# CVB Financial Corp: Form 10-Q for the period ended Mar 31, 2024

- Company: [CVB Financial Corp](/companies/cvbf.md) (CIK 354647)
- Form: 10-Q
- Filed: 2024-05-09
- Accepted by EDGAR: May 9, 2024, 15:31 ET
- Period: 2024-03-31
- Accession: 0000950170-24-056453
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/354647/000095017024056453/cvbf-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/354647/000095017024056453/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $45.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $18.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $48.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.35 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.35 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 138,603,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $77.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $166.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $28.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $2.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $949.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-03-31 | $16.47bn | us-gaap:Assets |
| Total liabilities | at 2024-03-31 | $14.38bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $2.09bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 101,720 characters.

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “we,” “our” or the “Company”) and its wholly owned bank subsidiary, Citizens Business Bank (the “Bank” or “CBB”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 and the unaudited condensed consolidated financial statements and accompanying notes presented elsewhere in this report.

### CRITICAL ACCOUNTING POLICIES

The discussion and analysis of the Company’s unaudited condensed consolidated financial statements are based upon the Company’s unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

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

- Allowance for Credit Losses (“ACL”)
- Business Combinations
- Valuation and Recoverability of Goodwill

Our significant accounting policies are described in greater detail in our 2023 Annual Report on Form 10-K in the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 3 – *Summary of Significant Accounting Policies*, included in our Annual Report on Form 10-K for the year ended December 31, 2023, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

### Recently Issued Accounting Pronouncements but Not Adopted as of March 31, 2024

| Standard | Description | Adoption Timing | Impact on Financial Statements |
| --- | --- | --- | --- |
| ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures Issued December 2023 | On December 14, 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU enhances annual income tax disclosures to address investor requests for more detailed information about tax risks and improved transparency of income tax disclosures. The two primary enhancements disaggregate existing income tax disclosures related to the effective tax rate reconciliation and information on income taxes paid disaggregated by jurisdiction. This ASU is effective for annual reporting periods beginning after December 15, 2024 and are to be applied on a prospective basis; early adoption is permitted. | 1st Quarter 2025 | The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. |

41

### OVERVIEW

For the first quarter of 2024, we reported net earnings of $48.6 million, compared with $48.5 million for the fourth quarter of 2023 and $59.3 million for the first quarter of 2023. Diluted earnings per share were $0.35 for the first quarter, compared to $0.35 for the prior quarter and $0.42 for the same period last year. Net income of $48.6 million for the first quarter of 2024 produced an annualized return on average equity (“ROAE”) of 9.31%, an annualized return on average tangible common equity (“ROATCE”) of 15.13%, and an annualized return on average assets (“ROAA”) of 1.21%. Our net interest margin, tax equivalent (“NIM”), was 3.10% for the first quarter of 2024, while our efficiency ratio was 47.22%.

Net interest income was $112.5 million for the first quarter of 2024. This represented a $6.9 million, or 5.78%, decline from the fourth quarter of 2023, and a $13.3 million, or 10.55%, decrease from the first quarter of 2023. The quarter-over-quarter decrease in net interest income was primarily due to a 16 basis point decline in net interest margin driven by approximately $6 million in higher interest expense associated with time deposits and borrowings. The decline in net interest income compared to the first quarter of 2023 was due to a 35 basis point decrease in net interest margin and a $158.5 million decline in average earning assets. Interest expense from borrowings increased by approximately $12 million compared to the first quarter of 2023, as average borrowings grew by $1.02 billion.

Noninterest income was $14.1 million for the first quarter of 2024, compared with $19.2 million for the fourth quarter of 2023 and $13.2 million for the first quarter of 2023. First quarter income from Bank Owned Life Insurance (“BOLI”) decreased by $4.3 million from the fourth quarter of 2023 and increased by $2.4 million compared to the first quarter of 2023, primarily due to restructuring and enhancements in BOLI policies in the fourth quarter of 2023.

Noninterest expense for the first quarter of 2024 was $59.8 million, compared to $65.9 million for the fourth quarter of 2023 and $54.9 million for the first quarter of 2023. The $6.2 million quarter-over-quarter decrease was primarily due to the expense associated with the FDIC special assessment. The first quarter of 2024 reflected an additional accrual of $2.3 million for the FDIC special assessment. This is in addition to the $9.2 million accrued in the fourth quarter of 2023. The increase in the accrual was the result of the FDIC increasing its initial estimate of losses from last year’s bank failures by 25%, which was communicated in March of 2024.

At March 31, 2024, total assets of $16.47 billion increased by $447.2 million, or 2.79%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $14.91 billion at March 31, 2024, increased by $448.9 million, or 3.10%, when compared with $14.46 billion at December 31, 2023. The increase in interest-earning assets was primarily due to a $707.7 million increase in interest-earning balances due from the Federal Reserve, offset by a $129.0 million decrease in investment securities, and a $134.2 million decrease in total loans.

Total investment securities were $5.29 billion at March 31, 2024, a decrease of $129.0 million, or 2.38%, from $5.42 billion at December 31, 2023. At March 31, 2024, investment securities held-to-maturity (“HTM”) totaled $2.45 billion, a decrease of $10.0 million, or 0.41%, from December 31, 2023. At March 31, 2024, investment securities available-for-sale (“AFS”) totaled $2.84 billion, inclusive of a pre-tax net unrealized loss of $485.6 million. AFS securities decreased by $119.0 million, or 4.03%, from $2.96 billion at December 31, 2023. Pre-tax unrealized loss grew by $35.9 million from December 31, 2023. Our tax equivalent yield on investments was 2.64% for the quarter ended March 31, 2024, compared to 2.71% for the fourth quarter of 2023 and 2.37% for the first quarter of 2023. The 27 basis point increase in the yield on investment securities from the prior year was impacted by the positive spread generated from fair-value hedging of certain AFS securities, in which the Company receives daily SOFR and pays a weighted average fixed cost of approximately 3.8%.

In June 2023, fair value hedging transactions were executed in which $1 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. The fair value of these instruments totaled $10.9 million and were reflected as an asset at March 31, 2024. These instruments generated interest income of $3.7 million for the quarter ended March 31, 2024. Refer to Note 9 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information.

Total loans and leases, at amortized cost, of $8.77 billion at March 31, 2024, decreased by $134.2 million, or 1.51%, from December 31, 2023. The quarter-over-quarter decline in loans included decreases of $64.0 million in commercial real estate loans, $61.3 million in dairy & livestock and agribusiness loans, $7.9 million in construction loans, $6.8 million in commercial and industrial loans, partially offset by an increase of $6.6 million in SFR mortgage loans. The decline in dairy and livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 80% at the end of 2023 to 75% at March 31, 2024. Our yield on loans was 5.30% for the quarter ended March 31, 2024, compared to 5.18% for the fourth quarter of 2023 and 4.90% for the first quarter of 2023. This 40 basis point increase in our loan yields year-over-year was the result of recent increases in interest rates, highlighted by the 525 basis point increase in the Fed Funds rate since the end of the first quarter of 2022.

The allowance for credit losses totaled $82.8 million at March 31, 2024, compared to $86.8 million at December 31, 2023. There was no provision for credit losses in the first quarter of 2024. The decline in the allowance was due to $4 million of net charge-offs in the first quarter of 2024, primarily due to two borrowers in which specific loan loss reserves were previously established in 2023. Projected loss rates continue to be driven primarily by economic forecast changes to various macroeconomic variables such as Real GDP growth and the rate of unemployment.

Since March of 2022 to March of 2024, the Federal Reserve has increased the Federal Funds rate by 525 basis points to the target range of 5.25% to 5.50%. In comparison to the rising Federal Funds rate, our average cost of deposits has increased from three basis points for the first quarter of 2022 to 74 basis points for the first quarter of 2024. The change in market interest rates that has resulted from the Federal Reserve's monetary policies has impacted the availability of higher interest rates on short-term alternatives to deposits, such as money market mutual funds and treasury notes. These higher yielding alternatives, as well as overall inflationary increases on spending, have impacted our deposit levels over the last two years.

Noninterest-bearing deposits were $7.11 billion at March 31, 2024, a decrease of $93.4 million, or 1.30%, when compared to $7.21 billion at December 31, 2023 and a decrease of $731.5 million, or 9.33%, when compared to $7.84 billion at March 31, 2023. At March 31, 2024, noninterest-bearing deposits were 59.80% of total deposits, compared to 63.03% at December 31, 2023 and 63.92% at March 31, 2023.

Interest-bearing deposits were $4.78 billion at March 31, 2024, an increase of $554.7 million, or 13.12%, when compared to $4.23 billion at December 31, 2023 and an increase of $354.6 million, or 8.01%, when compared to $4.43 billion at March 31, 2023. The increase in deposits included $300 million in new brokered deposits at March 31, 2024. These deposits, which mature every 90 days, were combined with cash flow hedges which resulted in a fixed rate of approximately 4.2%. Customer repurchase agreements totaled $275.7 million at March 31, 2024, compared to $271.6 million at December 31, 2023 and $490.2 million at March 31, 2023. Our average cost of total deposits including customer repurchase agreements was 0.73% for the first quarter of 2024, compared to 0.61% for the fourth quarter of 2023 and 0.17% for the first quarter of 2023.

At March 31, 2024, total borrowings, consisted of approximately $2.0 billion of one-year advances from the Federal Reserve’s Bank Term Funding Program ("BTFP"), at a weighted average cost of approximately 4.75%. The BTFP advances include maturities of $695 million in May and $1.3 billion in January of 2025.

