UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2022~~2023

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-10140

CVB FINANCIAL CORP.

(Exact name of registrant as specified in its charter)


California		95-3629339
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

701 North Haven Ave., Suite 350
Ontario, California		91764
(Address of principal executive offices)		(Zip Code)

	(909) 980-4030
	(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, No Par Value	CVBF	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer		Accelerated filer	
Non-accelerated filer		Smaller reporting company	
Emerging growth company	

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No 

Number of shares of common stock of the registrant: ~~141,057,031~~139,289,515 outstanding as of April ~~29, 2022.~~28, 2023.

TABLE OF CONTENTS


PART I –	FINANCIAL INFORMATION (UNAUDITED)	3
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	54
	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	10
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3436
	CRITICAL ACCOUNTING POLICIES	3536
	OVERVIEW	3638
	ANALYSIS OF THE RESULTS OF OPERATIONS	3840
	ANALYSIS OF FINANCIAL CONDITION	4647
	ASSET/LIABILITY AND MARKET RISK MANAGEMENT	6062
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6365
ITEM 4.	CONTROLS AND PROCEDURES	6365
PART II –	OTHER INFORMATION	6466
ITEM 1.	LEGAL PROCEEDINGS	6466
ITEM 1A.	RISK FACTORS	6567
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6669
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	6669
ITEM 4.	MINE SAFETY DISCLOSURES	6669
ITEM 5.	OTHER INFORMATION	6669
ITEM 6.	EXHIBITS	6770
SIGNATURES		6871

PART I – FINANCIAL INFORMATION (UNAUDITED)

GENERAL

Cautionary Note Regarding Forward-Looking Statements

Certain statements set forth herein constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as “will likely result”, “aims”, “anticipates”, “believes”, “could”, “estimates”,
~~“expects”~~ “expects”, “hopes”, “intends”, “may”, “plans”, “projects”, “seeks”, “should”, “will,” “strategy”, “possibility”, and variations of these words and similar expressions help to identify these forward-looking statements, which involve risks and uncertainties that could cause actual results or performance to differ materially from those projected. These forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, including, without limitation, plans, strategies and goals, and statements about the Company’s outlook regarding revenue and asset growth, financial performance and profitability, capital and liquidity levels, loan and deposit growth and retention, yields and returns, loan diversification and credit management, stockholder value creation, tax rates, and the impact of acquisitions we have made or may make. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company, and there can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors in addition to those set forth below could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements.

Given the ongoing and dynamic nature of the COVID-19 pandemic, the ultimate extent of the impacts on our business,
financial position, results of operations, liquidity, workforce, operating platform and prospects remain uncertain. In addition,
changes to statutes, regulations, or government or regulatory policies or practices as a result of, or in response to the COVID-19 pandemic, could affect us in substantial and unpredictable ways, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance.

General risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct business; the effects of, and changes in, trade,
monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve
System; inflation/deflation, interest rate, market, and monetary fluctuations; the effect of acquisitions we have made or may
make, including, without limitation, the failure to obtain the necessary regulatory approvals, the failure to achieve the
expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an
acquisition target into our operations; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; the impact of changes in financial services policies, laws, and
regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory
bodies; the effectiveness of our risk management framework and quantitative models; changes in the level of our
nonperforming assets and charge-offs; the transition away from USD LIBOR and uncertainties regarding potential alternative reference rates, including SOFR; the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which has changed how we estimate credit losses and may further increase the required level of our allowance for credit losses in future periods;setters; possible credit related impairments or declines in the fair value of loans and securities held by us; possible impairment charges to ~~goodwill;~~goodwill, including any impairment that may result from increased volatility in our stock price; changes in consumer spending, borrowing, and savings habits; the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; periodic fluctuations in commercial or residential real estate prices or values; our ability to attract and retain deposits and other sources of liquidity; the possibility that we may reduce or discontinue the payments of dividends on our common stock; changes in the financial performance and/or condition of our borrowers; changes in the competitive environment among financial and bank holding companies and other financial service providers; technological changes in banking and financial services; geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism, and/or military conflicts, which could impact business and economic conditions in the United States and abroad; catastrophic events or natural disasters, including earthquakes, drought, climate change or extreme weather events that may affect our assets, communications or computer services, customers, employees or third party vendors; public health crises and pandemics, such as the COVID-19 pandemic, and their effects on the economic and business environments in which we operate, including on our credit quality, ~~and~~ business operations and employees, as well as the impact on general economic and financial market conditions; cybersecurity and fraud threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level; our

ability to recruit and retain key executives, board members and other employees, and changes in employment laws and regulations; unanticipated regulatory or legal proceedings; and our ability to manage the risks involved in the foregoing.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's ~~2021~~2022 Annual Report on Form 10-K filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by law.
Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or
shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)


	March 31,			December 31,			March 31,			December 31,
	2022			2021			2023			2022
Assets
Cash and due from banks	$	171,000		$	90,012		$	162,668		$	158,236
Interest-earning balances due from Federal Reserve		1,482,039			1,642,536			64,866			45,225
Total cash and cash equivalents		1,653,039			1,732,548			227,534			203,461
Interest-earning balances due from depository institutions		6,859			25,999			11,944			9,553
Investment securities available-for-sale, at fair value (with amortized cost of $3,850,724 at March 31, 2022, and $3,185,249 at December 31, 2021)		3,647,330			3,183,923
Investment securities held-to-maturity (with fair value of $2,203,144 at March 31, 2022, and $1,921,693 at December 31, 2021)		2,362,741			1,925,970
Investment securities available-for-sale, at fair value (with amortized cost of $3,664,184 at March 31, 2023, and $3,755,297 at December 31, 2022)								3,204,524			3,255,211
Investment securities held-to-maturity (with fair value of $2,168,569 at March 31, 2023, and $2,155,587 at December 31, 2022)								2,535,979			2,554,301
Total investment securities		6,010,071			5,109,893			5,740,503			5,809,512
Investment in stock of Federal Home Loan Bank (FHLB)		18,012			17,688			38,697			27,627
Loans and lease finance receivables		8,591,684			7,887,713			8,942,489			9,079,392
Allowance for credit losses		(76,119	)		(65,019	)		(86,540	)		(85,117	)
Net loans and lease finance receivables		8,515,565			7,822,694			8,855,949			8,994,275
Premises and equipment, net		53,435			49,096			45,310			46,698
Bank owned life insurance (BOLI)		259,254			251,570			256,717			255,528
Accrued interest receivable		37,308			34,204			44,186			46,692
Intangibles		27,310			25,394			20,023			21,742
Goodwill		765,822			663,707			765,822			765,822
Income taxes		83,639			32,603			151,954			186,684
Other assets		108,823			118,301			115,402			108,946
Total assets	$	17,539,137		$	15,883,697		$	16,274,041		$	16,476,540

Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	9,107,304		$	8,104,056		$	7,844,329		$	8,164,364
Interest-bearing		5,380,474			4,872,386			4,427,541			4,671,881
Total deposits		14,487,778			12,976,442			12,271,870			12,836,245
Customer repurchase agreements		598,909			642,388			490,235			565,431
Other borrowings		0			2,281			1,405,000			995,000
Deferred compensation		23,948			20,879			22,873			22,092
Payable for securities purchased		257,979			50,340
Other liabilities		95,480			109,864			94,294			109,255
Total liabilities		15,464,094			13,802,194			14,284,272			14,528,023

Commitments and Contingencies
Stockholders' Equity
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 141,626,059 at March 31, 2022, and 135,526,025 at December 31, 2021		1,325,644			1,209,903
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 139,302,451 at March 31, 2023, and 139,818,703 at December 31, 2022								1,281,786			1,300,466
Retained earnings		895,661			875,568			1,034,110			1,002,847
Accumulated other comprehensive (loss) income, net of tax		(146,262	)		(3,968	)		(326,127	)		(354,796	)
Total stockholders' equity		2,075,043			2,081,503			1,989,769			1,948,517
Total liabilities and stockholders' equity	$	17,539,137		$	15,883,697		$	16,274,041		$	16,476,540

See accompanying notes to the unaudited condensed consolidated financial statements.

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)


	Three months ended						Three Months Ended
	March 31,						March 31,
	2022			2021			2023			2022
Interest income:
Loans and leases, including fees	$	89,461		$	91,795		$	108,394		$	89,461
Investment securities:
Investment securities available-for-sale		12,832			9,159			19,596			12,832
Investment securities held-to-maturity		10,663			3,940			13,956			10,663
Total investment income		23,495			13,099			33,552			23,495
Dividends from FHLB stock		371			217			349			371
Interest-earning deposits with other institutions		773			413			491			773
Total interest income		114,100			105,524			142,786			114,100
Interest expense:
Deposits		1,127			1,812			5,365			1,127
Borrowings and customer repurchase agreements		133			141			11,693			133
Junior subordinated debentures		0			103
Total interest expense		1,260			2,056			17,058			1,260
Net interest income before provision for (recapture of) credit losses		112,840			103,468
Provision for (recapture of) credit losses		2,500			(19,500	)
Net interest income after provision for (recapture of) credit losses		110,340			122,968
Net interest income before provision for credit losses								125,728			112,840
Provision for credit losses								1,500			2,500
Net interest income after provision for credit losses								124,228			110,340
Noninterest income:
Service charges on deposit accounts		5,059			3,985			5,344			5,059
Trust and investment services		2,822			2,611			2,914			2,822
Bankcard services		416			350			377			416
BOLI income		1,349			4,624			1,189			1,349
Gain on OREO, net		0			429
Other		1,618			1,682			3,378			1,618
Total noninterest income		11,264			13,681			13,202			11,264
Noninterest expense:
Salaries and employee benefits		32,656			29,706			35,247			32,656
Occupancy and equipment		5,571			4,863			5,450			5,571
Professional services		2,045			2,168			1,696			2,045
Computer software expense		3,795			2,844			3,408			3,795
Marketing and promotion		1,458			725			1,715			1,458
Provision for unfunded loan commitments								500			—
Amortization of intangible assets		1,998			2,167			1,720			1,998
Acquisition related expenses		5,638			0			—			5,638
Other		5,077			4,690			5,145			5,077
Total noninterest expense		58,238			47,163			54,881			58,238
Earnings before income taxes		63,366			89,486			82,549			63,366
Income taxes		17,806			25,593			23,279			17,806
Net earnings	$	45,560		$	63,893		$	59,270		$	45,560

Other comprehensive (loss) income:
Unrealized (loss) gain on securities arising during the period, before tax	$	(202,018	)	$	(40,310	)
Less: Income tax benefit (expense) related to items of other comprehensive income		59,724			11,917
Other comprehensive (loss), net of tax		(142,294	)		(28,393	)
Comprehensive (loss) income	$	(96,734	)	$	35,500
Other comprehensive income (loss):
Unrealized gain (loss) on securities arising during the period, before tax							$	40,702		$	(202,018	)
Less: Income tax (expense) benefit related to items of other comprehensive income								(12,033	)		59,724
Other comprehensive income (loss), net of tax								28,669			(142,294	)
Comprehensive income (loss)							$	87,939		$	(96,734	)

Basic earnings per common share	$	0.31		$	0.47		$	0.42		$	0.31
Diluted earnings per common share	$	0.31		$	0.47		$	0.42		$	0.31

See accompanying notes to the unaudited condensed consolidated financial statements.

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars and shares in thousands)

(Unaudited)

Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022


																Common Shares Outstanding			Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2023																	139,819		$	1,300,466		$	1,002,847		$	(354,796	)	$	1,948,517
Repurchase of common stock																	(918	)		(21,036	)		—			—			(21,036	)
Exercise of stock options																	4			72			—			—			72
Shares issued pursuant to stock-based compensation plan																	397			2,284			—			—			2,284
Cash dividends declared on common stock ($0.20 per share)																	—			—			(28,007	)		—			(28,007	)
Net earnings																	—			—			59,270			—			59,270
Other comprehensive income																	—			—			—			28,669			28,669
Balance, March 31, 2023																	139,302		$	1,281,786		$	1,034,110		$	(326,127	)	$	1,989,769
	Common Shares Outstanding			Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2022		135,526		$	1,209,903		$	875,568		$	(3,968	)	$	2,081,503			135,526		$	1,209,903		$	875,568		$	(3,968	)	$	2,081,503
Issuance of common stock for acquisition of Suncrest Bank		8,617			197,069			-			-			197,069			8,617			197,069			—			—			197,069
Repurchase of common stock		(584	)		(13,643	)		-			-			(13,643	)		(584	)		(13,643	)		—			—			(13,643	)
Repurchase of common stock, ASR Plan		(2,544	)		(56,000	)		-			-			(56,000	)		(2,544	)		(56,000	)		—			—			(56,000	)
ASR Contract		-			(14,000	)								(14,000	)		—			(14,000	)		—			—			(14,000	)
Exercise of stock options		50			720			-			-			720			50			720			—			—			720
Shares issued pursuant to stock-based compensation plan		561			1,595			-			-			1,595			561			1,595			—			—			1,595
Cash dividends declared on common stock ($0.18 per share)		-			-			(25,467	)		-			(25,467	)		—			—			(25,467	)		—			(25,467	)
Net earnings		-			-			45,560			-			45,560			—			—			45,560			—			45,560
Other comprehensive loss		-			-			-			(142,294	)		(142,294	)		—			—			—			(142,294	)		(142,294	)
Balance, March 31, 2022		141,626		$	1,325,644		$	895,661		$	(146,262	)	$	2,075,043			141,626		$	1,325,644		$	895,661		$	(146,262	)	$	2,075,043

Balance, January 1, 2021		135,601		$	1,211,780		$	760,861		$	35,349		$	2,007,990
Repurchase of common stock		(22	)		(502	)		-			-			(502	)
Exercise of stock options		40			891			-			-			891
Shares issued pursuant to stock-based compensation plan		301			1,282			-			-			1,282
Cash dividends declared on common stock ($0.18 per share)		-			-			(24,495	)		-			(24,495	)
Net earnings		-			-			63,893			-			63,893
Other comprehensive loss		-			-			-			(28,393	)		(28,393	)
Balance, March 31, 2021		135,920		$	1,213,451		$	800,259		$	6,956		$	2,020,666

See accompanying notes to the unaudited condensed consolidated financial statements.

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2022			2021			2023			2022
Cash Flows from Operating Activities
Interest and dividends received	$	114,010		$	95,475		$	148,044		$	114,010
Service charges and other fees received		10,664			8,636			11,779			10,664
Interest paid		(1,254	)		(1,859	)		(17,239	)		(1,254	)
Net cash paid to vendors, employees and others		(48,292	)		(56,221	)		(72,445	)		(48,292	)
Income taxes		(16	)		907			(19	)		(16	)
Net cash provided by operating activities		75,112			46,938			70,120			75,112
Cash Flows from Investing Activities
Proceeds from redemption of FHLB stock		4,712			-
(Purchases) proceeds from redemption of FHLB stock, net								(11,070	)		4,712
Net change in interest-earning balances from depository institutions		29,140			15,815			(2,391	)		29,140
Proceeds from sale of investment securities held-for-sale		0			0
Proceeds from repayment of investment securities available-for-sale		145,783			224,104			89,465			145,783
Proceeds from maturity of investment securities available-for-sale		0			0			3			—
Purchases of investment securities available-for-sale		(608,045	)		(661,857	)		—			(608,045	)
Proceeds from repayment and maturity of investment securities held-to-maturity		174,125			35,766			17,552			174,125
Purchases of investment securities held-to-maturity		(483,426	)		(545,681	)		(2,026	)		(483,426	)
Net increase in equity investments		766			(4,961	)		2,680			766
Net decrease in loan and lease finance receivables		75,661			64,167			138,709			75,661
Proceeds from sale of building, net of selling costs		-			1,157
Purchase of premises and equipment		(1,120	)		(662	)		(343	)		(1,120	)
Proceeds from BOLI death benefit		3,096			5,062			—			3,096
Proceeds from sales of other real estate owned		-			2,216
Cash acquired from acquisition, net of cash paid		329,001			-			—			329,001
Net cash used in investing activities		(330,307	)		(864,874	)
Net cash provided by (used in) investing activities								232,579			(330,307	)
Cash Flows from Financing Activities
Net increase in other deposits		350,695			336,518
Net (decrease) increase in time deposits		(21,930	)		5,636
Net decrease in other borrowings		(2,281	)		-
Net (decrease) increase in customer repurchase agreements		(43,479	)		66,940
Net (decrease) increase in other deposits								(553,692	)		350,695
Net decrease in time deposits								(10,683	)		(21,930	)
Net increase (decrease) in other borrowings								410,000			(2,281	)
Net decrease in customer repurchase agreements								(75,196	)		(43,479	)
Cash dividends on common stock		(24,396	)		(24,408	)		(28,091	)		(24,396	)
Repurchase of common stock		(13,643	)		(502	)		(21,036	)		(13,643	)
Repurchase of common stock, ASR Plan		(56,000	)		-			—			(56,000	)
ASR Contract		(14,000	)		-			—			(14,000	)
Proceeds from exercise of stock options		720			891			72			720
Net cash provided by financing activities		175,686			385,075
Net increase in cash and cash equivalents		(79,509	)		(432,861	)
Net cash (used in) provided by financing activities								(278,626	)		175,686
Net increase (decrease) in cash and cash equivalents								24,073			(79,509	)

Cash and cash equivalents, beginning of period		1,732,548			1,958,160			203,461			1,732,548
Cash and cash equivalents, end of period	$	1,653,039		$	1,525,299		$	227,534		$	1,653,039

See accompanying notes to the unaudited condensed consolidated financial statements.

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

(Unaudited)


	Three months ended						Three Months Ended
	March 31,						March 31,
	2022			2021			2023			2022
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
Net earnings	$	45,560		$	63,893		$	59,270		$	45,560
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gain on sale of building, net		-			(189	)
Gain on sale of other real estate owned		-			(399	)
Increase in BOLI		(1,349	)		(4,624	)		(1,189	)		(1,349	)
Net amortization of premiums and discounts on investment securities		8,134			6,411			4,635			8,134
Accretion of discount for acquired loans, net		(1,843	)		(4,028	)		(1,102	)		(1,843	)
Provision for (recapture of) credit losses		2,500			(19,500	)
Provision for credit losses								1,500			2,500
Provision for unfunded loan commitments								500			—
Stock-based compensation		1,595			1,282			2,284			1,595
Depreciation and amortization, net		2,317			(3,526	)		4,448			2,317
Change in other assets and liabilities		18,198			7,618			(226	)		18,198
Total adjustments		29,552			(16,955	)		10,850			29,552
Net cash provided by operating activities	$	75,112		$	46,938		$	70,120		$	75,112

Supplemental Disclosure of Non-cash Investing Activities
Securities purchased and not settled	$	257,979		$	80,973		$	—		$	257,979
Issuance of common stock for acquisition	$	197,069		$	-		$	—		$	197,069

See accompanying notes to the unaudited condensed consolidated financial statements.

CVB FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BUSINESS

The condensed consolidated financial statements include CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “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 1one inactive subsidiary, Chino Valley Bancorp.

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. As of March 31, ~~2022,~~2023, the Bank operated 6562 banking centers and 3three trust office locations. The Company is headquartered in the city of Ontario, California.

On January 7, 2022, we completed the acquisition of Suncrest Bank ("Suncrest") with approximately $1.4 billion in total assets, acquired at fair value, and seven banking centers. ~~Total assets at March 31, 2022~~Assets acquired included $765.9 million of acquired net loans at fair value, $131.1 million of investment securities, and $9 million in Bank-Owned Life Insurance ("BOLI"). The acquisition resulted in $102.1 million of goodwill and $3.9 million in core deposit premium. Net cash proceeds were used to fund the $39.6 million in cash paid to the former shareholders of Suncrest as part of the merger consideration. Refer to Note 4 – Business Combinations of the notes to the unaudited condensed consolidated financial statements of this report for additional information.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed 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-Q 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 interim financial reporting. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three months ended March 31, ~~2022~~2023 are not necessarily indicative of the results for the full year. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, filed with the SEC. A summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.

Reclassification — Certain amounts in the prior periods’ unaudited condensed consolidated 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

Except as discussed below, our accounting policies are described in Note 3 – Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 as filed with the SEC (“Form 10-K”).

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, loans, as well as valuation of deferred tax assets.

Adoption of New Accounting Standard — On January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings ("TDR") and Vintage Disclosures. This ASU eliminates recognition and measurement guidance for TDRs by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, and to require that an entity disclose current-period gross write-offs by year of origination (i.e. the vintage year) for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. For entities that have adopted ASU 2016-13, this ASU is effective for interim and reporting periods beginning after December 15, 2022. The Company adopted this ASU on a prospective basis. Results for reporting periods beginning after January 1, 2023 are presented under ASU 2022-02 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption of this ASU did not have a material impact on our consolidated financial statements.

4. BUSINESS COMBINATIONS

On January 7, 2022, the Company completed the acquisition of Suncrest, headquartered in Visalia, California. The Company acquired all of the assets and assumed all of the liabilities of Suncrest in a stock and cash transaction for $39.6 million in cash and $197.1 million in stock. As a result, Suncrest merged with and into the Bank, the principal subsidiary of CVB. The Company believes this transaction serves to further extend and strengthen its geographic presence in California’s Central Valley and the Sacramento metro area. At close, Suncrest had seven branch locations and two loan production offices, which re-opened as CBB locations on January 10, 2022. As a result of the consolidation of two branches during the second quarter of 2022, five branch locations remain from this acquisition.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The total fair value of assets acquired approximated $1.38 billion in total assets, including $329.0 million of cash and cash equivalents, net of cash paid, $131.1 million of investment securities, $765.9 million in net loans, $6.1 million in premises and equipment, $9.0 million in BOLI, and $33.7 million in other assets. The purchased credit deteriorated (“PCD”) loans were recorded at a fair value of $224.7 million, which was net of a discount of $13.1 million including a credit discount of $8.6 million. The assets acquired also include a core deposit intangible of $3.9 million and non-tax deductible goodwill of $102.1 million. Goodwill from the acquisition represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The total fair value of liabilities assumed was $1.19 billion, which included $512.8 million of noninterest-bearing deposits and $669.8 million of interest-bearing deposits, and $6.2 million in other liabilities. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of January 7, 2022. ~~The assets acquired and liabilities assumed have been accounted~~Goodwill is not tax deductible for ~~under the acquisition method of accounting.~~ 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. ~~For the assets acquired and liabilities assumed, the Company considers the fair value of the net loans and the related deferred~~income tax ~~asset to be provisional, specifically the PCD loans, while the Company obtains additional information relevant to the fair value.~~purposes.

We have included the financial results of the business combination in the condensed consolidated statement of earnings and comprehensive income beginning on the acquisition date. Supplementary ~~pro~~pro- forma financial information related to the acquisition is not included because the impact to the Company's consolidated statements of income is not material.

For the three months ended March 31, 2022, the Company incurred non-recurring merger related expenses associated with the Suncrest acquisition of $5.6 million.

5. INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are summarized below. The fair value of 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.


	March 31, 2022												March 31, 2023
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent			Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)												(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	3,243,037	$	3,973	$	(166,018	)	$	3,080,992		84.47	%	$	3,109,387	$	41	$	(361,563	)	$	2,747,865		85.75	%
CMO/REMIC		578,213		65		(41,281	)		536,997		14.72	%		526,922		—		(97,500	)		429,422		13.39	%
Municipal bonds		28,364		218		(351	)		28,231		0.77	%		26,796		80		(718	)		26,158		0.82	%
Other securities		1,110		0		0			1,110		0.04	%		1,079		—		—			1,079		0.04	%
Total available-for-sale securities	$	3,850,724	$	4,256	$	(207,650	)	$	3,647,330		100.00	%	$	3,664,184	$	121	$	(459,781	)	$	3,204,524		100.00	%
Investment securities held-to-maturity:
Government agency/GSE	$	570,332	$	722	$	(52,738	)	$	518,316		24.14	%	$	543,318	$	—	$	(100,496	)	$	442,822		21.42	%
Mortgage-backed securities		632,012		227		(43,928	)		588,311		26.75	%		697,766		—		(97,818	)		599,948		27.51	%
CMO/REMIC		818,279		0		(44,778	)		773,501		34.63	%		822,599		—		(134,774	)		687,825		32.44	%
Municipal bonds		342,118		758		(19,860	)		323,016		14.48	%		472,296		2,405		(36,727	)		437,974		18.63	%
Total held-to-maturity securities	$	2,362,741	$	1,707	$	(161,304	)	$	2,203,144		100.00	%	$	2,535,979	$	2,405	$	(369,815	)	$	2,168,569		100.00	%


	December 31, 2022
	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	$	3,192,151	$	39	$	(403,049	)	$	2,789,141		85.68	%
CMO/REMIC		535,269		—		(95,966	)		439,303		13.50	%
Municipal bonds		26,797		67		(1,177	)		25,687		0.79	%
Other securities		1,080		—		—			1,080		0.03	%
Total available-for-sale securities	$	3,755,297	$	106	$	(500,192	)	$	3,255,211		100.00	%
Investment securities held-to-maturity:
Government agency/GSE	$	548,771	$	—	$	(114,343	)	$	434,428		21.48	%
Mortgage-backed securities		706,796		—		(105,867	)		600,929		27.67	%
CMO/REMIC		827,346		—		(131,730	)		695,616		32.39	%
Municipal bonds		471,388		913		(47,687	)		424,614		18.46	%
Total held-to-maturity securities	$	2,554,301	$	913	$	(399,627	)	$	2,155,587		100.00	%

1112

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

0

29,468

0.93
%
Other securities

1,083

0

0

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
%

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.


