CVB FINANCIAL CORP 10-Q

10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 or  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number: 000-10140 CVB FINANCIAL CORP. (Exact name of registrant as specified in its charter) California 95-3629339 (State or other jurisdiction of Incorporation or organization) (I.R.S. Employer Identification No.) 701 North Haven Ave. , Suite 350 Ontario , California 91764 (Address of principal executive offices) (Zip Code) ( 909 ) 980-4030 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, No Par Value CVBF The Nasdaq Stock Market, LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No  Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No  Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer  Accelerated filer  Non-accelerated filer  Smaller reporting company  Emerging growth company  If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  Number of shares of common stock of the registrant : 139,639,680 outstanding as of April 30, 2024. TABLE OF CONTENTS PART I – FINANCIAL INFORMATION (UNAUDITED) 3 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 10 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 41 CRITICAL ACCOUNTING POLICIES 41 OVERVIEW 42 ANALYSIS OF THE RESULTS OF OPERATIONS 44 ANALYSIS OF FINANCIAL CONDITION 51 ASSET/LIABILITY AND MARKET RISK MANAGEMENT 65 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 68 ITEM 4. CONTROLS AND PROCEDURES 68 PART II – OTHER INFORMATION 69 ITEM 1. LEGAL PROCEEDINGS 69 ITEM 1A. RISK FACTORS 70 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 71 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 71 ITEM 4. MINE SAFETY DISCLOSURES 71 ITEM 5. OTHER INFORMATION 71 ITEM 6. EXHIBITS 72 SIGNATURES 73 2 PART I – FINANCIAL INFORMATION (UNAUDITED) GENERAL Cautionary Note Regarding Forward-Looking Statements Certain statements set forth herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will likely result”, “aims”, “anticipates”, “believes”, “could”, “estimates”, “expects”, “hopes”, “intends”, “may”, “plans”, “projects”, “seeks”, “should”, “will,” “strategy”, “possibility”, and variations of these words and similar expressions help to identify these forward-looking statements, which involve risks and uncertainties that could cause actual results or performance to differ materially from those projected. These forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, including, without limitation, plans, strategies, goals and statements about the Company’s outlook regarding revenue and asset growth, financial performance and profitability, capital and liquidity levels, loan and deposit growth and retention, yields and returns, loan diversification and credit management, stockholder value creation, tax rates, the impact of economic developments, and the impact of acquisitions we have made or may make. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company, and there can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors in addition to those set forth below could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. General risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct business; the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; the effect of acquisitions we have made or may make, including, without limitation, the failure to obtain the necessary regulatory approvals, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target, customers and key personnel into our operations; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies; the effectiveness of our risk management framework and quantitative models; changes in the levels of our nonperforming assets and charge-offs; the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters; possible credit related impairments or declines in the fair value of loans and securities held by us; possible impairment charges to goodwill, including any impairment that may result from increased volatility in our stock price; changes in consumer spending, borrowing, and savings habits; the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; periodic fluctuations in commercial or residential real estate prices or values; our ability to attract and retain deposits or to access government or private lending facilities and other sources of liquidity; the possibility that we may reduce or discontinue the payments of dividends on our common stock; changes in the financial performance and/or condition of our borrowers; changes in the competitive environment among financial and bank holding companies and other financial service providers; technological changes in banking and financial services; geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism, and/or military conflicts, which could impact business and economic conditions in the United States and abroad; catastrophic events or natural disasters, including earthquakes, drought, climate change or extreme weather events that may affect our assets, communications or computer services, customers, employees or third party vendors; public health crises and pandemics, and their effects on the economic and business environments in which we operate, including on our credit quality, business operations and employees, as well as the impact on general economic and financial market conditions; cybersecurity and fraud threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity and fraud threats at a state, national, or global level; our ability to recruit and retain key executives, board members and other employees, and changes in employment laws and regulations; unanticipated regulatory or legal proceedings or outcomes; and our ability to manage the risks involved in the foregoing. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's 2023 Annual Report on Form 10-K filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov). The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ. 3 ITEM 1. CONDENSED CONSOLI DATED FINANCIAL STATEMENTS CVB FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLI DATED BALANCE SHEETS (Dollars in thousands, except share amounts) (Unaudited) March 31, December 31, 2024 2023 Assets Cash and due from banks $ 131,955 $ 171,396 Interest-earning balances due from Federal Reserve 817,634 109,889 Total cash and cash equivalents 949,589 281,285 Interest-earning balances due from depository institutions 12,632 8,216 Investment securities available-for-sale, at fair value (with amortized cost of $ 3,333,603 at March 31, 2024, and $ 3,398,942 at December 31, 2023) 2,837,100 2,956,125 Investment securities held-to-maturity (with fair value of $ 2,044,031 at March 31, 2024, and $ 2,082,881 at December 31, 2023) 2,454,586 2,464,610 Total investment securities 5,291,686 5,420,735 Investment in stock of Federal Home Loan Bank (FHLB) 18,012 18,012 Loans and lease finance receivables 8,770,713 8,904,910 Allowance for credit losses ( 82,817 ) ( 86,842 ) Net loans and lease finance receivables 8,687,896 8,818,068 Premises and equipment, net 43,448 44,709 Bank owned life insurance (BOLI) 310,744 308,706 Accrued interest receivable 47,891 48,994 Intangibles 13,853 15,291 Goodwill 765,822 765,822 Income taxes 180,750 163,968 Other assets 145,823 127,187 Total assets $ 16,468,146 $ 16,020,993 Liabilities and Stockholders' Equity Liabilities: Deposits: Noninterest-bearing $ 7,112,789 $ 7,206,175 Interest-bearing 4,782,132 4,227,467 Total deposits 11,894,921 11,433,642 Customer repurchase agreements 275,720 271,642 Other borrowings 1,995,000 2,070,000 Deferred compensation 23,082 22,335 Accrued interest payable 45,404 23,268 Other liabilities 147,194 122,134 Total liabilities 14,381,321 13,943,021 Commitments and Contingencies Stockholders' Equity Common stock, authorized, 225,000,000 shares without par; issued and outstanding 139,641,884 at March 31, 2024, and 139,344,981 at December 31, 2023 1,288,755 1,288,899 Retained earnings 1,133,355 1,112,642 Accumulated other comprehensive (loss) income, net of tax ( 335,285 ) ( 323,569 ) Total stockholders' equity 2,086,825 2,077,972 Total liabilities and stockholders' equity $ 16,468,146 $ 16,020,993 See accompanying notes to the unaudited condensed consolidated financial statements. 4 CVB FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended March 31, 2024 2023 Interest income: Loans and leases, including fees $ 116,349 $ 108,394 Investment securities: Investment securities available-for-sale 21,446 19,596 Investment securities held-to-maturity 13,402 13,956 Total investment income 34,848 33,552 Dividends from FHLB stock 419 349 Interest-earning deposits with other institutions 6,073 491 Total interest income 157,689 142,786 Interest expense: Deposits 21,366 5,365 Borrowings and customer repurchase agreements 23,862 11,693 Total interest expense 45,228 17,058 Net interest income before provision for credit losses 112,461 125,728 Provision for credit losses — 1,500 Net interest income after provision for credit losses 112,461 124,228 Noninterest income: Service charges on deposit accounts 5,036 5,344 Trust and investment services 3,224 2,914 Bankcard services 385 377 BOLI income 3,593 1,189 Other 1,875 3,378 Total noninterest income 14,113 13,202 Noninterest expense: Salaries and employee benefits 36,401 35,247 Occupancy and equipment 5,565 5,450 Professional services 2,255 1,696 Computer software expense 3,525 3,408 Marketing and promotion 1,630 1,715 Provision for unfunded loan commitments — 500 Amortization of intangible assets 1,438 1,720 Other 8,957 5,145 Total noninterest expense 59,771 54,881 Earnings before income taxes 66,803 82,549 Income taxes 18,204 23,279 Net earnings $ 48,599 $ 59,270 Other comprehensive (loss) income: Unrealized (loss) gain on securities arising during the period, before tax $ ( 17,073 ) $ 40,702 Less: Income tax benefit (expense) related to items of other comprehensive income 5,357 ( 12,033 ) Other comprehensive (loss) income, net of tax ( 11,716 ) 28,669 Comprehensive income (loss) $ 36,883 $ 87,939 Basic earnings per common share $ 0.35 $ 0.42 Diluted earnings per common share $ 0.35 $ 0.42 See accompanying notes to the unaudited condensed consolidated financial statements. 5 CVB FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STAT EMENTS OF STOCKHOLDERS’ EQUITY (Dollars and shares in thousands) (Unaudited) Three Months Ended March 31, 2024 and 2023 Common Shares Outstanding Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Balance, January 1, 2024 139,345 $ 1,288,899 $ 1,112,642 $ ( 323,569 ) $ 2,077,972 Repurchase of common stock ( 146 ) ( 2,573 ) — — ( 2,573 ) Exercise of stock options 3 43 — — 43 Shares issued pursuant to stock-based compensation plan 440 2,386 — — 2,386 Cash dividends declared on common stock ($ 0.20 per share) — — ( 27,886 ) — ( 27,886 ) Net earnings — — 48,599 — 48,599 Other comprehensive loss — — — ( 11,716 ) ( 11,716 ) Balance, March 31, 2024 139,642 $ 1,288,755 $ 1,133,355 $ ( 335,285 ) $ 2,086,825 Balance, January 1, 2023 139,819 $ 1,300,466 $ 1,002,847 $ ( 354,796 ) $ 1,948,517 Repurchase of common stock ( 918 ) ( 21,036 ) — — ( 21,036 ) Exercise of stock options 4 72 — — 72 Shares issued pursuant to stock-based compensation plan 397 2,284 — — 2,284 Cash dividends declared on common stock ($ 0.20 per share) — — ( 28,007 ) — ( 28,007 ) Net earnings — — 59,270 — 59,270 Other comprehensive income — — — 28,669 28,669 Balance, March 31, 2023 139,302 $ 1,281,786 $ 1,034,110 $ ( 326,127 ) $ 1,989,769 See accompanying notes to the unaudited condensed consolidated financial statements. 6 CVB FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Three Months Ended March 31, 2024 2023 Cash Flows from Operating Activities Interest and dividends received $ 161,187 $ 148,044 Service charges and other fees received 10,560 11,779 Interest paid ( 23,092 ) ( 17,239 ) Net cash paid to vendors, employees and others ( 71,181 ) ( 72,445 ) Income taxes — ( 19 ) Net cash provided by operating activities 77,474 70,120 Cash Flows from Investing Activities Proceeds (purchases) of FHLB stock, net — ( 11,070 ) Net change in interest-earning balances from depository institutions ( 4,416 ) ( 2,391 ) Proceeds from repayment of investment securities available-for-sale 82,060 89,465 Proceeds from maturity of investment securities available-for-sale 15,000 3 Proceeds from repayment and maturity of investment securities held-to-maturity 18,446 17,552 Purchases of investment securities held-to-maturity ( 11,455 ) ( 2,026 ) Net (increase) decrease in equity investments ( 1,599 ) 2,680 Net decrease in loan and lease finance receivables 132,281 138,709 Purchase of premises and equipment ( 166 ) ( 343 ) Proceeds from BOLI death benefit 882 — Net cash provided by investing activities 231,033 232,579 Cash Flows from Financing Activities Net increase (decrease) in other deposits 182,120 ( 553,692 ) Net increase (decrease) in time deposits 279,159 ( 10,683 ) Net (decrease) increase in other borrowings ( 75,000 ) 410,000 Net increase (decrease) in customer repurchase agreements 4,078 ( 75,196 ) Cash dividends on common stock ( 28,030 ) ( 28,091 ) Repurchase of common stock ( 2,573 ) ( 21,036 ) Proceeds from exercise of stock options 43 72 Net cash provided by (used in) financing activities 359,797 ( 278,626 ) Net increase in cash and cash equivalents 668,304 24,073 Cash and cash equivalents, beginning of period 281,285 203,461 Cash and cash equivalents, end of period $ 949,589 $ 227,534 See accompanying notes to the unaudited condensed consolidated financial statements. 7 CVB FINANCIAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) (Unaudited) Three Months Ended March 31, 2024 2023 Reconciliation of Net Earnings to Net Cash Provided by Operating Activities Net earnings $ 48,599 $ 59,270 Adjustments to reconcile net earnings to net cash provided by operating activities: Increase in BOLI ( 3,593 ) ( 1,189 ) Net amortization of premiums and discounts on investment securities 4,142 4,635 Accretion of discount for acquired loans, net ( 1,042 ) ( 1,102 ) Provision for credit losses — 1,500 Provision for unfunded loan commitments — 500 Valuation allowance on other real estate owned 28 — Stock-based compensation 2,386 2,284 Depreciation and amortization, net 3,092 4,448 Change in other assets and liabilities 23,862 ( 226 ) Total adjustments 28,875 10,850 Net cash provided by operating activities $ 77,474 $ 70,120 Supplemental Disclosure of Non-cash Investing Activities Transfer of loans to other real estate owned $ 675 $ — See accompanying notes to the unaudited condensed consolidated financial statements. 8 CVB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO THE CONDENSED CONS OLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BUSINESS The condensed consolidated financial statements include CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “we”, “our” or the “Company”) and its wholly owned subsidiary: Citizens Business Bank (the “Bank” or “CBB”), after elimination of all intercompany transactions and balances. The Company has one inactive subsidiary, Chino Valley Bancorp. The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through its CitizensTrust Division. The Bank’s customers consist primarily of small to mid-sized businesses and individuals located throughout California. As of March 31, 2024 , the Bank operated 62 banking centers and three trust office locations. The Company is headquartered in the city of Ontario, California. 2. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results for the full year. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC. A summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows. Reclassification — Certain amounts in the prior periods’ unaudited condensed consolidated financial statements and related footnote disclosures have been reclassified to conform to the current presentation with no impact on previously reported net income or stockholders’ equity. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Except as discussed below, our accounting policies are described in Note 3 – Summary of Significant Accounting Policies , of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC (“Form 10-K”). Use of Estimates in the Preparation of Financial Statements — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for credit losses. Other significant estimates, which may be subject to change, include fair value determinations and disclosures, impairment of investments, goodwill, loans, as well as valuation of deferred tax assets. 10 4. INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are available-for-sale securities with fair value based on quoted prices for similar assets in active markets or quoted prices for identical assets in markets that are not active. Estimated fair values were obtained from an independent pricing service based upon market quotes. March 31, 2024 Amortized Cost Gross Unrealized Holding Gain Gross Unrealized Holding Loss Fair Value Total Percent (Dollars in thousands) Investment securities available-for-sale: Government agency/GSE $ 32,644 $ — $ ( 4 ) $ 32,640 1.15 % Mortgage-backed securities 2,766,695 25 ( 367,613 ) 2,399,107 84.56 % CMO/REMIC 495,576 — ( 116,682 ) 378,894 13.35 % Municipal bonds 26,480 36 ( 1,372 ) 25,144 0.89 % Other securities 1,315 — — 1,315 0.05 % Unallocated portfolio layer fair value basis adjustments (1) 10,893 — ( 10,893 ) — 0.00 % Total available-for-sale securities $ 3,333,603 $ 61 $ ( 496,564 ) $ 2,837,100 100.00 % Investment securities held-to-maturity: Government agency/GSE $ 526,752 $ — $ ( 103,672 ) $ 423,080 21.46 % Mortgage-backed securities 652,864 — ( 109,336 ) 543,528 26.60 % CMO/REMIC 798,226 — ( 162,528 ) 635,698 32.52 % Municipal bonds 465,289 2,223 ( 37,242 ) 430,270 18.96 % Other securities 11,455 — — 11,455 0.46 % Total held-to-maturity securities $ 2,454,586 $ 2,223 $ ( 412,778 ) $ 2,044,031 100.00 % December 31, 2023 Amortized Cost Gross Unrealized Holding Gain Gross Unrealized Holding Loss Fair Value Total Percent (Dollars in thousands) Investment securities available-for-sale: 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 % (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 N ote 9 for additional information. 