The Company’s total equity was $2.09 billion at March 31, 2024. This represented an overall increase of $8.9 million from total equity of $2.08 billion at December 31, 2023. Increases to equity included $48.6 million in net earnings, that were partially offset by $27.9 million in cash dividends and an $11.7 million decrease in other comprehensive income from the tax effected impact of the net decline in market value of available-for-sale securities and increase in value of pay fixed swaps. We engaged in no stock repurchases during the first quarter of 2024. Our tangible book value per share at March 31, 2024 was $9.36.

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of March 31, 2024, the Company’s Tier 1 leverage capital ratio was 10.46%, common equity Tier 1 ratio was 14.95%, Tier 1 risk-based capital ratio was 14.95%, and total risk-based capital ratio was 15.77%. Refer to our *Analysis of Financial Condition – Capital Resources.*

### ANALYSIS OF THE RESULTS OF OPERATIONS

### Financial Performance

*(Dollars in thousands, except per share amounts)*

|  | Three Months Ended March 31, 2024 | 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $112,461 | $125,728 | $(13,267) | -10.55% |
| (Provision for) recapture of credit losses | — | (1,500) | 1,500 | 100.00% |
| Noninterest income | 14,113 | 13,202 | 911 | 6.90% |
| Noninterest expense | (59,771) | (54,881) | (4,890) | -8.91% |
| Income taxes | (18,204) | (23,279) | 5,075 | 21.80% |
| Net earnings | $48,599 | $59,270 | $(10,671) | -18.00% |
| Earnings per common share: |  |  |  |  |
| Basic | $0.35 | $0.42 | $(0.07) |  |
| Diluted | $0.35 | $0.42 | $(0.07) |  |
| Return on average assets | 1.21% | 1.47% | -0.26% |  |
| Return on average shareholders' equity | 9.31% | 12.15% | -2.84% |  |
| Efficiency ratio | 47.22% | 39.50% | 7.72% |  |
| Noninterest expense to average assets | 1.48% | 1.36% | 0.12% |  |

*(Dollars in thousands, except per share amounts)*

|  | Three Months Ended March 31, 2024 | December 31, 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $112,461 | $119,356 | $(6,895) | -5.78% |
| (Provision for) recapture of credit losses | — | 2,000 | (2,000) | 100.00% |
| Noninterest income | 14,113 | 19,163 | (5,050) | -26.35% |
| Noninterest expense | (59,771) | (65,930) | 6,159 | 9.34% |
| Income taxes | (18,204) | (26,081) | 7,877 | 30.20% |
| Net earnings | $48,599 | $48,508 | $91 | 0.19% |
| Earnings per common share: |  |  |  |  |
| Basic | $0.35 | $0.40 | $(0.05) |  |
| Diluted | $0.35 | $0.40 | $(0.05) |  |
| Return on average assets | 1.21% | 1.36% | -0.15% |  |
| Return on average shareholders' equity | 9.31% | 11.03% | -1.72% |  |
| Efficiency ratio | 47.22% | 40.86% | 6.36% |  |
| Noninterest expense to average assets | 1.48% | 1.32% | 0.16% |  |

44

### Return on Average Tangible Common Equity Reconciliation (Non-GAAP)

The return on average tangible common equity is a non-GAAP disclosure. The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance. The following is a reconciliation of net income, adjusted for tax-effected amortization of intangibles, to net income computed in accordance with GAAP; a reconciliation of average tangible common equity to the Company's average stockholders' equity computed in accordance with GAAP; as well as a calculation of return on average tangible common equity.

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 | December 31, 2023 | March 31, 2023 |
| --- | ---: | ---: | ---: |
| Net Income | $48,599 | $48,508 | $59,270 |
| Add: Amortization of intangible assets | 1,438 | 1,446 | 1,720 |
| Less: Tax effect of amortization of intangible assets \[1\] | (425) | (427) | (508) |
| Tangible net income | $49,612 | $49,527 | $60,482 |
| Average stockholders' equity | $2,098,868 | $1,994,150 | $1,978,244 |
| Less: Average goodwill | (765,822) | (765,822) | (765,822) |
| Less: Average intangible assets | (14,585) | (15,993) | (20,983) |
| Average tangible common equity | $1,318,461 | $1,212,335 | $1,191,439 |
| Return on average equity, annualized | 9.31% | 9.65% | 12.15% |
| Return on average tangible common equity, annualized | 15.13% | 16.21% | 20.59% |

(1) Tax effected at respective statutory rates.

### Net Interest Income

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the three months ended March 31, 2024 and 2023. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 2 – *Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management* included herein.

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

*(Dollars in thousands)*

| INTEREST-EARNING ASSETS Investment securities (1) Available-for-sale securities: | Three Months Ended March 31, 2024 Average Balance | Interest | Yield/ Rate | 2023 Average Balance | Interest | Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Taxable | $2,874,642 | $21,280 | 2.96% | $3,190,462 | $19,428 | 2.44% |
| Tax-advantaged | 25,455 | 166 | 3.13% | 25,681 | 168 | 3.13% |
| Held-to-maturity securities: |  |  |  |  |  |  |
| Taxable | 2,080,985 | 10,984 | 2.11% | 2,163,847 | 11,507 | 2.13% |
| Tax-advantaged | 376,626 | 2,418 | 3.11% | 382,738 | 2,449 | 3.10% |
| Investment in FHLB stock | 18,012 | 419 | 9.36% | 28,868 | 349 | 4.90% |
| Interest-earning deposits with other institutions | 444,101 | 6,073 | 5.50% | 47,934 | 491 | 4.15% |
| Loans (2) | 8,824,579 | 116,349 | 5.30% | 8,963,323 | 108,394 | 4.90% |
| Total interest-earning assets | 14,644,400 | 157,689 | 4.34% | 14,802,853 | 142,786 | 3.91% |
| Total noninterest-earning assets | 1,561,013 |  |  | 1,510,283 |  |  |
| Total assets | $16,205,413 |  |  | $16,313,136 |  |  |
| INTEREST-BEARING LIABILITIES |  |  |  |  |  |  |
| Savings deposits (3) | $4,007,124 | $18,529 | 1.86% | $4,335,951 | $5,247 | 0.49% |
| Time deposits | 447,011 | 2,837 | 2.55% | 285,296 | 118 | 0.17% |
| Total interest-bearing deposits | 4,454,135 | 21,366 | 1.93% | 4,621,247 | 5,365 | 0.47% |
| FHLB advances, other borrowings, and customer repurchase agreements | 2,301,250 | 23,862 | 4.17% | 1,522,455 | 11,693 | 3.11% |
| Interest-bearing liabilities | 6,755,385 | 45,228 | 2.69% | 6,143,702 | 17,058 | 1.13% |
| Noninterest-bearing deposits | 7,182,718 |  |  | 8,092,704 |  |  |
| Other liabilities | 168,442 |  |  | 98,486 |  |  |
| Stockholders' equity | 2,098,868 |  |  | 1,978,244 |  |  |
| Total liabilities and stockholders' equity | $16,205,413 |  |  | $16,313,136 |  |  |
| Net interest income |  | $112,461 |  |  | $125,728 |  |
| Net interest spread - tax equivalent |  |  | 1.65% |  |  | 2.78% |
| Net interest margin |  |  | 3.08% |  |  | 3.43% |
| Net interest margin - tax equivalent |  |  | 3.10% |  |  | 3.45% |

(1) Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended March 31, 2024 and March 31, 2023. The non TE rates for total investment securities were 2.60% and 2.33% for the three months ended March 31, 2024 and March 31, 2023, respectively.

(2) Includes loan fees of $706,000 and $781,000 for the three months ended March 31, 2024 and March 31, 2023, respectively. Prepayment penalty fees of $630,000 and $583,000 are included in interest income for the three months ended March 31, 2024 and March 31, 2023, respectively.

(3) Includes interest-bearing demand and money market accounts.

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

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

*(Dollars in thousands)*

| Interest income: Available-for-sale securities: | Comparison of Three Months Ended March 31, 2024 Compared to 2023 Increase (Decrease) Due to Volume | Rate | Rate/ Volume | Total |
| --- | ---: | ---: | ---: | ---: |
| Taxable investment securities | $(1,913) | $4,192 | $(427) | $1,852 |
| Tax-advantaged investment securities | (1) | (1) | — | (2) |
| Held-to-maturity securities: |  |  |  |  |
| Taxable investment securities | (438) | (85) | — | (523) |
| Tax-advantaged investment securities | (38) | 8 | (1) | (31) |
| Investment in FHLB stock | (132) | 320 | (118) | 70 |
| Interest-earning deposits with other institutions | 4,092 | 160 | 1,330 | 5,582 |
| Loans | (1,691) | 8,898 | 748 | 7,955 |
| Total interest income | (121) | 13,492 | 1,532 | 14,903 |
| Interest expense: |  |  |  |  |
| Savings deposits | (401) | 14,759 | (1,076) | 13,282 |
| Time deposits | 67 | 1,692 | 960 | 2,719 |
| FHLB advances, other borrowings, and customer repurchase agreements | 6,031 | 3,996 | 2,142 | 12,169 |
| Total interest expense | 5,697 | 20,447 | 2,026 | 28,170 |
| Net interest income | $(5,818) | $(6,955) | $(494) | $(13,267) |

#### First Quarter of 2024 Compared to the First Quarter of 2023

Net interest income, before provision for credit losses, of $112.5 million for the first quarter of 2024 decreased by $13.3 million, or 10.55%, from the first quarter of 2023. The decline in net interest income compared to the first quarter of 2023 was due to a $158.5 million decline in average earning assets and a 35 basis point decrease in net interest margin. The decline in net interest margin was the result of an 82 basis point increase in funding costs, which was partially offset by a 43 basis point increase in the earning asset yield. The increase in funding costs includes interest expense from borrowings, which increased by approximately $12 million compared to the first quarter of 2023, as average borrowings grew by $1.02 billion.

