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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2023

or

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

For the transition period from _____ to _____

Commission File Number: 000-10140

CVB FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

California |  | 95-3629339
(State or other jurisdiction of Incorporation or organization) |  | (I.R.S. Employer Identification No.)
701 North Haven Ave., Suite 350 |  |
Ontario, California |  | 91764
(Address of principal executive offices) |  | (Zip Code)
| (909) 980-4030 |
| (Registrant's telephone number, including area code) |

Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, No Par Value | CVBF | The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer |  |  |  | Accelerated filer | 
Non-accelerated filer |  |  |  | Smaller reporting company | 
Emerging growth company |  |  |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No 

Number of shares of common stock of the registrant: 139,344,143 outstanding as of July 31, 2023.

PART I – | FINANCIAL INFORMATION (UNAUDITED) | 3
ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 4
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 9
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 40
| CRITICAL ACCOUNTING POLICIES | 40
| OVERVIEW | 41
| ANALYSIS OF THE RESULTS OF OPERATIONS | 44
| ANALYSIS OF FINANCIAL CONDITION | 55
| ASSET/LIABILITY AND MARKET RISK MANAGEMENT | 70
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 73
ITEM 4. | CONTROLS AND PROCEDURES | 73
PART II – | OTHER INFORMATION | 74
ITEM 1. | LEGAL PROCEEDINGS | 74
ITEM 1A. | RISK FACTORS | 74
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 76
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 76
ITEM 4. | MINE SAFETY DISCLOSURES | 76
ITEM 5. | OTHER INFORMATION | 77
ITEM 6. | EXHIBITS | 78
SIGNATURES |  | 79

2

PART I – FINANCIAL INFORMATION (UNAUDITED)

GENERAL

Cautionary Note Regarding Forward-Looking Statements

Certain statements set forth herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will likely result”, “aims”, “anticipates”, “believes”, “could”, “estimates”, “expects”, “hopes”, “intends”, “may”, “plans”, “projects”, “seeks”, “should”, “will,” “strategy”, “possibility”, and variations of these words and similar expressions help to identify these forward-looking statements, which involve risks and uncertainties that could cause actual results or performance to differ materially from those projected. These forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, including, without limitation, plans, strategies, goals and statements about the Company’s outlook regarding revenue and asset growth, financial performance and profitability, capital and liquidity levels, loan and deposit growth and retention, yields and returns, loan diversification and credit management, stockholder value creation, tax rates, the impact of economic developments, and the impact of acquisitions we have made or may make. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company, and there can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors in addition to those set forth below could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements.

General risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct business; the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; the effect of acquisitions we have made or may make, including, without limitation, the failure to obtain the necessary regulatory approvals, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target and key personnel into our operations; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies; the effectiveness of our risk management framework and quantitative models; changes in the level of our nonperforming assets and charge-offs; the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters; possible credit related impairments or declines in the fair value of loans and securities held by us; possible impairment charges to goodwill, including any impairment that may result from increased volatility in our stock price; changes in consumer spending, borrowing, and savings habits; the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; periodic fluctuations in commercial or residential real estate prices or values; our ability to attract and retain deposits or to access government or private lending facilities and other sources of liquidity; the possibility that we may reduce or discontinue the payments of dividends on our common stock; changes in the financial performance and/or condition of our borrowers; changes in the competitive environment among financial and bank holding companies and other financial service providers; technological changes in banking and financial services; geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism, and/or military conflicts, which could impact business and economic conditions in the United States and abroad; catastrophic events or natural disasters, including earthquakes, drought, climate change or extreme weather events that may affect our assets, communications or computer services, customers, employees or third party vendors; public health crises and pandemics, and their effects on the economic and business environments in which we operate, including on our credit quality, business operations and employees, as well as the impact on general economic and financial market conditions; cybersecurity and fraud threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level; our ability to recruit and retain key executives, board members and other employees, and changes in employment laws and regulations; unanticipated regulatory or legal proceedings or outcomes; and our ability to manage the risks involved in the foregoing.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's 2022 Annual Report on Form 10-K filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.

3

ITEM 1. CONDENSED CONSOLI DATED FINANCIAL STATEMENTS

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLI DATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

|  | June 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Assets |  |  |  |  |  |
Cash and due from banks |  | $ | 231,316 |  |  | $ | 158,236 |
Interest-earning balances due from Federal Reserve |  |  | 387,039 |  |  |  | 45,225 |
Total cash and cash equivalents |  |  | 618,355 |  |  |  | 203,461 |
Interest-earning balances due from depository institutions |  |  | 30,478 |  |  |  | 9,553 |
Investment securities available-for-sale, at fair value (with amortized cost of $3,576,937 at June 30, 2023, and $3,755,297 at December 31, 2022) |  |  | 3,068,151 |  |  |  | 3,255,211 |
Investment securities held-to-maturity (with fair value of $2,108,653 at June 30, 2023, and $2,155,587 at December 31, 2022) |  |  | 2,512,707 |  |  |  | 2,554,301 |
Total investment securities |  |  | 5,580,858 |  |  |  | 5,809,512 |
Investment in stock of Federal Home Loan Bank (FHLB) |  |  | 29,484 |  |  |  | 27,627 |
Loans and lease finance receivables |  |  | 8,907,397 |  |  |  | 9,079,392 |
Allowance for credit losses |  |  | (86,967 | ) |  |  | (85,117 | )
Net loans and lease finance receivables |  |  | 8,820,430 |  |  |  | 8,994,275 |
Premises and equipment, net |  |  | 45,518 |  |  |  | 46,698 |
Bank owned life insurance (BOLI) |  |  | 257,348 |  |  |  | 255,528 |
Accrued interest receivable |  |  | 46,545 |  |  |  | 46,692 |
Intangibles |  |  | 18,303 |  |  |  | 21,742 |
Goodwill |  |  | 765,822 |  |  |  | 765,822 |
Income taxes |  |  | 146,977 |  |  |  | 186,684 |
Other assets |  |  | 124,426 |  |  |  | 108,946 |
Total assets |  | $ | 16,484,544 |  |  | $ | 16,476,540 |
Liabilities and Stockholders' Equity |  |  |  |  |  |
Liabilities: |  |  |  |  |  |
Deposits: |  |  |  |  |  |
Noninterest-bearing |  | $ | 7,878,810 |  |  | $ | 8,164,364 |
Interest-bearing |  |  | 4,518,711 |  |  |  | 4,671,881 |
Total deposits |  |  | 12,397,521 |  |  |  | 12,836,245 |
Customer repurchase agreements |  |  | 452,373 |  |  |  | 565,431 |
Other borrowings |  |  | 1,495,000 |  |  |  | 995,000 |
Deferred compensation |  |  | 23,095 |  |  |  | 22,092 |
Other liabilities |  |  | 115,188 |  |  |  | 109,255 |
Total liabilities |  |  | 14,483,177 |  |  |  | 14,528,023 |
Commitments and Contingencies |  |  |  |  |  |
Stockholders' Equity |  |  |  |  |  |
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 139,343,284 at June 30, 2023, and 139,818,703 at December 31, 2022 |  |  | 1,284,150 |  |  |  | 1,300,466 |
Retained earnings |  |  | 1,062,093 |  |  |  | 1,002,847 |
Accumulated other comprehensive loss, net of tax |  |  | (344,876 | ) |  |  | (354,796 | )
Total stockholders' equity |  |  | 2,001,367 |  |  |  | 1,948,517 |
Total liabilities and stockholders' equity |  | $ | 16,484,544 |  |  | $ | 16,476,540 |

See accompanying notes to the unaudited condensed consolidated financial statements.

