# CVB Financial Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [CVB Financial Corp](/companies/cvbf.md) (CIK 354647)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 14:32 ET
- Period: 2024-09-30
- Accession: 0000950170-24-123143
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/354647/000095017024123143/cvbf-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/354647/000095017024123143/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $16.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $53.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $51.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $149.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.37 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.37 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 138,839,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 138,549,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $175.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $3.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $83.9m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $2.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $453.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-09-30 | $15.40bn | us-gaap:Assets |
| Total liabilities | at 2024-09-30 | $13.21bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $2.20bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 116,762 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 September 30, 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. |

40

### OVERVIEW

For the third quarter of 2024, we reported net earnings of $51.2 million, compared with $50.0 million for the second quarter of 2024 and $57.9 million for the third quarter of 2023. Diluted earnings per share were $0.37 for the third quarter, compared to $0.36 for the prior quarter and $0.42 for the same period last year. Net income of $51.2 million for the third quarter of 2024 produced an annualized return on average equity (“ROAE”) of 9.40%, an annualized return on average tangible common equity (“ROATCE”) of 14.93%, and an annualized return on average assets (“ROAA”) of 1.23%. Our net interest margin, tax equivalent (“NIM”), was 3.05% for the third quarter of 2024, while our efficiency ratio was 46.53%.

Net interest income was $113.6 million for the third quarter of 2024. This represented a $2.8 million, or 2.50%, increase from the second quarter of 2024, and a $9.8 million, or 7.90%, decrease from the third quarter of 2023. The quarter-over-quarter increase in net interest income was primarily due to a $7.0 million increase in interest income resulting from a $513 million average increase in our interest-earning balances due from the Federal Reserve, partially offset by a $3.8 million increase in interest on deposits. The decline in net interest income compared to the third quarter of 2023 was primarily due to a 26 basis point decline in net interest margin.

Noninterest income was $12.8 million for the third quarter of 2024, compared with $14.4 million for the second quarter of 2024 and $14.3 million for the third quarter of 2023. During the third quarter of 2024, the Bank executed sale-leaseback transactions with the sale of two buildings, which operate as Banking Centers, and were simultaneously leased back, resulting in a pre-tax net gain of $9.1 million. The gains on selling the buildings were offset by realizing a pre-tax net loss of $11.6 million on the sale of $312 million of AFS securities. Third quarter income from Bank Owned Life Insurance (“BOLI”) increased by $557,000 from the second quarter of 2024 and increased by $2 million compared to the third quarter of 2023. We recognized $320,000 in death benefits that exceeded the asset value on certain policies in the third quarter of 2024, compared to no death benefits in the second quarter of 2024 and no death benefits in the third quarter of 2023. The year-over-year increase of $2 million in BOLI income was primarily due to the restructuring and enhancements in BOLI policies during the fourth quarter of 2023.

Noninterest expense for the third quarter of 2024 was $58.8 million, compared to $56.5 million for the second quarter of 2024 and $55.0 million for the third quarter of 2023. The $2.3 million quarter-over-quarter increase included a $1.2 million increase in staff related expense, as annual salary increases took effect in July. The $690,000 quarter-over-quarter increase in regulatory assessments was due to the $700,000 accrual adjustment in the second quarter of 2024 related the FDIC special assessment. There was a $750,000 recapture of provision for unfunded loan commitments in the third quarter of 2024, compared to a $500,000 recapture of provision in the second quarter of 2024 and $900,000 recaptured in the third quarter of 2023. The $3.8 million increase in noninterest expense for the third quarter of 2024 compared to the third quarter of 2023 included increased staff related expenses of $1.9 million, or 5.48%. Compared to the third quarter of 2023, professional services increased $738,000, including a $627,000 increase in legal expense, and occupancy and equipment expense increased by $586,000.

At September 30, 2024, total assets of $15.40 billion decreased by $617.8 million, or 3.86%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $13.74 billion at September 30, 2024 decreased by $723.2 million, or 5.0%, when compared with $14.46 billion at December 31, 2023. The decrease in interest-earning assets was primarily due to a $549.9 million decrease in investment securities, and a $328.4 million decrease in net loans, partially offset by a $142.9 million increase in interest-earning balances due from the Federal Reserve.

During the third quarter of 2024, the Bank executed sale-leaseback transactions with the sale of two buildings, that are utilized as Banking Centers, for an aggregate sale price of $17 million. The Bank simultaneously entered into lease agreements with the respective purchasers for initial terms of 15 and 18 years. These sale-leaseback transactions resulted in a pre-tax net gain of $9.1 million for the third quarter of 2024. The Bank also recorded Right of Use (“ROU”) assets and corresponding operating lease liabilities each totaling $11.2 million.

Total investment securities were $4.87 billion at September 30, 2024, a decrease of $549.9 million, or 10.14%, from $5.42 billion at December 31, 2023. At September 30, 2024, investment securities held-to-maturity (“HTM”) totaled $2.41 billion, a $59.4 million, or 2.41%, decline from December 31, 2023. At September 30, 2024, investment securities available-for-sale (“AFS”) totaled $2.47 billion, inclusive of a pre-tax net unrealized loss of $367.7 million. AFS securities decreased by $490.5 million, or 16.59%, from $2.96 billion at December 31, 2023, including the impact of the sale of $312 million of AFS securities, during the third quarter of 2024. The sale of these securities resulted in a net pre-tax loss of $11.6 million. The pre-tax unrealized loss declined by $82.1 million from December 31, 2023. Fair value hedges in which $1 billion notional pay-fixed interest rate swaps with maturities ranging from 2027 to 2028, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR, had a fair value totaling

$15.0 million and were reflected as a liability at September 30, 2024. The fair value of these pay fixed interest rate swaps decreased by $8.0 million from December 31, 2023. Our tax equivalent yield on investments was 2.67% for the quarter ended September 30, 2024, compared to 2.71% for the second quarter of 2024 and 2.64% for the third quarter of 2023.

Total loans and leases, at amortized cost, of $8.57 billion at September 30, 2024, decreased by $332.3 million, or 3.73%, from December 31, 2023. The decrease in total loans included decreases of $165.9 million in commercial real estate loans, $70.5 million in dairy & livestock and agribusiness loans, $52.0 million in construction loans, and $33.4 million in commercial and industrial loans. The decline in dairy & 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 December 31, 2023 to 71% at September 30, 2024. Our yield on loans was 5.31% for the quarter ended September 30, 2024, compared to 5.26% for the quarter ended June 30, 2024 and 5.07% for the third quarter of 2023.

The allowance for credit losses totaled $82.9 million at September 30, 2024, compared to $86.8 million at December 31, 2023. There was no provision for credit losses in the first three quarters 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.

Noninterest-bearing deposits were $7.14 billion at September 30, 2024, a decrease of $69.4 million, or 0.96%, when compared to $7.21 billion at December 31, 2023. At September 30, 2024, noninterest-bearing deposits were 59.12% of total deposits, compared to 63.03% at December 31, 2023.

Interest-bearing deposits were $4.94 billion at September 30, 2024, an increase of $708.2 million, or 16.75%, when compared to $4.23 billion at December 31, 2023. The increase in interest-bearing deposits included $400 million in new brokered time deposits issued during the first quarter of 2024. These brokered time deposits mature every 90 days. $300 million of these time deposits were combined with $300 million in cash flow hedges during the first quarter of 2024, resulting in a fixed rate of approximately 4.2%. Customer repurchase agreements totaled $394.5 million at September 30, 2024, compared to $271.6 million at December 31, 2023. Our average cost of total deposits including customer repurchase agreements was 1.01% for the quarter ended September 30, 2024, compared to 0.87% for the quarter ended June 30, 2024 and 0.51% for the third quarter of 2023.

At September 30, 2024, total borrowings consisted of $500 million of FHLB advances. The FHLB advances include maturities of $300 million, at an average cost of approximately 4.73%, maturing in May of 2026, and $200 million, at a cost of 4.27% maturing in May of 2027. During the third quarter of 2024, we repaid $1.3 billion of borrowings from the Federal Reserve’s Bank Term Funding Program, with a cost of 4.76%, that were scheduled to mature in January of 2025.

The Company’s total equity was $2.20 billion at September 30, 2024. This represented an overall increase of $119.9 million from total equity of $2.08 billion at December 31, 2023. Increases to equity included $149.9 million in net earnings and a $48.7 million increase in other comprehensive income from the tax effected impact of the net increase in market value of available-for-sale securities, that were partially offset by $83.9 million in cash dividends. We engaged in no stock repurchases during the first nine months of 2024. Our tangible book value per share at September 30, 2024 was $10.17.