Total interest income of $157.7 million grew by $14.9 million, or 10.44%, when compared to the first quarter of 2023. This increase was primarily due to a 43 basis point expansion of the yield on earning assets, which offset a $158.5 million decline in average interest-earning assets. Average loan balances declined by $138.7 million. Loan yields grew from 4.90% for the first quarter of 2023 to 5.30% for the first quarter of 2024. Likewise, the yield on investment securities increased by 27 basis points from the prior year. Compared to the first quarter of 2023, the average balance of investment securities decreased by $405.0 million, while the average amount of funds held at the Federal Reserve increased by $396.5 million.

Total interest income and fees on loans for the first quarter of 2024 was $116.3 million, an increase of $8.0 million, or 7.34%, from the first quarter of 2023. This increase in income was primarily due to higher loan yields, which grew from 4.90% in the first quarter of 2023 to 5.30% in the first quarter of 2024. Loan yields grew year-over-year, as rising interest rates contributed to an increase in yields on loans indexed to the Prime rate or other short-term indexes, as well as higher rates from newly originated loans.

Interest income from investment securities was $34.8 million, an increase of $1.3 million, or 3.86%, from the first quarter of 2023. The increase was driven by a 27 basis point increase in the yield on securities, compared to 2023. The increase in yield includes the positive carry on the fair value hedges during the first quarter of 2024, which resulted in $3.7 million of interest income associated with these interest rate swaps. Excluding the impact of these swaps, interest income on investment securities would have declined by $2.4 million, as average investment securities declined by $405.0 million when compared with the first quarter of 2023.

Interest expense of $45.2 million for the first quarter of 2024, increased $28.2 million, compared to the first quarter of 2023. Total cost of funds of 1.31% for the first quarter of 2024 increased from 0.49% for the year ago quarter. This 82 basis point increase in cost of funds was the result of a 146 basis point increase in the cost of interest-bearing deposits and an average cost of 4.76% on $1.99 billion of average borrowings for the first quarter of 2024, compared with 4.81% on $971.7 million of borrowings for the first quarter of 2023. Average noninterest-bearing deposits were 61.72% of total deposits for the first quarter of 2024, compared to 63.65% for the first quarter of 2023.

### Provision for (Recapture of) Credit Losses

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

There was no provision for credit losses in the first quarter of 2024, compared to $1.5 million in provision in the first quarter of 2023. Projected loss rates were 0.94% at March 31, 2024, compared to 0.97% at March 31, 2023. Excluding specific reserves associated with nonperforming or substandard loans, the projected loss rate on performing loans increased from 0.91% at the end of 2023 to 0.94% on March 31, 2024. The modest increase in these projected loss rates continues to be driven primarily by economic forecast changes to various macroeconomic variables such as Real GDP growth, commercial real estate values and the rate of unemployment. Refer to the discussion of “Allowance for Credit Losses” in Item 2 – *Management’s Discussion and Analysis of Financial Condition and Results of Operations* contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.

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

### Noninterest Income

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

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

*(Dollars in thousands)*

| Noninterest income: | Three Months Ended March 31, 2024 | 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Service charges on deposit accounts | $5,036 | $5,344 | $(308) | -5.76% |
| Trust and investment services | 3,224 | 2,914 | 310 | 10.64% |
| Bankcard services | 385 | 377 | 8 | 2.12% |
| BOLI income | 3,593 | 1,189 | 2,404 | 202.19% |
| Other | 1,875 | 3,378 | (1,503) | -44.49% |
| Total noninterest income | $14,113 | $13,202 | $911 | 6.90% |

#### First Quarter of 2024 Compared to the First Quarter of 2023

The $911,000 increase in noninterest income included a $2.4 million increase in BOLI income primarily due to the restructuring and enhancements in our BOLI policies completed in the fourth quarter of 2023. CRA investment income declined by approximately $800,000, due to both changes in the net asset value of certain equity investments, and a recapture of an impairment charge in the first quarter of 2023 of $500,000 as a result of the payoff of a CRA investment that was previously identified as impaired. The first quarter of 2023 also included approximately $550,000 in interest rate swap related fees resulting from the conversion to SOFR of all of our previously originated interest rate swaps indexed to LIBOR.

Trust and Investment Services represents our CitizensTrust group. The CitizensTrust group is made up of wealth management and investment services. They provide a variety of services, which include asset management, financial planning, estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other non-insured investment products. At March 31, 2024, CitizensTrust had approximately $4.3 billion in assets under management and administration, including $3.09 billion in assets under management. CitizensTrust generated fees of $3.2 million for the first quarter of 2024, compared to $2.9 million for the first quarter of 2023. We have experienced growth in managed assets from the transition of customer deposits that are now being managed by CitizensTrust in various liquidity strategies. The increase in fees in 2024 included both the impact on market values of changes in equity and fixed income markets but also increased flows of funds from customers, including liquidity management of funds formerly on deposit with the Bank.

The Bank’s investment in BOLI includes life insurance policies generally acquired through acquisitions or the purchase of life insurance by the Bank on a select group of employees to fund deferred compensation plans. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at its cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income tax, as long as they are held for the life of the covered parties. The increase in BOLI income was primarily due to the restructuring and enhancements in our BOLI policies in the fourth quarter of 2023. The first quarter of 2024 also included $531,000 in death benefits that exceeded the asset value on certain policies, compared with no death benefits for the first quarter of 2023.

### Noninterest Expense

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

*(Dollars in thousands)*

| Noninterest expense: | Three Months Ended March 31, 2024 | 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $36,401 | $35,247 | $1,154 | 3.27% |
| Occupancy | 4,570 | 4,594 | (24) | -0.52% |
| Equipment | 995 | 856 | 139 | 16.24% |
| Professional services | 2,255 | 1,696 | 559 | 32.96% |
| Computer software expense | 3,525 | 3,408 | 117 | 3.43% |
| Marketing and promotion | 1,630 | 1,715 | (85) | -4.96% |
| Amortization of intangible assets | 1,438 | 1,720 | (282) | -16.40% |
| Telecommunications expense | 493 | 503 | (10) | -1.99% |
| Regulatory assessments | 4,445 | 2,072 | 2,373 | 114.53% |
| Insurance | 507 | 505 | 2 | 0.40% |
| Loan expense | 286 | 299 | (13) | -4.35% |
| OREO expense | 30 | — | 30 | — |
| Provision for unfunded loan commitments | — | 500 | (500) | (100.00)% |
| Directors' expenses | 328 | 289 | 39 | 13.49% |
| Stationery and supplies | 229 | 286 | (57) | -19.93% |
| Other | 2,639 | 1,191 | 1,448 | 121.58% |
| Total noninterest expense | $59,771 | $54,881 | $4,890 | 8.91% |
| Noninterest expense to average assets | 1.48% | 1.36% |  |  |
| Efficiency ratio (1) | 47.22% | 39.50% |  |  |

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

Our ability to control noninterest expenses in relation to asset growth can be measured in terms of total noninterest expenses as a percentage of average assets. Noninterest expense as a percentage of average assets was 1.48% for both the first quarter of 2024, compared to 1.36% and the first quarter of 2023. This ratio was negatively impacted by an additional accrual of $2.3 million for the FDIC special assessment in the first quarter of 2024.

Our ability to control noninterest expenses in relation to the level of total revenue (net interest income before provision for credit losses plus noninterest income) can be measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. The efficiency ratio for the first quarter of 2024 was 47.22%, compared to 39.50% for the first quarter of 2023. The increase in the efficiency ratio for the first quarter of 2024 was primarily due to increased regulatory assessment expense, including the FDIC special assessment, and inflationary pressures on staff related expenses.

#### First Quarter of 2024 Compared to the First Quarter of 2023

Noninterest expense of $59.8 million for the first quarter of 2024 was $4.9 million, or 8.91%, higher than the first quarter of 2023. The first quarter of 2024 reflected an additional accrual of $2.3 million for the FDIC special assessment resulting from a 25% increase in the FDIC's initial loss estimate, which was $9.2 million as reflected in the fourth quarter of 2023. Year-over-year expense growth included increased staff related expenses of $1.2 million, or 3.27%. Professional services also increased $559,000 year-over-year, including a $430,000 increase in legal expense. The increase in other expense year-over-year was due to higher data processing costs, an increase in deferred compensation expense and various expense accruals. There was no provision or recapture of provision for unfunded loan commitments in the first quarter of 2024, compared to $500,000 in provision for the first quarter of 2023.

### Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2024 was 27.25%, compared to 28.20% for the three months ended March 31, 2023, respectively. Our estimated annual effective tax rate also varies depending upon the level of tax-advantaged income from municipal securities and BOLI, as well as available tax credits.

The Company’s effective tax rates are below the nominal combined Federal and State tax rate primarily as a result of tax-advantaged income from certain municipal security investments, municipal loans and leases and BOLI, as well as available tax credits for each period.

### ANALYSIS OF FINANCIAL CONDITION

Total assets of $16.47 billion at March 31, 2024 increased by $447.2 million, or 2.79%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $14.91 billion at March 31, 2024, increased by $448.9 million, or 3.10%, when compared with $14.46 billion at December 31, 2023. The increase in interest-earning assets was primarily due to a $707.7 million increase in interest-earning balances due from the Federal Reserve, offset by a $129.0 million decrease in investment securities, and a $134.2 million decrease in total loans.