11 The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax. Three Months Ended March 31, 2024 2023 (Dollars in thousands) Investment securities available-for-sale: Taxable $ 21,280 $ 19,428 Tax-advantaged 166 168 Total interest income from available-for-sale securities 21,446 19,596 Investment securities held-to-maturity: Taxable 10,984 11,507 Tax-advantaged 2,418 2,449 Total interest income from held-to-maturity securities 13,402 13,956 Total interest income from investment securities $ 34,848 $ 33,552 A pproximate ly 90 % of the total investment securities portfolio at March 31, 2024 represents securities issued by the U.S. government or U.S. gove rnment-sponsored enterprises, with the implied guarantee of payment of principal and interest. The remaining securities are predominately AA or better general-obligation municipal bonds. The allowance for credit losses for held-to-maturity investment securities under the CECL model was zero at March 31, 2024 and December 31, 2023. The following table presents the Company’s available-for-sale and held-to-maturity investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of March 31, 2024 and December 31, 2023. March 31, 2024 Less Than 12 Months 12 Months or Longer Total Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses (Dollars in thousands) Investment securities available-for-sale: Government agency/GSE $ 32,640 $ ( 4 ) $ — $ — $ 32,640 $ ( 4 ) Mortgage-backed securities 22 — 2,397,803 ( 367,613 ) 2,397,825 ( 367,613 ) CMO/REMIC — — 378,893 ( 116,682 ) 378,893 ( 116,682 ) Municipal bonds 6,525 ( 145 ) 17,743 ( 1,227 ) 24,268 ( 1,372 ) Total available-for-sale securities $ 39,187 $ ( 149 ) $ 2,794,439 $ ( 485,522 ) $ 2,833,626 $ ( 485,671 ) Investment securities held-to-maturity: Government agency/GSE $ — $ — $ 423,080 $ ( 103,672 ) $ 423,080 $ ( 103,672 ) Mortgage-backed securities — — 543,529 ( 109,336 ) 543,529 ( 109,336 ) CMO/REMIC — — 635,698 ( 162,528 ) 635,698 ( 162,528 ) Municipal bonds 46,060 ( 649 ) 289,996 ( 36,593 ) 336,056 ( 37,242 ) Total held-to-maturity securities $ 46,060 $ ( 649 ) $ 1,892,303 $ ( 412,129 ) $ 1,938,363 $ ( 412,778 ) 12 December 31, 2023 Less Than 12 Months 12 Months or Longer Total Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses (Dollars in thousands) Investment securities available-for-sale: 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 ) At March 31, 2024 investment securities with carrying values of $ 2.51 billion were pledged to secure various types of deposits, including $ 1.37 billion of public funds. In addition, investment secu rities with carrying values of $ 2.75 billion were pledged to secure $ 372.3 million for r epurchase agreements, $ 1.88 b illion for outstanding borrowings, $ 446 million for unused borrowing capacity and approximately $ 51 mil lion for other purposes as required or permitted by law. At December 31, 2023 , investment securities with carrying values of $ 2.26 billion were pledged to secure various types of deposits, including $ 1.38 billion of public funds. In addition, investment securities with carrying values of $ 3.02 billion were pledged to secure $ 372.5 million for repurchase agreements, $ 1.8 billion for outstanding borrowings, $ 796 million for unused borrowing capacity and approximately $ 51 million for other purposes as required or permitted by law. The amortized cost and fair value of debt securities at March 31, 2024, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have weighted average remaining contractual maturities of approximately 23 yea rs, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. Mortgage-backed and CMO/REMIC securities are included in maturity categories based upon estimated average lives which incorporate estimated prepayment speeds. March 31, 2024 Available-for-sale Held-to-maturity Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) Due in one year or less $ 36,409 $ 36,328 $ 3,565 $ 3,554 Due after one year through five years 264,422 241,797 52,525 50,505 Due after five years through ten years 2,519,475 2,164,588 317,491 280,289 Due after ten years 513,297 394,387 2,081,005 1,709,683 Total investment securities $ 3,333,603 $ 2,837,100 $ 2,454,586 $ 2,044,031 The investment in FHLB stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through March 31, 2024 . 13 5. LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES The following table provides a summary of total loans and lease finance receivables by type. March 31, 2024 December 31, 2023 (Dollars in thousands) Commercial real estate $ 6,720,538 $ 6,784,505 Construction 58,806 66,734 SBA 268,320 270,619 SBA - Paycheck Protection Program (PPP) 2,249 2,736 Commercial and industrial 963,120 969,895 Dairy & livestock and agribusiness 351,624 412,891 Municipal lease finance receivables 72,032 73,590 SFR mortgage 276,475 269,868 Consumer and other loans 57,549 54,072 Total loans, at amortized cost 8,770,713 8,904,910 Less: Allowance for credit losses ( 82,817 ) ( 86,842 ) Total loans and lease finance receivables, net $ 8,687,896 $ 8,818,068 As of March 31, 2024 , 80.44 % of the Company’s total loan portfolio consisted of real estate loans, with commercial real estate loans representing 76.62 % of total loans. The Company’s real estate loans and construction loans are secured by real properties primarily located in California. As of March 31, 2024 , $ 498.2 million, or 7.41 % of the total commercial real estate loans included loans secured by farmland, compared to $ 497.7 million, or 7.34 %, at December 31, 2023 . The loans secured by farmland included $ 121.4 million for loans secured by dairy & livestock land and $ 376.8 million secured by agricultural land at March 31, 2024 , compared to $ 122.4 million for loans secured by dairy & livestock land and $ 375.3 million for loans secured by agricultural land at December 31, 2023. As of March 31, 2024 , dairy & livestock and agribusiness loans of $ 351.6 million were comprised of $ 308.5 million for dairy & livestock loans and $ 43.1 million for agribusiness loans, compared to $ 412.9 million were comprised of $ 374.9 million for dairy & livestock loans and $ 38.0 million of agribusiness loans at December 31, 2023. At March 31, 2024 and December 31, 2023, loans totaling $ 4.24 billi on and $ 4.04 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank. There were no outstanding loans held-for-sale as of March 31, 2024 and December 31, 2023. 14 Credit Quality Indicators We monitor credit quality by evaluating various risk attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. Internal credit risk ratings, within our loan risk rating system, are the credit quality indicators that we most closely monitor. An important element of our approach to credit risk management is our loan risk rating system. The originating officer assigns each loan an initial risk rating, which is reviewed and confirmed or changed, as appropriate, by credit management. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration or improvement in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary. Loans are risk rated into the following categories: Pass, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows: Pass — These loans, including loans on the Bank’s internal watch list, range from minimal credit risk to lower than average, but still acceptable, credit risk. Watch list loans usually require more than normal management attention. Loans on the watch list may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent. Special Mention — Loans assigned to this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Substandard — Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected. Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or the liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset with insignificant value even though partial recovery may be affected in the future. 15 The following table summarizes loans by type and origination year, according to our internal risk ratings as of the dates presented. Origination Year Revolving loans amortized Revolving loans converted to March 31, 2024 2024 2023 2022 2021 2020 Prior cost basis term loans Total (Dollars in thousands) Commercial real estate loans: Risk Rating: Pass $ 54,653 $ 441,596 $ 1,299,240 $ 1,120,686 $ 866,833 $ 2,457,881 $ 179,725 $ 38,940 $ 6,459,554 Special Mention 678 4,556 3,867 18,616 19,117 121,713 2,366 — 170,913 Substandard — 669 8,105 2,891 32,952 44,705 749 — 90,071 Doubtful & Loss — — — — — — — — — Total Commercial real estate loans: $ 55,331 $ 446,821 $ 1,311,212 $ 1,142,193 $ 918,902 $ 2,624,299 $ 182,840 $ 38,940 $ 6,720,538 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ 2,258 $ — $ — $ 2,258 Construction loans: Risk Rating: Pass $ 3 $ 2,513 $ 12,277 $ 22,289 $ 8,066 $ — $ 11,549 $ — $ 56,697 Special Mention — — — — — — — — - Substandard — — — 2,109 — — — — 2,109 Doubtful & Loss — — — — — — — — — Total Construction loans: $ 3 $ 2,513 $ 12,277 $ 24,398 $ 8,066 $ — $ 11,549 $ — $ 58,806 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — SBA loans: Risk Rating: Pass $ 10,759 $ 19,621 $ 47,896 $ 50,594 $ 24,417 $ 102,067 $ — $ — $ 255,354 Special Mention — — 1,616 — 4,767 3,010 — — 9,393 Substandard — — — — — 3,573 — — 3,573 Doubtful & Loss — — — — — — — — — Total SBA loans: $ 10,759 $ 19,621 $ 49,512 $ 50,594 $ 29,184 $ 108,650 $ — $ — $ 268,320 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ 90 $ — $ — $ 90 SBA - PPP loans: Risk Rating: Pass $ — $ — $ — $ 591 $ 1,658 $ — $ — $ — $ 2,249 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful & Loss — — — — — — — — — Total SBA - PPP loans: $ — $ — $ — $ 591 $ 1,658 $ — $ — $ — $ 2,249 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial and industrial loans: Risk Rating: Pass $ 28,523 $ 135,426 $ 136,353 $ 90,310 $ 82,495 $ 151,348 $ 296,236 $ 4,688 $ 925,379 Special Mention — 9,498 1,124 1,595 828 7,989 8,133 5,279 34,446 Substandard — — 239 — — 45 2,637 374 3,295 Doubtful & Loss — — — — — — — — — Total Commercial and industrial loans: $ 28,523 $ 144,924 $ 137,716 $ 91,905 $ 83,323 $ 159,382 $ 307,006 $ 10,341 $ 963,120 Current YTD Period: Gross charge-offs $ — $ — $ 300 $ — $ — $ 1,186 $ — $ 431 $ 1,917 16 Origination Year Revolving loans amortized Revolving loans converted to March 31, 2024 2024 2023 2022 2021 2020 Prior cost basis term loans Total (Dollars in thousands) Dairy & livestock and agribusiness loans: Risk Rating: Pass $ — $ — $ — $ 685 $ 917 $ 262 $ 266,157 $ 270 $ 268,291 Special Mention — 432 — 1,335 — — 79,044 — 80,811 Substandard — — — — — 60 2,380 82 2,522 Doubtful & Loss — — — — — — — — — Total Dairy & livestock and agribusiness loans: $ — $ 432 $ — $ 2,020 $ 917 $ 322 $ 347,581 $ 352 $ 351,624 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Municipal lease finance receivables loans: Risk Rating: Pass $ 193 $ — $ 5,719 $ 25,803 $ 5,733 $ 34,402 $ — $ — $ 71,850 Special Mention — — — — — 182 — — 182 Substandard — — — — — — — — — Doubtful & Loss — — — — — — — — — Total Municipal lease finance receivables loans: $ 193 $ — $ 5,719 $ 25,803 $ 5,733 $ 34,584 $ — $ — $ 72,032 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — SFR mortgage loans: Risk Rating: Pass $ 11,528 $ 21,229 $ 60,524 $ 43,305 $ 43,832 $ 93,044 $ — $ — $ 273,462 Special Mention — 750 — — 913 438 — — 2,101 Substandard — — — — — 604 — 308 912 Doubtful & Loss — — — — — — — — — Total SFR mortgage loans: $ 11,528 $ 21,979 $ 60,524 $ 43,305 $ 44,745 $ 94,086 $ — $ 308 $ 276,475 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer and other loans: Risk Rating: Pass $ 1,636 $ 4,037 $ 3,483 $ 2,492 $ 572 $ 1,035 $ 42,049 $ 1,256 $ 56,560 Special Mention — — — 214 — — 4 173 391 Substandard — — — — — — — 598 598 Doubtful & Loss — — — — — — — — — Total Consumer and other loans: $ 1,636 $ 4,037 $ 3,483 $ 2,706 $ 572 $ 1,035 $ 42,053 $ 2,027 $ 57,549 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ 1 $ 1 $ 2 Total Loans, at amortized cost: Risk Rating: Pass $ 107,295 $ 624,422 $ 1,565,492 $ 1,356,755 $ 1,034,523 $ 2,840,039 $ 795,716 $ 45,154 $ 8,369,396 Special Mention 678 15,236 6,607 21,760 25,625 133,332 89,547 5,452 298,237 Substandard — 669 8,344 5,000 32,952 48,987 5,766 1,362 103,080 Doubtful & Loss — — — — — — — — — Total Loans at amortized cost: $ 107,973 $ 640,327 $ 1,580,443 $ 1,383,515 $ 1,093,100 $ 3,022,358 $ 891,029 $ 51,968 $ 8,770,713 Current YTD Period: Total gross charge-offs $ — $ — $ 300 $ — $ — $ 3,534 $ 1 $ 432 $ 4,267 17 Origination Year Revolving loans amortized Revolving loans converted to December 31, 2023 2023 2022 2021 2020 2019 Prior cost basis term loans Total (Dollars in thousands) Commercial real estate loans: Risk Rating: Pass $ 447,991 $ 1,315,563 $ 1,133,331 $ 885,590 $ 497,541 $ 2,041,329 $ 171,223 $ 38,568 $ 6,531,136 Special Mention 3,241 3,897 15,868 19,368 43,824 74,673 2,911 — 163,782 Substandard 744 8,127 2,891 33,401 12,986 30,637 801 — 89,587 Doubtful & Loss — — — — — — — — — Total Commercial real estate loans: $ 451,976 $ 1,327,587 $ 1,152,090 $ 938,359 $ 554,351 $ 2,146,639 $ 174,935 $ 38,568 $ 6,784,505 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Construction loans: Risk Rating: Pass $ 1,274 $ 15,046 $ 22,288 $ 8,058 $ — $ — $ 17,938 $ — $ 64,604 Special Mention — — 2,130 — — — — — 2,130 Substandard — — — — — — — — — Doubtful & Loss — — — — — — — — — Total Construction loans: $ 1,274 $ 15,046 $ 24,418 $ 8,058 $ — $ — $ 17,938 $ — $ 66,734 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — SBA loans: Risk Rating: Pass $ 20,701 $ 48,212 $ 51,038 $ 29,306 $ 6,236 $ 101,856 $ — $ — $ 257,349 Special Mention — 1,627 — 4,784 1,132 1,760 — — 9,303 Substandard — — — — 749 3,218 — — 3,967 Doubtful & Loss — — — — — — — — — Total SBA loans: $ 20,701 $ 49,839 $ 51,038 $ 34,090 $ 8,117 $ 106,834 $ — $ — $ 270,619 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ 288 $ — $ — $ 288 SBA - PPP loans: Risk Rating: Pass $ — $ — $ 699 $ 2,037 $ — $ — $ — $ — $ 2,736 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful & Loss — — — — — — — — — Total SBA - PPP loans: $ — $ — $ 699 $ 2,037 $ — $ — $ — $ — $ 2,736 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial and industrial loans: Risk Rating: Pass $ 141,080 $ 143,847 $ 100,059 $ 88,743 $ 68,352 $ 94,027 $ 289,539 $ 5,460 $ 931,107 Special Mention 7,829 738 745 552 4,114 3,986 10,529 5,347 33,840 Substandard — 257 — — 89 1,296 2,487 819 4,948 Doubtful & Loss — — — — — — — — — Total Commercial and industrial loans: $ 148,909 $ 144,842 $ 100,804 $ 89,295 $ 72,555 $ 99,309 $ 302,555 $ 11,626 $ 969,895 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ 109 $ 109 18 Origination Year Revolving loans amortized Revolving loans converted to December 31, 2023 2023 2022 2021 2020 2019 Prior cost basis term loans Total (Dollars in thousands) Dairy & livestock and agribusiness loans: Risk Rating: Pass $ 296 $ — $ 1,586 $ 931 $ 80 $ 208 $ 337,525 $ — $ 340,626 Special Mention 448 — — — 25 — 69,232 — 69,705 Substandard — — — — — 60 2,500 — 2,560 Doubtful & Loss — — — — — — — — — Total Dairy & livestock and agribusiness loans: $ 744 $ — $ 1,586 $ 931 $ 105 $ 268 $ 409,257 $ — $ 412,891 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Municipal lease finance receivables loans: Risk Rating: Pass $ — $ 5,735 $ 25,803 $ 5,981 $ 4,267 $ 31,622 $ — $ — $ 73,408 Special Mention — — — — — 182 — — 182 Substandard — — — — — — — — — Doubtful & Loss — — — — — — — — — Total Municipal lease finance receivables loans: $ — $ 5,735 $ 25,803 $ 5,981 $ 4,267 $ 31,804 $ — $ — $ 73,590 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — SFR mortgage loans: Risk Rating: Pass $ 22,248 $ 61,070 $ 43,573 $ 44,076 $ 28,049 $ 67,750 $ — $ — $ 266,766 Special Mention 789 — — 918 544 327 — — 2,578 Substandard — — — — — 200 — 324 524 Doubtful & Loss — — — — — — — — — Total SFR mortgage loans: $ 23,037 $ 61,070 $ 43,573 $ 44,994 $ 28,593 $ 68,277 $ — $ 324 $ 269,868 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer and other loans: Risk Rating: Pass $ 4,911 $ 4,122 $ 2,707 $ 702 $ 644 $ 486 $ 38,595 $ 871 $ 53,038 Special Mention — — 246 — — — 4 173 423 Substandard — — — — — 12 1 598 611 Doubtful & Loss — — — — — — — — — Total Consumer and other loans: $ 4,911 $ 4,122 $ 2,953 $ 702 $ 644 $ 498 $ 38,600 $ 1,642 $ 54,072 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ 4 $ — $ 4 $ 8 Total Loans, at amortized cost: Risk Rating: Pass $ 638,501 $ 1,593,595 $ 1,381,084 $ 1,065,424 $ 605,169 $ 2,337,278 $ 854,820 $ 44,899 $ 8,520,770 Special Mention 12,307 6,262 18,989 25,622 49,639 80,928 82,676 5,520 281,943 Substandard 744 8,384 2,891 33,401 13,824 35,423 5,789 1,741 102,197 Doubtful & Loss — — — — — — — — — Total Loans at amortized cost: $ 651,552 $ 1,608,241 $ 1,402,964 $ 1,124,447 $ 668,632 $ 2,453,629 $ 943,285 $ 52,160 $ 8,904,910 Current YTD Period: Gross charge-offs $ — $ — $ — $ — $ — $ 292 $ — $ 113 $ 405 Allowance for Credit Losses ("ACL") The Company's allowance models calculate reserves over the average life of the loan, which includes the remaining time to maturity, adjusted for estimated prepayments applied as an adjustment to our commercial real estate and commercial and industrial loans. Our allowance for credit losses is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. A substantial portion of the ACL relates to loans within the Commercial Real Estate and Commercial and Industrial methodologies, each evaluated on a collective basis. Our ACL amounts are largely driven by portfolio characteristics, including loss history, internal risk grading, various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real 19 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 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 amortized cost basis of the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes. The Company’s ACL estimate incorporates a reasonable and supportable forecast of various macroeconomic variables over the remaining average life of our loans. This forecast incorporates an assumption that each macroeconomic variable will revert to a long-term expectation, starting in years two through three, of the reasonable and supportable forecast period, with the reversion largely completed within the first five years of the forecast. The economic forecast is based on probability weighted scenarios to address macroeconomic uncertainty. Our methodology for assessing the appropriateness of the allowance is reviewed on a regular basis and considers overall risks in the Bank’s loan portfolio. Refer to Note 3 – Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2023 for a more detailed discussion concerning the allowance for credit losses. The ACL total ed $ 82.8 million at March 31, 2024 , compared to $ 86.8 million at December 31, 2023. The $ 4.0 million decrease in the ACL from December 31, 2023 to March 31, 2024 is comprised of $ 4.0 in net charge-offs. At March 31, 2024, the ACL as a percentage of total loans and leases, at amortized cost, wa s 0.94 %. This compares to 0.97 % at December 31, 2023. Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. These U.S. economic forecasts include a baseline forecast, as well as downside forecasts. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with downside risks weighted among multiple forecasts. As of March 31, 2024 , the resulting weighted forecast resulted in Real GDP growth declining in the third and fourth quarters of 2024. Real GDP growth is forecasted to be below 2 % for 2025, before returning to growth between 2 % and 2.5 % in 2026. Commercial real estate values are forecasted to continue their decline until reaching their lowest level in the third quarter 2024. Unemployment is forecasted to rise in 2024, peaking around 6 % in the first quarter of 2025. The unemployment rate is forecasted to stay elevated through 2026. Management believes that the ACL was appropriate at March 31, 2024 and December 31, 2023. Due to inflationary pressures, high interest rates, lower commercial real estate values, and geopolitical events, no assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for credit losses in the future. The following tables present the balance and activity related to the allowance for credit losses for held-for-investment loans by type for the periods presented. Three Months Ended March 31, 2024 Ending Balance December 31, 2023 Charge-offs Recoveries Provision for (Recapture of) Credit Losses Ending Balance March 31, 2024 (Dollars in thousands) Commercial real estate $ 69,466 $ ( 2,258 ) $ — $ 2,237 $ 69,445 Construction 1,277 — 3 16 1,296 SBA 2,679 ( 90 ) 63 ( 121 ) 2,531 Commercial and industrial 9,116 ( 1,917 ) 176 ( 2,316 ) 5,059 Dairy & livestock and agribusiness 3,098 — — 154 3,252 Municipal lease finance receivables 210 — — ( 16 ) 194 SFR mortgage 535 — — ( 52 ) 483 Consumer and other loans 461 ( 2 ) — 98 557 Total allowance for credit losses $ 86,842 $ ( 4,267 ) $ 242 $ — $ 82,817 20 Three Months Ended March 31, 2023 Ending Balance December 31, 2022 Charge-offs Recoveries Provision for (Recapture of) Credit Losses Ending Balance March 31, 2023 (Dollars in thousands) Commercial real estate $ 64,806 $ — $ — $ 2,311 $ 67,117 Construction 1,702 — 3 ( 31 ) 1,674 SBA 2,809 ( 94 ) 12 2 2,729 Commercial and industrial 10,206 ( 16 ) 14 ( 1,241 ) 8,963 Dairy & livestock and agribusiness 4,400 — 4 366 4,770 Municipal lease finance receivables 296 — — ( 13 ) 283 SFR mortgage 366 — — 43 409 Consumer and other loans 532 — — 63 595 Total allowance for credit losses $ 85,117 $ ( 110 ) $ 33 $ 1,500 $ 86,540 Past Due and Nonperforming Loans We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is responsible for monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for credit losses, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated credit losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 – Summary of Significant Accounting Policies , included in our Annual Report on Form 10-K for the year ended December 31, 2023, for additional discussion concerning the Bank’s policy for past due and nonperforming loans. The following table presents the recorded investment in, and the aging of, past due loans (including nonaccrual loans), by type of loans as of the dates presented. March 31, 2024 30-59 Days Past Due 60-89 Days Past Due Greater than 89 Days Past Due Total Past Due Loans Not Past Due Total Loans and Financing Receivables (Dollars in thousands) Commercial real estate Owner occupied $ 2,526 $ — $ — $ 2,526 $ 2,407,593 $ 2,410,119 Non-owner occupied 11,295 5,960 10,661 27,916 4,282,503 4,310,419 Construction Speculative (1) — — — — 52,256 52,256 Non-speculative — — — — 6,550 6,550 SBA 408 — 54 462 267,858 268,320 SBA - PPP — — — — 2,249 2,249 Commercial and industrial 6 — 2,487 2,493 960,627 963,120 Dairy & livestock and agribusiness — — — — 351,624 351,624 Municipal lease finance receivables — — — — 72,032 72,032 SFR mortgage — — — — 276,475 276,475 Consumer and other loans — — — — 57,549 57,549 Total loans at amortized cost $ 14,235 $ 5,960 $ 13,202 $ 33,397 $ 8,737,316 $ 8,770,713 (1) Speculative construction loans are generally for properties where there is no identified buyer or renter. 