   0    0    0    0    0
SBA
   3,467    5,746    0    3,919    44
Commercial and industrial
   7,436    11,457    0    7,718    7
Dairy & livestock and agribusiness
   0    0    0    0    0
Municipal lease finance receivables
   0    0    0    0    0
SFR mortgage
   5,349    6,270    0    5,484    80
Consumer and other loans
   418    526    0    459    0

Total
   20,067    29,028    0    22,789    163

With a related allowance recorded:

Commercial real estate

Owner occupied
   0    0    0    0    0
Non-owner
occupied
   3,143    3,144    478    3,144    0
Construction

Speculative
   0    0    0    0    0
Non-speculative
   0    0    0    0    0
SBA
   0    0    0    0    0
Commercial and industrial
   189    191    3    203    0
Dairy & livestock and agribusiness
   78    78    12    78    0
Municipal lease finance receivables
   0    0    0    0    0
SFR mortgage
   0    0    0    0    0
Consumer and other loans
   68    100    68    76    0

Total
   3,478    3,513    561    3,501    0

Total impaired loans
   $ 23,545    $ 32,541    $ 561    $ 26,290    $ 163

~~(1)~~

~~Excludes PCI loans.~~

Collateral Dependent Loans

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents the recorded investment in collateral-dependent loans by type of loans as of the date presented.


	December 31, 2021						Number of Loans
	Real Estate		Business Assets		Other		Dependent on Collateral
	(Dollars in thousands)
Commercial real estate	$	6,001	$	0	$	0		6
Construction		0		0		0		0
SBA		405		517		112		10
SBA - PPP		0		0		0		0
Commercial and industrial		688		5,133		96		19
Dairy & livestock and agribusiness		0		0		0		0
Municipal lease finance receivables		0		0		0		0
SFR mortgage		380		0		0		2
Consumer and other loans		158		0		0		2
Total collateral-dependent loans	$	7,632	$	5,650	$	208		39


	December 31, 2020						Number of Loans
	Real Estate		Business Assets		Other		Dependent on Collateral
	(Dollars in thousands)
Commercial real estate	$	7,883	$	0	$	0		8
Construction		0		0		0		0
SBA		1,761		326		185		10
SBA - PPP		0		0		0		0
Commercial and industrial		470		5,542		95		18
Dairy & livestock and agribusiness		0		785		0		1
Municipal lease finance receivables		0		0		0		0
SFR mortgage		430		0		0		2
Consumer and other loans		168		0		0		2
Total collateral-dependent loans	$	10,712	$	6,653	$	280		41

December 31, 2020

Number of Loans

Dependent on

Collateral

Real Estate

Business Assets

Other

(Dollars in thousands)

Commercial real estate
$ 7,883    $ 0    $ 0    8
Construction
0    0    0    0
SBA
1,761    326    185    10
SBA

-

PPP
0    0    0    0
Commercial and industrial
470    5,542    95    18
Dairy & livestock and agribusiness
0    785    0    1
Municipal lease finance receivables
0    0    0    0
SFR mortgage
430    0    0    2
Consumer and other loans
168    0    0    2

Total collateral-dependent loans
$ 10,712    $ 6,653    $ 280    41

~~130~~

~~Table of Contents~~

Reserve for Unfunded Loan Commitments

The allowance for

off-balance

sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the

off-balance

sheet loan commitments in the same manner as it evaluates credit risk associated with the loan and lease portfolio. The Bank's ACL methodology produced an allowance of $8.0 million for the off-balance sheet credit exposures as of December 31, 2021. As a result of the adoption of ASU

2016-13,

the reserve for unfunded loan commitments included a transition adjustment of $41,000 as of January 1, 2020. There was a $1.0 million recapture of provision for unfunded commitments for the year ended December 31, 2021, compared to 0 provision or recapture of provision for unfunded commitments for the ~~years ended December 31, 2020 and 2019, compared with a recapture of provision for unfunded loan commitments of $250,000 for the~~ year ended December 31, ~~2018.~~2020. As of December 31, ~~2020 and 2019,~~2021 the balance in this reserve was $8.0 million compared to $9.0 million at December 31, 2020, and was included in other liabilities.

Troubled Debt Restructurings

Loans that are reported as TDRs are considered impaired and

charge-off

amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 —

Summary of Significant Accounting Policies, Troubled Debt Restructurings

, included herein.

110

As of December 31, ~~2020,~~2021, there were ~~$2.2~~$5.3 million of loans classified as a TDR, all of which were performing. TDRs on accrual status are comprised of loans that were accruing interest at the time of restructuring or have demonstrated repayment performance in compliance with the restructured terms for a sustained period and for which the Company anticipates full repayment of both principal and interest. At December 31, ~~2020,~~2021, performing TDRs were comprised of ~~seven SFR mortgage loans of $1.8 million,~~ one commercial real estate loan of ~~$320,000, and one~~$2.4 million, three commercial and industrial loan of ~~$43,000.~~

$1.9 million, and five SFR mortgage loans of $1.0 million.

The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time ~~a probable loss~~the loan is ~~determined.~~considered uncollectible. We have 0 allocated allowance to TDRs as of December 31, ~~2020~~2021 and December 31, ~~2019.~~

2020.

The following table provides a summary of the activity related to TDRs for the periods presented.


	Year Ended December 31,
	2021			2020
	(Dollars in thousands)
Performing TDRs:
Beginning balance	$	2,159		$	3,112
New modifications		7,340			0
Payoffs/payments, net and other		(4,206	)		(953	)
TDRs returned to accrual status		0			0
TDRs placed on nonaccrual status		0			0
Ending balance	$	5,293		$	2,159
Nonperforming TDRs:
Beginning balance	$	0		$	244
New modifications		0			0
Charge-offs		0			0
Transfer to OREO		0			0
Payoffs/payments, net and other		0			(244	)
TDRs returned to accrual status		0			0
TDRs placed on nonaccrual status		0			0
Ending balance	$	0		$	0
Total TDRs	$	5,293		$	2,159

111

Year Ended December 31,


            2020

            2019


(Dollars in thousands)

Performing TDRs:

Beginning balance
   $ 3,112    $ 3,594
New modifications
   0    0
Payoffs/payments, net and other
   (953 )    (482 )
TDRs returned to accrual status
   0    0
TDRs placed on nonaccrual status
   0    0

Ending balance    $ 2,159    $ 3,112

Nonperforming TDRs:

Beginning balance
   $ 244    $ 3,509
New modifications
   0    0
Charge-offs
   0    (78 )
Transfer to OREO
   0    (2,275 )
Payoffs/payments, net and other
   (244 )    (912 )
TDRs returned to accrual status
   0    0
TDRs placed on nonaccrual status
   0    0

Ending balance    $ 0    $ 244

Total TDRs    $ 2,159    $ 3,356

~~131~~

~~Table of Contents~~

The following ~~tables~~table summarize loans modified as TDRs for the ~~periods~~period presented. There were no loans that were modified as TDRs for the years ended December 31, 2020 and 2019.

Modifications (1)


	For the Year Ended December 31, 2021
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2021		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial real estate:
Interest rate reduction		1	$	2,453	$	2,453	$	2,394	$	0
Change in amortization period or maturity		0		0		0		0		0
Commercial and industrial:
Interest rate reduction		0		0		0		0		0
Change in amortization period or maturity		3		4,887		4,887		1,859		0
SFR mortgage:
Interest rate reduction		0		0		0		0		0
Change in amortization period or maturity		0		0		0		0		0
Total loans		4	$	7,340	$	7,340	$	4,253	$	0

(1)

The tables above exclude modified loans that were paid off prior to the end of the period.

(2)

~~Modifications (1)~~Financial effects resulting from modifications represent charge-offs and current allowance for credit losses at modification date.

For the Year Ended December 31, 2018 (2)

Number of
Loans

Pre-Modification

Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded

Investment

Outstanding

Recorded
Investment at
December 31, 2018

Financial Effect
Resulting From
Modifications (3)

(Dollars in thousands)

Commercial real estate:

Interest rate reduction
0 $ 0 $ 0 $ 0    $ 0
Change in amortization
period or maturity
0 0 0 0    0
Commercial and industrial:

Interest rate reduction
0 0 0 0    0
Change in amortization
period or maturity
1 38 38 20    0
Dairy & livestock and
agribusiness:

Interest rate reduction
0 0 0 0    0
Change in amortization
period or maturity
0 0 0 0    0
SFR mortgage:

Interest rate reduction
0 0 0 0    0
Change in amortization
period or maturity
1 311 311 300    0
Consumer:

Interest rate reduction
0 0 0 0    0
Change in amortization
period or maturity
1 278 278 267    0

Total loans
3 $ 627 $ 627 $ 587    $ 0

~~(1)~~

~~The tables above exclude modified loans that were paid off prior to the end of the period.~~

~~(2)~~

~~Excludes PCI loans.~~

~~(3)~~

~~Financial effects resulting from modifications represent charge-offs and specific allowance recorded at modification date.~~

As of December 31, ~~2020~~2021 and ~~2019,~~2020, there were 0 loans that were modified as a TDR within the previous 12 months that subsequently defaulted.

In accordance with regulatory guidance, if borrowers are less than 30 days past due on their loans, upon implementation of the modification program, or as allowed under the CARES Act if borrowers are less than 30 days past due on their loans as of December 31, 2019, and enter into short-term loan modifications offered as a result of

COVID-19,

their loans generally continue to be considered performing loans and continue to accrue interest during the period of the loan modification. For borrowers who are 30 days or more past due when entering into loan modifications offered as a result of

COVID-19,

we evaluate the loan modifications under our existing troubled debt restructuring framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR and will generally not accrue interest. For all borrowers who enroll in these loan modification programs offered as a result of

COVID-19,

the delinquency status of the borrowers is frozen, resulting in a static delinquency metric during the deferral period. Upon exiting the deferral program, the measurement of loan delinquency will resume where it had left off upon entry into the program.

112

6.OTHER REAL ESTATE OWNED

~~132~~

~~Table of Contents~~

7.	~~OTHER REAL ESTATE OWNED~~

The following table summarizes the activity related to total OREO for the periods presented.


	Year Ended December 31,
	2021			2020
	(Dollars in thousands)
Balance, beginning of period	$	3,392		$	4,889
Additions		443			0
Dispositions		(4,535	)		(797	)
Valuation adjustments		700			(700	)
Balance, end of period	$	0		$	3,392

7.GOODWILL AND OTHER INTANGIBLE ASSETS

Year Ended December 31,


          2020

          2019


(Dollars in thousands)

Balance, beginning of period
   $ 4,889    $ 420
Additions
   0    4,889
Dispositions
   (797 )    (420 )
Valuation adjustments
   (700 )    0

Balance, end of period
   $ 3,392    $ 4,889

8.	~~GOODWILL AND OTHER INTANGIBLE ASSETS~~

The following table presents the changes in the carrying amount of goodwill for the periods presented.


	Year Ended December 31,
	2021		2020
	(Dollars in thousands)
Balance, beginning of period	$	663,707	$	663,707
Purchase accounting adjustments		0		0
Balance, end of period	$	663,707	$	663,707

Year Ended December 31,


          2020

          2019


(Dollars in thousands)

Balance, beginning of period
   $ 663,707    $ 666,539
Purchase accounting adjustments
   0    (2,832 )

Balance, end of period
   $ 663,707    $ 663,707

The following summarizes changes in CDI and the related accumulated amortization for the periods presented.

Year Ended December 31,

2020

2019

  Gross CDI

  Accumulated

  Net CDI

  Gross CDI

  Accumulated

  Net CDI

Amount

Amortization

Amount

Amount

Amortization

Amount

(Dollars in thousands)

Balance of intangible assets, beginning of period
   $ 93,297    $ (50,311 ) $ 42,986 $ 93,297    $ (39,513 ) $ 53,784
Amortization
      (9,352 ) (9,352 )    (10,798 ) (10,798 )

Balance of intangible assets, end of period
   $ 93,297    $ (59,663 ) $ 33,634 $ 93,297    $ (50,311 ) $ 42,986


	Year Ended December 31,
	2021								2020
	Gross CDI		Accumulated			Net CDI			Gross CDI		Accumulated			Net CDI
	Amount		Amortization			Amount			Amount		Amortization			Amount
	(Dollars in thousands)
Balance of intangible assets, beginning of period	$	93,297	$	(59,663	)	$	33,634		$	93,297	$	(50,311	)	$	42,986
Amortization				(8,240	)		(8,240	)				(9,352	)		(9,352	)
Balance of intangible assets, end of period	$	93,297	$	(67,903	)	$	25,394		$	93,297	$	(59,663	)	$	33,634

The following table reflects the estimated amortization expense for the periods presented, as of December 31, ~~2020.~~2021.


	December 31, 2021
Year:	(Dollars in thousands)
2022	$	7,126
2023		6,010
2024		4,892
2025		3,773
2026		2,415
Thereafter		1,178
Total	$	25,394

  December 31, 2020

Year:

(Dollars in thousands)

2021
   $ 8,240
2022
   7,126
2023
   6,010
2024
   4,892
2025
   3,773
Thereafter
   3,593

Total
   $ 33,634

~~133~~

~~Table of Contents~~

At December 31, ~~2020~~2021 the weighted average remaining life of intangible assets is approximately ~~2.54~~2.19 years.

113

8.PREMISES AND EQUIPMENT

9.	~~PREMISES AND EQUIPMENT~~

Premises and equipment were comprised of the following as of the dates presented.