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of September 30, 2024, the Company’s Tier 1 leverage capital ratio was 10.60%, common equity Tier 1 ratio was 15.77%, Tier 1 risk-based capital ratio was 15.77%, and total risk-based capital ratio was 16.59%. 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 September 30, 2024 | June 30, 2024 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $113,619 | $110,849 | $2,770 | 2.50% |
| Provision for credit losses | — | — | — | — |
| Noninterest income | 12,834 | 14,424 | (1,590) | -11.02% |
| Noninterest expense | (58,835) | (56,497) | (2,338) | -4.14% |
| Income taxes | (16,394) | (18,741) | 2,347 | 12.52% |
| Net earnings | $51,224 | $50,035 | $1,189 | 2.38% |
| Earnings per common share: |  |  |  |  |
| Basic | $0.37 | $0.36 | $0.01 |  |
| Diluted | $0.37 | $0.36 | $0.01 |  |
| Return on average assets | 1.23% | 1.24% | -0.01% |  |
| Return on average shareholders' equity | 9.40% | 9.57% | -0.17% |  |
| Efficiency ratio | 46.53% | 45.10% | 1.43% |  |
| Noninterest expense to average assets | 1.42% | 1.40% | 0.02% |  |

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

|  | Three Months Ended September 30, 2024 | 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $113,619 | $123,371 | $(9,752) | -7.90% |
| Provision for credit losses | — | (2,000) | 2,000 | 100.00% |
| Noninterest income | 12,834 | 14,309 | (1,475) | -10.31% |
| Noninterest expense | (58,835) | (55,058) | (3,777) | -6.86% |
| Income taxes | (16,394) | (22,735) | 6,341 | 27.89% |
| Net earnings | $51,224 | $57,887 | $(6,663) | -11.51% |
| Earnings per common share: |  |  |  |  |
| Basic | $0.37 | $0.42 | $(0.05) |  |
| Diluted | $0.37 | $0.42 | $(0.05) |  |
| Return on average assets | 1.23% | 1.40% | -0.17% |  |
| Return on average shareholders' equity | 9.40% | 11.33% | -1.93% |  |
| Efficiency ratio | 46.53% | 39.99% | 6.54% |  |
| Noninterest expense to average assets | 1.42% | 1.33% | 0.09% |  |

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

|  | Nine Months Ended September 30, 2024 | 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $336,929 | $368,634 | $(31,705) | -8.60% |
| Provision for credit losses | — | (4,000) | 4,000 | -100.00% |
| Noninterest income | 41,371 | 40,167 | 1,204 | 3.00% |
| Noninterest expense | (175,103) | (163,956) | (11,147) | -6.80% |
| Income taxes | (53,339) | (67,918) | 14,579 | 21.47% |
| Net earnings | $149,858 | $172,927 | $(23,069) | -13.34% |
| Earnings per common share: |  |  |  |  |
| Basic | $1.07 | $1.24 | $(0.17) |  |
| Diluted | $1.07 | $1.24 | $(0.17) |  |
| Return on average assets | 1.23% | 1.41% | -0.18% |  |
| Return on average shareholders' equity | 9.43% | 11.50% | -2.07% |  |
| Efficiency ratio | 46.29% | 40.11% | 6.18% |  |
| Noninterest expense to average assets | 1.43% | 1.34% | 0.09% |  |

43

### 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 September 30, 2024 | June 30, 2024 | September 30, 2023 | Nine Months Ended September 30, 2024 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net Income | $51,224 | $50,035 | $57,887 | $149,858 | $172,927 |
| Add: Amortization of intangible assets | 1,286 | 1,437 | 1,567 | 4,161 | 5,006 |
| Less: Tax effect of amortization of intangible assets \[1\] | (380) | (425) | (463) | (1,230) | (1,480) |
| Tangible net income | $52,130 | $51,047 | $58,991 | $152,789 | $176,453 |
| Average stockholders' equity | $2,166,793 | $2,102,466 | $2,027,030 | $2,122,870 | $2,011,172 |
| Less: Average goodwill | (765,822) | (765,822) | (765,822) | (765,822) | (765,822) |
| Less: Average intangible assets | (11,819) | (13,258) | (17,526) | (13,216) | (19,256) |
| Average tangible common equity | $1,389,152 | $1,323,386 | $1,243,682 | $1,343,832 | $1,226,094 |
| Return on average equity, annualized \[2\] | 9.40% | 9.57% | 11.33% | 9.43% | 11.50% |
| Return on average tangible common equity, annualized \[2\] | 14.93% | 15.51% | 18.82% | 15.19% | 19.24% |

(1) Tax effected at respective statutory rates.

(2) Annualized where applicable.

### 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 and nine months ended September 30, 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 September 30, 2024 Average Balance | Interest | Yield/ Rate | 2023 Average Balance | Interest | Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Taxable | $2,637,216 | $20,010 | 3.03% | $3,015,614 | $22,272 | 2.95% |
| Tax-advantaged | 24,774 | 168 | 3.25% | 25,351 | 169 | 3.19% |
| Held-to-maturity securities: |  |  |  |  |  |  |
| Taxable | 2,046,987 | 10,896 | 2.13% | 2,121,571 | 11,139 | 2.10% |
| Tax-advantaged | 371,056 | 2,388 | 3.11% | 380,054 | 2,437 | 3.10% |
| Investment in FHLB stock | 18,012 | 375 | 8.28% | 21,560 | 598 | 11.00% |
| Interest-earning deposits with other institutions | 1,232,551 | 16,986 | 5.48% | 473,391 | 6,422 | 5.38% |
| Loans (2) | 8,605,270 | 114,929 | 5.31% | 8,862,462 | 113,190 | 5.07% |
| Total interest-earning assets | 14,935,866 | 165,752 | 4.43% | 14,900,003 | 156,227 | 4.18% |
| Total noninterest-earning assets | 1,577,295 |  |  | 1,533,575 |  |  |
| Total assets | $16,513,161 |  |  | $16,433,578 |  |  |
| INTEREST-BEARING LIABILITIES |  |  |  |  |  |  |
| Savings deposits (3) | $4,189,345 | $23,427 | 2.22% | $4,459,967 | $15,670 | 1.39% |
| Time deposits | 741,875 | 6,394 | 3.43% | 309,930 | 847 | 1.08% |
| Total interest-bearing deposits | 4,931,220 | 29,821 | 2.41% | 4,769,897 | 16,517 | 1.37% |
| FHLB advances, other borrowings, and customer repurchase agreements | 2,093,364 | 22,312 | 4.24% | 1,658,907 | 16,339 | 3.91% |
| Interest-bearing liabilities | 7,024,584 | 52,133 | 2.95% | 6,428,804 | 32,856 | 2.03% |
| Noninterest-bearing deposits | 7,124,952 |  |  | 7,813,120 |  |  |
| Other liabilities | 196,832 |  |  | 164,624 |  |  |
| Stockholders' equity | 2,166,793 |  |  | 2,027,030 |  |  |
| Total liabilities and stockholders' equity | $16,513,161 |  |  | $16,433,578 |  |  |
| Net interest income |  | $113,619 |  |  | $123,371 |  |
| Net interest spread - tax equivalent |  |  | 1.48% |  |  | 2.15% |
| Net interest margin |  |  | 3.03% |  |  | 3.29% |
| Net interest margin - tax equivalent |  |  | 3.05% |  |  | 3.31% |

(1) Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended September 30, 2024 and 2023. The non TE rates were 2.63% and 2.60% for the three months ended September 30, 2024 and 2023, respectively.

(2) Includes loan fees of $748,000 and $763,000 for the three months ended September 30, 2024 and 2023, respectively. Prepayment penalty fees of $830,000 and $373,000 are included in interest income for the three months ended September 30, 2024 and 2023, respectively.

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

*(Dollars in thousands)*

| INTEREST-EARNING ASSETS Investment securities (1) Available-for-sale securities: | Nine Months Ended September 30, 2024 Average Balance | Interest | Yield/ Rate | 2023 Average Balance | Interest | Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Taxable | $2,750,063 | $62,347 | 3.02% | $3,113,643 | $60,887 | 2.61% |
| Tax-advantaged | 24,918 | 502 | 3.22% | 25,726 | 506 | 3.14% |
| Held-to-maturity securities: |  |  |  |  |  |  |
| Taxable | 2,065,950 | 32,930 | 2.13% | 2,143,195 | 33,939 | 2.11% |
| Tax-advantaged | 373,477 | 7,201 | 3.11% | 381,604 | 7,333 | 3.10% |
| Investment in FHLB stock | 18,012 | 1,171 | 8.68% | 27,460 | 1,430 | 6.96% |
| Interest-earning deposits with other institutions | 799,443 | 32,884 | 5.49% | 293,203 | 11,583 | 5.28% |
| Loans (2) | 8,720,058 | 345,478 | 5.29% | 8,905,697 | 332,574 | 4.99% |
| Total interest-earning assets | 14,751,921 | 482,513 | 4.38% | 14,890,528 | 448,252 | 4.04% |
| Total noninterest-earning assets | 15,814,501 |  |  | 1,522,286 |  |  |
| Total assets | $16,333,372 |  |  | $16,412,814 |  |  |
| INTEREST-BEARING LIABILITIES |  |  |  |  |  |  |
| Savings deposits (3) | $4,064,625 | $61,844 | 2.03% | $4,327,906 | $31,268 | 0.97% |
| Time deposits | 640,941 | 15,322 | 3.19% | 296,942 | 1,379 | 0.62% |
| Total interest-bearing deposits | 4,705,566 | 77,166 | 2.19% | 4,624,848 | 32,647 | 0.94% |
| FHLB advances, other borrowings, and customer repurchase agreements | 2,177,051 | 68,418 | 4.20% | 1,734,999 | 46,971 | 3.62% |
| Interest-bearing liabilities | 6,882,617 | 145,584 | 2.83% | 6,359,847 | 79,618 | 1.67% |
| Noninterest-bearing deposits | 7,153,557 |  |  | 7,908,749 |  |  |
| Other liabilities | 174,328 |  |  | 133,046 |  |  |
| Stockholders' equity | 2,122,870 |  |  | 2,011,172 |  |  |
| Total liabilities and stockholders' equity | $16,333,372 |  |  | $16,412,814 |  |  |
| Net interest income |  | $336,929 |  |  | $368,634 |  |
| Net interest spread - tax equivalent |  |  | 1.56% |  |  | 2.36% |
| Net interest margin |  |  | 3.05% |  |  | 3.31% |
| Net interest margin - tax equivalent |  |  | 3.06% |  |  | 3.32% |

(1) Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the nine months ended September 30, 2024 and 2023. The non TE rates were 2.63% and 2.42% for the nine months ended September 30, 2024 and 2023 respectively.