	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2022		2021		2023		2022
	(Dollars in thousands)				(Dollars in thousands)
Investment securities available-for-sale:
Taxable	$	12,649	$	8,968	$	19,428	$	12,649
Tax-advantaged		183		191		168		183
Total interest income from available-for-sale securities		12,832		9,159		19,596		12,832
Investment securities held-to-maturity:
Taxable		9,105		2,811		11,507		9,105
Tax-advantaged		1,558		1,129		2,449		1,558
Total interest income from held-to-maturity securities		10,663		3,940		13,956		10,663
Total interest income from investment securities	$	23,495	$	13,099	$	33,552	$	23,495

~~The adoption of CECL did not and continues to not have a material impact on the Company's accounting for investment securities, as approximately~~ A94pproximately 91% of the total investment securities portfolio at March 31, ~~2022~~2023 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-~~AA or better general-obligation municipal bonds. The allowance for credit losses for held-to-maturity investment securities under the ~~new~~ CECL model was 0zero at March 31, ~~2022~~2023 and December 31, ~~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. Management determined that there were 0 ~~credit losses for securities in an unrealized loss position as of March 31, 2022 and December 31, 2021.~~

2022.

The following table presents the Company’s available-for-sale and held-to-maturity investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


	March 31, 2022															March 31, 2023
	Less Than 12 Months					12 Months or Longer					Total					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			Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)															(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	1,551,620	$	(92,654	)	$	851,349	$	(73,364	)	$	2,402,969	$	(166,018	)	$	753,978	$	(43,323	)	$	1,992,196	$	(318,240	)	$	2,746,174	$	(361,563	)
CMO/REMIC		192,973		(10,983	)		331,988		(30,298	)		524,961		(41,281	)		6,062		(148	)		423,357		(97,352	)		429,419		(97,500	)
Municipal bonds		14,990		(351	)		0		0			14,990		(351	)		4,141		(51	)		14,660		(667	)		18,801		(718	)
Total available-for-sale securities	$	1,759,583	$	(103,988	)	$	1,183,337	$	(103,662	)	$	2,942,920	$	(207,650	)	$	764,181	$	(43,522	)	$	2,430,213	$	(416,259	)	$	3,194,394	$	(459,781	)
Investment securities held-to-maturity:
Government agency/GSE	$	242,300	$	(21,492	)	$	242,589	$	(31,246	)	$	484,889	$	(52,738	)	$	23,225	$	(579	)	$	419,597	$	(99,917	)	$	442,822	$	(100,496	)
Mortgage-backed securities		560,752		(43,438	)		4,518		(490	)		565,270		(43,928	)		128,307		(2,858	)		471,641		(94,960	)		599,948		(97,818	)
CMO/REMIC		773,501		(44,778	)		0		0			773,501		(44,778	)		48,202		(2,033	)		639,623		(132,741	)		687,825		(134,774	)
Municipal bonds		178,881		(12,670	)		58,587		(7,190	)		237,468		(19,860	)		98,653		(2,271	)		220,735		(34,456	)		319,388		(36,727	)
Total held-to-maturity securities	$	1,755,434	$	(122,378	)	$	305,694	$	(38,926	)	$	2,061,128	$	(161,304	)	$	298,387	$	(7,741	)	$	1,751,596	$	(362,074	)	$	2,049,983	$	(369,815	)

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

0

0

0

0

Total available-for-sale securities
$
1,916,040

$
(26,614
)

$
97,989

$
(3,274
)

$
2,014,029

$
(29,888
)


	December 31, 2022
	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	$	1,658,331	$	(187,842	)	$	1,129,257	$	(215,207	)	$	2,787,588	$	(403,049	)
CMO/REMIC		54,005		(4,796	)		385,295		(91,170	)		439,300		(95,966	)
Municipal bonds		24,507		(1,177	)		-		-			24,507		(1,177	)
Total available-for-sale securities	$	1,736,843	$	(193,815	)	$	1,514,552	$	(306,377	)	$	3,251,395	$	(500,192	)

Investment securities held-to-maturity:
Government agency/GSE		179,348		(39,866	)		255,080		(74,477	)		434,428		(114,343	)
Mortgage-backed securities		188,480		(9,042	)		412,449		(96,825	)		600,929		(105,867	)
CMO/REMIC		376,540		(60,598	)		319,076		(71,132	)		695,616		(131,730	)
Municipal bonds		312,702		(35,656	)		53,350		(12,031	)		366,052		(47,687	)
Total held-to-maturity securities	$	1,057,070	$	(145,162	)	$	1,039,955	$	(254,465	)	$	2,097,025	$	(399,627	)

At March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, investment securities having a carrying value of approximately $~~2.53~~4.0 billion and $~~2.18~~2.90 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 March 31, ~~2022,~~2023, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have weighted average remaining contractual maturities of approximately 23 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.


	March 31, 2022								March 31, 2023
	Available-for-sale				Held-to-maturity				Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
			(Dollars in thousands)								(Dollars in thousands)
Due in one year or less	$	14,945	$	14,963	$	9,188	$	9,044	$	1,495	$	1,500	$	11,608	$	11,147
Due after one year through five years		1,270,685		1,220,048		628,543		601,064		327,651		314,059		35,679		34,823
Due after five years through ten years		1,904,250		1,782,675		537,429		503,542		1,945,392		1,688,229		299,200		270,717
Due after ten years		660,844		629,644		1,187,581		1,089,494		1,389,646		1,200,736		2,189,492		1,851,882
Total investment securities	$	3,850,724	$	3,647,330	$	2,362,741	$	2,203,144	$	3,664,184	$	3,204,524	$	2,535,979	$	2,168,569

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~~No impairment losses have been recorded through March 31, ~~2022.~~2023.

1314

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.


	March 31, 2022			December 31, 2021			March 31, 2023			December 31, 2022
	(Dollars in thousands)						(Dollars in thousands)

Commercial real estate	$	6,470,841		$	5,789,730		$	6,950,302		$	6,884,948
Construction		73,478			62,264			83,992			88,271
SBA		311,238			288,600			283,464			290,908
SBA - Paycheck Protection Program (PPP)		121,189			186,585			5,824			9,087
Commercial and industrial		924,780			813,063			898,167			948,683
Dairy & livestock and agribusiness		292,784			386,219			307,820			433,564
Municipal lease finance receivables		65,543			45,933			79,552			81,126
SFR mortgage		255,136			240,654			262,324			266,024
Consumer and other loans		76,695			74,665			71,044			76,781
Total loans, at amortized cost		8,591,684			7,887,713			8,942,489			9,079,392
Less: Allowance for credit losses		(76,119	)		(65,019	)		(86,540	)		(85,117	)
Total loans and lease finance receivables, net	$	8,515,565		$	7,822,694		$	8,855,949		$	8,994,275

As of March 31, ~~2022,~~2023, ~~79.14~~81.59% of the Company’s total loan portfolio consisted of real estate loans, with commercial real estate loans representing ~~75.32~~77.72% of total loans. The Company’s real estate loans and construction loans are secured by real properties primarily located in California. As of March 31, ~~2022,~~2023, $~~504.5~~517.8 million, or ~~7.80~~7.45% of the total commercial real estate loans included loans secured by farmland, compared to $~~364.4~~517.8 million, or ~~6.29~~7.52%, at December 31, ~~2021.~~2022. The loans secured by farmland included $~~134.5~~138.4 million for loans secured by dairy & livestock land and $~~370.0~~379.4 million ~~for loans~~ secured by agricultural land at March 31, ~~2022,~~2023, compared to $~~134.9~~140.5 million for loans secured by dairy & livestock land and $~~229.5~~377.3 million for loans secured by agricultural land at December 31, ~~2021.~~2022. As of March 31, ~~2022,~~2023, dairy & livestock and agribusiness loans of $~~292.8~~307.8 million were comprised of $~~241.7~~261.3 million for dairy & livestock loans and $~~51.1~~46.5 million for agribusiness loans, compared to $~~386.2~~433.6 million were comprised of $~~351.7~~388.5 million for dairy & livestock loans and $~~34.5~~45.1 million for agribusiness loans at December 31, ~~2021.~~2022.

At March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, loans totaling $~~4.09~~4.32 billion and $~~3.96~~4.30 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

There were 0no outstanding loans held-for-sale as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

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.

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.

1415

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.

The following table summarizes loans by type and origination year, ~~including acquired Suncrest loans in the year of origination,~~ according to our internal risk ratings, and includes gross charge-offs in accordance with ASU 2022-02 effective January 1, 2023, as of the dates presented.

Origination Year

Revolving loans amortized

Revolving loans converted to

March 31, 2022
2022

2021

2020

2019

2018

Prior

cost basis

term loans

Total

(Dollars in thousands)

Commercial real estate
   loans:

Risk Rating:

Pass
$
309,734

$
1,266,416

$
1,034,822

$
650,330

$
584,265

$
2,195,297

$
203,627

$
34,407

$
6,278,898

Special Mention

511

6,368

26,868

13,203

21,280

86,656

3,285

5,500

163,671

Substandard

0

3,524

553

447

6,983

14,153

2,500

112

28,272

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total Commercial real
   estate loans:
$
310,245

$
1,276,308

$
1,062,243

$
663,980

$
612,528

$
2,296,106

$
209,412

$
40,019

$
6,470,841

Construction loans:

Risk Rating:

Pass
$
3,150

$
20,766

$
24,308

$
0

$
1,389

$
0

$
20,083

$
0

$
69,696

Special Mention

0

0

0

0

3,782

0

0

0

3,782

Substandard

0

0

0

0

0

0

0

0

0

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total Construction
   loans:
$
3,150

$
20,766

$
24,308

$
0

$
5,171

$
0

$
20,083

$
0

$
73,478

SBA loans:

Risk Rating:

Pass
$
29,451

$
65,744

$
36,025

$
11,881

$
31,312

$
116,138

$
201

$
0

$
290,752

Special Mention

0

0

1,854

1,341

1,442

5,224

0

0

9,861

Substandard

0

0

0

0

768

9,857

0

0

10,625

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total SBA loans:
$
29,451

$
65,744

$
37,879

$
13,222

$
33,522

$
131,219

$
201

$
0

$
311,238

SBA - PPP loans:

Risk Rating:

Pass
$
0

$
112,623

$
7,867

$
0

$
0

$
0

$
0

$
0

$
120,490

Special Mention

-

562

0

0

0

0

0

0

562

Substandard

0

135

2

0

0

0

0

0

137

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total SBA - PPP loans:
$
0

$
113,320

$
7,869

$
0

$
0

$
0

$
0

$
0

$
121,189

Commercial and
   industrial loans:

Risk Rating:

Pass
$
44,239

$
163,488

$
90,575

$
119,147

$
53,297

$
112,214

$
307,641

$
6,954

$
897,555

Special Mention

0

1,849

2,052

3,407

1,787

299

7,338

463

17,195

Substandard

0

246

6

326

4,381

1,029

1,510

2,532

10,030

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total Commercial and
   industrial loans:
$
44,239

$
165,583

$
92,633

$
122,880

$
59,465

$
113,542

$
316,489

$
9,949

$
924,780

Origination Year

Revolving loans amortized

Revolving loans converted to

March 31, 2022
2022

2021

2020

2019

2018

Prior

cost basis

term loans

Total

(Dollars in thousands)

Dairy & livestock and
   agribusiness loans:

Risk Rating:

Pass
$
749

$
4,012

$
3,138

$
1,175

$
1,140

$
1,334

$
263,440

$
399

$
275,387

Special Mention

0

0

0

0

0

0

3,947

1,283

5,230

Substandard

0

0

0

0

1,794

898

3,426

6,049

12,167

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total Dairy & livestock
   and agribusiness
   loans:
$
749

$
4,012

$
3,138

$
1,175

$
2,934

$
2,232

$
270,813

$
7,731

$
292,784

Municipal lease finance
   receivables loans:

Risk Rating:

Pass
$
0

$
13,087

$
7,416

$
4,417

$
5,196

$
34,896

$
0

$
0

$
65,012

Special Mention

0

0

0

0

0

339

0

0

339

Substandard

0

0

0

0

0

192

0

0

192

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total Municipal lease
   finance receivables
   loans:
$
0

$
13,087

$
7,416

$
4,417

$
5,196

$
35,427

$
0

$
0

$
65,543

SFR mortgage loans:

Risk Rating:

Pass
$
29,913

$
48,149

$
47,066

$
39,231

$
18,257

$
69,355

$
451

$
0

$
252,422

Special Mention

0

0

961

0

0

0

0

0

961

Substandard

0

0

0

0

0

1,350

0

403

1,753

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total SFR mortgage
   loans:
$
29,913

$
48,149

$
48,027

$
39,231

$
18,257

$
70,705

$
451

$
403

$
255,136

Consumer and other
   loans:

Risk Rating:

Pass
$
5,613

$
4,379

$
1,789

$
1,302

$
423

$
1,472

$
55,811

$
3,211

$
74,000

Special Mention

0

771

-

0

0

0

590

402

1,763

Substandard

0

0

0

0

0

15

5

912

932

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total Consumer and
   other loans:
$
5,613

$
5,150

$
1,789

$
1,302

$
423

$
1,487

$
56,406

$
4,525

$
76,695

Total Loans:

Risk Rating:

Pass
$
422,849

$
1,698,664

$
1,253,006

$
827,483

$
695,279

$
2,530,706

$
851,254

$
44,971

$
8,324,212

Special Mention

511

9,550

31,735

17,951

28,291

92,518

15,160

7,648

203,364

Substandard

-

3,905

561

773

13,926

27,494

7,441

10,008

64,108

Doubtful & Loss

0

0

0

0

0

0

0

0

0

Total Loans:
$
423,360

$
1,712,119

$
1,285,302

$
846,207

$
737,496

$
2,650,718

$
873,855

$
62,627

$
8,591,684


	Origination Year												Revolving loans amortized		Revolving loans converted to				Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2021	2021		2020		2019		2018		2017		Prior		cost basis		term loans		Total
March 31, 2023																			2023		2022		2021		2020		2019		Prior		cost basis		term loans		Total
	(Dollars in thousands)																		(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	$	185,194	$	1,356,290	$	1,192,562	$	950,317	$	532,910	$	2,302,301	$	180,989	$	37,602	$	6,738,165
Special Mention		3,133		20,640		14,477		16,097		43,262		44,045		6,970		6,800		155,424		1,587		3,259		7,662		16,927		35,911		100,504		592		—		166,442
Substandard		0		0		2,859		6,933		4,646		7,329		5,951		114		27,832		—		—		—		15,192		12,997		17,506		—		—		45,695
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	$	186,781	$	1,359,549	$	1,200,224	$	982,436	$	581,818	$	2,420,311	$	181,581	$	37,602	$	6,950,302
Current YTD Period: Gross charge-offs																			$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction loans:
Risk Rating:
Pass	$	10,511	$	15,896	$	7,236	$	0	$	0	$	0	$	25,262	$	0	$	58,905	$	3,704	$	13,503	$	34,209	$	7,651	$	—	$	—	$	19,881	$	—	$	78,948
Special Mention		0		0		0		3,359		0		0		0		0		3,359		—		—		—		—		—		5,044		—		—		5,044
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	$	3,704	$	13,503	$	34,209	$	7,651	$	—	$	5,044	$	19,881	$	—	$	83,992
Current YTD Period: Gross charge-offs																			$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

SBA loans:
Risk Rating:
Pass	$	70,929	$	36,468	$	11,129	$	36,068	$	38,504	$	78,527	$	0	$	0	$	271,625	$	805	$	58,361	$	54,368	$	34,951	$	7,277	$	120,940	$	50	$	—	$	276,752
Special Mention		0		0		0		0		4,056		2,700		0		0		6,756		—		—		—		—		1,312		3,630		—		—		4,942
Substandard		0		0		0		785		4,092		5,342		0		0		10,219		—		—		—		—		—		1,770		—		—		1,770
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	$	805	$	58,361	$	54,368	$	34,951	$	8,589	$	126,340	$	50	$	—	$	283,464
Current YTD Period: Gross charge-offs																			$	—	$	—	$	—	$	—	$	—	$	94	$	—	$	—	$	94

SBA - PPP loans:
Risk Rating:
Pass	$	183,614	$	2,969	$	0	$	0	$	0	$	0	$	0	$	0	$	186,583	$	—	$	—	$	2,638	$	3,186	$	—	$	—	$	—	$	—	$	5,824
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	$	—	$	—	$	2,638	$	3,186	$	—	$	—	$	—	$	—	$	5,824

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	$	32,519	$	155,350	$	122,428	$	79,288	$	85,046	$	114,270	$	264,205	$	5,865	$	858,971
Special Mention		1,556		1,929		127		1,396		394		26		9,369		177		14,974		5,087		709		714		468		5,183		438		12,370		3,855		28,824
Substandard		244		6		602		1,712		505		475		1,991		3,073		8,608		—		486		—		682		842		4,120		3,430		812		10,372
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	$	37,606	$	156,545	$	123,142	$	80,438	$	91,071	$	118,828	$	280,005	$	10,532	$	898,167
Current YTD Period: Gross charge-offs																			$	—	$	—	$	—	$	—	$	—	$	16	$	—	$	—	$	16


	Origination Year												Revolving loans amortized		Revolving loans converted to				Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2021	2021		2020		2019		2018		2017		Prior		cost basis		term loans		Total
March 31, 2023																			2023		2022		2021		2020		2019		Prior		cost basis		term loans		Total
	(Dollars in thousands)																		(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	$	1,005	$	100	$	1,842	$	1,478	$	174	$	739	$	275,431	$	342	$	281,111
Special Mention		1,052		0		0		0		0		0		6,979		1,301		9,332		—		—		—		—		133		30		18,929		751		19,843
Substandard		0		0		0		37		0		0		0		6,676		6,713		—		—		—		—		—		1,684		—		5,182		6,866
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	$	1,005	$	100	$	1,842	$	1,478	$	307	$	2,453	$	294,360	$	6,275	$	307,820
Current YTD Period: Gross charge-offs																			$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	9,310	$	7,666	$	0	$	279	$	9,528	$	18,811	$	0	$	0	$	45,594	$	—	$	6,427	$	26,857	$	6,559	$	4,322	$	34,984	$	—	$	—	$	79,149
Special Mention		0		0		0		0		0		339		0		0		339		—		—		—		—		—		223		—		—		223
Substandard		0		0		0		0		0		0		0		0		0		—		—		—		—		—		180		—		—		180
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	$	—	$	6,427	$	26,857	$	6,559	$	4,322	$	35,387	$	—	$	—	$	79,552
Current YTD Period: Gross charge-offs																			$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

SFR mortgage loans:
Risk Rating:
Pass	$	48,813	$	49,261	$	41,776	$	19,877	$	16,046	$	61,965	$	451	$	0	$	238,189	$	3,782	$	62,559	$	46,407	$	45,031	$	30,298	$	72,716	$	—	$	—	$	260,793
Special Mention		8		0		0		0		0		0		0		0		8		—		—		—		935		—		—		—		—		935
Substandard		0		0		0		0		0		2,052		0		405		2,457		—		—		—		—		—		211		—		385		596
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	$	3,782	$	62,559	$	46,407	$	45,966	$	30,298	$	72,927	$	—	$	385	$	262,324
Current YTD Period: Gross charge-offs																			$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer and other loans:
Risk Rating:
Pass	$	5,145	$	1,947	$	1,415	$	469	$	386	$	1,611	$	58,060	$	3,378	$	72,411	$	1,706	$	6,018	$	3,433	$	1,113	$	850	$	1,262	$	53,326	$	969	$	68,677
Special Mention		839		0		0		0		0		150		591		403		1,983		—		—		490		—		—		—		290		89		869
Substandard		0		0		0		0		0		15		5		251		271		—		—		—		—		—		13		5		1,480		1,498
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	$	1,706	$	6,018	$	3,923	$	1,113	$	850	$	1,275	$	53,621	$	2,538	$	71,044
Current YTD Period: Gross charge-offs																			$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total Loans:
Total Loans, at amortized cost:
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	$	228,715	$	1,658,608	$	1,484,744	$	1,129,574	$	660,877	$	2,647,212	$	793,882	$	44,778	$	8,648,390
Special Mention		6,588		22,569		14,604		20,852		47,712		47,260		23,909		8,681		192,175		6,674		3,968		8,866		18,330		42,539		109,869		32,181		4,695		227,122
Substandard		244		8		3,461		9,467		9,243		15,213		7,947		10,519		56,102		—		486		—		15,874		13,839		25,484		3,435		7,859		66,977
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
Total Loans at amortized cost:																			$	235,389	$	1,663,062	$	1,493,610	$	1,163,778	$	717,255	$	2,782,565	$	829,498	$	57,332	$	8,942,489
Current YTD Period: Total gross charge-offs																			$	—	$	—	$	—	$	—	$	—	$	110	$	—	$	—	$	110


	Origination Year													Revolving loans amortized		Revolving loans converted to
December 31, 2022	2022		2021			2020		2019		2018		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass	$	1,363,733	$	1,197,290		$	957,965	$	542,827	$	506,613	$	1,889,478	$	175,373	$	39,616	$	6,672,895
Special Mention		3,285		12,114			11,284		32,976		21,646		76,290		908		—		158,503
Substandard		—		—			15,624		16,297		94		21,535		—		—		53,550
Doubtful & Loss		—		—			—		—		—		—		—		—		—
Total Commercial real estate loans:	$	1,367,018	$	1,209,404		$	984,873	$	592,100	$	528,353	$	1,987,303	$	176,281	$	39,616	$	6,884,948

Construction loans:
Risk Rating:
Pass	$	17,203	$	26,689		$	16,578	$	—	$	—	$	—	$	22,850	$	—	$	83,320
Special Mention		—		—			—		—		4,951		—		—		—		4,951
Substandard		—		—			—		—		—		—		—		—		—
Doubtful & Loss		—		—			—		—		—		—		—		—		—
Total Construction loans:	$	17,203	$	26,689		$	16,578	$	—	$	4,951	$	—	$	22,850	$	—	$	88,271

SBA loans:
Risk Rating:					��
Pass	$	60,623	$	54,781		$	35,243	$	7,460	$	28,886	$	96,473	$	1,026	$	—	$	284,492
Special Mention		—		—			—		1,321		1,293		2,065		—		—		4,679
Substandard		—		—			—		—		556		1,181		—		—		1,737
Doubtful & Loss		—		—			—		—		—		—		—		—		—
Total SBA loans:	$	60,623	$	54,781		$	35,243	$	8,781	$	30,735	$	99,719	$	1,026	$	—	$	290,908

SBA - PPP loans:
Risk Rating:
Pass	$	—	$	5,515		$	3,572	$	—	$	—	$	—	$	—	$	—	$	9,087
Special Mention		—		—			—		—		—		—		—		—		—
Substandard		—		—			—		—		—		—		—		—		—
Doubtful & Loss		—		—			—		—		—		—		—		—		—
Total SBA - PPP loans:	$	—	$	5,515		$	3,572	$	—	$	—	$	—	$	—	$	—	$	9,087

Commercial and industrial loans:
Risk Rating:
Pass	$	154,765	$	135,162		$	80,763	$	101,192	$	42,731	$	85,406	$	305,589	$	7,775	$	913,383
Special Mention		3,955		761			459		1,693		462		8		15,156		544		23,038
Substandard		494		—			728		959		5,624		496		3,200		761		12,262
Doubtful & Loss		—		—			—		—		—		—		—		—		—
Total Commercial and industrial loans:	$	159,214	$	135,923		$	81,950	$	103,844	$	48,817	$	85,910	$	323,945	$	9,080	$	948,683


	Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2022	2022		2021		2020		2019		2018		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Dairy & livestock and agribusiness loans:
Risk Rating:
Pass	$	207	$	2,318	$	1,515	$	187	$	69	$	628	$	400,229	$	450	$	405,603
Special Mention		—		—		—		599		46		—		17,129		853		18,627
Substandard		1,041		—		40		—		95		113		1,841		6,204		9,334
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Dairy & livestock and agribusiness loans:	$	1,248	$	2,318	$	1,555	$	786	$	210	$	741	$	419,199	$	7,507	$	433,564

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	6,442	$	26,858	$	6,814	$	4,327	$	4,948	$	31,292	$	—	$	—	$	80,681
Special Mention		—		—		—		—		—		262		—		—		262
Substandard		—		—		—		—		—		183		—		—		183
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Municipal lease finance receivables loans:	$	6,442	$	26,858	$	6,814	$	4,327	$	4,948	$	31,737	$	—	$	—	$	81,126

SFR mortgage loans:
Risk Rating:
Pass	$	63,761	$	46,748	$	45,819	$	33,585	$	15,836	$	58,730	$	—	$	—	$	264,479
Special Mention		—		—		943		—		—		—		—		—		943
Substandard		—		—		—		—		—		214		—		388		602
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total SFR mortgage loans:	$	63,761	$	46,748	$	46,762	$	33,585	$	15,836	$	58,944	$	—	$	388	$	266,024

Consumer and other loans:
Risk Rating:
Pass	$	7,653	$	3,722	$	1,298	$	926	$	79	$	1,277	$	58,578	$	1,107	$	74,640
Special Mention		—		561		—		—		—		—		590		—		1,151
Substandard		—		—		—		—		—		13		5		972		990
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Consumer and other loans:	$	7,653	$	4,283	$	1,298	$	926	$	79	$	1,290	$	59,173	$	2,079	$	76,781

Total Loans, at amortized cost:
Risk Rating:
Pass	$	1,674,387	$	1,499,083	$	1,149,567	$	690,504	$	599,162	$	2,163,284	$	963,645	$	48,948	$	8,788,580
Special Mention		7,240		13,436		12,686		36,589		28,398		78,625		33,783		1,397		212,154
Substandard		1,535		—		16,392		17,256		6,369		23,735		5,046		8,325		78,658
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Loans at amortized cost:	$	1,683,162	$	1,512,519	$	1,178,645	$	744,349	$	633,929	$	2,265,644	$	1,002,474	$	58,670	$	9,079,392

Allowance for Credit Losses ("ACL")

Our allowance for credit losses 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,~~Original Loan to Value ratios ("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~~Paycheck 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~~Paycheck 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 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 included in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 for a more detailed discussion concerning the allowance for credit losses.

