UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM10-Q

(Mark One)

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

For the quarterly period ended ~~June~~September 30, 2018

☐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:0-10140

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)

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ 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 Rule12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	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 Rule12b-2 of the Exchange Act).

Yes ☐ No ☒

Number of shares of common stock of the registrant: ~~110,301,160~~140,333,375 outstanding as of ~~July~~October 31, 2018.

TABLE OF CONTENTS



PART I –	FINANCIAL INFORMATION (UNAUDITED)	13

ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	35

	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	810

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4346

	CRITICAL ACCOUNTING POLICIES	4346

	OVERVIEW	4346

	ANALYSIS OF THE RESULTS OF OPERATIONS	45

	~~RESULTS BY BUSINESS SEGMENTS~~	5548

	ANALYSIS OF FINANCIAL CONDITION	58

	ASSET/LIABILITY AND MARKET RISK MANAGEMENT	74

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	76

ITEM 4.	CONTROLS AND PROCEDURES	76

PART II–	OTHER INFORMATION	77

ITEM 1.	LEGAL PROCEEDINGS	77

ITEM 1A.	RISK FACTORS	77

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	78

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	78

ITEM 4.	MINE SAFETY DISCLOSURES	78

ITEM 5.	OTHER INFORMATION	78

ITEM 6.	EXHIBITS	78

SIGNATURES			79

PART I – FINANCIAL INFORMATION (UNAUDITED)

GENERAL

Cautionary Note Regarding Forward-Looking Statements

Certain matters set forth herein (including the exhibits hereto) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plans and expectations and our future financial position and operating results. Words such as “will likely result”, “aims”, “anticipates”, “believes”, “could”, “estimates”, “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. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance and/or achievements to differ materially from those projected. These risks and uncertainties include, but are not limited to:

•●

local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our assets and liabilities;

•●

our ability to attract deposits and other sources of funding or liquidity;

•●

supply and demand for real estate and periodic deterioration in real estate prices and/or values in California or other states where we lend, including both residential and commercial real estate;

•●

a prolonged slowdown or decline in real estate construction, sales or leasing activities;

•●

changes in the financial performance and/or condition of our borrowers, key vendors or counterparties;

•●

changes in our levels of delinquent loans, nonperforming assets, allowance for loan losses and charge-offs;

•●

the costs or effects of mergers, acquisitions or dispositions we may make, including the ~~pending~~recent merger of Community Bank with and into Citizens Business Bank, whether we are able to obtain any required governmental approvals in connection with any such mergers, acquisitions or dispositions, and/or our ability to realize the contemplated financial or business benefits, including any anticipated cost savings or synergies, associated with any such mergers, acquisitions or dispositions;

•●

the effect of changes in laws, regulations and applicable judicial decisions (including laws, regulations and judicial decisions concerning financial reforms, taxes, bank capital levels, consumer, commercial or secured lending, securities and securities trading and hedging, compliance, fair lending, employment, executive compensation, insurance, vendor management and information privacy and security) with which we and our subsidiaries must comply or believe we should comply, including additional legal and regulatory requirements to which we ~~may~~have or will become subject ~~in the event~~as a result of our total assets ~~exceed~~exceeding $10 ~~billion;~~billion, which first occurred in the third quarter of 2018 due to the closing of our merger transaction with Community Bank;

•●

changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting requirements, including changes in the Basel Committee framework establishing capital standards for credit, operations and market risk;

•●

the accuracy of the assumptions and estimates and the absence of technical error in implementation or calibration of models used to estimate the fair value of financial instruments or expected credit losses;

•●

inflation, interest rate, securities market and monetary fluctuations;

•●

changes in government interest rates or monetary or tax policies;

•●

changes in the amount and availability of deposit insurance;

•●

political developments, uncertainties or instability;

•●

disruptions in the infrastructure that supports our business and the communities where we are located, which are concentrated in California, involving or related to physical site access, cyber incidents, terrorist and political activities, disease pandemics, catastrophic events, natural disasters such as earthquakes, extreme weather events, electrical, facilities, computer servers, and communications or other services we use, or that affect our employees or third parties with whom we conduct business;

•●

our timely development and acceptance of new banking products and services and the perceived overall value of these products and services by customers and potential customers;

•●

the Company’s relationships with and reliance upon outside vendors with respect to certain of the Company’s key internal and external systems and applications;

•●

changes in commercial or consumer spending, borrowing and savings preferences or behaviors;

•●

technological changes and the expanding use of technology in banking (including the adoption of mobile banking, funds transfer applications and electronic marketplaces for loans and other banking products or services);

•●

our ability to retain and increase market share, retain and grow customers and control expenses;

•●

changes in the competitive environment among financial and bank holding companies, banks and other financial service providers;

•●

competition and innovation with respect to financial products and services by banks, financial institutions and

non-traditional providers including retail businesses and technology companies;

•●

volatility in the credit and equity markets and its effect on the general economy or local or regional business conditions;

•●

fluctuations in the price of the Company’s common stock or other securities, and the resulting impact on the Company’s ability to raise capital or make acquisitions;

•●

the effect of changes in accounting policies and practices, as may be adopted fromtime-to-time by the regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard-setters;

•●

changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our workforce, management team and/or board of directors;

•●

the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (such as securities, bank operations, consumer or employee class action ~~litigation)~~litigation and any litigation which we inherited from our recent merger with Community Bank);

•●

regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews;

•●

our ongoing relations with our various federal and state regulators, including the SEC, Federal Reserve Board, FDIC and California DBO;

•●

our success at managing the risks involved in the foregoing items; and

•●

all other factors set forth in the Company’s public reports including its Annual Report on Form10-K for the year ended December 31, 2017, and particularly the discussion of risk factors within that document.

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.

~~ITEM 1.~~ CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)


	June 30,			December 31,			September 30,			December 31,
	2018			2017			2018			2017
Assets
Cash and due from banks	$	119,495		$	119,841		$	174,083		$	119,841
Interest-earning balances due from Federal Reserve		61,994			24,536			20,392			24,536

Total cash and cash equivalents		181,489			144,377			194,475			144,377

Interest-earning balances due from depository institutions		7,150			17,952			8,812			17,952
Investment securitiesavailable-for-sale, at fair value (with amortized cost of $1,964,251 at June 30, 2018, and $2,078,131 at December 31, 2017)		1,929,994			2,080,985
Investment securitiesheld-to-maturity (with fair value of $747,589 at June 30, 2018, and $819,215 at December 31, 2017)		772,469			829,890
Investment securitiesavailable-for-sale, at fair value (with amortized cost of $1,850,723 at September 30, 2018, and $2,078,131 at December 31, 2017)								1,806,231			2,080,985
Investment securitiesheld-to-maturity (with fair value of $726,755 at September 30, 2018, and $819,215 at December 31, 2017)								759,029			829,890

Total investment securities		2,702,463			2,910,875			2,565,260			2,910,875

Investment in stock of Federal Home Loan Bank (FHLB)		17,688			17,688			17,688			17,688
Loans and lease finance receivables		4,816,956			4,830,631			7,582,459			4,830,631
Allowance for loan losses		(59,583	)		(59,585	)		(60,007	)		(59,585	)

Net loans and lease finance receivables		4,757,373			4,771,046			7,522,452			4,771,046

Premises and equipment, net		44,691			46,166			59,256			46,166
Bank owned life insurance (BOLI)		147,419			146,486			219,561			146,486
Accrued interest receivable		21,778			22,704			30,097			22,704
Intangibles		6,179			6,838			56,643			6,838
Goodwill		116,564			116,564			662,888			116,564
Other real estate owned (OREO)		-			4,527			420			4,527
Income taxes		50,288			40,046			75,432			40,046
Other assets		40,781			25,317			67,357			25,317

Total assets	$	8,093,863		$	8,270,586		$	11,480,341		$	8,270,586


Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	3,980,666		$	3,846,436		$	5,224,154		$	3,846,436
Interest-bearing		2,554,640			2,700,417			3,885,672			2,700,417

Total deposits		6,535,306			6,546,853			9,109,826			6,546,853
Customer repurchase agreements		384,054			553,773			399,477			553,773
Other borrowings								30,000			-
Deferred compensation		19,012			18,223			19,159			18,223
Junior subordinated debentures		25,774			25,774			25,774			25,774
Other liabilities		46,300			56,697			77,525			56,697

Total liabilities		7,010,446			7,201,320			9,661,761			7,201,320


Commitments and Contingencies
Stockholders’ Equity
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 110,302,468 at June 30, 2018, and 110,184,922 at December 31, 2017		575,502			573,453
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 140,334,671 at September 30, 2018, and 110,184,922 at December 31, 2017								1,299,052			573,453
Retained earnings		533,413			494,361			552,343			494,361
Accumulated other comprehensive (loss) income, net of tax		(25,498	)		1,452			(32,815	)		1,452

Total stockholders’ equity		1,083,417			1,069,266			1,818,580			1,069,266

Total liabilities and stockholders’ equity	$	8,093,863		$	8,270,586		$	11,480,341		$	8,270,586

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)


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Interest income:
Loans and leases, including fees	$	57,368		$	53,614		$	112,564		$	102,255		$	79,818		$	55,998		$	192,382		$	158,253
Investment securities:
Investment securitiesavailable-for-sale		11,697			13,007			23,565			25,647			11,521			12,240			35,086			37,887
Investment securitiesheld-to-maturity		4,807			5,323			9,572			10,830			4,666			5,184			14,238			16,014

Total investment income		16,504			18,330			33,137			36,477			16,187			17,424			49,324			53,901

Dividends from FHLB stock		298			359			630			752			329			318			959			1,070
Interest-earning deposits with other institutions and federal funds sold		635			286			1,171			553			304			130			1,475			683

Total interest income		74,805			72,589			147,502			140,037			96,638			73,870			244,140			213,907

Interest expense:
Deposits		1,549			1,559			3,074			2,992			2,967			1,555			6,041			4,547
Borrowings and customer repurchase agreements		337			382			790			811			606			402			1,396			1,213
Junior subordinated debentures		231			165			429			318			245			174			674			492