(2) Includes loan fees of $2.2 million and $2.4 million for nine months ended September 30, 2024 and 2023, respectively. Prepayment penalty fees of $1.9 million and $1.6 million are included in interest income for the nine months ended September 30, 2024 and 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 September 30, 2024 Compared to 2023 Increase (Decrease) Due to Volume | Rate | Rate/ Volume | Total |
| --- | ---: | ---: | ---: | ---: |
| Taxable investment securities | $(2,806) | $618 | $(74) | $(2,262) |
| Tax-advantaged investment securities | (4) | 3 | — | (1) |
| Held-to-maturity securities: |  |  |  |  |
| Taxable investment securities | (394) | 155 | (4) | (243) |
| Tax-advantaged investment securities | (58) | 9 | — | (49) |
| Investment in FHLB stock | (98) | (147) | 22 | (223) |
| Interest-earning deposits with other institutions | 10,271 | 119 | 174 | 10,564 |
| Loans | (3,276) | 5,478 | (463) | 1,739 |
| Total interest income | 3,635 | 6,235 | (345) | 9,525 |
| Interest expense: |  |  |  |  |
| Savings deposits | (948) | 9,313 | (608) | 7,757 |
| Time deposits | 1,177 | 1,827 | 2,543 | 5,547 |
| FHLB advances, other borrowings, and customer repurchase agreements | 4,267 | 1,387 | 319 | 5,973 |
| Total interest expense | 4,496 | 12,527 | 2,254 | 19,277 |
| Net interest income | $(861) | $(6,292) | $(2,599) | $(9,752) |

*(Dollars in thousands)*

| Interest income: Available-for-sale securities: | Comparison of Nine Months Ended September 30, 2024 Compared to 2023 Increase (Decrease) Due to Volume | Rate | Rate/ Volume | Total |
| --- | ---: | ---: | ---: | ---: |
| Taxable investment securities | $(9,490) | $12,968 | $(2,018) | $1,460 |
| Tax-advantaged investment securities | (21) | 16 | 1 | (4) |
| Held-to-maturity securities: |  |  |  |  |
| Taxable investment securities | (1,631) | 296 | 326 | (1,009) |
| Tax-advantaged investment securities | (208) | 33 | 43 | (132) |
| Investment in FHLB stock | (658) | 473 | (74) | (259) |
| Interest-earning deposits with other institutions | 26,739 | 624 | (6,062) | 21,301 |
| Loans | (9,268) | 26,658 | (4,486) | 12,904 |
| Total interest income | 5,463 | 41,068 | (12,270) | 34,261 |
| Interest expense: |  |  |  |  |
| Savings deposits | (2,543) | 46,155 | (13,036) | 30,576 |
| Time deposits | 2,136 | 7,638 | 4,169 | 13,943 |
| FHLB advances, other borrowings, and customer repurchase agreements | 16,001 | 10,034 | (4,588) | 21,447 |
| Total interest expense | 15,594 | 63,827 | (13,455) | 65,966 |
| Net interest income | $(10,131) | $(22,759) | $1,185 | $(31,705) |

47

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

Net interest income, before provision for credit losses, of $113.6 million for the third quarter of 2024 decreased by $9.8 million, or 7.90%, from the third quarter of 2023. The decline in net interest income compared to the third quarter of 2023 was primarily due to a 26 basis point decline in net interest margin. The decline in net interest margin was the result of a 55 basis point increase in funding costs, which was partially offset by a 25 basis point increase in the average earning asset yield. The increase in earning asset yield was positively impacted by a 24 basis point increase in loan yields and a modest change in the mix of assets, with higher yielding balances at the Federal Reserve increasing and the lower yielding investment portfolio declining. Compared to the third quarter of 2023, the average balance of investment securities decreased by $462.6 million, declining from 37% to 34% of total earning assets. Conversely, the average amount of funds held at the Federal Reserve increased by $748.8 million, growing from 3.1% of total earning assets in the third quarter of 2023 to 8.2% for the third quarter of 2024.

Total interest income of $165.8 million grew by $9.5 million, or 6.10%, when compared to the third quarter of 2023. This increase was primarily due to a 25 basis point expansion of the yield on earning assets. Average loan balances declined by $257.2 million. Loan yields grew from 5.07% for the third quarter of 2023 to 5.31% for the third quarter of 2024. Likewise, the yield on investment securities increased by 3 basis points from the prior year, including the $496,000 increase in interest income associated with fair value hedges executed in June of 2023.

Total interest income and fees on loans for the third quarter of 2024 was $114.9 million, an increase of $1.7 million, or 1.54%, from the third quarter of 2023. This increase in income was primarily due to higher loan yields, which grew from 5.07% in the third quarter of 2023 to 5.31% in the second 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 $33.5 million, a decrease of $2.6 million, or 7.09%, from the third quarter of 2023. The decrease was driven by a $462.6 million decline in the average balance of investment on securities, including the impact from the sale of $312 million of AFS securities during the third quarter of 2024. The three basis point increase in yield includes the positive carry on the fair value hedges executed in late June of 2023, which resulted in $4.3 million of interest income in the third quarter of 2024, compared to $3.8 million in the third quarter of 2023. Excluding the impact of these swaps, interest income on investment securities would have declined by $3.1 million.

Interest expense of $52.1 million for the third quarter of 2024, increased $19.3 million, compared to the third quarter of 2023. Total cost of funds of 1.47% for the third quarter of 2024 increased from 0.92% for the year ago quarter. This 55 basis point increase in cost of funds was primarily the result of a 104 basis point increase in the cost of total interest-bearing deposits. Interest expense on time deposits grew by $5.5 million, as total time deposits grew by $431.9 million on average over the prior year quarter, including the impact from adding $400 million of brokered time deposits during the first quarter of 2024. Interest expense for non-maturity interest-bearing deposits, increased by $7.8 million over the third quarter of 2023, as a $270.6 million decline in the average balance of these deposits was offset by an increase in the cost of these interest-bearing deposits from 1.39% in the prior year quarter to 2.22% for the third quarter of 2024. Average noninterest-bearing deposits were 59.10% of total deposits for the third quarter of 2024, compared to 62.09% for the third quarter of 2023. Interest expense on borrowings increased by $4.6 million, compared to the third quarter of 2023, due to an increase in average borrowings of $411.3 million, which had an average borrowing cost of 4.77% in the third quarter of 2024, compared to 4.84% in the prior year quarter.

#### Nine Months of 2024 Compared to Nine Months of 2023

Net interest income, before provision for credit losses, was $336.9 million for the nine months ended September 30, 2024, a decrease of $31.7 million, or 8.6%, compared to $368.6 million for the same period of 2023. Interest-earning assets decreased on average by $138.6 million, or 0.93%, from $14.89 billion for the nine months ended September 30, 2023 to $14.75 billion for the same period in the current year. Our net interest margin (TE) was 3.06% for the first nine months of 2024, compared to 3.32% for the same period of 2023.

Total interest income of $482.5 million for the nine months ended September 30, 2024, was $34.3 million, or 7.64%, higher than the same period of 2023. This increase was primarily due to a 34 basis point expansion of the yield on earning assets, which offset a $138.6 million decline in average earning assets. The $138.6 million year-over-year decrease in average earning assets resulted from a decline of $449.8 million in average investment securities and a $185.6 million decrease in our average loan balances, offset by a $500.7 million increase the average amount of funds held at the Federal Reserve. The 34 basis point increase in the average earning asset yield compared to the first nine months of 2023 resulted from both a 30 basis point increase in loan yields and a $7.8 million increase in interest income from the fair value hedges that were initiated in June of 2023. The fair value hedges impacted the yield on investment securities, resulting in an increase from 2.42% for the first nine months of 2023 to 2.63% for the nine months ended September 30, 2024. Interest income from funds deposited at the Federal Reserve increased by $12.9 million, primary due to a $500.7 million increase in average balances at the Federal Reserve.

Total interest income and fees on loans for the nine months ended September 30, 2024, was $345.5 million, an increase of $12.9 million, or 3.88%, when compared to the same period of 2023. This increase in income was due to higher loan yields, which grew year-over-year, as rising interest rates contributed to an increase in yields from 4.99% for the first nine months of 2023 to 5.29% for the same period of 2024.