	December 31,
	2021			2020
	(Dollars in thousands)
Land	$	18,566		$	18,798
Bank premises		70,081			70,130
Furniture and equipment		31,174			29,058
Premises and equipment, gross		119,821			117,986
Accumulated depreciation and amortization		(70,725	)		(66,842	)
Premises and equipment, net	$	49,096		$	51,144

December 31,


        2020

        2019


(Dollars in thousands)

Land
   $ 18,798    $ 19,188
Bank premises
   70,130    68,387
Furniture and equipment
   29,058    27,540

Premises and equipment, gross
   117,986    115,115
Accumulated depreciation and amortization
   (66,842 )    (61,137 )

Premises and equipment, net
   $ 51,144    $ 53,978

For the first six months of 2019, a total of 10 banking centers were consolidated, including nine former CB centers. In 2020, the Bank recognized $1.7 million in net gain on the sale of our bank owned buildings, compared to $4.8 million in 2019.

Total depreciation and amortization expense was approximately $6.4 million, $6.9 million ~~$6.8 million~~ and ~~$6.5~~$6.8 million for the years ended December 31, 2021, 2020 and 2019, ~~and 2018,~~ respectively.

9.OTHER ASSETS

~~10.~~

~~OTHER ASSETS~~

Other assets were comprised of the following as of the dates presented.


	December 31,
	2021		2020
	(Dollars in thousands)
Prepaid expenses	$	7,955	$	6,929
Interest rate swaps		14,163		30,181
ROU assets		19,274		19,112
Affordable housing investments		8,818		10,617
Other investments		55,941		48,017
Other assets		12,150		12,841
Total	$	118,301	$	127,697

10.INCOME TAXES

December 31,


        2020

        2019


(Dollars in thousands)

Prepaid expenses
   $ 6,929    $ 6,571
Interest rate swaps
   30,181    11,502
ROU assets
   19,112    18,522
Affordable housing investments
   10,617    12,452
Other investments
   48,017    45,540
Other assets
   12,841    15,550

Total
   $ 127,697    $ 110,137

~~134~~

~~Table of Contents~~

~~11.~~

~~INCOME TAXES~~

The current and deferred amounts of income tax expense consist of the following.


	Year Ended December 31,
	2021		2020			2019
	(Dollars in thousands)
Current provision:
Federal	$	44,514	$	48,328		$	51,564
State		27,526		28,469			29,487
		72,040		76,797			81,051
Deferred provision:
Federal		8,782		(2,997	)		486
State		4,305		(1,439	)		1,710
		13,087		(4,436	)		2,196
Total	$	85,127	$	72,361		$	83,247

114

Year Ended December 31,


        2020

        2019

        2018


(Dollars in thousands)

Current provision:

Federal
   $ 48,328    $ 51,564    $ 31,055
State
   28,469    29,487    20,546

   76,797    81,051    51,601

Deferred provision:
Federal
   (2,997 )    486    5,158
State
   (1,439 )    1,710    2,353

   (4,436 )    2,196    7,511

Total
   $72,361    $ 83,247    $ 59,112

Income tax asset consists of the

~~following~~ following.


	December 31,
	2021		2020
	(Dollars in thousands)
Current:
Federal	$	5,452	$	5,408
State		2,150		2,610
		7,602		8,018
Deferred:
Federal		16,500		14,779
State		8,501		6,743
		25,001		21,522
Total	$	32,603	$	29,540

December 31,


        2020

        2019


(Dollars in thousands)

Current:

Federal
   $ 5,408    $ 5,890
State
   2,610    3,456

   8,018    9,346

Deferred:

Federal
   14,779    17,580
State
   6,743    8,661

   21,522    26,241

Total
   $ 29,540    $ 35,587

~~135~~

~~Table of Contents~~

Temporary differences between the amounts reported in the financial statements and the tax bases of assets and liabilities resulted in deferred taxes. The components of the net deferred tax asset are as follows.


	December 31,
	2021		2020
	(Dollars in thousands)
Deferred tax assets:
Bad debt and credit loss deduction	$	23,228	$	32,671
Net operating loss carryforward		0		10
Deferred compensation		6,367		6,607
PCI loans		657		663
California franchise tax		3,873		4,584
Accrued expense		5,071		4,662
Unrealized loss on investment securities, net		423		—
Acquired loan discounts		5,863		9,709
Lease liability		6,472		6,369
Other, net		1,784		3,865
Gross deferred tax asset		53,738		69,140
Deferred tax liabilities:
Depreciation		3,443		2,675
Intangibles - acquisitions		12,812		15,376
FHLB Stock		2,525		2,525
Deferred income		3,825		3,544
Right of use asset		6,132		6,080
Unrealized gain on investment securities, net		0		17,418
Gross deferred tax liability		28,737		47,618
Net deferred tax asset	$	25,001	$	21,522

115

December 31,


    2020

    2019


(Dollars in thousands)

Deferred tax assets:

Bad debt and credit loss deduction
   $ 32,671    $ 24,282
Net operating loss carryforward
   10    75
Deferred compensation
   6,607    6,942
PCI loans
   663    2,299
California franchise tax
   4,584    4,281
Accrued expense
   4,662    4,831
Acquired loan discounts
   9,709    15,180
Lease liability
   6,369    6,175
Other, net
   3,865    1,453

Gross deferred tax asset
   69,140    65,518


Deferred tax liabilities:

Depreciation
   2,675    3,895
Intangibles - acquisitions
   15,376    16,941
FHLB Stock
   2,525    2,525
Deferred income
   3,544    3,055
Right of use asset
   6,080    5,893
Unrealized gain on investment securities, net
   17,418    6,968

Gross deferred tax liability
   47,618    39,277

Net deferred tax asset
   $ 21,522    $     26,241

Annual Effective Tax Rate

The annual consolidated effective tax rate for the periods presented, is reconciled to the U.S. statutory income rate as follows.


	Year Ended December 31,
	2021						2020						2019
	Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Federal income tax at statutory rate	$	62,506			21.0	%	$	52,399			21.0	%	$	61,126			21.0	%
State franchise taxes, net of federal benefit		24,600			8.3	%		20,950			8.4	%		24,430			8.4	%
Tax-exempt income		(3,165	)		(1.1	)%		(3,191	)		(1.3	)%		(3,081	)		(1.1	)%
Tax credits		(1,640	)		(0.6	)%		(1,946	)		(0.8	)%		(2,153	)		(0.7	)%
Other, net		2,826			1.0	%		4,149			1.7	%		2,925			1.0	%
Provision for income taxes	$	85,127			28.6	%	$	72,361			29.0	%	$	83,247			28.6	%

Year Ended December 31,

2020

2019

2018

    Amount

    Percent

    Amount

    Percent

    Amount

    Percent

(Dollars in thousands)

Federal income tax at statutory rate
$ 52,399 21.0 % $ 61,126 21.0 % $ 44,334 21.0 %
State franchise taxes, net of federal benefit
20,950 8.4 % 24,430 8.4 % 17,905 8.5 %
Tax-exempt
income
(3,191 ) (1.3 %)�� (3,081 ) (1.1 %) (2,991 ) (1.4 %)
Tax credits
(1,946 ) (0.8 %) (2,153 ) (0.7 %) (1,451 ) (0.7 %)
Other, net
4,149 1.7 % 2,925 1.0 % 1,315 0.6 %

Provision for income taxes
$ 72,361 29.0 % $ 83,247 28.6 % $ 59,112 28.0 %

There were 0

significant

unrecognized tax benefits at December 31, ~~2020~~2021 and ~~2019.~~2020. We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease within the next twelve months.

The Company is subject to federal income tax and franchise tax of the state of California. Our federal income tax returns for the years ended December 31, 2015 through

~~2020~~

2021 are open to audit by the federal authorities and our California state tax returns for the years ended December 31,

2015

through

~~2020~~

2021 are open to audit by state authorities.

11.DEPOSITS

~~136~~

~~Table of Contents~~

~~12.~~

~~DEPOSITS~~

The composition of deposits is summarized for the periods presented in the table below.


	December 31,
	2021					2020
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Noninterest-bearing deposits	$	8,104,056		62.45	%	$	7,455,387		63.52	%
Interest-bearing deposits
Investment checking		655,333		5.05	%		517,976		4.42	%
Money market		3,342,531		25.76	%		2,869,348		24.45	%
Savings		546,840		4.21	%		492,096		4.19	%
Time deposits		327,682		2.53	%		401,694		3.42	%
Total deposits	$	12,976,442		100.00	%	$	11,736,501		100.00	%

December 31,


2020

2019


Amount

Percent

Amount

Percent


(Dollars in thousands)

Noninterest-bearing deposits
   $ 7,455,387    63.52 % $ 5,245,517    60.26 %
Interest-bearing deposits

Investment checking
   517,976    4.42 % 454,565    5.22 %
Money market
   2,869,348    24.45 % 2,158,161    24.79 %
Savings
   492,096    4.19 % 400,377    4.60 %
Time deposits
   401,694    3.42 % 446,308    5.13 %

Total deposits
   $   11,736,501    100.00 % $   8,704,928    100.00 %

Time deposits with balances of $

~~250,000~~

$250,000 or more amounted to approximately ~~$100.3~~$79.9 million and ~~$107.9~~$100.3 million at December 31, 2021 and 2020, ~~and 2019,~~ respectively.

At December 31, 2020, the scheduled maturities of time certificates of deposit are as follows.


	December 31, 2021
Year of maturity:	(Dollars in thousands)
2022	$	304,007
2023		11,457
2024		1,681
2025		7,984
2026 and thereafter		2,553
Total	$	327,682

116

  December 31, 2020

Year of maturity:

(Dollars in thousands)

2021
   $ 362,469
2022
   24,155
2023
   5,096
2024
   1,311
2025 and thereafter
   8,663

Total
   $ 401,694

~~13.~~

~~BORROWINGS~~

12.BORROWINGS

Customer Repurchase Agreements

The Bank offers a repurchase agreement product to its customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price which reflects the market value of the use of funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a

pre-determined

balance in a demand deposit account, in order to earn interest. As of December 31, ~~2020,~~2021, total funds borrowed under these agreements were ~~$439.4~~$642.4 million with a weighted average interest rate of ~~0.10%~~0.08%, compared to ~~$428.7~~$439.4 million with a weighted average rate of ~~0.44%~~0.10% at December 31, ~~2019.~~

2020.

Federal Home Loan Bank Advances

At December 31, ~~2020~~2021 and ~~2019,~~2020, there were no outstanding FHLB advances.

At December 31, ~~2020, $6.07~~2021, $3.96 billion of loans and ~~$1.81~~$2.18 billion of investment securities, at carrying value, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.

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Other Borrowings

At December 31, ~~2020,~~2021, the Bank had $2.3 million in overnight borrowings. We had $5.0 million in short-term borrowings that were interest-free advances from the ~~FHLB. We had 0 short-term borrowings~~FHLB at December 31, ~~2019.~~

2020.

Junior Subordinated Debentures

On January 31, 2006, CVB Statutory Trust III completed a $25,000,000 offering of Trust Preferred Securities and used the gross proceeds from the offering and other cash totaling $25,774,000 to purchase a like amount of junior subordinated debentures of the Company. The junior subordinated debentures were issued concurrent with the issuance of the Trust Preferred Securities. The interest on junior subordinated debentures, paid by the Company to CVB Statutory Trust III, represents the sole revenues of CVB Statutory Trust III and the sole source of dividend distributions to the holders of the Trust Preferred Securities. The Company has fully and conditionally guaranteed all of CVB Statutory Trust III’s obligations under the Trust Preferred Securities. The Company has the right, assuming no default has occurred, to defer payments of interest on the junior subordinated debenture at any time for a period not to exceed 20 consecutive ~~quarters.~~quarters. The Trust Preferred Securities will mature on March 15, 2036, but became callable in part or in total on March 15, 2011 by CVB Statutory Trust III. The Trust Preferred Securities have a variable per annum rate equal to LIBOR (as defined in the indenture dated as of January 31, 2006 (“Indenture”) between the Company and U.S. Bank National Association, as debenture trustee) plus 1.38% (the “Variable Rate”). ~~As of December 31, 2020, these~~These securities ~~continue to be outstanding.~~

were redeemed on June 15, 2021.

~~14.~~

~~COMMITMENTS AND CONTINGENCIES~~

13.COMMITMENTS AND CONTINGENCIES

Commitments

At December 31, ~~2020~~2021 and ~~2019,~~2020, the Bank had commitments to extend credit of approximately ~~$1.61~~$1.58 billion and ~~$1.54~~$1.61 billion, respectively, and obligations under letters of credit of ~~$53.2~~$44.9 million and ~~$53.1~~$53.2 million, respectively. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. The Bank uses the same credit underwriting policies in granting or accepting such commitments or contingent obligations as it does for

on-balance-sheet

instruments, which consist of evaluating customers’ creditworthiness individually. The Bank had a reserve for unfunded loan commitments of $8.0 million and $9.0 million as of December 31, 2021 and 2020, respectively, and ~~2019~~is included in other liabilities.

117

customers. When deemed necessary, the Bank holds appropriate collateral supporting those commitments. Management does not anticipate any material losses as a result of these transactions.

At December 31, ~~2020,~~2021, the Bank has available lines of credit totaling ~~$4.29~~$4.52 billion from correspondent banks, FHLB and Federal Reserve Bank of which ~~$3.90~~$3.96 billion were secured.

Other Contingencies

The Company and its subsidiaries are parties to various lawsuits and threatened lawsuits in the ordinary and

non-ordinary

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consumer claims, regulatory compliance claims, data privacy claims, lender liability claims and negligence claims, some of which may be styled as “class action” or representative cases. Some of these lawsuits may be similar in nature to other lawsuits pending against the Company’s competitors.