Total interest expense		2,117			2,106			4,293			4,121			3,818			2,131			8,111			6,252

Net interest income before recapture of provision for loan losses		72,688			70,483			143,209			135,916
Recapture of provision for loan losses		(1,000	)		(1,000	)		(2,000	)		(5,500	)
Net interest income before (recapture of) provision for loan losses														92,820			71,739			236,029			207,655
(Recapture of) provision for loan losses														500			(1,500	)		(1,500	)		(7,000	)

Net interest income after recapture of provision for loan losses		73,688			71,483			145,209			141,416
Net interest income after (recapture of) provision for loan losses														92,320			73,239			237,529			214,655

Noninterest income:
Service charges on deposit accounts		4,091			3,982			8,136			7,709			4,295			4,085			12,431			11,794
Trust and investment services		2,399			2,613			4,556			4,909			2,182			2,523			6,738			7,432
Bankcard services		958			871			1,762			1,636			875			927			2,637			2,563
BOLI income		1,069			1,497			2,048			2,212			936			692			2,984			2,904
Gain on OREO, net		-			2			3,540			2			-			2			3,540			4
Other		1,178			1,811			2,569			3,030			1,824			1,809			4,393			4,839

Total noninterest income		9,695			10,776			22,611			19,498			10,112			10,038			32,723			29,536

Noninterest expense:
Salaries and employee benefits		21,051			21,706			43,365			43,281			26,319			21,835			69,684			65,116
Occupancy and equipment		4,318			4,554			8,510			8,238			5,324			4,400			13,834			12,638
Professional services		1,690			1,843			3,220			3,100			1,154			1,091			4,374			4,191
Software licenses and maintenance		1,759			1,627			3,519			3,188			2,317			1,510			5,836			4,698
Marketing and promotion		1,148			1,190			2,504			2,429			1,134			1,055			3,638			3,484
Amortization of intangible assets														1,736			343			2,395			991
Acquisition related expenses		494			1,250			1,297			1,926			6,645			250			7,942			2,176
Other		3,794			4,703			7,785			8,828			4,251			4,222			11,377			12,402

Total noninterest expense		34,254			36,873			70,200			70,990			48,880			34,706			119,080			105,696

Earnings before income taxes		49,129			45,386			97,620			89,924			53,552			48,571			151,172			138,495

Income taxes		13,756			17,013			27,334			33,047			14,994			18,888			42,328			51,935

Net earnings	$	35,373		$	28,373		$	70,286		$	56,877		$	38,558		$	29,683		$	108,844		$	86,560

Other comprehensive income (loss):
Unrealized (loss) gain on securities arising during the period, before tax	$	(6,598	)	$	1,642		$	(38,768	)	$	2,066		$	(10,387	)	$	1,221		$	(49,155	)	$	3,287
Less: Reclassification adjustment for net gain on securities included in net income		-			(402	)		-			(402	)		-			-			-			(402	)

Other comprehensive (loss) income, before tax		(6,598	)		1,240			(38,768	)		1,664			(10,387	)		1,221			(49,155	)		2,885
Less: Income tax benefit (expense) related to items of other comprehensive income		1,951			(521	)		11,462			(699	)		3,070			(513	)		14,532			(1,212	)

Other comprehensive (loss) income, net of tax		(4,647	)		719			(27,306	)		965			(7,317	)		708			(34,623	)		1,673

Comprehensive income	$	30,726		$	29,092		$	42,980		$	57,842		$	31,241		$	30,391		$	74,221		$	88,233

Basic earnings per common share	$	0.32		$	0.26		$	0.64		$	0.52		$	0.30		$	0.27		$	0.94		$	0.79
Diluted earnings per common share	$	0.32		$	0.26		$	0.64		$	0.52		$	0.30		$	0.27		$	0.94		$	0.79
Cash dividends declared per common share	$	0.14		$	0.14		$	0.28		$	0.26

See accompanying notes to the unaudited condensed consolidated financial statements.

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three months ended ~~June~~September 30, 2018 and 2017

(Dollars and shares in thousands)

(Unaudited)


										Accumulated															Accumulated
	Common									Other						Common									Other
	Shares			Common			Retained			Comprehensive						Shares			Common			Retained			Comprehensive
	Outstanding			Stock			Earnings			Income (Loss)			Total			Outstanding			Stock			Earnings			Income (Loss)			Total
Balance, January 1, 2017		108,252		$	531,192		$	449,499		$	10,171		$	990,862			108,252		$	531,192		$	449,499		$	10,171		$	990,862
Cumulative adjustment upon adoption of ASU2016-09		-			116			(66	)		-			50			-			116			(66	)		-			50
Repurchase of common stock		(37	)		(833	)		-			-			(833	)		(45	)		(997	)		-			-			(997	)
Issuance of common stock for acquisition of Valley Commerce Bancorp		1,634			37,637			-			-			37,637			1,634			37,637			-			-			37,637
Exercise of stock options		257			2,389			-			-			2,389			270			2,537			-			-			2,537
Shares issued pursuant to stock-based compensation plan		43			1,457			-			-			1,457			46			2,200			-			-			2,200
Cash dividends declared on common stock ($0.26 per share)		-			-			(28,635	)		-			(28,635	)
Cash dividends declared on common stock ($0.40 per share)																	-			-			(44,058	)		-			(44,058	)
Net earnings		-			-			56,877			-			56,877			-			-			86,560			-			86,560
Other comprehensive income		-			-			-			965			965			-			-			-			1,673			1,673

Balance, June 30, 2017		110,149		$	571,958		$	477,675		$	11,136		$	1,060,769
Balance, September 30, 2017																	110,157		$	572,685		$	491,935		$	11,844		$	1,076,464


Balance, January 1, 2018		110,185		$	573,453		$	494,361		$	1,452		$	1,069,266			110,185		$	573,453		$	494,361		$	1,452		$	1,069,266
Cumulative adjustment upon adoption of ASU2018-02		-			-			(356	)		356			-			-			-			(356	)		356			-
Repurchase of common stock		(36	)		(837	)		-			-			(837	)		(42	)		(988	)		-			-			(988	)
Issuance of common stock for acquisition of Community Bank																	29,842			722,767			-			-			722,767
Exercise of stock options		138			1,417			-			-			1,417			145			1,504			-			-			1,504
Shares issued pursuant to stock-based compensation plan		15			1,469			-			-			1,469			205			2,316			-			-			2,316
Cash dividends declared on common stock ($0.28 per share)		-			-			(30,878	)		-			(30,878	)
Cash dividends declared on common stock ($0.42 per share)																	-			-			(50,506	)		-			(50,506	)
Net earnings		-			-			70,286			-			70,286			-			-			108,844			-			108,844
Other comprehensive income		-			-			-			(27,306	)		(27,306	)		-			-			-			(34,623	)		(34,623	)

Balance, June 30, 2018		110,302		$	575,502		$	533,413		$	(25,498	)	$	1,083,417
Balance, September 30, 2018																	140,335		$	1,299,052		$	552,343		$	(32,815	)	$	1,818,580

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)


	For the Six Months Ended						For the Nine Months Ended
	June 30,						September 30,
	2018			2017			2018			2017
Cash Flows from Operating Activities
Interest and dividends received	$	150,590		$	145,978		$	245,842		$	223,172
Service charges and other fees received		17,032			17,456			26,107			26,769
Interest paid		(4,288	)		(4,168	)		(8,642	)		(6,279	)
Net cash paid to vendors, employees and others		(68,564	)		(54,185	)		(110,799	)		(83,610	)
Income taxes		(26,379	)		(40,097	)		(35,879	)		(53,278	)
Payments to FDIC, loss share agreement		(65	)		(474	)		(65	)		(498	)

Net cash provided by operating activities		68,326			64,510			116,564			106,276

Cash Flows from Investing Activities
Proceeds from redemption of FHLB stock		-			1,952			17,250			1,952
Net change in interest-earning balances from depository institutions		10,802			23,277			11,934			27,806
Proceeds from sale of investment securitiesheld-for-sale		-			5,403			716,996			5,403
Proceeds from repayment of investment securitiesavailable-for-sale		195,715			201,546			296,922			320,599
Proceeds from maturity of investment securitiesavailable-for-sale		10,806			16,615			20,260			20,937
Purchases of investment securitiesavailable-for-sale		(98,709	)		(235,061	)		(98,709	)		(280,365	)
Proceeds from repayment and maturity of investment securitiesheld-to-maturity		55,021			70,949			67,861			96,447
Purchases of investment securitiesheld-to-maturity		-			(30,112	)		-			(36,166	)
Net increase in equity investments		(21,827	)		(601	)		(24,054	)		(1,454	)
Net decrease in loan and lease finance receivables		20,802			25,211
Net increase in loan and lease finance receivables								(6,806	)		(29,713	)
Proceeds from BOLI death benefit		882			2,457			882			2,653
Proceeds from sale of assetheld-for-sale								-			4,012
Purchase of premises and equipment		(1,225	)		(2,469	)		(3,483	)		(3,129	)
Proceeds from sales of other real estate owned		8,067			-			8,067			-
Cash acquired from acquisition, net of cash paid		-			28,325			(132,918	)		28,325

Net cash provided by investing activities		180,334			107,492			874,202			157,307

Cash Flows from Financing Activities
Net increase in other deposits		11,299			58,901			(241,934	)		(23,896	)
Net decrease in time deposits		(22,846	)		(33,197	)		(65,079	)		(39,485	)
Net decrease in other borrowings		-			(53,000	)
Repayment of FHLB advances								(297,571	)		-
Net (decrease) increase in other borrowings								(136,000	)		10,000
Net decrease in customer repurchase agreements		(169,719	)		(56,943	)		(154,296	)		(147,959	)
Cash dividends on common stock		(30,862	)		(26,205	)		(46,304	)		(41,626	)
Repurchase of common stock		(837	)		(833	)		(988	)		(997	)
Proceeds from exercise of stock options		1,417			2,389			1,504			2,537

Net cash used in financing activities		(211,548	)		(108,888	)		(940,668	)		(241,426	)