4

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | June 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Interest income: |  |  |  |  |  |  |  |  |  |  |  |
Loans and leases, including fees |  | $ | 110,990 |  |  | $ | 92,770 |  |  | $ | 219,384 |  |  | $ | 182,231 |
Investment securities: |  |  |  |  |  |  |  |  |  |  |  |
Investment securities available-for-sale |  |  | 19,356 |  |  |  | 17,042 |  |  |  | 38,952 |  |  |  | 29,874 |
Investment securities held-to-maturity |  |  | 13,740 |  |  |  | 11,714 |  |  |  | 27,696 |  |  |  | 22,377 |
Total investment income |  |  | 33,096 |  |  |  | 28,756 |  |  |  | 66,648 |  |  |  | 52,251 |
Dividends from FHLB stock |  |  | 483 |  |  |  | 273 |  |  |  | 832 |  |  |  | 644 |
Interest-earning deposits with other institutions |  |  | 4,670 |  |  |  | 1,463 |  |  |  | 5,161 |  |  |  | 2,236 |
Total interest income |  |  | 149,239 |  |  |  | 123,262 |  |  |  | 292,025 |  |  |  | 237,362 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 10,765 |  |  |  | 1,201 |  |  |  | 16,130 |  |  |  | 2,328 |
Borrowings and customer repurchase agreements |  |  | 18,939 |  |  |  | 121 |  |  |  | 30,632 |  |  |  | 254 |
Total interest expense |  |  | 29,704 |  |  |  | 1,322 |  |  |  | 46,762 |  |  |  | 2,582 |
Net interest income before provision for credit losses |  |  | 119,535 |  |  |  | 121,940 |  |  |  | 245,263 |  |  |  | 234,780 |
Provision for credit losses |  |  | 500 |  |  |  | 3,600 |  |  |  | 2,000 |  |  |  | 6,100 |
Net interest income after provision for credit losses |  |  | 119,035 |  |  |  | 118,340 |  |  |  | 243,263 |  |  |  | 228,680 |
Noninterest income: |  |  |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  |  | 4,838 |  |  |  | 5,333 |  |  |  | 10,182 |  |  |  | 10,392 |
Trust and investment services |  |  | 3,315 |  |  |  | 2,962 |  |  |  | 6,229 |  |  |  | 5,784 |
Bankcard services |  |  | 490 |  |  |  | 310 |  |  |  | 867 |  |  |  | 726 |
BOLI income |  |  | 2,097 |  |  |  | 603 |  |  |  | 3,286 |  |  |  | 1,952 |
Gain on sale of building, net |  |  | — |  |  |  | 2,717 |  |  |  | — |  |  |  | 2,717 |
Other |  |  | 1,916 |  |  |  | 2,745 |  |  |  | 5,294 |  |  |  | 4,363 |
Total noninterest income |  |  | 12,656 |  |  |  | 14,670 |  |  |  | 25,858 |  |  |  | 25,934 |
Noninterest expense: |  |  |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  |  | 33,548 |  |  |  | 31,553 |  |  |  | 68,795 |  |  |  | 64,209 |
Occupancy and equipment |  |  | 5,517 |  |  |  | 5,567 |  |  |  | 10,967 |  |  |  | 11,138 |
Professional services |  |  | 2,562 |  |  |  | 2,305 |  |  |  | 4,258 |  |  |  | 4,350 |
Computer software expense |  |  | 3,316 |  |  |  | 3,103 |  |  |  | 6,724 |  |  |  | 6,898 |
Marketing and promotion |  |  | 1,321 |  |  |  | 1,638 |  |  |  | 3,036 |  |  |  | 3,096 |
Provision for unfunded loan commitments |  |  | 400 |  |  |  | — |  |  |  | 900 |  |  |  | — |
Amortization of intangible assets |  |  | 1,719 |  |  |  | 1,998 |  |  |  | 3,439 |  |  |  | 3,996 |
Acquisition related expenses |  |  | — |  |  |  | 375 |  |  |  | — |  |  |  | 6,013 |
Other |  |  | 5,634 |  |  |  | 4,332 |  |  |  | 10,779 |  |  |  | 9,409 |
Total noninterest expense |  |  | 54,017 |  |  |  | 50,871 |  |  |  | 108,898 |  |  |  | 109,109 |
Earnings before income taxes |  |  | 77,674 |  |  |  | 82,139 |  |  |  | 160,223 |  |  |  | 145,505 |
Income taxes |  |  | 21,904 |  |  |  | 23,081 |  |  |  | 45,183 |  |  |  | 40,887 |
Net earnings |  | $ | 55,770 |  |  | $ | 59,058 |  |  | $ | 115,040 |  |  | $ | 104,618 |
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain (loss) on securities arising during the period, before tax |  | $ | (34,464 | ) |  | $ | (142,790 | ) |  | $ | 6,238 |  |  | $ | (344,809 | )
Less: Income tax (expense) benefit related to items of other comprehensive income |  |  | 7,869 |  |  |  | 42,213 |  |  |  | (4,164 | ) |  |  | 101,938 |
Unrealized gain (loss) on derivatives designated as hedging instruments arising during the period |  |  | 7,846 |  |  |  | — |  |  |  | 7,846 |  |  |  | — |
Other comprehensive income (loss), net of tax |  |  | (18,749 | ) |  |  | (100,577 | ) |  |  | 9,920 |  |  |  | (242,871 | )
Comprehensive income (loss) |  | $ | 37,021 |  |  | $ | (41,519 | ) |  | $ | 124,960 |  |  | $ | (138,253 | )
Basic earnings per common share |  | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | 0.83 |  |  | $ | 0.74 |
Diluted earnings per common share |  | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | 0.82 |  |  | $ | 0.74 |

See accompanying notes to the unaudited condensed consolidated financial statements.

5

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STAT EMENTS OF STOCKHOLDERS’ EQUITY

(Dollars and shares in thousands)

(Unaudited)

Three Months Ended June 30, 2023 and 2022

| Common Shares Outstanding |  |  | Common Stock |  |  | Retained Earnings |  |  | Accumulated Other Comprehensive Income (Loss) |  |  | Total |
Balance, April 1, 2023 |  | 139,302 |  |  | $ | 1,281,786 |  |  | $ | 1,034,110 |  |  | $ | (326,127 | ) |  | $ | 1,989,769 |
Repurchase of common stock |  | (1 | ) |  |  | (15 | ) |  |  | — |  |  |  | — |  |  |  | (15 | )
Exercise of stock options |  | — |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 1 |
Shares issued pursuant to stock-based compensation plan |  | 42 |  |  |  | 2,378 |  |  |  | — |  |  |  | — |  |  |  | 2,378 |
Cash dividends declared on common stock ($0.20 per share) |  | — |  |  |  | — |  |  |  | (27,787 | ) |  |  | — |  |  |  | (27,787 | )
Net earnings |  | — |  |  |  | — |  |  |  | 55,770 |  |  |  | — |  |  |  | 55,770 |
Other comprehensive income |  | — |  |  |  | — |  |  |  | — |  |  |  | (18,749 | ) |  |  | (18,749 | )
Balance, June 30, 2023 |  | 139,343 |  |  | $ | 1,284,150 |  |  | $ | 1,062,093 |  |  | $ | (344,876 | ) |  | $ | 2,001,367 |
Balance, April 1, 2022 |  | 141,626 |  |  | $ | 1,325,644 |  |  | $ | 895,661 |  |  | $ | (146,262 | ) |  | $ | 2,075,043 |
Repurchase of common stock |  | (1,148 | ) |  |  | (26,821 | ) |  |  | — |  |  |  | — |  |  |  | (26,821 | )
Repurchase of common stock, ASR Plan |  | (450 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Exercise of stock options |  | 14 |  |  |  | 245 |  |  |  | — |  |  |  | — |  |  |  | 245 |
Shares issued pursuant to stock-based compensation plan |  | (16 | ) |  |  | 1,982 |  |  |  | — |  |  |  | — |  |  |  | 1,982 |
Cash dividends declared on common stock ($0.19 per share) |  | — |  |  |  | — |  |  |  | (26,719 | ) |  |  | — |  |  |  | (26,719 | )
Net earnings |  | — |  |  |  | — |  |  |  | 59,058 |  |  |  | — |  |  |  | 59,058 |
Other comprehensive loss |  | — |  |  |  | — |  |  |  | — |  |  |  | (100,577 | ) |  |  | (100,577 | )
Balance, June 30, 2022 |  | 140,026 |  |  | $ | 1,301,050 |  |  | $ | 928,000 |  |  | $ | (246,839 | ) |  | $ | 1,982,211 |