~~15.~~

~~EMPLOYEE BENEFIT PLANS~~

14.EMPLOYEE BENEFIT PLANS

Deferred Compensation Plans

As of December 31, ~~2020~~2021 the Company had various deferred compensation plans, which included a deferred compensation plan for its former President and Chief Executive Officer, Christopher D. Myers, and severance arrangements it assumed through the acquisition of other banks in prior years. We also offer a

non-qualified

deferred compensation plan for our executives and key members of management in order to assist us in attracting and retaining these individuals. Participants in the plan may elect to defer a portion of their annual salary and/or short-term incentive payouts into deferral accounts to provide a means by which they may elect to defer receipt of compensation in order to provide retirement benefits. The plan is intended to be unfunded and allows us to make discretionary contributions on behalf of a participant. NaN discretionary payments were made by the Company during the years ended December 31, 2021, 2020 ~~2019~~ and ~~2018.~~2019. The Bank, however, does fund the cost of these plans through the purchase of bank owned life insurance policies, which are reflected as assets on the Company’s consolidated balance sheets. At December 31, ~~2020~~2021 and ~~2019,~~2020, the total deferred compensation liability was ~~$21.6~~$20.9 million and ~~$22.7~~$21.6 million, respectively. Total expense for these deferred compensation agreements was approximately $1.4 million ~~$1.4 million, and $953,000~~ for each of the years ended December 31, 2021, 2020 and 2019, ~~and 2018,~~ respectively.

~~139~~

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401(k) and Profit Sharing Plan

The Bank sponsors a 401(k) and profit-sharing plan for the benefit of its employees. Employees are eligible to participate in the plan immediately upon hire. Employees may make contributions to the plan under the plan’s 401(k) component. The Bank contributes 3%,

non-matching,

to the plan to comply with ERISA’s safe harbor provisions. The Bank may make additional contributions under the plan’s profit-sharing component, subject to certain limitations,

, which was 3% for 2021, and 2% for both 2020 ~~2019~~ and ~~2018.~~

2019. The Bank’s total contributions are determined by the Board of Directors and amounted to approximately ~~$4.3~~$5.0 million for 2021, $4.3 million for 2020, and $4.1 million for ~~201~~

9,2019.

~~and $3.5 million for 2018.~~

~~16.~~

~~EARNINGS PER SHARE RECONCILIATION~~

15.EARNINGS PER SHARE RECONCILIATION

Basic earnings per common share are computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of shares issuable upon the assumed exercise of outstanding common stock options. Antidilutive common shares are not included in the calculation of diluted earnings per common share. For the years ended December 31, 2021, 2020 ~~2019~~ and ~~2018,~~2019, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share were 114,000, 291,000 and 183,000, ~~and 160,000,~~ respectively.

The table below shows earnings per common share and diluted earnings per common share, and reconciles the numerator and denominator of both earnings per common share calculations.


	Year Ended December 31,
	2021		2020		2019
	(In thousands, except per share amounts)
Earnings per common share:
Net earnings	$	212,521	$	177,159	$	207,827
Less: Net earnings allocated to restricted stock		970		572		488
Net earnings allocated to common shareholders	$	211,551	$	176,587	$	207,339
Weighted average shares outstanding		135,165		136,031		139,757
Basic earnings per common share	$	1.57	$	1.30	$	1.48
Diluted earnings per common share:
Net income allocated to common shareholders	$	211,551	$	176,587	$	207,339
Weighted average shares outstanding		135,165		136,031		139,757
Incremental shares from assumed exercise of outstanding options		217		175		177
Diluted weighted average shares outstanding		135,382		136,206		139,934
Diluted earnings per common share	$	1.56	$	1.30	$	1.48

Year Ended December 31,


2020

2019

2018


(In thousands, except per share amounts)

Earnings per common share:

Net earnings
   $ 177,159    $ 207,827    $ 152,003
Less: Net earnings allocated to restricted stock
   572    488    429

Net earnings allocated to common shareholders
   $ 176,587    $ 207,339    $ 151,574


Weighted average shares outstanding
   136,031    139,757    121,670

Basic earnings per common share
   $ 1.30    $ 1.48    $ 1.25


Diluted earnings per common share:

Net income allocated to common shareholders
   $   176,587    $   207,339    $   151,574


Weighted average shares outstanding
   136,031    139,757    121,670
Incremental shares from assumed exercise of

outstanding options
   175    177    287

Diluted weighted average shares outstanding
   136,206    139,934    121,957

Diluted earnings per common share
   $ 1.30    $ 1.48    $ 1.24

~~17.~~

~~STOCK-BASED COMPENSATION PLANS~~

16.STOCK-BASED COMPENSATION PLANS

In May 2018, the shareholders approved the 2018 Equity Plan which authorizes the issuance of up to 9,000,000 shares of CVB’s common stock for eligible participants, which include all of the Company’s employees, officers, and directors, and expires in 2028. The plan authorizes the issuance of a variety of types of equity awards, which include incentive stock options,

non-qualified

stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and other stock-based awards. The 2018 Equity Plan replaced the

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2008 Equity Incentive Plan. No further grants will be made under the 2008 Equity Incentive Plan, but shares may continue to be issued under such plan pursuant to grants previously made. As of December 31, ~~2020,~~2021, we have ~~221,500~~152,700 outstanding options, unvested RSAs and RSUs under our 2008 Equity Incentive Plan.

Stock Options

The Company expensed $220,000, $183,000, ~~$352,000,~~ and ~~$400,000,~~$352,000, for the years ended December 31, 2021, 2020 and 2019, ~~and 2018,~~ respectively.

The estimated fair value of the options granted during ~~2020~~2021 and prior years was calculated using the Black-Scholes options pricing model. There were 64,500, 217,500 ~~1,500~~ and ~~140,500~~1,500 options granted during 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively. The options will vest, in equal installments, over a five-year period. The fair value of each stock option granted in 2020, 2019 and 2018, was estimated on the date of grant using the following weighted-average assumptions.

119


	Year Ended December 31,
	2021			2020			2019
Dividend yield		3.6	%		4.0	%		2.4	%
Volatility		29.6	%		27.1	%		23.3	%
Risk-free interest rate		0.4	%		0.4	%		2.5	%
Expected life	5.5 years			5.3 years			5.4 years
Weighted average grant date fair value	$	3.45		$	2.56		$	4.35

Year Ended December 31,


2020

2019

2018

Dividend yield
   4.0 % 2.4 % 2.4 %
Volatility
   27.1 % 23.3 % 25.4 %
Risk-free interest rate
   0.4 % 2.5 % 2.9 %
Expected life
       5.3 years     5.4 years     5.4 years
Weighted average grant date fair value
   $ 2.56 $ 4.35 $ 5.08

The expected volatility is solely based on the daily historical stock price volatility over the expected option life. The expected life of options granted is derived from the output of the option valuation model and represents the period of time an optionee will hold an option before exercising it. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury five-year constant maturity yield curve in effect at the time of the grant. In connection with the adoption of ASU

2016-09

in 2017, the Company elected to account for forfeitures as they occur, rather than to estimate forfeitures over the vesting period.

The following table presents option activity under the Company’s stock option plans as of and for the year ended December 31, ~~2020.~~2021.


	Number of Stock Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	(In thousands)					(In years)		(In thousands)
Outstanding at January 1, 2021		428		$	17.57
Granted		65			19.95
Exercised		(68	)		18.88
Forfeited or expired		(11	)		18.98
Outstanding at December 31, 2021		414		$	17.98		6.57	$	1,492
Vested or expected to vest at December 31, 2021		414		$	17.98		6.57	$	1,492
Exercisable at December 31, 2021		212		$	17.03		4.75	$	975

Number of
Stock Options
Outstanding

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic Value


(In thousands)

(In years)

(In thousands)

Outstanding at January 1, 2020
   359 $ 17.99
Granted
   217 18.12
Exercised
   (20 ) 11.64
Forfeited or expired
   (128 ) 20.59

Outstanding at December 31, 2020
   428 $ 17.57 4.65 $ 1,021

Vested or expected to vest at December 31, 2020
   428 $ 17.57 4.65 $ 1,021
Exercisable at December 31, 2020
   175 $ 16.10 4.03 $ 685

The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 ~~and 2018~~ was $262,000, $144,000 and $1.3 million, ~~and $2.2 million,~~ respectively.

As of December 31, ~~2020,~~2021, there was a total of ~~$601,000~~$480,000 in unrecognized compensation cost related to nonvested options granted under the Plan. That cost is expected to be recognized over a weighted-average period

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of approximately 2.8 years. The total fair value of options vested was $258,000, $183,000 and $520,000 during 2021, 2020 and ~~$364,000 during 2020,~~ 2019, ~~and 2018,~~ respectively. Cash received from stock option exercises was $1.3 million, $232,000 and $2.2 million, in 2021, 2020 and ~~$1.7 million, in 2020,~~ 2019, ~~and 2018,~~ respectively.

At December 31, ~~2020,~~2021, options for the purchase of ~~428,320~~414,300 shares of CVB’s common stock were outstanding under the above plans, of which options to purchase ~~174,710~~212,100 shares were exercisable at prices ranging from $11.03 to $24.83.

The Company has a policy of issuing new shares to satisfy share option exercises.

Restricted Stock Awards and Restricted Stock Units

The Company granted 394,884, 358,464 ~~217,000~~ and ~~424,000~~217,000 restricted stock awards during 2021, 2020 ~~2019~~ and ~~2018~~2019 respectively. The weighted average grant date fair value of RSAs and RSUs granted in 2021, 2020 and 2019 ~~and 2018~~ was $20.43 per share, $18.20 per share ~~$20.76 per share~~ and ~~$23.84~~$20.76 per share, respectively. These awards will vest, in equal installments, over a period of approximately one to five ~~years.~~

years.

Compensation cost is recognized over the requisite service period, which is approximately one to five years, and amounted to $5.0 million, $5.3 million ~~$5.2 million~~ and ~~$3.1~~$5.2 million during the years ended December 31, 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively. Total unrecognized compensation cost related to RSAs and RSUs was ~~$7.3~~$9.4 million at December 31, ~~2020.~~

2021.

120

The table below summarizes activity related to the Company’s

non-vested

RSAs and RSUs for the year ended December 31, ~~2020.~~2021.


	Shares			Weighted Average Fair Value
	(In thousands)
Nonvested at January 1, 2021		491		$	19.36
Granted		395			20.43
Vested		(176	)		19.51
Forfeited		(47	)		21.23
Nonvested at December 31, 2021		663		$	19.83

Shares

Weighted
Average Fair
Value


(In thousands)

Nonvested at January 1, 2020
   441 $ 21.25
Granted
   358 18.20
Vested
   (302 ) 20.70
Forfeited
   (6 ) 21.34

Nonvested at December 31, 2020
   491 $ 19.36

Under the 2018 Equity Incentive Plan, ~~7,322,206~~6,607,285 shares of common stock were available for the granting of future stock-based awards as of December 31, ~~2020.~~

2021.

~~18.~~

~~REGULATORY~~

~~MATTERS~~

17.REGULATORY MATTERS

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct, material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain

off-balance-sheet

items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgment by the regulators about components, risk-weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

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require the achievement of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital ratio of 6.0% and a common equity Tier 1 (“CET1”) capital ratio of 4.5%. In addition, the regulatory authorities require the highest rated institutions to maintain a minimum leverage ratio of 4.0%. To be considered “well-capitalized” for bank regulatory purposes, the Bank and the Company are required to have a CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital and CET1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of December 31, ~~2020~~2021 and ~~2019,~~2020, the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, ~~2020~~2021 and ~~2019,~~2020, the most recent notifications from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the minimum total risk-based, Tier 1 risk-based, CET1 risk-based, and Tier 1 leverage (tangible Tier 1 capital divided by average total assets) ratios as set forth in the table below must be maintained. There are no conditions or events since said notification that management believes have changed the Bank’s category.

121

As of December 31, 2020, ~~and 2019,~~ the Company had ~~$25.7~~$25.8 million of trust-preferred securities, which were included in Tier 1 capital for regulatory purposes, respectively. These securities were redeemed on June 15, 2021.

The following table summarizes regulatory capital amounts and ratios for the Company and the Bank as of December 31, ~~2020~~2021 and ~~2019.~~2020.


	Actual					For Capital Adequacy Purposes						To Be Well Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio			Amount			Ratio			Amount			Ratio
	(Dollars in thousands)
As of December 31, 2021:
Total Capital (to Risk-Weighted Assets)
Company	$	1,479,453		15.63	%	$	757,166	≥		8.00	%				N/A
Bank	$	1,436,988		15.18	%	$	757,136	≥		8.00	%	$	946,420	≥		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)
Company	$	1,406,434		14.86	%	$	567,875	≥		6.00	%				N/A
Bank	$	1,363,879		14.41	%	$	567,852	≥		6.00	%	$	757,136	≥		8.00	%
Common equity Tier 1 capital ratio
Company	$	1,406,434		14.86	%	$	425,906	≥		4.50	%				N/A
Bank	$	1,363,879		14.41	%	$	425,889	≥		4.50	%	$	615,173	≥		6.50	%
Tier 1 Capital (to Average-Assets)
Company	$	1,406,434		9.18	%	$	613,072	≥		4.00	%				N/A
Bank	$	1,363,879		8.90	%	$	612,983	≥		4.00	%	$	766,229	≥		5.00	%
As of December 31, 2020:
Total Capital (to Risk-Weighted Assets)
Company	$	1,415,008		16.24	%	$	697,258	≥		8.00	%				N/A
Bank	$	1,372,184		15.75	%	$	696,849	≥		8.00	%	$	871,061	≥		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)
Company	$	1,312,316		15.06	%	$	522,944	≥		6.00	%				N/A
Bank	$	1,269,492		14.57	%	$	522,636	≥		6.00	%	$	696,849	≥		8.00	%
Common equity Tier 1 capital ratio
Company	$	1,287,316		14.77	%	$	392,208	≥		4.50	%				N/A
Bank	$	1,269,492		14.57	%	$	391,977	≥		4.50	%	$	566,189	≥		6.50	%
Tier 1 Capital (to Average-Assets)
Company	$	1,312,316		9.90	%	$	530,424	≥		4.00	%				N/A
Bank	$	1,269,492		9.58	%	$	530,164	≥		4.00	%	$	662,705	≥		5.00	%