Interest income from investment securities of $103.0 million for the nine months ended September 30, 2024, increased $315,000 from $102.7 million for the first nine months of 2023. This increase was driven by a 22 basis point increase in the yield on securities, compared to the first nine months of 2023. The increase in yield includes the positive carry on the fair value hedges executed in late June of 2023. Excluding the impact of these swaps, interest income on investment securities would have declined by $7.5 million, as average investment securities decreased by $449.8 million when compared with the third quarter of 2023.

Interest expense of $145.6 million for the nine months ended September 30, 2024, increased by $66.0 million from the same period of 2023. Total cost of funds for the first nine months of 2024 was 1.39%, compared with 0.75% for the same period of 2023. Noninterest-bearing deposits for the nine months ending September 30, 2024, declined on average by $755.2 million, compared to the first nine months of 2023, but continued to represent more than 60% of total average deposits for the nine month period. Average noninterest-bearing deposits represented 60.32% of our total deposits for the nine months ended September 30, 2024, compared to 63.10% for the same period of 2023. The rate on interest-bearing deposits for the first nine months of 2024 increased by 125 basis points from the same period in 2023. Time deposits increased on average between the two periods by $344.0 million, with the cost of time deposits increasing from 0.62% in the prior year period to 3.19% for the first nine months of 2024. The $13.9 million increase in interest expense on time deposits was driven by the addition of $400 million in brokered time deposits during the first quarter of 2024. Non-maturity interest-bearing deposits declined on average from the prior year period by $263.3 million, while the cost of these deposits increased by 1.06%, resulting in a $30.6 million increase in interest expense. Average borrowings for the first nine months of 2024 were $1.86 billion at a cost of 4.76%, compared with 4.86% on $1.27 billion of borrowings for the same period of 2023, resulting in a $19.9 million increase in interest expense.

### 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 third quarter of 2024, compared to $2.0 million in provision in the third quarter of 2023. Net recoveries for the third quarter of 2024 were $156,000, compared to $28,000 in the third quarter of 2023. Allowance for credit losses represented 0.97% of total loans at September 30, 2024, compared to 0.98% at December 31, 2024 and 1.00% at September 30, 2023.

There was no provision for credit losses for the nine months ended September 30, 2024, compared to $4.0 million in provision for credit losses for the same period of 2023. We experienced credit charge-offs of $4.3 million and total recoveries of $444,000, resulting in net charge-offs of $3.9 million for 2024 year-to-date. For the nine months ended September 30, 2023, we experienced credit charge-offs of $224,000 and total recoveries of $102,000, resulting in net charge-offs of $122,000. 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, and the continued inflationary pressures 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 September 30, 2024 | 2023 | Variance $% |  | Nine Months Ended September 30, 2024 | 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Service charges on deposit accounts | $5,120 | $5,062 | $58 | 1.15% | $15,273 | $15,244 | $29 | 0.19% |
| Trust and investment services | 3,565 | 3,246 | 319 | 9.83% | 10,217 | 9,475 | 742 | 7.83% |
| Bankcard services | 355 | 354 | 1 | 0.28% | 1,110 | 1,221 | (111) | -9.09% |
| BOLI income | 3,499 | 1,548 | 1,951 | 126.03% | 10,034 | 4,834 | 5,200 | 107.57% |
| Swap fee income | — | — | — | — | — | 632 | (632) | -100.00% |
| Loss on sale of AFS investment securities | (11,582) | — | (11,582) | — | (11,582) | — | (11,582) | — |
| Gain on sale leaseback transactions | 9,106 | — | 9,106 | — | 9,106 | — | 9,106 | — |
| Gain/(loss) on sale of other investments | — | 2,575 | (2,575) | -100.00% | — | 2,575 | (2,575) | -100.00% |
| Other | 2,771 | 1,524 | 1,247 | 81.82% | 7,213 | 6,186 | 1,027 | 16.60% |
| Total noninterest income | $12,834 | $14,309 | $(1,475) | -10.31% | $41,371 | $40,167 | $1,204 | 3.00% |

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

During the third quarter of 2024, the Bank executed sale-leaseback transactions with the sale of two buildings, which operate as Banking Centers, and were simultaneously leased back, resulting in a pre-tax net gain of $9.1 million. The gains on selling the buildings were offset by realizing a pre-tax net loss of $11.6 million on the sale of $312 million of AFS securities. Third quarter income from BOLI increased $2 million, primarily due to the restructuring and enhancements in our BOLI policies completed in the fourth quarter of 2023. Third quarter 2024 noninterest income was approximately $2.6 million lower than the prior year period due to income from an equity fund distribution, related to a CRA investment, that occurred in the third quarter of 2023 .Other income in the third quarter of 2024 included an increase of approximately $1.0 million related to changes in the net asset value of certain CRA equity investments.

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 September 30, 2024, CitizensTrust had approximately $4.7 billion in assets under management and administration, including $3.3 billion in assets under management. CitizensTrust generated fees of $3.6 million for the third quarter of 2024, compared to $3.2 million for the same period of 2023.

The increase in BOLI income was primarily due to the restructuring and enhancements in our BOLI policies in the fourth quarter of 2023. We recognized $320,000 in death benefits that exceeded the asset value on certain policies in the third quarter of 2024, compared with no death benefits in the third quarter of 2023. As a result of the restructuring and enhancements in BOLI policies during the fourth quarter of 2023, the income derived from increases in the cash-surrender value of the policies was $1.5 million higher in the third quarter of 2024, when compared to the third quarter of 2023.

#### Nine Months of 2024 Compared to Nine Months of 2023

The $5.2 million year-over-year increase in BOLI income was primarily due to the restructuring and enhancements in our BOLI policies in the fourth quarter of 2023. Trust and investment fees grew by $742,000 or 7.83% due to increased assets under management. The swap related fees reflected in 2023 resulted from the conversion to SOFR of all of our previously originated interest rate swaps indexed to LIBOR, resulting in a $600,000 period-over-period decline in these fees.

### Noninterest Expense

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

*(Dollars in thousands)*

| Noninterest expense: | Three Months Ended September 30, 2024 | 2023 | Variance $% |  | Nine Months Ended September 30, 2024 | 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $36,647 | $34,744 | $1,903 | 5.48% | $108,474 | $103,539 | $4,935 | 4.77% |
| Occupancy | 4,997 | 4,730 | 267 | 5.64% | 14,232 | 13,915 | 317 | 2.28% |
| Equipment | 1,207 | 888 | 319 | 35.92% | 3,309 | 2,670 | 639 | 23.93% |
| Professional services | 2,855 | 2,117 | 738 | 34.86% | 7,836 | 6,375 | 1,461 | 22.92% |
| Computer software expense | 3,906 | 3,648 | 258 | 7.07% | 11,380 | 10,372 | 1,008 | 9.72% |
| Marketing and promotion | 1,964 | 1,628 | 336 | 20.64% | 5,550 | 4,664 | 886 | 19.00% |
| Amortization of intangible assets | 1,286 | 1,567 | (281) | -17.93% | 4,161 | 5,006 | (845) | -16.88% |
| Telecommunications expense | 479 | 496 | (17) | -3.43% | 1,461 | 1,518 | (57) | -3.75% |
| Regulatory assessments | 2,104 | 2,181 | (77) | -3.53% | 7,963 | 6,417 | 1,546 | 24.09% |
| Insurance | 507 | 504 | 3 | 0.60% | 1,523 | 1,515 | 8 | 0.53% |
| Loan expense | 72 | 364 | (292) | -80.22% | 537 | 845 | (308) | -36.45% |
| OREO expense | 3 | — | 3 | — | 97 | — | 97 | — |
| (Recapture of) provision for unfunded loan commitments | (750) | (900) | 150 | 16.67% | (1,250) | — | (1,250) | — |
| Directors' expenses | 306 | 361 | (55) | -15.24% | 961 | 870 | 91 | 10.46% |
| Stationery and supplies | 248 | 280 | (32) | -11.43% | 717 | 773 | (56) | -7.24% |
| Other | 3,004 | 2,450 | 554 | 22.61% | 8,152 | 5,477 | 2,675 | 48.84% |
| Total noninterest expense | $58,835 | $55,058 | $3,777 | 6.86% | $175,103 | $163,956 | $11,147 | 6.80% |
| Noninterest expense to average assets | 1.42% | 1.33% |  |  | 1.43% | 1.34% |  |  |
| Efficiency ratio (1) | 46.53% | 39.99% |  |  | 46.29% | 40.11% |  |  |

(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 1.42% for the third quarter of 2024, compared to 1.33% for the third quarter of 2023.

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 was 46.53% for the third quarter of 2024, compared to 39.99% for the third quarter of 2023.

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

Noninterest expense of $58.8 million for the third quarter of 2024, was $3.8 million, or 6.86% higher than the third quarter of 2023. The $3.8 million increase in noninterest expense year-over-year included increased staff related expenses of $1.9 million, or 5.48%. Professional services increased $738,000, including a $627,000 increase in legal expense year-over-year. Occupancy and equipment expense increased by $586,000, or 10.43%, and software expense increased $258,000, or 7.07%, year-over-year. Occupancy expense grew by $267,000, or 5.64%, when compared with the prior year quarter, including the impact of the higher occupancy costs for the two Banking Centers involved in the sale leaseback transactions.