Total liabilities were $14.38 billion at March 31, 2024, an increase of $438.3 million, or 3.14%, from total liabilities of $13.94 billion at December 31, 2023. The increase of $461.3 million in total deposits at March 31, 2024 included the addition of $300 million in brokered deposits that were added between the end February and the end of March. These deposits, which mature every 90 days, were combined with cash flow hedges which resulted in a fixed rate of approximately 4.2%. Borrowings decreased by $75.0 million from December 31, 2023. At March 31, 2024, total borrowings consisted of $2.0 billion of one-year advances from the Federal Reserve’s Bank Term Funding Program, at an average cost of approximately 4.75%. The BTFP advances include maturities of $695 million in May and $1.3 billion in January of 2025.

Total equity increased $8.9 million to $2.09 billion at March 31, 2024, compared to total equity of $2.08 billion at December 31, 2023. Increases to equity included $48.6 million in net earnings, that were partially offset by $27.9 million in cash dividends and an $11.7 million decrease in other comprehensive income. We engaged in no stock repurchases during the first quarter of 2024.

### Investment Securities

The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. We continued to shrink our investment portfolio. At March 31, 2024, total investment securities were $5.29 billion. This represented a decrease of $129.0 million, or 2.38%, from $5.42 billion at December 31, 2023. The overall decrease in investment securities was primarily due to a $119.0 million decline in our AFS securities. At March 31, 2024, our AFS investment securities totaled $2.84 billion, inclusive of a pre-tax net unrealized loss of $485.6 million, compared to $449.8 million at December 31, 2023. The $36 million decrease in fair value of our AFS securities was partially offset by an $18 million increase in the fair value of our derivatives that hedge the change in value of our AFS portfolio. The after-tax unrealized loss reported in AOCI on our AFS investment securities at March 31, 2024 was $335.8 million. The changes in the net unrealized holding loss resulted primarily from fluctuations in market interest rates. At March 31, 2024, investment securities HTM totaled $2.45 billion. For the three months ended March 31, 2024 and 2023, repayments/maturities of investment securities totaled $115.5 million and $107.0 million, respectively. The Company purchased $11.5 million of HTM securities during the first quarter of 2024. There were no purchases of investment securities in the first quarter of 2023 as cashflows generated from the portfolio were not reinvested during the first quarter. There were no investment securities sold during the first quarter of 2024 and 2023.

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

*(Dollars in thousands)*

| Investment securities available-for-sale: | March 31, 2024 Amortized Cost | Gross Unrealized Holding Gain | Gross Unrealized Holding Loss | Fair Value | Total Percent |
| --- | ---: | ---: | ---: | ---: | ---: |
| Government agency/GSE | $32,644 | $— | $(4) | $32,640 | 1.15% |
| Mortgage-backed securities | 2,766,695 | 25 | (367,613) | 2,399,107 | 84.56% |
| CMO/REMIC | 495,576 | — | (116,682) | 378,894 | 13.35% |
| Municipal bonds | 26,480 | 36 | (1,372) | 25,144 | 0.89% |
| Other securities | 1,315 | — | — | 1,315 | 0.05% |
| Unallocated portfolio layer fair value basis adjustments (1) | 10,893 | — | (10,893) | — | 0.00% |
| Total available-for-sale securities | $3,333,603 | $61 | $(496,564) | $2,837,100 | 100.00% |
| Investment securities held-to-maturity: |  |  |  |  |  |
| Government agency/GSE | $526,752 | $— | $(103,672) | $423,080 | 21.46% |
| Mortgage-backed securities | 652,864 | — | (109,336) | 543,528 | 26.60% |
| CMO/REMIC | 798,226 | — | (162,528) | 635,698 | 32.52% |
| Municipal bonds | 465,289 | 2,223 | (37,242) | 430,270 | 18.96% |
| Other securities | 11,455 | — | — | 11,455 | 0.46% |
| Total held-to-maturity securities | $2,454,586 | $2,223 | $(412,778) | $2,044,031 | 100.00% |

*(Dollars in thousands)*

| Investment securities available-for-sale: | December 31, 2023 Amortized Cost | Gross Unrealized Holding Gain | Gross Unrealized Holding Loss | Fair Value | Total Percent |
| --- | ---: | ---: | ---: | ---: | ---: |
| Government agency/GSE | $32,229 | $24 | $— | $32,253 | 1.09% |
| Mortgage-backed securities | 2,843,744 | 42 | (336,107) | 2,507,679 | 84.83% |
| CMO/REMIC | 502,234 | — | (112,872) | 389,362 | 13.17% |
| Municipal bonds | 26,477 | 46 | (888) | 25,635 | 0.87% |
| Other securities | 1,196 | — | — | 1,196 | 0.04% |
| Unallocated portfolio layer fair value basis adjustments (1) | (6,938) | 6,938 | — | — | 0.00% |
| Total available-for-sale securities | $3,398,942 | $7,050 | $(449,867) | $2,956,125 | 100.00% |
| Investment securities held-to-maturity: |  |  |  |  |  |
| Government agency/GSE | $530,656 | $— | $(97,972) | $432,684 | 21.53% |
| Mortgage-backed securities | 663,090 | — | (97,436) | 565,654 | 26.90% |
| CMO/REMIC | 802,892 | — | (156,155) | 646,737 | 32.58% |
| Municipal bonds | 467,972 | 3,438 | (33,604) | 437,806 | 18.99% |
| Total held-to-maturity securities | $2,464,610 | $3,438 | $(385,167) | $2,082,881 | 100.00% |

As of March 31, 2024, approximately $30.1 million in U.S. government agency bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds, which represented approximately 9% of the total investment portfolio, are predominately AA or higher rated securities.

The following table presents the Company’s available-for-sale and held-to-maturity investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of March 31, 2024 and December 31, 2023.

*(Dollars in thousands)*

| Investment securities available-for-sale: | March 31, 2024 Less Than 12 Months Fair Value | Gross Unrealized Holding Losses | 12 Months or Longer Fair Value | Gross Unrealized Holding Losses | Total Fair Value | Gross Unrealized Holding Losses |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Government agency/GSE | $32,640 | $(4) | $— | $— | $32,640 | $(4) |
| Mortgage-backed securities | 22 | — | 2,397,803 | (367,613) | 2,397,825 | (367,613) |
| CMO/REMIC | — | — | 378,893 | (116,682) | 378,893 | (116,682) |
| Municipal bonds | 6,525 | (145) | 17,743 | (1,227) | 24,268 | (1,372) |
| Total available-for-sale securities | $39,187 | $(149) | $2,794,439 | $(485,522) | $2,833,626 | $(485,671) |
| Investment securities held-to-maturity: |  |  |  |  |  |  |
| Government agency/GSE | $— | $— | $423,080 | $(103,672) | $423,080 | $(103,672) |
| Mortgage-backed securities | — | — | 543,529 | (109,336) | 543,529 | (109,336) |
| CMO/REMIC | — | — | 635,698 | (162,528) | 635,698 | (162,528) |
| Municipal bonds | 46,060 | (649) | 289,996 | (36,593) | 336,056 | (37,242) |
| Total held-to-maturity securities | $46,060 | $(649) | $1,892,303 | $(412,129) | $1,938,363 | $(412,778) |

*(Dollars in thousands)*

| Investment securities available-for-sale: | December 31, 2023 Less Than 12 Months Fair Value | Gross Unrealized Holding Losses | 12 Months or Longer Fair Value | Gross Unrealized Holding Losses | Total Fair Value | Gross Unrealized Holding Losses |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Government agency/GSE | $— | $— | $— | $— | $— | $— |
| Mortgage-backed securities | 48 | — | 2,506,162 | (336,107) | 2,506,210 | (336,107) |
| CMO/REMIC | — | — | 389,359 | (112,872) | 389,359 | (112,872) |
| Municipal bonds | 3,286 | (17) | 18,105 | (871) | 21,391 | (888) |
| Total available-for-sale securities | $3,334 | $(17) | $2,913,626 | $(449,850) | $2,916,960 | $(449,867) |
| Investment securities held-to-maturity: |  |  |  |  |  |  |
| Government agency/GSE | $— | $— | $432,684 | $(97,972) | $432,684 | $(97,972) |
| Mortgage-backed securities | — | — | 565,655 | (97,436) | 565,655 | (97,436) |
| CMO/REMIC | — | — | 646,737 | (156,155) | 646,737 | (156,155) |
| Municipal bonds | 20,609 | (200) | 293,467 | (33,404) | 314,076 | (33,604) |
| Total held-to-maturity securities | $20,609 | $(200) | $1,938,543 | $(384,967) | $1,959,152 | $(385,167) |

Once it is determined that a credit loss has occurred, an allowance for credit losses is established on our available-for-sale and held-to-maturity securities. Management determined that credit losses did not exist for securities in an unrealized loss position as of March 31, 2024 and December 31, 2023.

Refer to Note 4 – *Investment Securities* of the notes to the unaudited condensed consolidated financial statements of this report for additional information on our investment securities portfolio.

### Loans

Total loans and leases, at amortized cost, of $8.77 billion at March 31, 2024 decreased by $134.2 million, or 1.51%, from December 31, 2023. The decrease in total loans quarter-over-quarter included decreases of $64.0 million in commercial real estate loans, $61.3 million in dairy & livestock and agribusiness loans, $7.9 million in construction loans, $6.8 million in commercial and industrial loans, and, partially offset by an increase of $6.6 million in SFR mortgage loans. The decline in dairy and livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in the utilization rate from 80% at the end of 2023 to 75% at March 31, 2024.

