CVB FINANCIAL CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES 1) Management’s Report on Internal Control over Financial Reporting Management of CVB Financial Corp., together with its consolidated subsidiaries (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements. As of December 31, 2020, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2020 is effective. KPMG LLP, an independent registered public accounting firm, has issued their report on the effectiveness of internal control over financial reporting as of December 31, 2020. 89 Table of Contents 2) Auditor attestation Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors CVB Financial Corp.: Opinion on Internal Control Over Financial Reporting We have audited CVB Financial Corp. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of earnings and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2021 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Los Angeles, California March 1, 2021 90 Table of Contents 3) Evaluation of Disclosure Controls and Procedures; Changes in Internal Control over Financial Reporting We maintain controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such information is reported to our management, including our Chief Executive Officer and Chief Financial Officer to allow timely and accurate disclosure based on the definition of “disclosure controls and procedures” in SEC Rule 13a-15(e) and 15d-15(e) promulgated pursuant to the Exchange Act. As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of our disclosure controls and procedures under the supervision and with the participation of our management, including our Chief Executive Officer and the Chief Financial Officer. Based on the foregoing, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. During the fiscal quarter ended December 31, 2020, there have been no changes in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 91 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Except as hereinafter noted, the information concerning directors and executive officers of the Company, corporate governance and our audit committee financial experts is incorporated by reference from the section entitled “Discussion of Proposals recommended by the Board — Proposal 1: Election of Directors” and “Beneficial Ownership Reporting Compliance,” “Corporate Governance Principles and Board Matters,” and “Audit Committee” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. For information concerning the executive officers of the Company, see Item I of Part I hereto. The Company has adopted a Code of Ethics that applies to all of the Company’s employees, including the Company’s principal executive officer, the principal financial officer, accounting officers, and all employees who perform these functions. A copy of the Code of Ethics is available to any person without charge by submitting a request to the Company’s Chief Financial Officer at 701 N. Haven Avenue, Suite 350, Ontario, CA 91764. If the Company shall amend its Code of Ethics as it applies to the principal executive officer, principal financial officer, principal accounting officer or controller (or persons performing similar functions) or shall grant a waiver from any provision of the code of ethics to any such person, the Company shall disclose such amendment or waiver on its website at www.cbbank.com under the tab “Investor Relations.” ITEM 11. EXECUTIVE COMPENSATION Information concerning management remuneration and transactions is incorporated by reference from the section entitled “Election of Directors” and “Executive Compensation — Certain Relationships and Related Transactions” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table summarizes information as of December 31, 2020 relating to our equity compensation plans pursuant to which grants of options, restricted stock, or other rights to acquire shares may be granted from time to time. Equity Compensation Plan Information Plan category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a) Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (b) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) Equity compensation plans approved by security holders 428,320 $ 17.57 7,322,206 Equity compensation plans not approved by security holders - - - Total 428,320 $ 17.57 7,322,206 Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the sections entitled “Stock Ownership” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. 92 Table of Contents ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information concerning certain relationships and related transactions with management and others and information regarding director independence is incorporated by reference from the section entitled “Executive Compensation — Certain Relationships and Related Transactions” and “Director Independence” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information concerning principal accounting fees and services is incorporated by reference from the section entitled “Ratification of Appointment of Independent Public Accountants” of our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year. 93 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Financial Statements (a) (1) All Financial Statements Reference is made to the Index to Financial Statements on page 89 for a list of financial statements filed as part of this Annual Report on Form 10-K. (2) Financial Statement Schedules Reference is made to the Index to Financial Statements on page 89 for the listing of supplementary financial statement schedules required by this item. (3) Exhibits The listing of exhibits required by this item is set forth in the Index to Exhibits on page 95 of this Annual Report on Form 10-K. (b) Exhibits See Index to Exhibits on Page 95 of this Form 10-K. (c) Financial Statement Schedules There are no financial statement schedules required by Regulation S-X that have been excluded from the annual report to shareholders. ITEM 16. FORM 10-K SUMMARY None 94 Table of Contents INDEX TO EXHIBITS Exhibit No. 2.1 Agreement and Plan of Reorganization and Merger by and among CVB Financial Corp., Citizens Business Bank and Community Bank, dated February 26, 2018 (1) 3.1 Articles of Incorporation of CVB Financial Corp., as amended (2) 3.2 Amended and Restated Bylaws of CVB Financial Corp. (3) 4.1 Form of CVB Financial Corp.’s Common Stock certificate (4) 4.2 Description of CVB Financial Corp. Common Stock (5) 10.1 CVB Financial Corp. 401(k) & Profit Sharing Plan, as amended†(6) 10.2 Form of Indemnification Agreement (7) 10.3(a) CVB Financial Corp. 2008 Equity Incentive Plan†(8) 10.3(b) CVB Financial Corp. Amendment No. 1 to the 2008 Equity Incentive Plan†(9) 10.3(c) CVB Financial Corp. Amendment No. 2 to the 2008 Equity Incentive Plan†(10) 10.3(d) CVB Financial Corp. Amendment No. 3 to the 2008 Equity Incentive Plan†(11) 10.3(e) CVB Financial Corp. Amendment No. 4 to the 2008 Equity Incentive Plan†(12) 10.3(f) CVB Financial Corp. Amendment No. 5 to the 2008 Equity Incentive Plan†(13) 10.3(g) Form of Notice of Non-Qualified Stock Option Grant and Agreement pursuant to the 2008 Equity Incentive Plan†(14) 10.3(h) Form of Notice of Grant and Restricted Stock Agreement pursuant to the 2008 Equity Incentive Plan†(15) 10.4(a) CVB Financial Corp. 2018 Equity Incentive Plan†(16) 10.4(b) Form of Stock Option Agreement under 2018 Equity Incentive Plan†(17) 10.4(c) Form of Restricted Stock Agreement under 2018 Equity Incentive Plan†(18) 10.4(d) Form of Restricted Stock Unit Agreement under 2018 Equity Incentive Plan†(19) 10.5(a) The Executive Non Qualified Excess Plan(SM) Plan Document effective February 21, 2007†(20) 10.5(b) CVB Financial Corp. Deferred Compensation Plan effective December 1, 2020†* 10.6 CVB Financial Corp. 2015 Executive Incentive Plan†(21) 10.7(a) Employment Agreement, dated as of September 12, 2018, by and between Christopher D. Myers, on the one hand, and CVB Financial Corp. and Citizens Business Bank, on the other hand †(22) 10.7(b) Deferred Compensation Plan for Christopher D. Myers, effective January 1, 2007†(23) 10.7(c) Retirement and Consulting Agreement for Christopher D. Myers, dated July 17, 2019†(24) 10.7(d) Amendment to Employment Agreement for Christopher D. Myers, Dated July 17, 2019†(25) 10.8 Employment Agreement by and among CVB Financial Corp. and Citizens Business Bank, on the one hand, and David A. Brager, on the other hand, dated as of February 14, 2020. †(26) 10.9(a) Offer letter for David C. Harvey, dated December 7, 2009†(27) 10.9(b) Severance Compensation Agreement by and between David C. Harvey and Citizens Business Bank, effective January 28, 2021†(28) 10.10(a) Offer Letter for E. Allen Nicholson executed April 30, 2016†(29) 10.10(b) Severance Compensation Agreement by and between E. Allen Nicholson and Citizens Business Bank, effective January 28, 2021†(28) 10.11(a) Offer Letter for David Farnsworth dated July 1, 2016†(30) 10.11(b) Severance Compensation Agreement by and between David Farnsworth and Citizens Business Bank, effective January 28, 2021†(28) 10.12 Severance Compensation Agreement by and between Yamynn De Angelis and Citizens Business Bank, effective January 28, 2021†(28) 10.13 Severance Compensation Agreement by and between Richard H. Wohl and Citizens Business Bank, effective January 28, 2021†(28) 21 Subsidiaries of the Company* 23 Consent of KPMG LLP* 31.1 Certification of David A. Brager pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 95 Table of Contents Exhibit No. 31.2 Certification of E. Allen Nicholson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 32.1 Certification of David A. Brager pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** 32.2 Certification of E. Allen Nicholson pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** 101.INS XBRL Instance Document* 101.SCH XBRL Taxonomy Extension Schema Document* 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document* 101.DEF XBRL Taxonomy Extension Definition Linkbase Document* 101.LAB XBRL Taxonomy Extension Label Linkbase Document* 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document* 104 The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, has been formatted in Inline XBRL * Filed herewith. ** Furnished herewith. † Indicates a management contract or compensation plan. ‡ Except as noted below, Form 8-A12G, Form 8-K, Form 10-Q, Form 10-K and Form DEF 14A identified in the exhibit index have SEC file number 001-10140. D We have entered into the following trust preferred security issuances and agree to furnish a copy to the SEC upon request: (a) Indenture by and between CVB Financial Corp. and U.S. Bank, National Association, as Trustee, dated as of January 31, 2006 (CVB Statutory Trust III). (1) Incorporated herein by reference to Exhibit 2.1 to our Form 8-K filed with the SEC on February 27, 2018. (2) Incorporated herein by reference to Exhibit 3.1 to our Form 10-Q filed with the SEC on August 9, 2010. (3) Incorporated herein by reference to Exhibits 3.1 to our Form 8-K filed with the SEC on January 23, 2020. (4) Incorporated herein by reference to Exhibit 4.1 to our Form 8-A12G filed with the SEC on June 11, 2001. (5) Incorporated herein by reference to Exhibit 4.2 to our Annual Report on Form 10-K filed with the SEC on March 2, 2020. Incorporated herein by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed with the SEC on February 29, 2016. (6) Incorporated herein by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed with the SEC on February 29, 2016. (7) Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed June 29, 2016. (8) Incorporated herein by reference to Annex A to our Definitive Proxy Statement on Form DEF 14A filed with the SEC on April 16, 2008. (9) Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on September 22, 2009 (10) Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 24, 2009. (11) Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on February 6, 2014. (12) Incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on May 10, 2017. (13) Incorporated herein by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed with the SEC on May 10, 2017. 96 Table of Contents (14) Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on May 23, 2008. (15) Incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on May 23, 2008. (16) Incorporated herein by reference to Annex A to our Definitive Proxy Statement on Form DEF 14A filed with the SEC on April 4, 2018. (17) Incorporated herein by reference to Exhibit 10.2 to our Form 8-K filed with the SEC on May 24, 2018. (18) Incorporated herein by reference to Exhibit 10.3 to our Form 8-K filed with the SEC on May 24, 2018. (19) Incorporated hereby by reference to Exhibit 10.4 to our Form 8-K filed with the SEC on May 24, 2018. (20) Incorporated herein by reference to Exhibit 10.26 to our Annual Report on Form 10-K filed with the SEC on March 1, 2007. (21) Incorporated herein by reference to Exhibit A to our Definitive Proxy Statement on Form DEF 14A filed with the SEC on April 3, 2015 (22) Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on September 13, 2018. (23) Incorporated herein by reference to Exhibit 10.23 to our Annual Report on Form 10-K filed with the SEC on March 1, 2007. (24) Incorporated herein by reference to Exhibit 10.1 to our Form 8-K filed with the SEC on July 19, 2019. (25) Incorporated herein by reference to Exhibit 10.2 to our Form 8-K filed with the SEC on July 19, 2019. (26) Incorporated herein by reference to Exhibit 10.1 to our Form 8-K filed with the SEC on February 20, 2020 (27) Incorporated herein by reference to Exhibit 10.21(A) to our Annual Report on Form 10-K filed with the SEC on March 4, 2010. (28) Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on January 28, 2021. (29) Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed May 5, 2016. (30) Incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed November 9, 2016. 97 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on the 1st day of March 2021. CVB FINANCIAL CORP. By: /s/ DAVID A. BRAGER David A. Brager Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ RAYMOND V. O’BRIEN III Chairman of the Board March 1, 2021 Raymond V. O’Brien III /s/ GEORGE A. BORBA, JR. Vice Chairman March 1, 2021 George A. Borba, Jr. /s/ STEPHEN A. DEL GUERCIO Director March 1, 2021 Stephen A. Del Guercio /s/ RODRIGO GUERRA, JR. Director March 1, 2021 Rodrigo Guerra, Jr. /s/ ANNA KAN Director March 1, 2021 Anna Kan /s/ MARSHALL V. LAITSCH Director March 1, 2021 Marshall V. Laitsch /s/ KRISTINA M. LESLIE Director March 1, 2021 Kristina M. Leslie /s/ JANE OLVERA Director March 1, 2021 Jane Olvera /s/ HAL W. OSWALT Director March 1, 2021 Hal W. Oswalt /s/ DAVID A. BRAGER Director and Chief Executive Officer (Principal Executive Officer) March 1, 2021 David A. Brager /s/ E. ALLEN NICHOLSON Chief Financial Officer (Principal Financial and Accounting Officer) March 1, 2021 E. Allen Nicholson 98 Table of Contents CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts) December 31, 2020 December 31, 2019 Assets Cash and due from banks $ 122,305 $ 158,310 Interest-earning balances due from Federal Reserve 1,835,855 27,208 Total cash and cash equivalents 1,958,160 185,518 Interest-earning balances due from depository institutions 43,563 2,931 Investment securities available-for-sale, at fair value (with amortized cost of $ 2,344,174 at December 31, 2020, and $ 1,718,357 at December 31, 2019) 2,398,923 1,740,257 Investment securities held-to-maturity (with fair value of $ 604,223 at December 31, 2020, and $ 678,948 at December 31, 2019) 578,626 674,452 Total investment securities 2,977,549 2,414,709 Investment in stock of Federal Home Loan Bank (FHLB) 17,688 17,688 Loans and lease finance receivables 8,348,808 7,564,577 Allowance for credit losses ( 93,692 ) ( 68,660 ) Net loans and lease finance receivables 8,255,116 7,495,917 Premises and equipment, net 51,144 53,978 Bank owned life insurance (BOLI) 226,818 226,281 Accrued interest receivable 31,306 28,122 Intangibles 33,634 42,986 Goodwill 663,707 663,707 Other real estate owned (OREO) 3,392 4,889 Income taxes 29,540 35,587 Other assets 127,697 110,137 Total assets $ 14,419,314 $ 11,282,450 Liabilities and Stockholders’ Equity Liabilities: Deposits: Noninterest-bearing $ 7,455,387 $ 5,245,517 Interest-bearing 4,281,114 3,459,411 Total deposits 11,736,501 8,704,928 Customer repurchase agreements 439,406 428,659 Other borrowings 5,000 - Deferred compensation 21,611 22,666 Junior subordinated debentures 25,774 25,774 Payable for securities purchased 60,113 - Other liabilities 122,919 106,325 Total liabilities 12,411,324 9,288,352 Commitments and Contingencies Stockholders’ Equity Common stock, authorized, 225,000,000 shares with out par; issued and outstanding 135,600,501 at December 31, 2020, and 140,102,480 at December 31, 2019 1,211,780 1,298,792 Retained earnings 760,861 682,692 Accumulated other comprehensive income, net of tax 35,349 12,614 Total stockholders’ equity 2,007,990 1,994,098 Total liabilities and stockholders’ equity $ 14,419,314 $ 11,282,450 See accompanying notes to the consolidated financial statements. 99 Table of Contents CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (Dollars in thousands, except per share amounts) Year Ended December 31, 2020 2019 2018 Interest income: Loans and leases, including fees $ 377,402 $ 397,628 $ 293,284 Investment securities: Investment securities available-for-sale 36,052 39,330 45,988 Investment securities held-to-maturity 14,223 17,388 18,901 Total investment income 50,275 56,718 64,889 Dividends from FHLB stock 978 1,235 2,045 Interest-earning deposits with other institutions 1,682 2,269 1,642 Total interest income 430,337 457,850 361,860 Interest expense: Deposits 12,602 17,120 9,825 Borrowings and customer repurchase agreements 1,131 3,959 2,067 Junior subordinated debentures 551 999 923 Total interest expense 14,284 22,078 12,815 Net interest income before provision for credit losses 416,053 435,772 349,045 Provision for credit losses 23,500 5,000 1,500 Net interest income after provision for credit losses 392,553 430,772 347,545 Noninterest income: Service charges on deposit accounts 16,561 20,010 17,070 Trust and investment services 9,978 9,525 8,774 Bankcard services 1,886 3,163 3,485 BOLI income 8,100 5,798 4,018 Gain on OREO, net 388 129 3,546 Gain on sale of building, net 1,680 4,776 - Gain on eminent domain condemnation, net - 5,685 - Other 11,277 9,956 6,588 Total noninterest income 49,870 59,042 43,481 Noninterest expense: Salaries and employee benefits 119,759 119,475 100,601 Occupancy and equipment 20,622 20,457 20,153 Professional services 9,460 7,752 6,477 Computer software expense 11,302 10,658 9,343 Marketing and promotion 4,488 5,890 5,302 Recapture of provision for unfunded loan commitments - - ( 250 ) Amortization of intangible assets 9,352 10,798 5,254 Acquisition related expenses - 6,447 16,404 Other 17,920 17,263 16,627 Total noninterest expense 192,903 198,740 179,911 Earnings before income taxes 249,520 291,074 211,115 Income taxes 72,361 83,247 59,112 Net earnings $ 177,159 $ 207,827 $ 152,003 Other comprehensive income (loss): Unrealized gain (loss) on securities arising during the period, before tax $ 32,277 $ 43,872 $ ( 28,526 ) Less: Reclassification adjustment for net gain on securities included in net income - ( 5 ) - Other comprehensive income (loss), before tax 32,277 43,867 ( 28,526 ) Less: Income tax (expense) benefit related to items of other comprehensive income ( 9,542 ) ( 12,969 ) 8,434 Other comprehensive income (loss), net of tax 22,735 30,898 ( 20,092 ) Comprehensive income $ 199,894 $ 238,725 $ 131,911 Basic earnings per common share $ 1.30 $ 1.48 $ 1.25 Diluted earnings per common share $ 1.30 $ 1.48 $ 1.24 See accompanying notes to the consolidated financial statements. 