The ACL totaled $~~76.1~~86.5 million at March 31, ~~2022,~~2023, compared to $~~65.0~~85.1 million at December 31, ~~2021.~~2022. The $1.4 million increase in the ACL from December 31, 2022 to March 31, 2023 is comprised of $1.5 million in provision for credit losses, offset by $77,000 in net charge-offs. As a result of the acquisition of Suncrest, we recorded a provision for credit loss of $4.9 million on January 7, 2022 to establish the ACL for the acquired loans that were not considered ~~purchased credit deteriorated (“PCD”).~~PCD. The ACL at January 7, 2022, also included $8.6 million for the acquired Suncrest PCD loans. ~~The $11.1~~ ~~million increase in the ACL from December 31, 2021 to March 31, 2022 is comprised of the $8.6~~ ~~million for the Suncrest PCD loans and a $2.5~~ ~~million provision for credit losses for the first quarter of 2022. The $2.5~~ ~~million provision for credit losses was the net result of the January 7, 2022 provision for credit loss recorded for the acquisition of the Suncrest non-PCD loans and a $2.4~~ million recapture of provision due to the net impact of improvements in the underlying loan characteristics of certain classified loans and the impact of changes in the economic forecast of certain macroeconomic variables compared to the end of 2021. At March 31, ~~2022,~~2023, the ACL as a percentage of total loans and leases, at amortized cost, was ~~0.89~~0.97%~~, or~~ ~~0.90% of total loans when excluding the $121.2~~ ~~million in PPP loans.~~. This compares to ~~0.82~~0.94% ~~and~~ ~~0.84% at~~At December 31, ~~2021, respectively. Net charge-offs were $5,000~~ ~~for the three months ended March 31, 2022, which compares to $2.4~~ ~~million in net charge-offs for the same period of 2021.~~2022. Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. These U.S. economic forecasts include a baseline forecast, as well as multiple downside forecasts. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario. ~~Our~~As of March 31, 2023, the resulting weighted forecast assumes GDP will increase by ~~2.6~~1.4% in ~~2022,~~2023, followed by modest growth of ~~1.3~~0.9% for ~~2023~~2024 and then grow by 32.4% in 2025. GDP is forecasted to be negative in the latter part of 2023 into early 2024. The unemployment rate is forecasted to beincrease, and result in a rate of ~~4.3% in 2022,~~ ~~5.2~~4.2% in 2023,5.1% in 2024 and then decline to ~~4.7~~4.8% in ~~2024.~~2025.

Management believes that the ACL was appropriate at March 31, ~~2022~~2023 and December 31, ~~2021.~~2022. Due to inflationary pressures, ~~from global supply chain issues~~rising interest rates and geopolitical events, ~~as well as the uncertainty around the epidemiological assumptions and ongoing impact of government responses to the pandemic that may 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.

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.


	Three Months Ended March 31, 2022																Three Months Ended March 31, 2023
	Ending Balance December 31, 2021		Charge-offs			Recoveries		Initial ACL for PCD Loans at Acquisition		Provision Recorded at Acquisition		(Recapture of) Provision for Credit Losses			Ending Balance March 31, 2022		Ending Balance December 31, 2022		Charge-offs			Recoveries		Provision for (Recapture of) Credit Losses			Ending Balance March 31, 2023
	(Dollars in thousands)																(Dollars in thousands)
Commercial real estate	$	50,950	$	0		$	0	$	5,086	$	4,127	$	(2,328	)	$	57,835	$	64,806	$	—		$	—	$	2,311		$	67,117
Construction		765		0			3		122		58		40			988		1,702		—			3		(31	)		1,674
SBA		2,668		0			5		62		64		25			2,824		2,809		(94	)		12		2			2,729
SBA - PPP																		—		—			—		—			—
Commercial and industrial		6,669		(15	)		3		500		508		(834	)		6,831		10,206		(16	)		14		(1,241	)		8,963
Dairy & livestock and agribusiness		3,066		0			0		2,832		149		656			6,703		4,400		—			4		366			4,770
Municipal lease finance receivables		100		0			0		3		26		23			152		296		—			—		(13	)		283
SFR mortgage		188		0			0		0		-		39			227		366		—			—		43			409
Consumer and other loans		613		(1	)		0		0		-		(53	)		559		532		—			—		63			595
Total allowance for credit losses	$	65,019	$	(16	)	$	11	$	8,605	$	4,932	$	(2,432	)	$	76,119	$	85,117	$	(110	)	$	33	$	1,500		$	86,540


	Three Months Ended March 31, 2022
	Ending Balance December 31, 2021		Charge-offs			Recoveries		Initial ACL for PCD Loans at Acquisition		Provision Recorded at Acquisition		(Recapture of) Provision for Credit Losses			Ending Balance March 31, 2022
	(Dollars in thousands)
Commercial real estate	$	50,950	$	—		$	—	$	5,086	$	4,127	$	(2,328	)	$	57,835
Construction		765		—			3		122		58		40			988
SBA		2,668		—			5		62		64		25			2,824
SBA - PPP		—		—			—		—		—		—			—
Commercial and industrial		6,669		(15	)		3		500		508		(834	)		6,831
Dairy & livestock and agribusiness		3,066		—			—		2,832		149		656			6,703
Municipal lease finance receivables		100		—			—		3		26		23			152
SFR mortgage		188		—			—		—		—		39			227
Consumer and other loans		613		(1	)		—		—		—		(53	)		559
Total allowance for credit losses	$	65,019	$	(16	)	$	11	$	8,605	$	4,932	$	(2,432	)	$	76,119

1921

Three Months Ended March 31, 2021

Ending Balance December 31, 2020

Charge-offs

Recoveries

(Recapture of) Provision for
Credit Losses

Ending Balance March 31, 2021

(Dollars in thousands)

Commercial real estate
$
75,439

$
0

$
0

$
(18,867
)

$
56,572

Construction

1,934

0

3

(59
)

1,878

SBA

2,992

0

4

(484
)

2,512

Commercial and industrial

7,142

(2,475
)

2

1,770

6,439

Dairy & livestock and agribusiness

3,949

0

0

(1,227
)

2,722

Municipal lease finance receivables

74

0

0

(39
)

35

SFR mortgage

367

0

79

(148
)

298

Consumer and other loans

1,795

0

0

(446
)

1,349

Total allowance for credit losses
$
93,692

$
(2,475
)

$
88

$
(19,500
)

$
71,805

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, 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 in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

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 dates presented.


	March 31, 2022												March 31, 2023
	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		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)												(Dollars in thousands)
Commercial real estate
Owner occupied	$	113	$	3,523	$	2,789	$	6,425	$	2,386,781	$	2,393,206	$	425	$	—	$	2,615	$	3,040	$	2,504,636	$	2,507,676
Non-owner occupied		565		0		0		565		4,077,070		4,077,635		—		—		—		—		4,442,626		4,442,626
Construction
Speculative (1)		0		0		0		0		65,022		65,022		—		—		—		—		65,068		65,068
Non-speculative		0		0		0		0		8,456		8,456		—		—		—		—		18,924		18,924
SBA		1,429		0		695		2,124		309,114		311,238		575		—		702		1,277		282,187		283,464
SBA - PPP		0		0		2		2		121,187		121,189		—		—		—		—		5,824		5,824
Commercial and industrial		118		371		675		1,164		923,616		924,780		—		—		2,050		2,050		896,117		898,167
Dairy & livestock and agribusiness		1,099		2,313		0		3,412		289,372		292,784		—		183		198		381		307,439		307,820
Municipal lease finance receivables		0		0		0		0		65,543		65,543		—		—		—		—		79,552		79,552
SFR mortgage		403		0		0		403		254,733		255,136		—		—		384		384		261,940		262,324
Consumer and other loans		0		0		40		40		76,655		76,695		—		—		—		—		71,044		71,044
Total loans	$	3,727	$	6,207	$	4,201	$	14,135	$	8,577,549	$	8,591,684	$	1,000	$	183	$	5,949	$	7,132	$	8,935,357	$	8,942,489

(1)

Speculative construction loans are generally for properties where there is no identified buyer or renter.


	December 31, 2022
	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	$	—	$	—	$	2,639	$	2,639	$	2,482,471	$	2,485,110
Non-owner occupied		—		—		—		—		4,399,838		4,399,838
Construction
Speculative (1)		—		—		—		—		67,436		67,436
Non-speculative		—		—		—		—		20,835		20,835
SBA		374		182		443		999		289,909		290,908
SBA - PPP		—		—		—		—		9,087		9,087
Commercial and industrial		—		—		1,318		1,318		947,365		948,683
Dairy & livestock and agribusiness		—		—		269		269		433,295		433,564
Municipal lease finance receivables		—		—		—		—		81,126		81,126
SFR mortgage		—		388		—		388		265,636		266,024
Consumer and other loans		175		—		33		208		76,573		76,781
Total loans	$	549	$	570	$	4,702	$	5,821	$	9,073,571	$	9,079,392

(1)

Speculative construction loans are generally for properties where there is no identified buyer or renter.

2022

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

0

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.~~

Amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance are presented as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 by type of loan.


	March 31, 2022						March 31, 2023
	Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1)		Loans Past Due Over 89 Days Still Accruing		Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1) (3)		Loans Past Due Over 89 Days Still Accruing
	(Dollars in thousands)						(Dollars in thousands)
Commercial real estate
Owner occupied	$	4,052	$	7,055	$	0	$	2,616	$	2,616	$	—
Non-owner occupied		0		0		0		18		18		—
Construction
Speculative (2)		0		0		0		—		—		—
Non-speculative		0		0		0		—		—		—
SBA		152		1,575		0		364		702		—
SBA - PPP		2		2		0		—		—		—
Commercial and industrial		1,246		1,771		0		683		2,049		—
Dairy & livestock and agribusiness		17		2,655		0		293		406		—
Municipal lease finance receivables		0		0		0		—		—		—
SFR mortgage		167		167		0		—		—		—
Consumer and other loans		40		40		0		384		384		—
Total loans	$	5,676	$	13,265	$	0	$	4,358	$	6,175	$	—

(1)

As of March 31, ~~2022,~~2023, $~~1.8~~226,000 ~~million~~ of nonaccruing loans were current $~~1.1~~ ~~million were 30-59 days past due, $6.2~~ ~~million were 60-89 days past due,~~ and $~~4.2~~6.0 million were 90+ days past due.

(2)

Speculative construction loans are generally for properties where there is no identified buyer or renter.

(3)

There were no guaranteed portion of nonaccrual SBA loans that are in process of collection.


	December 31, 2021						December 31, 2022
	Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1)		Loans Past Due Over 89 Days Still Accruing		Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1) (3)		Loans Past Due Over 89 Days Still Accruing
	(Dollars in thousands)						(Dollars in thousands)
Commercial real estate
Owner occupied	$	3,607	$	3,607	$	0	$	2,639	$	2,639	$	—
Non-owner occupied		0		0		0		18		18		—
Construction
Speculative (2)		0		0		0		—		—		—
Non-speculative		0		0		0		—		—		—
SBA		521		1,034		0		268		443		—
SBA - PPP		0		0		0		—		—		—
Commercial and industrial		1,326		1,714		0		771		1,320		—
Dairy & livestock and agribusiness		0		0		0		364		477		—
Municipal lease finance receivables		0		0		0		—		—		—
SFR mortgage		380		380		0		—		—		—
Consumer and other loans		158		158		0		34		33		—
Total loans	$	5,992	$	6,893	$	0	$	4,094	$	4,930	$	—

(1)

As of December 31, ~~2021,~~2022, $~~1.2~~228,000 ~~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~~4.7 million were 90+ days past due.

(2)

Speculative construction loans are generally for properties where there is no identified buyer or renter.

(3)

Excludes $221,000 of guaranteed portion of nonaccrual SBA loans that are in process of collection.

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 ~~dates~~date presented.


	March 31, 2022						Number of Loans		March 31, 2023						Number of Loans
	Real Estate		Business Assets		Other		Dependent on Collateral		Real Estate		Business Assets		Other		Dependent on Collateral
	(Dollars in thousands)								(Dollars in thousands)
Commercial real estate	$	11,967	$	0	$	0		14	$	2,634	$	—	$	—		3
Construction		0		0		0		-		—		—		—		—
SBA		398		1,177		0		11		151		418		—		5
SBA - PPP		0		0		0		-		—		—		—		—
Commercial and industrial		594		4,761		94		19		3		2,497		1,167		10
Dairy & livestock and agribusiness		131		17		2,867		8		198		—		208		3
Municipal lease finance receivables		0		0		0		-		—		—		—		—
SFR mortgage		168		0		0		1		—		—		—		—
Consumer and other loans		40		0		4		2		—		—		—		—
Total collateral-dependent loans	$	13,298	$	5,955	$	2,965		55	$	2,986	$	2,915	$	1,375		21


	December 31, 2021						Number of Loans		December 31, 2022						Number of Loans
	Real Estate		Business Assets		Other		Dependent on Collateral		Real Estate		Business Assets		Other		Dependent on Collateral
	(Dollars in thousands)								(Dollars in thousands)
Commercial real estate	$	6,001	$	0	$	0		6	$	17,935	$	—	$	—		4
Construction		0		0		0		0		—		—		—		—
SBA		405		517		112		10		151		292		—		6
SBA - PPP		0		0		0		0		—		—		—		—
Commercial and industrial		688		5,133		96		19		87		2,774		81		13
Dairy & livestock and agribusiness		0		0		0		0		269		2,000		208		4
Municipal lease finance receivables		0		0		0		0		—		—		—		—
SFR mortgage		380		0		0		2		—		—		—		—
Consumer and other loans		158		0		0		2		33		—		—		1
Total collateral-dependent loans	$	7,632	$	5,650	$	208		39	$	18,475	$	5,066	$	289		28

2224

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~~$8.5 million for the off-balance sheet credit exposures as of March 31, ~~2022.~~2023. There was $0500,000 ~~provision or recapture of~~in provision for unfunded loan commitments for the three months ended March 31, ~~2022~~2023 and ~~2021.~~no provision for the three months ended March 31, 2022. As of March 31, ~~2022~~2023 and December ~~31, 2021,~~31,2022, the balance in this reserve was $8.5 million and $8.0 million, respectively, and was included in other liabilities.

~~Troubled Debt Restructurings (“TDRs”)~~Modifications of Loans to Borrowers Experiencing Financial Difficulty

~~Loans~~The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of TDRs and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that ~~are~~were modified during the three months ended March 31, 2023.


	Term Extension
	Amortized Cost Basis		% of Total Class of
	at March 31,2023		Financing Receivables
Commercial real estate loans	$	1,587		0.02	%
Commercial and industrial		2,250		0.03	%
Dairy & livestock and agribusiness		1,999		0.02	%
Total	$	5,836

The following table describes the financial effect of the loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023.



	Loan Type		Financial Effect

			Term Extension
	Commercial real estate loans		Added a weighted-average 1.1 years to the life of loans, which reduced monthly payment amounts for the borrowers.
	Commercial and industrial		Added a weighted-average 0.8 years to the life of loans, which reduced monthly payment amounts for the borrowers.
	Dairy & livestock and agribusiness		Added a weighted-average 1.2 years to the life of loans, which reduced monthly payment amounts for the borrowers.

As of March 31, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2023 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first.

The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty that were modified on or after January 1, 2023, the date we adopted ASU 2022-02.


	Payment Status (amortized cost basis)
	Current		30-89 Days Past Due		90+ Days Past Due
	(Dollars in thousands)
Commercial real estate loans	$	1,587	$	—	$	—
Commercial and industrial		2,250		—		—
Dairy & livestock and agribusiness		1,999		—		—
Total	$	5,836	$	—	$	—

Prior to January 1, 2023, loans reported as TDRs ~~are~~were considered impaired and charge-off amounts ~~are~~were 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, included in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 for a more detailed discussion regarding TDRs.

As of ~~March~~December 31, 2022, there were $~~5.3~~7.8 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 ~~March~~December 31, 2022, performing TDRs were comprised of ~~three~~four commercial and industrial loans of $~~1.9~~4.8 million, one ~~commercial real estate~~dairy & livestock and agribusiness loan of $~~2.4~~2.0 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 the loan is considered uncollectible. We ~~have~~had 0no allocated allowance to TDRs as of ~~March~~December 31, 2022 and ~~December~~March 31, ~~2021.~~2022.

~~The following table provides a summary of the activity related to TDRs for the periods presented.~~

Three Months Ended
March 31,

2022

2021

(Dollars in thousands)

Performing TDRs:

Beginning balance
$
5,293

$
2,159

New modifications

0

4,643

Payoffs/payments, net and other

(34
)

(989
)
TDRs returned to accrual status

0

0

TDRs placed on nonaccrual status

0

0

Ending balance
$
5,259

$
5,813

Nonperforming TDRs:

Beginning balance
$
0

$
0

New modifications

0

0

Charge-offs

0

0

Payoffs/payments, net and other

0

0

TDRs returned to accrual status

-

-

TDRs placed on nonaccrual status

0

0

Ending balance
$
0

$
0

Total TDRs
$
5,259

$
5,813

~~The following tables summarize loans modified as TDRs for the period presented.~~

~~Modifications (1)~~

For the Three Months Ended March 31, 2022

Number of Loans

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded
Investment

Outstanding Recorded Investment at March 31, 2022

Financial Effect Resulting From Modifications (2)

(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

0

0

0

0

0

SFR mortgage:

Interest rate reduction

0

0

0

0

0

Change in amortization period
   or maturity

0

0

0

0

0

Total loans

0

$
0

$
0

$
0

$
0

For the Three Months Ended March 31, 2021

Number of Loans

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded
Investment

Outstanding Recorded Investment at March 31, 2021

Financial Effect Resulting From Modifications (2)

(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

2

4,643

4,643

4,443

0

SFR mortgage:

Interest rate reduction

0

0

0

0

0

Change in amortization period
   or maturity

0

0

0

0

0

Total loans

2

$
4,643

$
4,643

$
4,443

$
0

~~(1)~~

~~The tables above exclude modified loans that were paid off prior to the end of the period.~~

~~(2)~~

~~Financial effects resulting from modifications represent charge-offs and current allowance for credit losses at modification date.~~

As of December 31, 2022 and March 31, 2022, ~~and 2021,~~ there were 0no loans that were modified as a TDR within the previous 12 months that subsequently defaulted during the three months ended ~~March~~December 31, 2022 and ~~2021,~~March 31, 2022, respectively.

2426

7. 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 three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were ~~374,000~~348,000 and ~~117,000~~374,000, 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.


	Three Months Ended March 31,				Three Months Ended March 31,
	2022		2021		2023		2022
	(In thousands, except per share amounts)				(In thousands, except per share amounts)
Earnings per common share:
Net earnings	$	45,560	$	63,893	$	59,270	$	45,560
Less: Net earnings allocated to restricted stock		253		309		407		253
Net earnings allocated to common shareholders	$	45,307	$	63,584	$	58,863	$	45,307
Weighted average shares outstanding		144,725		135,175		138,592		144,725
Basic earnings per common share	$	0.31	$	0.47	$	0.42	$	0.31

Diluted earnings per common share:
Net income allocated to common shareholders	$	45,307	$	63,584	$	58,863	$	45,307
Weighted average shares outstanding		144,725		135,175		138,592		144,725
Incremental shares from assumed exercise of outstanding options		294		253		361		294
Diluted weighted average shares outstanding		145,019		135,428		138,953		145,019
Diluted earnings per common share	$	0.31	$	0.47	$	0.42	$	0.31

2527

8. 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.

The valuation methodologies for financial assets and liabilities measured at fair value on a recurring and non-recurring basis are described in Note 1819 — Fair Value Information, included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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 as of the dates presented.


	Carrying Value at March 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value at March 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)								(Dollars in thousands)
Description of assets
Investment securities - AFS:
Mortgage-backed securities	$	3,080,992	$	0	$	3,080,992	$	0	$	2,747,865	$	—	$	2,747,865	$	—
CMO/REMIC		536,997		0		536,997		0		429,422		—		429,422		—
Municipal bonds		28,231		0		28,231		0		26,158		—		26,158		—
Other securities		1,110		0		1,110		0		1,079		—		1,079		—
Total investment securities - AFS		3,647,330		0		3,647,330		0		3,204,524		—		3,204,524		—
Interest rate swaps		3,653		0		3,653		0		135		—		135		—
Total assets	$	3,650,983	$	0	$	3,650,983	$	0	$	3,204,659	$	—	$	3,204,659	$	—
Description of liability
Interest rate swaps	$	3,653	$	0	$	3,653	$	0	$	135	$	—	$	135	$	—
Total liabilities	$	3,653	$	0	$	3,653	$	0	$	135	$	—	$	135	$	—


	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)		Carrying Value at December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)								(Dollars in thousands)
Description of assets
Investment securities - AFS:
Mortgage-backed securities	$	2,563,214	$	0	$	2,563,214	$	0	$	2,789,141	$	—	$	2,789,141	$	—
CMO/REMIC		590,158		0		590,158		0		439,303		—		439,303		—
Municipal bonds		29,468		0		29,468		0		25,687		—		25,687		—
Other securities		1,083		0		1,083		0		1,080		—		1,080		—
Total investment securities - AFS		3,183,923		0		3,183,923		0		3,255,211		—		3,255,211		—
Interest rate swaps		14,163		0		14,163		0		82		—		82		—
Total assets	$	3,198,086	$	0	$	3,198,086	$	0	$	3,255,293	$	—		3,255,293	$	—
Description of liability
Interest rate swaps	$	14,163	$	0	$	14,163	$	0	$	82	$	—	$	82	$	—
Total liabilities	$	14,163	$	0	$	14,163	$	0	$	82	$	—	$	82	$	—

2628

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 impairment write-downs of individual assets.

For assets measured at fair value on a non-recurring basis that were held on the balance sheet at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, 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. These losses on collateral dependent loans represent the amount of the allowance for credit losses and/or charge-offs during the period applicable to loans held at period-end. The amount of the allowance is included in the ACL.


	Carrying Value at March 31, 2022		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 Three Months Ended March 31, 2022		Carrying Value at March 31, 2023		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 Three Months Ended March 31, 2023
	(Dollars in thousands)										(Dollars in thousands)
Description of assets
Loans:
Commercial real estate	$	3,003	$	0	$	0	$	3,003	$	1,233	$	1,587	$	—	$	—	$	1,587	$	1
Construction		0		0		0		0		0		—		—		—		—		—
SBA		355		0		0		355		82		470		—		—		470		114
SBA - PPP												—		—		—		—		—
Commercial and industrial		418		0		0		418		98		2,338		—		—		2,338		1,056
Dairy & livestock and agribusiness		2,638		0		0		2,638		2,497		1,999		—		—		1,999		98
Municipal lease finance receivables		0		0		0		0		0		—		—		—		—		—
SFR mortgage		0		0		0		0		0		—		—		—		—		—
Consumer and other loans		0		0		0		0		1		—		—		—		—		—
Other real estate owned		0		0		0		0		0		—		—		—		—		—
Asset held-for-sale		0		0		0		0		0		—		—		—		—		—
Total assets	$	6,414	$	0	$	0	$	6,414	$	3,911	$	6,394	$	—	$	—	$	6,394	$	1,269


	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		Carrying Value at December 31, 2022		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, 2022
	(Dollars in thousands)										(Dollars in thousands)
Description of assets
Loans:
Commercial real estate	$	0	$	0	$	0	$	0	$	0	$	2,639	$	—	$	—	$	2,639	$	1
Construction		0		0		0		0		0		—		—		—		—		—
SBA		646		0		0		646		255		323		—		—		323		182
SBA - PPP												—		—		—		—		2
Commercial and industrial		340		0		0		340		3,275		451		—		—		451		326
Dairy & livestock and agribusiness		38		0		0		38		118		113		—		—		113		113
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		—		—		—		—		2
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	$	3,526		—		—	$	3,526	$	626

2729

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 of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.