21 December 31, 2023 30-59 Days Past Due 60-89 Days Past Due Greater than 89 Days Past Due Total Past Due Loans Not Past Due Total Loans and Financing Receivables (Dollars in thousands) Commercial real estate Owner occupied $ 300 $ — $ 2,505 $ 2,805 $ 2,430,447 $ 2,433,252 Non-owner occupied 16 — 531 547 4,350,706 4,351,253 Construction Speculative (1) — — — — 57,921 57,921 Non-speculative — — — — 8,813 8,813 SBA — 108 969 1,077 269,542 270,619 SBA - PPP — — — — 2,736 2,736 Commercial and industrial 12 — 4,253 4,265 965,630 969,895 Dairy & livestock and agribusiness — — — — 412,891 412,891 Municipal lease finance receivables — — — — 73,590 73,590 SFR mortgage 201 — — 201 269,667 269,868 Consumer and other loans 18 — — 18 54,054 54,072 Total loans at amortized cost $ 547 $ 108 $ 8,258 $ 8,913 $ 8,895,997 $ 8,904,910 (1) Speculative construction loans are generally for properties where there is no identified buyer or renter. Amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance are presented as of March 31, 2024 and December 31, 2023 by type of loan. March 31, 2024 Nonaccrual with No Allowance for Credit Losses Total Nonaccrual (1) (3) Loans Past Due Over 89 Days Still Accruing (Dollars in thousands) Commercial real estate Owner occupied $ — $ — $ — Non-owner occupied 10,661 10,661 — Construction Speculative (2) — — — Non-speculative — — — SBA 54 54 — SBA - PPP — — — Commercial and industrial 2,727 2,727 — Dairy & livestock and agribusiness 60 60 — Municipal lease finance receivables — — — SFR mortgage 308 308 — Consumer and other loans - - — Total loans at amortized cost $ 13,810 $ 13,810 $ — (1) As of March 31, 2024, $ 608,000 of nonaccruing loans were current and $ 13.2 million were 90+ days past due. (2) Speculative construction loans are generally for properties where there is no identified buyer or renter. (3) There were no guaranteed portion of nonaccrual SBA loans that are in process of collection. 22 December 31, 2023 Nonaccrual with No Allowance for Credit Losses Total Nonaccrual (1) Loans Past Due Over 89 Days Still Accruing (Dollars in thousands) Commercial real estate Owner occupied $ 2,505 $ 2,505 $ — Non-owner occupied 548 12,935 — Construction Speculative (2) — — — Non-speculative — — — SBA 787 969 — SBA - PPP — — — Commercial and industrial 908 4,509 — Dairy & livestock and agribusiness 60 60 — Municipal lease finance receivables — — — SFR mortgage 323 324 — Consumer and other loans — — — Total loans at amortized cost $ 5,131 $ 21,302 $ — (1) As of December 31, 2023 , $ 13.0 million of nonaccruing loans were current, $ 16,000 were 30-59 days past due, and $ 8.3 million were 90+ days past due. (2) Speculative construction loans are generally for properties where there is no identified buyer or renter. 23 Collateral Dependent Loans A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents the recorded investment in collateral-dependent loans by type of loans as of the date presented. March 31, 2024 Number of Loans Real Estate Business Assets Other Dependent on Collateral (Dollars in thousands) Commercial real estate $ 10,661 $ — $ — 2 Construction — — — — SBA 54 — — 1 SBA - PPP — — — — Commercial and industrial — 2,727 — 2 Dairy & livestock and agribusiness 60 — — 1 Municipal lease finance receivables — — — — SFR mortgage 308 — — 1 Consumer and other loans — — — — Total collateral-dependent loans $ 11,083 $ 2,727 $ — 7 December 31, 2023 Number of Loans Real Estate Business Assets Other Dependent on Collateral (Dollars in thousands) Commercial real estate $ 15,440 $ — $ — 5 Construction — — — — SBA 749 220 — 4 SBA - PPP — — — — Commercial and industrial 392 2,950 1,167 8 Dairy & livestock and agribusiness 60 — — 1 Municipal lease finance receivables — — — — SFR mortgage 324 — — 1 Consumer and other loans — — — — Total collateral-dependent loans $ 16,965 $ 3,170 $ 1,167 19 24 Reserve for Unfunded Loan Commitments The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the off-balance sheet loan commitments in the same manner as it evaluates credit risk associated with the loan and lease portfolio. The Bank's ACL methodology produced an allowance of $ 7.5 million for the off-balance sheet credit exposures as of March 31, 2024. There was no provision for unfunded loan commitments for the three months ended March 31, 2024 , compared to $ 500,000 in provision for the three months ended March 31, 2023. As of March 31, 2024 and December 31, 2023, the balance in this reserve was $ 7.5 million and was included in other liabilities. Modifications of Loans to Borrowers Experiencing Financial Difficulty The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of TDRs and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. There were three loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2024 with an amortized cost totaling $ 1.3 million as of March 31, 2024, including one dairy & livestock and agribusiness loan of $ 962,000 and two commercial and industrial loans totaling $ 350,000 . The tables below reflect the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified as of March 31, 2024 and March 31, 2023, and the financial effect of those modifications. Term Extension Combination-Term Extension and Interest Rate Reduction Amortized Cost Basis % of Total Class of Financing Receivables Amortized Cost Basis % of Total Class of Financing Receivables Total March 31, 2024 Commercial real estate loans $ 2,466 0.03 % $ 686 0.01 % $ 3,152 Commercial and industrial 1,644 0.02 % 242 0.00 % 1,886 Dairy & livestock and agribusiness 5,727 0.07 % — 0.00 % 5,727 Total $ 9,837 $ 928 $ 10,765 March 31, 2023 Commercial real estate loans $ 1,587 0.02 % $ — — $ 1,587 Commercial and industrial 2,250 0.03 % — — 2,250 Dairy & livestock and agribusiness 1,999 0.02 % — — 1,999 Total $ 5,836 $ — $ 5,836 25 Loan Type Financial Effect Term Extension March 31, 2024 Commercial real estate loans Added a weighted-average 1.3 years to the life of loans, which reduced monthly payment amounts for the borrowers. Commercial and industrial Added a weighted-average 0.7 years to the life of loans, which reduced monthly payment amounts for the borrowers. Dairy & livestock and agribusiness Added a weighted-average 0.6 years to the life of loans, which reduced monthly payment amounts for the borrowers. Term Extension March 31, 2023 Commercial real estate loans Added a weighted-average 1.1 years to the life of loans, which reduced monthly payment amounts for the borrowers. Commercial and industrial Added a weighted-average 0.8 years to the life of loans, which reduced monthly payment amounts for the borrowers. Dairy & livestock and agribusiness Added a weighted-average 1.2 years to the life of loans, which reduced monthly payment amounts for the borrowers. As of March 31, 2024, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2024 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first. The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty as of March 31, 2024. Payment Status (amortized cost basis) Current 30-89 Days Past Due 90+ Days Past Due (Dollars in thousands) Commercial real estate loans $ 3,152 $ — $ — Commercial and industrial 1,886 — — Dairy & livestock and agribusiness 5,727 — — Total $ 10,765 $ — $ — 26 6. BORROWINGS Customer Repurchase Agreements The Bank offers a repurchase agreement product to its customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price which reflects the market value of the use of funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a pre-determined balance in a demand deposit account, in order to earn interest. As of March 31, 2024, total funds borrowed under these agreements were $ 275.7 million with a weighted average interest rate of 0.41 %, compared to $ 271.6 million with a weighted average interest rate of 0.29 % at December 31, 2023. Federal Home Loan Bank Advances and Other Borrowings As of March 31, 2024, total borrowings of $ 2.0 billion, consisted of one-year advances from the Federal Reserve’s Bank Term Funding Program (“BTFP”) at a cost of approximately 4.75 %. The BTFP advances include maturities of $ 695 million in May and $ 1.3 billion in January of 2025. As of December 31, 2023, total short-term borrowings of $ 2.07 billion, consisted of $ 1.91 billion of one-year advances from the Federal Reserve’s BTFP at a cost of 4.78 % and $ 160 million of short-term FHLB advances, at an average cost of approximately 5.7 %. The BTFP advances included maturities of $ 695 million in May and $ 1.2 billion in December of 2024. At March 31, 2024, loans with a carrying value of $ 4.24 billion were pledged to secure available lines of credit from the FHLB and the Federal Reserve Bank. At March 31, 2024 investment securities with carrying values of $ 2.51 billion were pledged to secure various types of deposits, including $ 1.37 billion of public funds. In addition, investment securities with carrying values of $ 2.75 billion were pledged to secure $ 372.3 million for repurchase agreements, $ 1.88 billion for outstanding borrowings, $ 446 million for unused borrowing capacity and approximately $ 51 million for other purposes as required or permitted by law. 27 7. EARNINGS PER SHARE RECONCILIATION Basic earnings per common share are computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of shares issuable upon the assumed exercise of outstanding common stock options. Antidilutive common shares are not included in the calculation of diluted earnings per common share. For the three months ended March 31, 2024 and March 31, 2023, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 1,021,000 and 348,000 , respecti vely. The table below shows earnings per common share and diluted earnings per common share, and reconciles the numerator and denominator of both earnings per common share calculations. Three Months Ended March 31, 2024 2023 (In thousands, except per share amounts) Earnings per common share: Net earnings $ 48,599 $ 59,270 Less: Net earnings allocated to restricted stock 324 407 Net earnings allocated to common shareholders $ 48,275 $ 58,863 Weighted average shares outstanding 138,429 138,592 Basic earnings per common share $ 0.35 $ 0.42 Diluted earnings per common share: Net income allocated to common shareholders $ 48,275 $ 58,863 Weighted average shares outstanding 138,429 138,592 Incremental shares from assumed exercise of outstanding options 174 361 Diluted weighted average shares outstanding 138,603 138,953 Diluted earnings per common share $ 0.35 $ 0.42 28 8. FAIR VALUE INFORMATION Fair Value Hierarchy Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The valuation methodologies for financial assets and liabilities measured at fair value on a recurring and non-recurring basis are described in Note 18 — Fair Value Information, included in our Annual Report on Form 10-K for the year ended December 31, 2023. Assets and Liabilities Measured at Fair Value on a Recurring Basis The tables below present the balances of assets and liabilities measured at fair value on a recurring basis as of the dates presented. Carrying Value at March 31, 2024 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (Dollars in thousands) Description of assets Investment securities - AFS: Government agency/GSE $ 32,640 $ — $ 32,640 $ — Mortgage-backed securities 2,399,107 — 2,399,107 — CMO/REMIC 378,894 — 378,894 — Municipal bonds 25,144 — 25,144 — Other securities 1,315 — 1,315 — Total investment securities - AFS 2,837,100 — 2,837,100 — Derivatives not designated as hedging instruments: Interest rate swaps 38 — 38 — Derivatives designated as hedging instruments: Fair value hedges: interest rate swaps 10,893 — 10,893 — Cash flow hedges: interest rate swaps 789 — 789 — Total assets $ 2,848,820 $ — $ 2,848,820 $ — Description of liability Derivatives not designated as hedging instruments: Interest rate swaps $ 38 $ — $ 38 $ — Derivatives designated as hedging instruments: Fair value hedges: interest rate swaps — — — — Cash flow hedges: interest rate swaps — — — — Total liabilities $ 38 $ — $ 38 $ — 29 Carrying Value at December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (Dollars in thousands) Description of assets Investment securities - AFS: Government agency/GSE $ 32,253 $ — $ 32,253 $ — Mortgage-backed securities 2,507,679 — 2,507,679 — CMO/REMIC 389,362 — 389,362 — Municipal bonds 25,635 — 25,635 — Other securities 1,196 — 1,196 — Total investment securities - AFS 2,956,125 — 2,956,125 — Derivatives not designated as hedging instruments: Interest rate swaps 112 — 112 — Derivatives designated as hedging instruments: Interest rate swaps — — — — Total assets $ 2,956,237 $ — 2,956,237 $ — Description of liability Derivatives not designated as hedging instruments: Interest rate swaps $ 112 $ — $ 112 $ — Derivatives designated as hedging instruments: Interest rate swaps 6,938 — 6,938 — Total liabilities $ 7,050 $ — $ 7,050 $ — 30 Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis We may be required to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a non-recurring basis that were held on the balance sheet at March 31, 2024 and December 31, 2023 , respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets that had losses during the period. Carrying Value at March 31, 2024 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Losses For the Three Months Ended March 31, 2024 (Dollars in thousands) Description of assets Loans: Commercial real estate $ 13,813 $ — $ — $ 13,813 $ 2,258 Construction — — — — — SBA 211 — — 211 26 SBA - PPP — — — — — Commercial and industrial 4,612 — — 4,612 16 Dairy & livestock and agribusiness 5,787 — — 5,787 — Municipal lease finance receivables — — — — — SFR mortgage 308 — — 308 — Consumer and other loans — — — — — Other real estate owned — — — — — Asset held-for-sale — — — — — Total assets $ 24,731 $ — $ — $ 24,731 $ 2,300 Carrying Value at December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Losses For the Year Ended December 31, 2023 (Dollars in thousands) Description of assets Loans: Commercial real estate $ 18,678 $ — $ — $ 18,678 $ 2,128 Construction — — — — — SBA 995 — — 995 57 SBA - PPP — — — — — Commercial and industrial 6,092 — — 6,092 3,510 Dairy & livestock and agribusiness 4,700 — — 4,700 27 Municipal lease finance receivables — — — — — SFR mortgage — — — — — Consumer and other loans — — — — — Other real estate owned — — — — — Asset held-for-sale — — — — — Total assets $ 30,465 — — $ 30,465 $ 5,722 31 Fair Value of Financial Instruments The following disclosure presents estimated fair value of our financial instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company may realize in a current market exchange as of March 31, 2024 and December 31, 2023 , respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. March 31, 2024 Carrying Estimated Fair Value Amount Level 1 Level 2 Level 3 Total (Dollars in thousands) Assets Total cash and cash equivalents $ 949,589 $ 949,589 $ — $ — $ 949,589 Interest-earning balances due from depository institutions 12,632 — 12,632 — 12,632 Investment securities available-for-sale 2,837,100 — 2,837,100 — 2,837,100 Investment securities held-to-maturity 2,454,586 — 2,044,031 — 2,044,031 Total loans, net of allowance for credit losses 8,687,896 — — 8,273,529 8,273,529 Derivatives not designated as hedging instruments: Interest rate swaps 38 — 38 — 38 Derivatives designated as hedging instruments: Fair value hedges: interest rate swaps 10,893 — 10,893 — 10,893 Cash flow hedges: interest rate swaps 789 — 789 — 789 Liabilities Deposits: Interest-bearing $ 4,782,132 $ — $ 4,777,393 $ — $ 4,777,393 Borrowings 2,270,720 — 2,204,434 — 2,204,434 Derivatives not designated as hedging instruments: Interest rate swaps 38 — 38 — 38 Derivatives designated as hedging instruments: Fair value hedges: interest rate swaps — — — — — Cash flow hedges: interest rate swaps — — — — — 32 December 31, 2023 Carrying Estimated Fair Value Amount Level 1 Level 2 Level 3 Total (Dollars in thousands) Assets Total cash and cash equivalents $ 281,285 $ 281,285 $ — $ — $ 281,285 Interest-earning balances due from depository institutions 8,216 — 8,216 — 8,216 Investment securities available-for-sale 2,956,125 — 2,956,125 — 2,956,125 Investment securities held-to-maturity 2,464,610 — 2,082,881 — 2,082,881 Total loans, net of allowance for credit losses 8,818,068 — — 8,503,518 8,503,518 Derivatives not designated as hedging instruments: Interest rate swaps 112 — 112 — 112 Derivatives designated as hedging instruments: Fair value hedges: interest rate swaps — — — — — Liabilities Deposits: Interest-bearing $ 4,227,467 $ — $ 4,222,773 $ — $ 4,222,773 Borrowings 2,341,642 — 2,283,631 — 2,283,631 Derivatives not designated as hedging instruments: Interest rate swaps 112 — 112 — 112 Derivatives designated as hedging instruments: Fair value hedges: interest rate swaps 6,938 — 6,938 — 6,938 The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2024 and December 31, 2023 . Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented above. 9. DERIVATIVE FINANCIAL INSTRUMENTS Derivatives Not Designated as Hedging Instruments The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset/liability management strategy to help manage its interest rate risk position. As of March 31, 2024, the Bank has entered into 114 interest-rate swap agreements with customers with a notional amount totaling $ 390.3 million. T he Bank then entered into identical offsetting swaps with counterparties. The swap agreements are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and to provide the customer the financial effects of a fixed-rate loan without creating significant volatility in the Bank’s earnings. The structure of the swaps is as follows. The Bank enters into an interest rate swap with its customers in which the Bank pays the customer a variable rate and the customer pays the Bank a fixed rate, therefore allowing customers to convert variable rate loans to fixed rate loans. At the same time, the Bank enters into a swap with a counterparty bank in which the Bank pays the counterparty a fixed rate and the counterparty in return pays the Bank a variable rate. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on SOFR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore should not have a significant impact on the Company’s results of operations, although the Company does incur credit and counterparty risk with respect to performance on the swap agreements by the Bank’s customer and counterparty, respectively. These instruments contain language outlining collateral pledging requirements for each counterparty, in which collateral must be posted if market value exceeds certain agreed upon threshold limits. Cash or securities are pledged as collateral . Our interest rate swap derivatives are subject to a master netting arrangement with our counterparties. No ne of our derivative assets and liabilities are offset in the Company’s condensed consolidated balance sheet. 