100 Table of Contents CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Dollars and shares in thousands) Common Shares Outstanding Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Balance, January 1, 2018 110,185 $ 573,453 $ 494,361 $ 1,452 $ 1,069,266 Cumulative adjustment upon adoption of ASU 2018-02 - - ( 356 ) 356 - Repurchase of common stock ( 389 ) ( 7,760 ) - - ( 7,760 ) Issuance of common stock for acquisition of Community Bank 29,842 722,767 - - 722,767 Exercise of stock options 167 1,701 - - 1,701 Shares issued pursuant to stock-based compensation plan 195 3,508 - - 3,508 Cash dividends declared on common stock ($ 0.56 per share) - - ( 70,203 ) - ( 70,203 ) Net earnings - - 152,003 - 152,003 Other comprehensive loss - - - ( 20,092 ) ( 20,092 ) Balance, December 31, 2018 140,000 $ 1,293,669 $ 575,805 $ ( 18,284 ) $ 1,851,190 Repurchase of common stock ( 125 ) ( 2,640 ) - - ( 2,640 ) Exercise of stock options 160 2,215 - - 2,215 Shares issued pursuant to stock-based compensation plan 67 5,548 - - 5,548 Cash dividends declared on common stock ($ 0.72 per share) - - ( 100,940 ) - ( 100,940 ) Net earnings - - 207,827 - 207,827 Other comprehensive incom e - - - 30,898 30,898 Balance, December 31, 2019 140,102 $ 1,298,792 $ 682,692 $ 12,614 $ 1,994,098 Cumulative adjustment upon adoption of ASU 2016-13 - - ( 1,325 ) - ( 1,325 ) Repurchase of common stock ( 5,008 ) ( 92,772 ) - - ( 92,772 ) Exercise of stock options 20 231 - - 231 Shares issued pursuant to stock-based compensation plan 487 5,529 - - 5,529 Cash dividends declared on common stock ($ 0.72 per share) - - ( 97,665 ) - ( 97,665 ) Net earnings - - 177,159 - 177,159 Other comprehensive income - - - 22,735 22,735 Balance, December 31, 2020 135,601 $ 1,211,780 $ 760,861 $ 35,349 $ 2,007,990 See accompanying notes to the consolidated financial statements. 101 Table of Contents CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Year Ended December 31, 2020 2019 2018 Cash Flows from Operating Activities Interest and dividends received $ 400,867 $ 438,795 $ 363,217 Service charges and other fees received 39,525 42,489 35,915 Interest paid ( 13,627 ) ( 21,193 ) ( 13,241 ) Net cash paid to vendors, employees and others ( 168,036 ) ( 182,568 ) ( 171,998 ) Income taxes ( 73,633 ) ( 69,341 ) ( 48,876 ) Payments to FDIC, loss share agreement - - ( 64 ) Net cash provided by operating activities 185,096 208,182 164,953 Cash Flows from Investing Activities Proceeds from redemption of FHLB stock - - 17,250 Net change in interest-earning balances from depository institutions ( 40,632 ) 4,739 13,076 Proceeds from sale of investment securities held-for-sale - 152,644 716,996 Proceeds from repayment of investment securities available-for-sale 642,576 364,126 383,155 Proceeds from maturity of investment securities available-for-sale 9,807 7,109 24,651 Purchases of investment securities available-for-sale ( 1,231,163 ) ( 492,995 ) ( 98,709 ) Proceeds from repayment and maturity of investment securities held-to-maturity 146,309 114,569 81,816 Purchases of investment securities held-to-maturity ( 52,855 ) ( 47,587 ) - Net increase in equity investments ( 3,608 ) ( 16,488 ) ( 24,863 ) Net (increase) decrease in loan and lease finance receivables ( 743,290 ) 231,105 ( 179,054 ) Proceeds on eminent domain condemnation, net - 5,685 3,425 Proceeds from sale of building, net of selling costs 2,131 5,755 - Purchase of premises and equipment ( 4,672 ) ( 5,522 ) ( 4,194 ) Proceeds from BOLI death benefit 5,477 1,660 2,383 Proceeds from sales of other real estate owned 1,162 523 8,067 Cash acquired from acquisition, net of cash paid - - ( 132,918 ) Net cash (used in) provided by investing activities ( 1,268,758 ) 325,323 811,081 Cash Flows from Financing Activities Net increase (decrease) in other deposits 3,076,187 ( 36,926 ) ( 444,316 ) Net decrease in time deposits ( 44,614 ) ( 85,636 ) ( 145,033 ) Repayment of FHLB advances - - ( 297,571 ) Net increase (decrease) in other borrowings 5,000 ( 280,000 ) 114,000 Net increase (decrease) in customer repurchase agreements 10,747 ( 13,596 ) ( 111,518 ) Cash dividends on common stock ( 98,475 ) ( 95,352 ) ( 65,966 ) Repurchase of common stock ( 92,772 ) ( 2,640 ) ( 7,760 ) Proceeds from exercise of stock options 231 2,215 1,701 Net cash provided by (used in) financing activities 2,856,304 ( 511,935 ) ( 956,463 ) Net increase in cash and cash equivalents 1,772,642 21,570 19,571 Cash and cash equivalents, beginning of period 185,518 163,948 144,377 Cash and cash equivalents, end of period $ 1,958,160 $ 185,518 $ 163,948 See accompanying notes to the consolidated financial statements. 102 Table of Contents CVB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) Year Ended December 31, 2020 2019 2018 Reconciliation of Net Earnings to Net Cash Provided by Operating Activities Net earnings $ 177,159 $ 207,827 $ 152,003 Adjustments to reconcile net earnings to net cash provided by operating activities: Gain on sale of investment securities, net - ( 5 ) - Gain on eminent domain condemnation, net - ( 5,685 ) - Gain on sale of building, net ( 1,680 ) ( 4,776 ) - Gain on sale of other real estate owned ( 365 ) ( 105 ) ( 3,540 ) Increase in BOLI ( 5,303 ) ( 5,670 ) ( 5,751 ) Net amortization of premiums and discounts on investment securities 15,045 10,298 13,531 Accretion of discount for acquired loans, net ( 17,412 ) ( 28,831 ) ( 15,400 ) Provision for credit losses 23,500 5,000 1,500 Recapture of provision for unfunded loan commitments - - ( 250 ) Valuation allowance on other real estate owned 700 - - Payments to FDIC, loss share agreement - - ( 64 ) Stock-based compensation 5,529 5,548 3,508 Depreciation and amortization, net ( 1,157 ) 22,036 8,349 Change in other assets and liabilities ( 10,920 ) 2,545 11,067 Total adjustments 7,937 355 12,950 Net cash provided by operating activities $ 185,096 $ 208,182 $ 164,953 Supplemental Disclosure of Non-cash Investing Activities Securities purchased and not settled $ 60,113 $ - $ - Transfer of loans to other real estate owned $ - $ 4,889 $ 420 Issuance of common stock for acquisition $ - $ - $ 722,767 See accompanying notes to the consolidated financial statements. 103 Table of Contents CVB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 2020 1. BUSINESS The consolidated financial statements include CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “we,” “our” or the “Company”) and its wholly owned subsidiary: Citizens Business Bank (the “Bank” or “CBB”), after elimination of all intercompany transactions and balances. The Company has one inactive subsidiary, Chino Valley Bancorp. The Company is also the common stockholder of CVB Statutory Trust III. CVB Statutory Trust III was created in January 2006 to issue trust preferred securities in order to raise capital for the Company. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation , this trust does not meet the criteria for consolidation. The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through its CitizensTrust Division. The Bank’s customers consist primarily of small to mid-sized businesses and individuals located in the Inland Empire, Los Angeles County, Orange County, San Diego County, Ventura County, Santa Barbara County, and the Central Valley area of California. The Bank operates 57 banking centers, one loan production office in Modesto, California and three trust office locations. The Company is headquartered in the city of Ontario, California. On August 10, 2018, we completed the acquisition of Community Bank (“CB”), headquartered in Pasadena, California with 16 banking centers located throughout the greater Los Angeles and Orange County areas and total assets of approximately $ 4.09 billion. Our condensed consolidated financial statements for 2018 include CB operations, post-merger. See Note 4 — Business Combinations , included herein. 2. BASIS OF PRESENTATION The accompanying 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-K 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 financial reporting. Reclassification — Certain amounts in the prior periods’ 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 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, and loans, as well as valuation of deferred tax assets. 104 Table of Contents Adoption of New Accounting Standard — On January 1, 2020, the Company adopted ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. This ASU replaces the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the Current Expected Credit Loss (“CECL”) model, applies to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off balance sheet credit exposures. This includes, but is not limited to, loans, held-to-maturity (“HTM”) securities, loan commitments, and financial guarantees. For loans and HTM debt securities, this ASU requires a CECL measurement to estimate the allowance for credit losses (“ACL”) for the remaining contractual term, adjusted for prepayments, of the financial asset (including off-balance sheet credit exposures) using historical experience, current conditions, and reasonable and supportable forecasts. This ASU also eliminated the existing guidance for purchased credit-impaired (“PCI”) loans, but requires an allowance for purchased financial assets with more than an insignificant deterioration of credit since origination. Purchase Credit Deteriorated (“PCD”) assets are recorded at their purchase price plus an ACL estimated at the time of acquisition. Under this ASU, there is no provision for credit losses recognized at acquisition; instead, there is a gross-up of the purchase price of the financial asset for the estimate of expected credit losses and a corresponding ACL recorded. Changes in estimates of expected credit losses after acquisition are recognized as provision for credit losses (or reversal of provision for credit losses) in subsequent periods. In addition, this ASU modifies the OTTI model for available-for-sale (“AFS”) debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. As a policy election, we excluded the accrued interest receivable balance from the amortized cost basis of financing receivables and HTM securities, as well as AFS securities, and disclose total accrued interest receivable separately on the condensed consolidated balance sheet. The Company adopted this ASU using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to beginning retained earnings of $ 1.3 million, net of tax as of January 1, 2020 for the cumulative adjustment upon adoption of ASC 326. The transition adjustment of $ 1.8 million was added to the beginning balance of the ACL for loans and $ 41,000 was added to the beginning balance of reserve for unfunded loan commitments. Upon adoption of CECL there was no impact on the accounting for AFS or HTM investment securities. Business Segments — We regularly assess our strategic plans, operations and reporting structures to identify our reportable segments. Changes to our reportable segments are expected to be infrequent. As of December 31, 2020, we operated as one reportable segment. The factors considered in making this determination included the nature of products and offered services, geographic regions in which we operate, the applicable regulatory environment, and the materiality of discrete financial information reviewed by our key decision makers. Through our network of banking centers, we provide relationship-based banking products, services and solutions for small to mid-sized companies, real estate investors, non-profit organizations, professionals and other individuals. Our products include loans for commercial businesses, commercial real estate, multi-family, construction, land, dairy & livestock and agribusiness, consumer and government-guaranteed small business loans. We also provide business deposit products and treasury cash management services, as well as deposit products to the owners and employees of the businesses we serve. The decision to combine our two reportable segments as of December 31, 2018 was made to align the segment reporting with the changes in our operations and reporting structure, and to be consistent with the level and materiality of information reviewed by our key decision makers. Cash and cash equivalents — Cash on hand, cash items in the process of collection, and amounts due from correspondent banks, the Federal Reserve Bank and interest-bearing balances due from depository institutions with initial terms of ninety days or less, are included in Cash and cash equivalents. 105 Table of Contents Investment Securities — The Company classifies as HTM those debt securities that the Company has the positive intent and ability to hold to maturity. Securities classified as trading are those securities that are bought and held principally for the purpose of selling them in the near term. All other debt and equity securities are classified as AFS. Securities held-to-maturity are accounted for at cost and adjusted for amortization of premiums and accretion of discounts. Trading securities are accounted for at fair value with the unrealized gains and losses being included in current earnings. Available-for-sale securities are accounted for at fair value, with the net unrealized gains and losses, net of income tax effects, presented as a separate component of stockholders’ equity. Realized gains and losses on sales of securities are recognized in earnings at the time of sale and are determined on a specific-identification basis. Purchase premiums and discounts are recognized in interest income using the effective-yield method over the estimated terms of the securities. For mortgage-backed securities (“MBS”), the amortization or accretion is based on estimated average lives of the securities. The lives of these securities can fluctuate based on the amount of prepayments received on the underlying collateral of the securities. The Company’s investment in the Federal Home Loan Bank of San Francisco (“FHLB”) stock is carried at cost. Effective January 1, 2020, upon the adoption of ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, AFS debt securities are measured at fair value and are subject to impairment testing. A security is impaired if the fair value of the security is less than its amortized cost basis. When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize allowance for credit losses by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) non-credit related components of the fair value decline (if any). If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation allowance would be reduced, but not more than the amount of the current existing allowance for that security. Prior to January 1, 2020, AFS debt securities were measured at fair value and declines in the fair value were reviewed to determine whether the impairment was other-than-temporary (“OTTI”). If the decline in fair value was considered temporary, the decline in fair value below the amortized cost basis of a security was recognized in other comprehensive income (loss). If the entire amortized cost basis of the security was not expected to be recovered, then an other-than-temporary impairment was considered to have occurred. The cost basis of the security was written down to its estimated fair value and the amount of the write-down was recognized through a charge to earnings. If the amount of the amortized cost basis expected to be recovered increased in a future period, the cost basis of the security would not be increased but rather recognized prospectively through interest income. Loans and Lease Finance Receivables — Loans and lease finance receivables that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of nonaccrual interest paid (“NAIP”), deferred loan origination fees and costs, and purchase price discounts and premiums (amortized cost basis). Refer to Note 6 — Loans and Lease Finance Receivables and Allowance for Credit Losses for total loans, by type. In the ordinary course of business, the Company enters into commitments to extend credit to its customers. To the extent that such commitments are unfunded, the related unfunded amounts are not reflected in the accompanying consolidated financial statements. The Company receives collateral to support loans, lease finance receivables, and commitments to extend credit for which collateral is deemed necessary. The most significant categories for which collateral is deemed necessary are real estate, principally commercial and industrial income-producing properties, Small Business Administration (“SBA”) loans, real estate mortgages, assets utilized in dairy & livestock and agribusiness, and various personal property assets utilized in commercial and industrial business governed by the Uniform Commercial Code. 106 Table of Contents Nonrefundable fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The deferred net loan fees and costs and purchase price discounts are recognized in interest income over the loan term using the effective-yield method. Nonaccrual, Past Due, Charge-Offs and Recoveries — Interest on loans and lease finance receivables, is credited to income based on the principal amounts of such loans or receivables outstanding. Loans are considered delinquent when principal or interest payments are past due 30 days or more and generally remain on accrual status between 30 and 89 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. In general, interest shall not accrue on any loan for which payment in full of principal and