Net increase in cash and cash equivalents		37,112			63,114			50,098			22,157

Cash and cash equivalents, beginning of period		144,377			121,633			144,377			121,633

Cash and cash equivalents, end of period	$	181,489		$	184,747		$	194,475		$	143,790

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)


	For the Six Months Ended						For the Nine Months Ended
	June 30,						September 30,
	2018			2017			2018			2017
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities

Net earnings	$	70,286		$	56,877		$	108,844		$	86,560

Adjustments to reconcile net earnings to net cash provided by operating activities:

Gain loss on sale of investment securities		-			(402	)		-			(402	)
Gain on sale of other real estate owned		(3,540	)		-			(3,540	)		-
Increase in BOLI		(1,815	)		(3,691	)		(3,053	)		(4,416	)
Net amortization of premiums and discounts on investment securities		7,302			8,989			10,661			13,585
Accretion of PCI discount		(2,137	)		(505	)		(2,137	)		(756	)
Recapture of provision for loan losses		(2,000	)		(5,500	)		(1,500	)		(7,000	)
Payments to FDIC, loss share agreement		(65	)		(474	)		(65	)		(498	)
Stock-based compensation		1,469			1,457			2,316			2,200
Depreciation and amortization, net		354			(402	)		(582	)		(433	)
Change in other assets and liabilities		(1,528	)		8,161			5,620			17,436

Total adjustments		(1,960	)		7,633			7,720			19,716

Net cash provided by operating activities	$	68,326		$	64,510		$	116,564		$	106,276


Supplemental Disclosure ofNon-cash Investing Activities
Securities purchased and not settled	$	-		$	16,346		$	-		$	1,625
Transfer of loans to other real estate owned							$	420		$	-
Issuance of common stock for acquisition	$	-		$	37,637		$	722,767		$	37,637

See accompanying notes to the unaudited condensed consolidated financial statements.

CVB FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 one inactive subsidiary, Chino Valley Bancorp. The Company is also the common stockholder of CVB Statutory Trust III. CVB Statutory Trust III was created in January 2006 to issue trust preferred securities in order to raise capital for the Company. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, this trust does not meet the criteria for consolidation.

The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through CitizensTrust. The Bank’s customers consist primarily of small tomid-sized businesses and individuals located in the Inland Empire, Los Angeles County, Orange County, San Diego County, Ventura County, Santa Barbara County, and the Central Valley area of California. The Bank operates 5168 banking centers and three trust office locations. The Company is headquartered in the city of Ontario, California.

On ~~February 26,~~August 10, 2018, we entered into a definitive agreement to merge Community Bank with and into Citizens Business Bank. As of June 30, 2018, Community Bank had approximately $3.71 billion in total assets, $2.79 billion in gross loans and $2.86 billion in total deposits. Undercompleted the ~~terms of the merger, Community Bank shareholders will have the right to receive, in respect of each share of common stock~~acquisition of Community Bank ~~9.4595 shares~~(“CB”), headquartered in Pasadena, California with 16 banking centers located throughout the greater Los Angeles and Orange County areas and total assets of ~~CVB common stock and $56.00 per share in cash, subject to any adjustments set forth in the Merger Agreement. The merger transaction is valued at~~ approximately $885.2 million based on CVB’s closing stock price of $23.60 on February 26, 2018. The shareholders of both Companies approved the merger on June 21, 2018. All regulatory approvals have been received and the merger is expected to close on August 10, 2018.$4.09 billion. Our condensed consolidated financial statements for 2018 include CB operations, post-merger. See Note 4 –Business Combinations, included herein.

2.	BASIS OF PRESENTATION

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 Form10-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 and ~~six~~nine months ended ~~June~~September 30, 2018 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 Form10-K for the fiscal year ended December 31, 2017, 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.

The operating segments previously reported have been aggregated into one segment to conform to the current period’s presentation format. These reclassifications do not affect previously reported net earnings.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as discussed below, our accounting policies are described in Note 3—3 —Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form10-K for the year ended December 31, 2017 as filed with the SEC (“Form10-K”).

Business Segments — We regularly assess our strategic plans, operations and reporting structures to identify our reportable segments. Changes to our reportable segments are expected to be infrequent. For the years ended December 31, 2016 through June 30, 2018, we operated as two reportable segments: Banking Centers and Dairy & Livestock and Agribusiness. As a result of the Community Bank acquisition, along with changes in personnel, reporting structure, and operations, were-evaluated our segment reporting for the third quarter ended September 30, 2018.

As of September 30, 2018, we operated as one reportable segment. The factors considered in making this determination include the nature of products and offered services, geographic regions in which we operate, the applicable regulatory environment, and the materiality of discrete financial information reviewed by our key decision makers. Through our network of banking centers, we provide relationship-based banking products, services and solutions for small tomid-sized companies, real estate investors,non-profit organizations, professionals and other individuals. Our products include loans for commercial businesses, commercial real estate, multi-family, construction, land, dairy & livestock and agribusiness, consumer and government-guaranteed small business loans. We also provide business deposit products and treasury cash management services, as well as deposit products to the owners and employees of the businesses we serve. The decision to combine our two reportable segments was made to align the segment reporting with the changes in our operations and reporting structure, and to be consistent with the level and materiality of information reviewed by our key decision makers.

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 loan 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 Standards — In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which provides revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. This update to the ASC requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in U.S. GAAP. In applying the revenue model to contracts within its scope, an entity should apply the following steps: (1) Identify the contract(s) with a customer, (2) Identify the performance obligations in the contract, (3) Determine the transaction price, (4) Allocate the transaction price to the performance obligations in the contract, and (5) Recognize revenue when (or as) the entity satisfies a performance obligation. The standard applies to all contracts with customers except those that are within the scope of other topics in the FASB Codification. The standard also requires significantly expanded disclosures about revenue recognition. In August 2015, the FASB issued ASUNo. 2015-14, “Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date”, which deferred the effective date of ASUNo. 2014-09 to January 1, 2018. The Company adopted the ASU during the first quarter of 2018, as required, using the modified retrospective approach. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements, as substantially all of the Company’s revenues are excluded from the scope of the new standard. Since there was no net income impact upon adoption of this ASU, a cumulative effect adjustment to opening retained earnings was not deemed necessary. See Note 14 –Revenue Recognition for more information.

In January 2016, the FASB issued ASUNo. 2016-01, “Financial Instruments—Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The guidance in this ASU among other things, (i) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related toavailable-for-sale securities. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities are required to apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted ASU2016-01 effective January 1, 2018 and it did not have a material impact on the Company’s consolidated financial statements. In accordance with (iv) above, the Company measured the fair value of its loan portfolio at ~~June~~September 30, 2018 using an exit price notion. See Note 9 –Fair Value Information.

In August 2016, the FASB issued ASUNo. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The new guidance clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs,zero-coupon debt, and contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows, or that cannot be separated by source or use, should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is

effective for fiscal years beginning after December 15, 2017 and will require application using a retrospective transition method. The Company adopted this ASU retrospectively effective January 1, 2018 and it did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASUNo. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in ASU2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all the following are met: (1) ~~The~~the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. (2) ~~The~~the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified. (3) ~~The~~the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in ASUNo. 2017-09 are effective for annual periods, and interim within those annual reporting periods, beginning after December 15, 2017; early adoption is permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company adopted this ASU and it did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASUNo. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The amendments in ASU2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Act (“Tax Reform Act”). The amendments in this update also require entities to disclose their accounting policy for releasing income tax effects from accumulated other comprehensive income. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, and the provisions of the amendment should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company elected to early adopt ASU2018-02 in the first quarter of 2018 and reclassified $356,000 related to the stranded tax effects from accumulated other comprehensive income to retained earnings within our consolidated statements of stockholders’ equity.

Recent Accounting Pronouncements — In February 2016, FASB issued ASUNo. 2016-02, “Leases (Topic 842)”. ASU2016-02 establishes aright-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In July 2018, the FASB issued ASU2018-10, “Codification Improvements to Topic 842, Leases”, which clarifies and corrects errors in ASC 842. The effective date and transition requirements of ASU2018-10 are the same as the effective date and transition requirements of2016-02.

In July 2018, the FASB issued ASUNo. 2018-11, “Leases (Topic 842): Targeted Improvements”, which creates a new optional transition method for implementing the new standard on leases, ASUNo. 2016-02, and provides lessors with a practical expedient for separating lease andnon-lease components. Specifically, under the amendments in ASU2018-11: (1) the transition option allows entities to not apply the new leases standard in the comparative periods presented when transitioning to the new accounting standard for leases, and (2) lessors may elect not to separate lease andnon-lease components when certain conditions are met. The amendments have the same effective date as ASU2016-02.

The Company ~~is currently evaluating~~established a project to consider the impact of ~~adoption~~Topic 842. The leasing portfolio consists of real estate leases, which are used for the banking operations of the Company. All leases in the current portfolio have been classified as operating leases, although this ~~ASU~~may change in the future. Management does not anticipate a material impact to the consolidated statement of earnings. Management estimates the ROU asset and liability to be between $15 million and $20 million. This amount is based on ~~its consolidated~~the present value of currently-committed cash flows from leases discounted at the Company’s incremental rate of borrowing on an arms-length basis. This liability includes thenon-lease components as the Company has elected to include these components as a practical expedient.

In addition, there are a number of practical expedients that have been elected, which included electing not to adjust comparative financial ~~statements.~~statements at the effective date of the new accounting standard, with the effect of initially applying ASC 842 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption.

In June 2016, the FASB issued ASUNo. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the Current Expected Credit Loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certainoff-balance sheet credit exposures. This includes, but is not limited to, loans, leases,held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply toavailable-for-sale debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. ASUNo. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.