Six Months Ended June 30, 2023 and 2022

| Common Shares Outstanding |  |  | Common Stock |  |  | Retained Earnings |  |  | Accumulated Other Comprehensive Income (Loss) |  |  | Total |
Balance, January 1, 2023 |  | 139,819 |  |  | $ | 1,300,466 |  |  | $ | 1,002,847 |  |  | $ | (354,796 | ) |  | $ | 1,948,517 |
Repurchase of common stock |  | (919 | ) |  |  | (21,051 | ) |  |  | — |  |  |  | — |  |  |  | (21,051 | )
Exercise of stock options |  | 4 |  |  |  | 73 |  |  |  | — |  |  |  | — |  |  |  | 73 |
Shares issued pursuant to stock-based compensation plan |  | 439 |  |  |  | 4,662 |  |  |  | — |  |  |  | — |  |  |  | 4,662 |
Cash dividends declared on common stock ($0.40 per share) |  | — |  |  |  | — |  |  |  | (55,794 | ) |  |  | — |  |  |  | (55,794 | )
Net earnings |  | — |  |  |  | — |  |  |  | 115,040 |  |  |  | — |  |  |  | 115,040 |
Other comprehensive loss |  | — |  |  |  | — |  |  |  | — |  |  |  | 9,920 |  |  |  | 9,920 |
Balance, June 30, 2023 |  | 139,343 |  |  | $ | 1,284,150 |  |  | $ | 1,062,093 |  |  | $ | (344,876 | ) |  | $ | 2,001,367 |
Balance, January 1, 2022 |  | 135,526 |  |  | $ | 1,209,903 |  |  | $ | 875,568 |  |  | $ | (3,968 | ) |  | $ | 2,081,503 |
Issuance of common stock for acquisition of Suncrest Bank |  | 8,617 |  |  |  | 197,069 |  |  |  | — |  |  |  | — |  |  |  | 197,069 |
Repurchase of common stock |  | (1,732 | ) |  |  | (40,464 | ) |  |  | — |  |  |  | — |  |  |  | (40,464 | )
Repurchase of common stock, ASR Plan |  | (2,994 | ) |  |  | (70,000 | ) |  |  | — |  |  |  | — |  |  |  | (70,000 | )
Exercise of stock options |  | 64 |  |  |  | 965 |  |  |  | — |  |  |  | — |  |  |  | 965 |
Shares issued pursuant to stock-based compensation plan |  | 545 |  |  |  | 3,577 |  |  |  | — |  |  |  | — |  |  |  | 3,577 |
Cash dividends declared on common stock ($0.37 per share) |  | — |  |  |  | — |  |  |  | (52,186 | ) |  |  | — |  |  |  | (52,186 | )
Net earnings |  | — |  |  |  | — |  |  |  | 104,618 |  |  |  | — |  |  |  | 104,618 |
Other comprehensive loss |  | — |  |  |  | — |  |  |  | — |  |  |  | (242,871 | ) |  |  | (242,871 | )
Balance, June 30, 2022 | $ | 140,026 |  |  | $ | 1,301,050 |  |  | $ | 928,000 |  |  | $ | (246,839 | ) |  | $ | 1,982,211 |

See accompanying notes to the unaudited condensed consolidated financial statements.

6

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

| Six Months Ended |
| June 30, |
| 2023 |  |  | 2022 |
Cash Flows from Operating Activities |  |  |  |  |
Interest and dividends received | $ | 297,842 |  |  | $ | 236,887 |
Service charges and other fees received |  | 22,551 |  |  |  | 22,642 |
Interest paid |  | (41,600 | ) |  |  | (2,373 | )
Net cash paid to vendors, employees and others |  | (116,630 | ) |  |  | (95,770 | )
Income taxes |  | (60 | ) |  |  | (32,998 | )
Net cash provided by operating activities |  | 162,103 |  |  |  | 128,388 |
Cash Flows from Investing Activities |  |  |  |  |
(Purchases) proceeds from redemption of FHLB stock, net |  | (1,857 | ) |  |  | 4,712 |
Net change in interest-earning balances from depository institutions |  | (20,925 | ) |  |  | 28,617 |
Proceeds from repayment of investment securities available-for-sale |  | 186,106 |  |  |  | 282,175 |
Proceeds from maturity of investment securities available-for-sale |  | 3 |  |  |  | 1,226 |
Purchases of investment securities available-for-sale |  | — |  |  |  | (1,092,577 | )
Proceeds from repayment and maturity of investment securities held-to-maturity |  | 45,833 |  |  |  | 213,907 |
Purchases of investment securities held-to-maturity |  | (2,026 | ) |  |  | (532,474 | )
Net (increase) decrease in equity investments |  | (775 | ) |  |  | 511 |
Net decrease (increase) in loan and lease finance receivables |  | 176,027 |  |  |  | (20,423 | )
Proceeds from sale of building, net of selling costs |  | — |  |  |  | 8,315 |
Purchase of premises and equipment |  | (2,349 | ) |  |  | (2,307 | )
Proceeds from BOLI death benefit |  | 1,466 |  |  |  | 3,096 |
Cash acquired from acquisition, net of cash paid |  | — |  |  |  | 329,001 |
Net cash provided by (used in) investing activities |  | 381,502 |  |  |  | (776,221 | )
Cash Flows from Financing Activities |  |  |  |  |
Net decrease in other deposits |  | (460,134 | ) |  |  | (38,815 | )
Net increase (decrease) in time deposits |  | 21,410 |  |  |  | (47,979 | )
Net increase (decrease) in other borrowings |  | 500,000 |  |  |  | (2,281 | )
Net decrease in customer repurchase agreements |  | (113,058 | ) |  |  | (139,559 | )
Cash dividends on common stock |  | (55,951 | ) |  |  | (49,873 | )
Repurchase of common stock |  | (21,051 | ) |  |  | (40,464 | )
Repurchase of common stock, ASR Plan |  | — |  |  |  | (70,000 | )
Proceeds from exercise of stock options |  | 73 |  |  |  | 965 |
Net cash used in financing activities |  | (128,711 | ) |  |  | (388,006 | )
Net increase (decrease) in cash and cash equivalents |  | 414,894 |  |  |  | (1,035,839 | )
Cash and cash equivalents, beginning of period |  | 203,461 |  |  |  | 1,732,548 |
Cash and cash equivalents, end of period | $ | 618,355 |  |  | $ | 696,709 |

See accompanying notes to the unaudited condensed consolidated financial statements.