interest is not expected, or when the loan becomes 90 days past due, unless the loan is both well secured and in the process of collection. Factors considered in determining that the full collection of principal and interest is no longer probable include cash flow and liquidity of the borrower or property, the financial position of the guarantors and their willingness to support the loan as well as other factors, and this determination involves significant judgment. When an asset is placed on nonaccrual status, previously accrued but unpaid interest is reversed against income. Subsequent collections of cash are applied as reductions to the principal balance unless the loan is returned to accrual status. Interest is not recognized using a cash-basis method. Nonaccrual loans may be restored to accrual status when principal and interest become current and when the borrower is able to demonstrate payment performance for a sustained period, typically for six months . A nonaccrual loan may return to accrual status sooner based on other significant events or mitigating circumstances. Interest income is not recognized on loans and lease finance receivables when collection of interest is deemed by management to be doubtful. Charge-offs are recognized in the period an obligation becomes uncollectible. The charge-off of a credit does not necessarily mean that the loan has no potential recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be affected in the future. When determining the amount of the charge-off, management considers all components of the loan’s amortized cost basis, excluding accrued interest receivable (as disclosed herein); however, the non-principal portion of charge-offs have been determined to be immaterial. This policy is consistently applied to all types of loans and lease finance receivables. Charge-offs of unsecured consumer loans are recorded when the loan reaches 120 days past due or sooner as circumstances indicate. Purchased Loans — All purchased loans are initially measured and recorded at their fair value on the acquisition date. A component of the initial fair value measurement is an estimate of the credit losses over the life of the purchased loans. Purchased loans are also evaluated to determine if there is a more than insignificant deterioration of credit since origination. With the adoption of ASU 2016-13 on January 1, 2020, PCD assets are recorded at their purchase price plus an ACL estimated at the time of acquisition as described below. Purchased Loans with Credit Deterioration Effective January 1, 2020, ASU 2016-13 eliminated the existing guidance for PCI loans, but requires an allowance for purchased financial assets with more than an insignificant deterioration of credit since origination. The acquisition-date allowance for credit losses (“ACL”) for PCD loans will be allocated to the individual PCD loans (assuming it was originally determined on a collective basis). The sum of the purchase price of the loan (the acquisition date fair value for a loan acquired in a business combination) and the ACL becomes the loan’s new amortized cost basis. The difference between the new amortized cost basis and the unpaid principal balance of the loan represents the non-credit purchase premium or discount that will be amortized or accreted into interest income over the remaining life of the loan. Subsequent to acquisition, the ACL for PCD loans will generally follow the same estimation, provision and charge-off process as non-PCD acquired and originated loans. Additionally, TDR identification for acquired loans (PCD and non-PCD) will be consistent with the TDR identification for originated loans. 107 Table of Contents Prior to January 1, 2020, purchased credit impaired loans were accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” At the time of acquisition, these loans were recorded at estimated fair value based upon estimated future cash flows with no related allowance for credit losses. Acquired non-impaired loans (prior to adoption of CECL) — Acquired non-impaired loans are those loans for which there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments. Acquired non-impaired loans, together with originated loans, were referred to as Non-PCI loans. Purchase discounts or premiums on acquired non-impaired loans were recognized as an adjustment to interest income over the contractual life of such loans using the effective interest method or were taken into income when the related loans were paid off or sold. Troubled Debt Restructurings — Loans are reported as a Troubled Debt Restructuring (“TDR”) if the borrower is deemed to be financially troubled, and the Company grants a concession to the debtor that it would not otherwise consider. Types of modifications that may be considered concessions, which in turn result in a TDR include, but are not limited to, (i) a reduction of the stated interest rate for the remaining original life of the debt, (ii) an extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement, or (iv) a reduction of interest. As a result of these concessions, restructured loans are considered impaired. In situations where the Company has determined that the borrower is experiencing financial difficulties and is evaluating whether a concession is insignificant, and therefore does not result in a TDR, such analysis is based on an evaluation of both the amount and the timing of the restructured payments, including the following factors: 1. Whether the amount of the restructured payments subject to delay is insignificant relative to the unpaid principal balance or collateral value of the debt and will result in an insignificant shortfall in the contractual amount due; and 2. The delay is insignificant relative to any of the following: • The frequency of payments due; • The debt’s original contractual maturity; or • The debt’s original expected duration. Nonaccrual restructured loans are included and treated with all other nonaccrual loans. In addition, all accruing restructured loans are reported as TDRs, which are considered and accounted for as impaired loans. A loan that has been placed on nonaccrual status that is subsequently restructured will remain on nonaccrual status until the borrower is able to demonstrate repayment performance in compliance with the restructured terms for a sustained period of time, generally for a minimum of six months. A restructured loan may return to accrual status sooner based on other significant events or circumstances. Impaired Loans (prior to adoption of CECL) — Following the adoption of CECL as of January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. Prior to January 1, 2020, a loan was generally considered impaired when based on current events and information it was probable that the Company would unable to collect all amounts due according to the contractual terms of the loan agreement. A loan, including a restructured loan, for which there is an insignificant delay relative to the frequency of payments due, and/or the original contractual maturity, was not considered an impaired loan. Generally, impaired loans include loans on nonaccrual status and TDRs. The Company’s policy was to record a specific valuation allowance, which was included in the allowance for loan losses, or to charge off that portion of an impaired loan that represented the impairment or shortfall amount as determined utilizing one of the three methods described in ASC 310-10-35-22. Impairment on non-collateral dependent restructured loans was measured by comparing the present value of expected future cash 108 Table of Contents flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan’s carrying value. The impairment amount, if any, was generally charged off and recorded against the allowance for loan losses at the time impairment was measurable and a probable loss was determined. The Company measured impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company may also have measured impairment based on an observable market price for the loan, or the value of the collateral, for collateral dependent loans. Impairment on collateral dependent restructured loans was measured by determining the amount by which our recorded investment in the impaired loan exceeded the fair value of the collateral less estimated selling costs. The fair value was generally determined by one or more appraisals of the collateral, performed by a Company-approved third-party independent appraiser. The majority of impaired loans that were collateral dependent were charged off down to their estimated fair value of the collateral (less selling costs) at each reporting date based on current appraised value. Charge-offs of unsecured consumer loans are recorded when the loan reaches 120 days past due or sooner as circumstances indicate. Except for the charge-offs of unsecured consumer loans, the charge-off policy is applied consistently across all portfolio segments. Impaired single-family mortgage loans that have been modified in accordance with the various government modification programs are also measured based on the present value of the expected cash flows discounted at the loan’s pre-modification interest rate. The Company recognizes the change in present value attributable to the passage of time as interest income on such performing SFR mortgage loans and the amount of interest income recognized to date has been insignificant. Provision and Allowance for Credit Losses — On January 1, 2020, the Company adopted ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. This ASU replaces the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the CECL model, applies to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off balance sheet credit exposures. This includes, but is not limited to, loans, HTM securities, loan commitments, and financial guarantees. AFS debt securities are measured at fair value and are subject to impairment testing. This ASU modifies the OTTI model for AFS debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. When an AFS debt security is considered impaired, and the Company determines that the decline in fair value has resulted from a credit-related loss (as described previously under Investment Securities) , then an allowance for credit losses will be recognized by a charge to earnings for the credit-related component of the decline in fair value. As a result, we will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as required prior to the adoption of CECL. As a policy election, we exclude the accrued interest receivable balance from the amortized cost basis of financing receivables and HTM securities, as well as AFS securities, and disclose total accrued interest receivable separately on the condensed consolidated balance sheet. If accrued interest is not received, it is reversed against interest income, which was zero for 2020 . The Company developed allowance models that 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. The allowance 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, 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. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA 109 Table of Contents loans (excluding Payment Protection Program loans). The collective ACL methodologies include an estimation framework that uses loss experiences of data sets of unique loans aggregated by each pool, respectively, to derive loss rates at the pool level during the average life of the underlying loans. Our ACL amounts are largely driven by portfolio characteristics, including loss history, Original Loan to Value Ratios (“OLTV”), internal risk grading, macroeconomic variables and the associated economic outlook, as well as other key methodology assumptions. The Company’s ACL estimate incorporates a reasonable and supportable forecast of various macro-economic variables over the remaining average life of our loans. This forecast incorporates an assumption that each macro-economic variable will revert to a long-term expectation, starting in years 2-3, 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. 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. 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. An important element of our approach to credit risk management is our loan risk rating system (Pass, Special Mention, Substandard, Doubtful and Loss). Loan risk ratings are updated as facts related to the loan or borrower become available. In addition, all term loans in excess of $ 1.0 million are subject to an annual internal credit review process where all factors underlying the loan, borrower and guarantors are subject to review which may result in changes to the loan’s risk rating. Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 6 — Loans and Lease Finance Receivables and Allowance for Credit Losses, Credit Quality Indicators Provision and Allowance for Loan Losses (“ALLL”) — Prior to adoption of CECL, the allowance for loan losses was management’s estimate of probable losses inherent in the loan and lease receivables portfolio. The allowance was increased by the provision for loan losses and recoveries of prior loan losses, and it was decreased by recapture of provision for loan losses and by charge-offs taken when management believed the uncollectability of any loan was confirmed. Subsequent recoveries, if any, were added to the allowance. The determination of the balance in the allowance for loan losses was based on an analysis of the loan and lease finance receivables portfolio using a systematic methodology and reflected an amount that, in management’s judgment, was appropriate to provide for probable loan losses inherent in the portfolio, after giving consideration to the character of the loan portfolio, current economic conditions, past loan loss experience, and such other factors that would deserve current recognition in estimating inherent loan losses. There were different qualitative risks for the loans in each portfolio segment. The construction and real estate segments’ predominant risk characteristic was the collateral and the geographic location of the property collateralizing the loan as well as the operating cash flow for commercial real estate properties. The commercial and industrial segment’s predominant risk characteristics were the cash flows of the businesses we lend to, the global cash flows and liquidity of the guarantors, as well as economic and market conditions. SBA 504 loans had risk characteristics that were similar to the real estate loan segment, while SBA 7(a) loans had risks that were similar to commercial and industrial loans. The dairy & livestock segment’s predominant risk characteristics were milk and beef prices in the market as well as the cost of feed and cattle. The Agribusiness segment’s predominant risk characteristics were the supply and demand conditions of the product, production seasonality, the scale of operations and ability to control costs, the availability and cost of water, and operator experience. The municipal lease segment’s predominant risk characteristics were the municipality’s general financial condition and tax revenues or if applicable the specific project related financial condition. The consumer, auto and other segment’s predominant risk characteristics were employment and income levels as they relate to consumers and cash flows of the businesses as they relate to equipment and vehicle leases to businesses. The Company’s methodology is consistently applied across all portfolio segments taking into account the applicable historical loss rates and the qualitative factors applicable to each pool of loans. A key factor in the 110 Table of Contents Company’s methodology is the loan risk rating (Pass, Special Mention, Substandard, Doubtful and Loss). Loan risk ratings are updated as facts related to the loan or borrower become available. In addition, all term loans in excess of $ 1.0 million are subject to an annual internal credit review process where all factors underlying the loan, borrower and guarantors are subject to review which may result in changes to the loan’s risk rating. Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Periodically, we assess various attributes utilized in adjusting our historical loss factors to reflect current economic conditions. The methodology is consistently applied across all the portfolio segments taking into account the applicable historical loss rates and the qualitative factors applicable to each pool of loans. Prior to January 1, 2020, performing loans acquired through business combinations were evaluated separately by each acquired portfolio using the ALLL methodology. The results of the ALLL methodology were compared to the remaining fair value discounts by portfolio. If the remaining fair value discounts were determined to be insufficient, the allowance was increased to reflect the additional risk in the portfolio. Reserve for Unfunded Loan Commitments — The reserve 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. Effective January 1, 2020, the reserve is calculated on the expected portion of the commitment to be funded over its life and the life of the commitment loss expectation, utilizing the same three collective pool methodologies described for the Allowance for Credit Losses. We include the reserve for unfunded loan commitments in other liabilities and the related provision in other noninterest expense. Prior to adoption of CECL, we used the historical loan loss factors described under our allowance for loan losses to calculate the loan loss experience if unfunded loan commitments were funded. Separately, we used historical trends to calculate a probability of an unfunded loan commitment being funded. We applied the loan funding probability factor to risk-factor adjusted unfunded loan commitments by credit risk-rating to derive the reserve for unfunded loan commitments, similar to funded loans. The reserve for unfunded loan commitments also included certain qualitative allocations as deemed appropriate by management. Other Real Estate Owned — Other real estate owned (“OREO”) represents real estate acquired through foreclosure in lieu of repayment of commercial and real estate loans and is stated at fair value, less estimated costs to sell (fair value at time of foreclosure). Loan balances in excess of fair value of the real estate acquired at the date of acquisition are charged against the allowance for credit losses. Any subsequent operating expenses or income, reduction in estimated values, and gains or losses on disposition of such properties are charged to current operations. Gain recognition upon disposition of a property is dependent on the sale having met certain criteria relating to the buyer’s initial investment in the property sold. Premises and Equipment — Premises and equipment are stated at cost, less accumulated depreciation, which is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives of the respective asset and are computed on a straight-line basis. The ranges of useful lives of the principal classes of assets are as follows: Bank premises 15 - 39 years Leasehold improvements Shorter of estimated economic lives of 15 years or term of the lease. Computer equipment 3 - 7 years Furniture, fixtures and equipment 5 - 10 years Long-lived assets are reviewed periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. The existence of impairment is based on undiscounted cash flows. To the extent impairment exists, the impairment is calculated as the difference in fair value of assets and their carrying value. The impairment loss, if any, would be recorded in noninterest expense. 