Actual

For Capital

Adequacy Purposes

To Be Well

Capitalized under

Prompt Corrective

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of December 31, 2020:

Total Capital (to Risk-Weighted Assets)

Company
$ 1,415,008 16.24 % $ 697,258
>
8.00 % N/A
Bank
$ 1,372,184 15.75 % $ 696,849
>
8.00 % $ 871,061
>
10.00 %
Tier 1 Capital (to Risk-Weighted Assets)

Company
$ 1,312,316 15.06 % $ 522,944
>
6.00 % N/A
Bank
$ 1,269,492 14.57 % $ 522,636
>
6.00 % $ 696,849
>
8.00 %
Common equity Tier 1 capital ratio

Company
$ 1,287,316 14.77 % $ 392,208
>
4.50 % N/A
Bank
$ 1,269,492 14.57 % $ 391,977
>
4.50 % $ 566,189
>
6.50 %
Tier 1 Capital (to Average-Assets)

Company
$ 1,312,316 9.90 % $ 530,424
>
4.00 % N/A
Bank
$ 1,269,492 9.58 % $ 530,164
>
4.00 % $ 662,705
>
5.00 %
As of December 31, 2019:

Total Capital (to Risk-Weighted Assets)

Company
$ 1,391,771 16.01 % $ 695,651
>
8.00 % N/A
Bank
$ 1,376,364 15.83 % $ 695,471
>
8.00 % $ 869,339
>
10.00 %
Tier 1 Capital (to Risk-Weighted Assets)

Company
$ 1,314,152 15.11 % $ 521,738
>
6.00 % N/A
Bank
$ 1,298,745 14.94 % $ 521,604
>
6.00 % $ 695,471
>
8.00 %
Common equity Tier 1 capital ratio

Company
$ 1,289,152 14.83 % $ 391,304
>
4.50 % N/A
Bank
$ 1,298,745 14.94 % $ 391,203
>
4.50 % $ 565,070
>
6.50 %
Tier 1 Capital (to Average-Assets)

Company
$ 1,314,152 12.33 % $ 426,497
>
4.00 % N/A
Bank
$ 1,298,745 12.19 % $ 426,328
>
4.00 % $ 532,909
>
5.00 %

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~~Table of Contents~~

In addition, the California Financial Code limits the amount of dividends a bank can pay without obtaining prior approval from bank regulators. Under this law, the Bank could, as of December 31, ~~2020,~~2021, declare and pay additional dividends of approximately ~~$150.9~~$160.3 million.

~~19.~~

~~FAIR VALUE INFORMATION~~

18.FAIR VALUE INFORMATION

Fair Value Hierarchy

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement ~~date~~

date.

The following disclosure provides the fair value information for financial assets and liabilities as of December 31, ~~2020.~~2021. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (Level 1, Level 2 and Level 3).

•

Level

1 —

Quoted prices in active markets for identical assets or liabilities in active markets that are accessible at the measurement date.

•

Level

— Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs or model-derived

122

valuations that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of the financial instrument.

•

Level

— Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis for the dates presented.


	Carrying Value at December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Mortgage-backed securities	$	2,563,214	$	0	$	2,563,214	$	0
CMO/REMIC		590,158		0		590,158		0
Municipal bonds		29,468		0		29,468		0
Other securities		1,083		0		1,083		0
Total investment securities - AFS		3,183,923		0		3,183,923		0
Interest rate swaps		14,163		0		14,163		0
Total assets	$	3,198,086	$	0	$	3,198,086	$	0
Description of liability
Interest rate swaps	$	14,163	$	0	$	14,163	$	0
Total liabilities	$	14,163	$	0	$	14,163	$	0


	Carrying Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Mortgage-backed securities	$	1,904,935	$	0	$	1,904,935	$	0
CMO/REMIC		462,814		0		462,814		0
Municipal bonds		30,285		0		30,285		0
Other securities		889		0		889		0
Total investment securities - AFS		2,398,923		0		2,398,923		0
Interest rate swaps		30,181		0		30,181		0
Total assets	$	2,429,104	$	0	$	2,429,104	$	0
Description of liability
Interest rate swaps	$	30,181	$	0	$	30,181	$	0
Total liabilities	$	30,181	$	0	$	30,181	$	0

Carrying Value at

December 31, 2020

Quoted Prices in
Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable
Inputs
(Level 2)

Significant

Unobservable Inputs

(Level 3)

(Dollars in thousands)

Description of assets

Investment securities - AFS:

Mortgage-backed securities
$ 1,904,935 $ 0 $ 1,904,935 $ 0
CMO/REMIC
462,814 0 462,814 0
Municipal bond
s
30,285 0 30,285 0
Other securities
889 0 889 0

Total investment securities - AFS
2,398,923 0 2,398,923 0
Interest rate swaps
30,181 0 30,181 0

Total assets
$ 2,429,104 $ 0 $ 2,429,104 $ 0

Description of liability

Interest rate swaps
$ 30,181 $ 0 $ 30,181 $ 0

Total liabilities
$ 30,181 $ 0 $ 30,181 $ 0

Carrying Value at

December 31, 2019

Quoted Prices in
Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable
Inputs
(Level 2)

Significant

Unobservable Inputs

(Level 3)

(Dollars in thousands)

Description of assets

Investment securities - AFS:

Mortgage-backed securities
$ 1,206,313 $ 0 $ 1,206,313 $ 0
CMO/REMIC
493,710 0 493,710 0
Municipal bonds
39,354 0 39,354 0
Other securities
880 0 880 0

Total investment securities - AFS
1,740,257 0 1,740,257 0
Interest rate swaps
11,502 0 11,502 0

Total assets
$ 1,751,759 $ 0 $ 1,751,759 $ 0

Description of liability

Interest rate swaps
$ 11,502 $ 0 $ 11,502 $ 0

Total liabilities
$ 11,502 $ 0 $ 11,502 $ 0

~~145~~

123

~~Table of Contents~~

Assets and Liabilities Measured at Fair Value on a

Non-Recurring

Basis

We may be required to measure certain assets at fair value on a

non-recurring

basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting or write-downs of individual assets.

For assets measured at fair value on a

non-recurring

basis that were held on the balance sheet at December 31, 2021 and 2020, ~~and 2019,~~ respectively,

the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets that had losses during the period.


	Carrying Value at December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Year Ended December 31, 2021
	(Dollars in thousands)
Description of assets
Loans:
Commercial real estate	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
SBA		646		0		0		646		255
Commercial and industrial		340		0		0		340		3,275
Dairy & livestock and agribusiness		38		0		0		38		118
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		0		0		0		0		0
Consumer and other loans		0		0		0		0		11
Other real estate owned		0		0		0		0		0
Asset held-for-sale		0		0		0		0		0
Total assets	$	1,024	$	0	$	0	$	1,024	$	3,659


	Carrying Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Year Ended December 31, 2020
	(Dollars in thousands)
Description of assets
Impaired loans:
Commercial real estate	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
SBA		76		0		0		76		24
Commercial and industrial		4,266		0		0		4,266		2,316
Dairy & livestock and agribusiness		0		0		0		0		0
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		0		0		0		0		0
Consumer and other loans		0		0		0		0		0
Other real estate owned		2,275		0		0		2,275		700
Asset held-for-sale		0		0		0		0		0
Total assets	$	6,617	$	0	$	0	$	6,617	$	3,040

Carrying Value at
December 31, 2020

Quoted Prices in

Active Markets for
Identical Assets

(Level 1)

Significant Other
Observable Inputs

(Level 2)

Significant
Unobservable Inputs
(Level 3)

Total Losses
For the Year Ended
December 31, 2020

(Dollars in thousands)

Description of assets

Loans:

Commercial real estate
$ 0 $ 0 $ 0 $ 0 $ 0
Construction
0 0 0 0 0
SBA
76 0 0 76 24
Commercial and industrial
4,266 0 0 4,266 2,316
Dairy & livestock and agribusiness
0 0 0 0 0
Municipal lease finance receivables
0 0 0 0 0
SFR mortgage
0 0 0 0 0
Consumer and other loan
s
0 0 0 0 0
Other real estate owned
2,275 0 0 2,275 700
Asset
held-for-sale
0 0 0 0 0

Total assets
$ 6,617 $ 0 $ 0 $ 6,617 $ 3,040

Carrying Value at
December 31, 2019

Quoted Prices in

Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Total Losses For
the Year Ended
December 31, 2019

(Dollars in thousands)

Description of assets

Impaired loans:

Commercial
real estate
$ 0 $ 0 $ 0 $ 0 $ 0
Constructio
n
0 0 0 0 0
SBA
359 0 0 359 513
Commercial
and industrial
253 0 0 253 251
Dairy & livestock and agribusiness
0 0 0 0 0
Municipal lease finance receivables
0 0 0 0 0
SFR mortgage
0 0 0 0 0
Consumer and other loans
0 0 0 0 0
Other real estate owned
444 0 0 444 64
Asset
held-for-sal
e
0 0 0 0 0

Total assets
$ 1,056 $ 0 $ 0 $ 1,056 $ 828

~~146~~

124

~~Table of Contents~~

Fair Value of Financial Instruments

The following disclosure presents estimated fair value of our financial instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company may realize in a current market exchange as December 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.


	December 31, 2021
	Carrying		Estimated Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	1,732,548	$	1,732,548	$	0	$	0	$	1,732,548
Interest-earning balances due from depository institutions		25,999		0		25,999		0		25,999
Investment securities available-for-sale		3,183,923		0		3,183,923		0		3,183,923
Investment securities held-to-maturity		1,925,970		0		1,921,693		0		1,921,693
Total loans, net of allowance for credit losses		7,822,694		0		0		7,696,210		7,696,210
Swaps		14,163		0		14,163		0		14,163
Liabilities
Deposits:
Interest-bearing	$	4,872,386	$	0	$	4,871,531	$	0	$	4,871,531
Borrowings		644,669		0		586,645		0		586,645
Junior subordinated debentures		0		0		0		0		0
Swaps		14,163		0		14,163		0		14,163


	December 31, 2020
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	1,958,160	$	1,958,160	$	0	$	0	$	1,958,160
Interest-earning balances due from depository institutions		43,563		0		43,600		0		43,600
Investment securities available-for-sale		2,398,923		0		2,398,923		0		2,398,923
Investment securities held-to-maturity		578,626		0		604,223		0		604,223
Total loans, net of allowance for loan losses		8,255,116		0		0		8,256,178		8,256,178
Swaps		30,181		0		30,181		0		30,181
Liabilities
Deposits:
Interest-bearing	$	4,281,114	$	0	$	4,281,952	$	0	$	4,281,952
Borrowings		444,406		0		444,349		0		444,349
Junior subordinated debentures		25,774		0		0		19,431		19,431
Swaps		30,181		0		30,181		0		30,181

December 31, 2020

Estimated Fair Value

Carrying
  Amount

Level 1

Level 2

Level 3

Total

(Dollars in thousands)

Assets

Total cash and cash equivalents
$ 1,958,160 $      1,958,160 $ 0 $ 0 $ 1,958,160
Interest-earning balances due from depository institutions
43,563 0 43,600 0 43,600
Investment securities
available-for-sale
2,398,923 0 2,398,923 0 2,398,923
Investment securities
held-to-maturity
578,626 0 604,223 0 604,223
Total loans, net of allowance for credit losses
8,255,116 0 0   8,256,178 8,256,178
Swaps
30,181 0 30,181 0 30,181
Liabilities

Deposits:

Interest-bearing
$   4,281,114 $ 0 $   4,281,952 $ 0 $ 4,281,952
Borrowings
444,406 0 444,349 0 444,349
Junior subordinated debentures
25,774 0 0 19,431 19,431
Swaps
30,181 0 30,181 0 30,181

December 31, 2019

Estimated Fair Value

Carrying
  Amount

Level 1

Level 2

Level 3

Total

(Dollars in thousands)

Assets

Total cash and cash equivalents
$ 185,518 $      185,518 $ 0 $ 0 $ 185,518
Interest-earning balances due from depository institutions
2,931 0 2,938 0 2,938
Investment securities
available-for-sale
1,740,257 0 1,740,257 0 1,740,257
Investment securities
held-to-maturity
674,452 0 678,948 0 678,948
Total loans, net of allowance for loan losses
7,495,917 0 0   7,343,167 7,343,167
Swaps
11,502 0 11,502 0 11,502
Liabilities

Deposits:

Interest-bearing
$   3,459,411 $ 0 $   3,457,922 $ 0 $ 3,457,922
Borrowings
428,659 0 428,330 0 428,330
Junior subordinated debentures
25,774 0 0 20,669 20,669
Swaps
11,502 0 11,502 0 11,502

The fair value estimates presented herein are based on pertinent information available to management as of December 31, ~~2020~~2021 and ~~2019.~~2020. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented above.

125

19.DERIVATIVE FINANCIAL INSTRUMENTS

~~147~~

~~Table of Contents~~

~~20.~~

~~DERIVATIVE FINANCIAL INSTRUMENTS~~

The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset/liability management strategy to help manage its interest rate risk position. As of December 31, ~~2020,~~2021, the Bank has entered into ~~147~~140 interest-rate swap agreements with customers with a notional amount totaling ~~$503.8~~$493.2 million. The Bank then entered into identical offsetting swaps with a counterparty. The swap agreements are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and to provide the customer the financial effects of a fixed-rate loan without creating significant volatility in the Bank’s earnings.