In January 2017, the FASB issued ASUNo. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU2017-04 eliminates the second step in the goodwill impairment test, which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should ~~recognized~~recognize an impairment

loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard will be effective for the Company beginning January 1, 2020, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASUNo. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU2017-12 changes the recognition and presentation requirements of hedge accounting and makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this ASU better align an entity’s financial reporting and risk management activities for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for bothnon-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASUNo. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The Company currently does not designate any derivative financial instruments as qualifying hedging relationships, and therefore, does not utilize hedge accounting. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASUNo. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting.” The intention of ASU2018-07 is to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be ~~remeasured~~re-measured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU2018-07 is effective for fiscal years beginning after December 15, 2019 and is applied retrospectively. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASUNo. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASUNo. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities may early adopt any eliminated or modified disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

4.	BUSINESS COMBINATIONS

Community Bank Acquisition

On August 10, 2018, the Company completed the acquisition of CB, headquartered in Pasadena, California. The Company acquired all of the assets and assumed all of the liabilities of CB for $180.7 million in cash and $722.8 million in stock. As a result, CB was merged with the Bank, the principal subsidiary of CVB. The primary reason for the acquisition was to further strengthen the Company’s presence in Southern California. At close, CB had 16 banking centers located throughout the greater Los Angeles and Orange County areas.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of August 10, 2018. As the final CB tax return has not yet been completed, initial accounting for taxes was incomplete as of September 30, 2018. 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. The application of the acquisition method of accounting resulted in the recognition of goodwill of $546.3 million and a core deposit intangible (“CDI”) of $52.2 million, or 2.26% of core deposits. Goodwill represents the excess purchase price over the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes.

The table below summarizes the amounts recognized for the estimated fair value of assets acquired and the liabilities assumed as of the acquisition date.


	August 10, 2018
	(Dollars in thousands)
Merger Consideration
Cash paid	$	180,719
CVBF common stock issued		722,767

Total merger consideration			$	903,486

Identifiable net assets acquired, at fair value
Assets Acquired
Cash and cash equivalents		47,802
Investment securities		716,996
FHLB stock		17,250
Loans		2,734,081
Accrued interest receivable		7,916
Premises and equipment		14,632
BOLI		70,904
Core deposit intangible		52,200
Other assets		58,130

Total assets acquired				3,719,911

Liabilities assumed
Deposits		2,869,986
FHLB advances		297,571
Other borrowings		166,000
Other liabilities		29,192

Total liabilities assumed				3,362,749

Total fair value of identifiable net assets, at fair value				357,162

Goodwill			$	546,324

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.

For the three and nine months ended September 30, 2018, the Company incurred $6.6 million and $7.9 million, respectively, in merger related expenses associated with the CB acquisition.

For illustrative purposes only, the following table presents certain unaudited pro forma information for the nine months ended September 30, 2018 and 2017. This unaudited estimated pro forma financial information was calculated as if CB had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of CB with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented.


	Unaudited Pro Forma Nine Months Ended September 30,
	2018		2017
	(Dollars in thousands)
Total revenues (net interest income plus noninterest income)	$	364,846	$	354,990
Net Income	$	138,274	$	118,419
Earnings per share - basic	$	0.99	$	0.85
Earnings per share - diluted	$	0.99	$	0.85

Valley Commerce Bancorp Acquisition

On March 10, 2017, the Company completed the acquisition of Valley Commerce Bancorp (“VCBP”), the holding company for Valley Business Bank (“VBB”), headquartered in the Central Valley area of California. The Company acquired all of the assets and assumed all of the liabilities of VCBP for $23.2 million in cash and $37.6 million in stock. As a result, VBB was merged with the Bank, the principal subsidiary of CVB. The Company believes this transaction serves to further strengthen its presence in the Central Valley area of California. At close, VBB had four branches located in Visalia, Tulare, Fresno, and Woodlake. The systems integration of VCBP and CBB was completed in May 2017. Three of these center locations were consolidated with nearby CBB locations in the third quarter of 2017 and the Company sold the Woodlake branch in the fourth quarter of 2017.

Goodwill of $27.0 million 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 assets acquired approximated $405.9 million, which included $28.3 million in cash and cash equivalents net of cash paid, $2.0 million in FHLB stock, $309.7 million in loans and lease finance receivables, $5.3 million in fixed assets, $9.4 million in BOLI, $3.2 million in core deposit intangible assets acquired and $21.0 million in other assets. The total fair value of liabilities assumed was $368.3 million, which included $361.8 million in deposits, and $6.5 million in other liabilities. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of March 10, 2017. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The purchase price allocation was finalized in the third quarter of 2017.

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.

For the ~~six~~nine months ended ~~June~~September 30, 2018, the Company did not incur any merger related expenses associated with the VCBP acquisition and incurred ~~$1.3 million~~$250,000 and ~~$1.9~~$2.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively.

5.	INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held areavailable-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.


	June 30, 2018												September 30, 2018
	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:
Residential mortgage-backed securities	$	1,665,717	$	1,489	$	(30,322	)	$	1,636,884		84.81	%	$	1,570,072	$	1,014	$	(38,208	)	$	1,532,878		84.87	%
CMO/REMIC - residential		244,227		357		(5,073	)		239,511		12.41	%		229,832		152		(6,167	)		223,817		12.39	%
Municipal bonds		53,557		400		(1,108	)		52,849		2.74	%		50,022		308		(1,591	)		48,739		2.70	%
Other securities		750		-		-			750		0.04	%		797		-		-			797		0.04	%

Total available-for-sale securities	$	1,964,251	$	2,246	$	(36,503	)	$	1,929,994		100.00	%	$	1,850,723	$	1,474	$	(45,966	)	$	1,806,231		100.00	%

Investment securities held-to-maturity:
Government agency/GSE	$	149,693	$	406	$	(2,948	)	$	147,151		19.38	%	$	144,871	$	-	$	(5,129	)	$	139,742		19.09	%
Residential mortgage-backed securities		164,914		-		(4,020	)		160,894		21.35	%		158,769		-		(5,502	)		153,267		20.92	%
CMO		219,159		-		(12,773	)		206,386		28.37	%		216,980		-		(13,960	)		203,020		28.58	%
Municipal bonds		238,703		574		(6,119	)		233,158		30.90	%		238,409		225		(7,908	)		230,726		31.41	%

Total held-to-maturity securities	$	772,469	$	980	$	(25,860	)	$	747,589		100.00	%	$	759,029	$	225	$	(32,499)		$	726,755		100.00	%


	December 31, 2017
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)
Investment securitiesavailable-for-sale:
Residential mortgage-backed securities	$	1,747,780	$	11,231	$	(8,102	)	$	1,750,909		84.14	%
CMO/REMIC - residential		274,634		1,277		(2,082	)		273,829		13.16	%
Municipal bonds		54,966		774		(244	)		55,496		2.66	%
Other securities		751		-		-			751		0.04	%

Totalavailable-for-sale securities	$	2,078,131	$	13,282	$	(10,428	)	$	2,080,985		100.00	%

Investment securitiesheld-to-maturity:
Government agency/GSE	$	159,716	$	854	$	(2,134	)	$	158,436		19.25	%
Residential mortgage-backed securities		176,427		667		(382	)		176,712		21.26	%
CMO		225,072		-		(8,641	)		216,431		27.12	%
Municipal bonds		268,675		2,751		(3,790	)		267,636		32.37	%

Totalheld-to-maturity securities	$	829,890	$	4,272	$	(14,947	)	$	819,215		100.00	%


	December 31, 2017
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)
Investment securitiesavailable-for-sale:
Residential mortgage-backed securities	$	1,747,780	$	11,231	$	(8,102	)	$	1,750,909		84.14	%
CMO/REMIC-residential		274,634		1,277		(2,082	)		273,829		13.16	%
Municipal bonds		54,966		774		(244	)		55,496		2.66	%
Other securities		751		-		-			751		0.04	%

Totalavailable-for-sale securities	$	2,078,131	$	13,282	$	(10,428	)	$	2,080,985		100.00	%

Investment securitiesheld-to-maturity:
Government agency/GSE	$	159,716	$	854	$	(2,134	)	$	158,436		19.25	%
Residential mortgage-backed securities		176,427		667		(382	)		176,712		21.26	%
CMO		225,072		-		(8,641	)		216,431		27.12	%
Municipal bonds		268,675		2,751		(3,790	)		267,636		32.37	%

Totalheld-to-maturity securities	$	829,890	$	4,272	$	(14,947)		$	819,215		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.


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
									2018		2017		2018		2017
	(Dollars in thousands)								(Dollars in thousands)
Investment securitiesavailable-for-sale:
Taxable	$	11,290	$	12,420	$	22,735	$	24,346	$	11,126	$	11,767	$	33,861	$	36,113
Tax-advantaged		407		587		830		1,301		395		473		1,225		1,774

Total interest income fromavailable-for-sale securities		11,697		13,007		23,565		25,647		11,521		12,240		35,086		37,887

Investment securitiesheld-to-maturity:
Taxable		3,048		3,203		5,926		6,480		2,961		3,111		8,887		9,591
Tax-advantaged		1,759		2,120		3,646		4,350		1,705		2,073		5,351		6,423

Total interest income fromheld-to-maturity securities		4,807		5,323		9,572		10,830		4,666		5,184		14,238		16,014

Total interest income from investment securities	$	16,504	$	18,330	$	33,137	$	36,477	$	16,187	$	17,424	$	49,324	$	53,901

Approximately 89% of the total investment securities portfolio at ~~June~~September 30, 2018 represents securities issued by the ~~U.S~~U.S. government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest.

The tables below show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at ~~June~~September 30, 2018 and December 31, 2017. Management has reviewed individual securities to determine whether a decline in fair value below the amortized cost basis isother-than-temporary. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market rates have fluctuated. However, we have the ability to hold and do not have the intent to sell these securities. As such, management does not deem these securities to be Other-Than-Temporarily-Impaired (“OTTI”).