111 Table of Contents Long-lived assets classified as held-for-sale are measured at the lower of its carrying amount or fair value less cost to sell. Assets-held-for sale include long-lived assets transferred from our “held-and-used” portfolio in the period in which the following criteria are met: • Management, having the authority to approve the action, commits to a plan to sell the asset; • The asset is available for immediate sale, an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; • The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year; • The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; • Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Goodwill and Intangible Assets — Goodwill resulting from business combinations prior to January 1, 2009, represents the excess of the purchase price over the fair value of the net assets of the businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interest in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually, or more frequently, if events and circumstances exist that indicate that a goodwill impairment test should be performed. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheets. Based on the Company’s annual impairment test, there was no recorded impairment as of December 31, 2020. Other intangible assets consist of core deposit intangible assets arising from business combinations and are amortized using an accelerated method over their estimated useful lives. Use of Fair Value — We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Investment securities available-for-sale and interest-rate swaps are financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a non-recurring basis, such as impaired loans and OREO. These non-recurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets. Further, we include in Note 19 — Fair Value Information of the consolidated financial statements information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used and its impact to earnings. Additionally, for financial instruments not recorded at fair value we disclose the estimate of their fair value. Bank Owned Life Insurance — The Company invests in Bank Owned Life Insurance (“BOLI”). BOLI involves the purchasing of life insurance by the Company on a select group of employees. The Company is the owner and primary beneficiary of these policies. BOLI is recorded as an asset at the cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in other noninterest income and are not subject to income tax for as long as they are held for the life of the covered employee . Income Taxes — Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that 112 Table of Contents includes the enactment date. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. Based on historical and future expected taxable earnings, the Company considers the future realization of these deferred tax assets more likely than not. The tax effects from an uncertain tax position are recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Operating Leases — The Company’s leasing portfolio consists of real estate leases, which are used primarily for the banking operations of the Company. All leases in the current portfolio have been classified as operating leases, although this may change in the future. Operating leases with a term of more than one year are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s consolidated balance sheets. The Company made a policy election to apply the short-term lease exemption to any operating leases with an original term of less than 12 months, therefore no ROU asset or lease liability is recorded for these operating leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. The Company determines if an arrangement is a lease at inception by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. Operating lease ROU assets and lease liabilities are included in other assets and other liabilities , respectively, on the Company’s consolidated balance sheet. The Company uses its incremental borrowing rate, factoring in the lease term, to determine the lease liability, which is measured at the present value of future lease payments. The ROU asset, at adoption of this ASU, was recorded at the amount of the lease liability plus any prepaid rent and initial direct costs, less any lease incentives and accrued rent. The lease terms include periods covered by options to extend or terminate the lease depending on whether the Company is reasonably certain to exercise such options. Refer to Note 23 — Leases for more information. Earnings per Common Share — The Company calculates earnings per common share (“EPS”) using the two-class method. The two-class method requires the Company to present EPS as if all of the earnings for the period are distributed to common shareholders and any participating securities. All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities. The Company grants restricted shares under the 2008 Equity Incentive Plan that qualify as participating securities. Restricted shares issued under this plan are entitled to dividends at the same rate as common stock. A reconciliation of the numerator and the denominator used in the computation of basic and diluted earnings per common share is included in Note 16 — Earnings Per Share Reconciliation of these consolidated financial statements. Stock-Based Compensation — Consistent with the provisions of ASC 718, Stock Compensation , we recognize expense for the grant date fair value of stock options and restricted shares issued to employees, officers and non-employee directors over the requisite service periods (generally the vesting period). The service periods may be subject to performance conditions. The fair value of each stock option grant is estimated as of the grant date using the Black-Scholes option-pricing model. Management assumptions used at the time of grant impact the fair value of the option calculated under the Black-Scholes option-pricing model, and ultimately, the expense that will be recognized over the life of the option. The grant date fair value of restricted stock awards is measured at the fair value of the Company’s common stock as if the restricted share was vested and issued on the date of grant. Additional information is included in Note 17 — Stock-Based Compensation Plans of the consolidated financial statements included herein. 113 Table of Contents Derivative Financial Instruments — All derivative instruments, including certain derivative instruments embedded in other contracts, are recognized on the consolidated balance sheets at fair value. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. Upon adoption of ASU 2017-12, all changes in fair value for cash flow hedges, are recorded in “Other Comprehensive Income,” net of deferred taxes, including any ineffectiveness as long as the hedge remains highly effective. The Company currently does not designate any derivative financial instruments as qualifying hedging relationships, and therefore, does not utilize hedge accounting. Statement of Cash Flows — Cash and cash equivalents, as reported in the statements of cash flows, include cash and due from banks, interest-bearing balances due from depository institutions and federal funds sold with original maturities of three months or less. Cash flows from loans and deposits are reported net. Other Contingencies — In the ordinary course of business, the Company becomes involved in litigation. Based upon the Company’s internal records and discussions with legal counsel, the Company records accruals as appropriate, for estimates of the probable outcome of all cases brought against the Company. Except as discussed in Note 14 — Commitments and Contingencies at December 31, 2020, the Company does not have any material litigation accruals and is not aware of any material pending legal action or complaints asserted against the Company. 4. BUSINESS COMBINATIONS Community Bank Acquisition On August 10, 2018 , the Company completed the acquisition of CB, headquartered in Pasadena, California. The Company acquired all of the assets and assumed all of the liabilities of CB for $ 180.7 million in cash and $ 722.8 million in stock. As a result, CB was merged with the Bank, the principal subsidiary of CVB. The primary reason for the acquisition was to further strengthen the Company’s presence in Southern California. At close, CB had 16 banking centers located throughout the greater Los Angeles and Orange County areas. The systems integration of CB and CBB was completed in November 2018. The consolidation of banking centers was completed during the second quarter of 2019, in which four additional banking centers that were in close proximity were consolidated. For the first six months of 2019, a total of 10 banking centers were consolidated, including nine former CB centers. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the August 10, 2018 acquisition date. The purchase price allocation was finalized in the second quarter of 2019. The change in goodwill resulted from finalizing the fair value of impaired loans. The application of the acquisition method of accounting resulted in the recognition of goodwill of $ 547.1 million and a core deposit intangible (“CDI”) of $ 52.2 million, or 2.26 % of core deposits. Goodwill represents the excess purchase price over the fair value of the net assets acquired. Goodwill is not deductible for income tax purposes. 114 Table of Contents The table below summarizes the amounts recognized for the estimated fair value of assets acquired and the liabilities assumed as of the acquisition date . August 10, 2018 (Dollars in thousands) Merger Consideration Cash paid $ 180,719 CVBF common stock issued 722,767 Total merger consideration $ 903,486 Identifiable net assets acquired, at fair value Assets Acquired Cash and cash equivalents 47,802 Investment securities 716,996 FHLB stock 17,250 Loans 2,738,100 Accrued interest receivable 7,916 Premises and equipment 14,632 BOLI 70,904 Core deposit intangible 52,200 Other assets 53,291 Total assets acquired 3,719,091 Liabilities assumed Deposits 2,869,986 FHLB advances 297,571 Other borrowings 166,000 Other liabilities 29,192 Total liabilities assumed 3,362,749 Total fair value of identifiable net assets, at fair value 356,342 Goodwill $ 547,144 At the date of acquisition, the gross contractual loan amounts receivable, inclusive of all principal and interest, was approximately $ 3 billion. The Company’s best estimate of the contractual principal cash flows for loans not expected to be collected at the date of acquisition was approximately $ 4.5 million. We have included the financial results of the business combination in the consolidated statement of earnings and comprehensive income beginning on the acquisition date. For the year ended December 31, 2020, the Company did not incur any merger related expenses associated with the CB acquisition, compared to $ 6.4 million and $ 16.4 million for the years ended December 31, 2019 and 2018, respectively. 115 Table of Contents For illustrative purposes only, the following table presents certain unaudited pro forma information for the year ended December 31, 2018. This unaudited estimated pro forma financial information was calculated as if CB had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of CB with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented. Unaudited Pro Forma Year Ended December 31, 2018 (Dollars in thousands, except per share amounts) Total revenues (net interest income plus noninterest income) $ 488,620 Net income $ 181,433 Earnings per share - basic $ 1.30 Earnings per share - diluted $ 1.29 5. 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. December 31, 2020 Amortized Cost Gross Unrealized Holding Gain Gross Unrealized Holding Loss Fair Value Total Percent (Dollars in thousands) Investment securities available-for-sale: Mortgage-backed securities $ 1,857,030 $ 48,006 $ ( 101 ) $ 1,904,935 79.41 % CMO/REMIC 457,548 5,515 ( 249 ) 462,814 19.29 % Municipal bonds 28,707 1,578 - 30,285 1.26 % Other securities 889 - - 889 0.04 % Total available-for-sale securities $ 2,344,174 $ 55,099 $ ( 350 ) $ 2,398,923 100.00 % Investment securities held-to-maturity: Government agency/GSE $ 98,663 $ 5,877 $ - $ 104,540 17.05 % Mortgage-backed securities 146,382 7,644 ( 32 ) 153,994 25.30 % CMO/REMIC 145,309 5,202 - 150,511 25.11 % Municipal bonds 188,272 6,980 ( 74 ) 195,178 32.54 % Total held-to-maturity securities $ 578,626 $ 25,703 $ ( 106 ) $ 604,223 100.00 % 116 Table of Contents December 31, 2019 Amortized Cost Gross Unrealized Holding Gain Gross Unrealized Holding Loss Fair Value Total Percent (Dollars in thousands) Investment securities available-for-sale: Mortgage-backed securities $ 1,185,757 $ 21,306 $ ( 750 ) $ 1,206,313 69.32 % CMO/REMIC 493,214 1,392 ( 896 ) 493,710 28.37 % Municipal bonds 38,506 850 ( 2 ) 39,354 2.26 % Other securities 880 - - 880 0.05 % Total available-for-sale securities $ 1,718,357 $ 23,548 $ ( 1,648 ) $ 1,740,257 100.00 % Investment securities held-to-maturity: Government agency/GSE $ 117,366 $ 2,280 $ ( 657 ) $ 118,989 17.40 % Mortgage-backed securities 168,479 2,083 ( 54 ) 170,508 24.98 % CMO/REMIC 192,548 - ( 2,458 ) 190,090 28.55 % Municipal bonds 196,059 3,867 ( 565 ) 199,361 29.07 % Total held-to-maturity securities $ 674,452 $ 8,230 $ ( 3,734 ) $ 678,948 100.00 % The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax. Year Ended December 31, 2020 2019 2018 (Dollars in thousands) Investment securities available-for-sale: Taxable $ 35,129 $ 38,189 $ 44,423 Tax-advantaged 923 1,141 1,565 Total interest income from available-for-sale securities 36,052 39,330 45,988 Investment securities held-to-maturity: Taxable 9,542 11,498 11,848 Tax-advantaged 4,681 5,890 7,053 Total interest income from held-to-maturity securities 14,223 17,388 18,901 Total interest income from investment securities $ 50,275 $ 56,718 $ 64,889 The adoption of CECL did not have a material impact on the accounting for investment securities, as approximately 93 % of the total investment securities portfolio at December 31, 2020 represents securities issued by the U.S. government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest. The remaining securities are predominately AA- or better general-obligation municipal bonds. The allowance for credit losses for held-to-maturity investment securities under the new CECL model was zero at December 31, 2020. We adopted ASU 2016-13 on January 1, 2020, on a prospective basis. Under this ASU, once it is determined that a credit loss has occurred, an allowance for credit losses is established on our AFS and HTM securities. Prior to adoption of this standard, when a decline in fair value of a debt security was determined to be other than temporary, an impairment charge for the credit component was recorded, and a new cost basis in the investment was established. Management determined that there were no credit losses for securities in an unrealized loss position for 2020. 117 Table of Contents The following table presents the Company’s available-for-sale investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of December 31, 2020. December 31, 2020 Less Than 12 Months 12 Months or Longer Total Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses (Dollars in thousands) Investment securities available-for-sale: Mortgage-backed securities $ 72,219 $ ( 101 ) $ - $ - $ 72,219 $ ( 101 ) CMO/REMIC 96,974 ( 249 ) - - 96,974 ( 249 ) Municipal bonds - - - - - - Total available-for-sale securities $ 169,193 $ ( 350 ) $ - $ - $ 169,193 $ ( 350 ) The table below presents the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019, prior to adoption of ASU 2016-13. Management previously reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be other-than-temporarily-impaired. December 31, 2019 Less Than 12 Months 12 Months or Longer Total Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses Fair Value Gross Unrealized Holding Losses (Dollars in thousands) Investment securities available-for-sale: Mortgage-backed securities $ 20,289 $ ( 6 ) $ 97,964 $ ( 744 ) $ 118,253 $ ( 750 ) CMO/REMIC 177,517 ( 705 ) 34,565 ( 191 ) 212,082 ( 896 ) Municipal bonds - - 563 ( 2 ) 563 ( 2 ) Total available-for-sale securities $ 197,806 $ ( 711 ) $ 133,092 $ ( 937 ) $ 330,898 $ ( 1,648 ) Investment securities held-to-maturity: Government agency/GSE $ 28,359 $ ( 252 ) $ 19,405 $ ( 405 ) $ 47,764 $ ( 657 ) Mortgage-backed securities 10,411 ( 54 ) - - 10,411 ( 54 ) CMO/REMIC 23,897 ( 104 ) 166,193 ( 2,354 ) 190,090 ( 2,458 ) Municipal bonds 7,583 ( 32 ) 29,981 ( 533 ) 37,564 ( 565 ) Total held-to-maturity securities $ 70,250 $ ( 442 ) $ 215,579 $ ( 3,292 ) $ 285,829 $ ( 3,734 ) The following summarizes our analysis of these securities and the unrealized losses. Government Agency & Government-Sponsored Enterprise (“GSE”) — The government agency bonds are backed by the full faith and credit of agencies of the U.S. Government. While the Government-Sponsored Enterprise bonds are not expressly guaranteed by the U.S. Government, they are currently being supported by the U.S. Government under a conservatorship arrangement. These securities are bullet securities, that is, they have a defined maturity date on which the principal is paid. The contractual term of these investments provides that the Company will receive the face value of the bond at maturity which will equal the amortized cost of the bond. Interest is received throughout the life of the security. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the bonds. 