The structure of the swaps is as follows. The Bank enters into an interest rate swap with its customers in which the Bank pays the customer a variable rate and the customer pays the Bank a fixed rate, therefore allowing customers to convert variable rate loans to fixed rate loans. At the same time, the Bank enters into a swap with the counterparty bank in which the Bank pays the counterparty a fixed rate and the counterparty in return pays the Bank a variable rate. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on LIBOR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore should not have a significant impact on the Company’s results of operations, although the Company does incur credit and counterparty risk with respect to performance on the swap agreements by the Bank’s customer and counterparty, respectively. As a result of the Bank exceeding $10 billion in assets, federal regulations required the Bank, beginning in January 2019, to clear most interest rate swaps through a clearing house (“centrally cleared”). These instruments contain language outlining collateral pledging requirements for each counterparty, in which collateral must be posted if market value exceeds certain agreed upon threshold limits. Cash or securities are pledged as collateral. Our interest rate swap derivatives are subject to a master netting arrangement with our counterparties. NaNne of our derivative assets and liabilities are offset in the Company’s ~~condensed~~ consolidated balance sheet.

We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure, although there can be no assurances in this regard since the performance of our swaps is subject to market and counterparty risk.

Balance Sheet Classification of Derivative Financial Instruments

As of December 31, ~~2020~~2021 and ~~2019,~~2020, the total notional amount of the Company’s swaps was ~~$503.8~~$493.2 million and ~~$260.0~~$503.8 million, respectively. The location of the asset and liability, and their respective fair values are summarized in the tables below.

December 31, 2021

Asset Derivatives

Liability Derivatives

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps

Other assets

14,163

Other liabilities

14,163

Total derivatives

14,163

December 31, 2020

Asset Derivatives

Liability Derivatives

Balance Sheet
Location

Fair Value

Balance Sheet
Location

Fair Value

(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps

Other assets

30,181

Other liabilities

30,181

Total derivatives

30,181

December 31, 2020


Asset Derivatives

Liability Derivatives


Balance Sheet
Location

Fair

Value

Balance Sheet
Location

Fair

Value


(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps
   Other assets    $   30,181    Other liabilities    $   30,181

Total derivatives
      $ 30,181       $ 30,181

~~148~~

126

~~Table of Contents~~

December 31, 2019


Asset Derivatives

Liability Derivatives


Balance Sheet
Location

Fair

Value

Balance Sheet
Location

Fair

Value


(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps
   Other assets    $   11,502    Other liabilities    $   11,502

Total derivatives
      $ 11,502       $ 11,502

The Effect of Derivative Financial Instruments on the Consolidated Statements of Earnings

The following table summarizes the effect of derivative financial instruments on the consolidated statements of earnings for the periods presented.


Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivative Instruments	Amount of Gain Recognized in Income on Derivative Instruments
		Year Ended December 31,
		2021		2020		2019
		(Dollars in thousands)
Interest rate swaps	Other income	$	382	$	5,025	$	1,806
Total		$	382	$	5,025	$	1,806

20.OTHER COMPREHENSIVE INCOME (LOSS)

Derivatives Not
Designated as Hedging
Instruments

Location of Gain
Recognized in Income
on Derivative Instruments

Amount of Gain Recognized
in Income on Derivative
Instruments


Year Ended December 31,


      2020

      2019

      2018


(Dollars in thousands)

Interest rate swaps
   Other income    $ 5,025    $ 1,806    $ 340

Total
      $ 5,025    $ 1,806    $ 340

~~21.~~

~~OTHER COMPREHENSIVE INCOME (LOSS)~~

The tables below provide a summary of the components of OCI for the periods presented.


	Year Ended December 31,
	2021									2020									2019
	Before-tax			Tax effect			After-tax			Before-tax			Tax effect			After-tax			Before-tax			Tax effect			After-tax
	(Dollars in thousands)
Investment securities:
Net change in fair value recorded in accumulated OCI	$	(56,075	)	$	16,578		$	(39,497	)	$	32,849		$	(9,711	)	$	23,138		$	45,486		$	(13,447	)	$	32,039
Amortization of unrealized (losses) gains on securities transferred from available-for-sale to held-to-maturity		256			(76	)		180			(572	)		169			(403	)		(1,614	)		477			(1,137	)
Net realized gain reclassified into earnings (1)		0			0			0			0			0			0			(5	)		1			(4	)
Net change	$	(55,819	)	$	16,502		$	(39,317	)	$	32,277		$	(9,542	)	$	22,735		$	43,867		$	(12,969	)	$	30,898

(1)

Year Ended December 31,

2020

2019

2018

Before-tax

Tax effect

After-tax

Before-tax

Tax effect

After-tax

Before-tax

Tax effect

  After-tax

                    (Dollars in thousands)

Investment securities:

Net change in fair value recorded in accumulated
OCI
$ 32,849 $ (9,711 ) $ 23,138 $ 45,486 $ (13,447 ) $ 32,039 $ (26,435 ) $ 7,815 $ (18,620 )
Amortization of unrealized (losses) gains on securities transferred from
available-
for-sale
to
held-to-
maturity
(572 ) 169 (403 ) (1,614 ) 477 (1,137 ) (2,091 ) 619 (1,472 )
Net realized gain reclassified into earnings (1)
0 0 0 (5 ) 1 (4 ) 0     0     0

Net change
$ 32,277 $ (9,542 ) $ 22,735 $ 43,867 $ (12,969 ) $ 30,898 $ (28,526 ) $ 8,434 $ (20,092 )

~~(1)~~

~~Included in other noninterest income.~~

~~149~~Included in other noninterest income.

21.BALANCE SHEET OFFSETTING

~~Table of Contents~~

~~22.~~

~~BALANCE SHEET OFFSETTING~~

Assets and liabilities relating to certain financial instruments, including, derivatives and securities sold under repurchase agreements (“repurchase agreements”), may be eligible for offset in the consolidated balance sheets as permitted under accounting guidance. As noted above, our interest rate swap derivatives are subject to master netting arrangements. Our interest rate swap derivatives require the Company to pledge investment securities as collateral based on certain risk thresholds. Investment securities that have been pledged by the Company to counterparties continue to be reported in the Company’s consolidated balance sheets unless the Company defaults. We offer a repurchase agreement product to our customers, which include master netting agreements that allow for the netting of collateral positions. This product, known as Citizens Sweep Manager, sells certain of our securities overnight to our customers under an agreement to repurchase them the next day. The repurchase agreements are not offset in the Company’s consolidated balances.

127


	Gross Amounts Recognized in the Condensed		Gross Amounts Offset in the Condensed			Net Amounts Presented in the Condensed		Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Consolidated Balance Sheets		Consolidated Balance Sheets			Consolidated Balance Sheets		Financial Instruments		Collateral Pledged			Net Amount
	(Dollars in thousands)
December 31, 2021
Financial assets:
Derivatives not designated as hedging instruments	$	14,163	$	0		$	0	$	14,163	$	0		$	14,163
Total	$	14,163	$	0		$	0	$	14,163	$	0		$	14,163

Financial liabilities:
Derivatives not designated as hedging instruments	$	23,502	$	(9,339	)	$	14,163	$	9,339	$	(37,285	)	$	(13,783	)
Repurchase agreements		642,388		0			642,388		0		(683,923	)		(41,535	)
Total	$	665,890	$	(9,339	)	$	656,551	$	9,339	$	(721,208	)	$	(55,318	)


December 31, 2020
Financial assets:
Derivatives not designated as hedging instruments	$	30,181	$	0		$	0	$	30,181	$	0		$	30,181
Total	$	30,181	$	0		$	0	$	30,181	$	0		$	30,181

Financial liabilities:
Derivatives not designated as hedging instruments	$	30,434	$	(253	)	$	30,181	$	253	$	(63,730	)	$	(33,296	)
Repurchase agreements		439,406		0			439,406		0		(483,603	)		(44,197	)
Total	$	469,840	$	(253	)	$	469,587	$	253	$	(547,333	)	$	(77,493	)

Gross Amounts
Recognized in
the Consolidated
Balance Sheets

Gross Amounts
Offset in the
Consolidated
Balance Sheets

Net Amounts
Presented

in

the
Consolidated
Balance Sheets

Gross Amounts Not Offset in the
Consolidated Balance Sheets

Net Amount

Financial

Instruments

Collateral
Pledged

(Dollars in thousands)

December 31, 2020

Financial assets:

Derivatives not designated as

hedging
instruments
$ 30,181 $ 0 $ 0 $ 30,181 $ 0 $ 30,181

Total
$ 30,181 $ 0 $ 0 $ 30,181 $ 0 $ 30,181

Financial liabilities:

Derivatives not designated as hedging instruments
$ 30,434 $ (253 ) $ 30,181 $ 253 $ (63,730 ) $ (33,296 )
Repurchase agreements
439,406 0 439,406 0 (483,603 ) (44,197 )

Total
$ 469,840 $ (253 ) $ 469,587 $ 253 $ (547,333 ) $ (77,493 )

December 31, 2019

Financial assets:

Derivatives not designated as hedging instruments
$ 11,502 $ 0 $ 0 $ 11,502 $ 0 $ 11,502

Total
$ 11,502 $ 0 $ 0 $ 11,502 $ 0 $ 11,502

Financial liabilities:

Derivatives not designated as hedging instruments
$ 11,619 $ (117 ) $ 11,502 $ 117 $ (23,312 ) $ (11,693 )
Repurchase agreements
428,659 0 428,659 0 (510,138 ) (81,479 )

Total
$ 440,278 $ (117 ) $ 440,161 $ 117 $ (533,450 ) $ (93,172 )

~~23.~~

~~LEASES~~

22.LEASES

The Company’s operating leases, where the Company is a lessee, include real estate, such as office space and banking centers. Lease expense for operating leases is recognized on a straight-line basis over the term of the lease and is reflected in the consolidated statement of earnings.

Right-of-use

(“ROU”) assets and lease liabilities are included in other assets and other liabilities, respectively, on the Company’s condensed consolidated balance sheet.

While the Company has, as a lessor, certain equipment finance leases, such leases are not material to the Company’s consolidated financial statements.

~~150~~

~~Table of Contents~~

The tables below present the components of lease costs and supplemental information related to leases as of and for the periods presented.


	December 31,
	2021		2020
	(Dollars in thousands)
Lease Assets and Liabilities
ROU assets	$	19,274	$	19,112
Total lease liabilities		20,864		21,164


	Year Ended December 31,
	2021		2020
	(Dollars in thousands)
Lease Cost
Operating lease expense (1)	$	6,613	$	6,558
Sublease income		0		0
Total lease expense	$	6,613	$	6,558

(1)

Includes short-term leases and variable lease costs, which are immaterial.

128


Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases, net	$	7,081	$	7,387


	December 31,
	2020			2019
Lease Term and Discount Rate
Weighted average remaining lease term (years)		4.26			4.16
Weighted average discount rate		2.41	%		2.80	%

           December 31,


2020

2019


(Dollars in thousands)

Lease Assets and Liabilities

ROU assets
   $ 19,112      $ 18,522
Total lease liabilities
   21,164 21,392

  Year Ended December 31,


2020

2019


(Dollars in thousands)

Lease Cost

Operating lease expense (1)
   $ 6,558      $ 7,274
Sublease income
   — —

Total lease expense
   $ 6,558 $ 7,274

~~(1) Includes short-term leases and variable lease costs, which are immaterial.~~

Other Information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflows from operating leases, net
   $         7,387      $         8,497

           December 31,


2020

2019

Lease Term and Discount Rate

Weighted average remaining lease term (years)
   4.16 4.18
Weighted average discount rate
   2.80 % 3.34 %

The Company’s lease arrangements that have not yet commenced as of December 31, ~~2020~~2021 and the Company’s short-term lease costs and variable lease costs, for the year ended December 31, ~~2020~~2021 are not material to the consolidated financial statements. The future lease payments required for leases that have initial or remaining

non-cancelable

lease terms in excess of one year as of December 31, ~~2020,~~2021, excluding property taxes and insurance, are as follows:


	December 31, 2021
	(Dollars in thousands)
Year:
2022	$	6,515
2023		4,947
2024		3,795
2025		3,112
2026		2,101
Thereafter		1,438
Total future lease payments		21,908
Less: Imputed interest		(1,044	)
Present value of lease liabilities	$	20,864

  December 31, 2020


(Dollars in thousands)

Year:

2021
   $ 6,800
2022
   5,622
2023
   3,767
2024
   2,584
2025
   1,888
Thereafter
   1,721

Total future lease payments
   22,382
Less: Imputed interest
   (1,218 )

Present value of lease liabilities
   $ 21,164

~~151~~

~~Table of Contents~~

~~24.~~

~~REVENUE RECOGNITION~~

23.REVENUE RECOGNITION

On January 1, 2018, the Company adopted ASU

No. 2014-09

~~“Revenue~~ “Revenue from Contracts with Customers (Topic 606)” and all subsequent ASUs that modified Topic 606. As stated in Note 3 –

Summary of Significant Accounting Policies

, the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic ~~606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.~~

606.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, and merchant income. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams

in-scope

of Topic 606 are discussed below.

Trust and Investment Services

Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the monthly market value of the assets under management and the applicable fee rate. Payment is generally received at month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Other services related to real estate and tax return preparation services are also provided to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.

Wealth Management contracts with customers have no clauses that would entitle customers to additional services. Fees are generally earned based on market value of assets under management (AUM) and miscellaneous fees are transaction driven and are charged based on an agreed upon fee schedule. Performance obligation is satisfied upon execution of the

129

transaction and there is no need to allocate transaction price to the performance obligation(s) in the contract. Wealth Management customers can also terminate the contract at will.

For Investment Services, the fees are earned based on services performed for customers as provided through an affiliated broker-dealer. Fees are earned from gross dealer commission based on trade date. Performance obligation is satisfied upon execution of the transaction and there is no need to allocate transaction price to the performance obligation(s) in the contract.

Deposit-related Fees

Service charges on deposit accounts consist of account analysis fees earned on analyzed business checking accounts, monthly service fees, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through

direct charge to customers’ accounts.

~~152~~

~~Table of Contents~~

Bankcard Services

The Bank generates revenues from merchant servicing to its clients. A fee schedule is part of the contract and is calculated based on sales of merchants on a monthly basis. There is no future promise or claim to deliver services as merchant fees are based on monthly merchant transactions. The Company’s performance obligations are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Therefore, the new revenue standard has no impact on revenues generated from bankcard services.