June 30, 2018
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 securitiesavailable-for-sale:

Residential mortgage-backed securities
  $ 1,253,569   $ (18,601 )   $ 272,657   $ (11,721 )   $ 1,526,226   $ (30,322 )
CMO/REMIC - residential
130,072 (2,291 ) 64,326 (2,782 ) 194,398 (5,073 )
Municipal bonds
9,294 (221 ) 13,304 (887 ) 22,598 (1,108 )

Totalavailable-for-sale securities
  $   1,392,935   $     (21,113 )   $     350,287   $     (15,390 )   $   1,743,222   $     (36,503 )

Investment securitiesheld-to-maturity:

Government agency/GSE
  $ 53,518   $ (437 )   $ 41,567   $ (2,511 )   $ 95,085   $ (2,948 )
Residential mortgage-backed securities
106,204 (2,225 ) 54,691 (1,795 ) 160,895 (4,020 )
CMO
- - 206,386 (12,773 ) 206,386 (12,773 )
Municipal bonds
91,541 (1,499 ) 61,207 (4,620 ) 152,748 (6,119 )

Totalheld-to-maturity securities
  $ 251,263   $ (4,161 )   $ 363,851   $ (21,699 )   $ 615,114   $ (25,860 )


																September 30, 2018
																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 securitiesavailable-for-sale:
Residential mortgage-backed securities																$	1,193,435	$	(24,475	)	$	287,707	$	(13,733	)	$	1,481,142	$	(38,208	)
CMO/REMIC - residential																	139,064		(3,053	)		60,925		(3,114	)		199,989		(6,167	)
Municipal bonds																	11,257		(389	)		12,987		(1,202	)		24,244		(1,591	)

Totalavailable-for-sale securities																$	1,343,756	$	(27,917	)	$	361,619	$	(18,049	)	$	1,705,375	$	(45,966	)


Investment securitiesheld-to-maturity:
Government agency/GSE																$	99,203	$	(2,326	)	$	40,539	$	(2,803	)	$	139,742	$	(5,129	)
Residential mortgage-backed securities																	101,083		(3,206	)		52,184		(2,296	)		153,267		(5,502	)
CMO																	-		-			203,020		(13,960	)		203,020		(13,960	)
Municipal bonds																	116,918		(2,143	)		67,284		(5,765	)		184,202		(7,908	)

Totalheld-to-maturity securities																$	317,204	$	(7,675	)	$	363,027	$	(24,824	)	$	680,231	$	(32,499	)


	December 31, 2017															December 31, 2017
	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 securitiesavailable-for-sale:
Residential mortgage-backed securities	$	414,091	$	(1,828	)	$	303,746	$	(6,274	)	$	717,837	$	(8,102	)	$	414,091	$	(1,828	)	$	303,746	$	(6,274	)	$	717,837	$	(8,102	)
CMO/REMIC - residential		95,137		(487	)		71,223		(1,595	)		166,360		(2,082	)		95,137		(487	)		71,223		(1,595	)		166,360		(2,082	)
Municipal bonds		946		(4	)		13,956		(240	)		14,902		(244	)		946		(4	)		13,956		(240	)		14,902		(244	)

Totalavailable-for-sale securities	$	510,174	$	(2,319	)	$	388,925	$	(8,109	)	$	899,099	$	(10,428	)	$	510,174	$	(2,319	)	$	388,925	$	(8,109	)	$	899,099	$	(10,428	)

Investment securitiesheld-to-maturity:
Government agency/GSE	$	18,950	$	(27	)	$	43,495	$	(2,107	)	$	62,445	$	(2,134	)	$	18,950	$	(27	)	$	43,495	$	(2,107	)	$	62,445	$	(2,134	)
Residential mortgage-backed securities		51,297		(188	)		55,306		(194	)		106,603		(382	)		51,297		(188	)		55,306		(194	)		106,603		(382	)
CMO		-		-			216,431		(8,641	)		216,431		(8,641	)		-		-			216,431		(8,641	)		216,431		(8,641	)
Municipal bonds		32,069		(492	)		66,217		(3,298	)		98,286		(3,790	)		32,069		(492	)		66,217		(3,298	)		98,286		(3,790	)

Totalheld-to-maturity securities	$	102,316	$	(707	)	$	381,449	$	(14,240	)	$	483,765	$	(14,947	)	$	102,316	$	(707	)	$	381,449	$	(14,240	)	$	483,765	$	(14,947	)

At ~~June~~September 30, 2018 and December 31, 2017, investment securities having a carrying value of approximately ~~$1.74~~$1.60 billion and $1.91 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 ~~June~~September 30, 2018, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have contractual maturities through 2057, 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.

June 30, 2018
Available-for-sale Held-to-maturity
Amortized Amortized
Cost Fair Value Cost Fair Value
(Dollars in thousands)
Due in one year or less
$ 26,487 $ 26,762 $ - $ -
Due after one year through five years
1,711,078 1,682,200 283,278 270,230
Due after five years through ten years
197,590 192,738 209,623 205,138
Due after ten years
29,096 28,294 279,568 272,221

Total investment securities
$ 1,964,251 $ 1,929,994 $ 772,469 $ 747,589


	September 30, 2018
	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	19,806	$	19,964	$	-	$	-
Due after one year through five years		1,676,348		1,637,053		315,036		298,729
Due after five years through ten years		113,539		109,910		172,281		167,824
Due after ten years		41,030		39,304		271,712		260,202

Total investment securities	$	1,850,723	$	1,806,231	$	759,029	$	726,755

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. No impairment losses have been recorded through ~~June~~September 30, 2018.

6.	ACQUIRED SJB ASSETS AND FDIC LOSS SHARING ASSET

FDIC Assisted Acquisition

On October 16, 2009, the Bank acquired San Joaquin Bank (“SJB”) and entered into loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”) that is more fully discussed in Note 3 –Summary of Significant Accounting Policies, included in our Annual Report on Form10-K for the year ended December 31, 2017. The acquisition has been accounted for under the purchase method of accounting. The assets and liabilities were recorded at their estimated fair values as of the October 16, 2009 acquisition date. The acquired loans were accounted for as Purchase Credit Impaired (“PCI”) loans.

At ~~June~~September 30, 2018, the remaining discount associated with the PCI loans was zero. The loss sharing agreement for commercial loans expired October 16, 2014. The loss sharing agreement with the FDIC for single-family residential loans, which would have expired on October 16, 2019, was terminated by the Bank on July 20, 2018.

The following table provides a summary of PCI loans and lease finance receivables by type and by internal risk ratings (credit quality indicators) for the periods indicated.


	June 30, 2018			December 31, 2017
	(Dollars in thousands)						September 30, 2018			December 31, 2017
							(Dollars in thousands)
Commercial and industrial	$	562		$	934		$	459		$	934
SBA		1,311			1,383			1,286			1,383
Real estate:
Commercial real estate		17,214			27,431			14,979			27,431
Construction		-			-			-			-
SFR mortgage		154			162			150			162
Dairy & livestock and agribusiness		-			770			200			770
Municipal lease finance receivables		-			-			-			-
Consumer and other loans		185			228			186			228

Gross PCI loans		19,426			30,908			17,260			30,908
Less: Purchase accounting discount		-			(2,026	)		-			(2,026	)

Gross PCI loans, net of discount		19,426			28,882			17,260			28,882
Less: Allowance for PCI loan losses		(216	)		(367	)		(205	)		(367	)

Net PCI loans	$	19,210		$	28,515		$	17,055		$	28,515

Credit Quality Indicators

The following table summarizes gross PCI loans by internal risk ratings for the periods indicated.


	June 30, 2018		December 31, 2017
	(Dollars in thousands)				September 30, 2018		December 31, 2017
					(Dollars in thousands)
Pass	$	18,137	$	26,439	$	15,775	$	26,439
Special mention		1,044		1,088		1,251		1,088
Substandard		245		3,381		234		3,381
Doubtful & loss		-		-		-		-

Total gross PCI loans	$	19,426	$	30,908	$	17,260	$	30,908

7.	LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR LOAN LOSSES

The following table provides a summary of the Company’s total loans and lease finance receivables, excluding PCI loans, by type.


							September 30, 2018			December 31, 2017
	June 30, 2018			December 31, 2017			(Dollars in thousands)
	(Dollars in thousands)
Commercial and industrial	$	509,188		$	513,325		$	1,021,906		$	513,325
SBA		121,048			122,055			357,052			122,055
Real estate:
Commercial real estate		3,454,030			3,376,713			5,268,740			3,376,713
Construction		84,400			77,982			123,274			77,982
SFR mortgage		237,154			236,202			292,516			236,202
Dairy & livestock and agribusiness		268,489			347,289			304,598			347,289
Municipal lease finance receivables		67,721			70,243			67,581			70,243
Consumer and other loans		60,875			64,229			134,796			64,229

Gross loans, excluding PCI loans		4,802,905			4,808,038			7,570,463			4,808,038
Less: Deferred loan fees, net		(5,375	)		(6,289	)		(5,264	)		(6,289	)

Gross loans, excluding PCI loans, net of deferred loan fees		4,797,530			4,801,749			7,565,199			4,801,749
Less: Allowance for loan losses		(59,367	)		(59,218	)		(59,802	)		(59,218	)

Net loans, excluding PCI loans		4,738,163			4,742,531			7,505,397			4,742,531

PCI Loans		19,426			30,908			17,260			30,908
Discount on PCI loans		-			(2,026	)		-			(2,026	)
Less: Allowance for loan losses		(216	)		(367	)		(205	)		(367	)

PCI loans, net		19,210			28,515			17,055			28,515

Total loans and lease finance receivables	$	4,757,373		$	4,771,046		$	7,522,452		$	4,771,046

As of ~~June~~September 30, 2018, ~~78.61%~~75.09% of the Company’s total gross loan portfolio (excluding PCI loans) consisted of real estate loans, ~~71.92%~~69.60% of which consisted of commercial real estate loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. As of ~~June~~September 30, 2018, ~~$212.5~~$219.6 million, or ~~6.15%~~4.17% of the total commercial real estate loans included loans secured by farmland, compared to $206.1 million, or 6.10%, at December 31, 2017. The loans secured by farmland included ~~$123.7~~$128.8 million for loans secured by dairy & livestock land and ~~$88.8~~$90.8 million for loans secured by agricultural land at ~~June~~September 30, 2018, compared to $118.2 million for loans secured by dairy & livestock land and $87.9 million for loans secured by agricultural land at December 31, 2017. As of ~~June~~September 30, 2018, dairy & livestock and agribusiness loans of ~~$268.5~~$304.6 million were comprised of ~~$231.5~~$251.4 million for dairy & livestock loans and ~~$37.0~~$53.2 million for agribusiness loans, compared to $310.6 million for dairy & livestock loans and $36.7 million for agribusiness loans at December 31, 2017.