118 Table of Contents Mortgage-Backed Securities (“MBS”) and CMO/REMIC — Most of the Company’s mortgage-backed and CMO/REMIC securities are issued by Government Agencies or Government-Sponsored Enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac. These securities are collateralized or backed by the underlying residential or commercial mortgages. All mortgage-backed securities are considered to be rated investment grade with a weighted average life of approximately 2.6 years. Of the total MBS/CMO, 100 % have the implied guarantee of U.S. Government-Sponsored Agencies and Enterprises. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the bonds. There were no credit-related impairments for the year ended December 31, 2020 and no OTTI recognized in earnings for the year ended December 31, 2019. Municipal Bonds — The majority of the Company’s municipal bonds, with maturities of approximately 10.2 years, represented approximately 7 % of the total investment portfolio and are predominately AA or higher rated securities. The Company diversifies its holdings by owning selections of securities from different issuers and by holding securities from geographically diversified municipal issuers, thus reducing the Company’s exposure to any single adverse event. The decline in fair value is primarily due to the changes in interest rates. Since the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized costs, these investments were not considered impaired at December 31, 2020 and there were no losses recognized in earnings for the year ended December 31, 2019. At December 31, 2020 and 2019, investment securities having a carrying value of approximately $ 1.81 billion and $ 1.64 billion, respectively, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law. The amortized cost and fair value of debt securities at December 31, 2020, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have weighted average remaining contractual maturities of approximately 18 years , expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. Mortgage-backed and CMO/REMIC securities are included in maturity categories based upon estimated average lives which incorporate estimated prepayment speeds. December 31, 2020 Available-for-sale Held-to-maturity Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) Due in one year or less $ 10,473 $ 10,499 $ 2,724 $ 2,751 Due after one year through five years 2,204,046 2,255,300 305,248 317,994 Due after five years through ten years 92,729 94,795 75,561 79,295 Due after ten years 36,926 38,329 195,093 204,183 Total investment securities $ 2,344,174 $ 2,398,923 $ 578,626 $ 604,223 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 December 31, 2020 . 119 Table of Contents 6. LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES The following table provides a summary of total loans and lease finance receivables by type. December 31, 2020 2019 (Dollars in thousands) Commercial real estate $ 5,501,509 $ 5,374,617 Construction 85,145 116,925 SBA 303,896 305,008 SBA - Paycheck Protection Program (PPP) 882,986 - Commercial and industrial 812,062 935,127 Dairy & livestock and agribusiness 361,146 383,709 Municipal lease finance receivables 45,547 53,146 SFR mortgage 270,511 283,468 Consumer and other loans 86,006 116,319 Total loans 8,348,808 7,568,319 Less: Deferred loan fees, net (1) - ( 3,742 ) Total loans, net of deferred loan fees 8,348,808 7,564,577 Less: Allowance for credit losses ( 93,692 ) ( 68,660 ) Total loans and lease finance receivables, net $ 8,255,116 $ 7,495,917 (1) Beginning with March 31, 2020, gross loans are presented net of deferred loan fees by respective class of financing receivables. A s of December 31, 2020, 70.16 % of the Company’s total gross loan portfolio consisted of real estate loans, with commercial real estate loans representing 65.90 % of total loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. As of December 31, 2020, $ 314.4 million, or 5.72 % of the total commercial real estate loans included loans secured by farmland, compared to $ 241.8 million, or 4.50 %, at December 31, 2019. The loans secured by farmland included $ 132.9 million for loans secured by dairy & livestock land and $ 181.5 million for loans secured by agricultural land at December 31, 2020, compared to $ 125.9 million for loans secured by dairy & livestock land and $ 115.9 million for loans secured by agricultural land at December 31, 2019. As of December 31, 2020, dairy & livestock and agribusiness loans of $ 361.1 million were comprised of $ 320.1 million for dairy & livestock loans and $ 41.0 million for agribusiness loans, compared to $ 323.5 million for dairy & livestock loans and $ 60.2 million for agribusiness loans at December 31, 2019. At December 31, 2020 and 2019, loans totaling $ 6.07 billion and $ 6.03 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 December 31, 2020 and 2019. 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. 120 Table of Contents 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. 121 Table of Contents The following table summarizes loans by type, according to our internal risk ratings as of the dates presented. Origination Year Revolving loans amortized cost basis Revolving loans converted to term loans December 31, 2020 2020 2019 2018 2017 2016 Prior Total (Dollars in thousands) Commercial real estate loans: Risk Rating: Pass $ 979,499 $ 691,091 $ 607,753 $ 617,640 $ 550,105 $ 1,646,876 $ 192,583 $ 24,548 $ 5,310,095 Special Mention 9,332 7,162 30,049 43,870 17,398 49,840 5,720 994 164,365 Substandard - 491 2,157 7,382 2,528 13,790 360 341 27,049 Doubtful & Loss - - - - - - - - - Total Commercial real estate loans: $ 988,831 $ 698,744 $ 639,959 $ 668,892 $ 570,031 $ 1,710,506 $ 198,663 $ 25,883 $ 5,501,509 Construction loans: Risk Rating: Pass $ 14,511 $ 9,350 $ 14,945 $ 2,258 $ - $ 4 $ 44,077 $ - $ 85,145 Special Mention - - - - - - - - - Substandard - - - - - - - - - Doubtful & Loss - - - - - - - - - Total Construction loans: $ 14,511 $ 9,350 $ 14,945 $ 2,258 $ - $ 4 $ 44,077 $ - $ 85,145 SBA loans: Risk Rating: Pass $ 47,901 $ 12,821 $ 44,950 $ 58,839 $ 26,136 $ 86,085 $ - $ 2,976 $ 279,708 Special Mention - - - 5,446 1,336 5,648 - - 12,430 Substandard - - 904 5,503 1,554 3,797 - - 11,758 Doubtful & Loss - - - - - - - - - Total SBA loans: $ 47,901 $ 12,821 $ 45,854 $ 69,788 $ 29,026 $ 95,530 $ - $ 2,976 $ 303,896 SBA - PPP loans: Risk Rating: Pass $ 882,986 $ - $ - $ - $ - $ - $ - $ - $ 882,986 Special Mention - - - - - - - - - Substandard - - - - - - - - - Doubtful & Loss - - - - - - - - - Total SBA - PPP loans: $ 882,986 $ - $ - $ - $ - $ - $ - $ - $ 882,986 Commercial and industrial loans: Risk Rating: Pass $ 104,478 $ 168,050 $ 62,453 $ 56,043 $ 32,149 $ 76,019 $ 257,250 $ 6,058 $ 762,500 Special Mention 1,995 1,081 1,892 1,028 95 4,882 17,395 1,132 29,500 Substandard 4,346 860 3,996 2,282 285 94 6,677 1,522 20,062 Doubtful & Loss - - - - - - - - - Total Commercial and industrial loans: $ 110,819 $ 169,991 $ 68,341 $ 59,353 $ 32,529 $ 80,995 $ 281,322 $ 8,712 $ 812,062 Dairy & livestock and agribusiness loans: Risk Rating: Pass $ 1,041 $ 1,765 $ 1,199 $ 5,680 $ 120 $ 320 $ 319,211 $ 363 $ 329,699 Special Mention 878 - 364 - - - 13,255 1,511 16,008 Substandard - - 784 693 2,285 - - 11,677 15,439 Doubtful & Loss - - - - - - - - - Total Dairy & livestock and agribusiness loans: $ 1,919 $ 1,765 $ 2,347 $ 6,373 $ 2,405 $ 320 $ 332,466 $ 13,551 $ 361,146 Municipal lease finance receivables loans: Risk Rating: Pass $ 8,478 $ - $ 2,556 $ 10,249 $ 3,586 $ 20,266 $ - $ - $ 45,135 Special Mention - - - - - 412 - - 412 Substandard - - - - - - - - - Doubtful & Loss - - - - - - - - - Total Municipal lease finance receivables loans: $ 8,478 $ - $ 2,556 $ 10,249 $ 3,586 $ 20,678 $ - $ - $ 45,547 122 Table of Contents Origination Year Revolving loans amortized cost basis Revolving loans converted to term loans December 31, 2020 2020 2019 2018 2017 2016 Prior Total (Dollars in thousands) SFR mortgage loans: Risk Rating: Pass $ 65,463 $ 59,596 $ 29,142 $ 22,452 $ 27,192 $ 62,593 $ 3 $ - $ 266,441 Special Mention - - - - - 452 - - 452 Substandard - - - - 229 2,957 - 432 3,618 Doubtful & Loss - - - - - - - - - Total SFR mortgage loans: $ 65,463 $ 59,596 $ 29,142 $ 22,452 $ 27,421 $ 66,002 $ 3 $ 432 $ 270,511 Consumer and other loans: Risk Rating: Pass $ 8,557 $ 2,077 $ 871 $ 969 $ 1,586 $ 961 $ 67,774 $ 1,688 $ 84,483 Special Mention - - - - - 91 517 22 630 Substandard - - - - - 172 - 721 893 Doubtful & Loss - - - - - - - - - Total Consumer and other loans: $ 8,557 $ 2,077 $ 871 $ 969 $ 1,586 $ 1,224 $ 68,291 $ 2,431 $ 86,006 Gross loans: Risk Rating: Pass $ 2,112,914 $ 944,750 $ 763,869 $ 774,130 $ 640,874 $ 1,893,124 $ 880,898 $ 35,633 $ 8,046,192 Special Mention 12,205 8,243 32,305 50,344 18,829 61,325 36,887 3,659 223,797 Substandard 4,346 1,351 7,841 15,860 6,881 20,810 7,037 14,693 78,819 Doubtful & Loss - - - - - - - - - Total Gross loans: $ 2,129,465 $ 954,344 $ 804,015 $ 840,334 $ 666,584 $ 1,975,259 $ 924,822 $ 53,985 $ 8,348,808 The following table summarizes loans by type, according to our internal risk ratings as of the date presented. December 31, 2019 Pass Special Mention Substandard Doubtful & Loss Total (Dollars in thousands) Commercial real estate Owner occupied $ 1,977,007 $ 78,208 $ 28,435 $ - $ 2,083,650 Non-owner occupied 3,280,580 10,005 382 - 3,290,967 Construction Speculative 106,895 - - - 106,895 Non-speculative 10,030 - - - 10,030 SBA 283,430 11,032 10,546 - 305,008 Commercial and industrial 895,234 35,473 4,420 - 935,127 Dairy & livestock and agribusiness 320,670 35,920 27,119 - 383,709 Municipal lease finance receivables 52,676 470 - - 53,146 SFR mortgage 280,010 1,957 1,501 - 283,468 Consumer and other loans 114,870 421 1,028 - 116,319 Total gross loans $ 7,321,402 $ 173,486 $ 73,431 $ - $ 7,568,319 123 Table of Contents Allowance for Credit Losses The allowance for credit losses for 2020 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real estate loans include OLTV, origination year, loan seasoning, and macroeconomic variables that include GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA loans (excluding Payment Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the amortized cost basis of the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes. Our methodology for assessing the appropriateness of the allowance is reviewed on a regular basis and considers overall risks in the Bank’s loan portfolio. Refer to Note 3 – Summary of Significant Accounting Policies contained herein for a more detailed discussion concerning the allowance for credit losses. Our allowance for credit losses decreased in the fourth quarter by $ 177,000 , as a result of net charge-offs of $ 177,000 . There was no provision for credit losses in the fourth quarter of 2020. Our allowance for credit losses at December 31, 2020 was $ 93.7 million or 1.12 % of total loans. For the year ended December 31, 2020, the ACL increased by $ 25.0 million, including a $ 1.8 million increase from the adoption of CECL on January 1, 2020. The increase in the ACL was primarily due to $ 23.5 million in provision for credit losses recorded in the first half of 2020 resulting from the forecasted changes in macroeconomic variables related to the COVID-19 pandemic. Our economic forecast continues to be a blend of multiple forecasts produced by Moody ’s , including Moody’s baseline forecast , as well as upside and downside forecasts. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario , while due to economic uncertainty a greater weighting was placed on the downside economic forecast, relative to the upside forecast. Our forecast assumes GDP will increase by 2.5 % in 2021 and then grow by 3.6 % in 202 2 and 202 3 . The unemployment rate is forecasted to be 7.7 % in 2021, before declining to 7.2 % percent in 2022 and 5.7 % in 2023. Management believes that the ACL was appropriate at December 31, 2020 and 2019. As t here is a high degree of uncertainty around the epidemiological assumptions and impact of government responses to the pandemic that impact our economic forecast, no assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for credit losses in the future. 124 Table of Contents 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. Year Ended December 31, 2020 Ending Balance, prior to adoption of ASU 2016-13 December 31, 2019 Impact of Adoption of ASU 2016-13 Charge- offs Recoveries Provision for (Recapture of) Credit Losses Ending Balance December 31, 2020 (Dollars in thousands) Commercial real estate $ 48,629 $ 3,547 $ - $ - $ 23,263 $ 75,439 Construction 858 655 - 11 410 1,934 SBA 1,453 1,818 ( 362 ) 72 11 2,992 SBA - PPP - - - - - - Commercial and industrial 8,880 ( 2,442 ) ( 195 ) 10 889 7,142 Dairy & livestock and agribusiness 5,255 ( 186 ) - - ( 1,120 ) 3,949 Municipal lease finance receivables 623 ( 416 ) - - ( 133 ) 74 SFR mortgage 2,339 ( 2,043 ) - 206 ( 135 ) 367 Consumer and other loans 623 907 ( 109 ) 59 315 1,795 Total allowance for credit losses $ 68,660 $ 1,840 $ ( 666 ) $ 358 $ 23,500 $ 93,692 Year Ended December 31, 2019 Ending Balance December 31, 2018 Charge- offs Recoveries Provision for (Recapture of) Loan Losses Ending Balance December 31, 2019 (Dollars in thousands) Commercial real estate $ 45,097 $ - $ - $ 3,532 $ 48,629 Construction 981 - 12 ( 135 ) 858 SBA 1,078 ( 321 ) 9 687 1,453 Commercial and industrial 7,528 ( 48 ) 255 1,145 8,880 Dairy & livestock and agribusiness 5,225 ( 78 ) 19 89 5,255 Municipal lease finance receivables 775 - - ( 152 ) 623 SFR mortgage 2,197 - 196 ( 54 ) 2,339 Consumer and other loans 732 ( 7 ) 10 ( 112 ) 623 Total allowance for loan losses $ 63,613 $ ( 454 ) $ 501 $ 5,000 $ 68,660 125 Table of Contents Year Ended December 31, 2018 Ending Balance December 31, 2017 Charge- offs Recoveries Provision for (Recapture of) Loan Losses Ending Balance December 31, 2018 (Dollars in thousands) Commercial real estate $ 41,722 $ - $ - $ 3,212 $ 44,934 Construction 984 - 2,506 ( 2,509 ) 981 SBA 869 ( 257 ) 20 430 1,062 Commercial and industrial 7,280 ( 10 ) 82 168 7,520 Dairy & livestock and agribusiness 4,647 - 19 549 5,215 Municipal lease finance receivables 851 - - ( 76 ) 775 SFR mortgage 2,112 ( 13 ) 51 46 2,196 Consumer and other loans 753 ( 11 ) 141 ( 157 ) 726 PCI loans 367 - - ( 163 ) 204 Total allowance for loan losses $ 59,585 $ ( 291 ) $ 2,819 $ 1,500 $ 63,613 The following table presents the recorded investment in loans held-for-investment and the related ACL by loan type, based on the Company’s methodology for determining the ACL for the periods presented. December 31, 2019 Recorded Investment in Loans Allowance for Loan Losses Individually Evaluated for Impairment Collectively Evaluated for Impairment Individually Evaluated for Impairment Collectively Evaluated for Impairment (Dollars in thousands) Commercial real estate $ 1,121 $ 5,373,496 $ - $ 48,629 Construction - 116,925 - 858 SBA 2,568 302,440 257 1,196 Commercial and industrial 1,344 933,783 251 8,629 Dairy & livestock and agribusiness - 383,709 - 5,255 Municipal lease finance receivables - 53,146 - 623 SFR mortgage 2,979 280,489 - 2,339 Consumer and other loans 377 115,942 - 623 Total $ 8,389 $ 7,559,930 $ 508 $ 68,152 Past Due and Nonperforming Loans We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for credit losses, and to determine the adequacy of the ACL, 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 herein, for additional discussion concerning the Bank’s policy for past due and nonperforming loans. 126 Table of Contents 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 date presented. December 31, 2020 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 $ - $ - $ 7,208 $ 7,208 $ 2,136,051 $ 2,143,259 Non-owner occupied - - - - 3,358,250 3,358,250 Construction Speculative (1) - - - - 72,126 72,126 Non-speculative - - - - 13,019 13,019 SBA 531 2,415 1,025 3,971 299,925 303,896 SBA - PPP - - - - 882,986 882,986 Commercial and industrial 608 811 2,338 3,757 808,305 812,062 Dairy & livestock and agribusiness - - 784 784 360,362 361,146 Municipal lease finance receivables - - - - 45,547 45,547 SFR mortgage - - 229 229 270,282 270,511 Consumer and other loans - - - - 86,006 86,006 Total gross loans $ 1,139 $ 3,226 $ 11,584 $ 15,949 $ 8,332,859 $ 8,348,808 (1) Speculative construction loans are generally for properties where there is no identified buyer or renter. Following the adoption of CECL on January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. Under CECL, amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance, are presented as of December 31, 2020 by type of loan. December 31, 2020 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 $ 7,563 $ 7,563 $ - Non-owner occupied - - - Construction Speculative (2) - - - Non-speculative - - - SBA 2,035 2,273 - SBA - PPP - - - Commercial and industrial 1,576 3,129 - Dairy & livestock and agribusiness 785 785 - Municipal lease finance receivables 430 - - SFR mortgage - 430 - Consumer and other loans 167 167 - Total gross loans $ 12,556 $ 14,347 $ - (1) As of December 31, 2020, $ 1.4 million of nonaccruing loans were current, $ 2,000 were 30-59 days past due, $ 1.3 million were 60-89 days past due, and $ 11.6 million were 90+ days past due. (2) Speculative construction loans are generally for properties where there is no identified buyer or renter. (3) Excludes $ 184,000 of guaranteed portion of nonaccrual SBA loans that are in process of collection. 127 Table of Contents The following table presents the recorded investment in, and the aging of, past due and nonaccrual loans, by type of loans as of the date presented. December 31, 2019 30-59 Days Past Due 60-89 Days Past Due Total Past Due and Accruing Nonaccrual (1) (3) Current Total Loans and Financing Receivables (Dollars in thousands) Commercial real estate Owner occupied $ - $ - $ - $ 479 $ 2,083,171 $ 2,083,650 Non-owner occupied - - - 245 3,290,722 3,290,967 Construction Speculative (2) - - - - 106,895 106,895 Non-speculative - - - - 10,030 10,030 SBA 870 532 1,402 2,032 301,574 305,008 Commercial and industrial 2 - 2 1,266 933,859 935,127 Dairy & livestock and agribusiness - - - - 383,709 383,709 Municipal lease finance receivables - - - - 53,146 53,146 SFR mortgage 6 243 249 878 282,341 283,468 Consumer and other loans - - - 377 115,942 116,319 Total gross loans $ 878 $ 775 $ 1,653 $ 5,277 $ 7,561,389 $ 7,568,319 (1) As of December 31, 2019, $ 1.2 million of nonaccruing loans were current, $ 59,000 were 30-59 days past due, $ 1.1 million were 60-89 days past due and $ 2.9 million were 90+ days past due. (2) Speculative construction loans are generally for properties where there is no identified buyer or renter. (3) Excludes $ 2.0 million of guaranteed portion of nonaccrual SBA loans that are in process of collection. 