33 We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure, although there can be no assurances in this regard since the performance of our swaps is subject to market and counterparty risk. Derivatives Designated as Hedging Instruments Fair Value Hedges To manage interest rate risk on our AFS securities portfolio, we have entered into pay-fixed, receive-floating interest rate swap contracts to hedge against exposure to changes in the fair value of such securities resulting from changes in interest rates. We designate these interest rate swap contracts as fair value hedges that qualify for hedge accounting under ASC 815, Derivatives and Hedging. We elected to account for the fair value hedges using the portfolio layer method in accordance with ASU 2022-01. We record the interest rate swaps in the line items "accrued interest receivable and other assets" and "other liabilities" on our consolidated balance sheet. For qualifying fair value hedges, both the changes in the fair value of the derivative and the portion of the fair value adjustments associated with the portfolio layer attributable to the hedged risk are recognized into earnings as they occur. Derivative amounts impacting earnings are recognized consistent with the classification of the hedged item in the line item "investment securities available for sale" as part of interest income, a component of consolidated net income. In June 2023, fair value hedging transactions were executed in which $ 1 billion notional pay-fixed interest rate swaps were consummated with original maturities ranging from four to five years, wherein the Company pays a weighted average fixed rate of approximately 3.8 % and receives daily SOFR. The fair value of these instruments totaled $ 10.9 million and were reflected as an asset at March 31, 2024. Cash Flow Hedges To manage our interest rate risk associated with brokered CDs, FHLB advances or other fixed rate advances for specified periods, the Company enters into 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 rates. During the first quarter of 2024, $ 300 million of 3-month term brokered CDs were issued and cash flow hedging transactions were also executed in which $ 300 million notional pay-fixed interest rate swaps were consummated with maturities of three years, wherein the Company pays a weighted average fixed rate of approximately 4.2 % and receives daily SOFR. To qualify for hedge accounting, a formal assessment is prepared to determine whether the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge if a cash flow hedge. At inception a statistical regression analysis is prepared to determine hedge effectiveness. At each reporting period thereafter, a statistical regression or qualitative analysis is performed to determine hedge effectiveness. If it is determined that hedge effectiveness has not been or will not continue to be highly effective, then hedge accounting ceases and any gain or loss in AOCI is recognized in earnings immediately. The cash flow hedges are recorded at fair value in other assets and other liabilities on the consolidated balance sheets with changes in fair value recorded in AOCI, net of tax. All related cash flows are reported in the operating activities section of the consolidated statement of cash flows. Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability. 34 Balance Sheet Classification of Derivative Financial Instruments As of March 31, 2024 and December 31, 2023, the notional amount, t he location of the asset and liability, and their respective fair values, ar e summarized in the tables below. March 31, 2024 Asset Derivatives Liability Derivatives Notional Balance Sheet Location Fair Value Notional Balance Sheet Location Fair Value (Dollars in thousands) Derivatives not designated as hedging instruments: Interest rate swaps $ 390,307 Other assets $ 38 $ 390,307 Other liabilities $ 38 Total derivatives $ 38 $ 38 Derivatives designated as hedging instruments: Fair value hedges: interest rate swaps $ 1,000,000 Other assets $ 10,893 Other liabilities $ — Cash flow hedges: interest rate swaps Other assets 789 $ 300,000 Other liabilities — Total $ 11,682 $ — December 31, 2023 Asset Derivatives Liability Derivatives Notional Balance Sheet Location Fair Value Notional Balance Sheet Location Fair Value (Dollars in thousands) Derivatives not designated as hedging instruments: Interest rate swaps $ 394,359 Other assets $ 112 $ 394,359 Other liabilities $ 112 Total derivatives $ 112 $ 112 Derivatives designated as hedging instruments: Fair value hedges: interest rate swaps $ 1,000,000 Other assets $ — Other liabilities $ 6,938 Total $ — $ 6,938 The Effect of Derivative Financial Instruments on the Condensed Consolidated Statements of Earnings The following table summarizes the effect of derivative financial instruments on the condensed consolidated statements of earnings for the periods presented. Location of Gain Recognized in Income on Derivative Instruments Amount of Gain Recognized in Income on Derivative Instruments Three Months Ended March 31, 2024 2023 (Dollars in thousands) Derivatives Not Designated as Hedging Instruments: Interest rate swaps Other income $ — $ — Total $ — $ — 35 Location of Gain Recognized in Income on Derivative Instruments Amount of Gains (Losses) Recognized in Interest Income on Derivative Instruments OCI Impact on Derivatives-Gains (Losses) recorded in OCI Three Months Ended March 31, Three Months Ended March 31, 2024 2023 2024 2023 (Dollars in thousands) (Dollars in thousands) Derivatives Designated as Hedging Instruments: Fair value hedges: interest rate swaps Interest income $ 3,687 $ — $ 12,869 $ — Cash flow hedges: interest rate swaps Interest expense 178 — 556 — Total $ 3,865 $ — $ 13,425 $ — 10. OTHER COMPREHENSIVE INCOME The table below provides a summary of the components of other comprehensive income (“OCI”) for the periods presented. Three Months Ended March 31, 2024 2023 Before-tax Tax effect After-tax Before-tax Tax effect After-tax (Dollars in thousands) Investment securities: Net change in fair value recorded in accumulated OCI $ ( 35,856 ) $ 10,600 $ ( 25,256 ) $ 40,424 $ ( 11,951 ) $ 28,473 Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity 163 ( 48 ) 115 278 ( 82 ) 196 Derivatives designated as hedging instruments: Fair value hedges: Net change in fair value recorded in accumulated OCI 17,831 ( 4,962 ) 12,869 — — — Cash flow hedges: Net change in fair value recorded in accumulated OCI 789 ( 233 ) 556 — — — Net change $ ( 17,073 ) $ 5,357 $ ( 11,716 ) $ 40,702 $ ( 12,033 ) $ 28,669 36 11. BALANCE SHEET OFFSETTING Assets and liabilities relating to certain financial instruments, including, derivatives and securities sold under repurchase agreements (“repurchase agreements”), may be eligible for offset in the condensed consolidated balance sheets as permitted under accounting guidance. As noted above, our interest rate swap derivatives are subject to master netting arrangements. Our interest rate swap derivatives require the Company to pledge investment securities as collateral based on certain risk thresholds. Investment securities that have been pledged by the Company to counterparties continue to be reported in the Company’s condensed consolidated balance sheets unless the Company defaults. We offer a repurchase agreement product to our customers, which include master netting agreements that allow for the netting of collateral positions. This product, known as Citizens Sweep Manager, sells certain of our securities overnight to our customers under an agreement to repurchase them the next day. The repurchase agreements are not offset in the Company’s condensed consolidated balances. In June 2023, fair value hedging transactions were executed in which $ 1 billion notional pay-fixed interest rate swaps were consummated with original maturities ranging from four to five years , wherein the Company pays a weighted average fixed rate of approximately 3.8 % and receives daily SOFR. The fair value of these instruments totaled $ 10.9 million and were reflected as an asset on March 31, 2024. During the first quarter of 2024, cash flow hedging transactions were executed in which $ 300 million notional pay-fixed interest rate swaps were consummated with maturities of three years , wherein the Company pays a weighted average fixed rate of approximately 4.2 % and receives daily SOFR. The fair value of these instruments totaled $ 789,000 and were reflected as an asset on March 31, 2024. Refer to Note 9 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information. 37 Gross Amounts Recognized in the Condensed Gross Amounts Offset in the Condensed Net Amounts Presented in the Condensed Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets Consolidated Balance Sheets Consolidated Balance Sheets Consolidated Balance Sheets Financial Instruments Collateral Pledged Net Amount (Dollars in thousands) March 31, 2024 Financial assets: Derivatives not designated as hedging instruments: Interest rate swaps $ 38 $ — $ — $ 38 $ — $ 38 Derivatives designated as hedging instruments: Fair value hedges: interest rate swaps 10,893 — — 10,893 — 10,893 Cash flow hedges: interest rate swaps 789 — — 789 — 789 Total $ 11,720 $ — $ — $ 11,720 $ — $ 11,720 Financial liabilities: Derivatives not designated as hedging instruments: Interest rate swaps $ 47,507 $ ( 47,469 ) $ 38 $ 47,469 $ ( 15,827 ) $ 31,680 Derivatives designated as hedging instruments: — — — — — — Fair value hedges: interest rate swaps — — — — — — Cash flow hedges: interest rate swaps — — — — — — Repurchase agreements 275,720 — 275,720 — 360,312 636,032 Total $ 323,227 $ ( 47,469 ) $ 275,758 $ 47,469 $ 344,485 $ 667,712 December 31, 2023 Financial assets: Derivatives not designated as hedging instruments $ 112 $ — $ — $ 112 $ — $ 112 Derivatives designated as hedging instruments — — — — — — Total $ 112 $ — $ — $ 112 $ — $ 112 Financial liabilities: Derivatives not designated as hedging instruments $ 42,613 $ ( 42,501 ) $ 112 $ 42,501 $ ( 11,659 ) $ 30,954 Derivatives designated as hedging instruments 6,938 — — 6,938 — 6,938 Repurchase agreements 271,642 — 271,642 — 362,505 634,147 Total $ 321,193 $ ( 42,501 ) $ 271,754 $ 49,439 $ 350,846 $ 672,039 38 12. LEASES The Company’s operating leases, where the Company is a lessee, include real estate, such as office space and banking centers. Lease expense for operating leases is recognized on a straight-line basis over the term of the lease and is reflected in the consolidated statement of earnings. Right-of-use (“ROU”) assets and lease liabilities are included in other assets and other liabilities, respectively, on the Company’s condensed consolidated balance sheet. While the Company has, as a lessor, certain equipment finance leases, such leases are not material to the Company’s consolidated financial statements. The tables below present the components of lease costs and supplemental information related to leases as of and for the periods presented. March 31, 2024 December 31, 2023 (Dollars in thousands) Lease Assets and Liabilities ROU assets $ 20,666 $ 21,655 Total lease liabilities 23,037 24,056 Three Months Ended March 31, 2024 2023 (Dollars in thousands) Lease Cost Operating lease expense (1) $ 1,845 $ 1,841 Sublease income — — Total lease expense $ 1,845 $ 1,841 (1) Includes short-term leases and variable lease costs, which are immaterial. Other Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases, net $ 1,864 $ 1,756 March 31, 2024 December 31, 2023 Lease Term and Discount Rate Weighted average remaining lease term (years) 3.84 3.94 Weighted average discount rate 3.58 % 3.48 % 39 The Company’s lease arrangements that have not yet commenced as of March 31, 2024 and the Company’s short-term lease costs and variable lease costs, for the three months ended March 31, 2024 and 2023 are not material to the consolidated financial statements. The future lease payments required for leases that have initial or remaining non-cancelable lease terms in excess of one year as of March 31, 2024, excluding property taxes and insurance, are as follows: March 31, 2024 (Dollars in thousands) Year: 2024 (excluding the three months ended March 31, 2024) $ 5,490 2025 6,759 2026 5,524 2027 4,040 2028 2,169 Thereafter 825 Total future lease payments 24,807 Less: Imputed interest ( 1,770 ) Present value of lease liabilities $ 23,037 13. REVENUE RECOGNITION The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods indicated. Three Months Ended March 31, 2024 2023 (Dollars in thousands) Noninterest income: In-scope of Topic 606: Service charges on deposit accounts $ 5,036 $ 5,344 Trust and investment services 3,224 2,914 Bankcard services 385 377 Other 1,875 3,378 Noninterest Income (in-scope of Topic 606) 10,520 12,013 Noninterest Income (out-of-scope of Topic 606) 3,593 1,189 Total noninterest income $ 14,113 $ 13,202 Refer to Note 3 – Summary of Significant Accounting Policies and Note 23 – Revenue Recognition, included in our Annual Report on Form 10-K for the year ended December 31, 2023 for a more detailed discussion about noninterest revenue streams that are in-scope of Topic 606. 40 ITEM 2. MANAGEMENT’S DISCUSSION A ND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “we,” “our” or the “Company”) and its wholly owned bank subsidiary, Citizens Business Bank (the “Bank” or “CBB”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 and the unaudited condensed consolidated financial statements and accompanying notes presented elsewhere in this report. CRITICAL ACCO UNTING POLICIES The discussion and analysis of the Company’s unaudited condensed consolidated financial statements are based upon the Company’s unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following is a summary of the more judgmental and complex accounting estimates and principles. In each area, we have identified the variables we believe are most important in our estimation process. We utilize information available to us to make the necessary estimates to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in the key variables and information could change future valuations and impact the results of operations. • Allowance for Credit Losses (“ACL”) • Business Combinations • Valuation and Recoverability of Goodwill Our significant accounting policies are described in greater detail in our 2023 Annual Report on Form 10-K in the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 3 – Summary of Significant Accounting Policies , included in our Annual Report on Form 10-K for the year ended December 31, 2023, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. Recently Issued Accounting Pronouncements but Not Adopted as of March 31, 2024 Standard Description Adoption Timing Impact on Financial Statements ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures Issued December 2023 On December 14, 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU enhances annual income tax disclosures to address investor requests for more detailed information about tax risks and improved transparency of income tax disclosures. The two primary enhancements disaggregate existing income tax disclosures related to the effective tax rate reconciliation and information on income taxes paid disaggregated by jurisdiction. This ASU is effective for annual reporting periods beginning after December 15, 2024 and are to be applied on a prospective basis; early adoption is permitted. 1st Quarter 2025 The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. 41 OVER VIEW For the first quarter of 2024, we reported net earnings of $48.6 million, compared with $48.5 million for the fourth quarter of 2023 and $59.3 million for the first quarter of 2023. Diluted earnings per share were $0.35 for the first quarter, compared to $0.35 for the prior quarter and $0.42 for the same period last year. Net income of $48.6 million for the first quarter of 2024 produced an annualized return on average equity (“ROAE”) of 9.31%, an annualized return on average tangible common equity (“ROATCE”) of 15.13%, and an annualized return on average assets (“ROAA”) of 1.21%. Our net interest margin, tax equivalent (“NIM”), was 3.10% for the first quarter of 2024, while our efficiency ratio was 47.22%. Net interest income was $112.5 million for the first quarter of 2024. This represented a $6.9 million, or 5.78%, decline from the fourth quarter of 2023, and a $13.3 million, or 10.55%, decrease from the first quarter of 2023. The quarter-over-quarter decrease in net interest income was primarily due to a 16 basis point decline in net interest margin driven by approximately $6 million in higher interest expense associated with time deposits and borrowings. The decline in net interest income compared to the first quarter of 2023 was due to a 35 basis point decrease in net interest margin and a $158.5 million decline in average earning assets. Interest expense from borrowings increased by approximately $12 million compared to the first quarter of 2023, as average borrowings grew by $1.02 billion. Noninterest income was $14.1 million for the first quarter of 2024, compared with $19.2 million for the fourth quarter of 2023 and $13.2 million for the first quarter of 2023. First quarter income from Bank Owned Life Insurance (“BOLI”) decreased by $4.3 million from the fourth quarter of 2023 and increased by $2.4 million compared to the first quarter of 2023, primarily due to restructuring and enhancements in BOLI policies in the fourth quarter of 2023. Noninterest expense for the first quarter of 2024 was $59.8 million, compared to $65.9 million for the fourth quarter of 2023 and $54.9 million for the first quarter of 2023. The $6.2 million quarter-over-quarter decrease was primarily due to the expense associated with the FDIC special assessment. The first quarter of 2024 reflected an additional accrual of $2.3 million for the FDIC special assessment. This is in addition to the $9.2 million accrued in the fourth quarter of 2023. The increase in the accrual was the result of the FDIC increasing its initial estimate of losses from last year’s bank failures by 25%, which was communicated in March of 2024. At March 31, 2024, total assets of $16.47 billion increased by $447.2 million, or 2.79%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $14.91 billion at March 31, 2024, increased by $448.9 million, or 3.10%, when compared with $14.46 billion at December 31, 2023. The increase in interest-earning assets was primarily due to a $707.7 million increase in interest-earning balances due from the Federal Reserve, offset by a $129.0 million decrease in investment securities, and a $134.2 million decrease in total loans. Total investment securities were $5.29 billion at March 31, 2024, a decrease of $129.0 million, or 2.38%, from $5.42 billion at December 31, 2023. At March 31, 2024, investment securities held-to-maturity (“HTM”) totaled $2.45 billion, a decrease of $10.0 million, or 0.41%, from December 31, 2023. At March 31, 2024, investment securities available-for-sale (“AFS”) totaled $2.84 billion, inclusive of a pre-tax net unrealized loss of $485.6 million. AFS securities decreased by $119.0 million, or 4.03%, from $2.96 billion at December 31, 2023. Pre-tax unrealized loss grew by $35.9 million from December 31, 2023. Our tax equivalent yield on investments was 2.64% for the quarter ended March 31, 2024, compared to 2.71% for the fourth quarter of 2023 and 2.37% for the first quarter of 2023. The 27 basis point increase in the yield on investment securities from the prior year was impacted by the positive spread generated from fair-value hedging of certain AFS securities, in which the Company receives daily SOFR and pays a weighted average fixed cost of approximately 3.8%. In June 2023, fair value hedging transactions were executed in which $1 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. The fair value of these instruments totaled $10.9 million and were reflected as an asset at March 31, 2024. These instruments generated interest income of $3.7 million for the quarter ended March 31, 2024. Refer to Note 9 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information. 