	March 31, 2022										March 31, 2023
	Carrying		Estimated Fair Value								Carrying		Estimated Fair Value
	Amount		Level 1		Level 2		Level 3		Total		Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)										(Dollars in thousands)
Assets
Total cash and cash equivalents	$	1,653,039	$	1,653,039	$	0	$	0	$	1,653,039	$	227,534	$	227,534	$	—	$	—	$	227,534
Interest-earning balances due from depository institutions		6,859		0		6,859		0		6,859		11,944		—		11,944		—		11,944
Investment securities available-for-sale		3,647,330		0		3,647,330		0		3,647,330		3,204,524		—		3,204,524		—		3,204,524
Investment securities held-to-maturity		2,362,741		0		2,203,144		0		2,203,144		2,535,979		—		2,168,569		—		2,168,569
Total loans, net of allowance for credit losses		8,515,565		0		0		8,513,262		8,513,262		8,855,949		—		—		8,022,018		8,022,018
Swaps		3,653		0		3,653		0		3,653		135		—		135		—		135
Liabilities
Deposits:
Interest-bearing	$	5,380,474	$	0	$	5,380,814	$	0	$	5,380,814	$	4,427,541	$	—	$	4,421,511	$	—	$	4,421,511
Borrowings		598,909		0		604,700		0		604,700		1,895,235		—		1,797,500		—		1,797,500
Junior subordinated debentures		0		0		0		0		0		—		—		—		—		—
Swaps		3,653		0		3,653		0		3,653		135		—		135		—		135


	December 31, 2021										December 31, 2022
	Carrying		Estimated Fair Value								Carrying		Estimated Fair Value
	Amount		Level 1		Level 2		Level 3		Total		Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)										(Dollars in thousands)
Assets
Total cash and cash equivalents	$	1,732,548	$	1,732,548	$	0	$	0	$	1,732,548	$	203,461	$	203,461	$	—	$	—	$	203,461
Interest-earning balances due from depository institutions		25,999		0		25,999		0		25,999		9,553		—		9,553		—		9,553
Investment securities available-for-sale		3,183,923		0		3,183,923		0		3,183,923		3,255,211		—		3,255,211		—		3,255,211
Investment securities held-to-maturity		1,925,970		0		1,921,693		0		1,921,693		2,554,301		—		2,155,587		—		2,155,587
Total loans, net of allowance for credit losses		7,822,694		0		0		7,696,210		7,696,210		8,994,275		—		—		8,074,952		8,074,952
Swaps		14,163		0		14,163		0		14,163		82		—		82		—		82
Liabilities
Deposits:
Interest-bearing	$	4,872,386	$	0	$	4,871,531	$	0	$	4,871,531	$	4,671,881	$	—	$	4,664,657	$	—	$	4,664,657
Borrowings		644,669		0		586,645		0		586,645		1,560,431		—		1,444,659		—		1,444,659
Junior subordinated debentures		-		0		0		0		0		—		—		—		—		—
Swaps		14,163		0		14,163		0		14,163		82		—		82		—		82

The fair value estimates presented herein are based on pertinent information available to management as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022. 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.

2830

9. 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 March 31, ~~2022,~~2023, the Bank has entered into ~~134~~142 interest-rate swap agreements with customers with a notional amount totaling $~~472.2~~498.8 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~~SOFR 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. ~~NaN~~None 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 March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the total notional amount of the Company’s swaps was $~~472.2~~498.8 million, and $~~493.2~~425.6 million, respectively. The location of the asset and liability, and their respective fair values, are summarized in the tables below.


	March 31, 2022						March 31, 2023
	Asset Derivatives			Liability Derivatives			Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(Dollars in thousands)						(Dollars in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	3,653	Other liabilities	$	3,653	Other assets	$	135	Other liabilities	$	135
Total derivatives		$	3,653		$	3,653		$	135		$	135


	December 31, 2021						December 31, 2022
	Asset Derivatives			Liability Derivatives			Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(Dollars in thousands)						(Dollars in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	14,163	Other liabilities	$	14,163	Other assets	$	82	Other liabilities	$	82
Total derivatives		$	14,163		$	14,163		$	82		$	82

2931

The Effect of Derivative Financial Instruments on the Condensed Consolidated Statements of Earnings

The following table summarizes the effect of derivative financial instruments on the condensed 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				Location of Gain Recognized in Income on Derivative Instruments	Amount of Gain Recognized in Income on Derivative Instruments
		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
		(Dollars in thousands)					(Dollars in thousands)
Interest rate swaps	Other income	$	0	$	215	Other income	$	—	$	—
Total		$	0	$	215		$	—	$	—

10. OTHER COMPREHENSIVE INCOME

The table below provides a summary of the components of other comprehensive income (“OCI”) for the periods presented.


	Three Months Ended March 31,																		Three Months Ended March 31,
	2022									2021									2023							2022
	Before-tax			Tax effect			After-tax			Before-tax			Tax effect			After-tax			Before-tax		Tax effect			After-tax		Before-tax			Tax effect			After-tax
	(Dollars in thousands)																		(Dollars in thousands)
Investment securities:
Net change in fair value recorded in accumulated OCI	$	(202,072	)	$	59,740		$	(142,332	)	$	(40,391	)	$	11,941		$	(28,450	)	$	40,424	$	(11,951	)	$	28,473	$	(202,072	)	$	59,740		$	(142,332	)
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity		54			(16	)		38			81			(24	)		57			278		(82	)		196		54			(16	)		38
Net change	$	(202,018	)	$	59,724		$	(142,294	)	$	(40,310	)	$	11,917		$	(28,393	)	$	40,702	$	(12,033	)	$	28,669	$	(202,018	)	$	59,724		$	(142,294	)

3032

11. 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 condensed 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 condensed 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 condensed consolidated balances.


	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								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			Consolidated Balance Sheets		Consolidated Balance Sheets			Consolidated Balance Sheets		Financial Instruments		Collateral Pledged			Net Amount
	(Dollars in thousands)															(Dollars in thousands)
March 31, 2022
March 31, 2023
Financial assets:
Derivatives not designated as hedging instruments	$	3,653	$	0		$	0	$	3,653	$	0		$	3,653		$	135	$	—		$	—	$	135	$	—		$	135
Total	$	3,653	$	0		$	0	$	3,653	$	0		$	3,653		$	135	$	—		$	—	$	135	$	—		$	135

Financial liabilities:
Derivatives not designated as hedging instruments	$	29,694	$	(26,041	)	$	3,653	$	26,041	$	(16,807	)	$	12,887		$	43,028	$	(42,893	)	$	135	$	42,893	$	(20,581	)	$	22,447
Repurchase agreements		598,909		0			598,909		0		(833,418	)		(234,509	)		490,235		—			490,235		—		(579,048	)		(88,813	)
Total	$	628,603	$	(26,041	)	$	602,562	$	26,041	$	(850,225	)	$	(221,622	)	$	533,263	$	(42,893	)	$	490,370	$	42,893	$	(599,629	)	$	(66,366	)


December 31, 2021
December 31, 2022
Financial assets:
Derivatives not designated as hedging instruments	$	14,163	$	0		$	0	$	14,163	$	0		$	14,163		$	82	$	—		$	—	$	82	$	—		$	82
Total	$	14,163	$	0		$	0	$	14,163	$	0		$	14,163		$	82	$	—		$	—	$	82	$	—		$	82

Financial liabilities:
Derivatives not designated as hedging instruments	$	23,502	$	(9,339	)	$	14,163	$	9,339	$	(37,285	)	$	(13,783	)	$	53,996	$	(53,914	)	$	82	$	53,914	$	(18,258	)	$	35,738
Repurchase agreements		642,388		0			642,388		0		(683,923	)		(41,535	)		565,431		—			565,431		—		(634,075	)		(68,644	)
Total	$	665,890	$	(9,339	)	$	656,551	$	9,339	$	(721,208	)	$	(55,318	)	$	619,427	$	(53,914	)	$	565,513	$	53,914	$	(652,333	)	$	(32,906	)

3133

12. 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.

The tables below present the components of lease costs and supplemental information related to leases as of and for the periods presented.


	March 31, 2022		December 31, 2021		March 31, 2023		December 31, 2022
	(Dollars in thousands)				(Dollars in thousands)
Lease Assets and Liabilities
ROU assets	$	21,849	$	19,274	$	22,932	$	22,696
Total lease liabilities		23,428		20,864		24,629		24,458


	Three Months Ended March 31,				Three Months Ended March 31,
	2022		2021		2023		2022

Lease Cost
Operating lease expense (1)	$	1,846	$	1,662	$	1,841	$	1,846
Sublease income		0		0		—		—
Total lease expense	$	1,846	$	1,662	$	1,841	$	1,846

(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	$	1,851	$	1,819	$	1,756	$	1,851


	March 31, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Lease Term and Discount Rate
Weighted average remaining lease term (years)		4.30			4.26			4.13			4.12
Weighted average discount rate		2.36	%		2.41	%		3.00	%		2.80	%

3234

The Company’s lease arrangements that have not yet commenced as of March 31, ~~2022~~2023 and the Company’s short-term lease costs and variable lease costs, for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 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 March 31, ~~2022,~~2023, excluding property taxes and insurance, are as follows:


	March 31, 2022			March 31, 2023
	(Dollars in thousands)			(Dollars in thousands)
Year:
2022 (excluding the three months ended March 31, 2022)	$	5,440
2023		5,914
2023 (excluding the three months ended March 31, 2023)				$	5,299
2024		4,706			6,458
2025		3,931			5,777
2026		2,665			4,503
2027					3,012
Thereafter		1,964			1,243
Total future lease payments		24,620			26,292
Less: Imputed interest		(1,192	)		(1,663	)
Present value of lease liabilities	$	23,428		$	24,629

13. REVENUE RECOGNITION

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)”, for the periods indicated.


	Three Months Ended March 31,				Three Months Ended March 31,
	2022		2021		2023		2022
	(Dollars in thousands)				(Dollars in thousands)
Noninterest income:
In-scope of Topic 606:
Service charges on deposit accounts	$	5,059	$	3,985	$	5,344	$	5,059
Trust and investment services		2,822		2,611		2,914		2,822
Bankcard services		416		350		377		416
Gain on OREO, net		0		429
Other		1,618		1,682		3,378		1,618
Noninterest Income (in-scope of Topic 606)		9,915		9,057		12,013		9,915
Noninterest Income (out-of-scope of Topic 606)		1,349		4,624		1,189		1,349
Total noninterest income	$	11,264	$	13,681	$	13,202	$	11,264

Refer to Note 3 – Summary of Significant Accounting Policies and Note 2324 – Revenue Recognition, included in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 for a more detailed discussion about noninterest revenue streams that are in-scope of Topic 606.

3335

ITEM 2. 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. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “we,” “our” or the “Company”) and its wholly owned bank subsidiary, Citizens Business Bank (the “Bank” or “CBB”). 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 our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and the unaudited condensed consolidated financial statements and accompanying notes presented elsewhere in this report.

~~IMPACT OF COVID-19~~

The spread of COVID-19 starting in 2020 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 affected our customers and the communities we serve. We recorded a $23.5 million provision for credit losses for the year ended December 31, 2020 due to the forecast, at that time, of a severe economic downturn resulting from the onset of the COVID-19 pandemic. In response to the anticipated effects of the pandemic on the U.S. economy, the Board of Governors of the Federal Reserve System (“FRB”) took significant actions, including a reduction in the target range of the federal funds rate to 0.0% to 0.25% in 2020 and established a program of purchases of Treasury and mortgage-backed securities. A $19.5 million recapture of provision for credit losses was recorded in the first quarter of 2021, resulting from improvements in our economic forecast of certain macroeconomic variables resulting from significant monetary and fiscal stimulus, as well as the wide availability of vaccines.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. It 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% 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. Legislation passed on April 24, 2020 provided additional PPP funds of $310 billion. During 2020, we originated and funded approximately 4,100 loans, totaling $1.1 billion. Greater than 99% of these loans have been granted forgiveness as of March 31, 2022. 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. 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 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 were not eligible for Second Draw loans. Further, maximum loan amounts were increased for accommodation and food service businesses. We originated approximately 1,900 round two loans totaling $420 million. The Paycheck Protection Program officially ended on May 31, 2021. As of March 31, 2022, the remaining outstanding balance of PPP loans was $121.2 million, including $8.9 million for round one and $112.3 million for round two.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of the Company’s unaudited condensed consolidated financial statements are based upon the Company’s unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed 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 we believe are most important in our estimation process. We utilize information available to us 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 and information could change future valuations and impact the results of operations.

•

Allowance for Credit Losses (“ACL”)

•

Business Combinations

•

Valuation and Recoverability of Goodwill

•

~~Income Taxes~~

Our significant accounting policies are described in greater detail in our ~~2021~~2022 Annual Report on Form 10-K in the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Recently Issued Accounting Pronouncements but Not Adopted as of March 31, ~~2022~~2023


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~~June 2023	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, and started the transition from LIBOR in 2021. ~~The~~LIBOR is expected to be completely phased out by June of 2023, as such the Company continues to assess ~~the impacts of this transition~~ and ~~alternatives~~convert instruments to ~~use~~various alternatives in place of ~~LIBOR for various financial instruments, primarily related to our variable-rate~~LIBOR. Interest rate swap derivatives and ~~adjustable-rate~~the associated loans that ~~are indexed to LIBOR. The Company stopped originating loans~~were indexed to LIBOR, ~~at the end of 2021, while continuing~~have been replaced with one month CME Term SOFR. The Bank will continue to use ~~various~~multiple alternative ~~indexes.~~indices as replacements for LIBOR for newly originated instruments. All remaining financial instruments indexed to LIBOR will be transitioned to a replacement index, primarily CME Term SOFR, prior to June 2023. We do not expect this ASU to have a material impact on the Company's consolidated financial statements.
ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions Issued June 2022	On June 30, 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and is not considered in measuring fair value. Further, this ASU clarifies that an entity cannot, recognize and measure a contractual sale restriction as a separate unit of account. Additionally, the amendments require the disclosures for equity securities subject to contractual sale restrictions to include the fair value of equity securities subject to contractual sale restrictions reflected on the balance sheet, the nature and remaining duration of the restrictions and the circumstances that could cause a lapse in the restrictions. This ASU is effective for interim and annual reporting periods beginning after December 15, 2023; early adoption is permitted.	1st Quarter 2024	The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

3537

OVERVIEW

For the first quarter of ~~2022,~~2023, we reported net earnings of ~~$45.6~~$59.3 million, compared with ~~$47.7~~$66.2 million for the fourth quarter of ~~2021~~2022 and $63.9 million for the first quarter of 2021. Diluted earnings per share were $0.31 for the first quarter, compared to $0.35 for the prior quarter and $0.47 for the same period last year. The first quarter of 2022 included $2.5 million in provision for credit losses, compared to $19.5 million of provision recaptured in the first quarter of 2021. The fourth quarter of 2021 did not include a recapture of or provision for credit losses. Net income of $45.6 million for the first quarter of ~~2022~~2022. Diluted earnings per share were $0.42 for the first quarter, compared to $0.47 for the prior quarter and $0.31 for the same period last year. Net income of $59.3 million for the first quarter of 2023 produced an annualized return on average equity (“ROAE”) of ~~8.24%~~12.15%, an annualized return on average tangible common equity (“ROATCE”) of ~~13.08%~~20.59%, and an annualized return on average assets (“ROAA”) of ~~1.06%~~1.47%. Our net interest margin, tax equivalent (“NIM”), was ~~2.90%~~3.45% for the first quarter of ~~2022,~~2023, while our efficiency ratio was ~~46.93%, or 42.38% when $5.6~~39.50%.

The first quarter of 2023 included $1.5 million in provision for credit losses, compared to a $2.5 million in provision for credit losses in the fourth quarter of ~~acquisition expenses are excluded.~~2022 and $2.5 million in the first quarter of 2022. The $1.5 million provision for credit losses in the most recent quarter was the result of an overall increase in projected loss rates from 0.94% at the end of 2022 to 0.97% at March 31, 2023. Projected loss rates continue to be impacted by a deteriorating economic forecast that assumes a modest recession starting in late 2023 and modest GDP growth through 2024, as well as lower commercial real estate values and an increase in unemployment. Our forecast reflects GDP growth of 1.4% for all of 2023 and 0.9% in 2024. Unemployment is forecasted to be 4.2% in 2023 and 5.1% in 2024.

On January 7, 2022, we completed the acquisition of Suncrest Bank (“Suncrest”). ~~Our financial statements for the first quarter included 83 days of Suncrest operations, post-merger.~~ At close, Citizens Business Bank acquired loans with a fair value of $774.5 million, assumed $512.8 million of noninterest-bearing deposits, and $669.8 million of interest-bearing deposits. WeThe integration of Suncrest was completed in the second quarter with the consolidation of two banking centers. As a result of the Suncrest merger, we incurred $5.6 million in acquisition expense during the first quarter of ~~2022, as a result of the Suncrest merger.~~2022.

As a result of the acquisition of Suncrest, we recorded a provision for credit loss of $4.9 million on January 7, 2022 for the acquired loans that were not considered purchased credit deteriorated (“PCD”). The $2.5 million provision for credit losses for the first quarter of 2022 was the net result of the January 7, 2022 provision for credit losses recorded for the acquisition of the Suncrest non-PCD loans and a $2.4 million recapture of provision due to the net impact of improvements in the underlying loan characteristics of certain classified loans and the impact of changes in the economic forecast of certain macroeconomic variables compared to the end of 2021. During the first quarter of 2022, we experienced credit charge-offs of $16,000 and total recoveries of $11,000, resulting in net charge-offs of $5,000.

At March 31, ~~2022,~~2023, total assets of ~~$17.54~~$16.27 billion ~~increased~~decreased by ~~$1.66 billion,~~$202.5 million, or ~~10.42%~~1.23%, from total assets of ~~$15.88~~$16.48 billion at December 31, ~~2021.~~2022. Interest-earning assets of ~~$16.1~~$14.80 billion at March 31, ~~2022 increased~~2023, decreased by ~~$1.42 billion,~~$172.8 million, or ~~9.70%~~1.15%, when compared with ~~$14.68~~$14.97 billion at December 31, ~~2021.~~2022. The ~~increase~~decrease in interest-earning assets was primarily due to a ~~$900.2~~$136.9 million ~~increase in investment securities and a $704.0 million increase~~decrease in total loans ~~partially offset by~~and a ~~$160.5~~$69.0 million decrease in ~~interest-earning balances due from the Federal Reserve. The $704.0 million increase in total loans includes the $774.5 million of loans acquired at fair value from Suncrest.~~investment securities.

Total investment securities were ~~$6.01~~$5.74 billion at March 31, ~~2022, an increase~~2023, a decrease of ~~$900.2~~$69.0 million, or ~~17.62%~~1.19%, from ~~$5.11~~$5.81 billion at December 31, 2021. We deployed some of our excess liquidity into additional investment securities by purchasing approximately $1.17 billion in securities during the first quarter of 2022, with an expected average yield of approximately 2.37%.2022. At March 31, ~~2022,~~2023, investment securities held-to-maturity (“HTM”) totaled ~~$2.36 billion.~~$2.54 billion, a decrease of $18.3 million, or 0.72%, from December 31, 2022. At March 31, ~~2022,~~2023, investment securities available-for-sale (“AFS”) totaled ~~$3.65~~$3.20 billion, inclusive of a pre-tax net unrealized loss of ~~$203.4~~$459.7 million. ~~HTM~~AFS securities ~~increased~~decreased by ~~$436.8~~$50.7 million, or ~~22.68% and~~1.56%, from $3.26 billion at December 31, 2022. The decrease was net of a $40 million reduction in the unrealized loss on AFS securities increased by $463.4 million, or 14.55%, from December 31, 2021. During the first quarter of 2022, we purchased $813 million of AFS securities with an average expected yield of approximately 2.4%. We purchased $357 million of HTM securitiesdue to a decline in ~~the first quarter of 2022 with an average yield of approximately 2.2%.~~market interest rates. Our tax equivalent yield on investments was ~~1.70%~~2.37% for the quarter ended March 31, ~~2022,~~2023, compared to ~~1.52%~~2.36% for the fourth quarter of ~~2021~~2022 and ~~1.65%~~1.70% for the first quarter of ~~2021.~~2022.

Total loans and leases, at amortized cost, of ~~$8.59~~$8.94 billion at March 31, ~~2022 increased~~2023, decreased by ~~$704.0~~$136.9 million, or ~~8.92%~~1.51%, from December 31, ~~2021. The increase in total loans included $774.5 million of loans acquired from Suncrest in the first quarter of~~ 2022. After adjusting for ~~acquired loans,~~ seasonality ~~related to our Dairy & Livestock loans,~~of dairy and ~~forgiveness of~~livestock and PPP loans, ~~("core loans"),~~ our core loans ~~grew~~declined by ~~$144.5~~$6.5 million, or ~~1.97%~~0.07%, from the end of the fourth ~~quarter~~quarter. The $136.9 million decrease in total loans quarter-over-quarter included decreases of ~~2021, or approximately 8% annualized. The $144.5 million core loan growth included $100.3~~$127.2 million in ~~commercial real estate~~dairy & livestock loans, ~~$27.3~~$50.5 million in commercial and industrial loans, ~~$14.2~~$7.4 million in SBA loans, $4.3 million in construction loans, $3.7 million in SFR mortgage loans, ~~$2.5~~$3.3 million in ~~SBA~~PPP loans, and $5.7 million in consumer and other loans, partially offset by an increase of $65.4 million in commercial real estate loans. The decline in dairy and livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 78% at the end of 2022 to 68%. Likewise, the decline in commercial and industrial loans was impacted by a decrease in line utilization from 33% at the end of ~~$5.5 million in construction loans. The majority of the $110.1 million decrease in dairy & livestock loans was seasonal.~~2022 to 28% at March 31, 2023. Our yield on loans was ~~4.27%~~4.90% for the quarter ended March 31, ~~2022,~~2023, compared to ~~4.29%~~4.78% for the fourth quarter of ~~2021~~2022 and ~~4.50%~~4.27% for the first quarter of ~~2021. The significant decline in interest rates since~~2022. Loan yields, excluding the ~~start~~impact of ~~the pandemic continued to have a negative impact on loan yields, which after excluding~~PPP loans and discount accretion ~~nonaccrual interest income, and the impact~~ from ~~PPP~~acquired loans, ~~declined by 3 basis points and 12 basis points when compared to the fourth quarter and first quarter of 2021, respectively. Interest and fee income~~increased from ~~PPP loans was approximately $2.9 million~~4.11% in the first quarter of 2022 ~~compared~~ to ~~$4.2 million~~4.85% in the first quarter of 2023. The recent increases in interest rates, including a 475 basis point increase in the Fed Funds rate since the fourth quarter of ~~2021.~~2021 contributed to the 74 basis point increase in our core loan yields year-over-year.

Noninterest-bearing deposits were $7.84 billion at March 31, 2023, a decrease of $320.0 million, or 3.92%, when compared to $8.16 billion at December 31, 2022 and a decrease of $1.26 billion, or 13.87%, when compared to $9.11 billion at March 31, ~~2022, an increase of $1.0 billion, or 12.38%, when compared to $8.10 billion at December 31, 2021 and an increase of $1.53 million, or 20.18%, when compared to $7.58~~

~~billion at March 31, 2021. The increase in noninterest-bearing deposits includes the noninterest-bearing deposits assumed from Suncrest of $512.8 million.~~2022. At March 31, ~~2022,~~2023, noninterest-bearing deposits were ~~62.86%~~63.92% of total deposits, compared to ~~62.45%~~63.60% at December 31, ~~2021~~2022 and ~~62.74%~~62.86% at March 31, ~~2021.~~2022.

Interest-bearing deposits were $4.43 billion at March 31, 2023, a decrease of $244.3 million, or 5.23%, when compared to $4.67 billion at December 31, 2022 and a decrease of $952.9 million, or 17.71%, when compared to $5.38 billion at March 31, ~~2022, an increase of $508.1~~2022. Customer repurchase agreements totaled $490.2 million ~~or 10.43%, when~~at March 31, 2023, compared to ~~$4.87 billion~~$565.4 million at December 31, ~~2021~~2022 and an increase of $879.7 million, or 19.54%, when compared to $4.50 billion at March 31, 2021. The increase in interest-bearing deposits included the interest-bearing deposits assumed from Suncrest of $669.8 million. Customer repurchase agreements totaled $598.9 million at March 31, ~~2022, compared to $642.4 million at December 31, 2021 and $506.3 million at March 31, 2021.~~2022. Our average cost of total deposits including customer repurchase agreements was ~~0.03%~~0.17% for the quarter ended March 31, ~~2022, unchanged from~~2023, compared to 0.08% for the ~~prior quarter and 0.03% lower than the first~~fourth quarter of ~~2021.~~

We had no borrowings at March 31, 2022. At March 31, 2021 we had $25.8 million in junior subordinated debentures, bearing interest at three-month LIBOR plus 1.38%, resulting in a borrowing cost of 1.60% for the first quarter of 2021. These debentures, with an original maturity in 2036, were redeemed on June 15, 2021. Our average cost of funds of2022 and 0.03% for the first quarter of ~~2022 was unchanged~~2022.