128 Table of Contents Impaired Loans (prior to adoption of CECL) Following the adoption of CECL as of January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. As a result of the change, the following tables present information about our impaired loans and lease finance receivables, individually evaluated for Impairment by type of loans, as of December 31, 2019 and 2018, prior to the date of adoption of the amendments to the credit loss standard. As of and For the Year Ended December 31, 2019 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized (Dollars in thousands) With no related allowance recorded: Commercial real estate Owner occupied $ 479 $ 613 $ - $ 505 $ - Non-owner occupied 642 643 - 681 26 Construction Speculative - - - - - Non-speculative - - - - - SBA 2,243 2,734 - 2,389 41 Commercial and industrial 1,091 1,261 - 1,369 4 Dairy & livestock and agribusiness - - - - - Municipal lease finance receivables - - - - - SFR mortgage 2,979 3,310 - 3,043 86 Consumer and other loans 377 514 - 396 - Total 7,811 9,075 - 8,383 157 With a related allowance recorded: Commercial real estate Owner occupied - - - - - Non-owner occupied - - - - - Construction Speculative - - - - - Non-speculative - - - - - SBA 325 324 257 327 - Commercial and industrial 253 347 251 699 - Dairy & livestock and agribusiness - - - - - Municipal lease finance receivables - - - - - SFR mortgage - - - - - Consumer and other loans - - - - - Total 578 671 508 1,026 - Total impaired loans $ 8,389 $ 9,746 $ 508 $ 9,409 $ 157 129 Table of Contents As of and For the Year Ended December 31, 2018 (1) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized (Dollars in thousands) With no related allowance recorded: Commercial real estate Owner occupied $ 589 $ 705 $ - $ 624 $ - Non-owner occupied 2,808 4,324 - 4,585 32 Construction Speculative - - - - - Non-speculative - - - - - SBA 3,467 5,746 - 3,919 44 Commercial and industrial 7,436 11,457 - 7,718 7 Dairy & livestock and agribusiness - - - - - Municipal lease finance receivables - - - - - SFR mortgage 5,349 6,270 - 5,484 80 Consumer and other loans 418 526 - 459 - Total 20,067 29,028 - 22,789 163 With a related allowance recorded: Commercial real estate Owner occupied - - - - - Non-owner occupied 3,143 3,144 478 3,144 - Construction Speculative - - - - - Non-speculative - - - - - SBA - - - - - Commercial and industrial 189 191 3 203 - Dairy & livestock and agribusiness 78 78 12 78 - Municipal lease finance receivables - - - - - SFR mortgage - - - - - Consumer and other loans 68 100 68 76 - Total 3,478 3,513 561 3,501 - Total impaired loans $ 23,545 $ 32,541 $ 561 $ 26,290 $ 163 (1) Excludes PCI loans. 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. December 31, 2020 Number of Loans Dependent on Collateral Real Estate Business Assets Other (Dollars in thousands) Commercial real estate $ 7,883 $ - $ - 8 Construction - - - - SBA 1,761 326 185 10 SBA - PPP - - - - Commercial and industrial 470 5,542 95 18 Dairy & livestock and agribusiness - 785 - 1 Municipal lease finance receivables - - - - SFR mortgage 430 - - 2 Consumer and other loans 168 - - 2 Total collateral-dependent loans $ 10,712 $ 6,653 $ 280 41 130 Table of Contents 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. As a result of the adoption of ASU 2016-13, the reserve for unfunded loan commitments included a transition adjustment of $ 41 ,000 as of January 1, 2020. There was no provision or recapture of provision for unfunded commitments for the years ended December 31, 2020 and 2019, compared with a recapture of provision for unfunded loan commitments of $ 250 ,000 for the year ended December 31, 2018. As of December 31, 2020 and 2019, the balance in this reserve was $ 9.0 million and was included in other liabilities. Troubled Debt Restructurings Loans that are reported as TDRs are considered impaired and charge-off amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 — Summary of Significant Accounting Policies, Troubled Debt Restructurings , included herein. As of December 31, 2020, there were $ 2.2 million of loans classified as a TDR, all of which were performing. TDRs on accrual status are comprised of loans that were accruing interest at the time of restructuring or have demonstrated repayment performance in compliance with the restructured terms for a sustained period and for which the Company anticipates full repayment of both principal and interest. At December 31, 2020, performing TDRs were comprised of seven SFR mortgage loans of $ 1.8 million, one commercial real estate loan of $ 320,000 , and one commercial and industrial loan of $ 43,000 . The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time a probable loss is determined. We have no allocated allowance to TDRs as of December 31, 2020 and December 31, 2019. The following table provides a summary of the activity related to TDRs for the periods presented. Year Ended December 31, 2020 2019 (Dollars in thousands) Performing TDRs: Beginning balance $ 3,112 $ 3,594 New modifications - - Payoffs/payments, net and other ( 953 ) ( 482 ) TDRs returned to accrual status - - TDRs placed on nonaccrual status - - Ending balance $ 2,159 $ 3,112 Nonperforming TDRs: Beginning balance $ 244 $ 3,509 New modifications - - Charge-offs - ( 78 ) Transfer to OREO - ( 2,275 ) Payoffs/payments, net and other ( 244 ) ( 912 ) TDRs returned to accrual status - - TDRs placed on nonaccrual status - - Ending balance $ - $ 244 Total TDRs $ 2,159 $ 3,356 131 Table of Contents The following tables summarize loans modified as TDRs for the periods presented. There were no loans that were modified as TDRs for the years ended December 31, 2020 and 2019. Modifications (1) For the Year Ended December 31, 2018 (2) Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Outstanding Recorded Investment at December 31, 2018 Financial Effect Resulting From Modifications (3) (Dollars in thousands) Commercial real estate: Interest rate reduction - $ - $ - $ - $ - Change in amortization period or maturity - - - - - Commercial and industrial: Interest rate reduction - - - - - Change in amortization period or maturity 1 38 38 20 - Dairy & livestock and agribusiness: Interest rate reduction - - - - - Change in amortization period or maturity - - - - - SFR mortgage: Interest rate reduction - - - - - Change in amortization period or maturity 1 311 311 300 - Consumer: Interest rate reduction - - - - - Change in amortization period or maturity 1 278 278 267 - Total loans 3 $ 627 $ 627 $ 587 $ - (1) The tables above exclude modified loans that were paid off prior to the end of the period. (2) Excludes PCI loans. (3) Financial effects resulting from modifications represent charge-offs and specific allowance recorded at modification date. As of December 31, 2020 and 2019, there were no loans that were modified as a TDR within the previous 12 months that subsequently defaulted. In accordance with regulatory guidance, if borrowers are less than 30 days past due on their loans, upon implementation of the modification program, or as allowed under the CARES Act if borrowers are less than 30 days past due on their loans as of December 31, 2019, and enter into short-term loan modifications offered as a result of COVID-19, their loans generally continue to be considered performing loans and continue to accrue interest during the period of the loan modification. For borrowers who are 30 days or more past due when entering into loan modifications offered as a result of COVID-19, we evaluate the loan modifications under our existing troubled debt restructuring framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR and will generally not accrue interest. For all borrowers who enroll in these loan modification programs offered as a result of COVID-19, the delinquency status of the borrowers is frozen, resulting in a static delinquency metric during the deferral period. Upon exiting the deferral program, the measurement of loan delinquency will resume where it had left off upon entry into the program. 132 Table of Contents 7. OTHER REAL ESTATE OWNED The following table summarizes the activity related to total OREO for the periods presented. Year Ended December 31, 2020 2019 (Dollars in thousands) Balance, beginning of period $ 4,889 $ 420 Additions - 4,889 Dispositions ( 797 ) ( 420 ) Valuation adjustments ( 700 ) - Balance, end of period $ 3,392 $ 4,889 8. GOODWILL AND OTHER INTANGIBLE ASSETS The following table presents the changes in the carrying amount of goodwill for the periods presented. Year Ended December 31, 2020 2019 (Dollars in thousands) Balance, beginning of period $ 663,707 $ 666,539 Purchase accounting adjustments - ( 2,832 ) Balance, end of period $ 663,707 $ 663,707 The following summarizes changes in CDI and the related accumulated amortization for the periods presented. Year Ended December 31, 2020 2019 Gross CDI Accumulated Net CDI Gross CDI Accumulated Net CDI Amount Amortization Amount Amount Amortization Amount (Dollars in thousands) Balance of intangible assets, beginning of period $ 93,297 $ ( 50,311 ) $ 42,986 $ 93,297 $ ( 39,513 ) $ 53,784 Amortization ( 9,352 ) ( 9,352 ) ( 10,798 ) ( 10,798 ) Balance of intangible assets, end of period $ 93,297 $ ( 59,663 ) $ 33,634 $ 93,297 $ ( 50,311 ) $ 42,986 The following table reflects the estimated amortization expense for the periods presented, as of December 31, 2020. December 31, 2020 Year: (Dollars in thousands) 2021 $ 8,240 2022 7,126 2023 6,010 2024 4,892 2025 3,773 Thereafter 3,593 Total $ 33,634 133 Table of Contents At December 31, 2020 the weighted average remaining life of intangible assets is approximately 2.54 years. 9. PREMISES AND EQUIPMENT Premises and equipment were comprised of the following as of the dates presented. December 31, 2020 2019 (Dollars in thousands) Land $ 18,798 $ 19,188 Bank premises 70,130 68,387 Furniture and equipment 29,058 27,540 Premises and equipment, gross 117,986 115,115 Accumulated depreciation and amortization ( 66,842 ) ( 61,137 ) Premises and equipment, net $ 51,144 $ 53,978 For the first six months of 2019, a total of 10 banking centers were consolidated, including nine former CB centers. In 2020, the Bank recognized $ 1.7 million in net gain on the sale of our bank owned buildings, compared to $ 4.8 million in 2019. Total depreciation and amortization expense was approximately $ 6.9 million, $ 6.8 million and $ 6.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. 10. OTHER ASSETS Other assets were comprised of the following as of the dates presented. December 31, 2020 2019 (Dollars in thousands) Prepaid expenses $ 6,929 $ 6,571 Interest rate swaps 30,181 11,502 ROU assets 19,112 18,522 Affordable housing investments 10,617 12,452 Other investments 48,017 45,540 Other assets 12,841 15,550 Total $ 127,697 $ 110,137 134 Table of Contents 11. INCOME TAXES The current and deferred amounts of income tax expense consist of the following. Year Ended December 31, 2020 2019 2018 (Dollars in thousands) Current provision: Federal $ 48,328 $ 51,564 $ 31,055 State 28,469 29,487 20,546 76,797 81,051 51,601 Deferred provision: Federal ( 2,997 ) 486 5,158 State ( 1,439 ) 1,710 2,353 ( 4,436 ) 2,196 7,511 Total $ 72,361 $ 83,247 $ 59,112 Income tax asset consists of the following . December 31, 2020 2019 (Dollars in thousands) Current: Federal $ 5,408 $ 5,890 State 2,610 3,456 8,018 9,346 Deferred: Federal 14,779 17,580 State 6,743 8,661 21,522 26,241 Total $ 29,540 $ 35,587 135 Table of Contents Temporary differences between the amounts reported in the financial statements and the tax bases of assets and liabilities resulted in deferred taxes. The components of the net deferred tax asset are as follows. December 31, 2020 2019 (Dollars in thousands) Deferred tax assets: Bad debt and credit loss deduction $ 32,671 $ 24,282 Net operating loss carryforward 10 75 Deferred compensation 6,607 6,942 PCI loans 663 2,299 California franchise tax 4,584 4,281 Accrued expense 4,662 4,831 Acquired loan discounts 9,709 15,180 Lease liability 6,369 6,175 Other, net 3,865 1,453 Gross deferred tax asset 69,140 65,518 Deferred tax liabilities: Depreciation 2,675 3,895 Intangibles - acquisitions 15,376 16,941 FHLB Stock 2,525 2,525 Deferred income 3,544 3,055 Right of use asset 6,080 5,893 Unrealized gain on investment securities, net 17,418 6,968 Gross deferred tax liability 47,618 39,277 Net deferred tax asset $ 21,522 $ 26,241 Annual Effective Tax Rate The annual consolidated effective tax rate for the periods presented, is reconciled to the U.S. statutory income rate as follows. Year Ended December 31, 2020 2019 2018 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Federal income tax at statutory rate $ 52,399 21.0 % $ 61,126 21.0 % $ 44,334 21.0 % State franchise taxes, net of federal benefit 20,950 8.4 % 24,430 8.4 % 17,905 8.5 % Tax-exempt income ( 3,191 ) ( 1.3 %) ( 3,081 ) ( 1.1 %) ( 2,991 ) ( 1.4 %) Tax credits ( 1,946 ) ( 0.8 %) ( 2,153 ) ( 0.7 %) ( 1,451 ) ( 0.7 %) Other, net 4,149 1.7 % 2,925 1.0 % 1,315 0.6 % Provision for income taxes $ 72,361 29.0 % $ 83,247 28.6 % $ 59,112 28.0 % There were no significant unrecognized tax benefits at December 31, 2020 and 2019. We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease within the next twelve months. The Company is subject to federal income tax and franchise tax of the state of California. Our federal income tax returns for the years ended December 31, 2015 through 2020 are open to audit by the federal authorities and our California state tax returns for the years ended December 31, 2015 through 2020 are open to audit by state authorities. 136 Table of Contents 12. DEPOSITS The composition of deposits is summarized for the periods presented in the table below. December 31, 2020 2019 Amount Percent Amount Percent (Dollars in thousands) Noninterest-bearing deposits $ 7,455,387 63.52 % $ 5,245,517 60.26 % Interest-bearing deposits Investment checking 517,976 4.42 % 454,565 5.22 % Money market 2,869,348 24.45 % 2,158,161 24.79 % Savings 492,096 4.19 % 400,377 4.60 % Time deposits 401,694 3.42 % 446,308 5.13 % Total deposits $ 11,736,501 100.00 % $ 8,704,928 100.00 % Time deposits with balances of $ 250,000 or more amounted to approximately $ 100.3 million and $ 107.9 million at December 31, 2020 and 2019, respectively. At December 31, 2020, the scheduled maturities of time certificates of deposit are as follows. December 31, 2020 Year of maturity: (Dollars in thousands) 2021 $ 362,469 2022 24,155 2023 5,096 2024 1,311 2025 and thereafter 8,663 Total $ 401,694 13. 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 December 31, 2020, total funds borrowed under these agreements were $ 439.4 million with a weighted average interest rate of 0.10 %, compared to $ 428.7 million with a weighted average rate of 0.44 % at December 31, 2019. Federal Home Loan Bank Advances At December 31, 2020 and 2019, there were no outstanding FHLB advances. At December 31, 2020, $ 6.07 billion of loans and $ 1.81 billion of investment securities, at carrying value, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law. 137 Table of Contents Other Borrowings At December 31, 2020, the Bank had $ 5.0 million in short-term borrowings that were interest-free advances from the FHLB. We had no short-term borrowings at December 31, 2019. Junior Subordinated Debentures On January 31, 2006, CVB Statutory Trust III completed a $ 25,000,000 offering of Trust Preferred Securities and used the gross proceeds from the offering and other cash totaling $ 25,774,000 to purchase a like amount of junior subordinated debentures of the Company. The junior subordinated debentures were issued concurrent with the issuance of the Trust Preferred Securities. The interest on junior subordinated debentures, paid by the Company to CVB Statutory Trust III, represents the sole revenues of CVB Statutory Trust III and the sole source of dividend distributions to the holders of the Trust Preferred Securities. The Company has fully and conditionally guaranteed all of CVB Statutory Trust III’s obligations under the Trust Preferred Securities. The Company has the right, assuming no default has occurred, to defer payments of interest on the junior subordinated debenture at any time for a period not to exceed 20 consecutive quarters . The Trust Preferred Securities will mature on March 15, 2036 , but became callable in part or in total on March 15, 2011 by CVB Statutory Trust III. The Trust Preferred Securities have a variable per annum rate equal to LIBOR (as defined in the indenture dated as of January 31, 2006 (“Indenture”) between the Company and U.S. Bank National Association, as debenture trustee) plus 1.38 % (the “Variable Rate”). As of December 31, 2020, these securities continue to be outstanding. 14. COMMITMENTS AND CONTINGENCIES Commitments At December 31, 2020 and 2019, the Bank had commitments to extend credit of approximately $ 1.61 billion and $ 1.54 billion, respectively, and obligations under letters of credit of $ 53.2 million and $ 53.1 million, respectively. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any 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. The Bank uses the same credit underwriting policies in granting or accepting such commitments or contingent obligations as it does for on-balance-sheet instruments, which consist of evaluating customers’ creditworthiness individually. The Bank had a reserve for unfunded loan commitments of $ 9.0 million as of December 31, 2020 and 2019 included in other liabilities. 