7

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

(Unaudited)

| Six Months Ended |
| June 30, |
| 2023 |  |  | 2022 |
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities |  |  |  |  |
Net earnings | $ | 115,040 |  |  | $ | 104,618 |
Adjustments to reconcile net earnings to net cash provided by operating activities: |  |  |  |  |
Gain on sale of building, net |  | — |  |  |  | (2,717 | )
Increase in BOLI |  | (3,286 | ) |  |  | (1,952 | )
Net amortization of premiums and discounts on investment securities |  | 9,376 |  |  |  | 15,353 |
Accretion of discount for acquired loans, net |  | (2,035 | ) |  |  | (3,693 | )
Provision for credit losses |  | 2,000 |  |  |  | 6,100 |
Provision for unfunded loan commitments |  | 900 |  |  |  | — |
Stock-based compensation |  | 4,662 |  |  |  | 3,577 |
Depreciation and amortization, net |  | 8,335 |  |  |  | 5,749 |
Change in other assets and liabilities |  | 27,111 |  |  |  | 1,353 |
Total adjustments |  | 47,063 |  |  |  | 23,770 |
Net cash provided by operating activities | $ | 162,103 |  |  | $ | 128,388 |
Supplemental Disclosure of Non-cash Investing Activities |  |  |  |  |
Securities purchased and not settled | $ | — |  |  | $ | 80,230 |
Issuance of common stock for acquisition | $ | — |  |  | $ | 197,069 |

See accompanying notes to the unaudited condensed consolidated financial statements.

8

CVB FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONS OLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BUSINESS

The condensed consolidated financial statements include CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “we”, “our” or the “Company”) and its wholly owned subsidiary: Citizens Business Bank (the “Bank” or “CBB”), after elimination of all intercompany transactions and balances. The Company has one inactive subsidiary, Chino Valley Bancorp.

The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through its CitizensTrust Division. The Bank’s customers consist primarily of small to mid-sized businesses and individuals located throughout California. As of June 30, 2023, the Bank operated 62 banking centers and three trust office locations. The Company is headquartered in the city of Ontario, California.

On January 7, 2022, we completed the acquisition of Suncrest Bank ("Suncrest") with approximately $1.4 billion in total assets, acquired at fair value, and seven banking centers. Assets acquired included $765.9 million of acquired net loans at fair value, $131.1 million of investment securities, and $9 million in Bank-Owned Life Insurance ("BOLI"). The acquisition resulted in $102.1 million of goodwill and $3.9 million in core deposit premium. Net cash proceeds were used to fund the $39.6 million in cash paid to the former shareholders of Suncrest as part of the merger consideration. Refer to Note 4 – Business Combinations of the notes to the unaudited condensed consolidated financial statements of this report for additional information.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results for the full year. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC. A summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.

Reclassification — Certain amounts in the prior periods’ unaudited condensed consolidated financial statements and related footnote disclosures have been reclassified to conform to the current presentation with no impact on previously reported net income or stockholders’ equity.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as discussed below, our accounting policies are described in Note 3 – Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC (“Form 10-K”).

Use of Estimates in the Preparation of Financial Statements — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for credit losses. Other significant estimates, which may be subject to change, include fair value determinations and disclosures, impairment of investments, goodwill, loans, as well as valuation of deferred tax assets.

9

Adoption of New Accounting Standards

On January 1, 2023, the Company adopted Accounting Standard Update ("ASU") 2022-02 Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings ("TDR") and Vintage Disclosures. This ASU eliminates recognition and measurement guidance for TDRs by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, and to require that an entity disclose current-period gross write-offs by year of origination (i.e. the vintage year) for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. For entities that have adopted ASU 2016-13, this ASU is effective for interim and reporting periods beginning after December 15, 2022. The Company adopted this ASU on a prospective basis. Results for reporting periods beginning after January 1, 2023 are presented under ASU 2022-02 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In March 2023, the FASB issued ASU 2023-02 Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which expands the population of investments for which an investor may elect to apply the proportional amortization method. Under this ASU, an investor in a tax equity investment may elect the proportional amortization method for qualifying investments on a tax credit program-by-program basis. To qualify for the proportional amortization method, an investment must meet the criteria previously applicable to Low Income Housing Tax Credit ("LIHTC") investments, as clarified by the ASU. This ASU is effective in the first quarter of 2024. Early adoption is permitted as of an interim period with retrospective application to the beginning of the fiscal year.

The Bank invests in various tax credit partnerships pursuant to Sections 42 and 48 of the Internal Revenue Code of 1986 (the “Code”). The Bank acts as a limited partner in these investments and does not exercise control over the operating or financial policies of the partnerships and as such, is not considered the primary beneficiary of the partnership. Upon entering into new solar tax equity investments in the second quarter of 2023, the Company adopted ASU 2023-02 on a prospective basis and implemented the proportional amortization method of accounting. The proportional amortization method recognizes the amortization of the cost of the investment as a component of income tax expense.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide temporary, optional guidance to ease the potential burden in accounting for transitioning away from reference rates such as LIBOR. The amendments provide optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The amendments primarily include relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This ASU was effective in June 2023. and it did not have a material impact on our consolidated financial statements. As a result of the phase out of LIBOR, our interest rate swap derivatives and the associated loans that were indexed to LIBOR, have been replaced with one month CME Term SOFR. The Bank will continue to use multiple alternative indices as replacements for LIBOR for newly originated instruments. All remaining financial instruments indexed to LIBOR have been transitioned to a replacement index, as of June 30, 2023.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method, was effective in the first quarter of 2023. The amendments in ASU 2022-01 allow nonprepayable financial assets to be included in a closed portfolio hedged using the portfolio layer method. That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial assets, thereby allowing consistent accounting for similar hedges. This ASU expanded the previous single-layer model to allow multiple hedged layers of a single closed portfolio. As a result, an entity can achieve hedge accounting for hedges of a greater proportion of the interest rate risk inherent in the assets included in the closed portfolio, further aligning hedge accounting with risk management strategies. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. This ASU also clarifies that fair value basis adjustments in an existing portfolio layer method hedge are maintained at the closed portfolio level (Balance Sheet line item level) and are therefore not allocated to individual assets. In June 2023, fair value hedging transactions were executed in which $1.0 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years in which the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. The fair value of these instruments totaled $11.1 million on June 30, 2023. This pay-fixed interest rate swap is designated as a partial-term fair value hedge using the Portfolio Layer Method, in accordance with ASU 2022-01. Refer to Note 10 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information.

10

4. BUSINESS COMBINATIONS

On January 7, 2022, the Company completed the acquisition of Suncrest, headquartered in Visalia, California. The Company acquired all of the assets and assumed all of the liabilities of Suncrest in a stock and cash transaction for $39.6 million in cash and $197.1 million in stock. As a result, Suncrest merged with and into the Bank, the principal subsidiary of CVB. The Company believes this transaction serves to further extend and strengthen its geographic presence in California’s Central Valley and the greater Sacramento area. At close, Suncrest had seven branch locations and two loan production offices, which re-opened as CBB locations on January 10, 2022. As a result of the consolidation of branches during the second quarter of 2022, five branch locations remain from this acquisition.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The total fair value of assets acquired approximated $1.38 billion in total assets, including $329.0 million of cash and cash equivalents, net of cash paid, $131.1 million of investment securities, $765.9 million in net loans, $6.1 million in premises and equipment, $9.0 million in BOLI, and $33.7 million in other assets. The purchased credit deteriorated (“PCD”) loans were recorded at a fair value of $224.7 million, which was net of a discount of $13.1 million including a credit discount of $8.6 million. The assets acquired also include a core deposit intangible of $3.9 million and non-tax deductible goodwill of $102.1 million. Goodwill from the acquisition represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The total fair value of liabilities assumed was $1.19 billion, which included $512.8 million of noninterest-bearing deposits and $669.8 million of interest-bearing deposits, and $6.2 million in other liabilities. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of January 7, 2022. Goodwill is not tax deductible for income tax purposes.

We have included the financial results of the business combination in the condensed consolidated statement of earnings and comprehensive income beginning on the acquisition date. Supplementary pro forma financial information related to the acquisition is not included because the impact to the Company's consolidated statements of income is not material.

For the six months ended June 30, 2022, the Company incurred non-recurring merger related expenses associated with the Suncrest acquisition of $6.0 million.