130

The following presents noninterest income, segregated by revenue streams

in-scope

and

out-of-scope

of Topic 606, for the periods presented.


	Year Ended December 31,
	2021		2020		2019
	(Dollars in thousands)
Noninterest income:
In-scope of Topic 606:
Service charges on deposit accounts	$	17,152	$	16,561	$	20,010
Trust and investment services		11,571		9,978		9,525
Bankcard services		1,789		1,886		3,163
Gain on OREO, net		1,177		388		129
Other		7,007		11,277		9,951
Noninterest Income (in-scope of Topic 606)		38,696		40,090		42,778
Noninterest Income (out-of-scope of Topic 606)		8,689		9,780		16,264
Total noninterest income	$	47,385	$	49,870	$	59,042

Year Ended December 31,

2020

2019

2018

(Dollars in thousands)

Noninterest income:

In-scope of Topic
606:

Service charges on deposit accounts
$ 16,561 $ 20,010 $ 17,070
Trust and investment services
9,978 9,525 8,774
Bankcard services
1,886 3,163 3,485
Gain on OREO, net
388 129 3,546
Other
11,277 9,951 6,588

Noninterest Income
(in-scope
of Topic 606)
40,090 42,778 39,463
Noninterest Income
(out-of-scope
of Topic 606)
9,780 16,264 4,018

Total noninterest income
$ 49,870 $ 59,042 $ 43,481

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient, which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less.

24.CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

~~153~~

~~Table of Contents~~

~~25.~~

~~CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY~~

The following tables provide the parent company only condensed balance sheets, condensed statements of earnings and condensed statements of cash flows for the periods presented.

CVB FINANCIAL CORP.

CONDENSED BALANCE SHEETS


	December 31,
	2021		2020
	(Dollars in thousands)
Assets
Investment in subsidiaries	$	2,038,948	$	1,990,166
Other assets, net		67,998		68,679
Total assets	$	2,106,946	$	2,058,845
Liabilities	$	25,443	$	50,855
Stockholders’ equity		2,081,503		2,007,990
Total liabilities and stockholders’ equity	$	2,106,946	$	2,058,845

131

December 31,


2020

2019


(Dollars in thousands)

Assets

Investment in subsidiaries
   $ 1,990,166    $ 2,003,692
Other assets, net
   68,679    42,070

Total assets
   $ 2,058,845    $ 2,045,762

Liabilities
   $ 50,855    $ 51,664
Stockholders’ equity
   2,007,990    1,994,098

Total liabilities and stockholders’ equity
   $   2,058,845    $   2,045,762

CVB FINANCIAL CORP.

CONDENSED STATEMENTS OF EARNINGS


	Year Ended December 31,
	2021			2020			2019
	(Dollars in thousands)
Equity in net earnings of subsidiaries	$	88,099		$	(34,936	)	$	107,185
Dividends from the Bank		129,000			217,000			106,000
Other expense, net		(4,578	)		(4,905	)		(5,358	)
Net earnings	$	212,521		$	177,159		$	207,827

Year Ended December 31,


2020

2019

2018


(Dollars in thousands)

Equity in net earnings of subsidiaries
   $ (34,936 ) $ 107,185 $ 78,601
Dividends from the Bank
   217,000 106,000 77,800
Other expense, net
   (4,905 ) (5,358 ) (4,398 )

Net earnings
   $   177,159 $   207,827 $   152,003

~~154~~

~~Table of Contents~~

CVB FINANCIAL CORP.

CONDENSED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2021			2020			2019
	(Dollars in thousands)
Cash Flows from Operating Activities
Net earnings	$	212,521		$	177,159		$	207,827
Adjustments to reconcile net earnings to cash used in operating activities:
Earnings of subsidiaries		(217,099	)		(182,064	)		(213,185	)
Tax settlement received from the Bank		7,659			0			1,008
Stock-based compensation		5,183			5,529			5,548
Other operating activities, net		(888	)		(2,018	)		(2,417	)
Total adjustments		(205,145	)		(178,553	)		(209,046	)
Net cash used in operating activities		7,376			(1,394	)		(1,219	)
Cash Flows from Investing Activities
Dividends received from the Bank		129,000			217,000			106,000
Net cash provided by investing activities		129,000			217,000			106,000
Cash Flows from Financing Activities
Repayment of junior subordinated debentures		(25,774	)		—			—
Cash dividends on common stock		(97,733	)		(98,475	)		(95,352	)
Proceeds from exercise of stock options		1,277			231			2,215
Repurchase of common stock		(8,337	)		(92,772	)		(2,640	)
Net cash used in financing activities		(130,567	)		(191,016	)		(95,777	)
Net increase in cash and cash equivalents		5,809			24,590			9,004
Cash and cash equivalents, beginning of period		55,644			31,054			22,050
Cash and cash equivalents, end of period	$	61,453		$	55,644		$	31,054

132

Year Ended December 31,


2020

2019

2018


(Dollars in thousands)

Cash Flows from Operating Activities

Net earnings
   $ 177,159 $ 207,827 $ 152,003

Adjustments to reconcile net earnings to cash used in operating activities:

Earnings of subsidiaries
   (182,064 ) (213,185 ) (156,401 )
Tax settlement received from the Bank
   0 1,008 0
Stock-based compensation
   5,529 5,548 3,508
Other operating activities, net
   (2,018 ) (2,417 ) (2,052 )

Total adjustments
   (178,553 ) (209,046 ) (154,945 )

Net cash used in operating activities
   (1,394 ) (1,219 ) (2,942 )

Cash Flows from Investing Activities

Dividends received from the Bank
   217,000 106,000 77,800

Net cash provided by investing activities
   217,000 106,000 77,800

Cash Flows from Financing Activities

Cash dividends on common stock
   (98,475 ) (95,352 ) (65,966 )
Proceeds from exercise of stock options
   231 2,215 1,701
Repurchase of common stock
   (92,772 ) (2,640 ) (7,760 )

Net cash used in financing activities
   (191,016 ) (95,777 ) (72,025 )

Net increase in cash and cash equivalents
   24,590 9,004 2,833
Cash and cash equivalents, beginning of period
   31,054 22,050 19,217

Cash and cash equivalents, end of period
   $ 55,644 $ 31,054 $ 22,050

~~26.~~

~~QUARTERLY FINANCIAL DATA (UNAUDITED)~~

~~The following table sets forth our unaudited, quarterly results for~~

25.SUBSEQUENT EVENTS

On January 7, 2022, the ~~periods indicated.~~

Three Months Ended

  December 31,

September 30,

  June 30,

  March 31,

(Dollars in thousands, except per share amounts)

2020

Net interest income
$ 105,853 $ 103,325 $     104,569 $ 102,306
Provision for credit losses
0 0 11,500 12,000
Net earnings
50,056 47,492 41,631 37,980
Basic earnings per common share
0.37 0.35 0.31 0.27
Diluted earnings per common share
0.37 0.35 0.31 0.27
2019

Net interest income
$ 107,020 $ 108,159 $ 111,057 $ 109,536
Provision for loan losses
0 1,500 2,000 1,500
Net earnings
51,281 50,423 54,481 51,642
Basic earnings per common share
0.37 0.36 0.39 0.37
Diluted earnings per common share
0.37 0.36 0.39 0.37

~~155~~

~~Table~~Company completed the previously announced merger transaction whereby Suncrest Bank ("Suncrest") merged with and into the Company's wholly-owned subsidiary Citizens Business Bank ("Citizens"), in accordance with the terms and conditions of ~~Contents~~that certain Agreement and Plan of Reorganization and Merger ("Merger Agreement"), dated as of July 27,2021, by and among the Company, Citizens and Suncrest, in a stock and cash transaction valued at approximately $237 million in aggregate, or $18.63 per Suncrest share based on CVB Financial Corp's closing stock price of $22.87 on January 7, 2022. Under the terms of the Merger Agreement, the Company issued approximately 8.6 million shares of Company common stock and approximately $39.6 million in aggregate cash consideration, including cash paid out in settlement of outstanding incentive stock option awards at Suncrest.

Suncrest Bank, headquartered in Visalia, California, had approximately $1.4 billion in total assets, $0.8 billion in net loans, $1.2 billion in total deposits and $179.0 million in total equity as of December 31, 2021. Tangible book value per share was $11.16 at December 31, 2021. Suncrest's seven branch locations and two loan production offices in California's Central Valley and the Sacramento area opened as Citizens Business Bank locations on January 10, 2022.

133

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

CVB Financial Corp.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CVB Financial Corp. and subsidiaries (the Company) as of December 31, ~~2020~~2021 and ~~2019,~~2020, the related consolidated statements of earnings and comprehensive income, stockholders’ equity, and cash flows for each of the years in the

three-year

period ended December 31, ~~2020~~2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2020~~2021 and ~~2019,~~2020, and the results of its operations and its cash flows for each of the years in the

three-year

period ended December 31, ~~2020,~~2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, ~~2020,~~2021, based on criteria established in

Internal Control – Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, ~~2021~~2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 3 and Note 5 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU

No. 2016-13,

“

Financial Instruments –— Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments”~~

Instruments”.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

~~156~~

~~Table of Contents~~

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) ~~relate~~relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex ~~judgment.~~judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the allowance for credit losses for loans evaluated on a collective basis using the Commercial ~~and Industrial and Commercial~~ Real Estate ~~methodologies~~

methodology.

As discussed in Note 3 and Note 65 to the consolidated financial statements, the ~~Company adopted ASU~~

~~No. 2016-13,~~

~~Financial Instruments – Credit Losses (ASC Topic 326), as of January 1, 2020. The~~Company’s total allowance for credit losses as ~~of January 1, 2020 and~~ December 31, ~~2020~~2021 was ~~$70.5~~$65.0 million, ~~and $93.7 million, respectively,~~ a substantial portion of ~~both~~ which relates to the allowance for credit losses on loans evaluated on a collective basis using ~~both~~ the ~~commercial and industrial and~~ commercial real estate ~~methodologies (the January 1, 2020 commercial collective ACL and the December 31, 2020 commercial collective ACL, respectively, together the commercial collective~~methodology (commercial ACL). The commercial ~~collective~~ ACL includes the measure of expected credit losses on a collective basis by pooling those loans that share similar risk characteristics into segments. The commercial ~~collective~~ ACL ~~methodologies include~~methodology includes an estimation framework that uses loss ~~experiences~~experience of data sets of unique loans to derive lifetime loss rates at the pool level during the average life, inclusive of prepayments. The ~~methodologies~~methodology to estimate the commercial ~~collective~~ ACL is largely driven by portfolio characteristics, including loss history, original

loan-to-value

ratios, ~~risk grading,~~ and macroeconomic variables and the associated

134

economic outlook. The commercial ~~collective~~ ACL incorporates a reasonable and supportable forecast of various ~~macro-economic~~macroeconomic variables over the remaining average life of the loan. The forecast incorporates an assumption that each ~~macro-economic~~macroeconomic variable will revert to a long-term expectation, starting in years

2-3,

of the reasonable and supportable forecast period, with the reversion largely completed within the first five years of the forecast. The commercial ~~collective~~ ACL ~~methodologies incorporate~~methodology incorporates unique macroeconomic variables based on risk drivers to the underlying ~~portfolios.~~portfolio. The Company reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.

We identified the assessment of the ~~January 1, 2020 commercial collective ACL and the~~ December 31, ~~2020~~2021 commercial ~~collective~~ ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the commercial ~~collective~~ ACL ~~methodologies,~~methodology, including the ~~methods~~method used to estimate lifetime loss rates and ~~their~~the key assumptions: portfolio segmentation, prepayments, the economic forecast scenarios and their weightings and macroeconomic variables, and the length of the reasonable and supportable forecast ~~periods, and risk grading (for the commercial and industrial methodology).~~period. The assessment also included the evaluation of the adjustments performed to align the life of loan loss rates with the current state of the portfolio. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the commercial ~~collective~~ ACL estimates, including controls over the:

•

development of the commercial ~~collective~~ ACL ~~methodologies~~

methodology

•

development of the lifetime loss rate ~~methodologies~~

methodology

•

ongoing monitoring of the lifetime loss rate ~~methodologies~~

methodology

•

identification and determination of the key assumptions used in the lifetime loss rate ~~methodologies~~

methodology

~~157~~

~~Table of Contents~~

•

development of the adjustments performed to align the life of loan loss rates with the current state of the portfolio

•

analysis of the commercial ~~collective~~ ACL results, trends, and ratios.

We evaluated the Company’s process to develop the commercial ~~collective~~ ACL ~~estimates~~estimate by testing certain sources of data, factors, and assumptions used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

•

evaluating the commercial ~~collective~~ ACL ~~methodologies~~methodology for compliance with U.S. generally accepted accounting principles

•

evaluating judgments made relative to the development and performance monitoring of the lifetime loss rate ~~methodologies,~~methodology, including prepayments, by comparing them to Company-specific metrics and trends and the applicable industry and regulatory guidance

•

assessing the conceptual soundness and performance of the lifetime loss rate ~~methodologies,~~methodology, including their key assumptions, to determine whether the ~~methodologies were~~methodology was suitable for ~~their~~its intended use

•

evaluating the weighted economic forecast scenarios and underlying assumptions driving the macroeconomic variable changes, including the determination of the reasonable and supportable forecast period and weightings used by comparing it to the Company’s business environment and relevant industry practice

•

determining whether the loan portfolio is segmented by similar risk characteristics by comparing to specific portfolio risk characteristics and trends

~~testing individual credit risk ratings for a selection of loans by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral~~

•

evaluating the methodology used to develop the adjustments and the effect of those adjustments on the commercial ~~collective~~ ACL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying pool level metrics.