At ~~June~~September 30, 2018, the Company held approximately ~~$2.20~~$3.70 billion of total fixed rate loans, including PCI loans.

At ~~June~~September 30, 2018 and December 31, 2017, loans totaling ~~$3.73~~$5.53 billion and $3.68 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

There were no outstanding loansheld-for-sale as of ~~June~~September 30, 2018 and December 31, 2017.

Credit Quality Indicators

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 (Credit Quality Indicators): Pass, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:

Pass — These loans, including loans on the Bank’s internal watch list, range from minimal credit risk to lower than average, but still acceptable, credit risk. Watch list loans usually require more than normal management attention. Loans on the watch list may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent.

Special Mention — Loans assigned to this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard — Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or the liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset with insignificant value even though partial recovery may be affected in the future.

The following table summarizes loans by type, excluding PCI loans, according to our internal risk ratings for the periods presented.


	June 30, 2018										September 30, 2018
	Pass		Special Mention		Substandard		Doubtful & Loss		Total		Pass		Special Mention		Substandard (1)		Doubtful & Loss		Total
	(Dollars in thousands)										(Dollars in thousands)
Commercial and industrial	$	490,231	$	16,415	$	2,542	$	-	$	509,188	$	980,421	$	33,628	$	7,857	$	-	$	1,021,906
SBA		111,616		6,686		2,746		-		121,048		345,126		5,469		6,457		-		357,052
Real estate:
Commercial real estate
Owner occupied		1,063,163		61,509		19,102		-		1,143,774		1,931,062		97,990		12,079		-		2,041,131
Non-owner occupied		2,290,652		13,880		5,724		-		2,310,256		3,215,070		5,582		6,957		-		3,227,609
Construction
Speculative		74,785		-		-		-		74,785		32,081		-		-		-		32,081
Non-speculative		9,615		-		-		-		9,615		91,193		-		-		-		91,193
SFR mortgage		229,831		3,070		4,253		-		237,154		284,852		4,047		3,617		-		292,516
Dairy & livestock and agribusiness		244,408		19,581		4,500		-		268,489		268,328		26,877		9,393		-		304,598
Municipal lease finance receivables		67,153		568		-		-		67,721		67,045		536		-		-		67,581
Consumer and other loans		59,076		921		878		-		60,875		132,637		740		1,419		-		134,796

Total gross loans, excluding PCI loans	$	4,640,530	$	122,630	$	39,745	$	-	$	4,802,905	$	7,347,815	$	174,869	$	47,779	$	-	$	7,570,463


	December 31, 2017
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	483,641	$	19,566	$	10,118	$	-	$	513,325
SBA		112,835		5,358		3,862		-		122,055
Real estate:
Commercial real estate
Owner occupied		1,009,199		76,111		10,970		-		1,096,280
Non-owner occupied		2,257,130		16,434		6,869		-		2,280,433
Construction
Speculative		60,042		-		-		-		60,042
Non-speculative		17,940		-		-		-		17,940
SFR mortgage		229,032		3,124		4,046		-		236,202
Dairy & livestock and agribusiness		321,413		9,047		16,829		-		347,289
Municipal lease finance receivables		69,644		599		-		-		70,243
Consumer and other loans		61,715		1,255		1,259		-		64,229

Total gross loans, excluding PCI loans	$	4,622,591	$	131,494	$	53,953	$	-	$	4,808,038

(1)

Includes $15.1 million of classified loans acquired from CB in the third quarter of 2018.


	December 31, 2017
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	483,641	$	19,566	$	10,118	$	-	$	513,325
SBA		112,835		5,358		3,862		-		122,055
Real estate:
Commercial real estate
Owner occupied		1,009,199		76,111		10,970		-		1,096,280
Non-owner occupied		2,257,130		16,434		6,869		-		2,280,433
Construction
Speculative		60,042		-		-		-		60,042
Non-speculative		17,940		-		-		-		17,940
SFR mortgage		229,032		3,124		4,046		-		236,202
Dairy & livestock and agribusiness		321,413		9,047		16,829		-		347,289
Municipal lease finance receivables		69,644		599		-		-		70,243
Consumer and other loans		61,715		1,255		1,259		-		64,229

Total gross loans, excluding PCI loans	$	4,622,591	$	131,494	$	53,953	$	-	$	4,808,038

Allowance for Loan Losses (“ALLL”)

The Bank’s Audit and Director Loan Committees provide Board oversight of the ALLL process and approves the ALLL on a quarterly basis.

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 3 –Summary of Significant Accounting Policies of the 2017 Annual Report on Form10-K for the year ended December 31, 2017 for a more detailed discussion concerning the allowance for loan losses.

Management believes that the ALLL was appropriate at ~~June~~September 30, 2018 and December 31, 2017. No assurance can be given that economic conditions which adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for loan losses in the future.

The following tables present the balance and activity related to the allowance for loan losses forheld-for-investment loans by type for the periods presented.


	For the Three Months Ended June 30, 2018												For the Three Months Ended September 30, 2018
	Ending Balance March 31, 2018		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance June 30, 2018		Ending Balance June 30, 2018		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2018
	(Dollars in thousands)												(Dollars in thousands)
Commercial and industrial	$	7,499	$	-		$	27	$	(556	)	$	6,970	$	6,970	$	-		$	44	$	477		$	7,491
SBA		884		-			5		(48	)		841		841		(257	)		5		369			958
Real estate:
Commercial real estate		41,863		-			-		734			42,597		42,597		-			-		(1,056	)		41,541
Construction		987		-			596		(580	)		1,003		1,003		-			15		115			1,133
SFR mortgage		2,202		-			-		(47	)		2,155		2,155		-			-		(30	)		2,125
Dairy & livestock and agribusiness		4,666		-			19		(334	)		4,351		4,351		-			-		673			5,024
Municipal lease finance receivables		834		-			-		(26	)		808		808		-			-		7			815
Consumer and other loans		688		(2	)		3		(47	)		642		642		(1	)		118		(44	)		715
PCI loans		312		-			-		(96	)		216		216		-			-		(11	)		205

Total allowance for loan losses	$	59,935	$	(2	)	$	650	$	(1,000	)	$	59,583	$	59,583	$	(258	)	$	182	$	500		$	60,007


	For the Three Months Ended June 30, 2017
	Ending Balance March 31, 2017		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance June 30, 2017
	(Dollars in thousands)
Commercial and industrial	$	7,956	$	-		$	42	$	62		$	8,060
SBA		871		-			38		4			913
Real estate:
Commercial real estate		38,986		-			154		787			39,927
Construction		820		-			1,694		(1,455	)		1,059
SFR mortgage		2,186		-			-		183			2,369
Dairy & livestock and agribusiness		5,842		-			19		(421	)		5,440
Municipal lease finance receivables		889		-			-		(37	)		852
Consumer and other loans		937		-			42		(57	)		922
PCI loans		725		-			-		(66	)		659

Total allowance for loan losses	$	59,212	$	-		$	1,989	$	(1,000	)	$	60,201


	For the Six Months Ended June 30, 2018												For the Three Months Ended September 30, 2017
	Ending Balance December 31, 2017		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance June 30, 2018		Ending Balance June 30, 2017		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2017
	(Dollars in thousands)												(Dollars in thousands)
Commercial and industrial	$	7,280	$	-		$	37	$	(347	)	$	6,970	$	8,060	$	(138	)	$	12	$	129		$	8,063
SBA		869		-			10		(38	)		841		913		-			5		(54	)		864
Real estate:
Commercial real estate		41,722		-			-		875			42,597		39,927		-			-		943			40,870
Construction		984		-			1,930		(1,911	)		1,003		1,059		-			2,055		(2,181	)		933
SFR mortgage		2,112		-			-		43			2,155		2,369		-			-		(49	)		2,320
Dairy & livestock and agribusiness		4,647		-			19		(315	)		4,351		5,440		-			-		(66	)		5,374
Municipal lease finance receivables		851		-			-		(43	)		808		852		-			-		54			906
Consumer and other loans		753		(9	)		11		(113	)		642		922		(9	)		5		(48	)		870
PCI loans		367		-			-		(151	)		216		659		-			-		(228	)		431

Total allowance for loan losses	$	59,585	$	(9	)	$	2,007	$	(2,000	)	$	59,583	$	60,201	$	(147	)	$	2,077	$	(1,500	)	$	60,631

													For the Nine Months Ended September 30, 2018
	For the Six Months Ended June 30, 2017												Ending Balance December 31, 2017		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2018
	Ending Balance December 31, 2016		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance June 30, 2017		(Dollars in thousands)
	(Dollars in thousands)
Commercial and industrial	$	8,154	$	-		$	94	$	(188	)	$	8,060	$	7,280	$	-		$	81	$	130		$	7,491
SBA		871		-			42		-			913		869		(257	)		15		331			958
Real estate:
Commercial real estate		37,443		-			154		2,330			39,927		41,722		-			-		(181	)		41,541
Construction		1,096		-			3,719		(3,756	)		1,059		984		-			1,945		(1,796	)		1,133
SFR mortgage		2,287		-			64		18			2,369		2,112		-			-		13			2,125
Dairy & livestock and agribusiness		8,541		-			19		(3,120	)		5,440		4,647		-			19		358			5,024
Municipal lease finance receivables		941		-			-		(89	)		852		851		-			-		(36	)		815
Consumer and other loans		988		(2	)		71		(135	)		922		753		(10	)		129		(157	)		715
PCI loans		1,219		-			-		(560	)		659		367		-			-		(162	)		205

Total allowance for loan losses	$	61,540	$	(2	)	$	4,163	$	(5,500	)	$	60,201	$	59,585	$	(267	)	$	2,189	$	(1,500	)	$	60,007


	For the Nine Months Ended September 30, 2017
	Ending Balance December 31, 2016		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2017
	(Dollars in thousands)
Commercial and industrial	$	8,154	$	(138	)	$	106	$	(59	)	$	8,063
SBA		871		-			47		(54	)		864
Real estate:
Commercial real estate		37,443		-			154		3,273			40,870
Construction		1,096		-			5,774		(5,937	)		933
SFR mortgage		2,287		-			64		(31	)		2,320
Dairy & livestock and agribusiness		8,541		-			19		(3,186	)		5,374
Municipal lease finance receivables		941		-			-		(35	)		906
Consumer and other loans		988		(11	)		76		(183	)		870
PCI loans		1,219		-			-		(788	)		431

Total allowance for loan losses	$	61,540	$	(149	)	$	6,240	$	(7,000	)	$	60,631

The following tables present the recorded investment in loansheld-for-investment and the related allowance for loan losses by loan type, based on the Company’s methodology for determining the allowance for loan losses for the periods presented. Acquired loans are also supported by a credit discount established through the determination of fair value for the acquired loan portfolio.