#### Nine Months of 2024 Compared to Nine Months of 2023

Noninterest expense of $175.1 million for the first nine months of 2024 was $11.1 million higher than the prior year period. Year-over-year increases included a $4.9 million increase in salaries and employee benefits primarily due to inflationary pressures on salary and benefits. The $1.5 million net increase in the FDIC accrual year-over-year was the result of the FDIC increasing its initial estimate of losses from last year’s bank failures. Marketing and promotion expense increased by $886,000 primarily due to $600,000 in higher donations in the first nine months of 2024. Year-over-year expense increases included $1.0 million in higher data processing costs from new technology investments, a $614,000 increase in deferred compensation expense, and a $1.4 million increase in legal expense. The first nine month of 2024 included a $1.3 million in recapture of provision for unfunded loan commitments, compared to no provision for the same period of 2023. As a percentage of average assets, noninterest expense was 1.43% for the nine months ended September 30, 2024, compared to 1.34% for the same period of 2023. For the nine months ended September 30, 2024, the efficiency ratio was 46.29%, compared to 40.11% for the same period of 2023.

### Income Taxes

The Company’s effective tax rate for the three and nine months ended September 30, 2024 was 24.25% and 26.25%, respectively, compared to 28.20% for both the three and nine months ended September 30, 2023. 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. Investments in tax credits and higher BOLI income were the primary drivers of the lower effective tax rate in 2024.

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 $15.40 billion at September 30, 2024 decreased by $617.8 million, or 3.86%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $13.74 billion at September 30, 2024 decreased by $723.2 million, or 5.0%, when compared with $14.46 billion at December 31, 2023. The decrease in interest-earning assets was primarily due to a $549.9 million decrease in investment securities and a $332.3 million decrease in total loans, partially offset by a $142.9 million increase in interest-earning balances due from the Federal Reserve.

Total liabilities were $13.21 billion at September 30, 2024, a decrease of $737.6 million, or 5.29%, from total liabilities of $13.94 billion at December 31, 2023. The $638.8 million increase in total deposits at September 30, 2024 included the addition of $400 million in brokered time deposits. These brokered time deposits mature every 90 days, including $300 million of these deposits that were issued in connection with cash flow hedges during the first quarter of 2024. The result of these hedged time deposits is a weighted average fixed rate of approximately 4.2%. Borrowings decreased by $1.57 billion from December 31, 2023, as $2.1 billion of borrowings from the Federal Reserve’s Bank Term Funding Program were paid-off and $500 million of FHLB advances were issued. At September 30, 2024, total borrowings consisted of $500 million of FHLB advances. The FHLB advances include maturities of $300 million, at an average cost of approximately 4.73%, maturing in May of 2026, and $200 million, at a cost of 4.27% maturing in May of 2027. During the third quarter of 2024, we repaid $1.3 billion of borrowings from the Federal Reserve’s Bank Term Funding Program, with a cost of 4.76%, that were scheduled to mature in January of 2025.

Total equity increased $119.9 million to $2.20 billion at September 30, 2024, compared to total equity of $2.08 billion at December 31, 2023. Increases to equity included $149.9 million in net earnings and a $48.7 million increase in other comprehensive income, that were partially offset by $83.9 million in cash dividends. We engaged in no stock repurchases during the first nine months of 2024. Our tangible book value per share at September 30, 2024 was $10.17.

### Sale-Leaseback Transactions

During the third quarter of 2024, the Bank executed sale-leaseback transactions with the sale of two buildings, that are utilized as Banking Centers, for an aggregate sale price of $17 million. The Bank simultaneously entered into lease agreements with the respective purchasers for initial terms of 15 and 18 years. These sale-leaseback transactions resulted in a pre-tax net gain of $9.1 million for the third quarter of 2024. The Bank also recorded ROU assets and corresponding operating lease liabilities each totaling $11.2 million.

### Investment Securities

The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. At September 30, 2024, total investment securities were $4.87 billion. This represented a decrease of $549.9 million, or 10.14%, from $5.42 billion at December 31, 2023. The overall decrease in investment securities was primarily due to a $490.5 million decline in our AFS securities. Concurrent with the sale-leaseback transactions during the third quarter of 2024, the Bank sold AFS securities with a book value of $312 million, resulting in a net pre-tax loss of $11.6 million.

At September 30, 2024, our AFS investment securities totaled $2.47 billion, inclusive of a pre-tax net unrealized loss of $367.7 million. The $82.1 million increase in fair value of our AFS securities was partially offset by an $8.0 million decrease 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 September 30, 2024 was $271.1 million. The changes in the net unrealized holding loss resulted from the sale of AFS securities and fluctuations in market interest rates. At September 30, 2024, investment securities HTM totaled $2.41 billion. For the nine months ended September 30, 2024 and 2023, repayments/maturities of investment securities totaled $366.4 million and $358.6 million, respectively. The Company purchased $33 million of short-term treasury notes in the second quarter of 2024 for pledging purposes. We also originated $11.5 million of Commercial Property Assessed Clean Energy ("C-PACE") bonds in the first nine months of 2024, which are included in our HTM securities portfolio. There were no purchases of investment securities during the nine months ended September 30, 2023 as cashflows generated from the portfolio were not reinvested during the year. There were no investment securities sold during the nine months ended September 30, 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: | September 30, 2024 Amortized Cost | Gross Unrealized Holding Gain | Gross Unrealized Holding Loss | Fair Value | Total Percent |
| --- | ---: | ---: | ---: | ---: | ---: |
| Government agency/GSE | $33,921 | $208 | $— | $34,129 | 1.38% |
| Mortgage-backed securities | 2,295,381 | 43 | (261,825) | 2,033,599 | 82.48% |
| CMO/REMIC | 476,051 | — | (105,044) | 371,007 | 15.05% |
| Municipal bonds | 26,489 | 46 | (1,115) | 25,420 | 1.03% |
| Other securities | 1,430 | — | — | 1,430 | 0.06% |
| Unallocated portfolio layer fair value basis adjustments (1) | (14,959) | 14,959 | — | — | 0.00% |
| Total available-for-sale securities | $2,818,313 | $15,256 | $(367,984) | $2,465,585 | 100.00% |
| Investment securities held-to-maturity: |  |  |  |  |  |
| Government agency/GSE | $518,446 | $— | $(84,898) | $433,548 | 21.55% |
| Mortgage-backed securities | 626,474 | 5 | (85,320) | 541,159 | 26.05% |
| CMO/REMIC | 788,622 | — | (144,801) | 643,821 | 32.79% |
| Municipal bonds | 460,257 | 2,994 | (29,540) | 433,711 | 19.14% |
| Other securities (2) | 11,455 | — | — | 11,455 | 0.47% |
| Total held-to-maturity securities | $2,405,254 | $2,999 | $(344,559) | $2,063,694 | 100.00% |

(1) Represents the amount of portfolio layer method basis adjustments related to AFS MBS securities hedged in a closed portfolio. Under U.S. GAAP, portfolio layer method basis adjustments are not allocated to individual securities, however the amounts impact the unrealized gains or losses for the individual securities being hedged. Refer to Note 3 and Note 10 for additional information.

(2) Represents Commercial Property Assessed Clean Energy ("C-PACE") bonds.

*(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 September 30, 2024, approximately $27.6 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 10% of the total investment portfolio, are predominately AA or higher rated securities.

The following table presents the Company’s AFS investment securities and HTM investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of September 30, 2024 and December 31, 2023.

*(Dollars in thousands)*

| Investment securities available-for-sale: | September 30, 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 | $— | $— | $— | $— | $— | $— |
| Mortgage-backed securities | 9 | — | 2,032,214 | (261,824) | 2,032,223 | (261,825) |
| CMO/REMIC | — | — | 371,006 | (105,044) | 371,006 | (105,044) |
| Municipal bonds | 3,323 | (48) | 21,190 | (1,068) | 24,513 | (1,115) |
| Total available-for-sale securities | $3,332 | $(48) | $2,424,410 | $(367,936) | $2,427,742 | $(367,984) |
| Investment securities held-to-maturity: |  |  |  |  |  |  |
| Government agency/GSE | $— | $— | $433,548 | $(84,898) | $433,548 | $(84,898) |
| Mortgage-backed securities | — | — | 538,947 | (85,320) | 538,947 | (85,320) |
| CMO/REMIC | — | — | 643,821 | (144,801) | 643,821 | (144,801) |
| Municipal bonds | 12,760 | (101) | 301,057 | (29,439) | 313,817 | (29,539) |
| Total held-to-maturity securities | $12,760 | $(101) | $1,917,373 | $(344,458) | $1,930,134 | $(344,558) |

*(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 September 30, 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 $8.57 billion at September 30, 2024 decreased by $332.3 million, or 3.73%, from December 31, 2023. The decrease in total loans included decreases of $165.9 million in commercial real estate loans, $70.5 million in dairy & livestock and agribusiness loans, $52.0 million in construction loans, and $33.4 million in commercial and industrial loans. The decline in dairy & 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 71% at September 30, 2024.