We also assessed the sufficiency of audit evidence obtained related to the ~~January 1, 2020 commercial collective ACL and the~~ December 31, ~~2020~~2021 commercial ~~collective~~ ACL by evaluating the:

•

cumulative results of the audit procedures

135

•

qualitative aspects of the Company’s accounting practices

•

potential bias in the accounting estimates

/s/ KPMG LLP

We have served as the Company’s auditor since 2007.

Los Angeles, California

March 1, ~~2021~~

~~158~~

2022

136


California		95-3629339
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

701 N. Haven Avenue, Suite 350 Ontario, California		91764
(Address of Principal Executive Offices)		(Zip Code)


~~Large accelerated filer~~		☒		~~Accelerated filer~~	☐

~~Non-accelerated~~ Large accelerated filer	☒	☐ Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company		☐

Emerging growth company	☐	☐


DOCUMENTS INCORPORATED BY REFERENCE		PART OF
Definitive Proxy Statement for the Annual Meeting of Stockholders which will be filed within 120 days of the fiscal year ended December 31, ~~2020~~ 2021		Part III of Form 10-K


~~ITEM 1.~~ Auditor Firm Id:	185	~~BUSINESS~~ Auditor Name:	KPMG LLP	Auditor Location:	5
~~ITEM 1A.~~		~~RISK FACTORS~~			25
~~ITEM 1B.~~		~~UNRESOLVED STAFF COMMENTS~~			40
~~ITEM 2.~~		~~PROPERTIES~~			40
~~ITEM 3.~~		~~LEGAL PROCEEDINGS~~			40
~~ITEM 4.~~		~~MINE SAFETY DISCLOSURES~~			41	Los Angeles, California


PART I

ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	20
ITEM 1B.	UNRESOLVED STAFF COMMENTS	33
ITEM 2.	PROPERTIES	33
ITEM 3.	LEGAL PROCEEDINGS	33
ITEM 4.	MINE SAFETY DISCLOSURES	33
PART II

ITEM 5.		MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	42	34
ITEM 6.	RESERVED	~~SELECTED FINANCIAL DATA~~	44	36
ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	45	36
		CRITICAL ACCOUNTING POLICIES	46	37
	OVERVIEW	~~OVERVIEW~~	50	40
		ANALYSIS OF THE RESULTS OF OPERATIONS	51	42
		ANALYSIS OF FINANCIAL CONDITION	60	50
		RISK MANAGEMENT	80	65
ITEM 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	88	72
ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	89	73
ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	89	73
ITEM 9A.		CONTROLS AND PROCEDURES	89	73
ITEM 9B.		OTHER INFORMATION	91

				75
ITEM 9C.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	75
PART III

ITEM 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	92	76
ITEM 11.		EXECUTIVE COMPENSATION	92	76
ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	92	76
ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	93	76
ITEM 14.		PRINCIPAL ACCOUNTING FEES AND SERVICES	93


Company/Market/Peer Group	12/31/2015		12/31/2016		12/31/2017		12/31/2018		12/31/2019		12/31/2020

CVB Financial Corp.		100.00		138.47		145.52		128.08		141.16		133.78
NASDAQ Composite		100.00		108.87		141.13		137.12		187.44		271.64
Peer Group Index		100.00		138.17		158.23		127.37		159.28		163.05


	Comparision of Year Ended December 31,
	2020 Compared to 2019 Increase (Decrease) Due to												2019 Compared to 2018 Increase (Decrease) Due to
	Volume			Rate			Rate/ Volume			Total			Volume			Rate			Rate/ Volume			Total
	(Dollars in thousands)
Interest income:
Available-for-sale securities:
Taxable investment securities	$	5,679		$	(7,608	)	$	(1,131	)	$	(3,060	)	$	(6,919	)	$	811		$	(126	)	$	(6,234	)
Tax-advantaged investment securities		(132	)		(97	)		11			(218	)		(315	)		(137	)		28			(424	)
Held-to-maturity securities:
Taxable investment securities		(1,499	)		(525	)		68			(1,956	)		(706	)		377			(21	)		(350	)
Tax-advantaged investment securities		(1,061	)		(181	)		33			(1,209	)		(927	)		(272	)		36			(1,163	)
Investment in FHLB stock		-			(257	)		-			(257	)		(184	)		(688	)		62			(810	)
Interest-earning deposits with other institutions		18,465			(2,085	)		(16,967	)		(587	)		388			193			46			627
Loans		27,060			(44,273	)		(3,013	)		(20,226	)		81,775			17,648			4,921			104,344

Total interest income		48,512			(55,026	)		(20,999	)		(27,513	)		73,112			17,932			4,946			95,990

Interest expense:
Savings deposits		2,007			(5,097	)		(805	)		(3,895	)		1,070			3,815			563			5,448
Time deposits		(374	)		(272	)		23			(623	)		194			1,537			116			1,847
FHLB advances, other borrowings, and customer repurchase agreements		(245	)		(3,188	)		157			(3,276	)		234			1,610			124			1,968

Total interest expense		1,388			(8,557	)		(625	)		(7,794	)		1,498			6,962			803			9,263

Net interest income	$	47,124		$	(46,469	)	$	(20,374	)	$	(19,719	)	$	71,614		$	10,970		$	4,143		$	86,727


	December 31, 2019
	Amortized Cost		Percent of Total		Fair Value		Percent of Total
	(Dollars in thousands)
Municipal Securities available-for-sale:
Minnesota	$	11,067		28.7%	$	11,274		28.6%
Connecticut		5,976		15.5%		6,103		15.5%
Iowa		5,831		15.1%		5,907		15.0%
California		5,675		14.7%		5,845		14.9%
Massachusetts		4,150		10.8%		4,260		10.8%
Ohio		2,125		5.5%		2,219		5.6%
All other states (3 states)		3,682		9.7%		3,746		9.6%

Total	$	38,506		100.0%	$	39,354		100.0%

Municipal Securities held-to-maturity:
Minnesota	$	47,999		24.5%	$	48,695		24.4%
Massachusetts		24,700		12.6%		25,328		12.7%
Texas		21,586		11.0%		21,758		10.9%
Wisconsin		12,276		6.2%		12,416		6.2%
Washington		11,680		6.0%		11,873		6.0%
Ohio		9,523		4.9%		9,909		5.0%
All other states (20 states)		68,295		34.8%		69,382		34.8%

Total	$	196,059		100.0%	$	199,361		100.0%


	December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019
	(Dollars in thousands)
Nonperforming loans (1):

Commercial real estate	$	7,563	$	6,481	$	2,628	$	947	$	724
Construction		-		-		-		-		-
SBA		2,273		1,724		1,598		2,748		2,032
Commercial and industrial		3,129		1,822		1,222		1,703		1,266
Dairy & livestock and agribusiness		785		849		-		-		-
SFR mortgage		430		675		1,080		864		878
Consumer and other loans		167		224		289		166		377

Total	$	14,347	$	11,775	$	6,817	$	6,428	$	5,277

% of Total loans		0.17%		0.14%		0.08%		0.09%		0.07%

Past due 30-89 days:

Commercial real estate	$	-	$	-	$	4	$	210	$	-
Construction		-		-		-		-		-
SBA		1,965		66		214		3,086		1,402
Commercial and industrial		1,101		3,627		630		665		2
Dairy & livestock and agribusiness		-		-		882		166		-
SFR mortgage		-		-		446		233		249
Consumer and other loans		-		67		413		-		-

Total	$	3,066	$	3,760	$	2,589	$	4,360	$	1,653

% of Total loans		0.04%		0.04%		0.03%		0.06%		0.02%

OREO:

Commercial real estate	$	1,575	$	1,575	$	2,275	$	2,275	$	2,275
SBA		-		797		797		797		797
SFR mortgage		1,817		1,817		1,817		1,817		1,817

Total	$	3,392	$	4,189	$	4,889	$	4,889	$	4,889

Total nonperforming, past due, and OREO	$	20,805	$	19,724	$	14,295	$	15,677	$	11,819

% of Total loans		0.25%		0.23%		0.17%		0.21%		0.16%


			Maturity by Period
	Total		Less Than One Year		One Year Through Three Years		Four Years Through Five Years		Over Five Years
	(Dollars in thousands)
Deposits (1)	$	11,736,501	$	11,697,276	$	29,251	$	9,362	$	612
Customer repurchase agreements (1)		439,406		439,406		-		-		-
Junior subordinated debentures (1)		25,774		-		-		-		25,774
Deferred compensation		22,142		689		1,098		619		19,736
Operating leases		22,382		6,800		9,389		4,472		1,721
Affordable housing investment		1,950		1,026		864		47		13

Total	$	12,248,155	$	12,145,197	$	40,602	$	14,500	$	47,856


Plan category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a)		Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (b)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)
Equity compensation plans approved by security holders		428,320	$	17.57		7,322,206
Equity compensation plans not approved by security holders		-		-		-

Total		428,320	$	17.57		7,322,206


	August 10, 2018
	(Dollars in thousands)
Merger Consideration
Cash paid	$	180,719
CVBF common stock issued		722,767

Total merger consideration			$	903,486

Identifiable net assets acquired, at fair value
Assets Acquired
Cash and cash equivalents		47,802
Investment securities		716,996
FHLB stock		17,250
Loans		2,738,100
Accrued interest receivable		7,916
Premises and equipment		14,632
BOLI		70,904
Core deposit intangible		52,200
Other assets		53,291

Total assets acquired				3,719,091

Liabilities assumed
Deposits		2,869,986
FHLB advances		297,571
Other borrowings		166,000
Other liabilities		29,192

Total liabilities assumed				3,362,749

Total fair value of identifiable net assets, at fair value				356,342

Goodwill			$	547,144


	Unaudited Pro Forma Year Ended December 31, 2018
	(Dollars in thousands, except per share amounts)

Total revenues (net interest income plus noninterest income)	$	488,620
Net income	$	181,433
Earnings per share - basic	$	1.30
Earnings per share - diluted	$	1.29


	Origination Year												Revolving loans amortized cost basis		Revolving loans converted to term loans
December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass	$	979,499	$	691,091	$	607,753	$	617,640	$	550,105	$	1,646,876	$	192,583	$	24,548	$	5,310,095
Special Mention		9,332		7,162		30,049		43,870		17,398		49,840		5,720		994		164,365
Substandard		0		491		2,157		7,382		2,528		13,790		360		341		27,049
Doubtful & Loss		0		0		0		0		0		0		0		0		0

Total Commercial real estate loans:	$	988,831	$	698,744	$	639,959	$	668,892	$	570,031	$	1,710,506	$	198,663	$	25,883	$	5,501,509

Construction loans:
Risk Rating:
Pass	$	14,511	$	9,350	$	14,945	$	2,258	$	0	$	4	$	44,077	$	0	$	85,145
Special Mention		0		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0		0
Doubtful & Loss		0		0		0		0		0		0		0		0		0

Total Construction loans:	$	14,511	$	9,350	$	14,945	$	2,258	$	0	$	4	$	44,077	$	0	$	85,145

SBA loans:
Risk Rating:
Pass	$	47,901	$	12,821	$	44,950	$	58,839	$	26,136	$	86,085	$	0	$	2,976	$	279,708
Special Mention		0		0		0		5,446		1,336		5,648		0		0		12,430
Substandard		0		0		904		5,503		1,554		3,797		0		0		11,758
Doubtful & Loss		0		0		0		0		0		0		0		0		0

Total SBA loans:	$	47,901	$	12,821	$	45,854	$	69,788	$	29,026	$	95,530	$	0	$	2,976	$	303,896

SBA - PPP loans:
Risk Rating:
Pass	$	882,986	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	882,986
Special Mention		0		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0		0
Doubtful & Loss		0		0		0		0		0		0		0		0		0

Total SBA - PPP loans:	$	882,986	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	882,986

Commercial and industrial loans:
Risk Rating:
Pass	$	104,478	$	168,050	$	62,453	$	56,043	$	32,149	$	76,019	$	257,250	$	6,058	$	762,500
Special Mention		1,995		1,081		1,892		1,028		95		4,882		17,395		1,132		29,500
Substandard		4,346		860		3,996		2,282		285		94		6,677		1,522		20,062
Doubtful & Loss		0		0		0		0		0		0		0		0		0

Total Commercial and industrial loans:	$	110,819	$	169,991	$	68,341	$	59,353	$	32,529	$	80,995	$	281,322	$	8,712	$	812,062


Dairy & livestock and agribusiness loans:
Risk Rating:
Pass	$	1,041	$	1,765	$	1,199	$	5,680	$	120	$	320	$	319,211	$	363	$	329,699
Special Mention		878		0		364		0		0		0		13,255		1,511		16,008
Substandard		0		0		784		693		2,285		0		0		11,677		15,439
Doubtful & Loss		0		0		0		0		0		0		0		0		0

Total Dairy & livestock and agribusiness loans:	$	1,919	$	1,765	$	2,347	$	6,373	$	2,405	$	320	$	332,466	$	13,551	$	361,146

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	8,478	$	0	$	2,556	$	10,249	$	3,586	$	20,266	$	0	$	0	$	45,135
Special Mention		0		0		0		0		0		412		0		0		412
Substandard		0		0		0		0		0		0		0		0		0
Doubtful & Loss		0		0		0		0		0		0		0		0		0

Total Municipal lease finance receivables loans:	$	8,478	$	0	$	2,556	$	10,249	$	3,586	$	20,678	$	0	$	0	$	45,547


	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	1,977,007	$	78,208	$	28,435	$	0	$	2,083,650
Non-owner occupied		3,280,580		10,005		382		0		3,290,967
Construction
Speculative		106,895		0		0		0		106,895
Non-speculative		10,030		0		0		0		10,030
SBA		283,430		11,032		10,546		0		305,008
Commercial and industrial		895,234		35,473		4,420		0		935,127
Dairy & livestock and agribusiness		320,670		35,920		27,119		0		383,709
Municipal lease finance receivables		52,676		470		0		0		53,146
SFR mortgage		280,010		1,957		1,501		0		283,468
Consumer and other loans		114,870		421		1,028		0		116,319