11

5. INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are summarized below. The fair value of the majority of securities are based on quoted prices for similar assets in active markets or quoted prices for identical assets in markets that are not active. Estimated fair values were obtained from an independent pricing service based upon market quotes.

| June 30, 2023 |
| 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 | $ | 3,018,260 |  |  | $ | 24 |  |  | $ | (385,263 | ) |  | $ | 2,633,021 |  |  |  | 85.82 | %
CMO/REMIC |  | 519,646 |  |  |  | — |  |  |  | (111,187 | ) |  |  | 408,459 |  |  |  | 13.30 | %
Municipal bonds |  | 26,797 |  |  |  | 52 |  |  |  | (1,283 | ) |  |  | 25,566 |  |  |  | 0.83 | %
Other securities |  | 1,105 |  |  |  | — |  |  |  | — |  |  |  | 1,105 |  |  |  | 0.05 | %
Unallocated portfolio layer fair value basis adjustments (1) |  | 11,129 |  |  |  | — |  |  |  | (11,129 | ) |  | N/A |  |  | N/A |
Total available-for-sale securities | $ | 3,576,937 |  |  | $ | 76 |  |  | $ | (508,862 | ) |  | $ | 3,068,151 |  |  |  | 100.00 | %
Investment securities held-to-maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government agency/GSE | $ | 538,923 |  |  | $ | — |  |  | $ | (105,252 | ) |  | $ | 433,671 |  |  |  | 21.45 | %
Mortgage-backed securities |  | 684,917 |  |  |  | — |  |  |  | (103,649 | ) |  |  | 581,268 |  |  |  | 27.26 | %
CMO/REMIC |  | 817,801 |  |  |  | — |  |  |  | (155,611 | ) |  |  | 662,190 |  |  |  | 32.55 | %
Municipal bonds |  | 471,066 |  |  |  | 1,654 |  |  |  | (41,196 | ) |  |  | 431,524 |  |  |  | 18.74 | %
Total held-to-maturity securities | $ | 2,512,707 |  |  | $ | 1,654 |  |  | $ | (405,708 | ) |  | $ | 2,108,653 |  |  |  | 100.00 | %

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

| December 31, 2022 |
| 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 | $ | 3,192,151 |  |  | $ | 39 |  |  | $ | (403,049 | ) |  | $ | 2,789,141 |  |  |  | 85.68 | %
CMO/REMIC |  | 535,269 |  |  |  | — |  |  |  | (95,966 | ) |  |  | 439,303 |  |  |  | 13.50 | %
Municipal bonds |  | 26,797 |  |  |  | 67 |  |  |  | (1,177 | ) |  |  | 25,687 |  |  |  | 0.79 | %
Other securities |  | 1,080 |  |  |  | — |  |  |  | — |  |  |  | 1,080 |  |  |  | 0.03 | %
Total available-for-sale securities | $ | 3,755,297 |  |  | $ | 106 |  |  | $ | (500,192 | ) |  | $ | 3,255,211 |  |  |  | 100.00 | %
Investment securities held-to-maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government agency/GSE | $ | 548,771 |  |  | $ | — |  |  | $ | (114,343 | ) |  | $ | 434,428 |  |  |  | 21.48 | %
Mortgage-backed securities |  | 706,796 |  |  |  | — |  |  |  | (105,867 | ) |  |  | 600,929 |  |  |  | 27.67 | %
CMO/REMIC |  | 827,346 |  |  |  | — |  |  |  | (131,730 | ) |  |  | 695,616 |  |  |  | 32.39 | %
Municipal bonds |  | 471,388 |  |  |  | 913 |  |  |  | (47,687 | ) |  |  | 424,614 |  |  |  | 18.46 | %
Total held-to-maturity securities | $ | 2,554,301 |  |  | $ | 913 |  |  | $ | (399,627 | ) |  | $ | 2,155,587 |  |  |  | 100.00 | %

12

The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax.

| Three Months Ended |  |  | Six Months Ended |
| June 30, |  |  | June 30, |
| 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
| (Dollars in thousands) |
Investment securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |
Taxable | $ | 19,187 |  |  | $ | 16,863 |  |  | $ | 38,615 |  |  | $ | 29,512 |
Tax-advantaged |  | 169 |  |  |  | 179 |  |  |  | 337 |  |  |  | 362 |
Total interest income from available-for-sale securities |  | 19,356 |  |  |  | 17,042 |  |  |  | 38,952 |  |  |  | 29,874 |
Investment securities held-to-maturity: |  |  |  |  |  |  |  |  |  |  |
Taxable |  | 11,293 |  |  |  | 9,978 |  |  |  | 22,800 |  |  |  | 19,082 |
Tax-advantaged |  | 2,447 |  |  |  | 1,736 |  |  |  | 4,896 |  |  |  | 3,295 |
Total interest income from held-to-maturity securities |  | 13,740 |  |  |  | 11,714 |  |  |  | 27,696 |  |  |  | 22,377 |
Total interest income from investment securities | $ | 33,096 |  |  | $ | 28,756 |  |  | $ | 66,648 |  |  | $ | 52,251 |

Approximately 91% of the total investment securities portfolio at June 30, 2023 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 higher rated general-obligation municipal bonds. The allowance for credit losses for held-to-maturity investment securities under the CECL model was zero at June 30, 2023 and December 31, 2022.

The following table presents the Company’s available-for-sale and held-to-maturity investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of June 30, 2023 and December 31, 2022.

| June 30, 2023 |
| Less Than 12 Months |  |  | 12 Months or Longer |  |  | Total |
| Fair Value |  |  | Gross Unrealized Holding Losses |  |  | Fair Value |  |  | Gross Unrealized Holding Losses |  |  | Fair Value |  |  | Gross Unrealized Holding Losses |
| (Dollars in thousands) |
Investment securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities | $ | 80,414 |  |  | $ | (3,322 | ) |  | $ | 2,551,205 |  |  | $ | (381,941 | ) |  | $ | 2,631,619 |  |  | $ | (385,263 | )
CMO/REMIC |  | 745 |  |  |  | (17 | ) |  |  | 407,711 |  |  |  | (111,170 | ) |  |  | 408,456 |  |  |  | (111,187 | )
Municipal bonds |  | 6,442 |  |  |  | (47 | ) |  |  | 17,940 |  |  |  | (1,236 | ) |  |  | 24,382 |  |  |  | (1,283 | )
Total available-for-sale securities | $ | 87,601 |  |  | $ | (3,386 | ) |  | $ | 2,976,856 |  |  | $ | (494,347 | ) |  | $ | 3,064,457 |  |  | $ | (497,733 | )
Investment securities held-to-maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government agency/GSE | $ | 14,155 |  |  | $ | (619 | ) |  | $ | 419,516 |  |  | $ | (104,633 | ) |  | $ | 433,671 |  |  | $ | (105,252 | )
Mortgage-backed securities |  | 91,805 |  |  |  | (3,138 | ) |  |  | 489,463 |  |  |  | (100,511 | ) |  |  | 581,268 |  |  |  | (103,649 | )
CMO/REMIC |  | 47,110 |  |  |  | (2,884 | ) |  |  | 615,080 |  |  |  | (152,727 | ) |  |  | 662,190 |  |  |  | (155,611 | )
Municipal bonds |  | 92,899 |  |  |  | (2,499 | ) |  |  | 253,674 |  |  |  | (38,697 | ) |  |  | 346,573 |  |  |  | (41,196 | )
Total held-to-maturity securities | $ | 245,969 |  |  | $ | (9,140 | ) |  | $ | 1,777,733 |  |  | $ | (396,568 | ) |  | $ | 2,023,702 |  |  | $ | (405,708 | )