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

### Distribution of Loan Portfolio by Type

*(Dollars in thousands)*

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Commercial real estate | $6,618,637 | $6,784,505 |
| Construction | 14,755 | 66,734 |
| SBA | 272,001 | 270,619 |
| SBA - Paycheck Protection Program (PPP) | 1,255 | 2,736 |
| Commercial and industrial | 936,489 | 969,895 |
| Dairy & livestock and agribusiness | 342,445 | 412,891 |
| Municipal lease finance receivables | 67,585 | 73,590 |
| SFR mortgage | 267,181 | 269,868 |
| Consumer and other loans | 52,217 | 54,072 |
| Total loans, at amortized cost | 8,572,565 | 8,904,910 |
| Less: Allowance for credit losses | (82,942) | (86,842) |
| Total loans and lease finance receivables, net | $8,489,623 | $8,818,068 |

As of September 30, 2024, $460.7 million, or 6.96% 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 $121.9 million for loans secured by dairy & livestock land and $338.8 million for loans secured by agricultural land at September 30, 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 September 30, 2024, dairy & livestock and agribusiness loans of $342.4 million were comprised of $298.3 million for dairy & livestock loans and $44.1 million for agribusiness loans, compared to $412.9 million comprised of $374.9 million of dairy & livestock loans and $38.0 million of agribusiness loans 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 September 30, 2024, the Company had $202.6 million of total SBA 504 loans. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with 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 September 30, 2024, the Company had $69.4 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 September 30, 2024, the Company had $14.8 million in construction loans. This represents 0.17% of total 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 September 30, 2024.

Our loan portfolio is geographically disbursed throughout our marketplace. The following is the breakdown of our total held-for-investment commercial real estate loans, by region as of September 30, 2024.

*(Dollars in thousands)*

|  | September 30, 2024 Total Loans |  | Commercial Real Estate Loans |  |
| --- | ---: | ---: | ---: | ---: |
| Los Angeles County | $3,090,804 | 36.1% | $2,263,690 | 34.2% |
| Central Valley and Sacramento | 2,043,515 | 23.8% | 1,607,888 | 24.3% |
| Orange County | 1,170,127 | 13.7% | 706,681 | 10.7% |
| Inland Empire | 977,409 | 11.4% | 885,469 | 13.4% |
| Central Coast | 464,180 | 5.4% | 393,793 | 5.9% |
| San Diego | 318,109 | 3.7% | 324,087 | 4.9% |
| Other California | 153,115 | 1.8% | 103,619 | 1.6% |
| Out of State | 355,306 | 4.1% | 333,410 | 5.0% |
|  | $8,572,565 | 100.0% | $6,618,637 | 100.0% |

The table below breaks down our commercial real estate portfolio.

*(Dollars in thousands)*

| Commercial real estate: | September 30, 2024 Loan Balance | Percent | Percent Owner- Occupied (1) | Average Loan Balance |
| --- | ---: | ---: | ---: | ---: |
| Industrial | $2,237,917 | 33.8% | 48.3% | $1,619 |
| Office | 1,057,927 | 16.0% | 25.9% | 1,679 |
| Retail | 910,557 | 13.8% | 11.3% | 1,712 |
| Multi-family | 827,866 | 12.5% | 0.6% | 1,583 |
| Secured by farmland (2) | 460,710 | 7.0% | 98.6% | 1,477 |
| Medical | 309,023 | 4.6% | 32.9% | 1,472 |
| Other (3) | 814,637 | 12.3% | 42.5% | 1,715 |
| Total commercial real estate | $6,618,637 | 100.0% | 35.7% | $1,629 |

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

(2) The loans secured by farmland included $121.9 million for loans secured by dairy & livestock land and $338.8 million for loans secured by agricultural land at September 30, 2024.

(3) Other loans consist of a variety of loan types, none of which exceeds 2.0% of total commercial real estate loans at September 30, 2024.

### Nonperforming Assets

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

*(Dollars in thousands)*

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Nonaccrual loans | $21,913 | $21,302 |
| Loans past due 90 days or more and still accruing interest | — | — |
| Nonperforming modified loans to borrowers experiencing financial difficulty | — | — |
| **Total nonperforming loans** | 21,913 | 21,302 |
| OREO, net | 647 | — |
| **Total nonperforming assets** | $22,560 | $21,302 |
| **Modified loans to borrowers experiencing financial difficulty** | $15,769 | $9,460 |
| Total nonperforming loans and performing modified loans to borrowers experiencing financial difficulty | $37,682 | $30,762 |
| Percentage of nonperforming loans and performing modified loans to borrowers experiencing financial difficulty to total loans, at amortized cost | 0.44% | 0.35% |
| Percentage of nonperforming assets to total loans, at amortized cost, and OREO | 0.26% | 0.24% |
| Percentage of nonperforming assets to total assets | 0.15% | 0.13% |

### 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 10 loans to borrowers experiencing financial difficulty that were modified during the nine months ended September 30, 2024 with an amortized cost totaling $8.0 million as of September 30, 2024, including two dairy & livestock and agribusiness loans of $5.2 million, and eight commercial and industrial loans totaling $2.8 million.

The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified as of September 30, 2024 and September 30, 2023.

| September 30, 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 | $1,780 | 0.02% | $685 | 0.01% | $2,465 |
| Commercial and industrial | 2,785 | 0.03% | 169 | 0.00% | 2,954 |
| Dairy & livestock and agribusiness | 10,350 | 0.12% | — | 0.00% | 10,350 |
| **Total** | $14,916 |  | $853 |  | $15,769 |
| **September 30, 2023** |  |  |  |  |  |
| Commercial real estate loans | $1,815 | 0.02% | 690 | 0.01% | $2,505 |
| Commercial and industrial | — | 0.00% | — | 0.00% | — |
| Dairy & livestock and agribusiness | 4,799 | 0.05% | — | 0.00% | 4,799 |
| **Total** | $6,614 |  | $690 |  | $7,304 |

58

The following table describes the financial effect of the loan modifications made to borrowers experiencing financial difficulty during the three months ended September 30, 2024 and September 30, 2023.

| Loan Type September 30, 2024 | Financial Effect Term Extension | Combination-Term Extension and Interest Rate Reduction |
| --- | --- | ---: |
| Commercial real estate loans | Added a weighted-average 1.9 years to the life of loans, which reduced monthly payment amounts for the borrowers. | — |
| Commercial and industrial | Added a weighted-average 1.1 years to the life of loans, which reduced monthly payment amounts for the borrowers. | — |
| Dairy & livestock and agribusiness | Added a weighted-average 1.3 years to the life of loans, which reduced monthly payment amounts for the borrowers. | — |
| Commercial real estate loans | — | Added a weighted-average 7.6 years to the life of loans, which reduced monthly payment amounts for the borrowers; reduced weighted-average contractual interest rate from 10% to 7.25%. |
| Commercial and industrial | — | Added a weighted-average 2.0 years to the life of loans, which reduced monthly payment amounts for the borrowers; reduced weighted-average contractual interest rate from 8.75% to 7.75%. |
| **September 30, 2023** |  |  |
| Commercial real estate loans | Added a weighted-average 1.0 years to the life of loans, which reduced monthly payment amounts for the borrowers. | — |
| Dairy & livestock and agribusiness | Added a weighted-average 0.5 years to the life of loans, which reduced monthly payment amounts for the borrowers. | — |
| Commercial real estate loans | — | Added a weighted-average 7.6 years to the life of loans, which reduced monthly payment amounts for the borrowers; reduced weighted-average contractual interest rate from 10% to 7.25%. |

As of September 30, 2024 and September 30, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the third 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 September 30, 2024.

*(Dollars in thousands)*

|  | Payment Status (amortized cost basis) Current | 30-89 Days Past Due | 90+ Days Past Due |
| --- | ---: | ---: | ---: |
| Commercial real estate loans | $2,465 | $— | $— |
| Commercial and industrial | 2,954 | — | — |
| Dairy & livestock and agribusiness | 10,350 | — | — |
| **Total** | $15,769 | $— | $— |