42 Total loans and leases, at amortized cost, of $8.77 billion at March 31, 2024, decreased by $134.2 million, or 1.51%, from December 31, 2023. The quarter-over-quarter decline in loans included decreases of $64.0 million in commercial real estate loans, $61.3 million in dairy & livestock and agribusiness loans, $7.9 million in construction loans, $6.8 million in commercial and industrial loans, partially offset by an increase of $6.6 million in SFR mortgage loans. The decline in dairy and livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 80% at the end of 2023 to 75% at March 31, 2024. Our yield on loans was 5.30% for the quarter ended March 31, 2024, compared to 5.18% for the fourth quarter of 2023 and 4.90% for the first quarter of 2023. This 40 basis point increase in our loan yields year-over-year was the result of recent increases in interest rates, highlighted by the 525 basis point increase in the Fed Funds rate since the end of the first quarter of 2022. The allowance for credit losses totaled $82.8 million at March 31, 2024, compared to $86.8 million at December 31, 2023. There was no provision for credit losses in the first quarter of 2024. The decline in the allowance was due to $4 million of net charge-offs in the first quarter of 2024, primarily due to two borrowers in which specific loan loss reserves were previously established in 2023. Projected loss rates continue to be driven primarily by economic forecast changes to various macroeconomic variables such as Real GDP growth and the rate of unemployment. Since March of 2022 to March of 2024, the Federal Reserve has increased the Federal Funds rate by 525 basis points to the target range of 5.25% to 5.50%. In comparison to the rising Federal Funds rate, our average cost of deposits has increased from three basis points for the first quarter of 2022 to 74 basis points for the first quarter of 2024. The change in market interest rates that has resulted from the Federal Reserve's monetary policies has impacted the availability of higher interest rates on short-term alternatives to deposits, such as money market mutual funds and treasury notes. These higher yielding alternatives, as well as overall inflationary increases on spending, have impacted our deposit levels over the last two years. Noninterest-bearing deposits were $7.11 billion at March 31, 2024, a decrease of $93.4 million, or 1.30%, when compared to $7.21 billion at December 31, 2023 and a decrease of $731.5 million, or 9.33%, when compared to $7.84 billion at March 31, 2023. At March 31, 2024, noninterest-bearing deposits were 59.80% of total deposits, compared to 63.03% at December 31, 2023 and 63.92% at March 31, 2023. Interest-bearing deposits were $4.78 billion at March 31, 2024, an increase of $554.7 million, or 13.12%, when compared to $4.23 billion at December 31, 2023 and an increase of $354.6 million, or 8.01%, when compared to $4.43 billion at March 31, 2023. The increase in deposits included $300 million in new brokered deposits at March 31, 2024. These deposits, which mature every 90 days, were combined with cash flow hedges which resulted in a fixed rate of approximately 4.2%. Customer repurchase agreements totaled $275.7 million at March 31, 2024, compared to $271.6 million at December 31, 2023 and $490.2 million at March 31, 2023. Our average cost of total deposits including customer repurchase agreements was 0.73% for the first quarter of 2024, compared to 0.61% for the fourth quarter of 2023 and 0.17% for the first quarter of 2023. At March 31, 2024, total borrowings, consisted of approximately $2.0 billion of one-year advances from the Federal Reserve’s Bank Term Funding Program ("BTFP"), at a weighted average cost of approximately 4.75%. The BTFP advances include maturities of $695 million in May and $1.3 billion in January of 2025. The Company’s total equity was $2.09 billion at March 31, 2024. This represented an overall increase of $8.9 million from total equity of $2.08 billion at December 31, 2023. Increases to equity included $48.6 million in net earnings, that were partially offset by $27.9 million in cash dividends and an $11.7 million decrease in other comprehensive income from the tax effected impact of the net decline in market value of available-for-sale securities and increase in value of pay fixed swaps. We engaged in no stock repurchases during the first quarter of 2024. Our tangible book value per share at March 31, 2024 was $9.36. Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of March 31, 2024, the Company’s Tier 1 leverage capital ratio was 10.46%, common equity Tier 1 ratio was 14.95%, Tier 1 risk-based capital ratio was 14.95%, and total risk-based capital ratio was 15.77%. Refer to our Analysis of Financial Condition – Capital Resources . 43 ANALYSIS OF THE R ESULTS OF OPERATIONS Financial Performance Three Months Ended March 31, Variance 2024 2023 $ % (Dollars in thousands, except per share amounts) Net interest income $ 112,461 $ 125,728 $ (13,267 ) -10.55 % (Provision for) recapture of credit losses — (1,500 ) 1,500 100.00 % Noninterest income 14,113 13,202 911 6.90 % Noninterest expense (59,771 ) (54,881 ) (4,890 ) -8.91 % Income taxes (18,204 ) (23,279 ) 5,075 21.80 % Net earnings $ 48,599 $ 59,270 $ (10,671 ) -18.00 % Earnings per common share: Basic $ 0.35 $ 0.42 $ (0.07 ) Diluted $ 0.35 $ 0.42 $ (0.07 ) Return on average assets 1.21 % 1.47 % -0.26 % Return on average shareholders' equity 9.31 % 12.15 % -2.84 % Efficiency ratio 47.22 % 39.50 % 7.72 % Noninterest expense to average assets 1.48 % 1.36 % 0.12 % Three Months Ended Variance March 31, December 31, 2024 2023 $ % (Dollars in thousands, except per share amounts) Net interest income $ 112,461 $ 119,356 $ (6,895 ) -5.78 % (Provision for) recapture of credit losses — 2,000 (2,000 ) 100.00 % Noninterest income 14,113 19,163 (5,050 ) -26.35 % Noninterest expense (59,771 ) (65,930 ) 6,159 9.34 % Income taxes (18,204 ) (26,081 ) 7,877 30.20 % Net earnings $ 48,599 $ 48,508 $ 91 0.19 % Earnings per common share: Basic $ 0.35 $ 0.40 $ (0.05 ) Diluted $ 0.35 $ 0.40 $ (0.05 ) Return on average assets 1.21 % 1.36 % -0.15 % Return on average shareholders' equity 9.31 % 11.03 % -1.72 % Efficiency ratio 47.22 % 40.86 % 6.36 % Noninterest expense to average assets 1.48 % 1.32 % 0.16 % 44 Return on Average Tangible Common Equity Reconciliation (Non-GAAP) The return on average tangible common equity is a non-GAAP disclosure. The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance. The following is a reconciliation of net income, adjusted for tax-effected amortization of intangibles, to net income computed in accordance with GAAP; a reconciliation of average tangible common equity to the Company's average stockholders' equity computed in accordance with GAAP; as well as a calculation of return on average tangible common equity. Three Months Ended March 31, December 31, March 31, 2024 2023 2023 (Dollars in thousands) Net Income $ 48,599 $ 48,508 $ 59,270 Add: Amortization of intangible assets 1,438 1,446 1,720 Less: Tax effect of amortization of intangible assets [1] (425 ) (427 ) (508 ) Tangible net income $ 49,612 $ 49,527 $ 60,482 Average stockholders' equity $ 2,098,868 $ 1,994,150 $ 1,978,244 Less: Average goodwill (765,822 ) (765,822 ) (765,822 ) Less: Average intangible assets (14,585 ) (15,993 ) (20,983 ) Average tangible common equity $ 1,318,461 $ 1,212,335 $ 1,191,439 Return on average equity, annualized 9.31 % 9.65 % 12.15 % Return on average tangible common equity, annualized 15.13 % 16.21 % 20.59 % (1) Tax effected at respective statutory rates. Net Interest Income The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the three months ended March 31, 2024 and 2023. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management included herein. 45 The tables below present the interest rate spread, net interest margin and the composition of average interest-earning assets and average interest-bearing liabilities by category for the periods indicated, including the changes in average balance, composition, and average yield/rate between these respective periods. Three Months Ended March 31, 2024 2023 Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate (Dollars in thousands) INTEREST-EARNING ASSETS Investment securities (1) Available-for-sale securities: Taxable $ 2,874,642 $ 21,280 2.96 % $ 3,190,462 $ 19,428 2.44 % Tax-advantaged 25,455 166 3.13 % 25,681 168 3.13 % Held-to-maturity securities: Taxable 2,080,985 10,984 2.11 % 2,163,847 11,507 2.13 % Tax-advantaged 376,626 2,418 3.11 % 382,738 2,449 3.10 % Investment in FHLB stock 18,012 419 9.36 % 28,868 349 4.90 % Interest-earning deposits with other institutions 444,101 6,073 5.50 % 47,934 491 4.15 % Loans (2) 8,824,579 116,349 5.30 % 8,963,323 108,394 4.90 % Total interest-earning assets 14,644,400 157,689 4.34 % 14,802,853 142,786 3.91 % Total noninterest-earning assets 1,561,013 1,510,283 Total assets $ 16,205,413 $ 16,313,136 INTEREST-BEARING LIABILITIES Savings deposits (3) $ 4,007,124 $ 18,529 1.86 % $ 4,335,951 $ 5,247 0.49 % Time deposits 447,011 2,837 2.55 % 285,296 118 0.17 % Total interest-bearing deposits 4,454,135 21,366 1.93 % 4,621,247 5,365 0.47 % FHLB advances, other borrowings, and customer repurchase agreements 2,301,250 23,862 4.17 % 1,522,455 11,693 3.11 % Interest-bearing liabilities 6,755,385 45,228 2.69 % 6,143,702 17,058 1.13 % Noninterest-bearing deposits 7,182,718 8,092,704 Other liabilities 168,442 98,486 Stockholders' equity 2,098,868 1,978,244 Total liabilities and stockholders' equity $ 16,205,413 $ 16,313,136 Net interest income $ 112,461 $ 125,728 Net interest spread - tax equivalent 1.65 % 2.78 % Net interest margin 3.08 % 3.43 % Net interest margin - tax equivalent 3.10 % 3.45 % (1) Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended March 31, 2024 and March 31, 2023. The non TE rates for total investment securities were 2.60% and 2.33% for the three months ended March 31, 2024 and March 31, 2023, respectively. (2) Includes loan fees of $706,000 and $781,000 for the three months ended March 31, 2024 and March 31, 2023, respectively. Prepayment penalty fees of $630,000 and $583,000 are included in interest income for the three months ended March 31, 2024 and March 31, 2023, respectively. (3) Includes interest-bearing demand and money market accounts. The following table presents a comparison of interest income and interest expense resulting from changes in the volumes and rates on average interest-earning assets and average interest-bearing liabilities for the periods indicated. Changes in interest income or expense attributable to volume changes are calculated by multiplying the change in volume by the initial average interest rate. The change in interest income or expense attributable to changes in interest rates is calculated by multiplying the change in interest rate by the initial volume. The changes attributable to interest rate and volume changes are calculated by multiplying the change in rate times the change in volume and reflect an adjustment for the number of days as appropriate. 46 Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income Comparison of Three Months Ended March 31, 2024 Compared to 2023 Increase (Decrease) Due to Rate/ Volume Rate Volume Total (Dollars in thousands) Interest income: Available-for-sale securities: Taxable investment securities $ (1,913 ) $ 4,192 $ (427 ) $ 1,852 Tax-advantaged investment securities (1 ) (1 ) — (2 ) Held-to-maturity securities: Taxable investment securities (438 ) (85 ) — (523 ) Tax-advantaged investment securities (38 ) 8 (1 ) (31 ) Investment in FHLB stock (132 ) 320 (118 ) 70 Interest-earning deposits with other institutions 4,092 160 1,330 5,582 Loans (1,691 ) 8,898 748 7,955 Total interest income (121 ) 13,492 1,532 14,903 Interest expense: Savings deposits (401 ) 14,759 (1,076 ) 13,282 Time deposits 67 1,692 960 2,719 FHLB advances, other borrowings, and customer repurchase agreements 6,031 3,996 2,142 12,169 Total interest expense 5,697 20,447 2,026 28,170 Net interest income $ (5,818 ) $ (6,955 ) $ (494 ) $ (13,267 ) First Quarter of 2024 Compared to the First Quarter of 2023 Net interest income, before provision for credit losses, of $112.5 million for the first quarter of 2024 decreased by $13.3 million, or 10.55%, from the first quarter of 2023. The decline in net interest income compared to the first quarter of 2023 was due to a $158.5 million decline in average earning assets and a 35 basis point decrease in net interest margin. The decline in net interest margin was the result of an 82 basis point increase in funding costs, which was partially offset by a 43 basis point increase in the earning asset yield. The increase in funding costs includes interest expense from borrowings, which increased by approximately $12 million compared to the first quarter of 2023, as average borrowings grew by $1.02 billion. Total interest income of $157.7 million grew by $14.9 million, or 10.44%, when compared to the first quarter of 2023. This increase was primarily due to a 43 basis point expansion of the yield on earning assets, which offset a $158.5 million decline in average interest-earning assets. Average loan balances declined by $138.7 million. Loan yields grew from 4.90% for the first quarter of 2023 to 5.30% for the first quarter of 2024. Likewise, the yield on investment securities increased by 27 basis points from the prior year. Compared to the first quarter of 2023, the average balance of investment securities decreased by $405.0 million, while the average amount of funds held at the Federal Reserve increased by $396.5 million. Total interest income and fees on loans for the first quarter of 2024 was $116.3 million, an increase of $8.0 million, or 7.34%, from the first quarter of 2023. This increase in income was primarily due to higher loan yields, which grew from 4.90% in the first quarter of 2023 to 5.30% in the first quarter of 2024. Loan yields grew year-over-year, as rising interest rates contributed to an increase in yields on loans indexed to the Prime rate or other short-term indexes, as well as higher rates from newly originated loans. Interest income from investment securities was $34.8 million, an increase of $1.3 million, or 3.86%, from the first quarter of 2023. The increase was driven by a 27 basis point increase in the yield on securities, compared to 2023. The increase in yield includes the positive carry on the fair value hedges during the first quarter of 2024, which resulted in $3.7 million of interest income associated with these interest rate swaps. Excluding the impact of these swaps, interest income on investment securities would have declined by $2.4 million, as average investment securities declined by $405.0 million when compared with the first quarter of 2023. 47 Interest expense of $45.2 million for the first quarter of 2024, increased $28.2 million, compared to the first quarter of 2023. Total cost of funds of 1.31% for the first quarter of 2024 increased from 0.49% for the year ago quarter. This 82 basis point increase in cost of funds was the result of a 146 basis point increase in the cost of interest-bearing deposits and an average cost of 4.76% on $1.99 billion of average borrowings for the first quarter of 2024, compared with 4.81% on $971.7 million of borrowings for the first quarter of 2023. Average noninterest-bearing deposits were 61.72% of total deposits for the first quarter of 2024, compared to 63.65% for the first quarter of 2023. Provision for (Recapture of) Credit Losses The provision for (recapture of) credit losses is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected lifetime losses in the loan portfolio as of the balance sheet date. There was no provision for credit losses in the first quarter of 2024, compared to $1.5 million in provision in the first quarter of 2023. Projected loss rates were 0.94% at March 31, 2024, compared to 0.97% at March 31, 2023. Excluding specific reserves associated with nonperforming or substandard loans, the projected loss rate on performing loans increased from 0.91% at the end of 2023 to 0.94% on March 31, 2024. The modest increase in these projected loss rates continues to be driven primarily by economic forecast changes to various macroeconomic variables such as Real GDP growth, commercial real estate values and the rate of unemployment. Refer to the discussion of “Allowance for Credit Losses” in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology. No assurance can be given that economic conditions which affect the Company’s service areas or other circumstances will or will not be reflected in future changes in the level of our allowance for credit losses and the resulting provision or recapture of provision for credit losses. The process to estimate the allowance for credit losses requires considerable judgment and our economic forecasts may continue to vary due to the uncertainty of the future impact from the recent rise in interest rates, geopolitical events in Europe, and global inflation will have on future interest rates, unemployment, the overall economy and resulting impact on our customers. See “Allowance for Credit Losses” under Analysis of Financial Condition herein. 48 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. Three Months Ended March 31, Variance 2024 2023 $ % (Dollars in thousands) Noninterest income: Service charges on deposit accounts $ 5,036 $ 5,344 $ (308 ) -5.76 % Trust and investment services 3,224 2,914 310 10.64 % Bankcard services 385 377 8 2.12 % BOLI income 3,593 1,189 2,404 202.19 % Other 1,875 3,378 (1,503 ) -44.49 % Total noninterest income $ 14,113 $ 13,202 $ 911 6.90 % First Quarter of 2024 Compared to the First Quarter of 2023 The $911,000 increase in noninterest income included a $2.4 million increase in BOLI income primarily due to the restructuring and enhancements in our BOLI policies completed in the fourth quarter of 2023. CRA investment income declined by approximately $800,000, due to both changes in the net asset value of certain equity investments, and a recapture of an impairment charge in the first quarter of 2023 of $500,000 as a result of the payoff of a CRA investment that was previously identified as impaired. The first quarter of 2023 also included approximately $550,000 in interest rate swap related fees resulting from the conversion to SOFR of all of our previously originated interest rate swaps indexed to LIBOR. Trust and Investment Services represents our CitizensTrust group. The CitizensTrust group is made up of wealth management and investment services. They provide a variety of services, which include asset management, financial planning, estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other non-insured investment products. At March 31, 2024, CitizensTrust had approximately $4.3 billion in assets under management and administration, including $3.09 billion in assets under management. CitizensTrust generated fees of $3.2 million for the first quarter of 2024, compared to $2.9 million for the first quarter of 2023. We have experienced growth in managed assets from the transition of customer deposits that are now being managed by CitizensTrust in various liquidity strategies. The increase in fees in 2024 included both the impact on market values of changes in equity and fixed income markets but also increased flows of funds from customers, including liquidity management of funds formerly on deposit with the Bank. The Bank’s investment in BOLI includes life insurance policies generally acquired through acquisitions or the purchase of life insurance by the Bank on a select group of employees to fund deferred compensation plans. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at its cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income tax, as long as they are held for the life of the covered parties. The increase in BOLI income was primarily due to the restructuring and enhancements in our BOLI policies in the fourth quarter of 2023. The first quarter of 2024 also included $531,000 in death benefits that exceeded the asset value on certain policies, compared with no death benefits for the first quarter of 2023. 