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, the Bank holds appropriate collateral supporting those commitments. Management does not anticipate any material losses as a result of these transactions. At December 31, 2020, the Bank has available lines of credit totaling $ 4.29 billion from correspondent banks, FHLB and Federal Reserve Bank of which $ 3.90 billion were secured. Other Contingencies The Company and its subsidiaries are parties to various lawsuits and threatened lawsuits in the ordinary and non-ordinary course of business. From time to time, such lawsuits and threatened lawsuits may include, but are not limited to, actions involving securities litigation, employment matters, wage-hour and labor law claims, 138 Table of Contents consumer claims, regulatory compliance claims, data privacy claims, lender liability claims and negligence claims, some of which may be styled as “class action” or representative cases. Some of these lawsuits may be similar in nature to other lawsuits pending against the Company’s competitors. For lawsuits where the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded in accordance with FASB guidance over loss contingencies (ASC 450). However, as a result of inherent uncertainties in judicial interpretation and application of a myriad of laws and regulations applicable to the Company’s business, and the unique, complex factual issues presented in any given lawsuit, the Company often cannot determine the probability of loss or estimate the amount of damages which a plaintiff might successfully prove if the Company were found to be liable. For lawsuits or threatened lawsuits where a claim has been asserted or the Company has determined that it is probable that a claim will be asserted, and there is a reasonable possibility that the outcome will be unfavorable, the Company will disclose the existence of the loss contingency, even if the Company is not able to make an estimate of the possible loss or range of possible loss with respect to the action or potential action in question, unless the Company believes that the nature, potential magnitude or potential timing (if known) of the loss contingency is not reasonably likely to be material to the Company’s liquidity, consolidated financial position, and/or results of operations. Our accruals and disclosures for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose a loss contingency and/or the amount accrued if we believe it is reasonably likely to be material or if we believe such disclosure is necessary for our financial statements to not be misleading. If we determine that an exposure to loss exists in excess of an amount previously accrued or disclosed, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred, and we adjust our accruals and disclosures accordingly. We do not presently believe that the ultimate resolution of any lawsuits currently pending against the Company will have a material adverse effect on the Company’s results of operations, financial condition, or cash flows. The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal matters currently pending or threatened against the Company could have a material adverse effect on our results of operations, financial condition or cash flows. 15. EMPLOYEE BENEFIT PLANS Deferred Compensation Plans As of December 31, 2020 the Company had various deferred compensation plans, which included a deferred compensation plan for its former President and Chief Executive Officer, Christopher D. Myers, and severance arrangements it assumed through the acquisition of other banks in prior years. We also offer a non-qualified deferred compensation plan for our executives and key members of management in order to assist us in attracting and retaining these individuals. Participants in the plan may elect to defer a portion of their annual salary and/or short-term incentive payouts into deferral accounts to provide a means by which they may elect to defer receipt of compensation in order to provide retirement benefits. The plan is intended to be unfunded and allows us to make discretionary contributions on behalf of a participant. No discretionary payments were made by the Company during the years ended December 31, 2020, 2019 and 2018. The Bank, however, does fund the cost of these plans through the purchase of bank owned life insurance policies, which are reflected as assets on the Company’s consolidated balance sheets. At December 31, 2020 and 2019, the total deferred compensation liability was $ 21.6 million and $ 22.7 million, respectively. Total expense for these deferred compensation agreements was approximately $ 1.4 million, $ 1.4 million, and $ 953,000 for each of the years ended December 31, 2020, 2019 and 2018, respectively. 139 Table of Contents 401(k) and Profit Sharing Plan The Bank sponsors a 401(k) and profit-sharing plan for the benefit of its employees. Employees are eligible to participate in the plan immediately upon hire. Employees may make contributions to the plan under the plan’s 401(k) component. The Bank contributes 3 %, non-matching, to the plan to comply with ERISA’s safe harbor provisions. The Bank may make additional contributions under the plan’s profit-sharing component, subject to certain limitations , which was 2 % for 2020, 2019 and 2018. The Bank’s total contributions are determined by the Board of Directors and amounted to approximately $ 4.3 million for 2020, $ 4.1 million for 201 9, and $ 3.5 million for 2018. 16. 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 years ended December 31, 2020, 2019 and 2018, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share were 291,000 , 183,000 and 160,000 , respectively. The table below shows earnings per common share and diluted earnings per common share, and reconciles the numerator and denominator of both earnings per common share calculations. Year Ended December 31, 2020 2019 2018 (In thousands, except per share amounts) Earnings per common share: Net earnings $ 177,159 $ 207,827 $ 152,003 Less: Net earnings allocated to restricted stock 572 488 429 Net earnings allocated to common shareholders $ 176,587 $ 207,339 $ 151,574 Weighted average shares outstanding 136,031 139,757 121,670 Basic earnings per common share $ 1.30 $ 1.48 $ 1.25 Diluted earnings per common share: Net income allocated to common shareholders $ 176,587 $ 207,339 $ 151,574 Weighted average shares outstanding 136,031 139,757 121,670 Incremental shares from assumed exercise of outstanding options 175 177 287 Diluted weighted average shares outstanding 136,206 139,934 121,957 Diluted earnings per common share $ 1.30 $ 1.48 $ 1.24 17. STOCK-BASED COMPENSATION PLANS In May 2018, the shareholders approved the 2018 Equity Plan which authorizes the issuance of up to 9,000,000 shares of CVB’s common stock for eligible participants, which include all of the Company’s employees, officers, and directors, and expires in 2028. The plan authorizes the issuance of a variety of types of equity awards, which include incentive stock options, non-qualified stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and other stock-based awards. The 2018 Equity Plan replaced the 140 Table of Contents 2008 Equity Incentive Plan. No further grants will be made under the 2008 Equity Incentive Plan, but shares may continue to be issued under such plan pursuant to grants previously made. As of December 31, 2020, we have 221,500 outstanding options, unvested RSAs under our 2008 Equity Incentive Plan. Stock Options The Company expensed $ 183,000 , $ 352,000 , and $ 400,000 , for the years ended December 31, 2020, 2019 and 2018, respectively. The estimated fair value of the options granted during 2020 and prior years was calculated using the Black-Scholes options pricing model. There were 217,500 , 1,500 and 140,500 options granted during 2020, 2019 and 2018, respectively. The options will vest, in equal installments, over a five-year period. The fair value of each stock option granted in 2020, 2019 and 2018, was estimated on the date of grant using the following weighted-average assumptions. Year Ended December 31, 2020 2019 2018 Dividend yield 4.0 % 2.4 % 2.4 % Volatility 27.1 % 23.3 % 25.4 % Risk-free interest rate 0.4 % 2.5 % 2.9 % Expected life 5.3 years 5.4 years 5.4 years Weighted average grant date fair value $ 2.56 $ 4.35 $ 5.08 The expected volatility is solely based on the daily historical stock price volatility over the expected option life. The expected life of options granted is derived from the output of the option valuation model and represents the period of time an optionee will hold an option before exercising it. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury five-year constant maturity yield curve in effect at the time of the grant. In connection with the adoption of ASU 2016-09 in 2017, the Company elected to account for forfeitures as they occur, rather than to estimate forfeitures over the vesting period. The following table presents option activity under the Company’s stock option plans as of and for the year ended December 31, 2020. Number of Stock Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In thousands) (In years) (In thousands) Outstanding at January 1, 2020 359 $ 17.99 Granted 217 18.12 Exercised ( 20 ) 11.64 Forfeited or expired ( 128 ) 20.59 Outstanding at December 31, 2020 428 $ 17.57 4.65 $ 1,021 Vested or expected to vest at December 31, 2020 428 $ 17.57 4.65 $ 1,021 Exercisable at December 31, 2020 175 $ 16.10 4.03 $ 685 The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $ 144,000 , $ 1.3 million and $ 2.2 million, respectively. As of December 31, 2020, there was a total of $ 601,000 in unrecognized compensation cost related to nonvested options granted under the Plan. That cost is expected to be recognized over a weighted-average period 141 Table of Contents of approximately 2.8 years. The total fair value of options vested was $ 183,000 , $ 520,000 and $ 364,000 during 2020, 2019 and 2018, respectively. Cash received from stock option exercises was $ 232,000 , $ 2.2 million and $ 1.7 million, in 2020, 2019 and 2018, respectively. At December 31, 2020, options for the purchase of 428,320 shares of CVB’s common stock were outstanding under the above plans, of which options to purchase 174,710 shares were exercisable at prices ranging from $ 11.03 to $ 24.83 . The Company has a policy of issuing new shares to satisfy share option exercises. Restricted Stock Awards and Restricted Stock Units The Company granted 358,464 , 217,000 and 424,000 restricted stock awards during 2020, 2019 and 2018 respectively. The weighted average grant date fair value of RSAs and RSUs granted in 2020, 2019 and 2018 was $ 18.20 per share, $ 20.76 per share and $ 23.84 per share, respectively. These awards will vest, in equal installments, over a period of approximately one to five years . Compensation cost is recognized over the requisite service period, which is approximately one to five years, and amounted to $ 5.3 million, $ 5.2 million and $ 3.1 million during the years ended December 31, 2020, 2019 and 2018, respectively. Total unrecognized compensation cost related to RSAs and RSUs was $ 7.3 million at December 31, 2020. The table below summarizes activity related to the Company’s non-vested RSAs and RSUs for the year ended December 31, 2020. Shares Weighted Average Fair Value (In thousands) Nonvested at January 1, 2020 441 $ 21.25 Granted 358 18.20 Vested ( 302 ) 20.70 Forfeited ( 6 ) 21.34 Nonvested at December 31, 2020 491 $ 19.36 Under the 2018 Equity Incentive Plan, 7,322,206 shares of common stock were available for the granting of future stock-based awards as of December 31, 2020. 18. REGULATORY MATTERS The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct, material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgment by the regulators about components, risk-weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies. 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 142 Table of Contents 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 %. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital and CET1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of December 31, 2020 and 2019, the Company and the Bank meet all capital adequacy requirements to which they are subject. As of December 31, 2020 and 2019, the most recent notifications from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the minimum total risk-based, Tier 1 risk-based, CET1 risk-based, and Tier 1 leverage (tangible Tier 1 capital divided by average total assets) ratios as set forth in the table below must be maintained. There are no conditions or events since said notification that management believes have changed the Bank’s category. As of December 31, 2020 and 2019, the Company had $ 25.7 million of trust-preferred securities, which were included in Tier 1 capital for regulatory purposes, respectively. The following table summarizes regulatory capital amounts and ratios for the Company and the Bank as of December 31, 2020 and 2019. Actual For Capital Adequacy Purposes To Be Well Capitalized under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of December 31, 2020: Total Capital (to Risk-Weighted Assets) Company $ 1,415,008 16.24 % $ 697,258 > 8.00 % N/A Bank $ 1,372,184 15.75 % $ 696,849 > 8.00 % $ 871,061 > 10.00 % Tier 1 Capital (to Risk-Weighted Assets) Company $ 1,312,316 15.06 % $ 522,944 > 6.00 % N/A Bank $ 1,269,492 14.57 % $ 522,636 > 6.00 % $ 696,849 > 8.00 % Common equity Tier 1 capital ratio Company $ 1,287,316 14.77 % $ 392,208 > 4.50 % N/A Bank $ 1,269,492 14.57 % $ 391,977 > 4.50 % $ 566,189 > 6.50 % Tier 1 Capital (to Average-Assets) Company $ 1,312,316 9.90 % $ 530,424 > 4.00 % N/A Bank $ 1,269,492 9.58 % $ 530,164 > 4.00 % $ 662,705 > 5.00 % As of December 31, 2019: Total Capital (to Risk-Weighted Assets) Company $ 1,391,771 16.01 % $ 695,651 > 8.00 % N/A Bank $ 1,376,364 15.83 % $ 695,471 > 8.00 % $ 869,339 > 10.00 % Tier 1 Capital (to Risk-Weighted Assets) Company $ 1,314,152 15.11 % $ 521,738 > 6.00 % N/A Bank $ 1,298,745 14.94 % $ 521,604 > 6.00 % $ 695,471 > 8.00 % Common equity Tier 1 capital ratio Company $ 1,289,152 14.83 % $ 391,304 > 4.50 % N/A Bank $ 1,298,745 14.94 % $ 391,203 > 4.50 % $ 565,070 > 6.50 % Tier 1 Capital (to Average-Assets) Company $ 1,314,152 12.33 % $ 426,497 > 4.00 % N/A Bank $ 1,298,745 12.19 % $ 426,328 > 4.00 % $ 532,909 > 5.00 % 143 Table of Contents In addition, the California Financial Code limits the amount of dividends a bank can pay without obtaining prior approval from bank regulators. Under this law, the Bank could, as of December 31, 2020, declare and pay additional dividends of approximately $ 150.9 million. 19. 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 following disclosure provides the fair value information for financial assets and liabilities as of December 31, 2020. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (Level 1, Level 2 and Level 3). • Level 1 — Quoted prices in active markets for identical assets or liabilities in active markets that are accessible at the measurement date. • Level 2 — Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs or model-derived valuations that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation. 144 Table of Contents 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 for the dates presented. Carrying Value at December 31, 2020 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: Mortgage-backed securities $ 1,904,935 $ - $ 1,904,935 $ - CMO/REMIC 462,814 - 462,814 - Municipal bond s 30,285 - 30,285 - Other securities 889 - 889 - Total investment securities - AFS 2,398,923 - 2,398,923 - Interest rate swaps 30,181 - 30,181 - Total assets $ 2,429,104 $ - $ 2,429,104 $ - Description of liability Interest rate swaps $ 30,181 $ - $ 30,181 $ - Total liabilities $ 30,181 $ - $ 30,181 $ - Carrying Value at December 31, 2019 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: Mortgage-backed securities $ 1,206,313 $ - $ 1,206,313 $ - CMO/REMIC 493,710 - 493,710 - Municipal bonds 39,354 - 39,354 - Other securities 880 - 880 - Total investment securities - AFS 1,740,257 - 1,740,257 - Interest rate swaps 11,502 - 11,502 - Total assets $ 1,751,759 $ - $ 1,751,759 $ - Description of liability Interest rate swaps $ 11,502 $ - $ 11,502 $ - Total liabilities $ 11,502 $ - $ 11,502 $ - 145 Table of Contents 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 December 31, 2020 and 2019, 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 December 31, 2020 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, 2020 (Dollars in thousands) Description of assets Loans: Commercial real estate $ - $ - $ - $ - $ - Construction - - - - - SBA 76 - - 76 24 Commercial and industrial 4,266 - - 4,266 2,316 Dairy & livestock and agribusiness - - - - - Municipal lease finance receivables - - - - - SFR mortgage - - - - - Consumer and other loan s - - - - - Other real estate owned 2,275 - - 2,275 700 Asset held-for-sale - - - - - Total assets $ 6,617 $ - $ - $ 6,617 $ 3,040 Carrying Value at December 31, 2019 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, 2019 (Dollars in thousands) Description of assets Impaired loans: Commercial real estate $ - $ - $ - $ - $ - Constructio n - - - - - SBA 359 - - 359 513 Commercial and industrial 253 - - 253 251 Dairy & livestock and agribusiness - - - - - Municipal lease finance receivables - - - - - SFR mortgage - - - - - Consumer and other loans - - - - - Other real estate owned 444 - - 444 64 Asset held-for-sal e - - - - - Total assets $ 1,056 $ - $ - $ 1,056 $ 828 146 Table of Contents 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 December 31, 2020 and 2019, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. December 31, 2020 Estimated Fair Value Carrying Amount Level 1 Level 2 Level 3 Total (Dollars in thousands) Assets Total cash and cash equivalents $ 1,958,160 $ 1,958,160 $ - $ - $ 1,958,160 Interest-earning balances due from depository institutions 43,563 - 43,600 - 43,600 Investment securities available-for-sale 2,398,923 - 2,398,923 - 2,398,923 Investment securities held-to-maturity 578,626 - 604,223 - 604,223 Total loans, net of allowance for credit losses 8,255,116 - - 8,256,178 8,256,178 Swaps 30,181 - 30,181 - 30,181 Liabilities Deposits: Interest-bearing $ 4,281,114 $ - $ 4,281,952 $ - $ 4,281,952 Borrowings 444,406 - 444,349 - 444,349 Junior subordinated debentures 25,774 - - 19,431 19,431 Swaps 30,181 - 30,181 - 30,181 December 31, 2019 Estimated Fair Value Carrying Amount Level 1 Level 2 Level 3 Total (Dollars in thousands) Assets Total cash and cash equivalents $ 185,518 $ 185,518 $ - $ - $ 185,518 Interest-earning balances due from depository institutions 2,931 - 2,938 - 2,938 Investment securities available-for-sale 1,740,257 - 1,740,257 - 1,740,257 Investment securities held-to-maturity 674,452 - 678,948 - 678,948 Total loans, net of allowance for loan losses 7,495,917 - - 7,343,167 7,343,167 Swaps 11,502 - 11,502 - 11,502 Liabilities Deposits: Interest-bearing $ 3,459,411 $ - $ 3,457,922 $ - $ 3,457,922 Borrowings 428,659 - 428,330 - 428,330 Junior subordinated debentures 25,774 - - 20,669 20,669 Swaps 11,502 - 11,502 - 11,502 The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2020 and 2019. 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. 