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

### Distribution of Loan Portfolio by Type

*(Dollars in thousands)*

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Commercial real estate | $6,720,538 | $6,784,505 |
| Construction | 58,806 | 66,734 |
| SBA | 268,320 | 270,619 |
| SBA - Paycheck Protection Program (PPP) | 2,249 | 2,736 |
| Commercial and industrial | 963,120 | 969,895 |
| Dairy & livestock and agribusiness | 351,624 | 412,891 |
| Municipal lease finance receivables | 72,032 | 73,590 |
| SFR mortgage | 276,475 | 269,868 |
| Consumer and other loans | 57,549 | 54,072 |
| Total loans, at amortized cost | 8,770,713 | 8,904,910 |
| Less: Allowance for credit losses | (82,817) | (86,842) |
| Total loans and lease finance receivables, net | $8,687,896 | $8,818,068 |

As of March 31, 2024, $498.2 million, or 7.41% of the total commercial real estate loans included loans secured by farmland, compared to $497.7 million, or 7.34%, at December 31, 2023. The loans secured by farmland included $121.4 million for loans secured by dairy & livestock land and $376.8 million secured by agricultural land at March 31, 2024, compared to $122.4 million for loans secured by dairy & livestock land and $375.3 million for loans secured by agricultural land at December 31, 2023. As of March 31, 2024, dairy & livestock and agribusiness loans of $351.6 million were comprised of $308.5 million for dairy & livestock loans and $43.1 million for agribusiness loans, compared to $412.9 million were comprised of $374.9 million for dairy & livestock loans and $38.0 million for agribusiness loans at December 31, 2023.

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

As of March 31, 2024, the Company had $197.5 million of total SBA 504 loans. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with the first lien is typically at a 50% advance to the acquisition costs and the second lien loan provides the financing for 40% of the acquisition costs with the borrower’s down payment of 10% of the acquisition costs. The Bank retains the first lien loan for its term and sells the second lien loan to the SBA subordinated debenture program. A majority of the Bank’s 504 loans are granted for the purpose of commercial real estate acquisition. As of March 31, 2024, the Company had $70.8 million of total SBA 7(a) loans that include a guarantee of payment from the SBA (typically 75% of the loan amount, but up to 90% in certain cases) in the event of default. The SBA 7(a) loans include revolving lines of credit (SBA Express) and term loans of up to ten (10) years to finance long-term working capital requirements, capital expenditures, and/or for the purchase or refinance of commercial real estate.

As of March 31,2024, the Company had $58.8 million in construction loans. This represents 0.67% of total gross loans held-for-investment. Although our construction loans are located throughout our market footprint, the majority of construction loans consist of commercial land development and construction projects throughout California. There were no nonperforming construction loans at March 31, 2024.

Our loan portfolio is geographically disbursed throughout our marketplace. The following is the breakdown of our total held-for-investment and commercial real estate loans, by region as of March 31, 2024.

*(Dollars in thousands)*

|  | March 31, 2024 Total Loans |  | Commercial Real Estate Loans |  |
| --- | ---: | ---: | ---: | ---: |
| Los Angeles County | $3,204,076 | 36.5% | $2,349,745 | 35.0% |
| Central Valley and Sacramento | 2,076,644 | 23.7% | 1,664,015 | 24.8% |
| Orange County | 1,154,124 | 13.2% | 679,001 | 10.1% |
| Inland Empire | 1,002,479 | 11.4% | 883,428 | 13.1% |
| Central Coast | 478,068 | 5.4% | 389,610 | 5.8% |
| San Diego | 336,174 | 3.8% | 339,372 | 5.1% |
| Other California | 153,797 | 1.8% | 97,015 | 1.4% |
| Out of State | 365,351 | 4.2% | 318,352 | 4.7% |
|  | $8,770,713 | 100.0% | $6,720,538 | 100.0% |

The table below breaks down our commercial real estate portfolio.

*(Dollars in thousands)*

| Commercial real estate: | March 31, 2024 Loan Balance | Percent | Percent Owner- Occupied (1) | Average Loan Balance |
| --- | ---: | ---: | ---: | ---: |
| Industrial | $2,257,765 | 33.6% | 49.1% | $1,621 |
| Office | 1,099,264 | 16.4% | 24.5% | 1,702 |
| Retail | 928,888 | 13.8% | 11.3% | 1,686 |
| Multi-family | 835,289 | 12.4% | 0.2% | 1,594 |
| Secured by farmland (2) | 498,171 | 7.4% | 98.9% | 1,496 |
| Medical | 307,167 | 4.6% | 32.8% | 1,477 |
| Other (3) | 793,994 | 11.8% | 41.7% | 1,620 |
| Total commercial real estate | $6,720,538 | 100.0% | 35.9% | $1,621 |

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

(2) The loans secured by farmland included $121.4 million for loans secured by dairy & livestock land and $376.8 million for loans secured by agricultural land at March 31, 2024.

(3) Other loans consist of a variety of loan types, none of which exceeded 2.0% of total commercial real estate loans at March 31, 2024.

### Nonperforming Assets

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

*(Dollars in thousands)*

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Nonaccrual loans | $13,810 | $21,302 |
| Loans past due 90 days or more and still accruing interest | — | — |
| Nonperforming modified loans to borrowers experiencing financial difficulty | — | — |
| **Total nonperforming loans** | 13,810 | 21,302 |
| OREO, net | 647 | — |
| **Total nonperforming assets** | $14,457 | $21,302 |
| **Modified loans to borrowers experiencing financial difficulty** | $10,765 | $9,460 |
| Total nonperforming loans and performing modified loans to borrowers experiencing financial difficulty | $24,575 | $30,762 |
| Percentage of nonperforming loans and performing modified loans to borrowers experiencing financial difficulty to total loans, at amortized cost | 0.28% | 0.35% |
| Percentage of nonperforming assets to total loans, at amortized cost, and OREO | 0.16% | 0.24% |
| Percentage of nonperforming assets to total assets | 0.09% | 0.13% |

55

### Modifications of Loans to Borrowers Experiencing Financial Difficulty

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

There were three loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2024 with an amortized cost totaling $1.3 million as of March 31, 2024, including one dairy & livestock and agribusiness loan of $962,000 and two commercial and industrial loans totaling $350,000.

The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified as of March 31, 2024 and March 31, 2023, and the financial effect of those modifications.

| March 31, 2024 | Term Extension Amortized Cost Basis | % of Total Class of Financing Receivables | Combination-Term Extension and Interest Rate Reduction Amortized Cost Basis | % of Total Class of Financing Receivables | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial real estate loans | $2,466 | 0.03% | $686 | 0.01% | $3,152 |
| Commercial and industrial | 1,644 | 0.02% | 242 | 0.00% | 1,886 |
| Dairy & livestock and agribusiness | 5,727 | 0.07% | — | 0.00% | 5,727 |
| **Total** | $9,837 |  | $928 |  | $10,765 |
| **March 31, 2023** |  |  |  |  |  |
| Commercial real estate loans | $1,587 | 0.02% | $— | — | $1,587 |
| Commercial and industrial | 2,250 | 0.03% | — | — | 2,250 |
| Dairy & livestock and agribusiness | 1,999 | 0.02% | — | — | 1,999 |
| **Total** | $5,836 |  | $— |  | $5,836 |

The following table describes the financial effect of the loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2024.

| Loan Type | Financial Effect |
| --- | --- |
|  | **Term Extension** |
| **March 31, 2024** |  |
| Commercial real estate loans | Added a weighted-average 1.3 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
| Commercial and industrial | Added a weighted-average 0.7 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
| Dairy & livestock and agribusiness | Added a weighted-average 0.6 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
|  | **Term Extension** |
| **March 31, 2023** |  |
| Commercial real estate loans | Added a weighted-average 1.1 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
| Commercial and industrial | Added a weighted-average 0.8 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
| Dairy & livestock and agribusiness | Added a weighted-average 1.2 years to the life of loans, which reduced monthly payment amounts for the borrowers. |

56

As of March 31, 2024 and March 31, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2024 and 2023 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first.

The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty as of March 31, 2024.

*(Dollars in thousands)*

|  | Payment Status (amortized cost basis) Current | 30-89 Days Past Due | 90+ Days Past Due |
| --- | ---: | ---: | ---: |
| Commercial real estate loans | $3,152 | $— | $— |
| Commercial and industrial | 1,886 | — | — |
| Dairy & livestock and agribusiness | 5,727 | — | — |
| **Total** | $10,765 | $— | $— |

At March 31, 2024 and December 31, 2023, there was no ACL allocated to modified loans to borrowers experiencing financial difficulty. Impairment amounts identified are typically charged off against the allowance at the time the loan is considered uncollectible. There were no charge-offs on loans to borrowers experiencing financial difficulty for the three months ended March 31, 2024 and 2023.