At September 30, 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 nine months ended September 30, 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: | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | September 30, 2023 |  |
| --- | ---: | ---: | ---: | ---: | ---: | --- |
| Commercial real estate | $18,794 | $21,908 | $10,661 | $15,440 | $3,655 |  |
| Construction | — | — | — | — | — |  |
| SBA | 151 | 337 | 54 | 969 | 1,050 |  |
| Commercial and industrial | 2,825 | 2,712 | 2,727 | 4,509 | 4,672 |  |
| Dairy & livestock and agribusiness | 143 | — | 60 | 60 | 243 |  |
| SFR mortgage | — | — | 308 | 324 | 339 |  |
| Consumer and other loans | — | — | — | — | 4 |  |
| **Total** | **$21,913** | **$24,957** | **$13,810** | **$21,302** | **$9,963** | **\[1\]** |
| **% of Total loans** | **0.26%** | **0.29%** | **0.16%** | **0.24%** | **0.11%** |  |
| **Past due 30-89 days (accruing):** |  |  |  |  |  |  |
| Commercial real estate | $30,701 | $43 | $19,781 | $300 | $136 |  |
| Construction | — | — | — | — | — |  |
| SBA | — | — | 408 | 108 | — |  |
| Commercial and industrial | 64 | 103 | 6 | 12 | — |  |
| Dairy & livestock and agribusiness | — | — | — | — | — |  |
| SFR mortgage | — | — | — | 201 | — |  |
| Consumer and other loans | — | — | — | 18 | — |  |
| **Total** | **$30,765** | **$146** | **$20,195** | **$639** | **$136** |  |
| **% of Total loans** | **0.36%** | **0.00%** | **0.23%** | **0.01%** | **0.00%** |  |
| **OREO:** |  |  |  |  |  |  |
| Commercial real estate | — | $— | $— | $— | $— |  |
| SBA | — | — | — | — | — |  |
| Commercial and industrial | — | — | — | — | — |  |
| SFR mortgage | 647 | 647 | 647 | — | — |  |
| **Total** | **$647** | **$647** | **$647** | **$—** | **$—** |  |
| **Total nonperforming, past due, and OREO** | **$53,325** | **$25,750** | **$34,652** | **$21,941** | **$10,099** |  |
| **% of Total loans** | **0.62%** | **0.30%** | **0.40%** | **0.25%** | **0.11%** |  |
| **Classified Loans** | **$124,606** | **$124,728** | **$103,080** | **$102,197** | **$92,246** |  |

(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 $21.9 million at September 30, 2024, or 0.26% of total loans. This compares to nonperforming loans of $21.3 million, or 0.24% of total loans, at December 31, 2023 and $10.0 million, or 0.11% of total loans, at September 30, 2023. The $3.0 million decrease in nonperforming loans from June 30, 2024 was primarily due to the payoff of one nonperforming commercial real estate loans totaling $2.3 million and $1.4 million in paydowns of nonperforming commercial real estate loans associated with two relationships.

Classified loans are loans that are graded “substandard” or worse. Classified loans of $124.6 million decreased $122,000 quarter-over-quarter, primarily due to a $668,000 net decrease in classified commercial real estate loans, which included the payoff of 4 loans totaling $11.5 million that were partially offset by the addition of six classified commercial real estate loans in the third quarter of 2024. Classified dairy & livestock and agribusiness loans declined by $3.5 million due to paydowns and classified commercial and industrial loans increased $3.5 million primarily due to the addition of one classified commercial and industrial loan.

At September 30, 2024, we had one OREO property totaling $647,000. At December 31, 2023 and September 30, 2023, we had no OREO properties.

### Allowance for Credit Losses

The allowance for credit losses totaled $82.9 million as of September 30, 2024, compared to $86.8 million as of December 31, 2023 and $89.0 million as of September 30, 2023. Our allowance for credit losses at September 30, 2024 was 0.97% of total loans. This compares to 0.98% at December 31, 2023 and 1.00% September 30, 2023. 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 ACL at December 31, 2023 included $5.9 million of reserves for specifically identified nonperforming loans. Our reserves for specific loans have been essentially zero since the end of the first quarter of 2024. There was no provision for credit losses recorded for the nine months ended September 30, 2024, compared to $4.0 million in provision for the same period of 2023. Net charge-offs were $3.9 million for the nine months ended September 30, 2024, compared to $122,000 for the same period of 2023.

The allowance for credit losses as of September 30, 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 September 30, 2024, the resulting weighted forecast resulted in Real GDP declining slightly in the fourth quarter of 2024 and continuing to be negative in the first quarter of 2025. GDP growth is forecasted to be less than 1% for all of 2025, before increasing to 1.4% in 2026, and then growth of 1.9% in 2027. Unemployment is forecasted to increase, with unemployment averaging 5.5% for all of 2025. The unemployment rate is forecasted to stay higher than 5.5% until late 2027.

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 Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Allowance for credit losses at beginning of period | $86,842 | $85,117 |
| Charge-offs: |  |  |
| Commercial real estate | (2,258) | — |
| Construction | — | — |
| SBA | (165) | (207) |
| Commercial and industrial | (1,917) | (16) |
| Dairy & livestock and agribusiness | — | — |
| SFR mortgage | — | — |
| Consumer and other loans | (4) | (1) |
| Total charge-offs | (4,344) | (224) |
| Recoveries: |  |  |
| Commercial real estate | — | — |
| Construction | 61 | 9 |
| SBA | 94 | 69 |
| Commercial and industrial | 289 | 14 |
| Dairy & livestock and agribusiness | — | 10 |
| SFR mortgage | — | — |
| Consumer and other loans | — | — |
| Total recoveries | 444 | 102 |
| Net (charge-offs) recoveries | (3,900) | (122) |
| Provision for credit losses | — | 4,000 |
| Allowance for credit losses at end of period | $82,942 | $88,995 |
| Summary of reserve for unfunded loan commitments: |  |  |
| Reserve for unfunded loan commitments at beginning of period | $7,500 | $8,000 |
| (Recapture of) provision for unfunded loan commitments | (1,250) | — |
| Reserve for unfunded loan commitments at end of period | $6,250 | $8,000 |
| Reserve for unfunded loan commitments to total unfunded loan commitments | 0.33% | 0.43% |
| Amount of total loans at end of period (1) | $8,572,565 | $8,877,632 |
| Average total loans outstanding (1) | $8,720,058 | $8,905,697 |
| Net (charge-offs) recoveries to average total loans | -0.04% | -0.001% |
| Net (charge-offs) recoveries to total loans at end of period | -0.05% | -0.001% |
| Allowance for credit losses to average total loans | 0.95% | 1.00% |
| Allowance for credit losses to total loans at end of period | 0.97% | 1.00% |
| Net (charge-offs) recoveries to allowance for credit losses | -4.70% | -0.14% |
| Net (charge-offs) recoveries to provision for credit losses | -0.00% | -3.05% |

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

The Bank’s ACL methodology also produced an allowance of $6.3 million for our off-balance sheet credit exposures as of September 30, 2024, compared to $7.5 million and $8.0 million as of December 31, 2023 and September 30, 2023, respectively.

While we believe that the allowance at September 30, 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 $12.07 billion at September 30, 2024. This represented an increase of $638.8 million, or 5.59%, when compared with total deposits of $11.43 billion at December 31, 2023. The composition of deposits is summarized as of the dates presented in the table below.

*(Dollars in thousands)*

|  | September 30, 2024 Balance | Percent | December 31, 2023 Balance | Percent |
| --- | ---: | ---: | ---: | ---: |
| Noninterest-bearing deposits | $7,136,824 | 59.12% | $7,206,175 | 63.03% |
| Interest-bearing deposits |  |  |  |  |
| Investment checking | 504,028 | 4.17% | 552,408 | 4.83% |
| Money market | 3,307,733 | 27.40% | 2,821,344 | 24.67% |
| Savings | 437,974 | 3.63% | 457,320 | 4.00% |
| Time deposits | 685,930 | 5.68% | 396,395 | 3.47% |
| Total Deposits | $12,072,489 | 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. Noninterest-bearing deposits declined from the end of 2023 by $69.4 million and represented 59.1% of total deposits at the end of the third quarter of 2024, compared to 63% at the end of 2023. Average noninterest-bearing deposits totaled $7.12 billion for the third quarter of 2024, a decrease of $28.4 million, or 0.41%, from average noninterest-bearing deposits of $7.15 billion for the second quarter of 2024. Average noninterest-bearing deposits were 59.10% of total average deposits for the third quarter of 2024, compared to 60.20% for the second quarter of 2024.

Interest-bearing non-maturity deposits, which include savings, interest-bearing demand, and money market accounts, totaled $4.25 billion at September 30, 2024, representing an increase of $418.7 million, or 10.93%, from savings deposits of $3.83 billion at December 31, 2023.

Time deposits totaled $685.9 million at September 30, 2024, representing an increase of $289.5 million, or 73.04%, from total time deposits of $396.4 million for December 31, 2023. This increase included $400 million in brokered time deposits.

During the first nine months of 2024, $400 million of brokered time deposits were issued, including $300 million that were associated with cash flow hedging transactions simultaneously executed in which $300 million of 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 $5.3 million and were reflected as a liability at September 30, 2024.

Our deposits are primarily relationship based and include deposits and customer repurchase agreements ("repos"). For the third quarter of 2024, 73% of our deposits consisted of business deposits and 27% consist of consumer deposits, primarily the owners and employees of our business customers. The largest percentage of our deposits, 38%, 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 September 30, 2024, 43% of our total deposits and customer repos were uncollateralized and uninsured.

Our customer deposit relationships represent a diverse set of industries. Overall, there are approximately 15 different industry classifications that represent 2% or more of our deposits as of September 30, 2024. Industry classifications with the largest concentrations, include construction representing 7% of our deposits. Manufacturing and finance & insurance deposits, each of which represents 8% of our deposits. Property management, public administration, and other real estate rental & leasing, each of which represents 6% of our deposits. Our depositors have typically banked with us for many years. As of September 30, 2024, 44% of our deposit relationships have banked with us more than 10 years and 74% of our deposit relationships have been with us for three or more years.