147 Table of Contents 20. DERIVATIVE FINANCIAL INSTRUMENTS The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset/liability management strategy to help manage its interest rate risk position. As of December 31, 2020, the Bank has entered into 147 interest-rate swap agreements with customers with a notional amount totaling $ 503.8 million. The Bank then entered into identical offsetting swaps with a counterparty. The swap agreements are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and to provide the customer the financial effects of a fixed-rate loan without creating significant volatility in the Bank’s earnings. The structure of the swaps is as follows. The Bank enters into an interest rate swap with its customers in which the Bank pays the customer a variable rate and the customer pays the Bank a fixed rate, therefore allowing customers to convert variable rate loans to fixed rate loans. At the same time, the Bank enters into a swap with the counterparty bank in which the Bank pays the counterparty a fixed rate and the counterparty in return pays the Bank a variable rate. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on LIBOR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore should not have a significant impact on the Company’s results of operations, although the Company does incur credit and counterparty risk with respect to performance on the swap agreements by the Bank’s customer and counterparty, respectively. As a result of the Bank exceeding $10 billion in assets, federal regulations required the Bank, beginning in January 2019, to clear most interest rate swaps through a clearing house (“centrally cleared”). These instruments contain language outlining collateral pledging requirements for each counterparty, in which collateral must be posted if market value exceeds certain agreed upon threshold limits. Cash or securities are pledged as collateral. Our interest rate swap derivatives are subject to a master netting arrangement with our counterparties. No ne of our derivative assets and liabilities are offset in the Company’s condensed consolidated balance sheet. We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure, although there can be no assurances in this regard since the performance of our swaps is subject to market and counterparty risk. Balance Sheet Classification of Derivative Financial Instruments As of December 31, 2020 and 2019, the total notional amount of the Company’s swaps was $ 503.8 million and $ 260.0 million, respectively. The location of the asset and liability, and their respective fair values are summarized in the tables below. December 31, 2020 Asset Derivatives Liability Derivatives Balance Sheet Location Fair Value Balance Sheet Location Fair Value (Dollars in thousands) Derivatives not designated as hedging instruments: Interest rate swaps Other assets $ 30,181 Other liabilities $ 30,181 Total derivatives $ 30,181 $ 30,181 148 Table of Contents December 31, 2019 Asset Derivatives Liability Derivatives Balance Sheet Location Fair Value Balance Sheet Location Fair Value (Dollars in thousands) Derivatives not designated as hedging instruments: Interest rate swaps Other assets $ 11,502 Other liabilities $ 11,502 Total derivatives $ 11,502 $ 11,502 The Effect of Derivative Financial Instruments on the Consolidated Statements of Earnings The following table summarizes the effect of derivative financial instruments on the consolidated statements of earnings for the periods presented. Derivatives Not Designated as Hedging Instruments Location of Gain Recognized in Income on Derivative Instruments Amount of Gain Recognized in Income on Derivative Instruments Year Ended December 31, 2020 2019 2018 (Dollars in thousands) Interest rate swaps Other income $ 5,025 $ 1,806 $ 340 Total $ 5,025 $ 1,806 $ 340 21. OTHER COMPREHENSIVE INCOME (LOSS) The tables below provide a summary of the components of OCI for the periods presented. Year Ended December 31, 2020 2019 2018 Before-tax Tax effect After-tax 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 $ 32,849 $ ( 9,711 ) $ 23,138 $ 45,486 $ ( 13,447 ) $ 32,039 $ ( 26,435 ) $ 7,815 $ ( 18,620 ) Amortization of unrealized (losses) gains on securities transferred from available- for-sale to held-to- maturity ( 572 ) 169 ( 403 ) ( 1,614 ) 477 ( 1,137 ) ( 2,091 ) 619 ( 1,472 ) Net realized gain reclassified into earnings (1) - - - ( 5 ) 1 ( 4 ) - - - Net change $ 32,277 $ ( 9,542 ) $ 22,735 $ 43,867 $ ( 12,969 ) $ 30,898 $ ( 28,526 ) $ 8,434 $ ( 20,092 ) (1) Included in other noninterest income. 149 Table of Contents 22. 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 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 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 consolidated balances. Gross Amounts Recognized in the Consolidated Balance Sheets Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets Net Amount Financial Instruments Collateral Pledged (Dollars in thousands) December 31, 2020 Financial assets: Derivatives not designated as hedging instruments $ 30,181 $ - $ - $ 30,181 $ - $ 30,181 Total $ 30,181 $ - $ - $ 30,181 $ - $ 30,181 Financial liabilities: Derivatives not designated as hedging instruments $ 30,434 $ ( 253 ) $ 30,181 $ 253 $ ( 63,730 ) $ ( 33,296 ) Repurchase agreements 439,406 - 439,406 - ( 483,603 ) ( 44,197 ) Total $ 469,840 $ ( 253 ) $ 469,587 $ 253 $ ( 547,333 ) $ ( 77,493 ) December 31, 2019 Financial assets: Derivatives not designated as hedging instruments $ 11,502 $ - $ - $ 11,502 $ - $ 11,502 Total $ 11,502 $ - $ - $ 11,502 $ - $ 11,502 Financial liabilities: Derivatives not designated as hedging instruments $ 11,619 $ ( 117 ) $ 11,502 $ 117 $ ( 23,312 ) $ ( 11,693 ) Repurchase agreements 428,659 - 428,659 - ( 510,138 ) ( 81,479 ) Total $ 440,278 $ ( 117 ) $ 440,161 $ 117 $ ( 533,450 ) $ ( 93,172 ) 23. 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. 150 Table of Contents The tables below present the components of lease costs and supplemental information related to leases as of and for the periods presented. December 31, 2020 2019 (Dollars in thousands) Lease Assets and Liabilities ROU assets $ 19,112 $ 18,522 Total lease liabilities 21,164 21,392 Year Ended December 31, 2020 2019 (Dollars in thousands) Lease Cost Operating lease expense (1) $ 6,558 $ 7,274 Sublease income — — Total lease expense $ 6,558 $ 7,274 (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 $ 7,387 $ 8,497 December 31, 2020 2019 Lease Term and Discount Rate Weighted average remaining lease term (years) 4.16 4.18 Weighted average discount rate 2.80 % 3.34 % The Company’s lease arrangements that have not yet commenced as of December 31, 2020 and the Company’s short-term lease costs and variable lease costs, for the year ended December 31, 2020 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 December 31, 2020, excluding property taxes and insurance, are as follows: December 31, 2020 (Dollars in thousands) Year: 2021 $ 6,800 2022 5,622 2023 3,767 2024 2,584 2025 1,888 Thereafter 1,721 Total future lease payments 22,382 Less: Imputed interest ( 1,218 ) Present value of lease liabilities $ 21,164 151 Table of Contents 24. REVENUE RECOGNITION On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” and all subsequent ASUs that modified Topic 606. As stated in Note 3 – Summary of Significant Accounting Policies , the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, and merchant income. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below. Trust and Investment Services Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the monthly market value of the assets under management and the applicable fee rate. Payment is generally received at month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Other services related to real estate and tax return preparation services are also provided to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Wealth Management contracts with customers have no clauses that would entitle customers to additional services. Fees are generally earned based on market value of assets under management (AUM) and miscellaneous fees are transaction driven and are charged based on an agreed upon fee schedule. Performance obligation is satisfied upon execution of the transaction and there is no need to allocate transaction price to the performance obligation(s) in the contract. Wealth Management customers can also terminate the contract at will. For Investment Services, the fees are earned based on services performed for customers as provided through an affiliated broker-dealer. Fees are earned from gross dealer commission based on trade date. Performance obligation is satisfied upon execution of the transaction and there is no need to allocate transaction price to the performance obligation(s) in the contract. Deposit-related Fees Service charges on deposit accounts consist of account analysis fees earned on analyzed business checking accounts, monthly service fees, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. 152 Table of Contents Bankcard Services The Bank generates revenues from merchant servicing to its clients. A fee schedule is part of the contract and is calculated based on sales of merchants on a monthly basis. There is no future promise or claim to deliver services as merchant fees are based on monthly merchant transactions. The Company’s performance obligations are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Therefore, the new revenue standard has no impact on revenues generated from bankcard services. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods presented. Year Ended December 31, 2020 2019 2018 (Dollars in thousands) Noninterest income: In-scope of Topic 606: Service charges on deposit accounts $ 16,561 $ 20,010 $ 17,070 Trust and investment services 9,978 9,525 8,774 Bankcard services 1,886 3,163 3,485 Gain on OREO, net 388 129 3,546 Other 11,277 9,951 6,588 Noninterest Income (in-scope of Topic 606) 40,090 42,778 39,463 Noninterest Income (out-of-scope of Topic 606) 9,780 16,264 4,018 Total noninterest income $ 49,870 $ 59,042 $ 43,481 Contract Acquisition Costs In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient, which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. 153 Table of Contents 25. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY The following tables provide the parent company only condensed balance sheets, condensed statements of earnings and condensed statements of cash flows for the periods presented. CVB FINANCIAL CORP. CONDENSED BALANCE SHEETS December 31, 2020 2019 (Dollars in thousands) Assets Investment in subsidiaries $ 1,990,166 $ 2,003,692 Other assets, net 68,679 42,070 Total assets $ 2,058,845 $ 2,045,762 Liabilities $ 50,855 $ 51,664 Stockholders’ equity 2,007,990 1,994,098 Total liabilities and stockholders’ equity $ 2,058,845 $ 2,045,762 CVB FINANCIAL CORP. CONDENSED STATEMENTS OF EARNINGS Year Ended December 31, 2020 2019 2018 (Dollars in thousands) Equity in net earnings of subsidiaries $ ( 34,936 ) $ 107,185 $ 78,601 Dividends from the Bank 217,000 106,000 77,800 Other expense, net ( 4,905 ) ( 5,358 ) ( 4,398 ) Net earnings $ 177,159 $ 207,827 $ 152,003 154 Table of Contents CVB FINANCIAL CORP. CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 2020 2019 2018 (Dollars in thousands) Cash Flows from Operating Activities Net earnings $ 177,159 $ 207,827 $ 152,003 Adjustments to reconcile net earnings to cash used in operating activities: Earnings of subsidiaries ( 182,064 ) ( 213,185 ) ( 156,401 ) Tax settlement received from the Bank - 1,008 - Stock-based compensation 5,529 5,548 3,508 Other operating activities, net ( 2,018 ) ( 2,417 ) ( 2,052 ) Total adjustments ( 178,553 ) ( 209,046 ) ( 154,945 ) Net cash used in operating activities ( 1,394 ) ( 1,219 ) ( 2,942 ) Cash Flows from Investing Activities Dividends received from the Bank 217,000 106,000 77,800 Net cash provided by investing activities 217,000 106,000 77,800 Cash Flows from Financing Activities Cash dividends on common stock ( 98,475 ) ( 95,352 ) ( 65,966 ) Proceeds from exercise of stock options 231 2,215 1,701 Repurchase of common stock ( 92,772 ) ( 2,640 ) ( 7,760 ) Net cash used in financing activities ( 191,016 ) ( 95,777 ) ( 72,025 ) Net increase in cash and cash equivalents 24,590 9,004 2,833 Cash and cash equivalents, beginning of period 31,054 22,050 19,217 Cash and cash equivalents, end of period $ 55,644 $ 31,054 $ 22,050 26. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table sets forth our unaudited, quarterly results for the periods indicated. Three Months Ended December 31, September 30, June 30, March 31, (Dollars in thousands, except per share amounts) 2020 Net interest income $ 105,853 $ 103,325 $ 104,569 $ 102,306 Provision for credit losses - - 11,500 12,000 Net earnings 50,056 47,492 41,631 37,980 Basic earnings per common share 0.37 0.35 0.31 0.27 Diluted earnings per common share 0.37 0.35 0.31 0.27 2019 Net interest income $ 107,020 $ 108,159 $ 111,057 $ 109,536 Provision for loan losses - 1,500 2,000 1,500 Net earnings 51,281 50,423 54,481 51,642 Basic earnings per common share 0.37 0.36 0.39 0.37 Diluted earnings per common share 0.37 0.36 0.39 0.37 155 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors CVB Financial Corp.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of CVB Financial Corp. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of earnings and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU No. 2016-13, “ Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” . Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 156 Table of Contents Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of the allowance for credit losses for loans evaluated on a collective basis using the Commercial and Industrial and Commercial Real Estate methodologies As discussed in Note 3 and Note 6 to the consolidated financial statements, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (ASC Topic 326), as of January 1, 2020. The total allowance for credit losses as of January 1, 2020 and December 31, 2020 was $70.5 million and $93.7 million, respectively, a substantial portion of both which relates to the allowance for credit losses on loans evaluated on a collective basis using both the commercial and industrial and commercial real estate methodologies (the January 1, 2020 commercial collective ACL and the December 31, 2020 commercial collective ACL, respectively, together the commercial collective ACL). The commercial collective ACL includes the measure of expected credit losses on a collective basis by pooling those loans that share similar risk characteristics into segments. The commercial collective ACL methodologies include an estimation framework that uses loss experiences of data sets of unique loans to derive lifetime loss rates at the pool level during the average life, inclusive of prepayments. The methodologies to estimate the commercial collective ACL is largely driven by portfolio characteristics, including loss history, original loan-to-value ratios, risk grading, and macroeconomic variables and the associated economic outlook. The commercial collective ACL incorporates a reasonable and supportable forecast of various macro-economic variables over the remaining average life of the loan. The forecast incorporates an assumption that each macro-economic variable will revert to a long-term expectation, starting in years 2-3, of the reasonable and supportable forecast period, with the reversion largely completed within the first five years of the forecast. The commercial collective ACL methodologies incorporate unique macroeconomic variables based on risk drivers to the underlying portfolios. The Company 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. We identified the assessment of the January 1, 2020 commercial collective ACL and the December 31, 2020 commercial collective ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the commercial collective ACL methodologies, including the methods used to estimate lifetime loss rates and their key assumptions: portfolio segmentation, prepayments, the economic forecast scenarios and their weightings and macroeconomic variables, the length of the reasonable and supportable forecast periods, and risk grading (for the commercial and industrial methodology). The assessment also included the evaluation of the adjustments performed to align the life of loan loss rates with the current state of the portfolio. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the commercial collective ACL estimates, including controls over the: • development of the commercial collective ACL methodologies • development of the lifetime loss rate methodologies • ongoing monitoring of the lifetime loss rate methodologies • identification and determination of the key assumptions used in the lifetime loss rate methodologies 157 Table of Contents • development of the adjustments performed to align the life of loan loss rates with the current state of the portfolio • analysis of the commercial collective ACL results, trends, and ratios. We evaluated the Company’s process to develop the commercial collective ACL estimates by testing certain sources of data, factors, and assumptions used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the commercial collective ACL methodologies for compliance with U.S. generally accepted accounting principles • evaluating judgments made relative to the development and performance monitoring of the lifetime loss rate methodologies, including prepayments, by comparing them to Company-specific metrics and trends and the applicable industry and regulatory guidance • assessing the conceptual soundness and performance of the lifetime loss rate methodologies, including their key assumptions, to determine whether the methodologies were suitable for their intended use • evaluating the weighted economic forecast scenarios and underlying assumptions driving the macroeconomic variable changes, including the determination of the reasonable and supportable forecast period and weightings used by comparing it to the Company’s business environment and relevant industry practice • determining whether the loan portfolio is segmented by similar risk characteristics by comparing to specific portfolio risk characteristics and trends • testing individual credit risk ratings for a selection of loans by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral • evaluating the methodology used to develop the adjustments and the effect of those adjustments on the commercial collective ACL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying pool level metrics. We also assessed the sufficiency of audit evidence obtained related to the January 1, 2020 commercial collective ACL and the December 31, 2020 commercial collective ACL by evaluating the: • cumulative results of the audit procedures • qualitative aspects of the Company’s accounting practices • potential bias in the accounting estimates /s/ KPMG LLP We have served as the Company’s auditor since 2007. Los Angeles, California March 1, 2021 158