At March 31, 2023, we had $1.4 billion in FHLB short-term borrowings, compared to $995.0 million at December 31, 2022. The combination of seasonal deposit declines, the impact of cash burn on deposits from inflationary pressures, and market conditions that include the availability of higher interest rates on short-term alternatives to deposits, such as money market mutual funds and treasury notes, resulted in the decline in core customer deposits. The decline in deposits resulted in higher short-term borrowings from the ~~fourth~~Federal Home Loan Bank during the first quarter of ~~2021~~2023. With slowing loan demand, cash flow generated from our investment securities, and ~~decreased from 0.07%~~the normal historical inflows of deposits we experience during the second and third quarter of most years, borrowings may moderate during the second half of 2023. However, continued increases in short-term rates and overall inflationary pressures may continue to create challenges that impact deposit levels and our liquidity in the near term. Over the last twelve months, the Federal Reserve has increased the Federal Funds rate by 475 basis points to the target range of 4.75% to 5.00%. In comparison to the rising Federal Funds rate, our average cost of funds of 0.49% for the first quarter of ~~2021.~~2023, increased from 0.03% for the first quarter of 2022. We had $971.7 million in average overnight borrowings at a cost of 4.81% for the first quarter of 2023, compared to $161.2 million in the fourth quarter of 2022 at a cost of 4.49%. These overnight borrowings and an increase in the cost of deposits and customer repurchase agreements from 8 basis points in the fourth quarter of 2022 to 17 basis points in the first quarter of 2023, increased our cost of funds by 36 basis points to 0.49% for the first quarter of 2023.

The allowance for credit losses totaled ~~$76.1~~$86.5 million at March 31, ~~2022,~~2023, compared to ~~$65.0~~$85.1 million at December 31, ~~2021.~~2022. The ~~ACL was increased by $11.1 million in 2022, including $8.6 million for the acquired Suncrest PCD loans and a $2.5~~$1.5 million provision for credit ~~losses. At March 31,~~losses in the most recent quarter was the result of an overall increase in projected loss rates from 0.94% at the end of 2022 ~~ACL as a percentage of total loans and leases outstanding was 0.89%. This compares~~ to 0.82% and 0.87% at December 31, 2021 and March 31, 2021, respectively. When PPP loans are excluded, the ACL as a percentage of total loans and leases outstanding was 0.90% at March 31, 2022, compared to 0.84% at December 31, 2021 and 0.97% at March 31, ~~2021.~~2023. Projected loss rates continue to be impacted by a deteriorating economic forecast that assumes a modest recession starting in late 2023 and modest GDP growth through 2024, as well as lower commercial real estate values and an increase in unemployment.

The Company’s total equity was ~~$2.08~~$1.99 billion at March 31, ~~2022.~~2023. This represented an overall ~~decrease~~increase of ~~$6.5~~$41.3 million from total equity of ~~$2.08~~$1.95 billion at December 31, ~~2021.~~2022. Increases to equity included ~~$197.1 million for the issuance of 8.6 million shares to acquire Suncrest and $45.6~~$59.3 million in net ~~earnings. Decreases included $25.5 million in cash dividends~~earnings and a ~~$142.3~~$28.7 million ~~decrease~~increase in other comprehensive income from the tax effected impact of the ~~decline~~increase in market value of available-for-sale securities. ~~On February 1, 2022, we announced that our Board of Directors authorized a share repurchase plan to repurchase up to 10~~Decreases included $28.0 million ~~shares of the Company's common stock. Equity decreased by $82.5 million during~~in cash dividends. During the first quarter of 2022, as a result of share repurchases under this share repurchase plan, including the execution of a $70 million accelerated stock repurchase program ("ASR") that retired 2,544,298 shares of common stock, or approximately 80% of the estimated shares repurchased under the ASR. We also2023, we repurchased, under our 10b5-1 stock repurchase plan, ~~536,010~~791,800 shares of common stock, at an average repurchase price of ~~$23.40,~~$23.43, totaling ~~$12.5~~$18.5 million. The 10b5-1 plan expired on March 2, 2023. Our tangible book value per share at March 31, ~~2022~~2023 was ~~$9.05.~~$8.64.

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of March 31, ~~2022,~~2023, the Company’s Tier 1 leverage capital ratio was ~~8.7%~~9.69%, common equity Tier 1 ratio was ~~13.6%~~13.80%, Tier 1 risk-based capital ratio was ~~13.6%~~13.80%, and total risk-based capital ratio was ~~14.4%~~14.65%. ~~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 acquisition of Suncrest, headquartered in Visalia, California. The Company acquired all of the assets and assumed all of the liabilities of Suncrest in a stock and cash transaction for $39.6 million in cash and $197.1 million in stock with the issuance of 8.6 million shares of the Company's common stock. As a result, Suncrest merged with and into the Bank, the principal subsidiary of CVB. At close, Suncrest had seven branch locations and two loan production offices in California’s Central Valley and the Sacramento metro area, which opened as Citizens Business Bank locations on January 10, 2022.

At close, the total fair value of assets acquired approximated $1.38 billion in total assets, including $329.0 million of cash and cash equivalents, net of cash paid, $131.1 million of investment securities, and $765.9 million in net loans. The acquired loans were recorded at fair value, which was reduced by a net discount of 1.5% for the entire loan portfolio. Approximately 30% of the acquired loans are considered PCD loans. An allowance for credit loss of $8.6 million was established for these PCD loans at acquisition. In addition, the acquired PCD loans were further discounted by almost 2% to adjust them to fair value. Non-PCD loans were valued at a total premium of 0.3%, net of a credit discount of 1.5%. We recorded a loan loss provision to establish a day one allowance for credit losses of $4.9 million on the non-PCD loans.

~~Our consolidated financial statements for the first quarter of 2022 included 83 days of Suncrest operations, post-merger.~~

3739

ANALYSIS OF THE RESULTS OF OPERATIONS

Financial Performance


	Three Months Ended												Three Months Ended
	March 31,						Variance						March 31,						Variance
	2022			2021			$			%			2023			2022			$			%
	(Dollars in thousands, except per share amounts)												(Dollars in thousands, except per share amounts)
Net interest income	$	112,840		$	103,468		$	9,372			9.06	%	$	125,728		$	112,840		$	12,888			11.42	%
(Provision for) recapture of credit losses		(2,500	)		19,500			(22,000	)		-112.82	%		(1,500	)		(2,500	)		1,000			40.00	%
Noninterest income		11,264			13,681			(2,417	)		-17.67	%		13,202			11,264			1,938			17.21	%
Noninterest expense		(58,238	)		(47,163	)		(11,075	)		-23.48	%		(54,881	)		(58,238	)		3,357			5.76	%
Income taxes		(17,806	)		(25,593	)		7,787			30.43	%		(23,279	)		(17,806	)		(5,473	)		-30.74	%
Net earnings	$	45,560		$	63,893		$	(18,333	)		-28.69	%	$	59,270		$	45,560		$	13,710			30.09	%
Earnings per common share:
Basic	$	0.31		$	0.47		$	(0.16	)				$	0.42		$	0.31		$	0.11
Diluted	$	0.31		$	0.47		$	(0.16	)				$	0.42		$	0.31		$	0.11
Return on average assets		1.06	%		1.79	%		-0.73	%					1.47	%		1.06	%		0.41	%
Return on average shareholders' equity		8.24	%		12.75	%		-4.51	%					12.15	%		8.24	%		3.91	%
Efficiency ratio		46.93	%		40.26	%		6.67	%					39.50	%		46.93	%		-7.43	%
Noninterest expense to average assets		1.36	%		1.32	%		0.04	%					1.36	%		1.36	%		0.00	%


	Three Months Ended						Variance						Three Months Ended						Variance
	March 31,			December 31,									March 31,			December 31,
	2022			2021			$			%			2023			2022			$			%
	(Dollars in thousands, except per share amounts)												(Dollars in thousands, except per share amounts)
Net interest income	$	112,840		$	102,395		$	10,445			10.20	%	$	125,728		$	137,395		$	(11,667	)		-8.49	%
(Provision for) recapture of credit losses		(2,500	)		-			(2,500	)	-				(1,500	)		(2,500	)		1,000			40.00	%
Noninterest income		11,264			12,385			(1,121	)		-9.05	%		13,202			12,465			737			5.91	%
Noninterest expense		(58,238	)		(47,980	)		(10,258	)		-21.38	%		(54,881	)		(54,419	)		(462	)		-0.85	%
Income taxes		(17,806	)		(19,104	)		1,298			6.79	%		(23,279	)		(26,773	)		3,494			13.05	%
Net earnings	$	45,560		$	47,696		$	(2,136	)		-4.48	%	$	59,270		$	66,168		$	(6,898	)		-10.42	%
Earnings per common share:
Basic	$	0.31		$	0.35		$	(0.04	)				$	0.42		$	0.47		$	(0.05	)
Diluted	$	0.31		$	0.35		$	(0.04	)				$	0.42		$	0.47		$	(0.05	)
Return on average assets		1.06	%		1.18	%		-0.12	%					1.47	%		1.60	%		-0.13	%
Return on average shareholders' equity		8.24	%		9.05	%		-0.81	%					12.15	%		13.68	%		-1.53	%
Efficiency ratio		46.93	%		41.80	%		5.13	%					39.50	%		36.31	%		3.19	%
Noninterest expense to average assets		1.36	%		1.19	%		0.17	%					1.36	%		1.32	%		0.04	%

3840

Return on Average Tangible Common Equity Reconciliation (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.


	Three Months Ended									Three Months Ended
	March 31,			December 31,			March 31,			March 31,			December 31,			March 31,
	2022			2021			2021			2023			2022			2022
	(Dollars in thousands)									(Dollars in thousands)
Net Income	$	45,560			47,696		$	63,893		$	59,270		$	66,168		$	45,560
Add: Amortization of intangible assets		1,998			1,892			2,167			1,720			1,724			1,998
Less: Tax effect of amortization of intangible assets (1)		(591	)		(559	)		(641	)		(508	)		(510	)		(591	)
Tangible net income	$	46,967		$	49,029		$	65,419		$	60,482		$	67,382		$	46,967

Average stockholders' equity	$	2,243,335		$	2,090,746		$	2,032,676		$	1,978,244		$	1,918,983		$	2,243,335
Less: Average goodwill		(759,014	)		(663,707	)		(663,707	)		(765,822	)		(765,822	)		(759,014	)
Less: Average intangible assets		(28,190	)		(26,216	)		(32,590	)		(20,983	)		(22,610	)		(28,190	)
Average tangible common equity	$	1,456,131		$	1,400,823		$	1,336,379		$	1,191,439		$	1,130,551		$	1,456,131

Return on average equity, annualized		8.24	%		9.05	%		12.75	%		12.15	%		13.68	%		8.24	%
Return on average tangible common equity, annualized		13.08	%		13.89	%		19.85	%		20.59	%		23.65	%		13.08	%

(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 three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. 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 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management included herein.

3941

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


	Three Months Ended March 31,														Three Months Ended March 31,
	2022							2021							2023							2022
	Average				Yield/			Average				Yield/			Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
	(Dollars in thousands)														(Dollars in thousands)
INTEREST-EARNING ASSETS																												��
Investment securities (1)
Available-for-sale securities:
Taxable	$	3,516,886	$	12,649		1.50	%	$	2,523,609	$	8,968		1.47	%	$	3,190,462	$	19,428		2.44	%	$	3,516,886	$	12,649		1.50	%
Tax-advantaged		30,071		183		2.91	%		30,158		191		3.02	%		25,681		168		3.13	%		30,071		183		2.91	%
Held-to-maturity securities:
Taxable		1,963,835		9,105		1.88	%		580,478		2,811		1.95	%		2,163,847		11,507		2.13	%		1,963,835		9,105		1.88	%
Tax-advantaged		265,648		1,558		2.85	%		199,348		1,129		2.74	%		382,738		2,449		3.10	%		265,648		1,558		2.85	%
Investment in FHLB stock		18,933		371		7.95	%		17,688		217		4.98	%		28,868		349		4.90	%		18,933		371		7.95	%
Interest-earning deposits with other institutions		1,666,473		773		0.19	%		1,664,193		413		0.10	%		47,934		491		4.15	%		1,666,473		773		0.19	%
Loans (2)		8,500,436		89,461		4.27	%		8,270,282		91,795		4.50	%		8,963,323		108,394		4.90	%		8,500,436		89,461		4.27	%
Total interest-earning assets		15,962,282		114,100		2.93	%		13,285,756		105,524		3.24	%		14,802,853		142,786		3.91	%		15,962,282		114,100		2.93	%
Total noninterest-earning assets		1,421,668							1,220,899							1,510,283							1,421,668
Total assets	$	17,383,950						$	14,506,655						$	16,313,136						$	17,383,950

INTEREST-BEARING LIABILITIES
Savings deposits (3)	$	5,082,605	$	1,052		0.08	%	$	4,026,248	$	1,198		0.12	%	$	4,335,951	$	5,247		0.49	%	$	5,082,605	$	1,052		0.08	%
Time deposits		381,947		75		0.08	%		408,034		614		0.61	%		285,296		118		0.17	%		381,947		75		0.08	%
Total interest-bearing deposits		5,464,552		1,127		0.08	%		4,434,282		1,812		0.17	%		4,621,247		5,365		0.47	%		5,464,552		1,127		0.08	%
FHLB advances, other borrowings, and customer repurchase agreements		679,982		133		0.08	%		590,170		244		0.17	%		1,522,455		11,693		3.11	%		679,982		133		0.08	%
Interest-bearing liabilities		6,144,534		1,260		0.08	%		5,024,452		2,056		0.17	%		6,143,702		17,058		1.13	%		6,144,534		1,260		0.08	%
Noninterest-bearing deposits		8,720,728							7,240,494							8,092,704							8,720,728
Other liabilities		275,353							209,033							98,486							275,353
Stockholders' equity		2,243,335							2,032,676							1,978,244							2,243,335
Total liabilities and stockholders' equity	$	17,383,950						$	14,506,655						$	16,313,136						$	17,383,950

Net interest income			$	112,840						$	103,468						$	125,728						$	112,840

Net interest spread - tax equivalent						2.85	%						3.07	%						2.78	%						2.85	%
Net interest margin						2.89	%						3.17	%						3.43	%						2.89	%
Net interest margin - tax equivalent						2.90	%						3.18	%						3.45	%						2.90	%

(1)

Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended ~~the three months ended~~ March 31, ~~2022~~2023 and March 31, ~~2021.~~2022. The non TE rates for total investment securities were ~~1.67%~~2.33% and ~~1.62%~~1.67% for the three months ended March 31, ~~2022~~2023 and ~~2021,~~March 31, 2022, respectively. The non TE rates for tax-advantaged AFS investment securities were ~~2.43%~~3.13% and ~~2.53%~~2.43% for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021~~2022 respectively.

(2)

Includes loan fees of ~~$3.3 million~~$781,000 and ~~$8.9~~$3.3 million for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, respectively. Prepayment penalty fees of ~~$2.1 million~~$583,000 and ~~$1.6~~$2.1 million are included in interest income for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, respectively.

(3)

Includes interest-bearing demand and money market accounts.

The following table presents a comparison of interest income and interest expense resulting from changes in the volumes and rates on average interest-earning assets and average interest-bearing liabilities for the periods indicated. Changes in interest income or expense attributable to volume changes are calculated by multiplying the change in volume by the initial average ~~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.~~volume and reflect an adjustment for the number of days as appropriate.

4042

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


	Comparison of Three Months Ended March 31,												Comparison of Three Months Ended March 31,
	2022 Compared to 2021												2023 Compared to 2022
	Increase (Decrease) Due to												Increase (Decrease) Due to
							Rate/												Rate/
	Volume			Rate			Volume			Total			Volume			Rate			Volume			Total
	(Dollars in thousands)												(Dollars in thousands)
Interest income:
Available-for-sale securities:
Taxable investment securities	$	3,444		$	171		$	66		$	3,681		$	(678	)	$	7,788		$	(331	)	$	6,779
Tax-advantaged investment securities		(1	)		(7	)		-			(8	)		(26	)		14			(3	)		(15	)
Held-to-maturity securities:		-			-			-			-
Taxable investment securities		6,646			(105	)		(247	)		6,294			1,026			1,205			171			2,402
Tax-advantaged investment securities		372			42			15			429			683			136			72			891
Investment in FHLB stock		15			130			9			154			195			(142	)		(75	)		(22	)
Interest-earning deposits with other institutions		1			359			-			360			(751	)		16,297			(15,828	)		(282	)
Loans		2,553			(4,755	)		(132	)		(2,334	)		4,870			13,334			729			18,933
Total interest income		13,030			(4,165	)		(289	)		8,576			5,319			38,632			(15,265	)		28,686

Interest expense:
Savings deposits		314			(365	)		(95	)		(146	)		(155	)		5,099			(749	)		4,195
Time deposits		(30	)		(405	)		(104	)		(539	)		(19	)		83			(21	)		43
FHLB advances, other borrowings, and customer repurchase agreements		37			(128	)		(20	)		(111	)		165			5,090			6,305			11,560
Total interest expense		321			(898	)		(219	)		(796	)		(9	)		10,272			5,535			15,798
Net interest income	$	12,709		$	(3,267	)	$	(70	)	$	9,372		$	5,328		$	28,360		$	(20,800	)	$	12,888

First Quarter of ~~2022~~2023 Compared to the First Quarter of ~~2021~~2022

Net interest income, before provision for credit losses, of ~~$112.8~~$125.7 million for the first quarter of ~~2022~~2023 increased by ~~$9.4~~$12.9 million, or ~~9.06%~~11.42%, from the first quarter of ~~2021.~~2022. Interest-earning assets ~~increased~~declined on average by ~~$2.68~~$1.16 billion, or ~~20.15%~~7.26%, from ~~$13.29 billion for the first quarter of 2021 to~~ $15.96 billion for the first quarter of ~~2022.~~2022 to $14.80 billion for the first quarter of 2023. Our net interest margin (TE) ~~was~~expanded to 3.45% for the first quarter of 2023, compared to 2.90% for the first quarter of ~~2022, compared to 3.18% for~~2022. The 55 basis point expansion in our net interest margin was the ~~first quarter~~result of ~~2021.~~a 98 basis point increase in earning asset yield, offset by a 46 basis point increase in cost of funds.

Total interest income was ~~$114.1~~$142.8 million for the first quarter of ~~2022,~~2023, which was ~~$8.6~~$28.7 million, or ~~8.13%~~25.14%, higher than the same period of ~~2021.~~2022. The increase was primarily due to a 98 basis point expansion of the ~~net effect of growth in average interest-earning assets of $2.68 billion and the decrease in the average interest-earning asset~~ yield ~~which was 2.93%~~on earning assets. Loan yields grew from 4.27% for the first quarter of 2022 ~~compared~~ to ~~3.24%~~4.90% for the first quarter of ~~2021. The 32~~2023. Likewise, the yield on investment securities increased by 67 basis ~~point decrease in~~points from the ~~average interest-earning asset yield compared~~prior year quarter. Loan balances grew to ~~the first quarter of 2022, was impacted by a change in asset mix with loan balances declining to 53.25%~~60.55% of earning assets on average for the first quarter of ~~2022,~~2023, compared to ~~62.25%~~53.25% for the first quarter of ~~2021, as well as lower~~2022. In addition to loan ~~yields. Loan yields decreased~~growth, funds previously held at the Federal Reserve were invested into higher yielding investments during 2022, which increased investment securities to 38.93% of earning assets on average for the first quarter of 2023 from ~~4.50% on~~36.19% for the first quarter of 2022. As a result of growth in loans and investment securities, our average balance at the Fed declined from 10.4% of earning assets in the first quarter of ~~2021~~2022 to ~~4.27%~~0.3% in the first quarter of 2022. Total loan interest income for the first quarter of 2022 declined by $2.3 million in comparison to the year ago quarter. Total investment income of $23.5 million increased $10.4 million, or 79.36%, from the first quarter of 2021. Investment income growth resulted from both higher levels of investment securities and higher investment yields.2023.

Total interest income and fees on loans for the first quarter of ~~2022~~2023 was ~~$89.5~~$108.4 million, ~~a decrease~~an increase of ~~$2.3~~$18.9 million, or ~~2.54%~~21.16%, from the first quarter of ~~2021. The decline~~2022. This increase in ~~interest~~ income ~~and fees on loans year-over-year~~ was ~~primarily~~partly due to ~~lower loan yields~~growth in average loans of ~~23 basis points, resulting from the low interest rate environment in 2021. Additionally,~~$462.9 million. Discount accretion on acquired loans decreased by $741,000 and interest and fee income from PPP loans declined by ~~$7.5 million from $10.4 million in the first quarter of 2021. Discount accretion on acquired loans decreased by $2.2~~$2.8 million compared to the first quarter of ~~2021. The decline in interest rates since the start of the pandemic has had a negative impact on loan yields, which, after~~2022. After excluding discount accretion ~~nonaccrual interest income~~ and the impact from PPP loans, ~~("core")~~our core loan ~~yield declined~~yields grew by 1274 basis points compared to the first quarter of ~~2021.~~2022. Core loan yields grew throughout 2022 and the first quarter of 2023, as rising interest rates contributed to an increase in yields from 4.11% in the first quarter of 2022 to 4.85% in the first quarter of 2023.

Interest income from investment securities was ~~$23.5~~$33.6 million, an increase of ~~$10.4~~$10.1 million, or ~~79.36%~~42.80%, from the first quarter of ~~2021. Investment income growth resulted from higher levels of investment securities as~~2022. The increase was a result of ~~purchases~~a 67 basis point increase in security yields. Investment securities were $5.76 billion on average for the first quarter of ~~investment~~2023, compared to $5.78 billion for the same period of 2022. Overall, the tax-equivalent yield on securities ~~funded by the growth~~grew from 1.70% in ~~the Bank's deposits. We deployed some of our excess liquidity during~~ the first quarter of 2022 ~~into additional investment securities by purchasing approximately $1.17 billion in securities, with expected yields of approximately~~to 2.37%~~. The tax-equivalent yield on investment securities increased from 1.65%~~ in the first quarter of 2023.

4143

2021 to 1.70% for the first quarter of 2022. We continued to maintain a significant amount of funds at the Federal Reserve during the first quarter of 2022, which earned less than 0.20% on average for the quarter, with an average balance of more than $1.65 billion.

Interest expense of ~~$1.3~~$17.1 million for the first quarter of ~~2022, decreased $796,000, or 38.72%,~~2023, increased $15.8 million, compared to the first quarter of ~~2021. The average rate paid on interest-bearing liabilities decreased by 9 basis points, to 0.08%~~2022. Total cost of funds of 0.49% for the first quarter of ~~2022~~2023 increased from ~~0.17%~~0.03% for the year ago quarter. This 46 basis point increase in cost of funds was the result of a 39 basis point increase in the cost of interest-bearing deposits and an average cost of 4.81% on $971.7 million of short-term borrowings for the first quarter of ~~2021. Average interest-bearing liabilities were $1.12 billion higher for the first quarter of 2022 when compared to the first quarter of 2021.~~2023. On average, noninterest-bearing deposits were ~~61.48%~~63.65% of ~~our~~ total deposits for the first quarter of ~~2022,~~2023, compared to ~~62.02%~~61.48% for the first quarter of 2021. In comparison to the first quarter of 2021, our overall cost of funds decreased by 4 basis points, partially due to growth in average noninterest-bearing deposits of $1.48 billion, compared to the increase in average interest-bearing deposits of $1.03 billion.2022.

Provision for (Recapture of) Credit Losses

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

The ~~allowance~~first quarter of 2023 included $1.5 million in provision for credit losses ~~on loans totaled $76.1 million at March 31, 2022, compared~~due to ~~$65.0 million at December 31, 2021~~projected loss rates that continued to be impacted by a deteriorating economic forecast that assumes a modest recession starting in late 2023 and ~~$71.8 million at March 31, 2021.~~modest GDP growth through 2024, as well as lower commercial real estate values and an increase in unemployment. The first quarter of 2022 included $2.5 million in provision for credit losses. The $2.5 million provision for credit losses was the net result of the $4.9 million provision for credit losses recorded for the acquisition of the Suncrest non-PCD loans on January 7, 2022 and a subsequent $2.4 million recapture of provision due to the net impact of improvements in the underlying loan characteristics of certain classified loans and the impact of changes in the economic forecast of certain macroeconomic variables compared to the end of 2021. A $19.5 million recapture of provision for credit losses was recorded in the first quarter of 2021, resulting from improvements in our economic forecast of certain macroeconomic variables after reflecting $23.5 million in provision for credit losses for the year ended December 31, 2020. due to the initially forecasted impact on the economy of the COVID-19 pandemic. Refer to the discussion of “Allowance for Credit Losses” in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.