Our cost of deposits was 98 basis points on average for the third quarter of 2024, which compares to 88 basis points for the second quarter of 2024 and 52 basis points for the third quarter of 2023. From the first quarter of 2022 through the third quarter of 2024, our cost of deposits has increased by 95 basis points, representing a deposit beta of 18%, 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 September 30, 2024 and December 31, 2023, total funds borrowed under these agreements were $394.5 million and $271.6 million, respectively, with a weighted average interest rate of 1.73% for the third quarter of 2024, compared to 0.47% for the second quarter of 2024 and 0.29% for the third quarter of 2023.

At September 30, 2024, total borrowings consisted of $500 million of FHLB advances. The FHLB advances include maturities of $300 million, at an average cost of approximately 4.73%, maturing in May of 2026, and $200 million, at a cost of 4.27% maturing in May of 2027. During the third quarter of 2024, we repaid the $1.3 billion of borrowings from the Federal Reserve’s Bank Term Funding Program, with a cost of 4.76%, that were scheduled to mature in January of 2025.

At September 30, 2024, loans with a carrying value of $4.32 billion were pledged to secure available lines of credit from the FHLB and the Federal Reserve Bank.

At September 30, 2024, investment securities, with the following carrying values of $1.88 billion were pledged to secure $469 million for repurchase agreements, $1.35 billion for unused borrowing capacity and approximately $58 million for other purposes as required or permitted by law.

### Aggregate Contractual Obligations

The following table summarizes the aggregate contractual obligations as of September 30, 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) | $12,072,489 | $12,060,120 | $10,335 | $1,751 | $283 |
| Customer repurchase agreements (1) | 394,515 | 394,515 | — | — | — |
| Other borrowings | 500,000 | — | 500,000 | — | — |
| Deferred compensation | 22,633 | 575 | 1,152 | 1,150 | 19,756 |
| Operating leases | 45,197 | 8,466 | 14,201 | 7,467 | 15,063 |
| Equity investments | 39,893 | 26,289 | 12,264 | 350 | 990 |
| Total | $13,074,727 | $12,489,965 | $537,952 | $10,718 | $36,092 |

(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 September 30, 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 | 408,700 | 83,826 | 194,974 | 103,063 | 26,837 |
| Construction | 13,142 | 7,320 | 5,822 | — | — |
| SBA | 731 | — | — | — | 731 |
| Commercial and industrial | 1,018,764 | 739,513 | 247,247 | 1,703 | 30,301 |
| Dairy & livestock and agribusiness (1) | 242,117 | 199,067 | 43,050 | — | — |
| Municipal lease finance receivables | 1,109 | — | — | — | 1,109 |
| SFR Mortgage | 1,515 | — | — | — | 1,515 |
| Consumer and other loans | 125,235 | 9,946 | 8,332 | 3,477 | 103,480 |
| Total commitment to extend credit | 1,811,313 | 1,039,672 | 499,425 | 108,243 | 163,973 |
| Obligations under letters of credit | 61,025 | 41,360 | 19,447 | 200 | 18 |
| Total | $1,872,338 | $1,081,032 | $518,872 | $108,443 | $163,991 |

(1) Total commitments to extend credit to agribusiness were $14.1 million at September 30, 2024.

As of September 30, 2024, we had commitments to extend credit of approximately $1.81 billion, and obligations under letters of credit of $61.0 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 September 30, 2024 and 2023, the balance in this reserve was $6.3 million and $8.0 million, respectively, and was included in other liabilities. The year-over-year decrease included $1.3 million in recapture of provision for unfunded loan commitments for the nine months ended September 30, 2024, compared to no recapture or provision for the same period 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 $119.9 million to $2.20 billion at September 30, 2024, compared to total equity of $2.08 billion at December 31, 2023. Increases to equity included $149.9 million in net earnings and a $48.7 million increase in other comprehensive income, that were partially offset by $83.9 million in cash dividends. We engaged in no stock repurchases during the first nine months of 2024. Our tangible book value per share at September 30, 2024 was $10.17.

During the third 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. There were no stock repurchases during the third quarter of 2024 nor during the first nine months 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 September 30, 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 | September 30, 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% | 10.60% | 10.49% | 10.27% | 10.17% |
| Common equity Tier 1 capital ratio | 4.50% | 7.00% | 6.50% | 15.77% | 15.60% | 14.65% | 14.49% |
| Tier 1 risk-based capital ratio | 6.00% | 8.50% | 8.00% | 15.77% | 15.60% | 14.65% | 14.49% |
| Total risk-based capital ratio | 8.00% | 10.50% | 10.00% | 16.59% | 16.42% | 15.50% | 15.34% |

68

### 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 $450 million of cash on the balance sheet at September 30, 2024, we had substantial sources of off-balance sheet liquidity. These sources of available liquidity include $3.9 billion of secured and unused capacity with the Federal Home Loan Bank, $1.1 billion of secured unused borrowing capacity at the Fed’s discount window, more than $235.9 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 September 30, 2024, we had brokered deposits totaling $400 million or less than 3% of total assets. 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 $12.47 billion at September 30, 2024 increased $761.7 million, or 6.51%, over total deposits and customer repos of $11.71 billion at December 31, 2023. As of September 30, 2024, total borrowings, consisted of $500 million of FHLB advances. The FHLB advances include maturities of $300 million, at an average cost of approximately 4.73%, maturing in May of 2026, and $200 million, at a cost of 4.27% maturing in May of 2027. During the third quarter of 2024, we repaid the $1.3 billion of borrowings from the Federal Reserve’s Bank Term Funding Program, with a cost of 4.76%, that were scheduled to mature 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 September 30, 2024, our deposits and customer repurchase agreements that are neither collateralized nor insured were approximately $5.4 billion, or approximately 43% of our total deposits and customer repos.

Additional sources of liquidity include cash on deposit at the Federal Reserve, which exceeded $250 million at September 30, 2024, and principal and interest payments from our investment portfolio. Our total investment portfolio declined by $549.9 million from December 31, 2023 to $4.87 billion as of September 30, 2024. The decrease was primarily due to a $490.5 million decline in AFS securities. During the first nine months of 2024, we generated liquidity from our investment portfolio by selling $312 million of AFS securities and by not reinvesting the cashflows generated by our investments. AFS securities totaled $2.47 billion at September 30, 2024, inclusive of a pre-tax net unrealized loss of $367.7 million. Pre-tax unrealized loss declined by $82.1 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.

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 nine months ended September 30, 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)*

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Average cash and cash equivalents | $948,667 | $462,132 |
| Percentage of total average assets | 5.81% | 2.82% |
| Net cash provided by operating activities | $175,014 | $246,951 |
| Net cash provided by investing activities | 891,830 | 543,501 |
| Net cash used in financing activities | (894,669) | (753,218) |
| Net increase in cash and cash equivalents | $172,175 | $37,234 |

Average cash and cash equivalents increased by $486.5 million, or 105.28%, to $948.7 million for the nine months ended September 30, 2024, compared to $462.1 million for the same period of 2023.

At September 30, 2024, cash and cash equivalents totaled $453.5 million. This represented an increase of $212.8 million, or 88.40%, from $240.7 million at September 30, 2023.Our cash on deposit at the Federal Reserve grew by more than $280 million when compared to June 30, 2023.

### 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) September 30, 2024 12-month Period | 24-month Period (Cumulative) | Interest Rate Scenario | December 31, 2023 12-month Period | 24-month Period (Cumulative) |
| --- | ---: | ---: | --- | ---: | ---: |
| + 200 basis points | 5.21% | 7.00% | + 200 basis points | 3.96% | 4.56% |
| - 200 basis points | -5.36% | -8.66% | - 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. The EVE Ratio represents economic value of equity as a percentage of the discounted present value of all asset cash flows and derivative cash flows. 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 September 30, 2024, the EVE profile indicates a decline in the EVE Ratio due to instantaneous downward changes in rates and a modest increase in the EVE ratio under upward rate shocks. Compared to December 31, 2023, our EVE sensitivity to rising rates was modestly higher, as the EVE Ratio declined minimally at the end of 2023, while the decline in the EVE ratio under declining rates was consistent across the two periods. Overall, our sensitivity of EVE to changes in interest rates is generally modest, with the exception of more meaningful decreases in the EVE Ratio if rates were to immediately decline by 300 or 400 basis points.

### Economic Value of Equity Sensitivity

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| 400 bp decrease in interest rates | 14.9% | 14.7% |
| 300 bp decrease in interest rates | 15.2% | 15.5% |
| 200 bp decrease in interest rates | 16.2% | 16.3% |
| 100 bp decrease in interest rates | 16.9% | 16.8% |
| Base | 17.5% | 17.1% |
| 100 bp increase in interest rates | 17.6% | 17.0% |
| 200 bp increase in interest rates | 17.8% | 17.1% |
| 300 bp increase in interest rates | 18.0% | 16.9% |
| 400 bp increase in interest rates | 18.1% | 16.7% |

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, 1,235 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. In addition, we have cashflow hedges associated with wholesale funds, as well as our portfolio of investment securities and associated fair value hedges. 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, 778 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 September 30, 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 Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-123143. Last ingested by Listed: Nov 6, 2026, 16:27 ET. No prices; not investment advice.