	June 30, 2018												September 30, 2018
	Recorded Investment in Loans						Allowance for Loan Losses						Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
					(Dollars in thousands)								(Dollars in thousands)
Commercial and industrial	$	355	$	508,833	$	-	$	-	$	6,970	$	-	$	3,168	$	1,018,738	$	-	$	-	$	7,491	$	-
SBA		1,174		119,874		-		-		841		-		3,593		353,459		-		-		958		-
Real estate:
Commercial real estate		7,741		3,446,289		-		-		42,597		-		6,348		5,262,392		-		-		41,541		-
Construction		-		84,400		-		-		1,003		-		-		123,274		-		-		1,133		-
SFR mortgage		4,133		233,021		-		13		2,142		-		5,492		287,024		-		13		2,112		-
Dairy & livestock and agribusiness		800		267,689		-		-		4,351		-		775		303,823		-		-		5,024		-
Municipal lease finance receivables		-		67,721		-		-		808		-		-		67,581		-		-		815		-
Consumer and other loans		509		60,366		-		3		639		-		807		133,989		-		70		645		-
PCI loans		-		-		19,426		-		-		216		-		-		17,260		-		-		205

Total	$	14,712	$	4,788,193	$	19,426	$	16	$	59,351	$	216	$	20,183	$	7,550,280	$	17,260	$	83	$	59,719	$	205


	June 30, 2017
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
					(Dollars in thousands)
Commercial and industrial	$	1,605	$	535,742	$	-	$	13	$	8,047	$	-
SBA		2,478		126,805		-		6		907		-
Real estate:
Commercial real estate		18,558		3,247,300		-		-		39,927		-
Construction		-		77,294		-		-		1,059		-
SFR mortgage		4,195		245,738		-		-		2,369		-
Dairy & livestock and agribusiness		829		244,426		-		-		5,440		-
Municipal lease finance receivables		-		66,048		-		-		852		-
Consumer and other loans		1,131		72,778		-		94		828		-
PCI loans		-		-		49,869		-		-		659

Total	$	28,796	$	4,616,131	$	49,869	$	113	$	59,429	$	659


	September 30, 2017
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
	(Dollars in thousands)
Commercial and industrial	$	745	$	527,914	$	-	$	2	$	8,061	$	-
SBA		2,273		121,818		-		3		861		-
Real estate:
Commercial real estate		8,168		3,324,349		-		-		40,870		-
Construction		-		74,148		-		-		933		-
SFR mortgage		4,550		240,112		-		-		2,320		-
Dairy & livestock and agribusiness		829		269,653		-		-		5,374		-
Municipal lease finance receivables		-		71,352		-		-		906		-
Consumer and other loans		743		69,672		-		83		787		-
PCI loans		-		-		36,548		-		-		431

Total	$	17,308	$	4,699,018	$	36,548	$	88	$	60,112	$	431

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 loan losses, and to determine the adequacy of the allowance, 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 loan 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 Form10-K for the year ended December 31, 2017, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

A loan is reported as a Troubled Debt Restructuring (“TDR”) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that the Bank would not otherwise consider. Examples of such concessions include a reduction in the interest rate, deferral of principal or accrued interest, extending the payment due dates or loan maturity date(s), or providing a lower interest rate than would be normally available for new debt of similar risk. As a result of one or more of these concessions, restructured loans are classified as impaired. Impairment reserves onnon-collateral dependent restructured loans are measured by comparing the present value of expected future cash flows on the restructured loans

discounted at the interest rate of the original loan agreement to the carrying value of the loan. These impairment reserves are recognized as a specific component to be provided for in the allowance for loan losses.

Generally, when loans are identified as impaired they are moved to our Special Assets Department. When we identify a loan as impaired, we measure the loan for potential impairment using discounted cash flows, unless the loan is determined to be collateral dependent. In these cases, we use the current fair value of collateral, less selling costs. Generally, the determination of fair value is established through obtaining external appraisals of the collateral.

The following tables present the recorded investment in, and the aging of, past due and nonaccrual loans, excluding PCI loans, by type of loans for the periods presented.


	June 30, 2018												September 30, 2018
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables		30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1) (3)		Current		Total Loans and Financing Receivables
					(Dollars in thousands)								(Dollars in thousands)
Commercial and industrial	$	-	$	-	$	-	$	204	$	508,984	$	509,188	$	274	$	-	$	274	$	3,026	$	1,018,606	$	1,021,906
SBA		-		-		-		574		120,474		121,048		-		123		123		3,005		353,924		357,052
Real estate:
Commercial real estate
Owner occupied		-		-		-		4,294		1,134,706		1,139,000		-		-		-		615		2,040,516		2,041,131
Non-owner occupied		-		-		-		2,223		2,312,807		2,315,030		-		-		-		5,241		3,222,368		3,227,609
Construction
Speculative (2)		-		-		-		-		74,785		74,785		-		-		-		-		32,081		32,081
Non-speculative		-		-		-		-		9,615		9,615		-		-		-		-		91,193		91,193
SFR mortgage		-		-		-		1,578		235,576		237,154		-		-		-		2,961		289,555		292,516
Dairy & livestock and agribusiness		-		-		-		800		267,689		268,489		-		-		-		775		303,823		304,598
Municipal lease finance receivables		-		-		-		-		67,721		67,721		-		-		-		-		67,581		67,581
Consumer and other loans		47		-		47		509		60,319		60,875		98		-		98		807		133,891		134,796

Total gross loans, excluding PCI loans	$	47	$	-	$	47	$	10,182	$	4,792,676	$	4,802,905	$	372	$	123	$	495	$	16,430	$	7,553,538	$	7,570,463

(1)

As of ~~June~~September 30, 2018, ~~$3.2~~$2.6 million of nonaccruing loans were current, ~~$164,000~~$562,000 were30-59 days past due, ~~$129,000~~$1.3 million were60-89 days past due and ~~$6.7~~$12.0 million were 90+ days past due.

(2)

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

(3)

Includes $8.6 million of nonaccrual loans acquired from CB in the third quarter of 2018.


	December 31, 2017												December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables		30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables
					(Dollars in thousands)								(Dollars in thousands)
Commercial and industrial	$	768	$	-	$	768	$	250	$	512,307	$	513,325	$	768	$	-	$	768	$	250	$	512,307	$	513,325
SBA		403		-		403		906		120,746		122,055		403		-		403		906		120,746		122,055
Real estate:
Commercial real estate
Owner occupied		-		-		-		4,365		1,091,915		1,096,280		-		-		-		4,365		1,091,915		1,096,280
Non-owner occupied		-		-		-		2,477		2,277,956		2,280,433		-		-		-		2,477		2,277,956		2,280,433
Construction
Speculative (2)		-		-		-		-		60,042		60,042		-		-		-		-		60,042		60,042
Non-speculative		-		-		-		-		17,940		17,940		-		-		-		-		17,940		17,940
SFR mortgage		-		-		-		1,337		234,865		236,202		-		-		-		1,337		234,865		236,202
Dairy & livestock and agribusiness		-		-		-		829		346,460		347,289		-		-		-		829		346,460		347,289
Municipal lease finance receivables		-		-		-		-		70,243		70,243		-		-		-		-		70,243		70,243
Consumer and other loans		1		-		1		552		63,676		64,229		1		-		1		552		63,676		64,229

Total gross loans, excluding PCI loans	$	1,172	$	-	$	1,172	$	10,716	$	4,796,150	$	4,808,038	$	1,172	$	-	$	1,172	$	10,716	$	4,796,150	$	4,808,038

(1)

As of December 31, 2017, $3.6 million of nonaccruing loans were current, $376,000 were60-89 days past due and $6.8 million were 90+ days past due.

(2)

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

Impaired Loans

At ~~June~~September 30, 2018, the Company had impaired loans, excluding PCI loans, of ~~$14.7~~$20.2 million. Impaired loans included ~~$6.5~~$5.9 million of nonaccrual commercial real estate loans, ~~$1.6~~$3.0 million of nonaccrual commercial and industrial loans, $3.0 million of nonaccrual Small Business Administration (“SBA”) loans, $3.0 million of nonaccrual single-family residential (“SFR”) mortgage loans, ~~$800,000~~$807,000 of nonaccrual consumer and other loans, and $775,000 of nonaccrual dairy & livestock and agribusiness ~~loans, $574,000 of nonaccrual Small Business Administration (“SBA”) loans, $509,000 of nonaccrual consumer and other loans, and $204,000 of nonaccrual commercial and industrial~~ loans. These impaired loans included ~~$8.4~~$7.3 million of loans whose terms were modified in a troubled debt restructuring, of which ~~$3.9~~$3.5 million were classified as nonaccrual. The remaining balance of ~~$4.5~~$3.8 million consisted of 1514 loans performing according to the restructured terms. The impaired loans had a specific allowance of ~~$16,000~~$83,000 at ~~June~~September 30, 2018. At December 31, 2017, the Company had classified as impaired, loans, excluding PCI loans, with a balance of $15.5 million with a related allowance of $75,000.