13

| December 31, 2022 |
| 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 | $ | 1,658,331 |  |  | $ | (187,842 | ) |  | $ | 1,129,257 |  |  | $ | (215,207 | ) |  | $ | 2,787,588 |  |  | $ | (403,049 | )
CMO/REMIC |  | 54,005 |  |  |  | (4,796 | ) |  |  | 385,295 |  |  |  | (91,170 | ) |  |  | 439,300 |  |  |  | (95,966 | )
Municipal bonds |  | 24,507 |  |  |  | (1,177 | ) |  |  | — |  |  |  | — |  |  |  | 24,507 |  |  |  | (1,177 | )
Total available-for-sale securities | $ | 1,736,843 |  |  | $ | (193,815 | ) |  | $ | 1,514,552 |  |  | $ | (306,377 | ) |  | $ | 3,251,395 |  |  | $ | (500,192 | )
Investment securities held-to-maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government agency/GSE |  | 179,348 |  |  |  | (39,866 | ) |  |  | 255,080 |  |  |  | (74,477 | ) |  |  | 434,428 |  |  |  | (114,343 | )
Mortgage-backed securities |  | 188,480 |  |  |  | (9,042 | ) |  |  | 412,449 |  |  |  | (96,825 | ) |  |  | 600,929 |  |  |  | (105,867 | )
CMO/REMIC |  | 376,540 |  |  |  | (60,598 | ) |  |  | 319,076 |  |  |  | (71,132 | ) |  |  | 695,616 |  |  |  | (131,730 | )
Municipal bonds |  | 312,702 |  |  |  | (35,656 | ) |  |  | 53,350 |  |  |  | (12,031 | ) |  |  | 366,052 |  |  |  | (47,687 | )
Total held-to-maturity securities | $ | 1,057,070 |  |  | $ | (145,162 | ) |  | $ | 1,039,955 |  |  | $ | (254,465 | ) |  | $ | 2,097,025 |  |  | $ | (399,627 | )

At June 30, 2023, investment securities, with the following carrying values, were pledged to secure $1.87 billion of total deposits which includes $1.25 billion to secure public funds, $551.2 million of repurchase agreements, approximately $695 million of outstanding borrowings, and approximately $20 million for other purposes as required or permitted by law. In addition, investment securities having a carrying value of $1.9 billion were pledged to secure unused borrowing capacity as of June 30, 2023.

At December 31, 2022, investment securities, with the following carrying values, were pledged to secure $1.56 billion of total deposits which includes $1.13 billion to secure public funds, $652.0 million of repurchase agreements, approximately $550 million of outstanding borrowings, and approximately $27 million for other purposes as required or permitted by law. In addition, investment securities having a carrying value of approximately $105 million were pledged to secure unused borrowing capacity as of December 31, 2022.

The amortized cost and fair value of debt securities at June 30, 2023, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have weighted average remaining contractual maturities of approximately 23 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.

| June 30, 2023 |
| Available-for-sale |  |  | Held-to-maturity |
| Amortized Cost |  |  | Fair Value |  |  | Amortized Cost |  |  | Fair Value |
|  |  |  | (Dollars in thousands) |  |  |  |
Due in one year or less | $ | 1,672 |  |  | $ | 1,671 |  |  | $ | 12,503 |  |  | $ | 11,943 |
Due after one year through five years |  | 326,240 |  |  |  | 298,804 |  |  |  | 35,475 |  |  |  | 34,143 |
Due after five years through ten years |  | 2,195,487 |  |  |  | 1,881,242 |  |  |  | 304,156 |  |  |  | 270,028 |
Due after ten years |  | 1,053,538 |  |  |  | 886,434 |  |  |  | 2,160,573 |  |  |  | 1,792,539 |
Total investment securities | $ | 3,576,937 |  |  | $ | 3,068,151 |  |  | $ | 2,512,707 |  |  | $ | 2,108,653 |

The investment in FHLB stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through June 30, 2023.

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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.

| June 30, 2023 |  |  | December 31, 2022 |
| (Dollars in thousands) |
Commercial real estate | $ | 6,904,095 |  |  | $ | 6,884,948 |
Construction |  | 68,836 |  |  |  | 88,271 |
SBA |  | 278,904 |  |  |  | 290,908 |
SBA - Paycheck Protection Program (PPP) |  | 5,017 |  |  |  | 9,087 |
Commercial and industrial |  | 956,242 |  |  |  | 948,683 |
Dairy & livestock and agribusiness |  | 298,247 |  |  |  | 433,564 |
Municipal lease finance receivables |  | 77,867 |  |  |  | 81,126 |
SFR mortgage |  | 263,201 |  |  |  | 266,024 |
Consumer and other loans |  | 54,988 |  |  |  | 76,781 |
Total loans, at amortized cost |  | 8,907,397 |  |  |  | 9,079,392 |
Less: Allowance for credit losses |  | (86,967 | ) |  |  | (85,117 | )
Total loans and lease finance receivables, net | $ | 8,820,430 |  |  | $ | 8,994,275 |

As of June 30, 2023, 81.24% of the Company’s total loan portfolio consisted of real estate loans, with commercial real estate loans representing 77.51% of total loans. The Company’s real estate loans and construction loans are secured by real properties primarily located in Ca lifornia. As of June 30, 2023, $517.6 million, o r 7.50% of the total commercial real estate loans included loans secured by farmland, compared to $517.8 million, or 7.52%, at December 31, 2022. The loans secured by farmland included $135.8 million for loans secured by dairy & livestock land and $381.8 million for loans secured by agricultural land at June 30, 2023, compared to $140.5 million for loans secured by d airy & livestock land and $377.3 million for loans secured by agricultural land at December 31, 2022. As of June 30, 2023, dairy & livestock and agribusiness loans of $298.2 million were c omprised of $252.5 million of dairy & livestock loans and $45.7 million of agribusiness loans, compared to $433.6 million comprised of $388.5 million of dairy & livestock loans and $45.1 million of agribusiness loans December 31, 2022.

At June 30, 2023 and December 31, 2022, loans with a carrying value totaling $4.29 b illion and $4.30 billion, respectively, were pledged to secure available lines of credit from the FHLB and the Federal Reserve Bank.

There were no outstanding loans held-for-sale as of June 30, 2023 and December 31, 2022.

Credit Quality Indicators

We monitor credit quality by evaluating various risk attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. Internal credit risk ratings, within our loan risk rating system, are the credit quality indicators that we most closely monitor.

An important element of our approach to credit risk management is our loan risk rating system. The originating officer assigns each loan an initial risk rating, which is reviewed and confirmed or changed, as appropriate, by credit management. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration or improvement in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary.

Loans are risk rated into the following categories: Pass, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:

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

15

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.

16

The following table summarizes loans by type and origination year, according to our internal risk ratings, and includes gross charge-offs in accordance with ASU 2022-02 effective January 1, 2023, as of the dates presented.