### Nonperforming Assets and Delinquencies

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

*(Dollars in thousands)*

| Nonperforming loans: | March 31, 2024 | December 31, 2023 | September 30, 2023 |  | June 30, 2023 | March 31, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial real estate | $10,661 | $15,440 | $3,655 |  | $3,159 | $2,634 |
| Construction | — | — | — |  | — | — |
| SBA | 54 | 969 | 1,050 |  | 629 | 702 |
| Commercial and industrial | 2,727 | 4,509 | 4,672 |  | 2,039 | 2,049 |
| Dairy & livestock and agribusiness | 60 | 60 | 243 |  | 273 | 406 |
| SFR mortgage | 308 | 324 | 339 |  | 354 | 384 |
| Consumer and other loans | — | — | 4 |  | — | — |
| **Total** | **$13,810** | **$21,302** | **$9,963** | **(1)** | **$6,454** | **$6,175** |
| **% of Total loans** | **0.16%** | **0.24%** | **0.11%** |  | **0.07%** | **0.07%** |
| **Past due 30-89 days:** |  |  |  |  |  |  |
| Commercial real estate | $19,781 | $300 | $136 |  | $532 | $425 |
| Construction | — | — | — |  | — | — |
| SBA | 408 | 108 | — |  | — | 575 |
| Commercial and industrial | 6 | 12 | — |  | — | — |
| Dairy & livestock and agribusiness | — | — | — |  | 555 | 183 |
| SFR mortgage | — | 201 | — |  | — | — |
| Consumer and other loans | — | 18 | — |  | — | — |
| **Total** | **$20,195** | **$639** | **$136** |  | **$1,087** | **$1,183** |
| **% of Total loans** | **0.23%** | **0.01%** | **0.00%** |  | **0.01%** | **0.01%** |
| **OREO:** |  |  |  |  |  |  |
| Commercial real estate | $— | $— | $— |  | $— | $— |
| SBA | — | — | — |  | — | — |
| Commercial and industrial | 647 | — | — |  | — | — |
| SFR mortgage | — | — | — |  | — | — |
| **Total** | **$647** | **$—** | **$—** |  | **$—** | **$—** |
| **Total nonperforming, past due, and OREO** | **$34,652** | **$21,941** | **$10,099** |  | **$7,541** | **$7,358** |
| **% of Total loans** | **0.40%** | **0.25%** | **0.11%** |  | **0.08%** | **0.08%** |
| **Classified Loans** | **$103,080** | **$102,197** | **$92,246** |  | **$77,834** | **$66,977** |

(1) Includes $2.6 million of nonaccrual loans past due 30-89 days at September 30, 2023.

Nonperforming loans, defined as nonaccrual loans, nonperforming modified/TDR loans and loans past due 90 days or more and still accruing interest, were $13.8 million at March 31, 2024, or 0.16% of total loans. This compares to nonperforming loans of $21.3 million, or 0.24% of total loans, at December 31, 2023 and $6.2 million, or 0.07% of total loans, at March 31, 2023. The $7.5 million decrease in nonperforming loans from December 31, 2023 was primarily due to the payoff of two nonperforming commercial real estate loans totaling $2.5 million, a $2.3 million charge-off of one nonperforming commercial real estate loan, and the charge-off of one nonperforming commercial industrial loan totaling $1.1 million.

Classified loans are loans that are graded “substandard” or worse. Classified loans increased $883,000 quarter-over-quarter, primarily due to increases of $2.1 million in classified construction loans and $484,000 commercial real estate loans, partially offset by a $1.7 million decline in classified commercial and industrial loans primarily due the charge-off of one nonperforming commercial and industrial loan.

At March 31, 2024, we had one OREO property totaling $647,000. At December 31, 2023 and March 31, 2023, we had no OREO properties.

### Allowance for Credit Losses

The allowance for credit losses totaled $82.8 million as of March 31, 2024, compared to $86.8 million as of December 31, 2023 and $86.5 million as of March 31, 2023. Our allowance for credit losses at March 31, 2024 was 0.94% of total loans. This compares to 0.98% and 0.97% at December 31, 2023 and March 31, 2023, respectively. The decrease in our allowance for credit losses from December 31, 2023 was due to net charge-offs of $4.0 million reflected in the first quarter of 2024, primarily due to two borrowers in which we previously established specific loan loss reserves in 2023. Our allowance for credit losses that is established on a collective pool basis for performing loans grew from $80.9 million at December 31, 2023 to $82.8 million at March 31, 2024. The changes in our allowance over the last few quarters have been primarily due to changes in our economic forecast, as well as reserves established on specific loans. There was no provision for credit losses recorded in the first quarter of 2024, as the $1.9 million increase in the allowance for those loans evaluated on a collective pooled basis, was offset by the net impact from the $5.9 million reduction in specific reserves and the $4 million of net charge-offs. For the quarter ended March 31, 2023, we recorded $1.5 million in provision for credit losses. Net charge-offs were $77,000 for the quarter ended March 31, 2023.

The allowance for credit losses as of March 31, 2024 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. The allowance for credit loss is sensitive to both changes in these portfolio characteristics and the forecast of macroeconomic variables. Risk attributes for commercial real estate loans include Original Loan to Value ratios ("OLTV"), origination year, loan seasoning, and macroeconomic variables that include Real GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans. The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of Small Business Administration (SBA) loans (excluding Paycheck Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.

Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with downside risks weighted among multiple forecasts. As of March 31, 2024, the resulting weighted forecast resulted in Real GDP growth declining in the third and fourth quarters of 2024. Real GDP growth is forecasted to be below 2% for 2025, before returning to growth between 2% and 2.5% in 2026. Commercial real estate values are forecasted to continue their decline until reaching their lowest level in the third quarter 2024. Unemployment is forecasted to rise in 2024, peaking around 6% in the first quarter of 2025. The unemployment rate is forecasted to stay elevated through 2026.

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

*(Dollars in thousands)*

|  | As of and For the Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Allowance for credit losses at beginning of period | $86,842 | $85,117 |
| Charge-offs: |  |  |
| Commercial real estate | (2,258) | — |
| Construction | — | — |
| SBA | (90) | (94) |
| Commercial and industrial | (1,917) | (16) |
| Dairy & livestock and agribusiness | — | — |
| SFR mortgage | — | — |
| Consumer and other loans | (2) | — |
| Total charge-offs | (4,267) | (110) |
| Recoveries: |  |  |
| Commercial real estate | — | — |
| Construction | 3 | 3 |
| SBA | 63 | 12 |
| Commercial and industrial | 176 | 14 |
| Dairy & livestock and agribusiness | — | 4 |
| SFR mortgage | — | — |
| Consumer and other loans | — | — |
| Total recoveries | 242 | 33 |
| Net (charge-offs) recoveries | (4,025) | (77) |
| Provision for (recapture of) credit losses | — | 1,500 |
| Allowance for credit losses at end of period | $82,817 | $86,540 |
| Summary of reserve for unfunded loan commitments: |  |  |
| Reserve for unfunded loan commitments at beginning of period | $7,500 | $8,000 |
| Provision for unfunded loan commitments | — | 500 |
| Reserve for unfunded loan commitments at end of period | $7,500 | $8,500 |
| Reserve for unfunded loan commitments to total unfunded loan commitments | 0.40% | 0.46% |
| Amount of total loans at end of period (1) | $8,770,713 | $8,942,489 |
| Average total loans outstanding (1) | $8,824,579 | $8,963,323 |
| Net (charge-offs) to average total loans | -0.05% | 0.00% |
| Net (charge-offs) to total loans at end of period | -0.05% | 0.00% |
| Allowance for credit losses to average total loans | 0.94% | 0.97% |
| Allowance for credit losses to total loans at end of period | 0.94% | 0.97% |
| Net (charge-offs) to allowance for credit losses | -4.86% | -0.09% |
| Net (charge-offs) to provision for credit losses | 0.00% | -5.13% |

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

The Bank’s ACL methodology also produced an allowance of $7.5 million for our off-balance sheet credit exposures as of March 31, 2024, compared with $7.5 million and $8.5 million as of December 31, 2023 and March 31, 2023, respectively. The year-over-year decrease included a $500,000 recapture of provision for unfunded loan commitments in the fourth quarter of 2023 and $500,000 in provision in first quarter of 2023.

While we believe that the allowance at March 31, 2024 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that future economic conditions, interest rate fluctuations, conditions of our borrowers (including fraudulent activity), or natural disasters, which adversely affect our service areas or other circumstances or conditions, including those defined above, will not be reflected in increased provisions for credit losses in the future.

Changes in economic and business conditions could have an impact on our market area and on our loan portfolio. We continually monitor these conditions in determining our estimates of needed reserves. However, we cannot predict the extent to which the deterioration in general economic conditions, real estate values, changes in general rates of interest and changes in the financial conditions or business of a borrower may adversely affect a specific borrower’s ability to pay or the value of our collateral. See “*Risk Management – Credit Risk Management”* contained in our Annual Report on Form 10-K for the year ended December 31, 2023.

### Deposits

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

Total deposits were $11.89 billion at March 31, 2024. This represented an increase of $461.3 million, or 4.03%, from total deposits of $11.43 billion at December 31, 2023. The increase in total deposits at March 31, 2024 included $300 million in brokered deposits.

The composition of deposits is summarized as of the dates presented in the table below.

*(Dollars in thousands)*

|  | March 31, 2024 Balance | Percent | December 31, 2023 Balance | Percent |
| --- | ---: | ---: | ---: | ---: |
| Noninterest-bearing deposits | $7,112,789 | 59.80% | $7,206,175 | 63.03% |
| Interest-bearing deposits |  |  |  |  |
| Investment checking | 545,066 | 4.58% | 552,408 | 4.83% |
| Money market | 3,106,539 | 26.12% | 2,821,344 | 24.67% |
| Savings | 454,973 | 3.82% | 457,320 | 4.00% |
| Time deposits | 675,554 | 5.68% | 396,395 | 3.47% |
| Total Deposits | $11,894,921 | 100.00% | $11,433,642 | 100.00% |

The amount of noninterest-bearing deposits in relation to total deposits is an integral element in our strategy of seeking to achieve a low cost of funds. Average noninterest-bearing deposits totaled $7.18 billion for the first quarter of 2024, a decrease of $268.1 million, or 3.60%, from noninterest-bearing deposits of $7.45 billion for the fourth quarter of 2023. Average noninterest-bearing deposits were 61.72% of total average deposits for the first quarter of 2024, compared to 61.30% for the fourth quarter of 2023.