No assurance can be given that economic conditions which affect the Company’s service areas or other circumstances will or will not be reflected in future changes in the level of our allowance for credit losses and the resulting provision or recapture of provision for credit losses. The process to estimate the allowance for credit losses requires considerable judgment and our economic forecasts may continue to vary due to the uncertainty of the future impact that the pandemic, geopolitical events in Europe, and overall supply chain issues may have on our business and customers. See “Allowance for Credit Losses” under Analysis of Financial Condition herein.

4244

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, loans, other real estate owned, and fixed assets, and other revenues not included as interest on earning assets.

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


	Three Months Ended										Three Months Ended
	March 31,				Variance						March 31,				Variance
	2022		2021		$			%			2023		2022		$			%
	(Dollars in thousands)										(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	5,059	$	3,985	$	1,074			26.95	%	$	5,344	$	5,059	$	285			5.63	%
Trust and investment services		2,822		2,611		211			8.08	%		2,914		2,822		92			3.26	%
Bankcard services		416		350		66			18.86	%		377		416		(39	)		-9.38	%
BOLI income		1,349		4,624		(3,275	)		-70.83	%		1,189		1,349		(160	)		-11.86	%
Swap fee income		-		215		(215	)		-100.00	%
Gain on OREO, net		-		429		(429	)		-100.00	%
Other		1,618		1,467		151			10.29	%		3,378		1,618		1,760			108.78	%
Total noninterest income	$	11,264	$	13,681	$	(2,417	)		-17.67	%	$	13,202	$	11,264	$	1,938			17.21	%

First Quarter of ~~2022~~2023 Compared to the First Quarter of ~~2021~~2022

Noninterest income was $13.2 million for the first quarter of 2023, compared with $11.3 million for the first quarter of ~~2022, compared with $13.7~~2022. The $1.9 million for the first quarter of 2021. The first quarter of 2021 benefited from $3.5 million of insurance proceeds from death benefits that exceeded the cash surrender value on bank owned life insurance. The first quarter of 2021 alsoincrease in noninterest income included ~~a $399,000 gain on the sale of one OREO property. We did not enter into any new~~approximately $550,000 in interest rate swap ~~contracts during~~related fees resulting from the ~~first quarter~~conversion to SOFR of ~~2022, but generated fee income~~all of $215,000 from swap transaction in the first quarter of 2021. Partially offsetting those decreases in noninterest income was a $1.1 million, or 26.95%, increase in service charges on deposit accounts for the first quarter of 2022.

~~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 9 – ~~Derivative Financial Instruments~~ ~~of the notes to the unaudited condensed consolidated financial statements of this report for additional information). Generally speaking, our volume of~~previously originated interest rate swaps ~~is impacted by the shape~~indexed to LIBOR, and a recapture of a previous impairment charge of $500,000 as a result of the ~~yield curve, with~~payoff of a relatively flat yield curve more conducive to a higher volume of swaps. We executed on swap agreements related to new loan originations with a notional amount totaling $15.4 million for the first quarter of 2021.CRA investment that was previously identified as impaired.

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 March 31, ~~2022,~~2023, CitizensTrust had approximately ~~$3.34~~$3.38 billion in assets under management and administration, including ~~$2.49~~$2.25 billion in assets under management. CitizensTrust generated fees of $2.9 million for the first quarter of 2023, compared to $2.8 million for the first quarter of ~~2022, compared to $2.6~~2022. We have experienced growth in managed assets from the transition of customer deposits that are now being managed by CitizensTrust in various liquidity strategies. During the first quarter of 2023, more than $370 million ~~for the same period~~ of ~~2021, due to the growth in~~new assets under management ~~and higher investment services fees.~~were attributable to funds that were previously on deposit at Citizens Business Bank.

The Bank’s investment in BOLI includes life insurance policies acquired through acquisitions and the purchase of life insurance by the Bank on a select 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. ~~The~~There were no death benefits for the first quarter of ~~2022 included~~2023, compared with $508,000 in death benefits that exceeded the asset value of certain BOLI policies ~~compared to $3.5 million in death benefits for~~ the first quarter of 2021. Excluding death benefits, income from BOLI declined by $288,000 compared to the first quarter of 2021 due to lower returns on separate account policies that are used to fund deferred compensation liabilities.2022.

4345

Noninterest Expense

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


	Three Months Ended												Three Months Ended
	March 31,						Variance						March 31,						Variance
	2022			2021			$			%			2023			2022			$			%
	(Dollars in thousands)												(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	32,656		$	29,706		$	2,950			9.93	%	$	35,247		$	32,656		$	2,591			7.93	%
Occupancy		4,548			4,107			441			10.74	%		4,594			4,548			46			1.01	%
Equipment		1,023			756			267			35.32	%		856			1,023			(167	)		-16.32	%
Professional services		2,045			2,168			(123	)		-5.67	%		1,696			2,045			(349	)		-17.07	%
Computer software expense		3,795			2,844			951			33.44	%		3,408			3,795			(387	)		-10.20	%
Marketing and promotion		1,458			725			733			101.10	%		1,715			1,458			257			17.63	%
Amortization of intangible assets		1,998			2,167			(169	)		-7.80	%		1,720			1,998			(278	)		-13.91	%
Telecommunications expense		554			552			2			0.36	%		503			554			(51	)		-9.21	%
Regulatory assessments		1,389			1,059			330			31.16	%		2,072			1,389			683			49.17	%
Insurance		488			453			35			7.73	%		505			488			17			3.48	%
Loan expense		368			238			130			54.62	%		299			368			(69	)		-18.75	%
Provision for unfunded loan commitments														500			—			500		-
Directors' expenses		364			379			(15	)		-3.96	%		289			364			(75	)		-20.60	%
Stationery and supplies		234			244			(10	)		-4.10	%		286			234			52			22.22	%
Acquisition related expenses		5,638			-			5,638		-				—			5,638			(5,638	)		-100.00	%
Other		1,680			1,765			(85	)		-4.82	%		1,191			1,680			(489	)		-29.11	%
Total noninterest expense	$	58,238		$	47,163		$	11,075			23.48	%	$	54,881		$	58,238		$	(3,357	)		-5.76	%

Noninterest expense to average assets		1.36	%		1.32	%								1.36	%		1.36	%
Efficiency ratio (1)		46.93	%		40.26	%								39.50	%		46.93	%

(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 1.36% for both the first quarter of 2022, compared to 1.32% for the first quarter of 2021. The increase in this ratio from the first quarter of 2021 includes the impact of $5.6 million of acquisition related expenses . If acquisition expense is excluded, noninterest expense as a percentage of average assets was 1.23%f or2023 and the first quarter of 2022.

Our ability to control noninterest expenses in relation to the level of total revenue (net interest income before provision for credit losses plus noninterest income) can be measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. The efficiency ratio for the first quarter of ~~2022~~2023 was ~~46.93%~~39.50%, compared to ~~40.26%~~46.93% for the first quarter of ~~2021.~~2022. If acquisition expense is excluded, the efficiency ratio was 42.38% for the first quarter of 2022.

First Quarter of ~~2022~~2023 Compared to the First Quarter of ~~2021~~2022

Noninterest expense of ~~$58.2~~$54.9 million for the first quarter of ~~2022 increased $11.1~~2023 was $3.4 million, or ~~23.48%~~5.76%, ~~compared to~~lower than the first quarter of ~~2021.~~2022. The ~~year-over-year increase~~first quarter of 2023 included ~~a $3.0 million increase~~$500,000 in ~~salaries and employee benefits, which included additional compensation related expenses~~provision for ~~the newly hired and former Suncrest associates. Occupancy and equipment increased by $708,000 due to the addition of seven banking centers resulting from the acquisition of Suncrest.~~unfunded commitments. Acquisition expense related to the merger of Suncrest Bank was $5.6 million for the first quarter of 2022. The ~~systems conversion from Suncrest’s legacy banking systems was completed in February, which comprised a meaningful percentage~~year-over-year increase of ~~the $5.6~~$2.6 million in ~~acquisition~~salaries and employee benefits, included a $637,000 increase in expense from the impact of lower loan origination deferrals during the first quarter of 2023. Regulatory expense increased by $683,000, primarily due to the FDIC's two basis point increase in its deposit insurance assessment rate that became effective for the first quarter of 2022. The increase in software expense of $951,000, includes costs associated with the continued use of Suncrest's legacy banking systems, prior to conversion. We will consolidate two banking centers in the second quarter of 2022 and by the end of the second quarter, we expect to have completed the integration and consolidations related to Suncrest. The increase in marketing and promotion expense compared to the first quarter of 2021 is primarily due to the impact that the COVID-19 pandemic had on marketing and promotional events in 2021.2023.

Income Taxes

The Company’s effective tax rate for the three months ended March 31, ~~2022~~2023 was ~~28.10%~~28.20%, compared to ~~28.60%~~28.10% for the three months ended March 31, ~~2021,~~2022, respectively. Our estimated annual effective tax rate varies depending upon the level of tax-advantaged income as well as available tax credits.

The Company’s effective tax rates are below the nominal combined Federal and State tax rate primarily 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.

4546

ANALYSIS OF FINANCIAL CONDITION

Total assets of ~~$17.54~~$16.27 billion at March 31, ~~2022 increased~~2023 decreased by ~~$1.66 billion,~~$202.5 million, or ~~10.42%~~1.23%, from total assets of ~~$15.88~~$16.48 billion at December 31, ~~2021.~~2022. Interest-earning assets of ~~$16.11~~$14.80 billion at March 31, ~~2022 increased~~2023, decreased by ~~$1.42 billion,~~$172.8 million, or ~~9.70%~~1.15%, when compared with ~~$14.68~~$14.97 billion at December 31, ~~2021.~~2022. The ~~increase~~decrease in interest-earning assets was primarily due to a ~~$900.2~~$136.9 million ~~increase in investment securities and a $704.0 million increase~~decrease in total loans ~~partially offset by~~and a ~~$160.5~~$69.0 million decrease in ~~interest-earning balances due from the Federal Reserve.~~investment securities.

On January 7, 2022, we completed the acquisition of Suncrest with approximately $1.38 billion in total assets, acquired at fair value, and seven banking centers. The increase in total assets at March 31, 2022 included $765.9 million of acquired net loans at fair value, $131.1 million of investment securities, and $9 million in bank-owned life insurance. The acquisition resulted in $102.1 million of goodwill and $3.9 million in core deposit intangibles. Net cash proceeds were used to fund the $39.6 million in cash paid to the former shareholders of Suncrest as part of the merger consideration.

Total liabilities were ~~$15.46~~$14.28 billion at March 31, ~~2022, an increase~~2023, a decrease of ~~$1.66 billion,~~$243.8 million, or ~~12.04%~~1.68%, from total liabilities of ~~$13.80~~$14.53 billion at December 31, ~~2021.~~2022. Total deposits ~~grew~~declined by ~~$1.51 billion,~~$564.4 million, or ~~11.65%~~4.40%. Higher interest rates that have resulted from the Federal Reserve’s significant increase in the federal funds rate over the last year have continued to impact deposit levels, including $370 million of funds on deposit at the end of 2022 that were transferred from the Bank’s balance sheet to Citizens Trust for investment in higher yielding securities such as treasury notes. Short-term borrowings from the FHLB increased by $410.0 million from December 31, 2022. Total equity ~~decreased $6.5~~increased $41.3 million, or ~~0.31%~~2.12%, to ~~$2.08~~$1.99 billion at March 31, ~~2022,~~2023, compared to total equity of ~~$2.08~~$1.95 billion at December 31, ~~2021.~~2022. Increases to equity included ~~$197.1 million for issuance of 8.6 million shares to acquire Suncrest and $45.6~~$59.3 million in net ~~earnings. Decreases included $25.5 million in cash dividends~~earnings and a ~~$142.3~~$28.7 million ~~decrease~~increase in other comprehensive income from the tax effected impact of the ~~decline~~increase in market value of available-for-sale securities. Decreases included $28.0 million in cash dividends. During the first quarter of ~~2022,~~2023, we ~~executed on a $70 million accelerated stock repurchase program and retired 2,544,298 shares of common stock, or approximately 80% of the estimated shares repurchased under the program. We also~~ repurchased, under our 10b5-1 stock repurchase plan, ~~536,010~~791,800 shares of common stock, at an average repurchase price of ~~$23.40,~~$23.43, totaling ~~$12.5~~$18.5 million. The 10b5-1 plan expired on March 2, 2023.

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 March 31, ~~2022,~~2023, total investment securities were ~~$6.01 billion, including $131.1 million in securities acquired from Suncrest.~~5.74 billion. This represented ~~an increase~~a decrease of ~~$900.2~~$69.0 million, or ~~17.62%~~1.19%, from ~~$5.11~~$5.81 billion at December 31, ~~2021.~~2022. The ~~increase~~decrease in investment securities was ~~primarily~~ due to ~~new securities purchased exceeding~~ cash outflow from the portfolio in the first quarter of ~~2022.~~2023, offset by an increase in fair value of AFS securities due to a decline in interest rates from December 31, 2022 to March 31, 2023. At March 31, ~~2022,~~2023, investment securities HTM totaled ~~$2.36~~$2.54 billion. At March 31, ~~2022,~~2023, our AFS investment securities totaled ~~$3.65~~$3.20 billion, inclusive of a pre-tax net unrealized loss of ~~$203.4 million.~~$459.7 million, compared to $500.1 million at December 31, 2022. The after-tax unrealized loss reported in AOCI on AFS investment securities at March 31, 2023 was ~~$143.3~~$323.8 million. The changes in the net unrealized holding loss resulted primarily from fluctuations in market interest rates. For the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, repayments/maturities of investment securities totaled $107.0 million and $319.9 million, ~~and $259.9 million,~~ respectively. We deployed some of our excess liquidity during the first quarter into additional securities by purchasing $1.17 billion in new investment securities, with yields on average of approximately 2.37% and $1.23 billion for the three months ended March 31, 2022 and 2021, respectively. During the first quarter of 2022, we purchased approximately $813.2 million of AFS securities with an average expected yield of approximately 2.42% and $357.2 million of HTM securities with an average expected yield of approximately 2.24%. The fourth quarter of 2021, included purchases of approximately $452 million in new AFS securities with an expected tax equivalent yield of 1.61% and $259 million in new HTM securities with an expected tax equivalent yield of approximately 1.84%. There were no investment securities sold during the first quarter of ~~2022~~2023 and ~~2021.~~2022.

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


	March 31, 2022												March 31, 2023
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent			Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)												(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	3,243,037	$	3,973	$	(166,018	)	$	3,080,992		84.47	%	$	3,109,387	$	41	$	(361,563	)	$	2,747,865		85.75	%
CMO/REMIC		578,213		65		(41,281	)		536,997		14.72	%		526,922		—		(97,500	)		429,422		13.39	%
Municipal bonds		28,364		218		(351	)		28,231		0.77	%		26,796		80		(718	)		26,158		0.82	%
Other securities		1,110		-		-			1,110		0.04	%		1,079		—		—			1,079		0.04	%
Total available-for-sale securities	$	3,850,724	$	4,256	$	(207,650	)	$	3,647,330		100.00	%	$	3,664,184	$	121	$	(459,781	)	$	3,204,524		100.00	%
Investment securities held-to-maturity:
Government agency/GSE	$	570,332	$	722	$	(52,738	)	$	518,316		24.14	%	$	543,318	$	—	$	(100,496	)	$	442,822		21.42	%
Mortgage-backed securities		632,012		227		(43,928	)		588,311		26.75	%		697,766		—		(97,818	)		599,948		27.51	%
CMO/REMIC		818,279		-		(44,778	)		773,501		34.63	%		822,599		—		(134,774	)		687,825		32.44	%
Municipal bonds		342,118		758		(19,860	)		323,016		14.48	%		472,296		2,405		(36,727	)		437,974		18.63	%
Total held-to-maturity securities	$	2,362,741	$	1,707	$	(161,304	)	$	2,203,144		100.00	%	$	2,535,979	$	2,405	$	(369,815	)	$	2,168,569		100.00	%

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, 2022
	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	$	3,192,151	$	39	$	(403,049	)	$	2,789,141		85.68	%
CMO/REMIC		535,269		—		(95,966	)		439,303		13.50	%
Municipal bonds		26,797		67		(1,177	)		25,687		0.79	%
Other securities		1,080		—		—			1,080		0.03	%
Total available-for-sale securities	$	3,755,297	$	106	$	(500,192	)	$	3,255,211		100.00	%
Investment securities held-to-maturity:
Government agency/GSE	$	548,771	$	—	$	(114,343	)	$	434,428		21.48	%
Mortgage-backed securities		706,796		—		(105,867	)		600,929		27.67	%
CMO/REMIC		827,346		—		(131,730	)		695,616		32.39	%
Municipal bonds		471,388		913		(47,687	)		424,614		18.46	%
Total held-to-maturity securities	$	2,554,301	$	913	$	(399,627	)	$	2,155,587		100.00	%

As of March 31, ~~2022,~~2023, approximately ~~$46.1~~$35.0 million in U.S. government agency bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds, which represented approximately 6% of the total investment portfolio, are predominately AA or higher rated securities.


	March 31, 2023
	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	$	753,978	$	(43,323	)	$	1,992,196	$	(318,240	)	$	2,746,174	$	(361,563	)
CMO/REMIC		6,062		(148	)		423,357		(97,352	)		429,419		(97,500	)
Municipal bonds		4,141		(51	)		14,660		(667	)		18,801		(718	)
Total available-for-sale securities	$	764,181	$	(43,522	)	$	2,430,213	$	(416,259	)	$	3,194,394	$	(459,781	)
Investment securities held-to-maturity:
Government agency/GSE	$	23,225	$	(579	)	$	419,597	$	(99,917	)	$	442,822	$	(100,496	)
Mortgage-backed securities		128,307		(2,858	)		471,641		(94,960	)		599,948		(97,818	)
CMO/REMIC		48,202		(2,033	)		639,623		(132,741	)		687,825		(134,774	)
Municipal bonds		98,653		(2,271	)		220,735		(34,456	)		319,388		(36,727	)
Total held-to-maturity securities	$	298,387	$	(7,741	)	$	1,751,596	$	(362,074	)	$	2,049,983	$	(369,815	)

March 31, 2022

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
$
1,551,620

$
(92,654
)

$
851,349

$
(73,364
)

$
2,402,969

$
(166,018
)
CMO/REMIC

192,973

(10,983
)

331,988

(30,298
)

524,961

(41,281
)
Municipal bonds

14,990

(351
)

-

-

14,990

(351
)
Total available-for-sale securities
$
1,759,583

$
(103,988
)

$
1,183,337

$
(103,662
)

$
2,942,920

$
(207,650
)
Investment securities held-to-maturity:

Government agency/GSE
$
242,300

$
(21,492
)

$
242,589

$
(31,246
)

$
484,889

$
(52,738
)
Mortgage-backed securities

560,752

(43,438
)

4,518

(490
)

565,270

(43,928
)
CMO/REMIC

773,501

(44,778
)

-

-

773,501

(44,778
)
Municipal bonds

178,881

(12,670
)

58,587

(7,190
)

237,468

(19,860
)
Total held-to-maturity securities
$
1,755,434

$
(122,378
)

$
305,694

$
(38,926
)

$
2,061,128

$
(161,304
)


	December 31, 2021															December 31, 2022
	Less Than 12 Months					12 Months or Longer					Total					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			Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)															(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	1,465,647	$	(15,099	)	$	44,244	$	(806	)	$	1,509,891	$	(15,905	)	$	1,658,331	$	(187,842	)	$	1,129,257	$	(215,207	)	$	2,787,588	$	(403,049	)
CMO/REMIC		450,393		(11,515	)		53,745		(2,468	)		504,138		(13,983	)		54,005		(4,796	)		385,295		(91,170	)		439,300		(95,966	)
Municipal bonds		-		-			-		-			-		-			24,507		(1,177	)		-		-			24,507		(1,177	)
Total available-for-sale securities	$	1,916,040	$	(26,614	)	$	97,989	$	(3,274	)	$	2,014,029	$	(29,888	)	$	1,736,843	$	(193,815	)	$	1,514,552	$	(306,377	)	$	3,251,395	$	(500,192	)

Investment securities held-to-maturity:
Government agency/GSE																	179,348		(39,866	)		255,080		(74,477	)		434,428		(114,343	)
Mortgage-backed securities																	188,480		(9,042	)		412,449		(96,825	)		600,929		(105,867	)
CMO/REMIC																	376,540		(60,598	)		319,076		(71,132	)		695,616		(131,730	)
Municipal bonds																	312,702		(35,656	)		53,350		(12,031	)		366,052		(47,687	)
Total held-to-maturity securities																$	1,057,070	$	(145,162	)	$	1,039,955	$	(254,465	)	$	2,097,025	$	(399,627	)

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. Management determined that credit losses did not exist for securities in an unrealized loss position as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

Refer to Note 5 – Investment Securities of the notes to the unaudited condensed consolidated financial statements of this report for additional information on our investment securities portfolio.

4849

Loans

Total loans and leases, at amortized cost, of ~~$8.59~~$8.94 billion at March 31, ~~2022 increased~~2023 decreased by ~~$704.0~~$136.9 million, or ~~8.92%~~1.51%, from December 31, ~~2021. The increase in total loans included $774.5 million of loans acquired from Suncrest in the first quarter of~~ 2022. After adjusting for ~~acquired loans,~~ seasonality of dairy and ~~forgiveness of~~livestock and PPP loans, our core loans ~~grew~~declined by ~~$144.5~~$6.5 million, or ~~1.97%~~0.07%, from the end of the fourth ~~quarter, or approximately 8% annualized.~~quarter. The ~~$144.5~~$136.9 million ~~core loan growth~~decrease in total loans quarter-over-quarter included ~~$100.3~~decreases of $127.2 million in ~~commercial real estate~~dairy & livestock loans, ~~$27.3~~$50.5 million in commercial and industrial loans, ~~$14.2~~$7.4 million in SBA loans, $4.3 million in construction loans, $3.7 million in SFR mortgage loans, ~~$2.5~~$3.3 million in ~~SBA~~PPP loans, and $5.7 million in consumer and other loans, partially offset by an increase of $65.4 million in commercial real estate loans. The decline in dairy and livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 78% at the end of 2022 to 68% at March 31, 2023. Likewise, the decline in commercial and industrial loans was impacted by a decrease in line utilization from 33% at the end of ~~$5.5 million in construction loans. The majority of the $110.1 million decrease in dairy & livestock loans was seasonal.~~2022 to 28% at March 31, 2023.

The following table presents our loan portfolio by type as of the dates presented.

Distribution of Loan Portfolio by Type


	March 31, 2022			December 31, 2021			March 31, 2023			December 31, 2022
	(Dollars in thousands)						(Dollars in thousands)

Commercial real estate	$	6,470,841		$	5,789,730		$	6,950,302		$	6,884,948
Construction		73,478			62,264			83,992			88,271
SBA		311,238			288,600			283,464			290,908
SBA - Paycheck Protection Program (PPP)		121,189			186,585			5,824			9,087
Commercial and industrial		924,780			813,063			898,167			948,683
Dairy & livestock and agribusiness		292,784			386,219			307,820			433,564
Municipal lease finance receivables		65,543			45,933			79,552			81,126
SFR mortgage		255,136			240,654			262,324			266,024
Consumer and other loans		76,695			74,665			71,044			76,781
Total loans, at amortized cost		8,591,684			7,887,713			8,942,489			9,079,392
Less: Allowance for credit losses		(76,119	)		(65,019	)		(86,540	)		(85,117	)
Total loans and lease finance receivables, net	$	8,515,565		$	7,822,694		$	8,855,949		$	8,994,275

As of March 31, ~~2022, $504.5~~2023, $517.8 million, or ~~7.80%~~7.45% of the total commercial real estate loans included loans secured by farmland, compared to ~~$364.4~~$517.8 million, or ~~6.29%~~7.52%, at December 31, ~~2021.~~2022. The loans secured by farmland included ~~$134.5~~$138.4 million for loans secured by dairy & livestock land and ~~$370.0~~$379.4 million ~~for loans~~ secured by agricultural land at March 31, ~~2022,~~2023, compared to ~~$134.9~~$140.5 million for loans secured by dairy & livestock land and ~~$229.5~~$377.3 million for loans secured by agricultural land at December 31, ~~2021.~~2022. As of March 31, ~~2022,~~2023, dairy & livestock and agribusiness loans of ~~$292.8~~$307.8 million were comprised of ~~$241.7~~$261.3 million for dairy & livestock loans and ~~$51.1~~$46.5 million for agribusiness loans, compared to ~~$386.2~~$433.6 million were comprised of ~~$351.7~~$388.5 million for dairy & livestock loans and ~~$34.5~~$45.1 million for agribusiness loans at December 31, ~~2021.~~2022.

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 March 31, ~~2022,~~2023, the Company had ~~$219.7~~$206.8 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 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 March 31, ~~2022,~~2023, the Company had ~~$91.5~~$76.6 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.

4950

As an active participant in the SBA’s Paycheck Protection Program, we originated approximately 4,100 PPP loans totaling $1.10 billion in round one ~~with a remaining outstanding balance of $8.9 million as of March 31, 2022. As of March 31, 2022, we have~~and originated approximately 1,900 PPP loans totaling $420 million in round ~~two with a~~two. As of March 31, 2023, the remaining outstanding balance of ~~$112.3~~PPP loans totaled $5.8 million.