Total gross loans	$	7,321,402	$	173,486	$	73,431	$	0	$	7,568,319


	Year Ended December 31, 2020
	Ending Balance, prior to adoption of ASU 2016-13 December 31, 2019		Impact of Adoption of ASU 2016-13			Charge- offs			Recoveries		Provision for (Recapture of) Credit Losses			Ending Balance December 31, 2020
	(Dollars in thousands)
Commercial real estate	$	48,629	$	3,547		$	0		$	0	$	23,263		$	75,439
Construction		858		655			0			11		410			1,934
SBA		1,453		1,818			(362	)		72		11			2,992
SBA - PPP		0		0			0			0		0			0
Commercial and industrial		8,880		(2,442	)		(195	)		10		889			7,142
Dairy & livestock and agribusiness		5,255		(186	)		0			0		(1,120	)		3,949
Municipal lease finance receivables		623		(416	)		0			0		(133	)		74
SFR mortgage		2,339		(2,043	)		0			206		(135	)		367
Consumer and other loans		623		907			(109	)		59		315			1,795

Total allowance for credit losses	$	68,660	$	1,840		$	(666	)	$	358	$	23,500		$	93,692


	Year Ended December 31, 2018
	Ending Balance December 31, 2017		Charge- offs			Recoveries		Provision for (Recapture of) Loan Losses			Ending Balance December 31, 2018
	(Dollars in thousands)
Commercial real estate	$	41,722	$	0		$	0	$	3,212		$	44,934
Construction		984		0			2,506		(2,509	)		981
SBA		869		(257	)		20		430			1,062
Commercial and industrial		7,280		(10	)		82		168			7,520
Dairy & livestock and agribusiness		4,647		0			19		549			5,215
Municipal lease finance receivables		851		0			0		(76	)		775
SFR mortgage		2,112		(13	)		51		46			2,196
Consumer and other loans		753		(11	)		141		(157	)		726
PCI loans		367		0			0		(163	)		204

Total allowance for loan losses	$	59,585	$	(291	)	$	2,819	$	1,500		$	63,613


	December 31, 2019
	Recorded Investment in Loans				Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
	(Dollars in thousands)
Commercial real estate	$	1,121	$	5,373,496	$	0	$	48,629
Construction		0		116,925		0		858
SBA		2,568		302,440		257		1,196
Commercial and industrial		1,344		933,783		251		8,629
Dairy & livestock and agribusiness		0		383,709		0		5,255
Municipal lease finance receivables		0		53,146		0		623
SFR mortgage		2,979		280,489		0		2,339
Consumer and other loans		377		115,942		0		623

Total	$	8,389	$	7,559,930	$	508	$	68,152


	December 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	0	$	0	$	7,208	$	7,208	$	2,136,051	$	2,143,259
Non-owner occupied		0		0		0		0		3,358,250		3,358,250
Construction
Speculative (1)		0		0		0		0		72,126		72,126
Non-speculative		0		0		0		0		13,019		13,019
SBA		531		2,415		1,025		3,971		299,925		303,896
SBA - PPP		0		0		0		0		882,986		882,986
Commercial and industrial		608		811		2,338		3,757		808,305		812,062
Dairy & livestock and agribusiness		0		0		784		784		360,362		361,146
Municipal lease finance receivables		0		0		0		0		45,547		45,547
SFR mortgage		0		0		229		229		270,282		270,511
Consumer and other loans		0		0		0		0		86,006		86,006

Total gross loans	$	1,139	$	3,226	$	11,584	$	15,949	$	8,332,859	$	8,348,808


	December 31, 2020
	Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1) (3)		Loans Past Due Over 89 Days Still Accruing
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	7,563	$	7,563	$	0
Non-owner occupied		0		0		0
Construction
Speculative (2)		0		0		0
Non-speculative		0		0		0
SBA		2,035		2,273		0
SBA - PPP		0		0		0
Commercial and industrial		1,576		3,129		0
Dairy & livestock and agribusiness		785		785		0
Municipal lease finance receivables		430		0		0
SFR mortgage		0		430		0
Consumer and other loans		167		167		0

Total gross loans	$	12,556	$	14,347	$	0


	As of and For the Year Ended December 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
					(Dollars in thousands)
With no related allowance recorded:
Commercial real estate
Owner occupied	$	479	$	613	$	0	$	505	$	0
Non-owner occupied		642		643		0		681		26
Construction
Speculative		0		0		0		0		0
Non-speculative		0		0		0		0		0
SBA		2,243		2,734		0		2,389		41
Commercial and industrial		1,091		1,261		0		1,369		4
Dairy & livestock and agribusiness		0		0		0		0		0
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		2,979		3,310		0		3,043		86
Consumer and other loans		377		514		0		396		0

Total		7,811		9,075		0		8,383		157


With a related allowance recorded:
Commercial real estate
Owner occupied		0		0		0		0		0
Non-owner occupied		0		0		0		0		0
Construction
Speculative		0		0		0		0		0
Non-speculative		0		0		0		0		0
SBA		325		324		257		327		0
Commercial and industrial		253		347		251		699		0
Dairy & livestock and agribusiness		0		0		0		0		0
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		0		0		0		0		0
Consumer and other loans		0		0		0		0		0

Total		578		671		508		1,026		0

Total impaired loans	$	8,389	$	9,746	$	508	$	9,409	$	157


	December 31, 2020						Number of Loans Dependent on Collateral
	Real Estate		Business Assets		Other		Number of Loans Dependent on Collateral
	(Dollars in thousands)

Commercial real estate	$	7,883	$	0	$	0		8
Construction		0		0		0		0
SBA		1,761		326		185		10
SBA - PPP		0		0		0		0
Commercial and industrial		470		5,542		95		18
Dairy & livestock and agribusiness		0		785		0		1
Municipal lease finance receivables		0		0		0		0
SFR mortgage		430		0		0		2
Consumer and other loans		168		0		0		2

Total collateral-dependent loans	$	10,712	$	6,653	$	280		41


	For the Year Ended December 31, 2018 (2)
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2018		Financial Effect Resulting From Modifications (3)
	(Dollars in thousands)
Commercial real estate:
Interest rate reduction		0	$	0	$	0	$	0	$	0
Change in amortization period or maturity		0		0		0		0		0
Commercial and industrial:
Interest rate reduction		0		0		0		0		0
Change in amortization period or maturity		1		38		38		20		0
Dairy & livestock and agribusiness:
Interest rate reduction		0		0		0		0		0
Change in amortization period or maturity		0		0		0		0		0
SFR mortgage:
Interest rate reduction		0		0		0		0		0
Change in amortization period or maturity		1		311		311		300		0
Consumer:
Interest rate reduction		0		0		0		0		0
Change in amortization period or maturity		1		278		278		267		0

Total loans		3	$	627	$	627	$	587	$	0


	Actual					For Capital Adequacy Purposes						To Be Well Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio			Amount			Ratio			Amount			Ratio
	(Dollars in thousands)
As of December 31, 2020:
Total Capital (to Risk-Weighted Assets)
Company	$	1,415,008		16.24	%	$	697,258	>		8.00	%					N/A
Bank	$	1,372,184		15.75	%	$	696,849	>		8.00	%	$	871,061	>		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)
Company	$	1,312,316		15.06	%	$	522,944	>		6.00	%					N/A
Bank	$	1,269,492		14.57	%	$	522,636	>		6.00	%	$	696,849	>		8.00	%
Common equity Tier 1 capital ratio
Company	$	1,287,316		14.77	%	$	392,208	>		4.50	%					N/A
Bank	$	1,269,492		14.57	%	$	391,977	>		4.50	%	$	566,189	>		6.50	%
Tier 1 Capital (to Average-Assets)
Company	$	1,312,316		9.90	%	$	530,424	>		4.00	%					N/A
Bank	$	1,269,492		9.58	%	$	530,164	>		4.00	%	$	662,705	>		5.00	%
As of December 31, 2019:
Total Capital (to Risk-Weighted Assets)
Company	$	1,391,771		16.01	%	$	695,651	>		8.00	%					N/A
Bank	$	1,376,364		15.83	%	$	695,471	>		8.00	%	$	869,339	>		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)
Company	$	1,314,152		15.11	%	$	521,738	>		6.00	%					N/A
Bank	$	1,298,745		14.94	%	$	521,604	>		6.00	%	$	695,471	>		8.00	%
Common equity Tier 1 capital ratio
Company	$	1,289,152		14.83	%	$	391,304	>		4.50	%					N/A
Bank	$	1,298,745		14.94	%	$	391,203	>		4.50	%	$	565,070	>		6.50	%
Tier 1 Capital (to Average-Assets)
Company	$	1,314,152		12.33	%	$	426,497	>		4.00	%					N/A
Bank	$	1,298,745		12.19	%	$	426,328	>		4.00	%	$	532,909	>		5.00	%


	Carrying Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Mortgage-backed securities	$	1,904,935	$	0	$	1,904,935	$	0
CMO/REMIC		462,814		0		462,814		0
Municipal bond s		30,285		0		30,285		0
Other securities		889		0		889		0

Total investment securities - AFS		2,398,923		0		2,398,923		0
Interest rate swaps		30,181		0		30,181		0

Total assets	$	2,429,104	$	0	$	2,429,104	$	0

Description of liability
Interest rate swaps	$	30,181	$	0	$	30,181	$	0

Total liabilities	$	30,181	$	0	$	30,181	$	0


	Carrying Value at December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Mortgage-backed securities	$	1,206,313	$	0	$	1,206,313	$	0
CMO/REMIC		493,710		0		493,710		0
Municipal bonds		39,354		0		39,354		0
Other securities		880		0		880		0

Total investment securities - AFS		1,740,257		0		1,740,257		0
Interest rate swaps		11,502		0		11,502		0

Total assets	$	1,751,759	$	0	$	1,751,759	$	0

Description of liability
Interest rate swaps	$	11,502	$	0	$	11,502	$	0

Total liabilities	$	11,502	$	0	$	11,502	$	0


	Carrying Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Year Ended December 31, 2020
	(Dollars in thousands)
Description of assets
Loans:
Commercial real estate	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
SBA		76		0		0		76		24
Commercial and industrial		4,266		0		0		4,266		2,316
Dairy & livestock and agribusiness		0		0		0		0		0
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		0		0		0		0		0
Consumer and other loan s		0		0		0		0		0
Other real estate owned		2,275		0		0		2,275		700
Asset held-for-sale		0		0		0		0		0

Total assets	$	6,617	$	0	$	0	$	6,617	$	3,040


	Carrying Value at December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Year Ended December 31, 2019
	(Dollars in thousands)
Description of assets

Impaired loans:
Commercial real estate	$	0	$	0	$	0	$	0	$	0
Constructio n		0		0		0		0		0
SBA		359		0		0		359		513
Commercial and industrial		253		0		0		253		251
Dairy & livestock and agribusiness		0		0		0		0		0
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		0		0		0		0		0
Consumer and other loans		0		0		0		0		0
Other real estate owned		444		0		0		444		64
Asset held-for-sal e		0		0		0		0		0

Total assets	$	1,056	$	0	$	0	$	1,056	$	828


Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivative Instruments	Amount of Gain Recognized in Income on Derivative Instruments
		Year Ended December 31,
		2020		2019		2018
		(Dollars in thousands)
Interest rate swaps	Other income	$	5,025	$	1,806	$	340

Total		$	5,025	$	1,806	$	340


	Gross Amounts Recognized in the Consolidated Balance Sheets		Gross Amounts Offset in the Consolidated Balance Sheets			Net Amounts Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets					Net Amount
	Gross Amounts Recognized in the Consolidated Balance Sheets		Gross Amounts Offset in the Consolidated Balance Sheets			Net Amounts Presented in the Consolidated Balance Sheets		Financial Instruments		Collateral Pledged			Net Amount
	(Dollars in thousands)
December 31, 2020

Financial assets:
Derivatives not designated as hedging instruments	$	30,181	$	0		$	0	$	30,181	$	0		$	30,181

Total	$	30,181	$	0		$	0	$	30,181	$	0		$	30,181


Financial liabilities:
Derivatives not designated as hedging instruments	$	30,434	$	(253	)	$	30,181	$	253	$	(63,730	)	$	(33,296	)
Repurchase agreements		439,406		0			439,406		0		(483,603	)		(44,197	)

Total	$	469,840	$	(253	)	$	469,587	$	253	$	(547,333	)	$	(77,493	)


December 31, 2019

Financial assets:
Derivatives not designated as hedging instruments	$	11,502	$	0		$	0	$	11,502	$	0		$	11,502

Total	$	11,502	$	0		$	0	$	11,502	$	0		$	11,502


Financial liabilities:
Derivatives not designated as hedging instruments	$	11,619	$	(117	)	$	11,502	$	117	$	(23,312	)	$	(11,693	)
Repurchase agreements		428,659		0			428,659		0		(510,138	)		(81,479	)

Total	$	440,278	$	(117	)	$	440,161	$	117	$	(533,450	)	$	(93,172	)


	Three Months Ended
	December 31,		September 30,		June 30,		March 31,
	(Dollars in thousands, except per share amounts)
2020

Net interest income	$	105,853	$	103,325	$	104,569	$	102,306
Provision for credit losses		0		0		11,500		12,000
Net earnings		50,056		47,492		41,631		37,980
Basic earnings per common share		0.37		0.35		0.31		0.27
Diluted earnings per common share		0.37		0.35		0.31		0.27
2019
Net interest income	$	107,020	$	108,159	$	111,057	$	109,536
Provision for loan losses		0		1,500		2,000		1,500
Net earnings		51,281		50,423		54,481		51,642
Basic earnings per common share		0.37		0.36		0.39		0.37
Diluted earnings per common share		0.37		0.36		0.39		0.37

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

FORM 10-K SUMMARY

~~FORM~~
~~10-K~~78 ~~SUMMARY~~

SIGNATURES