Interest-bearing non-maturity deposits, which include savings, interest-bearing demand, and money market accounts, totaled $4.11 billion at March 31, 2024, representing an increase of $275.5 million, or 7.19%, from $3.83 billion at December 31, 2023.

Time deposits totaled $675.6 million at March 31, 2024, representing an increase of $279.2 million, or 70.42%, from total time deposits of $396.4 million at December 31, 2023. This increase included $300 million in brokered deposits.

During the first quarter of 2024, $300 million of brokered deposits were issued and cash flow hedging transactions were simultaneously executed in which $300 million notional pay-fixed interest rate swaps were consummated with maturities of three years, wherein the Company pays a weighted average fixed rate of approximately 4.2% and receives daily SOFR. We entered into these interest rate derivative contracts that are designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate. The fair value of these instruments totaled $789,000 and were reflected as an asset at March 31, 2024.

Our deposits are primarily relationship based and include deposits and customer repurchase agreements ("repos"). For the first quarter of 2024, 74% of our deposits consist of business deposits and 26% consist of consumer deposits, primarily the owners and employees of our business customers. The largest percentage of our deposits, 39%, are analyzed business accounts, which represent customer operating accounts that generally utilize a wide array of treasury management products. As most of our business customers need to operate with more than $250,000 in their operating account, we have a significant percentage of deposits that are uninsured. As of March 31, 2024, 45% of our total deposits and customer repos were uncollateralized and uninsured.

Our customer deposit relationships represent a diverse set of industries. The industry classification with the largest concentration is construction, which represents 7% of our deposits. Overall, there are 16 different industry classifications that represent 2% or more of our deposits as of March 31, 2024. Our depositors have typically banked with us for many years. As of March 31, 2024, 44% of our deposit relationships have banked with us more than 10 years and 76% of our deposit relationships have been with us for three or more years.

Average total deposits for the first quarter decreased by approximately $517 million compared to the fourth quarter of 2023, while average borrowings grew by $407 million. The decline in average deposits was primarily due to deposit outflows at the end of 2023 related to estate planning for the Bank's largest deposit customer. Our average noninterest-bearing deposits continued to be greater than 61% of our average total deposits for the first quarter of 2024.

Our cost of deposits was 74 basis points on average for the first quarter of 2024, which compares to 62 basis points for the fourth quarter of 2023 and 17 basis points for the first quarter of 2023. From the first quarter of 2022 through the first quarter of 2024, our cost of deposits has increased by 71 basis points, representing a deposit beta of 14%, compared to the 525 basis point increase in the Fed Funds rate during the Federal Reserve’s tightening cycle.

### Borrowings

We offer a repurchase agreement product to our customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price that reflects the market value of the use of these funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a pre-determined balance in a demand deposit account, in order to earn interest. As of March 31, 2024 and December 31, 2023, total funds borrowed under these agreements were $275.7 million and $271.6 million, respectively, with a weighted average interest rate of 0.38% for the first quarter of 2024, compared to 0.27% for the fourth quarter of 2023 and 0.12 for the first quarter of 2023.

As a result of declining deposit balances, we had borrowings of $2.0 billion from the Federal Reserve's Bank Term Funding Program during the first quarter of 2024. Borrowings from the Bank Term Funding Program at the end of the first quarter included $695 million of advances that mature in May of this year and $1.3 billion of advances that mature in January of 2025. Our BTFP borrowings had a weighted average borrowing rate of approximately 4.75%.

As of March of 2024, BTFP was no longer available for new borrowings. We anticipate that the BTFP borrowings will be repaid through a combination of existing cash, future principal and interest payments from our security portfolio, core deposit growth, and additional wholesale funding sources which may consist of new borrowing sources such as the FHLB and/or additional brokered deposits. As of March 31, 2024, the Bank had unused borrowing capacity at the FHLB of $4.81 billion.

At March 31, 2024, loans with a carrying value of $4.24 billion were pledged to secure available lines of credit from the FHLB and the Federal Reserve Bank.

At March 31, 2024 investment securities with carrying values of $2.51 billion were pledged to secure various types of deposits, including $1.37 billion of public funds. In addition, investment securities with carrying values of $2.75 billion were pledged to secure $372.3 million for repurchase agreements, $1.88 billion for outstanding borrowings, $446 million for unused borrowing capacity and approximately $51 million for other purposes as required or permitted by law.

### Aggregate Contractual Obligations

The following table summarizes the aggregate contractual obligations as of March 31, 2024.

*(Dollars in thousands)*

|  | Total | Maturity by Period Less Than One Year | One Year Through Three Years | Four Years Through Five Years | Over Five Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Deposits (1) | $11,894,921 | $11,880,259 | $12,166 | $2,217 | $279 |
| Customer repurchase agreements (1) | 275,720 | 275,720 | — | — | — |
| Other borrowings | 1,995,000 | 1,995,000 | — | — | — |
| Deferred compensation | 23,082 | 575 | 1,152 | 1,150 | 20,205 |
| Operating leases | 24,807 | 7,193 | 11,737 | 5,208 | 669 |
| Equity investments | 24,197 | 16,782 | 6,735 | 205 | 475 |
| Total | $14,237,727 | $14,175,529 | $31,790 | $8,780 | $21,628 |

(1) Amounts exclude accrued interest.

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

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

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

Operating leases represent the total minimum lease payments due under non-cancelable operating leases. Refer to Note 12 – *Leases* of the notes to the Company’s unaudited condensed consolidated financial statements for a more detailed discussion about leases.

### Off-Balance Sheet Arrangements

The following table summarizes the off-balance sheet items at March 31, 2024.

*(Dollars in thousands)*

| Commitment to extend credit: | Total | Maturity by Period Less Than One Year | One Year Through Three Years | Four Years Through Five Years | After Five Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial real estate | $446,496 | $97,096 | $179,539 | $139,060 | $30,801 |
| Construction | 24,929 | 22,926 | — | — | 2,003 |
| SBA | 386 | 64 | — | — | 322 |
| Commercial and industrial | 1,029,607 | 750,394 | 257,136 | 1,661 | 20,416 |
| Dairy & livestock and agribusiness (1) | 203,074 | 131,015 | 72,059 | — | — |
| Municipal lease finance receivables | — | — | — | — | — |
| SFR Mortgage | 6,120 | 4,163 | — | — | 1,957 |
| Consumer and other loans | 123,704 | 16,718 | 7,308 | 2,477 | 97,201 |
| Total commitment to extend credit | 1,834,316 | 1,022,376 | 516,042 | 143,198 | 152,700 |
| Obligations under letters of credit | 55,432 | 34,091 | 21,123 | 200 | 18 |
| Total | $1,889,748 | $1,056,467 | $537,165 | $143,398 | $152,718 |

(1) Total commitments to extend credit to agribusiness were $34.8 million at March 31, 2024.

As of March 31, 2024, we had commitments to extend credit of approximately $1.83 billion, and obligations under letters of credit of $55.4 million. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit underwriting policies in granting or accepting such commitments or contingent obligations as we do for on-balance sheet instruments, which consist of evaluating customers’ creditworthiness individually. As of March 31, 2024 and 2023, the balance in this reserve was $7.5 million and $8.5 million, respectively, and was included in other liabilities. There was no provision or recapture of provision for unfunded commitments for the first quarter of 2024, compared to $500,000 in recapture of provision in the fourth quarter of 2023 and a $500,000 provision in the first quarter of 2023.

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

### Capital Resources

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

Total equity increased $8.9 million, or 0.43%, to $2.09 billion at March 31, 2024, compared to total equity of $2.08 billion at December 31, 2023. Increases to equity included $48.6 million in net earnings, that were partially offset by $27.9 million in cash dividends and an $11.7 million decrease in other comprehensive income. We engaged in no stock repurchases during the first quarter of 2024, compared to the first quarter of 2023, when we repurchased 791,800 shares of common stock, at an average repurchase price of $23.43, totaling $18.5 million.. Our tangible book value per share at March 31, 2024 was $9.36.

During the first quarter of 2024, the Board of Directors of CVB declared quarterly cash dividends totaling $0.20 per share. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB’s ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the Federal Reserve, and covenants set forth in various agreements we are a party to.

On February 1, 2022, we announced that our Board of Directors authorized a share repurchase plan to repurchase up to 10,000,000 shares of the Company’s common stock ("2022 Repurchase Program"). During the first quarter of 2023, we repurchased 791,800 shares at an average price of $23.43. We engaged in no stock repurchases during the first quarter of 2024.

The Bank and the Company are required to meet risk-based capital standards under the revised capital framework referred to as Basel III set by their respective regulatory authorities. The risk-based capital standards require the achievement of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital ratio of 6.0% and a common equity Tier 1 (“CET1”) capital ratio of 4.5%. In addition, the regulatory authorities require the highest rated institutions to maintain a minimum leverage ratio of 4.0%. To be considered “well-capitalized” for bank regulatory purposes, the Bank and the Company are required to have a CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%. At March 31, 2024, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios required to be considered “well-capitalized” for regulatory purposes. For further information about capital requirements and our capital ratios, see “Item 1. *Business – Capital Adequacy Requirements”* as described in our Annual Report on Form 10-K for the year ended December 31, 2023.