49 Noninterest Expense The following table summarizes the various components of noninterest expense for the periods presented. Three Months Ended March 31, Variance 2024 2023 $ % (Dollars in thousands) Noninterest expense: Salaries and employee benefits $ 36,401 $ 35,247 $ 1,154 3.27 % Occupancy 4,570 4,594 (24 ) -0.52 % Equipment 995 856 139 16.24 % Professional services 2,255 1,696 559 32.96 % Computer software expense 3,525 3,408 117 3.43 % Marketing and promotion 1,630 1,715 (85 ) -4.96 % Amortization of intangible assets 1,438 1,720 (282 ) -16.40 % Telecommunications expense 493 503 (10 ) -1.99 % Regulatory assessments 4,445 2,072 2,373 114.53 % Insurance 507 505 2 0.40 % Loan expense 286 299 (13 ) -4.35 % OREO expense 30 — 30 — Provision for unfunded loan commitments — 500 (500 ) (100.00 )% Directors' expenses 328 289 39 13.49 % Stationery and supplies 229 286 (57 ) -19.93 % Other 2,639 1,191 1,448 121.58 % Total noninterest expense $ 59,771 $ 54,881 $ 4,890 8.91 % Noninterest expense to average assets 1.48 % 1.36 % Efficiency ratio (1) 47.22 % 39.50 % (1) Noninterest expense divided by net interest income before provision for credit losses plus noninterest income. Our ability to control noninterest expenses in relation to asset growth can be measured in terms of total noninterest expenses as a percentage of average assets. Noninterest expense as a percentage of average assets was 1.48% for both the first quarter of 2024, compared to 1.36% and the first quarter of 2023. This ratio was negatively impacted by an additional accrual of $2.3 million for the FDIC special assessment in the first quarter of 2024. Our ability to control noninterest expenses in relation to the level of total revenue (net interest income before provision for credit losses plus noninterest income) can be measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. The efficiency ratio for the first quarter of 2024 was 47.22%, compared to 39.50% for the first quarter of 2023. The increase in the efficiency ratio for the first quarter of 2024 was primarily due to increased regulatory assessment expense, including the FDIC special assessment, and inflationary pressures on staff related expenses. First Quarter of 2024 Compared to the First Quarter of 2023 Noninterest expense of $59.8 million for the first quarter of 2024 was $4.9 million, or 8.91%, higher than the first quarter of 2023. The first quarter of 2024 reflected an additional accrual of $2.3 million for the FDIC special assessment resulting from a 25% increase in the FDIC's initial loss estimate, which was $9.2 million as reflected in the fourth quarter of 2023. Year-over-year expense growth included increased staff related expenses of $1.2 million, or 3.27%. Professional services also increased $559,000 year-over-year, including a $430,000 increase in legal expense. The increase in other expense year-over-year was due to higher data processing costs, an increase in deferred compensation expense and various expense accruals. There was no provision or recapture of provision for unfunded loan commitments in the first quarter of 2024, compared to $500,000 in provision for the first quarter of 2023. Income Taxes The Company’s effective tax rate for the three months ended March 31, 2024 was 27.25%, compared to 28.20% for the three months ended March 31, 2023, respectively. Our estimated annual effective tax rate also varies depending upon the level of tax-advantaged income from municipal securities and BOLI, as well as available tax credits. The Company’s effective tax rates are below the nominal combined Federal and State tax rate primarily as a result of tax-advantaged income from certain municipal security investments, municipal loans and leases and BOLI, as well as available tax credits for each period. 50 ANALYSIS OF F INANCIAL CONDITION Total assets of $16.47 billion at March 31, 2024 increased by $447.2 million, or 2.79%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $14.91 billion at March 31, 2024, increased by $448.9 million, or 3.10%, when compared with $14.46 billion at December 31, 2023. The increase in interest-earning assets was primarily due to a $707.7 million increase in interest-earning balances due from the Federal Reserve, offset by a $129.0 million decrease in investment securities, and a $134.2 million decrease in total loans. Total liabilities were $14.38 billion at March 31, 2024, an increase of $438.3 million, or 3.14%, from total liabilities of $13.94 billion at December 31, 2023. The increase of $461.3 million in total deposits at March 31, 2024 included the addition of $300 million in brokered deposits that were added between the end February and the end of March. These deposits, which mature every 90 days, were combined with cash flow hedges which resulted in a fixed rate of approximately 4.2%. Borrowings decreased by $75.0 million from December 31, 2023. At March 31, 2024, total borrowings consisted of $2.0 billion of one-year advances from the Federal Reserve’s Bank Term Funding Program, at an average cost of approximately 4.75%. The BTFP advances include maturities of $695 million in May and $1.3 billion in January of 2025. Total equity increased $8.9 million to $2.09 billion at March 31, 2024, compared to total equity of $2.08 billion at December 31, 2023. Increases to equity included $48.6 million in net earnings, that were partially offset by $27.9 million in cash dividends and an $11.7 million decrease in other comprehensive income. We engaged in no stock repurchases during the first quarter of 2024. Investment Securities The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. We continued to shrink our investment portfolio. At March 31, 2024, total investment securities were $5.29 billion. This represented a decrease of $129.0 million, or 2.38%, from $5.42 billion at December 31, 2023. The overall decrease in investment securities was primarily due to a $119.0 million decline in our AFS securities. At March 31, 2024, our AFS investment securities totaled $2.84 billion, inclusive of a pre-tax net unrealized loss of $485.6 million, compared to $449.8 million at December 31, 2023. The $36 million decrease in fair value of our AFS securities was partially offset by an $18 million increase in the fair value of our derivatives that hedge the change in value of our AFS portfolio. The after-tax unrealized loss reported in AOCI on our AFS investment securities at March 31, 2024 was $335.8 million. The changes in the net unrealized holding loss resulted primarily from fluctuations in market interest rates. At March 31, 2024, investment securities HTM totaled $2.45 billion. For the three months ended March 31, 2024 and 2023, repayments/maturities of investment securities totaled $115.5 million and $107.0 million, respectively. The Company purchased $11.5 million of HTM securities during the first quarter of 2024. There were no purchases of investment securities in the first quarter of 2023 as cashflows generated from the portfolio were not reinvested during the first quarter. There were no investment securities sold during the first quarter of 2024 and 2023. 51 The tables below set forth our investment securities AFS and HTM portfolio by type for the dates presented. March 31, 2024 Amortized Cost Gross Unrealized Holding Gain Gross Unrealized Holding Loss Fair Value Total Percent (Dollars in thousands) Investment securities available-for-sale: Government agency/GSE $ 32,644 $ — $ (4 ) $ 32,640 1.15 % Mortgage-backed securities 2,766,695 25 (367,613 ) 2,399,107 84.56 % CMO/REMIC 495,576 — (116,682 ) 378,894 13.35 % Municipal bonds 26,480 36 (1,372 ) 25,144 0.89 % Other securities 1,315 — — 1,315 0.05 % Unallocated portfolio layer fair value basis adjustments (1) 10,893 — (10,893 ) — 0.00 % Total available-for-sale securities $ 3,333,603 $ 61 $ (496,564 ) $ 2,837,100 100.00 % Investment securities held-to-maturity: Government agency/GSE $ 526,752 $ — $ (103,672 ) $ 423,080 21.46 % Mortgage-backed securities 652,864 — (109,336 ) 543,528 26.60 % CMO/REMIC 798,226 — (162,528 ) 635,698 32.52 % Municipal bonds 465,289 2,223 (37,242 ) 430,270 18.96 % Other securities 11,455 — — 11,455 0.46 % Total held-to-maturity securities $ 2,454,586 $ 2,223 $ (412,778 ) $ 2,044,031 100.00 % December 31, 2023 Amortized Cost Gross Unrealized Holding Gain Gross Unrealized Holding Loss Fair Value Total Percent (Dollars in thousands) Investment securities available-for-sale: Government agency/GSE $ 32,229 $ 24 $ — $ 32,253 1.09 % Mortgage-backed securities 2,843,744 42 (336,107 ) 2,507,679 84.83 % CMO/REMIC 502,234 — (112,872 ) 389,362 13.17 % Municipal bonds 26,477 46 (888 ) 25,635 0.87 % Other securities 1,196 — — 1,196 0.04 % Unallocated portfolio layer fair value basis adjustments (1) (6,938 ) 6,938 — — 0.00 % Total available-for-sale securities $ 3,398,942 $ 7,050 $ (449,867 ) $ 2,956,125 100.00 % Investment securities held-to-maturity: Government agency/GSE $ 530,656 $ — $ (97,972 ) $ 432,684 21.53 % Mortgage-backed securities 663,090 — (97,436 ) 565,654 26.90 % CMO/REMIC 802,892 — (156,155 ) 646,737 32.58 % Municipal bonds 467,972 3,438 (33,604 ) 437,806 18.99 % Total held-to-maturity securities $ 2,464,610 $ 3,438 $ (385,167 ) $ 2,082,881 100.00 % As of March 31, 2024, approximately $30.1 million in U.S. government agency bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds, which represented approximately 9% of the total investment portfolio, are predominately AA or higher rated securities. 52 The following table presents the Company’s available-for-sale and held-to-maturity investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of March 31, 2024 and December 31, 2023. March 31, 2024 Less Than 12 Months 12 Months or Longer Total Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses (Dollars in thousands) Investment securities available-for-sale: Government agency/GSE $ 32,640 $ (4 ) $ — $ — $ 32,640 $ (4 ) Mortgage-backed securities 22 — 2,397,803 (367,613 ) 2,397,825 (367,613 ) CMO/REMIC — — 378,893 (116,682 ) 378,893 (116,682 ) Municipal bonds 6,525 (145 ) 17,743 (1,227 ) 24,268 (1,372 ) Total available-for-sale securities $ 39,187 $ (149 ) $ 2,794,439 $ (485,522 ) $ 2,833,626 $ (485,671 ) Investment securities held-to-maturity: Government agency/GSE $ — $ — $ 423,080 $ (103,672 ) $ 423,080 $ (103,672 ) Mortgage-backed securities — — 543,529 (109,336 ) 543,529 (109,336 ) CMO/REMIC — — 635,698 (162,528 ) 635,698 (162,528 ) Municipal bonds 46,060 (649 ) 289,996 (36,593 ) 336,056 (37,242 ) Total held-to-maturity securities $ 46,060 $ (649 ) $ 1,892,303 $ (412,129 ) $ 1,938,363 $ (412,778 ) December 31, 2023 Less Than 12 Months 12 Months or Longer Total Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses (Dollars in thousands) Investment securities available-for-sale: Government agency/GSE $ — $ — $ — $ — $ — $ — Mortgage-backed securities 48 — 2,506,162 (336,107 ) 2,506,210 (336,107 ) CMO/REMIC — — 389,359 (112,872 ) 389,359 (112,872 ) Municipal bonds 3,286 (17 ) 18,105 (871 ) 21,391 (888 ) Total available-for-sale securities $ 3,334 $ (17 ) $ 2,913,626 $ (449,850 ) $ 2,916,960 $ (449,867 ) Investment securities held-to-maturity: Government agency/GSE $ — $ — $ 432,684 $ (97,972 ) $ 432,684 $ (97,972 ) Mortgage-backed securities — — 565,655 (97,436 ) 565,655 (97,436 ) CMO/REMIC — — 646,737 (156,155 ) 646,737 (156,155 ) Municipal bonds 20,609 (200 ) 293,467 (33,404 ) 314,076 (33,604 ) Total held-to-maturity securities $ 20,609 $ (200 ) $ 1,938,543 $ (384,967 ) $ 1,959,152 $ (385,167 ) Once it is determined that a credit loss has occurred, an allowance for credit losses is established on our available-for-sale and held-to-maturity securities. Management determined that credit losses did not exist for securities in an unrealized loss position as of March 31, 2024 and December 31, 2023. Refer to Note 4 – Investment Securities of the notes to the unaudited condensed consolidated financial statements of this report for additional information on our investment securities portfolio. 53 Loans Total loans and leases, at amortized cost, of $8.77 billion at March 31, 2024 decreased by $134.2 million, or 1.51%, from December 31, 2023. The decrease in total loans quarter-over-quarter included decreases of $64.0 million in commercial real estate loans, $61.3 million in dairy & livestock and agribusiness loans, $7.9 million in construction loans, $6.8 million in commercial and industrial loans, and, partially offset by an increase of $6.6 million in SFR mortgage loans. The decline in dairy and livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in the utilization rate from 80% at the end of 2023 to 75% at March 31, 2024. The following table presents our loan portfolio by type as of the dates presented. Distribution of Loan Portfolio by Type March 31, 2024 December 31, 2023 (Dollars in thousands) Commercial real estate $ 6,720,538 $ 6,784,505 Construction 58,806 66,734 SBA 268,320 270,619 SBA - Paycheck Protection Program (PPP) 2,249 2,736 Commercial and industrial 963,120 969,895 Dairy & livestock and agribusiness 351,624 412,891 Municipal lease finance receivables 72,032 73,590 SFR mortgage 276,475 269,868 Consumer and other loans 57,549 54,072 Total loans, at amortized cost 8,770,713 8,904,910 Less: Allowance for credit losses (82,817 ) (86,842 ) Total loans and lease finance receivables, net $ 8,687,896 $ 8,818,068 As of March 31, 2024, $498.2 million, or 7.41% of the total commercial real estate loans included loans secured by farmland, compared to $497.7 million, or 7.34%, at December 31, 2023. The loans secured by farmland included $121.4 million for loans secured by dairy & livestock land and $376.8 million secured by agricultural land at March 31, 2024, compared to $122.4 million for loans secured by dairy & livestock land and $375.3 million for loans secured by agricultural land at December 31, 2023. As of March 31, 2024, dairy & livestock and agribusiness loans of $351.6 million were comprised of $308.5 million for dairy & livestock loans and $43.1 million for agribusiness loans, compared to $412.9 million were comprised of $374.9 million for dairy & livestock loans and $38.0 million for agribusiness loans at December 31, 2023. Real estate loans are loans secured by conforming trust deeds on real property, including property under construction, land development, commercial property and single-family and multi-family residences. Our real estate loans are comprised of industrial, office, retail, medical, single family residences, multi-family residences, and farmland. Consumer loans include installment loans to consumers as well as home equity loans, auto and equipment leases and other loans secured by junior liens on real property. Municipal lease finance receivables are leases to municipalities. Dairy & livestock and agribusiness loans are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers and farmers. As of March 31, 2024, the Company had $197.5 million of total SBA 504 loans. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with the first lien is typically at a 50% advance to the acquisition costs and the second lien loan provides the financing for 40% of the acquisition costs with the borrower’s down payment of 10% of the acquisition costs. The Bank retains the first lien loan for its term and sells the second lien loan to the SBA subordinated debenture program. A majority of the Bank’s 504 loans are granted for the purpose of commercial real estate acquisition. As of March 31, 2024, the Company had $70.8 million of total SBA 7(a) loans that include a guarantee of payment from the SBA (typically 75% of the loan amount, but up to 90% in certain cases) in the event of default. The SBA 7(a) loans include revolving lines of credit (SBA Express) and term loans of up to ten (10) years to finance long-term working capital requirements, capital expenditures, and/or for the purchase or refinance of commercial real estate. As of March 31,2024, the Company had $58.8 million in construction loans. This represents 0.67% of total gross loans held-for-investment. Although our construction loans are located throughout our market footprint, the majority of construction loans consist of commercial land development and construction projects throughout California. There were no nonperforming construction loans at March 31, 2024. 54 Our loan portfolio is geographically disbursed throughout our marketplace. The following is the breakdown of our total held-for-investment and commercial real estate loans, by region as of March 31, 2024. March 31, 2024 Total Loans Commercial Real Estate Loans (Dollars in thousands) Los Angeles County $ 3,204,076 36.5 % $ 2,349,745 35.0 % Central Valley and Sacramento 2,076,644 23.7 % 1,664,015 24.8 % Orange County 1,154,124 13.2 % 679,001 10.1 % Inland Empire 1,002,479 11.4 % 883,428 13.1 % Central Coast 478,068 5.4 % 389,610 5.8 % San Diego 336,174 3.8 % 339,372 5.1 % Other California 153,797 1.8 % 97,015 1.4 % Out of State 365,351 4.2 % 318,352 4.7 % $ 8,770,713 100.0 % $ 6,720,538 100.0 % The table below breaks down our commercial real estate portfolio. March 31, 2024 Loan Balance Percent Percent Owner- Occupied (1) Average Loan Balance (Dollars in thousands) Commercial real estate: Industrial $ 2,257,765 33.6 % 49.1 % $ 1,621 Office 1,099,264 16.4 % 24.5 % 1,702 Retail 928,888 13.8 % 11.3 % 1,686 Multi-family 835,289 12.4 % 0.2 % 1,594 Secured by farmland (2) 498,171 7.4 % 98.9 % 1,496 Medical 307,167 4.6 % 32.8 % 1,477 Other (3) 793,994 11.8 % 41.7 % 1,620 Total commercial real estate $ 6,720,538 100.0 % 35.9 % $ 1,621 (1) Represents percentage of reported owner-occupied at origination in each real estate loan category. (2) The loans secured by farmland included $121.4 million for loans secured by dairy & livestock land and $376.8 million for loans secured by agricultural land at March 31, 2024. (3) Other loans consist of a variety of loan types, none of which exceeded 2.0% of total commercial real estate loans at March 31, 2024. Nonperforming Assets The following table provides information on nonperforming assets as of the dates presented. March 31, 2024 December 31, 2023 (Dollars in thousands) Nonaccrual loans $ 13,810 $ 21,302 Loans past due 90 days or more and still accruing interest — — Nonperforming modified loans to borrowers experiencing financial difficulty — — Total nonperforming loans 13,810 21,302 OREO, net 647 — Total nonperforming assets $ 14,457 $ 21,302 Modified loans to borrowers experiencing financial difficulty $ 10,765 $ 9,460 Total nonperforming loans and performing modified loans to borrowers experiencing financial difficulty $ 24,575 $ 30,762 Percentage of nonperforming loans and performing modified loans to borrowers experiencing financial difficulty to total loans, at amortized cost 0.28 % 0.35 % Percentage of nonperforming assets to total loans, at amortized cost, and OREO 0.16 % 0.24 % Percentage of nonperforming assets to total assets 0.09 % 0.13 % 55 Modifications of Loans to Borrowers Experiencing Financial Difficulty The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of TDRs and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. There were three loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2024 with an amortized cost totaling $1.3 million as of March 31, 2024, including one dairy & livestock and agribusiness loan of $962,000 and two commercial and industrial loans totaling $350,000. The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified as of March 31, 2024 and March 31, 2023, and the financial effect of those modifications. Term Extension Combination-Term Extension and Interest Rate Reduction Amortized Cost Basis % of Total Class of Financing Receivables Amortized Cost Basis % of Total Class of Financing Receivables Total March 31, 2024 Commercial real estate loans $ 2,466 0.03 % $ 686 0.01 % $ 3,152 Commercial and industrial 1,644 0.02 % 242 0.00 % 1,886 Dairy & livestock and agribusiness 5,727 0.07 % — 0.00 % 5,727 Total $ 9,837 $ 928 $ 10,765 March 31, 2023 Commercial real estate loans $ 1,587 0.02 % $ — — $ 1,587 Commercial and industrial 2,250 0.03 % — — 2,250 Dairy & livestock and agribusiness 1,999 0.02 % — — 1,999 Total $ 5,836 $ — $ 5,836 The following table describes the financial effect of the loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2024. Loan Type Financial Effect Term Extension March 31, 2024 Commercial real estate loans Added a weighted-average 1.3 years to the life of loans, which reduced monthly payment amounts for the borrowers. Commercial and industrial Added a weighted-average 0.7 years to the life of loans, which reduced monthly payment amounts for the borrowers. Dairy & livestock and agribusiness Added a weighted-average 0.6 years to the life of loans, which reduced monthly payment amounts for the borrowers. Term Extension March 31, 2023 Commercial real estate loans Added a weighted-average 1.1 years to the life of loans, which reduced monthly payment amounts for the borrowers. Commercial and industrial Added a weighted-average 0.8 years to the life of loans, which reduced monthly payment amounts for the borrowers. Dairy & livestock and agribusiness Added a weighted-average 1.2 years to the life of loans, which reduced monthly payment amounts for the borrowers. 