| Origination Year |  |  | Revolving loans amortized |  |  | Revolving loans converted to |  |  |  |
June 30, 2023 | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | Prior |  |  | cost basis |  |  | term loans |  |  | Total |
| (Dollars in thousands) |
Commercial real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 306,867 |  |  | $ | 1,349,741 |  |  | $ | 1,174,063 |  |  | $ | 931,868 |  |  | $ | 525,101 |  |  | $ | 2,187,525 |  |  | $ | 161,223 |  |  | $ | 40,006 |  |  | $ | 6,676,394 |
Special Mention |  | 2,576 |  |  |  | 3,235 |  |  |  | 10,041 |  |  |  | 18,081 |  |  |  | 33,490 |  |  |  | 103,542 |  |  |  | 1,296 |  |  |  | — |  |  |  | 172,261 |
Substandard |  | — |  |  |  | 463 |  |  |  | — |  |  |  | 14,767 |  |  |  | 16,342 |  |  |  | 23,069 |  |  |  | 799 |  |  |  | — |  |  |  | 55,440 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Commercial real estate loans: | $ | 309,443 |  |  | $ | 1,353,439 |  |  | $ | 1,184,104 |  |  | $ | 964,716 |  |  | $ | 574,933 |  |  | $ | 2,314,136 |  |  | $ | 163,318 |  |  | $ | 40,006 |  |  | $ | 6,904,095 |
Current YTD Period: Gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Construction loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 331 |  |  | $ | 14,592 |  |  | $ | 27,121 |  |  | $ | 8,055 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,737 |  |  | $ | — |  |  | $ | 68,836 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Construction loans: | $ | 331 |  |  | $ | 14,592 |  |  | $ | 27,121 |  |  | $ | 8,055 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,737 |  |  | $ | — |  |  | $ | 68,836 |
Current YTD Period: Gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
SBA loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 9,596 |  |  | $ | 50,938 |  |  | $ | 53,763 |  |  | $ | 34,661 |  |  | $ | 6,447 |  |  | $ | 116,511 |  |  | $ | 50 |  |  | $ | — |  |  | $ | 271,966 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,062 |  |  |  | 2,763 |  |  |  | — |  |  |  | — |  |  |  | 4,825 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,113 |  |  |  | — |  |  |  | — |  |  |  | 2,113 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total SBA loans: | $ | 9,596 |  |  | $ | 50,938 |  |  | $ | 53,763 |  |  | $ | 34,661 |  |  | $ | 8,509 |  |  | $ | 121,387 |  |  | $ | 50 |  |  | $ | — |  |  | $ | 278,904 |
Current YTD Period: Gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 181 |  |  | $ | — |  |  | $ | — |  |  | $ | 181 |
SBA - PPP loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | — |  |  | $ | — |  |  | $ | 2,215 |  |  | $ | 2,802 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 5,017 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total SBA - PPP loans: | $ | — |  |  | $ | — |  |  | $ | 2,215 |  |  | $ | 2,802 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 5,017 |
Current YTD Period: Gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 75,598 |  |  | $ | 153,664 |  |  | $ | 115,911 |  |  | $ | 95,413 |  |  | $ | 79,161 |  |  | $ | 108,792 |  |  | $ | 288,660 |  |  | $ | 5,915 |  |  | $ | 923,114 |
Special Mention |  | 6,291 |  |  |  | 976 |  |  |  | 1,100 |  |  |  | 787 |  |  |  | 4,854 |  |  |  | 3,318 |  |  |  | 3,379 |  |  |  | 6,432 |  |  |  | 27,137 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | 635 |  |  |  | 390 |  |  |  | 1,315 |  |  |  | 2,658 |  |  |  | 993 |  |  |  | 5,991 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Commercial and industrial loans: | $ | 81,889 |  |  | $ | 154,640 |  |  | $ | 117,011 |  |  | $ | 96,835 |  |  | $ | 84,405 |  |  | $ | 113,425 |  |  | $ | 294,697 |  |  | $ | 13,340 |  |  | $ | 956,242 |
Current YTD Period: Gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 16 |  |  | $ | — |  |  | $ | — |  |  | $ | 16 |

17

| Origination Year |  |  | Revolving loans amortized |  |  | Revolving loans converted to |  |  |  |
June 30, 2023 | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | Prior |  |  | cost basis |  |  | term loans |  |  | Total |
| (Dollars in thousands) |
Dairy & livestock and agribusiness loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 776 |  |  | $ | — |  |  | $ | 1,568 |  |  | $ | 1,067 |  |  | $ | 134 |  |  | $ | 172 |  |  | $ | 275,070 |  |  | $ | 343 |  |  | $ | 279,130 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 97 |  |  |  | 15 |  |  |  | 4,413 |  |  |  | 1,651 |  |  |  | 6,176 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 763 |  |  |  | 11,384 |  |  |  | 794 |  |  |  | 12,941 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Dairy & livestock and agribusiness loans: | $ | 776 |  |  | $ | — |  |  | $ | 1,568 |  |  | $ | 1,067 |  |  | $ | 231 |  |  | $ | 950 |  |  | $ | 290,867 |  |  | $ | 2,788 |  |  | $ | 298,247 |
Current YTD Period: Gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Municipal lease finance receivables loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | — |  |  | $ | 6,004 |  |  | $ | 26,720 |  |  | $ | 6,433 |  |  | $ | 4,324 |  |  | $ | 34,163 |  |  | $ | — |  |  | $ | — |  |  | $ | 77,644 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 223 |  |  |  | — |  |  |  | — |  |  |  | 223 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Municipal lease finance receivables loans: | $ | — |  |  | $ | 6,004 |  |  | $ | 26,720 |  |  | $ | 6,433 |  |  | $ | 4,324 |  |  | $ | 34,386 |  |  | $ | — |  |  | $ | — |  |  | $ | 77,867 |
Current YTD Period: Gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
SFR mortgage loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 10,187 |  |  | $ | 62,119 |  |  | $ | 44,114 |  |  | $ | 44,771 |  |  | $ | 29,613 |  |  | $ | 70,438 |  |  | $ | — |  |  | $ | — |  |  | $ | 261,242 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | 929 |  |  |  | 199 |  |  |  | 267 |  |  |  | — |  |  |  | — |  |  |  | 1,395 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 209 |  |  |  | — |  |  |  | 355 |  |  |  | 564 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total SFR mortgage loans: | $ | 10,187 |  |  | $ | 62,119 |  |  | $ | 44,114 |  |  | $ | 45,700 |  |  | $ | 29,812 |  |  | $ | 70,914 |  |  | $ | — |  |  | $ | 355 |  |  | $ | 263,201 |
Current YTD Period: Gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Consumer and other loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 2,186 |  |  | $ | 5,390 |  |  | $ | 3,217 |  |  | $ | 968 |  |  | $ | 775 |  |  | $ | 1,181 |  |  | $ | 38,205 |  |  | $ | 1,097 |  |  | $ | 53,019 |
Special Mention |  | — |  |  |  | — |  |  |  | 309 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 42 |  |  |  | 833 |  |  |  | 1,184 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 12 |  |  |  | 6 |  |  |  | 767 |  |  |  | 785 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Consumer and other loans: | $ | 2,186 |  |  | $ | 5,390 |  |  | $ | 3,526 |  |  | $ | 968 |  |  | $ | 775 |  |  | $ | 1,193 |  |  | $ | 38,253 |  |  | $ | 2,697 |  |  | $ | 54,988 |
Current YTD Period: Gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | — |  |  | $ | 1 |
Total Loans, at amortized cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 405,541 |  |  | $ | 1,642,448 |  |  | $ | 1,448,692 |  |  | $ | 1,126,038 |  |  | $ | 645,555 |  |  | $ | 2,518,782 |  |  | $ | 781,945 |  |  | $ | 47,361 |  |  | $ | 8,616,362 |
Special Mention |  | 8,867 |  |  |  | 4,211 |  |  |  | 11,450 |  |  |  | 19,797 |  |  |  | 40,702 |  |  |  | 110,128 |  |  |  | 9,130 |  |  |  | 8,916 |  |  |  | 213,201 |
Substandard |  | — |  |  |  | 463 |  |  |  | — |  |  |  | 15,402 |  |  |  | 16,732 |  |  |  | 27,481 |  |  |  | 14,847 |  |  |  | 2,909 |  |  |  | 77,834 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Loans at amortized cost: | $ | 414,408 |  |  | $ | 1,647,122 |  |  | $ | 1,460,142 |  |  | $ | 1,161,237 |  |  | $ | 702,989 |  |  | $ | 2,656,391 |  |  | $ | 805,922 |  |  | $ | 59,186 |  |  | $ | 8,907,397 |
Current YTD Period: Total gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 198 |  |  | $ | — |  |  | $ | — |  |  | $ | 198 |