As of March 31, 2023, the Company had $84.0 million in construction loans. This represents 0.94% 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 March 31, 2023.

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 March 31, ~~2022.~~2023.


	March 31, 2022								March 31, 2023
	Total Loans				Commercial Real Estate Loans				Total Loans				Commercial Real Estate Loans
	(Dollars in thousands)								(Dollars in thousands)
Los Angeles County	$	3,245,794	37.8	%	$	2,296,779	35.5	%	$	3,401,875	38.0	%	$	2,435,388	35.0	%
Central Valley and Sacramento		2,089,216	24.3	%		1,638,893	25.3	%		2,089,192	23.4	%		1,724,507	24.8	%
Orange County		1,061,468	12.4	%		676,261	10.5	%		1,201,271	13.4	%		717,207	10.3	%
Inland Empire		965,023	11.2	%		831,040	12.8	%		933,323	10.4	%		906,321	13.0	%
Central Coast		448,851	5.2	%		381,572	5.9	%		466,154	5.2	%		408,246	5.9	%
San Diego		306,686	3.6	%		276,652	4.3	%		348,111	3.9	%		344,838	5.0	%
Other California		140,853	1.6	%		88,982	1.4	%		139,269	1.6	%		100,998	1.5	%
Out of State		333,793	3.9	%		280,662	4.3	%		363,294	4.1	%		312,797	4.5	%
	$	8,591,684	100.0	%	$	6,470,841	100.0	%	$	8,942,489	100.0	%	$	6,950,302	100.0	%

The table below breaks down our commercial real estate portfolio.


	March 31, 2022										March 31, 2023
	Loan Balance		Percent			Percent Owner- Occupied (1)			Average Loan Balance		Loan Balance		Percent			Percent Owner- Occupied (1)			Average Loan Balance
	(Dollars in thousands)										(Dollars in thousands)
Commercial real estate:
Industrial	$	2,131,392		32.9	%		50.1	%	$	1,485	$	2,291,838		33.0	%		48.8	%	$	1,606
Office		1,097,173		17.0	%		23.1	%		1,606		1,171,524		16.9	%		24.6	%		1,715
Retail		923,893		14.3	%		9.2	%		1,607		994,004		14.3	%		10.7	%		1,738
Multi-family		711,581		11.0	%		0.9	%		1,461		832,104		12.0	%		0.7	%		1,576
Secured by farmland (2)		504,516		7.8	%		97.8	%		1,353		517,803		7.4	%		98.6	%		1,514
Medical		320,159		4.9	%		35.1	%		1,469		322,784		4.6	%		32.9	%		1,559
Other (3)		782,127		12.1	%		48.1	%		1,370		820,245		11.8	%		44.1	%		1,511
Total commercial real estate	$	6,470,841		100.0	%		37.0	%	$	1,490	$	6,950,302		100.0	%		36.0	%	$	1,616

(1)

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

(2)

The loans secured by farmland included ~~$134.5~~$138.4 million for loans secured by dairy & livestock land and ~~$370.0~~$379.4 million for loans secured by agricultural land at March 31, ~~2022.~~2023.

(3)

Other loans consist of a variety of loan types, none of which exceeded ~~2.5%~~2.0% of total commercial real estate loans at March 31, ~~2022.~~2023.

5051

Nonperforming Assets

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


	March 31, 2022			December 31, 2021			March 31, 2023			December 31, 2022
	(Dollars in thousands)						(Dollars in thousands)
Nonaccrual loans	$	13,265		$	6,893		$	6,175		$	4,930
Loans past due 90 days or more and still accruing interest		-			-			—			—
Nonperforming troubled debt restructured loans (TDRs)		-			-
Nonperforming modified loans / troubled debt restructured loans (TDRs)								—			—
Total nonperforming loans		13,265			6,893			6,175			4,930
OREO, net		-			-			—			—
Total nonperforming assets	$	13,265		$	6,893		$	6,175		$	4,930
Performing TDRs	$	5,259		$	5,293
Modified loans / Performing TDRs							$	5,836		$	7,817

Total nonperforming loans and performing TDRs	$	18,524		$	12,186
Total nonperforming loans and performing modified loans/TDRs							$	12,011		$	12,747

Percentage of nonperforming loans and performing TDRs to total loans, at amortized cost		0.22	%		0.15	%
Percentage of nonperforming loans and performing modified loans/TDRs to total loans, at amortized cost								0.13	%		0.14	%

Percentage of nonperforming assets to total loans, at amortized cost, and OREO		0.15	%		0.09	%		0.07	%		0.05	%
Percentage of nonperforming assets to total assets		0.08	%		0.04	%		0.04	%		0.03	%

Modifications of Loans to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of TDRs and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023.


	Term Extension
	Amortized Cost Basis		% of Total Class of
	at March 31,2023		Financing Receivables
Commercial real estate loans	$	1,587		0.02	%
Commercial and industrial		2,250		0.03	%
Dairy & livestock and agribusiness		1,999		0.02	%
Total	$	5,836

The following table describes the financial effect of the loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023.



	Loan Type		Financial Effect

			Term Extension
	Commercial real estate loans		Added a weighted-average 1.1 years to the life of loans, which reduced monthly payment amounts for the borrowers.
	Commercial and industrial		Added a weighted-average 0.8 years to the life of loans, which reduced monthly payment amounts for the borrowers.
	Dairy & livestock and agribusiness		Added a weighted-average 1.2 years to the life of loans, which reduced monthly payment amounts for the borrowers.


	Payment Status (amortized cost basis)
	Current		30-89 Days Past Due		90+ Days Past Due
	(Dollars in thousands)
Commercial real estate loans	$	1,587	$	—	$	—
Commercial and industrial		2,250		—		—
Dairy & livestock and agribusiness		1,999		—		—
Total	$	5,836	$	—	$	—

Troubled Debt Restructurings (“TDRs”)

Prior to January 1, 2023, loans reported as TDRs were considered impaired and charge-off amounts were 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, included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a more detailed discussion regarding TDRs.

Total TDRs ~~were $5.3 million at March 31, 2022, compared to $5.3~~$7.8 million at December 31, ~~2021.~~2022. At ~~March~~December 31, 2022, 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.

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


	March 31, 2022				December 31, 2021					December 31, 2022
	Balance		Number of Loans		Balance		Number of Loans			Balance		Number of Loans
	(Dollars in thousands)								(Dollars in thousands)
Performing TDRs:
Commercial real estate	$	2,368		1	$	2,394		1		$	—		—
Construction		-		-		-		-			—		—
SBA		-		-		-		-			—		—
Commercial and industrial		1,882		3		1,885		3			4,826		4
Dairy & livestock and agribusiness		-		-		-		-			2,000		1
SFR mortgage		1,009		5		1,014		5			991		5
Consumer and other		-		-		-		-			—		—
Total performing TDRs	$	5,259		9	$	5,293		9		$	7,817		10

Nonperforming TDRs:
Commercial real estate	$	-		-	$	-		-		$	—		—
Construction		-		-		-		-			—		—
SBA		-		-		-		-			—		—
Commercial and industrial		-		-		-		-			—		—
Dairy & livestock and agribusiness		-		-		-		-			—		—
SFR mortgage		-		-		-		-			—		—
Consumer and other		-		-		-		-			—		—
Total nonperforming TDRs	$	-		-		-		-			—		—
Total TDRs	$	5,259		9	$	5,293		9		$	7,817		10

51At March 31, 2023 and December 31, 2022, there was no ACL allocated to modified loans to borrowers experiencing Financial Difficulty under the ASU 2022-02 or under TDRs, respectively. Impairment amounts identified are typically

~~At March 31, 2022 and December 31, 2021, there was no ACL allocated to TDRs. Impairment amounts identified are typically~~ charged off against the allowance at the time the loan is considered uncollectible. There were no charge-offs on TDRs for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

Nonperforming Assets and Delinquencies

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

March 31,

December 31,

September 30,

June 30,

March 31,

2022

2021

2021

2021

2021

(Dollars in thousands)

Nonperforming loans:

Commercial real estate

$
7,055

$
3,607

$
4,073

$
4,439

$
7,395

Construction

-

-

-

-

-

SBA

1,575

1,034

1,513

1,382

2,412

SBA - PPP

2

-

-

-

-

Commercial and industrial

1,771

1,714

2,038

1,818

2,967

Dairy & livestock and agribusiness

2,655

-

118

118

259

SFR mortgage

167

380

399

406

424

Consumer and other loans

40

158

305

308

312

Total

$
13,265

$
6,893

$
8,446

$
8,471

$
13,769

% of Total loans

0.15
%

0.09
%

0.11
%

0.10
%

0.17
%

Past due 30-89 days:

Commercial real estate

$
565

$
438

$
-

$
-

$
178

Construction

-

-

-

-

-

SBA

549

979

-

-

258

Commercial and industrial

6

-

122

415

952

Dairy & livestock and agribusiness

1,099

-

1,000

-

-

SFR mortgage

403

1,040

-

-

266

Consumer and other loans

-

-

-

-

21

Total

$
2,622

$
2,457

$
1,122

$
415

$
1,675

% of Total loans

0.03
%

0.03
%

0.01
%

0.01
%

0.02
%

OREO:

Commercial real estate

$
-

$
-

$
-

$
-

$
1,575

SBA

-

-

-

-

-

SFR mortgage

-

-

-

-

-

Total

$
-

$
-

$
-

$
-

$
1,575

Total nonperforming, past due,
and OREO

$
15,887

$
9,350

$
9,568

$
8,886

$
17,019

% of Total loans

0.18
%

0.12
%

0.12
%

0.11
%

0.21
%

Classified Loans

$
64,108

$
56,102

$
49,755

$
49,044

$
69,710


	March 31,			December 31,			September 30,			June 30,			March 31,
	2023			2022			2022			2022			2022
	(Dollars in thousands)
Nonperforming loans:
Commercial real estate	$	2,634		$	2,657		$	6,705		$	6,843		$	7,055
Construction		—			—			—			—			—
SBA		702			443			1,065			1,075			1,575
SBA - PPP		—			—			—			—			2
Commercial and industrial		2,049			1,320			1,308			1,655			1,771
Dairy & livestock and agribusiness		406			477			1,007			3,354			2,655
SFR mortgage		—			—			—			—			167
Consumer and other loans		384			33			32			37			40
Total	$	6,175		$	4,930		$	10,117		$	12,964		$	13,265
% of Total loans		0.07	%		0.05	%		0.12	%		0.15	%		0.15	%

Past due 30-89 days:
Commercial real estate	$	425		$	—		$	—		$	559		$	565
Construction		—			—			—			—			—
SBA		575			556			—			—			549
Commercial and industrial		—			—			—			—			6
Dairy & livestock and agribusiness		183			—			—			—			1,099
SFR mortgage		—			388			—			—			403
Consumer and other loans		—			175			—			—			—
Total	$	1,183		$	1,119		$	—		$	559		$	2,622
% of Total loans		0.01	%		0.01	%		—			0.01	%		0.03	%

OREO:
Commercial real estate	$	—		$	—		$	—		$	—		$	—
SBA		—			—			—			—			—
SFR mortgage		—			—			—			—			—
Total	$	—		$	—		$	—		$	—		$	—
Total nonperforming, past due, and OREO	$	7,358		$	6,049		$	10,117		$	13,523		$	15,887
% of Total loans		0.08	%		0.07	%		0.12	%		0.16	%		0.18	%

Classified Loans	$	66,977		$	78,658		$	63,651		$	76,170		$	64,108

Nonperforming loans, defined as nonaccrual loans, nonperforming modified/TDR loans and loans past due 90 days or more and still accruing interest, were ~~$13.3~~$6.2 million at March 31, ~~2022,~~2023, or ~~0.15%~~0.07% of total loans. This compares to nonperforming loans of ~~$6.9~~$4.9 million, or ~~0.09%~~0.05% of total loans, at December 31, ~~2021~~2022 and $13.8 million, or 0.17% of total loans, at March 31, ~~2021. Of the $13.3~~2022. The $1.2 million increase in nonperforming loans ~~$4.0 million were commercial real estate loans acquired from Suncrest. Classified loans are loans that are graded “substandard” or worse. Classified loans of $64.1 million increased $8.0 million~~ from December 31, ~~2021. Total classified loans at March 31,~~ 2022 ~~included $17.5 million~~was primarily due to an increase of classified loans acquired from Suncrest, of which $10.9 million were commercial real estate loans. Excluding the $17.5 million of acquired classified Suncrest loans, classified loans decreased $9.5 million quarter-over-quarter and included a $10.5 million decrease$729,000 in ~~classified commercial real estate loans and a $1.6 million decrease in classified~~ commercial and industrial ~~loans, partially offset by a $2.8 million increase in classified dairy & livestock and agribusiness~~ loans.

At March 31, 2023, December 31, 2022 and ~~December~~March 31, ~~2021,~~2022, we had no OREO ~~properties, compared with one OREO property with a carrying value of $1.6 million at March 31, 2021. There were no additions to OREO properties for the three months ended March 31, 2022.~~properties.

5254

Allowance for Credit Losses

~~We adopted CECL on January 1, 2020, which replaces 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 contained in our Annual Report on Form 10-K for the year ended December 31, 2021.~~ The allowance for credit losses totaled $86.5 million as of March 31, 2023, compared to $85.1 million as of December 31, 2022 and $76.1 million as of March 31, ~~2022, compared to $65.0 million as of December 31, 2021 and $71.8 million as of March 31, 2021.~~2022. Our allowance for credit losses at March 31, ~~2022 was 0.89%, or 0.90% of total loans when excluding the $121.2 million in PPP loans. At March 31, 2021, the ACL~~2023 was 0.97% of total ~~loans, when PPP loans are excluded.~~loans. This compares to 0.94% and 0.89% at December 31, 2022 and March 31, 2022, respectively. The ACL was increased by $1.4 million for the first quarter of 2023, including $1.5 million in provision for credit losses. The ACL increased by $11.1 million in 2022, including $8.6 million for the acquired Suncrest PCD loans and a $2.5 million provision for credit losses. The $2.5 million provision for credit losses for the first quarter of 2022 was the net result of the January 7, 2022 provision for credit losses recorded for the acquisition of the Suncrest non-PCD loans and a $2.4 million recapture of provision due to the net impact of improvements in the underlying loan characteristics of certain classified loans and the impact of changes in the economic forecast of certain macroeconomic variables compared to the end of 2021. Net charge-offs were ~~$5,000~~$77,000 for the three months ended March 31, ~~2022,~~2023, which compares to ~~$2.4 million~~$5,000 in net charge-offs for the same period of ~~2021.~~2022.

The allowance for credit losses as of March 31, ~~2022~~2023 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,~~Original Loan to Value ratios ("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~~Paycheck 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~~Paycheck 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.

Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. ~~The~~These U.S. economic forecasts ~~included in our forecast comprise~~include a baseline forecast, as well as multiple downside forecasts. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast ~~scenario. Our~~scenario, with downside risks, including a stagflation scenario, weighted ~~forecast at~~among these multiple forecasts. As of March 31, 2022, the resulting weighted forecast assumes GDP will increase by ~~2.6%~~1.4% in ~~2022, 1.3%~~2023, including a decline in GDP in the second half of this year, followed by modest growth of 0.9% for ~~2023~~2024 and then grow by 3%2.4% in ~~2024.~~2025. The unemployment rate is forecasted to be ~~4.3% in 2022, 5.2%~~4.2% in 2023, ~~and then decline~~increase to ~~4.7%~~5.1% in 2024. As of December 31, 2021, our weighted forecast assumed GDP would increase by 2.7% in 2022, 2.0% for 2023 and then grow by 3% in 2024. The forecast at the end of 2021 expected the unemployment rate to be 5.2% in 2022, 5.4% in 20232024 and then decline to 4.8% in ~~2024. Management believes that the ACL was appropriate at March 31, 2022 and December 31, 2021.~~ 2025. As there ~~continues to be a degree of~~is continued uncertainty around the ~~epidemiological~~ assumptions ~~and impact of government responses to the COVID-19 pandemic~~ that impact our economic forecast, ~~as well as inflationary pressures and changes in monetary policies,~~ no assurance can be given that economic conditions that adversely affect the ~~Company’s~~Company's service areas ~~or other circumstances~~and customers will not be reflected in an increased allowance for credit losses in future periods.

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


	As of and For the						As of and For the
	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2022			2021			2023			2022
	(Dollars in thousands)						(Dollars in thousands)
Allowance for credit losses at beginning of period	$	65,019		$	93,692		$	85,117		$	65,019
Charge-offs:
Commercial real estate		-			-			—			—
Construction		-			-			—			—
SBA		-			-			(94	)		—
Commercial and industrial		(15	)		(2,475	)		(16	)		(15	)
Dairy & livestock and agribusiness		-			-			—			—
SFR mortgage		-			-			—			—
Consumer and other loans		(1	)		-			—			(1	)
Total charge-offs		(16	)		(2,475	)		(110	)		(16	)
Recoveries:
Commercial real estate		-			-			—			—
Construction		3			3			3			3
SBA		5			4			12			5
Commercial and industrial		3			2			14			3
Dairy & livestock and agribusiness		-			-			4			—
SFR mortgage		-			79			—			—
Consumer and other loans		-			-			—			—
Total recoveries		11			88			33			11
Net (charge-offs) recoveries		(5	)		(2,387	)		(77	)		(5	)
Initial ACL for PCD loans at acquisition		8,605			-			—			8,605
Provision recorded at acquisition		4,932			-			—			4,932
(Recapture of) provision for credit losses		(2,432	)		(19,500	)
Provision for (recapture of) credit losses								1,500			(2,432	)
Allowance for credit losses at end of period	$	76,119		$	71,805		$	86,540		$	76,119

Summary of reserve for unfunded loan commitments:
Reserve for unfunded loan commitments at beginning of period	$	8,000		$	9,000		$	8,000		$	8,000
(Recapture of) provision for unfunded loan commitments		-			-
Provision for unfunded loan commitments								500			—
Reserve for unfunded loan commitments at end of period	$	8,000		$	9,000		$	8,500		$	8,000

Reserve for unfunded loan commitments to total unfunded loan commitments		0.44	%		0.48	%		0.46	%		0.44	%

Amount of total loans at end of period (1)	$	8,591,684		$	8,293,057		$	8,942,489		$	8,591,684
Average total loans outstanding (1)	$	8,500,436		$	8,270,282		$	8,963,323		$	8,500,436

Net charge-offs to average total loans		0.000	%		-0.029	%
Net charge-offs to total loans at end of period		0.000	%		-0.029	%
Net (charge-offs) to average total loans								0.00	%		0.00	%
Net (charge-offs) to total loans at end of period								0.00	%		0.00	%
Allowance for credit losses to average total loans		0.90	%		0.87	%		0.97	%		0.90	%
Allowance for credit losses to total loans at end of period		0.89	%		0.87	%		0.97	%		0.89	%
Net charge-offs to allowance for credit losses		-0.01	%		-3.32	%
Net charge-offs to (recapture of) provision for credit losses		0.20	%		12.24	%
Net (charge-offs) to allowance for credit losses								-0.09	%		-0.01	%
Net (charge-offs) to provision for credit losses								-5.13	%		-0.20	%

(1)

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

The Bank’s ACL methodology also produced an allowance of ~~$8.0~~$8.5 million for our off-balance sheet credit exposures as of March 31, ~~2022,~~2023, compared with $8.0 million as of December 31, ~~2021~~2022 and ~~$9.0 million as of~~ March 31, ~~2021.~~2022. The year-over-year ~~decrease~~increase included a ~~$1.0 million recapture of~~$500,000 in provision for unfunded loan commitments in the ~~second~~first quarter of ~~2021.~~2023.

While we believe that the allowance at March 31, ~~2022~~2023 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that future 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.

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” contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

2022.

Deposits

The primary source of funds to support earning assets (loans and investments) is the generation of deposits. We have no brokered deposits with 100% of our deposits being core deposits based on long-term customer relationships.

Total deposits were ~~$14.49~~$12.27 billion at March 31, ~~2022.~~2023. This represented ~~an increase~~a decrease of ~~$1.51 billion,~~$564.4 million, or ~~11.65%~~4.40%, over total deposits of ~~$12.98~~$12.84 billion at December 31, ~~2021.~~2022. The composition of deposits is summarized as of the dates presented in the table below.


	March 31, 2022					December 31, 2021					March 31, 2023					December 31, 2022
	Balance		Percent			Balance		Percent			Balance		Percent			Balance		Percent
	(Dollars in thousands)										(Dollars in thousands)

Noninterest-bearing deposits	$	9,107,304		62.86	%	$	8,104,056		62.45	%	$	7,844,329		63.92	%	$	8,164,364		63.60	%
Interest-bearing deposits
Investment checking		714,567		4.93	%		655,333		5.05	%		668,947		5.45	%		723,870		5.64	%
Money market		3,670,572		25.34	%		3,342,531		25.76	%		2,925,457		23.84	%		3,070,674		23.92	%
Savings		618,978		4.27	%		546,840		4.21	%		549,194		4.48	%		582,711		4.54	%
Time deposits		376,357		2.60	%		327,682		2.53	%		283,943		2.31	%		294,626		2.30	%
Total Deposits	$	14,487,778		100.00	%	$	12,976,442		100.00	%	$	12,271,870		100.00	%	$	12,836,245		100.00	%

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. ~~Noninterest-bearing~~Average noninterest-bearing deposits totaled ~~$9.11~~$8.09 billion ~~at March 31, 2022, representing an increase~~on average for the first quarter of ~~$1.0 billion,~~2023, a decrease of $610.2 million, or ~~12.38%~~7.01%, from noninterest-bearing deposits of ~~$8.10~~$8.70 billion ~~at December 31, 2021. Noninterest-bearing~~for the fourth quarter of 2022. For the first quarter of 2023, average noninterest-bearing deposits ~~represented 62.86%~~were 63.65% of total deposits, ~~at March 31, 2022,~~ compared to ~~62.45%~~63.58% for the fourth quarter of ~~total deposits at December 31, 2021.~~2022.

Savings deposits, which include savings, interest-bearing demand, and money market accounts, totaled ~~$5.0~~$4.43 billion at March 31, ~~2022,~~2023, representing ~~an increase~~a decrease of ~~$459.4~~$244.3 million, or ~~10.11%~~5.23%, from savings deposits of ~~$4.54~~$4.67 billion at December 31, ~~2021.~~2022.

Time deposits totaled ~~$376.4~~$283.9 million at March 31, ~~2022,~~2023, representing ~~an increase~~a decrease of ~~$48.7~~$10.7 million, or ~~14.85%~~3.63%, from total time deposits of ~~$327.7~~$294.6 million for December 31, ~~2021.~~2022.

55Our deposits are 100% relationship based core deposits and customer repurchase agreements ("repos"). We had zero brokered deposits at the end of the first quarter of 2023 with 77% of our deposits consisting of business deposits and 23% consisting of consumer deposits, primarily the owners and employees of our business customers. The largest percentage of our deposits, 40%, are analyzed business accounts, which represent customer operating accounts that generally utilize a wide array of treasury management products.

Our customer deposit relationships represent a diverse set of industries. The industry classification with the largest concentration is manufacturing, which represents 9% of our deposits. Overall, there are 14 different industry classifications that represent 2% or more of our deposits as of March 31, 2023. Our depositors have typically banked with us for many years. As of March 31, 2023, 41% of our deposit relationships have banked with us more than 10 years and 77% of our deposit relationships have been with us for three or more years.

The unprecedented increase in short term interest rates impacted our deposit levels. Total deposits and customer repos were $13.3 billion on average for the first quarter of 2023, a $943 million, or 6.64% decrease compared to the prior quarter and a $1.6 million decrease from the first quarter of 2022. Noninterest bearing deposits averaged $8.09 billion, a $610.2 million, or approximately 7.01% decline from the average balance in the fourth quarter and a $628.0 million decrease from the first quarter of 2022. The decrease in average deposits was primarily offset by an $810.5 million increase in average short-term borrowings from the fourth quarter, at an average borrowing cost of 4.81%.

At March 31, 2023, our total deposits and customer repurchase agreements were $12.76 billion, compared with $13.40 billion at December 31, 2022 and $15.09 billion for the same period a year ago. At March 31, 2023, our noninterest bearing deposits were $7.84 billion, compared with $8.16 billion for the prior quarter and $9.11 billion from the year ago quarter. This represents a 3.92% decline from the end of 2022. Higher interest rates have impacted our deposits, both deposits transitioning to liquidity management accounts at CitizensTrust, as well as customers using deposits to pay down their credit lines that have seen rates rise above 7% or 8%. More than $370 million of the $639.6 million decline in deposits and customer repurchase agreements from the end of 2022 were moved into CitizensTrust, where they were invested in higher yielding liquid assets such as treasury notes. Furthermore, deposit levels continue to be impacted by both the burn down due to the overall inflationary environment and the slowdown in the residential real estate market. From the end of the first quarter of 2022 to the end of the first quarter of 2023, we have experienced a decline in deposits of approximately $500 million from customers in real estate related industries, primarily in title and escrow.