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

| Capital Ratios | Adequately Capitalized Ratios | Minimum Required Plus Capital Conservation Buffer | Well Capitalized Ratios | March 31, 2024 CVB Financial Corp. Consolidated | Citizens Business Bank | December 31, 2023 CVB Financial Corp. Consolidated | Citizens Business Bank |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Tier 1 leverage capital ratio | 4.00% | 4.00% | 5.00% | 10.46% | 10.36% | 10.27% | 10.17% |
| Common equity Tier 1 capital ratio | 4.50% | 7.00% | 6.50% | 14.95% | 14.81% | 14.65% | 14.49% |
| Tier 1 risk-based capital ratio | 6.00% | 8.50% | 8.00% | 14.95% | 14.81% | 14.65% | 14.49% |
| Total risk-based capital ratio | 8.00% | 10.50% | 10.00% | 15.77% | 15.63% | 15.50% | 15.34% |

64

### ASSET/LIABILITY AND MARKET RISK MANAGEMENT

### Liquidity and Cash Flow

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

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

In general, our liquidity is managed daily by controlling the level of liquid assets as well as the use of funds provided by the cash flow from the investment portfolio, loan demand, deposit fluctuations, and borrowings. Our definition of liquid assets includes cash and cash equivalents in excess of minimum levels needed to fulfill normal business operations, short-term investment securities, and other anticipated near term cash flows from investments. In addition to on balance sheet liquidity, we have significant off-balance sheet sources of liquidity. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal Reserve, although availability under these lines of credit are subject to certain conditions. In addition to having more than $900 million of cash on the balance sheet at March 31, 2023, we had substantial sources of off-balance sheet liquidity. These sources of available liquidity include $4.8 billion of secured and unused capacity with the Federal Home Loan Bank, $741 million of secured unused borrowing capacity at the Fed’s discount window, more than $18 million of unpledged AFS securities that could be pledged at the discount window and $300 million of unsecured lines of credit. In addition to these borrowing sources, the Bank has capacity to utilize additional brokered deposits as of March 31, 2024. We can also obtain additional liquidity from deposit growth by utilizing state and national wholesale markets.

Our primary sources of funds for the Company are deposits, customer repurchase agreements and borrowings. Total deposits and customer repos of $12.17 billion at March 31, 2024 increased $465.4 million, or 3.98%, over total deposits and customer repos of $11.71 billion at December 31, 2023. As of March 31, 2024, total borrowings, consisted of $2.0 billion of advances from the Federal Reserve’s Bank Term Funding Program, at an average cost of approximately 4.75%. The BTFP advances include maturities of $695 million in May and $1.3 billion in January of 2025. Our deposit levels and cost of deposits may fluctuate from period-to-period due to a variety of factors, including the stability of our deposit base, prevailing interest rates, and market conditions. At March 31, 2024, our deposits and customer repurchase agreements that are neither collateralized nor insured were approximately $5.4 billion, or 45% of our total deposits and customer repos.

Additional sources of liquidity include cash on deposit at the Federal Reserve, which exceeded $900 million at March 31, 2024, and principal and interest payments from our investment portfolio. We shrank our investment portfolio by not reinvesting the cashflows generated by our investments during the first quarter of 2024. Our total investment portfolio declined by $129.0 million from December 31, 2023 to $5.29 billion as of March 31, 2024. The decrease was primarily due to a $119 million decline in AFS securities. AFS securities totaled $2.84 billion at March 31, 2024, inclusive of a pre-tax net unrealized loss of $485.6. Pre-tax unrealized loss grew by $35.9 million from December 31, 2023. Market risk, is partly managed by $1 billion notional pay fixed swaps hedging the fair value of the AFS portfolio. The $35.9 million decrease in fair value of our AFS securities was partially offset by an $18 million increase in the fair value of our derivatives that hedge the change in value of our AFS portfolio.

CVB is a holding company separate and apart from the Bank that must provide for its own liquidity and must service its own obligations. Substantially all of CVB’s revenues are obtained from dividends declared and paid by the Bank to CVB. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. In addition, our regulators could limit the ability of the Bank or CVB to pay dividends or make other distributions.

Below is a summary of our average cash position and statement of cash flows for the three months ended March 31, 2024 and 2023. For further details see our “*Condensed Consolidated Statements of Cash Flows* (Unaudited)” under Part I, Item 1 of this report.

#### Consolidated Summary of Cash Flows

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Average cash and cash equivalents | $595,470 | $212,079 |
| Percentage of total average assets | 3.67% | 1.30% |
| Net cash provided by operating activities | $77,474 | $70,120 |
| Net cash provided by investing activities | 231,033 | 232,579 |
| Net cash provided by (used in) financing activities | 359,797 | (278,626) |
| Net increase in cash and cash equivalents | $668,304 | $24,073 |

Average cash and cash equivalents increased by $383.4 million, or 180.78%, to $595.5 million for the three months ended March 31, 2024, compared to $212.1 million for the same period of 2023.

At March 31, 2024, cash and cash equivalents totaled $949.6 million. This represented an increase of $722.1 million, or 317.34%, from $227.5 million at March 31, 2023. Our cash on deposit at the Federal Reserve grew by more than $700 million when compared to March 31, 2023. This growth in cash was partly attributable to the issuance of $300 million in brokered deposits. These deposits, which mature every 90 days, were combined with cash flow hedges which resulted in a fixed rate of approximately 4.2%.

### Interest Rate Sensitivity Management

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

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

Our interest rate risk policy measures the sensitivity of our net interest income over both a one-year and two-year cumulative time horizon.

The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one and two year horizon assuming no balance sheet growth, given a 200 basis point upward and a 200 basis point downward shift in interest rates depending on the level of current market rates. The simulation model uses a parallel yield curve shift that ramps rates up or down on a pro rata basis over 12-months and measures the resulting net interest income sensitivity over both the 12-month and 24-month time horizons.

The following depicts the Company’s net interest income sensitivity analysis for the periods presented below, when rates are ramped up 200bps or ramped down 200bps over a 12-month time horizon.

| Interest Rate Scenario | Estimated Net Interest Income Sensitivity (1) March 31, 2024 12-month Period | 24-month Period (Cumulative) | Interest Rate Scenario | December 31, 2023 12-month Period | 24-month Period (Cumulative) |
| --- | ---: | ---: | --- | ---: | ---: |
| + 200 basis points | 3.93% | 3.97% | + 200 basis points | 3.96% | 4.56% |
| - 200 basis points | -4.69% | -5.90% | - 200 basis points | -3.97% | -5.21% |

(1) Percentage change from base scenario.

Based on our current simulation models, we believe that the interest rate risk profile of the balance sheet is modestly asset sensitive over both a one-year and a two-year horizon. The estimated sensitivity does not necessarily represent a forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.

We also perform valuation analysis, which incorporates all cash flows over the estimated remaining life of all material balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows minus the discounted present value of all liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. EVE uses instantaneous changes in rates, as shown in the table below. Assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected duration and pricing of the indeterminate deposit portfolios. EVE sensitivity is reported in both upward and downward rate shocks. At March 31, 2024 and December 31, 2023, the EVE profile indicates a decline in net balance sheet value due to instantaneous downward changes in rates. From December 31, 2023 to March 31, 2024, our EVE sensitivity to rising rates changed from a minimal decline in value to a modest gain in value due to increased cash balances. Our overall sensitivity of EVE to changes in interest rates is modest, with the exception of more meaningful reductions in value if rates were to immediately decline by 300 or 400 basis points.

### Economic Value of Equity Sensitivity

| Instantaneous Rate Change | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| 400 bp decrease in interest rates | -17.0% | -13.9% |
| 300 bp decrease in interest rates | -11.6% | -9.3% |
| 200 bp decrease in interest rates | -7.2% | -4.7% |
| 100 bp decrease in interest rates | -3.2% | -1.6% |
| 100 bp increase in interest rates | -0.1% | -0.4% |
| 200 bp increase in interest rates | 1.2% | -0.3% |
| 300 bp increase in interest rates | 2.0% | -1.0% |
| 400 bp increase in interest rates | 2.7% | -2.2% |

As EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in asset and liability mix, changes in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.

## Market risk

As filed, 1,086 characters.

Market risk is the risk of loss from adverse changes in the market prices and interest rates. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. We do not currently have futures, forwards, or option contracts. As a result of the phase out of LIBOR, our interest rate swap derivatives and the associated loans that were indexed to LIBOR, have been replaced with one month CME Term SOFR. For further quantitative and qualitative disclosures about market risks in our portfolio, see “*Asset/Liability Management and Interest Rate Sensitivity Management”* included in Item 2 “*Management’s Discussion and Analysis of Financial Condition and Results of Operations”* presented elsewhere in this report. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Part I regarding such forward-looking information.

## Controls and procedures

As filed, 774 characters.

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

During the quarter ended March 31, 2024, there have been no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

## Risk factors

As filed, 638 characters.

There have been no material changes to the risk factors as previously disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the year ended December 31, 2023. The materiality of any risks and uncertainties identified in our Forward Looking Statements contained in this report together with those previously disclosed in the Form 10-K or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See Item 2. “*Management’s Discussion and Analysis of Financial Condition and Results of Operations”* in this Quarterly Report on Form 10-Q.

Filed May 9, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-056453. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.