The following tables present information forheld-for-investment loans, excluding PCI loans, individually evaluated for impairment by type of loans, as and for the periods presented.


	As of and For the Six Months Ended June 30, 2018										As of and For the Nine Months Ended September 30, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
					(Dollars in thousands)						(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	355	$	864	$	-	$	378	$	4	$	3,168	$	3,829	$	-	$	3,439	$	6
SBA		1,174		1,302		-		1,204		23		3,593		5,779		-		4,457		34
Real estate:
Commercial real estate
Owner occupied		4,294		4,747		-		4,331		-		615		726		-		644		-
Non-owner occupied		3,447		4,894		-		3,565		44		5,733		6,385		-		5,904		24
Construction
Speculative		-		-		-		-		-		-		-		-		-		-
Non-speculative		-		-		-		-		-		-		-		-		-		-
SFR mortgage		4,120		4,860		-		4,159		55		5,479		6,449		-		5,679		59
Dairy & livestock and agribusiness		800		1,091		-		819		-		775		1,091		-		808		-
Municipal lease finance receivables		-		-		-		-		-		-		-		-		-		-
Consumer and other loans		506		716		-		568		-		737		1,025		-		867		-

Total		14,696		18,474		-		15,024		126		20,100		25,284		-		21,798		123

With a related allowance recorded:
Commercial and industrial		-		-		-		-		-		-		-		-		-		-
SBA		-		-		-		-		-		-		-		-		-		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-		-		-		-		-		-
Non-owner occupied		-		-		-		-		-		-		-		-		-		-
Construction
Speculative		-		-		-		-		-		-		-		-		-		-
Non-speculative		-		-		-		-		-		-		-		-		-		-
SFR mortgage		13		13		13		13		-		13		13		13		13		-
Dairy & livestock and agribusiness		-		-		-		-		-		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-		-		-		-		-		-
Consumer and other loans		3		3		3		3		-		70		101		70		85		-

Total		16		16		16		16		-		83		114		83		98		-

Total impaired loans	$	14,712	$	18,490	$	16	$	15,040	$	126	$	20,183	$	25,398	$	83	$	21,896	$	123


	As of and For the Six Months Ended June 30, 2017										As of and For the Nine Months Ended September 30, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
					(Dollars in thousands)						(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	1,465	$	1,939	$	-	$	1,572	$	13	$	726	$	1,256	$	-	$	870	$	15
SBA		2,472		2,750		-		2,538		32		2,270		2,573		-		2,489		38
Real estate:
Commercial real estate
Owner occupied		5,541		5,866		-		5,240		69		4,313		4,625		-		4,361		42
Non-owner occupied		13,017		15,469		-		12,908		798		3,855		5,155		-		4,010		72
Construction
Speculative		-		-		-		-		-		-		-		-		-		-
Non-speculative		-		-		-		-		-		-		-		-		-		-
SFR mortgage		4,195		4,983		-		4,242		73		4,550		5,345		-		4,620		109
Dairy & livestock and agribusiness		829		1,091		-		1,123		1		829		1,091		-		1,035		1
Municipal lease finance receivables		-		-		-		-		-		-		-		-		-		-
Consumer and other loans		734		941		-		752		9		356		571		-		381		-

Total		28,253		33,039		-		28,375		995		16,899		20,616		-		17,766		277

With a related allowance recorded:
Commercial and industrial		140		187		13		157		1		19		20		2		42		1
SBA		6		23		6		9		-		3		20		3		7		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-		-		-		-		-		-
Non-owner occupied		-		-		-		-		-		-		-		-		-		-
Construction
Speculative		-		-		-		-		-		-		-		-		-		-
Non-speculative		-		-		-		-		-		-		-		-		-		-
SFR mortgage		-		-		-		-		-		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-		-		-		-		-		-
Consumer and other loans		397		402		94		399		-		387		394		83		390		-

Total		543		612		113		565		1		409		434		88		439		1

Total impaired loans	$	28,796	$	33,651	$	113	$	28,940	$	996	$	17,308	$	21,050	$	88	$	18,205	$	278


	As of December 31, 2017						As of December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
			(Dollars in thousands)				(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	440	$	980	$	-	$	440	$	980	$	-
SBA		1,530		1,699		-		1,530		1,699		-
Real estate:
Commercial real estate
Owner occupied		4,365		4,763		-		4,365		4,763		-
Non-owner occupied		3,768		5,107		-		3,768		5,107		-
Construction
Speculative		-		-		-		-		-		-
Non-speculative		-		-		-		-		-		-
SFR mortgage		4,040		4,692		-		4,040		4,692		-
Dairy & livestock and agribusiness		829		1,091		-		829		1,091		-
Municipal lease finance receivables		-		-		-		-		-		-
Consumer and other loans		174		370		-		174		370		-

Total		15,146		18,702		-		15,146		18,702		-

With a related allowance recorded:
Commercial and industrial		-		-		-		-		-		-
SBA		1		18		1		1		18		1
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-		-
Non-owner occupied		-		-		-		-		-		-
Construction
Speculative		-		-		-		-		-		-
Non-speculative		-		-		-		-		-		-
SFR mortgage		-		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-		-
Consumer and other loans		378		391		74		378		391		74

Total		379		409		75		379		409		75

Total impaired loans	$	15,525	$	19,111	$	75	$	15,525	$	19,111	$	75

The Company recognizes thecharge-off of the impairment allowance on impaired loans in the period in which a loss is identified for collateral dependent loans. Therefore, the majority of the nonaccrual loans as of ~~June~~September 30, 2018, December 31, 2017 and ~~June~~September 30, 2017 have already been written down to the estimated net realizable value. An allowance is recorded on impaired loans for the following: nonaccrual loans where acharge-off is not yet processed, nonaccrual SFR mortgage loans where there is a potential modification in process, or on smaller balancenon-collateral dependent loans.

Reserve for Unfunded Loan Commitments

The allowance foroff-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 theoff-balance sheet loan commitments at the same time it evaluates credit risk associated with the loan and lease portfolio. There was no provision or recapture of provision for unfunded loan commitments for the three and ~~six~~nine months ended ~~June~~September 30, 2018, and 2017. As a result of ~~June~~the acquisition of CB, the reserve for unfunded loan commitments increased by $2.9 million in the third quarter of 2018. As of September 30, 2018 and December 31, 2017, the balance in this reserve was $9.2 million and $6.3 million, respectively, and was included in other liabilities.

Troubled Debt Restructurings (“TDRs”)

Loans that are reported as TDRs are considered impaired andcharge-off amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 –Summary of Significant Accounting Policies, included in our Annual Report on Form10-K for the year ended December 31, 2017 for a more detailed discussion regarding TDRs.

As of ~~June~~September 30, 2018, there were ~~$8.4~~$7.3 million of loans classified as a TDR, of which ~~$3.9~~$3.5 million were nonperforming and ~~$4.5~~$3.8 million 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 ~~June~~September 30, 2018, performing TDRs were comprised of 10 SFR mortgage loans of ~~$2.6 million, two commercial real estate loans of $1.2~~$2.5 million, one SBA loan of ~~$600,000,~~$588,000, one commercial real estate loan of $492,000, and two commercial and industrial loans of ~~$151,000.~~$142,000.

The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time a probable loss is determined. We have allocated zero and $1,000 of specific allowance to TDRs as of ~~June~~September 30, 2018 and December 31, 2017, respectively.

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


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
	(Dollars in thousands)												(Dollars in thousands)
Performing TDRs:
Beginning balance	$	4,285		$	19,702		$	4,809		$	19,233		$	4,530		$	16,574		$	4,809		$	19,233
New modifications		311			-			311			3,143			-			-			311			3,143
Payoffs/payments, net and other		(66	)		16			(590	)		(2,987	)		(777	)		(10,839	)		(1,367	)		(13,826	)
TDRs returned to accrual status		-			-			-			329			-			-			-			329
TDRs placed on nonaccrual status		-			(3,144	)		-			(3,144	)		-			-			-			(3,144	)

Ending balance	$	4,530		$	16,574		$	4,530		$	16,574		$	3,753		$	5,735		$	3,753		$	5,735

Nonperforming TDRs:
Beginning balance	$	3,909		$	1,407		$	4,200		$	1,626		$	3,892		$	4,391		$	4,200		$	1,626
New modifications		38			-			38			2,066			278			-			316			2,066
Charge-offs		-			-			-			-			-			-			-			-
Payoffs/payments, net and other		(55	)		(160	)		(346	)		(2,116	)		(650	)		(81	)		(996	)		(2,197	)
TDRs returned to accrual status		-			-			-			(329	)		-			-			-			(329	)
TDRs placed on nonaccrual status		-			3,144			-			3,144			-			-			-			3,144

Ending balance	$	3,892		$	4,391		$	3,892		$	4,391		$	3,520		$	4,310		$	3,520		$	4,310

Total TDRs	$	8,422		$	20,965		$	8,422		$	20,965		$	7,273		$	10,045		$	7,273		$	10,045

The following table summarizes loans modified as troubled debt restructurings for the period presented.

Modifications (1)


	For the Three Months Ended June 30, 2018										For the Three Months Ended September 30, 2018
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at June 30, 2018		Financial Effect Resulting From Modifications (2)		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2018		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)										(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		1		38		38		31		-		-		-		-		-		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-		-		-		-		-		-
Non-owner occupied
Interest rate reduction		-		-		-		-		-		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-		-		-		-		-		-
SFR mortgage:
Interest rate reduction		1		311		311		307		-		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-		-		-		-		-		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-		-		-		-		-		-
Consumer:
Interest rate reduction		-		-		-		-		-		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-		1		278		278		272		-

Total loans		2	$	349	$	349	$	338	$	-		1	$	278	$	278	$	272	$	-

For the Three Months Ended ~~June~~September 30, 2017

Number of
Loans

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Outstanding
Recorded
Investment at
~~June~~September 30, 2017

Financial Effect
Resulting From
Modifications (2)

(Dollars in thousands)

Commercial and industrial:

Interest rate reduction