Borrowings

We offer a repurchase agreement product to our 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 that reflects the market value of the use of these 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 March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, total funds borrowed under these agreements were ~~$598.9~~$490.2 million and ~~$642.4~~$565.4 million, respectively, with a weighted average interest rate of ~~0.08%~~0.12% and ~~0.08%~~0.10%, for the first quarter of 2023 and fourth quarter of 2022, respectively.

~~On June 15, 2021,~~As a result of declining deposit balances, we ~~redeemed our junior subordinated debentures of $25.8~~borrowed on average $971.7 million ~~representing the amounts that are due~~ from the ~~Company to CVB Statutory Trust III, which had a borrowing~~FHLB during the first quarter of 2023. These short-term borrowings peaked at quarter end at $1.4 billion at March 31, 2023. The cost of ~~approximately 1.60%~~these borrowings at the ~~time~~end of ~~repayment. The debentures~~the first quarter of 2023 was approximately 5%.

Our secured borrowing capacity with the FHLB and ~~the Trust Preferred Securities~~FRB totaled $5.78 billion, of which approximately $4.37 billion was available as of March 31, 2023. At March 31, 2023, we had ~~an original maturity date~~more than $300 million in Fed Funds unsecured lines of ~~2036. The interest rate on these debentures were based on three-month LIBOR plus 1.38%.~~credit with other major U.S. banks. These lines of credit are available for overnight borrowings.

At March 31, ~~2022, $4.09~~2023, $3.55 billion of loans and ~~$2.53~~$4.0 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.

Aggregate Contractual Obligations

The following table summarizes the aggregate contractual obligations as of March 31, ~~2022.~~2023.


			Maturity by Period										Maturity by Period
	Total		Less Than One Year		One Year Through Three Years		Four Years Through Five Years		Over Five Years		Total		Less Than One Year		One Year Through Three Years		Four Years Through Five Years		Over Five Years
	(Dollars in thousands)										(Dollars in thousands)
Deposits (1)	$	14,487,778	$	14,455,114	$	24,999	$	6,997	$	668	$	12,271,870	$	12,249,184	$	17,563	$	4,855	$	268
Customer repurchase agreements (1)		598,909		598,909		-		-		-		490,235		490,235		—		—		—
Other Borrowings												1,405,000		1,405,000		—		—		—
Deferred compensation		24,927		883		1,177		1,152		21,715		22,873		602		1,152		1,150		19,969
Operating leases		24,620		7,068		10,013		5,575		1,964		26,292		6,996		11,810		6,737		749
Affordable housing investment		1,350		1,290		47		13		-		9,707		2,747		6,634		42		284
Total	$	15,137,584	$	15,063,264	$	36,236	$	13,737	$	24,347	$	14,225,977	$	14,154,764	$	37,159	$	12,784	$	21,270

(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.

At March 31, 2023, we had $1.4 billion in FHLB short-term borrowings. The combination of seasonal deposit declines, the impact of cash burn on deposits from inflationary pressures, and market conditions that include the availability of higher interest rates on short-term alternatives to deposits, such as money market mutual funds and treasury notes, resulted in the decline in core customer deposits.

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 12 – Leases of the notes to the Company’s unaudited condensed consolidated financial statements for a more detailed discussion about leases.

5659

Off-Balance Sheet Arrangements

The following table summarizes the off-balance sheet items at March 31, ~~2022.~~2023.


			Maturity by Period											Maturity by Period
	Total		Less Than One Year		One Year Through Three Years		Four Years Through Five Years		After Five Years			Total		Less Than One Year		One Year Through Three Years		Four Years Through Five Years		After Five Years
	(Dollars in thousands)											(Dollars in thousands)
Commitment to extend credit:
Commercial real estate	$	365,195	$	54,533	$	153,231	$	126,283	$	31,147		$	414,717	$	61,901	$	181,926	$	143,116	$	27,774
Construction		104,386		89,839		1,839		-		12,708			36,454		33,126		—		—		3,328
SBA		122		450		-		-		(328	)		371		—		—		—		371
SBA - PPP		-		-		-		-		-			—		—		—		—		—
Commercial and industrial		934,973		748,199		116,841		4,730		65,202			956,828		748,033		152,159		7,422		49,214
Dairy & livestock and agribusiness (1)		237,161		114,993		122,167		1		-			274,485		204,823		69,661		1		—
Municipal lease finance receivables		12,489		-		-		-		12,490			—		—		—		—		—
SFR Mortgage		5,466		50		2,500		-		2,916			6,720		—		4,163		—		2,557
Consumer and other loans		112,626		16,357		5,136		5,189		85,944			116,638		12,505		9,534		3,682		90,917
Total commitment to extend credit		1,772,418		1,024,421		401,714		136,203		210,079			1,806,213		1,060,388		417,443		154,221		174,161
Obligations under letters of credit		44,094		4,132		39,962		-		-			50,128		5,777		44,333		—		18
Total	$	1,816,512	$	1,028,553	$	441,676	$	136,203	$	210,079		$	1,856,341	$	1,066,165	$	461,776	$	154,221	$	174,179

(1)

Total commitments to extend credit to agribusiness were ~~$29.1~~$36.2 million at March 31, ~~2022.~~2023.

As of March 31, ~~2022,~~2023, we had commitments to extend credit of approximately ~~$1.77~~$1.81 billion, and obligations under letters of credit of ~~$44.1~~$50.1 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. As of March 31, ~~2022~~2023 and ~~2021,~~2022, the balance in this reserve was ~~$8.0~~$8.5 million and ~~$9.0~~$8.0 million, respectively, and was included in other liabilities. ~~There was no provision or recapture of~~The year-over-year increase included a $500,000 provision for unfunded loan commitments ~~recorded for~~in the ~~three months ended March 31, 2022 and 2021.~~first quarter of 2023.

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.

5760

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 plan and capital stress testing.

Total equity ~~decreased $6.5~~increased $41.3 million, or ~~0.31%~~2.12%, to ~~$2.08~~$1.99 billion at March 31, ~~2022, from~~2023, compared to total equity of ~~$2.08~~$1.95 billion at December 31, ~~2021.~~2022. Increases to equity included ~~$197.1 million for issuance of 8.6 million shares to acquire Suncrest and $45.6~~$59.3 million in net ~~earnings. Decreases included $25.5 million in cash dividends~~earnings and a ~~$142.3~~$28.7 million ~~decrease~~increase in other comprehensive income from the tax effected impact of the ~~decline~~increase in market value of available-for-sale securities. Decreases included $28.0 million in cash dividends. During the first quarter of ~~2022,~~2023, we ~~executed on a $70 million accelerated stock repurchase program and retired 2,544,298 shares of common stock, or approximately 80% of the estimated shares repurchased under the program. We also~~ repurchased, under our 10b5-1 stock repurchase plan, ~~536,010~~791,800 shares of common stock, at an average repurchase price of ~~$23.40,~~$23.43, totaling ~~$12.5~~$18.5 million. The 10b5-1 plan expired on March 2, 2023. Our tangible book value per share at March 31, ~~2022~~2023 was ~~$9.05.~~$8.64.

During the first quarter of ~~2022,~~2023, the Board of Directors of CVB declared quarterly cash dividends totaling ~~$0.18~~$0.20 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.

On February 1, 2022, we announced that our Board of Directors authorized a share repurchase plan to repurchase up to 10,000,000 shares of the Company’s common stock ("2022 Repurchase Program"), including by means of (i) an initial $70 million dollar Accelerated Share Repurchase, or ASR Plan, and (ii) one or more Rule 10b5-1 plans or other appropriate buy-back arrangements, including open market purchases and private transactions. During the first quarter of 2022, we executed on the $70 million accelerated stock repurchase program and retired 2,544,298 shares of common ~~stock, or approximately 80% of the estimated shares repurchased under the program.~~stock. We also repurchased, under our 10b5-1 stock repurchase plan, 536,010 shares of common stock, at an average repurchase price of $23.40, totaling $12.5 million. AsDuring the first quarter of 2023, we repurchased 791,800 shares at an average price of $23.43. Our 10b5-1 plan expired on March ~~31, 2022, we had 6,919,692 shares of CVB common stock available for repurchase under the 2022 Repurchase Program.~~2, 2023.

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 March 31, ~~2022,~~2023, 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 – Capital Adequacy Requirements” as described in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

At March 31, 2022 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.


				March 31, 2022		December 31, 2021					March 31, 2023		December 31, 2022
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	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%	8.67%	8.43%	9.18%	8.90%	4.00%	4.00%	5.00%	9.69%	9.61%	9.53%	9.42%
Common equity Tier 1 capital ratio	4.50%	7.00%	6.50%	13.56%	13.19%	14.86%	14.41%	4.50%	7.00%	6.50%	13.80%	13.68%	13.55%	13.39%
Tier 1 risk-based capital ratio	6.00%	8.50%	8.00%	13.56%	13.19%	14.86%	14.41%	6.00%	8.50%	8.00%	13.80%	13.68%	13.55%	13.39%
Total risk-based capital ratio	8.00%	10.50%	10.00%	14.36%	13.99%	15.63%	15.18%	8.00%	10.50%	10.00%	14.65%	14.54%	14.37%	14.22%

5961

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.~~borrowings, as well as the input assumptions and results from various models. In addition, the Company has a Balance Sheet Management Committee of the Board of Directors that meets at least 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 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 $14.49 billion at March 31, 2022 increased $1.51 billion, or 11.65%, over total deposits of $12.98 billion at December 31, 2021. This deposit growth was primarily due to our customers maintaining greater liquidity.

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, deposit fluctuations, and ~~deposit fluctuations.~~borrowings. 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~~In addition to on 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~~totaling approximately $6 billion, of which $4 billion ~~most of which~~ is secured by pledged ~~loans. The sale~~loans and another $1.7 billion is secured by investment securities. Those sources of ~~investment securities~~liquidity include $3.5 billion of secured and unused capacity with the Federal Home Loan Bank, approximately $800 million of secured borrowing capacity at the Fed’s discount window, and more than $300 million in unsecured lines of credit with correspondent banks. We 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~~utilizing state and national wholesale ~~markets.~~markets, as well as pledging additional securities at the discount window or the Fed’s new Bank Term Funding Program. At March 31, ~~2022,~~2023, $1.96 billion of AFS securities were available to pledge under the Fed’s new Bank ~~had no short-term borrowings.~~Term Funding Program.

~~CVB is~~Our primary sources and uses of funds for the Company are deposits, customer repurchase agreements and loans. Total deposits and customer repos of $12.76 billion at March 31, 2023 decreased $639.6 million, or 4.77%, over total deposits and customer repos of $13.40 billion at December 31, 2022. As a ~~holding company separate and apart~~result of declining deposit balances, we borrowed on average $971.7 million 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~~FHLB during the first quarter of ~~three month LIBOR plus 1.38%~~2023. We had no brokered deposits throughout the quarter. These short-term borrowings peaked at ~~par. Substantially all~~quarter end at $1.4 billion at March 31, 2023. The cost of ~~CVB’s revenues are obtained from dividends declared and paid by~~these borrowings at the ~~Bank to CVB. There are statutory and regulatory provisions that could limit the ability~~end of the ~~Bank~~first quarter of 2023 was approximately 5%. Our deposit levels and cost of deposits may fluctuate from period-to-period due to ~~pay dividends to CVB. In addition,~~a variety of factors, including the stability of our ~~regulators could limit the ability of the Bank or CVB to pay dividends or make other distributions.~~deposit base, prevailing interest rates, and market conditions. At March 31, 2023, our deposits and customer repos that are neither collateralized nor insured were $7.1 billion.

60In addition to the increase in short-term borrowing during the first quarter, we shrank our investment portfolio by not reinvesting the cashflows generated by our investments. Our investment portfolio declined by $69 million from the end of the fourth quarter to $5.74 billion dollars, primarily due to a decline in our AFS investment securities. AFS securities totaled $3.20 billion at March 31, 2023, inclusive of a pre-tax net unrealized loss of $459.7 million. The $50.7 million decline in AFS securities reflects principal cash flows, which offset a $40.4 million increase in market interest rates that resulted from a decline in interest rates.

Below is a summary of our average cash position and statement of cash flows for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. For further details see our “Condensed Consolidated Statements of Cash Flows (Unaudited)” under Part I, Item 1 of this report.

Consolidated Summary of Cash Flows


	Three Months Ended March 31,						Three Months Ended March 31,
	2022			2021			2023			2022
	(Dollars in thousands)						(Dollars in thousands)

Average cash and cash equivalents	$	1,840,410		$	1,772,635		$	212,079		$	1,840,410
Percentage of total average assets		10.59	%		12.22	%		1.30	%		10.59	%

Net cash provided by operating activities	$	75,112		$	46,938		$	70,120		$	75,112
Net cash used in investing activities		(330,307	)		(864,874	)
Net cash provided by financing activities		175,686			385,075
Net decrease in cash and cash equivalents	$	(79,509	)	$	(432,861	)
Net cash provided by (used in) investing activities								232,579			(330,307	)
Net cash (used in) provided by financing activities								(278,626	)		175,686
Net increase (decrease) in cash and cash equivalents							$	24,073		$	(79,509	)

Average cash and cash equivalents ~~increased~~decreased by ~~$67.8 million,~~$1.63 billion, or ~~3.82%~~88.48%, to ~~$1.84 billion~~$212.1 million for the three months ended March 31, ~~2022,~~2023, compared to ~~$1.77~~$1.84 billion for the same period of ~~2021.~~2022.

At March 31, ~~2022,~~2023, cash and cash equivalents totaled ~~$1.65 billion.~~$227.5 million. This represented ~~an increase~~a decrease of ~~$127.7 million,~~$1.43 billion, or ~~8.37%~~86.24%, from ~~$1.53~~$1.65 billion at March 31, ~~2021.~~2022.

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 period end 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 a ~~100~~200 basis point downward shift in interest ~~rates~~

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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~~200bps over a 12-month time horizon.


	Estimated Net Interest Income Sensitivity (1)					Estimated Net Interest Income Sensitivity
	March 31, 2022			December 31, 2021		March 31, 2023			December 31, 2022
Interest Rate Scenario	12-month Period	24-month Period (Cumulative)	Interest Rate Scenario	12-month Period	24-month Period (Cumulative)	12-month Period	24-month Period (Cumulative)	Interest Rate Scenario	12-month Period	24-month Period (Cumulative)

+ 200 basis points	7.62%	13.27%		9.85%	16.84%	0.55%	2.01%	+ 200 basis points	2.32%	4.96%
- 100 basis points	-2.66%	-4.63%		-4.30%	-4.99%
- 200 basis points						-0.32%	-2.99%	- 200 basis points	-2.28%	-6.83%

~~(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 March 31, 2023 balance sheet is slightly 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 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~~rate 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~~Continued near term declines in deposits due to higher interest rates, that result in higher levels of borrowings, will increase the ~~rates down scenario is impacted by the current low~~probability that net interest ~~rate environment and the model does not assume that rates go below zero.~~income decreases in future periods.

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 March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the EVE profile indicates a larger 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	March 31, 2022	December 31, 2021	March 31, 2023	December 31, 2022

200 bp decrease in interest rates			-8.2%	-12.8%
100 bp decrease in interest rates	-12.3%	-14.1%	-1.1%	-4.4%
100 bp increase in interest rates	0.7%	5.3%	-0.3%	1.2%
200 bp increase in interest rates	5.2%	11.8%	-1.5%	2.2%
300 bp increase in interest rates	6.1%	13.6%	-2.5%	3.8%
400 bp increase in interest rates	8.2%	16.8%	-2.8%	5.3%

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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We ~~currently~~ do not ~~enter into~~currently have futures, forwards, or option contracts. LIBOR is expected to be completely phased out by June of 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 or adjustable rate loans and interest~~LIBOR. Interest rate swap derivatives and the associated loans that ~~are~~were indexed to ~~LIBOR.~~LIBOR, have been replaced with one month CME Term SOFR. The Bank will continue to use multiple alternative indices as replacements for LIBOR for ~~new~~newly originated instruments. All remaining financial instruments ~~originated after 2021.~~indexed to LIBOR will be transitioned to a replacement index, primarily CME Term SOFR, prior to June 2023. For further quantitative and qualitative disclosures about market risks in our portfolio, see “Asset/Liability Management and Interest Rate Sensitivity Management” included in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented elsewhere in this report. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Part I regarding such forward-looking information.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures under the supervision and with the participation of the Chief Executive Officer, the Chief Financial Officer and other senior management of the Company. Based on the foregoing, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

During the quarter ended March 31, ~~2022,~~2023, there have been no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

6365

PART II – OTHER INFORMATION

ITEM 1. 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, bankruptcy and 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 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.

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.

6466

ITEM 1A. RISK FACTORS

Except as discussed below there have been no material changes to the risk factors as previously disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. The materiality of any risks and uncertainties identified in our Forward Looking Statements contained in this report together with those previously disclosed in the Form 10-K and any subsequent Form 10-Q or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.

Recent negative developments affecting the banking industry could adversely impact our liquidity.

The recent high-profile bank failures involving Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional community banks like CBB. These market developments have negatively impacted customer confidence in the safety and soundness of smaller regional and community banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact CBB’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While CBB currently has access to substantial borrowing capacity from the Federal Reserve Bank, the Federal Home Loan Bank and credit facilities established with larger banks, there can be no assurance that customer confidence in regional banks and the banking system more broadly will be fully restored or that potential liquidity concerns will recede.

Rising interest rates have decreased the value of the Company’s available for sale and held-to-maturity securities and loan portfolios, and the Company would realize losses if it were required to sell such securities or loans to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates initiated by the Federal Reserve over the last year, the mark-to-market values of previously issued government and other fixed income securities have declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the available-for-sale and held-to-maturity portion of U.S. banks’ securities and loan portfolios. While the Company does not currently intend to sell these securities or loans, if the Company were required to sell such securities or loans to meet liquidity needs, it could incur losses, which could impair the Company’s capital, financial condition, and results of operations, thereby negatively impacting our profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing the Company's liquidity needs as they arise.

If the goodwill that we recorded in connection with business acquisitions becomes impaired, including as a result of recent declines in our stock price, it could require charges to earnings, which would have a negative impact on our financial condition and results of operations.

Goodwill resulting from business combinations represents the excess of the purchase price over the fair value of the net assets of the businesses we acquired. Goodwill has an indefinite useful life and is not amortized, however, it is tested for impairment at least annually, or more frequently, if events and circumstances exist that indicate that the carrying value of the asset might be impaired, including as a result of a decline in our stock price and market capitalization below our stated book value. We determine impairment by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. Estimates of fair value are determined based on a complex model using, among other things, cash flows, the fair value of our Company as determined by our stock price, and peer company comparisons. Adverse events in the banking sector have caused market volatility and declines in the stock market prices for many community and regional banks, including the Company’s, resulting in a recent decline in the Company’s market capitalization. If management’s estimates of future cash flows are rendered inaccurate, fair value determined could likewise become inaccurate and impairment may not be recognized in a timely manner. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which they become known. There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.

Any enhanced regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations and acquisition opportunities.

The Company anticipates increased regulatory scrutiny in the course of routine examinations and otherwise, and new regulations directed towards regional banks, designed to address the recent negative developments in the banking industry, all of which could increase the Company’s costs of doing business, result in decreased regulatory support for merger and acquisition activity, and reduce our profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition, levels of uninsured deposits, and embedded interest rate risk on bank balance sheets. As a primarily commercial bank, CBB has a relatively higher percentage of uninsured deposits compared to larger national banks or smaller community banks with a stronger focus on retail deposits. As a result, CBB could face increased scrutiny or be viewed as higher risk by regulators and the investor community.

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

We are subject to macroeconomic and interest rate risk due to domestic and global economic instability that has resulted in higher inflation than the United States has experienced in more than 40 years. The global economic impact from the geopolitical events in Europe that is contributing to rising energy and commodity prices, as well as the on-going supply chain disruptions have resulted in inflationary pressures and increases to prevailing interest rates. The Federal Reserve’s Open Market Committee (“FOMC”) raised the target range for the federal funds rate to ~~0.75%~~4.75% to ~~1.00%~~5.00% on ~~May 4, 2022 and communicated~~March 2, 2023, resulting in a ~~plan to reduce the size~~cumulative increase of ~~the Federal Reserve’s holdings of Treasury and Mortgage-Backed securities starting in June~~4.50% from March of 2022. These recent increases in prevailing interest rates and the expectation that further increases are likely will impact both our customers and many aspects of our business. Higher interest rates will not only impact the interest we receive on loans and investment securities and the amount of interest we pay our depositors, but could also impact our ability to grow loans and deposits. Rising interest rates, higher commodity prices, and supply chain issues and an overall slowdown in economic growth could also impact the fair value of our assets and adversely impact our asset quality.

The occurrence of fraudulent activity, breaches or failures of information security controls or cybersecurity-related incidents to either our information systems or information systems provided by third party vendors 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 other cybersecurity-related incidents and attacks that may be committed against us, our customers or our ~~customers,~~key vendors and business partners, which in turn may result in financial losses or increased costs to us, our customers, or our ~~customers,~~key vendors and business partners, disclosure or misuse of our information or our customer information, theft or misappropriation of assets (including bank or customer funds), privacy breaches against us or our customers, litigation, orregulatory enforcement action, and damage to our reputation. The U.S. government has warned financial institutions of the potential increase in the frequency and severity of malicious cyber-attacks and other activities involving critical infrastructure, ~~such as~~specifically including the financial sector, and has encouraged the banking sector to enhance ~~cyber-defense,~~cyber-defenses, and these ~~warnings~~risks have ~~been reiterated~~increased in connection with the current conflict in Europe initiated by Russia against Ukraine. While CBB has taken measures to protect its own and customer funds and confidential information against cyber-attacks, as well as other malicious activities, there can be no assurance that such measures will be successful in thwarting such attacks and activities.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 1, 2022, we announced that our Board of Directors authorized a share repurchase plan to repurchase up to 10,000,000 shares of the Company’s common stock ("2022 Repurchase Program"), including by means of (i) an initial $70 million dollar Accelerated Share Repurchase, or ASR Plan, and (ii) one or more Rule 10b5-1 plans or other appropriate buy-back arrangements, including open market purchases and private transactions. During the first ~~quarter~~half of 2022, we executed on the $70 million accelerated stock repurchase program and retired ~~2,544,298 shares of common stock, or approximately 80% of the estimated shares repurchased under the program. We also repurchased, under our 10b5-1 stock repurchase plan, 536,010~~2,993,551 shares of common stock at an average ~~repurchase~~ price of ~~$23.40, totaling $12.5 million.~~$23.38. During the first quarter of 2023, we repurchased 791,800 shares at an average price of $23.43. Our 10b5-1 plan expired on March 2, 2023. As of March 31, ~~2022,~~2023, we had ~~6,919,692~~4,300,059 shares of CVB common stock available for repurchase under the 2022 Repurchase Program.

Period

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Average Price
Paid Per Share

Maximum Number of Shares Available for Repurchase Under the Plans or Programs

January 1 - 31, 2022

-

$
-

10,000,000

February 1 - 28, 2022

2,544,298

$
22.01

7,455,702

March 1 - 31, 2022

536,010

$
23.40

6,919,692

Total

3,080,308

$
22.25

6,919,692


Period	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Average Price Paid Per Share		Maximum Number of Shares Available for Repurchase Under the Plans or Programs

January 1 - 31, 2023		341,057	$	23.88		4,750,802
February 1 - 28, 2023		97,560	$	24.01		4,653,242
March 1 - 31, 2023		353,183	$	22.83		4,300,059
Total		791,800	$	23.43		4,300,059

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5. OTHER INFORMATION

None

6669

ITEM 6. EXHIBITS



Exhibit No.		Description of Exhibits

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2022,~~2023, has been formatted in Inline XBRL.


*		Filed herewith
**		Furnished herewith

6770

SIGNATURES

Pursuant to the requirements 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.

CVB FINANCIAL CORP.

(Registrant)

Date: May 10, ~~2022~~2023

/s/ E. Allen Nicholson

E. Allen Nicholson

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

6871


	Three Months Ended March 31, 2021
	Ending Balance December 31, 2020		Charge-offs			Recoveries		(Recapture of) Provision for Credit Losses			Ending Balance March 31, 2021
	(Dollars in thousands)
Commercial real estate	$	75,439	$	0		$	0	$	(18,867	)	$	56,572
Construction		1,934		0			3		(59	)		1,878
SBA		2,992		0			4		(484	)		2,512
Commercial and industrial		7,142		(2,475	)		2		1,770			6,439
Dairy & livestock and agribusiness		3,949		0			0		(1,227	)		2,722
Municipal lease finance receivables		74		0			0		(39	)		35
SFR mortgage		367		0			79		(148	)		298
Consumer and other loans		1,795		0			0		(446	)		1,349
Total allowance for credit losses	$	93,692	$	(2,475	)	$	88	$	(19,500	)	$	71,805


	For the Three Months Ended March 31, 2022
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at March 31, 2022		Financial Effect Resulting From Modifications (2)
	(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		0		0		0		0		0
SFR mortgage:
Interest rate reduction		0		0		0		0		0
Change in amortization period or maturity		0		0		0		0		0
Total loans		0	$	0	$	0	$	0	$	0