56 As of March 31, 2024 and March 31, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2024 and 2023 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first. The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty as of March 31, 2024. Payment Status (amortized cost basis) Current 30-89 Days Past Due 90+ Days Past Due (Dollars in thousands) Commercial real estate loans $ 3,152 $ — $ — Commercial and industrial 1,886 — — Dairy & livestock and agribusiness 5,727 — — Total $ 10,765 $ — $ — At March 31, 2024 and December 31, 2023, there was no ACL allocated to modified loans to borrowers experiencing financial difficulty. Impairment amounts identified are typically charged off against the allowance at the time the loan is considered uncollectible. There were no charge-offs on loans to borrowers experiencing financial difficulty for the three months ended March 31, 2024 and 2023. Nonperforming Assets and Delinquencies The table below provides trends in our nonperforming assets and delinquencies as of the dates presented. March 31, December 31, September 30, June 30, March 31, 2024 2023 2023 2023 2023 (Dollars in thousands) Nonperforming loans: Commercial real estate $ 10,661 $ 15,440 $ 3,655 $ 3,159 $ 2,634 Construction — — — — — SBA 54 969 1,050 629 702 Commercial and industrial 2,727 4,509 4,672 2,039 2,049 Dairy & livestock and agribusiness 60 60 243 273 406 SFR mortgage 308 324 339 354 384 Consumer and other loans — — 4 — — Total $ 13,810 $ 21,302 $ 9,963 (1) $ 6,454 $ 6,175 % of Total loans 0.16 % 0.24 % 0.11 % 0.07 % 0.07 % Past due 30-89 days: Commercial real estate $ 19,781 $ 300 $ 136 $ 532 $ 425 Construction — — — — — SBA 408 108 — — 575 Commercial and industrial 6 12 — — — Dairy & livestock and agribusiness — — — 555 183 SFR mortgage — 201 — — — Consumer and other loans — 18 — — — Total $ 20,195 $ 639 $ 136 $ 1,087 $ 1,183 % of Total loans 0.23 % 0.01 % 0.00 % 0.01 % 0.01 % OREO: Commercial real estate $ — $ — $ — $ — $ — SBA — — — — — Commercial and industrial 647 — — — — SFR mortgage — — — — — Total $ 647 $ — $ — $ — $ — Total nonperforming, past due, and OREO $ 34,652 $ 21,941 $ 10,099 $ 7,541 $ 7,358 % of Total loans 0.40 % 0.25 % 0.11 % 0.08 % 0.08 % Classified Loans $ 103,080 $ 102,197 $ 92,246 $ 77,834 $ 66,977 (1) Includes $2.6 million of nonaccrual loans past due 30-89 days at September 30, 2023. 57 Nonperforming loans, defined as nonaccrual loans, nonperforming modified/TDR loans and loans past due 90 days or more and still accruing interest, were $13.8 million at March 31, 2024, or 0.16% of total loans. This compares to nonperforming loans of $21.3 million, or 0.24% of total loans, at December 31, 2023 and $6.2 million, or 0.07% of total loans, at March 31, 2023. The $7.5 million decrease in nonperforming loans from December 31, 2023 was primarily due to the payoff of two nonperforming commercial real estate loans totaling $2.5 million, a $2.3 million charge-off of one nonperforming commercial real estate loan, and the charge-off of one nonperforming commercial industrial loan totaling $1.1 million. Classified loans are loans that are graded “substandard” or worse. Classified loans increased $883,000 quarter-over-quarter, primarily due to increases of $2.1 million in classified construction loans and $484,000 commercial real estate loans, partially offset by a $1.7 million decline in classified commercial and industrial loans primarily due the charge-off of one nonperforming commercial and industrial loan. At March 31, 2024, we had one OREO property totaling $647,000. At December 31, 2023 and March 31, 2023, we had no OREO properties. Allowance for Credit Losses The allowance for credit losses totaled $82.8 million as of March 31, 2024, compared to $86.8 million as of December 31, 2023 and $86.5 million as of March 31, 2023. Our allowance for credit losses at March 31, 2024 was 0.94% of total loans. This compares to 0.98% and 0.97% at December 31, 2023 and March 31, 2023, respectively. The decrease in our allowance for credit losses from December 31, 2023 was due to net charge-offs of $4.0 million reflected in the first quarter of 2024, primarily due to two borrowers in which we previously established specific loan loss reserves in 2023. Our allowance for credit losses that is established on a collective pool basis for performing loans grew from $80.9 million at December 31, 2023 to $82.8 million at March 31, 2024. The changes in our allowance over the last few quarters have been primarily due to changes in our economic forecast, as well as reserves established on specific loans. There was no provision for credit losses recorded in the first quarter of 2024, as the $1.9 million increase in the allowance for those loans evaluated on a collective pooled basis, was offset by the net impact from the $5.9 million reduction in specific reserves and the $4 million of net charge-offs. For the quarter ended March 31, 2023, we recorded $1.5 million in provision for credit losses. Net charge-offs were $77,000 for the quarter ended March 31, 2023. The allowance for credit losses as of March 31, 2024 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. The allowance for credit loss is sensitive to both changes in these portfolio characteristics and the forecast of macroeconomic variables. Risk attributes for commercial real estate loans include Original Loan to Value ratios ("OLTV"), origination year, loan seasoning, and macroeconomic variables that include Real GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans. The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of Small Business Administration (SBA) loans (excluding Paycheck Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes. Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with downside risks weighted among multiple forecasts. As of March 31, 2024, the resulting weighted forecast resulted in Real GDP growth declining in the third and fourth quarters of 2024. Real GDP growth is forecasted to be below 2% for 2025, before returning to growth between 2% and 2.5% in 2026. Commercial real estate values are forecasted to continue their decline until reaching their lowest level in the third quarter 2024. Unemployment is forecasted to rise in 2024, peaking around 6% in the first quarter of 2025. The unemployment rate is forecasted to stay elevated through 2026. 58 The table below presents a summary of charge-offs and recoveries by type, the provision for credit losses on loans, and the resulting allowance for credit losses for the periods presented. As of and For the Three Months Ended March 31, 2024 2023 (Dollars in thousands) Allowance for credit losses at beginning of period $ 86,842 $ 85,117 Charge-offs: Commercial real estate (2,258 ) — Construction — — SBA (90 ) (94 ) Commercial and industrial (1,917 ) (16 ) Dairy & livestock and agribusiness — — SFR mortgage — — Consumer and other loans (2 ) — Total charge-offs (4,267 ) (110 ) Recoveries: Commercial real estate — — Construction 3 3 SBA 63 12 Commercial and industrial 176 14 Dairy & livestock and agribusiness — 4 SFR mortgage — — Consumer and other loans — — Total recoveries 242 33 Net (charge-offs) recoveries (4,025 ) (77 ) Provision for (recapture of) credit losses — 1,500 Allowance for credit losses at end of period $ 82,817 $ 86,540 Summary of reserve for unfunded loan commitments: Reserve for unfunded loan commitments at beginning of period $ 7,500 $ 8,000 Provision for unfunded loan commitments — 500 Reserve for unfunded loan commitments at end of period $ 7,500 $ 8,500 Reserve for unfunded loan commitments to total unfunded loan commitments 0.40 % 0.46 % Amount of total loans at end of period (1) $ 8,770,713 $ 8,942,489 Average total loans outstanding (1) $ 8,824,579 $ 8,963,323 Net (charge-offs) to average total loans -0.05 % 0.00 % Net (charge-offs) to total loans at end of period -0.05 % 0.00 % Allowance for credit losses to average total loans 0.94 % 0.97 % Allowance for credit losses to total loans at end of period 0.94 % 0.97 % Net (charge-offs) to allowance for credit losses -4.86 % -0.09 % Net (charge-offs) to provision for credit losses 0.00 % -5.13 % (1) Net of deferred loan origination fees, costs and discounts (amortized cost). The Bank’s ACL methodology also produced an allowance of $7.5 million for our off-balance sheet credit exposures as of March 31, 2024, compared with $7.5 million and $8.5 million as of December 31, 2023 and March 31, 2023, respectively. The year-over-year decrease included a $500,000 recapture of provision for unfunded loan commitments in the fourth quarter of 2023 and $500,000 in provision in first quarter of 2023. 59 While we believe that the allowance at March 31, 2024 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that future economic conditions, interest rate fluctuations, conditions of our borrowers (including fraudulent activity), or natural disasters, which adversely affect our service areas or other circumstances or conditions, including those defined above, will not be reflected in increased provisions for credit losses in the future. Changes in economic and business conditions could have an impact on our market area and on our loan portfolio. We continually monitor these conditions in determining our estimates of needed reserves. However, we cannot predict the extent to which the deterioration in general economic conditions, real estate values, changes in general rates of interest and changes in the financial conditions or business of a borrower may adversely affect a specific borrower’s ability to pay or the value of our collateral. See “ Risk Management – Credit Risk Management ” contained in our Annual Report on Form 10-K for the year ended December 31, 2023. Deposits The primary source of funds to support earning assets (loans and investments) is the generation of deposits. Total deposits were $11.89 billion at March 31, 2024. This represented an increase of $461.3 million, or 4.03%, from total deposits of $11.43 billion at December 31, 2023. The increase in total deposits at March 31, 2024 included $300 million in brokered deposits. The composition of deposits is summarized as of the dates presented in the table below. March 31, 2024 December 31, 2023 Balance Percent Balance Percent (Dollars in thousands) Noninterest-bearing deposits $ 7,112,789 59.80 % $ 7,206,175 63.03 % Interest-bearing deposits Investment checking 545,066 4.58 % 552,408 4.83 % Money market 3,106,539 26.12 % 2,821,344 24.67 % Savings 454,973 3.82 % 457,320 4.00 % Time deposits 675,554 5.68 % 396,395 3.47 % Total Deposits $ 11,894,921 100.00 % $ 11,433,642 100.00 % The amount of noninterest-bearing deposits in relation to total deposits is an integral element in our strategy of seeking to achieve a low cost of funds. Average noninterest-bearing deposits totaled $7.18 billion for the first quarter of 2024, a decrease of $268.1 million, or 3.60%, from noninterest-bearing deposits of $7.45 billion for the fourth quarter of 2023. Average noninterest-bearing deposits were 61.72% of total average deposits for the first quarter of 2024, compared to 61.30% for the fourth quarter of 2023. Interest-bearing non-maturity deposits, which include savings, interest-bearing demand, and money market accounts, totaled $4.11 billion at March 31, 2024, representing an increase of $275.5 million, or 7.19%, from $3.83 billion at December 31, 2023. Time deposits totaled $675.6 million at March 31, 2024, representing an increase of $279.2 million, or 70.42%, from total time deposits of $396.4 million at December 31, 2023. This increase included $300 million in brokered deposits. During the first quarter of 2024, $300 million of brokered deposits were issued and cash flow hedging transactions were simultaneously executed in which $300 million notional pay-fixed interest rate swaps were consummated with maturities of three years, wherein the Company pays a weighted average fixed rate of approximately 4.2% and receives daily SOFR. We entered into these interest rate derivative contracts that are designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate. The fair value of these instruments totaled $789,000 and were reflected as an asset at March 31, 2024. 60 Our deposits are primarily relationship based and include deposits and customer repurchase agreements ("repos"). For the first quarter of 2024, 74% of our deposits consist of business deposits and 26% consist of consumer deposits, primarily the owners and employees of our business customers. The largest percentage of our deposits, 39%, are analyzed business accounts, which represent customer operating accounts that generally utilize a wide array of treasury management products. As most of our business customers need to operate with more than $250,000 in their operating account, we have a significant percentage of deposits that are uninsured. As of March 31, 2024, 45% of our total deposits and customer repos were uncollateralized and uninsured. Our customer deposit relationships represent a diverse set of industries. The industry classification with the largest concentration is construction, which represents 7% of our deposits. Overall, there are 16 different industry classifications that represent 2% or more of our deposits as of March 31, 2024. Our depositors have typically banked with us for many years. As of March 31, 2024, 44% of our deposit relationships have banked with us more than 10 years and 76% of our deposit relationships have been with us for three or more years. Average total deposits for the first quarter decreased by approximately $517 million compared to the fourth quarter of 2023, while average borrowings grew by $407 million. The decline in average deposits was primarily due to deposit outflows at the end of 2023 related to estate planning for the Bank's largest deposit customer. Our average noninterest-bearing deposits continued to be greater than 61% of our average total deposits for the first quarter of 2024. Our cost of deposits was 74 basis points on average for the first quarter of 2024, which compares to 62 basis points for the fourth quarter of 2023 and 17 basis points for the first quarter of 2023. From the first quarter of 2022 through the first quarter of 2024, our cost of deposits has increased by 71 basis points, representing a deposit beta of 14%, compared to the 525 basis point increase in the Fed Funds rate during the Federal Reserve’s tightening cycle. 61 Borrowings We offer a repurchase agreement product to our customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price that reflects the market value of the use of these funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a pre-determined balance in a demand deposit account, in order to earn interest. As of March 31, 2024 and December 31, 2023, total funds borrowed under these agreements were $275.7 million and $271.6 million, respectively, with a weighted average interest rate of 0.38% for the first quarter of 2024, compared to 0.27% for the fourth quarter of 2023 and 0.12 for the first quarter of 2023. As a result of declining deposit balances, we had borrowings of $2.0 billion from the Federal Reserve's Bank Term Funding Program during the first quarter of 2024. Borrowings from the Bank Term Funding Program at the end of the first quarter included $695 million of advances that mature in May of this year and $1.3 billion of advances that mature in January of 2025. Our BTFP borrowings had a weighted average borrowing rate of approximately 4.75%. As of March of 2024, BTFP was no longer available for new borrowings. We anticipate that the BTFP borrowings will be repaid through a combination of existing cash, future principal and interest payments from our security portfolio, core deposit growth, and additional wholesale funding sources which may consist of new borrowing sources such as the FHLB and/or additional brokered deposits. As of March 31, 2024, the Bank had unused borrowing capacity at the FHLB of $4.81 billion. At March 31, 2024, loans with a carrying value of $4.24 billion were pledged to secure available lines of credit from the FHLB and the Federal Reserve Bank. At March 31, 2024 investment securities with carrying values of $2.51 billion were pledged to secure various types of deposits, including $1.37 billion of public funds. In addition, investment securities with carrying values of $2.75 billion were pledged to secure $372.3 million for repurchase agreements, $1.88 billion for outstanding borrowings, $446 million for unused borrowing capacity and approximately $51 million for other purposes as required or permitted by law. Aggregate Contractual Obligations The following table summarizes the aggregate contractual obligations as of March 31, 2024. Maturity by Period Total Less Than One Year One Year Through Three Years Four Years Through Five Years Over Five Years (Dollars in thousands) Deposits (1) $ 11,894,921 $ 11,880,259 $ 12,166 $ 2,217 $ 279 Customer repurchase agreements (1) 275,720 275,720 — — — Other borrowings 1,995,000 1,995,000 — — — Deferred compensation 23,082 575 1,152 1,150 20,205 Operating leases 24,807 7,193 11,737 5,208 669 Equity investments 24,197 16,782 6,735 205 475 Total $ 14,237,727 $ 14,175,529 $ 31,790 $ 8,780 $ 21,628 (1) Amounts exclude accrued interest. Deposits represent noninterest-bearing, money market, savings, NOW, certificates of deposits, brokered and all other deposits held by the Bank. Customer repurchase agreements represent excess amounts swept from customer demand deposit accounts, which mature the following business day and are collateralized by investment securities. These amounts are due to customers. Deferred compensation represents the amounts that are due to former employees based on salary continuation agreements as a result of acquisitions and amounts due to current and retired employees under our deferred compensation plans. Operating leases represent the total minimum lease payments due under non-cancelable operating leases. Refer to Note 12 – Leases of the notes to the Company’s unaudited condensed consolidated financial statements for a more detailed discussion about leases. 62 Off-Balance Sheet Arrangements The following table summarizes the off-balance sheet items at March 31, 2024. Maturity by Period Total Less Than One Year One Year Through Three Years Four Years Through Five Years After Five Years (Dollars in thousands) Commitment to extend credit: Commercial real estate $ 446,496 $ 97,096 $ 179,539 $ 139,060 $ 30,801 Construction 24,929 22,926 — — 2,003 SBA 386 64 — — 322 Commercial and industrial 1,029,607 750,394 257,136 1,661 20,416 Dairy & livestock and agribusiness (1) 203,074 131,015 72,059 — — Municipal lease finance receivables — — — — — SFR Mortgage 6,120 4,163 — — 1,957 Consumer and other loans 123,704 16,718 7,308 2,477 97,201 Total commitment to extend credit 1,834,316 1,022,376 516,042 143,198 152,700 Obligations under letters of credit 55,432 34,091 21,123 200 18 Total $ 1,889,748 $ 1,056,467 $ 537,165 $ 143,398 $ 152,718 (1) Total commitments to extend credit to agribusiness were $34.8 million at March 31, 2024. As of March 31, 2024, we had commitments to extend credit of approximately $1.83 billion, and obligations under letters of credit of $55.4 million. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit underwriting policies in granting or accepting such commitments or contingent obligations as we do for on-balance sheet instruments, which consist of evaluating customers’ creditworthiness individually. As of March 31, 2024 and 2023, the balance in this reserve was $7.5 million and $8.5 million, respectively, and was included in other liabilities. There was no provision or recapture of provision for unfunded commitments for the first quarter of 2024, compared to $500,000 in recapture of provision in the fourth quarter of 2023 and a $500,000 provision in the first quarter of 2023. Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing or purchase arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. When deemed necessary, we hold appropriate collateral supporting those commitments. 63 Capital Resources Our primary source of capital has been the retention of operating earnings and issuance of common stock in connection with periodic acquisitions. In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources, needs and uses of capital in conjunction with projected increases in assets and the level of risk. As part of this ongoing assessment, the Board of Directors reviews the various components of our capital plan and capital stress testing. Total equity increased $8.9 million, or 0.43%, to $2.09 billion at March 31, 2024, compared to total equity of $2.08 billion at December 31, 2023. Increases to equity included $48.6 million in net earnings, that were partially offset by $27.9 million in cash dividends and an $11.7 million decrease in other comprehensive income. We engaged in no stock repurchases during the first quarter of 2024, compared to the first quarter of 2023, when we repurchased 791,800 shares of common stock, at an average repurchase price of $23.43, totaling $18.5 million.. Our tangible book value per share at March 31, 2024 was $9.36. During the first quarter of 2024, the Board of Directors of CVB declared quarterly cash dividends totaling $0.20 per share. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB’s ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the Federal Reserve, and covenants set forth in various agreements we are a party to. On February 1, 2022, we announced that our Board of Directors authorized a share repurchase plan to repurchase up to 10,000,000 shares of the Company’s common stock ("2022 Repurchase Program"). During the first quarter of 2023, we repurchased 791,800 shares at an average price of $23.43. We engaged in no stock repurchases during the first quarter of 2024. The Bank and the Company are required to meet risk-based capital standards under the revised capital framework referred to as Basel III set by their respective regulatory authorities. The risk-based capital standards require the achievement of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital ratio of 6.0% and a common equity Tier 1 (“CET1”) capital ratio of 4.5%. In addition, the regulatory authorities require the highest rated institutions to maintain a minimum leverage ratio of 4.0%. To be considered “well-capitalized” for bank regulatory purposes, the Bank and the Company are required to have a CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%. At March 31, 2024, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios required to be considered “well-capitalized” for regulatory purposes. For further information about capital requirements and our capital ratios, see “Item 1. Business – Capital Adequacy Requirements ” as described in our Annual Report on Form 10-K for the year ended December 31, 2023. The table below presents the Company’s and the Bank’s risk-based and leverage capital ratios for the periods presented. March 31, 2024 December 31, 2023 Capital Ratios Adequately Capitalized Ratios Minimum Required Plus Capital Conservation Buffer Well Capitalized Ratios CVB Financial Corp. Consolidated Citizens Business Bank CVB Financial Corp. Consolidated Citizens Business Bank Tier 1 leverage capital ratio 4.00% 4.00% 5.00% 10.46% 10.36% 10.27% 10.17% Common equity Tier 1 capital ratio 4.50% 7.00% 6.50% 14.95% 14.81% 14.65% 14.49% Tier 1 risk-based capital ratio 6.00% 8.50% 8.00% 14.95% 14.81% 14.65% 14.49% Total risk-based capital ratio 8.00% 10.50% 10.00% 15.77% 15.63% 15.50% 15.34% 64 ASSET/LIABILITY AND M ARKET RISK MANAGEMENT Liquidity and Cash Flow The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations when they come due without incurring unnecessary cost or risk, or causing a disruption to our normal operating activities. This includes the ability to manage unplanned decreases or changes in funding sources, accommodating loan demand and growth, funding investments, repurchasing securities, paying creditors as necessary, and other operating or capital needs. We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual customer funding needs, as well as current and planned business activities. Management has an Asset/Liability Committee that meets monthly. This committee analyzes the cash flows from loans, investments, deposits and borrowings, as well as the input assumptions and results from various models. In addition, the Company has a Balance Sheet Management Committee of the Board of Directors that meets at least quarterly to review the Company’s balance sheet and liquidity position. This committee provides oversight to the balance sheet and liquidity management process and recommends policy guidelines for the approval of our Board of Directors, and courses of action to address our actual and projected liquidity needs. In general, our liquidity is managed daily by controlling the level of liquid assets as well as the use of funds provided by the cash flow from the investment portfolio, loan demand, deposit fluctuations, and borrowings. Our definition of liquid assets includes cash and cash equivalents in excess of minimum levels needed to fulfill normal business operations, short-term investment securities, and other anticipated near term cash flows from investments. In addition to on balance sheet liquidity, we have significant off-balance sheet sources of liquidity. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal Reserve, although availability under these lines of credit are subject to certain conditions. In addition to having more than $900 million of cash on the balance sheet at March 31, 2023, we had substantial sources of off-balance sheet liquidity. These sources of available liquidity include $4.8 billion of secured and unused capacity with the Federal Home Loan Bank, $741 million of secured unused borrowing capacity at the Fed’s discount window, more than $18 million of unpledged AFS securities that could be pledged at the discount window and $300 million of unsecured lines of credit. In addition to these borrowing sources, the Bank has capacity to utilize additional brokered deposits as of March 31, 2024. We can also obtain additional liquidity from deposit growth by utilizing state and national wholesale markets. Our primary sources of funds for the Company are deposits, customer repurchase agreements and borrowings. Total deposits and customer repos of $12.17 billion at March 31, 2024 increased $465.4 million, or 3.98%, over total deposits and customer repos of $11.71 billion at December 31, 2023. As of March 31, 2024, total borrowings, consisted of $2.0 billion of advances from the Federal Reserve’s Bank Term Funding Program, at an average cost of approximately 4.75%. The BTFP advances include maturities of $695 million in May and $1.3 billion in January of 2025. Our deposit levels and cost of deposits may fluctuate from period-to-period due to a variety of factors, including the stability of our deposit base, prevailing interest rates, and market conditions. At March 31, 2024, our deposits and customer repurchase agreements that are neither collateralized nor insured were approximately $5.4 billion, or 45% of our total deposits and customer repos. Additional sources of liquidity include cash on deposit at the Federal Reserve, which exceeded $900 million at March 31, 2024, and principal and interest payments from our investment portfolio. We shrank our investment portfolio by not reinvesting the cashflows generated by our investments during the first quarter of 2024. Our total investment portfolio declined by $129.0 million from December 31, 2023 to $5.29 billion as of March 31, 2024. The decrease was primarily due to a $119 million decline in AFS securities. AFS securities totaled $2.84 billion at March 31, 2024, inclusive of a pre-tax net unrealized loss of $485.6. Pre-tax unrealized loss grew by $35.9 million from December 31, 2023. Market risk, is partly managed by $1 billion notional pay fixed swaps hedging the fair value of the AFS portfolio. The $35.9 million decrease in fair value of our AFS securities was partially offset by an $18 million increase in the fair value of our derivatives that hedge the change in value of our AFS portfolio. CVB is a holding company separate and apart from the Bank that must provide for its own liquidity and must service its own obligations. Substantially all of CVB’s revenues are obtained from dividends declared and paid by the Bank to CVB. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. In addition, our regulators could limit the ability of the Bank or CVB to pay dividends or make other distributions. 65 Below is a summary of our average cash position and statement of cash flows for the three months ended March 31, 2024 and 2023. For further details see our “ Condensed Consolidated Statements of Cash Flows (Unaudited)” under Part I, Item 1 of this report. Consolidated Summary of Cash Flows Three Months Ended March 31, 2024 2023 (Dollars in thousands) Average cash and cash equivalents $ 595,470 $ 212,079 Percentage of total average assets 3.67 % 1.30 % Net cash provided by operating activities $ 77,474 $ 70,120 Net cash provided by investing activities 231,033 232,579 Net cash provided by (used in) financing activities 359,797 (278,626 ) Net increase in cash and cash equivalents $ 668,304 $ 24,073 Average cash and cash equivalents increased by $383.4 million, or 180.78%, to $595.5 million for the three months ended March 31, 2024, compared to $212.1 million for the same period of 2023. At March 31, 2024, cash and cash equivalents totaled $949.6 million. This represented an increase of $722.1 million, or 317.34%, from $227.5 million at March 31, 2023. Our cash on deposit at the Federal Reserve grew by more than $700 million when compared to March 31, 2023. This growth in cash was partly attributable to the issuance of $300 million in brokered deposits. These deposits, which mature every 90 days, were combined with cash flow hedges which resulted in a fixed rate of approximately 4.2%. Interest Rate Sensitivity Management During periods of changing interest rates, the ability to re-price interest-earning assets and interest-bearing liabilities can influence net interest income, the net interest margin, and consequently, our earnings. Interest rate risk is managed by attempting to control the spread between rates earned on interest-earning assets and the rates paid on interest-bearing liabilities within the constraints imposed by market competition in our service area. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the Board of Directors. These limits and guidelines reflect our risk appetite for interest rate risk over both short-term and long-term horizons. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models, which, as described in additional detail below, are employed by management to understand net interest income (NII) at risk and economic value of equity (EVE) at risk. Net interest income at risk sensitivity captures asset and liability repricing mismatches and is considered a shorter term measure, while EVE sensitivity captures mismatches within the period end balance sheets through the financial instruments’ respective maturities or estimated durations and is considered a longer term measure. One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model NII from the Company’s balance sheet under various interest rate scenarios. We use simulation analysis to project rate sensitive income under many scenarios. The analyses may include rapid and gradual ramping of interest rates, rate shocks, basis risk analysis, and yield curve scenarios. Specific balance sheet management strategies are also analyzed to determine their impact on NII and EVE. Key assumptions in the simulation analysis relate to the behavior of interest rates and pricing spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments. This analysis incorporates several assumptions, the most material of which relate to the re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, and prepayment of loans and securities. Our interest rate risk policy measures the sensitivity of our net interest income over both a one-year and two-year cumulative time horizon. The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one and two year 66 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. Estimated Net Interest Income Sensitivity (1) March 31, 2024 December 31, 2023 Interest Rate Scenario 12-month Period 24-month Period (Cumulative) Interest Rate Scenario 12-month Period 24-month Period (Cumulative) + 200 basis points 3.93% 3.97% + 200 basis points 3.96% 4.56% - 200 basis points -4.69% -5.90% - 200 basis points -3.97% -5.21% (1) Percentage change from base scenario. Based on our current simulation models, we believe that the interest rate risk profile of the balance sheet is modestly asset sensitive over both a one-year and a two-year horizon. The estimated sensitivity does not necessarily represent a forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change. We also perform valuation analysis, which incorporates all cash flows over the estimated remaining life of all material balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows minus the discounted present value of all liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. EVE uses instantaneous changes in rates, as shown in the table below. Assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected duration and pricing of the indeterminate deposit portfolios. EVE sensitivity is reported in both upward and downward rate shocks. At March 31, 2024 and December 31, 2023, the EVE profile indicates a decline in net balance sheet value due to instantaneous downward changes in rates. From December 31, 2023 to March 31, 2024, our EVE sensitivity to rising rates changed from a minimal decline in value to a modest gain in value due to increased cash balances. Our overall sensitivity of EVE to changes in interest rates is modest, with the exception of more meaningful reductions in value if rates were to immediately decline by 300 or 400 basis points. Economic Value of Equity Sensitivity Instantaneous Rate Change March 31, 2024 December 31, 2023 400 bp decrease in interest rates -17.0% -13.9% 300 bp decrease in interest rates -11.6% -9.3% 200 bp decrease in interest rates -7.2% -4.7% 100 bp decrease in interest rates -3.2% -1.6% 100 bp increase in interest rates -0.1% -0.4% 200 bp increase in interest rates 1.2% -0.3% 300 bp increase in interest rates 2.0% -1.0% 400 bp increase in interest rates 2.7% -2.2% As EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in asset and liability mix, changes in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates. 67 ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss from adverse changes in the market prices and interest rates. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. We 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. ITEM 4. CONTROLS A ND PROCEDURES As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures under the supervision and with the participation of the Chief Executive Officer, the Chief Financial Officer and other senior management of the Company. Based on the foregoing, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. During the quarter ended March 31, 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. 68 PART II – OTH ER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to various lawsuits and threatened lawsuits in the course of business. From time to time, such lawsuits and threatened lawsuits may include, but are not limited to, actions involving securities litigation, employment matters, wage-hour and labor law claims, consumer claims, regulatory compliance claims, data privacy claims, lender liability claims, bankruptcy-related claims and negligence claims, some of which may be styled as “class action” or representative cases. Some of these lawsuits may be similar in nature to other lawsuits pending against the Company’s competitors. For lawsuits where the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded in accordance with FASB guidance over loss contingencies (ASC 450). However, as a result of inherent uncertainties in judicial interpretation and application of a myriad of laws and regulations applicable to the Company’s business, and the unique, complex factual issues presented in any given lawsuit, the Company often cannot determine the probability of loss or estimate the amount of damages which a plaintiff might successfully prove if the Company were found to be liable. For lawsuits or threatened lawsuits where a claim has been asserted or the Company has determined that it is probable that a claim will be asserted, and there is a reasonable possibility that the outcome will be unfavorable, the Company will disclose the existence of the loss contingency, even if the Company is not able to make an estimate of the possible loss or range of possible loss with respect to the action or potential action in question, unless the Company believes that the nature, potential magnitude or potential timing (if known) of the loss contingency is not reasonably likely to be material to the Company’s liquidity, consolidated financial position, and/or results of operations. Our accruals and disclosures for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose a loss contingency and/or the amount accrued if we believe it is reasonably likely to be material or if we believe such disclosure is necessary for our financial statements to not be misleading. If we determine that an exposure to loss exists in excess of an amount previously accrued or disclosed, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred, and we adjust our accruals and disclosures accordingly. We do not presently believe that the ultimate resolution of any lawsuits currently pending against the Company will have a material adverse effect on the Company’s results of operations, financial condition, or cash flows. The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal matters currently pending or threatened against the Company could have a material adverse effect on our results of operations, financial condition or cash flows. 69 ITEM 1A. RISK FACTORS 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. 70 ITEM 2. UNREGISTERED SA LES OF EQUITY SECURITIES AND USE OF PROCEEDS On February 1, 2022, our Board of Directors approved a program to repurchase up to 10,000,000 shares of CVB common stock in the open market or in privately negotiated transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations ("2022 Repurchase Program"). We did not repurchase any shares of our common stock during the quarter ended March 31, 2024. As of March 31, 2024, an aggregate of 4,300,059 shares remained available for repurchase under our 2022 Repurchase Program. The only shares repurchased during the first quarter of 2024 were shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards. Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares Available for Repurchase Under the Plans or Programs January 1 - 31, 2024 59,970 $ 18.00 — 4,300,059 February 1 - 29, 2024 18,923 $ 17.47 — 4,300,059 March 1 - 31, 2024 66,826 $ 17.40 — 4,300,059 Total 145,719 $ 17.66 — 4,300,059 (1) Shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards. ITEM 3. DEFAULTS U PON SENIOR SECURITIES Not Applicable ITEM 4. MINE SAFE TY DISCLOSURES Not Applicable ITEM 5. OTHER IN FORMATION None 71 ITEM 6. EXH IBITS Exhibit No. Description of Exhibits 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** 101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents 104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, has been formatted in Inline XBRL. * Filed herewith ** Furnished herewith 72 SIGNA TURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CVB FINANCIAL CORP. (Registrant) Date: May 9, 2024 /s/ E. Allen Nicholson E. Allen Nicholson Executive Vice President and Chief Financial Officer (Principal Financial Officer) 73