18

7

| Origination Year |  |  | Revolving loans amortized |  |  | Revolving loans converted to |  |  |  |
December 31, 2022 | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | Prior |  |  | cost basis |  |  | term loans |  |  | Total |
| (Dollars in thousands) |
Commercial real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 1,363,733 |  |  | $ | 1,197,290 |  |  | $ | 957,965 |  |  | $ | 542,827 |  |  | $ | 506,613 |  |  | $ | 1,889,478 |  |  | $ | 175,373 |  |  | $ | 39,616 |  |  | $ | 6,672,895 |
Special Mention |  | 3,285 |  |  |  | 12,114 |  |  |  | 11,284 |  |  |  | 32,976 |  |  |  | 21,646 |  |  |  | 76,290 |  |  |  | 908 |  |  |  | — |  |  |  | 158,503 |
Substandard |  | — |  |  |  | — |  |  |  | 15,624 |  |  |  | 16,297 |  |  |  | 94 |  |  |  | 21,535 |  |  |  | — |  |  |  | — |  |  |  | 53,550 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Commercial real estate loans: | $ | 1,367,018 |  |  | $ | 1,209,404 |  |  | $ | 984,873 |  |  | $ | 592,100 |  |  | $ | 528,353 |  |  | $ | 1,987,303 |  |  | $ | 176,281 |  |  | $ | 39,616 |  |  | $ | 6,884,948 |
Construction loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 17,203 |  |  | $ | 26,689 |  |  | $ | 16,578 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 22,850 |  |  | $ | — |  |  | $ | 83,320 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4,951 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4,951 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Construction loans: | $ | 17,203 |  |  | $ | 26,689 |  |  | $ | 16,578 |  |  | $ | — |  |  | $ | 4,951 |  |  | $ | — |  |  | $ | 22,850 |  |  | $ | — |  |  | $ | 88,271 |
SBA loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 60,623 |  |  | $ | 54,781 |  |  | $ | 35,243 |  |  | $ | 7,460 |  |  | $ | 28,886 |  |  | $ | 96,473 |  |  | $ | 1,026 |  |  | $ | — |  |  | $ | 284,492 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,321 |  |  |  | 1,293 |  |  |  | 2,065 |  |  |  | — |  |  |  | — |  |  |  | 4,679 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 556 |  |  |  | 1,181 |  |  |  | — |  |  |  | — |  |  |  | 1,737 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total SBA loans: | $ | 60,623 |  |  | $ | 54,781 |  |  | $ | 35,243 |  |  | $ | 8,781 |  |  | $ | 30,735 |  |  | $ | 99,719 |  |  | $ | 1,026 |  |  | $ | — |  |  | $ | 290,908 |
SBA - PPP loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | — |  |  | $ | 5,515 |  |  | $ | 3,572 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 9,087 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total SBA - PPP loans: | $ | — |  |  | $ | 5,515 |  |  | $ | 3,572 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 9,087 |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 154,765 |  |  | $ | 135,162 |  |  | $ | 80,763 |  |  | $ | 101,192 |  |  | $ | 42,731 |  |  | $ | 85,406 |  |  | $ | 305,589 |  |  | $ | 7,775 |  |  | $ | 913,383 |
Special Mention |  | 3,955 |  |  |  | 761 |  |  |  | 459 |  |  |  | 1,693 |  |  |  | 462 |  |  |  | 8 |  |  |  | 15,156 |  |  |  | 544 |  |  |  | 23,038 |
Substandard |  | 494 |  |  |  | — |  |  |  | 728 |  |  |  | 959 |  |  |  | 5,624 |  |  |  | 496 |  |  |  | 3,200 |  |  |  | 761 |  |  |  | 12,262 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Commercial and industrial loans: | $ | 159,214 |  |  | $ | 135,923 |  |  | $ | 81,950 |  |  | $ | 103,844 |  |  | $ | 48,817 |  |  | $ | 85,910 |  |  | $ | 323,945 |  |  | $ | 9,080 |  |  | $ | 948,683 |

19

| Origination Year |  |  | Revolving loans amortized |  |  | Revolving loans converted to |  |  |  |
December 31, 2022 | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | Prior |  |  | cost basis |  |  | term loans |  |  | Total |
| (Dollars in thousands) |
Dairy & livestock and agribusiness loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 207 |  |  | $ | 2,318 |  |  | $ | 1,515 |  |  | $ | 187 |  |  | $ | 69 |  |  | $ | 628 |  |  | $ | 400,229 |  |  | $ | 450 |  |  | $ | 405,603 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | 599 |  |  |  | 46 |  |  |  | — |  |  |  | 17,129 |  |  |  | 853 |  |  |  | 18,627 |
Substandard |  | 1,041 |  |  |  | — |  |  |  | 40 |  |  |  | — |  |  |  | 95 |  |  |  | 113 |  |  |  | 1,841 |  |  |  | 6,204 |  |  |  | 9,334 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Dairy & livestock and agribusiness loans: | $ | 1,248 |  |  | $ | 2,318 |  |  | $ | 1,555 |  |  | $ | 786 |  |  | $ | 210 |  |  | $ | 741 |  |  | $ | 419,199 |  |  | $ | 7,507 |  |  | $ | 433,564 |
Municipal lease finance receivables loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 6,442 |  |  | $ | 26,858 |  |  | $ | 6,814 |  |  | $ | 4,327 |  |  | $ | 4,948 |  |  | $ | 31,292 |  |  | $ | — |  |  | $ | — |  |  | $ | 80,681 |
Special Mention |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 262 |  |  |  | — |  |  |  | — |  |  |  | 262 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 183 |  |  |  | — |  |  |  | — |  |  |  | 183 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Municipal lease finance receivables loans: | $ | 6,442 |  |  | $ | 26,858 |  |  | $ | 6,814 |  |  | $ | 4,327 |  |  | $ | 4,948 |  |  | $ | 31,737 |  |  | $ | — |  |  | $ | — |  |  | $ | 81,126 |
SFR mortgage loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 63,761 |  |  | $ | 46,748 |  |  | $ | 45,819 |  |  | $ | 33,585 |  |  | $ | 15,836 |  |  | $ | 58,730 |  |  | $ | — |  |  | $ | — |  |  | $ | 264,479 |
Special Mention |  | — |  |  |  | — |  |  |  | 943 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 943 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 214 |  |  |  | — |  |  |  | 388 |  |  |  | 602 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total SFR mortgage loans: | $ | 63,761 |  |  | $ | 46,748 |  |  | $ | 46,762 |  |  | $ | 33,585 |  |  | $ | 15,836 |  |  | $ | 58,944 |  |  | $ | — |  |  | $ | 388 |  |  | $ | 266,024 |
Consumer and other loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 7,653 |  |  | $ | 3,722 |  |  | $ | 1,298 |  |  | $ | 926 |  |  | $ | 79 |  |  | $ | 1,277 |  |  | $ | 58,578 |  |  | $ | 1,107 |  |  | $ | 74,640 |
Special Mention |  | — |  |  |  | 561 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 590 |  |  |  | — |  |  |  | 1,151 |
Substandard |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 13 |  |  |  | 5 |  |  |  | 972 |  |  |  | 990 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Consumer and other loans: | $ | 7,653 |  |  | $ | 4,283 |  |  | $ | 1,298 |  |  | $ | 926 |  |  | $ | 79 |  |  | $ | 1,290 |  |  | $ | 59,173 |  |  | $ | 2,079 |  |  | $ | 76,781 |
Total Loans, at amortized cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 1,674,387 |  |  | $ | 1,499,083 |  |  | $ | 1,149,567 |  |  | $ | 690,504 |  |  | $ | 599,162 |  |  | $ | 2,163,284 |  |  | $ | 963,645 |  |  | $ | 48,948 |  |  | $ | 8,788,580 |
Special Mention |  | 7,240 |  |  |  | 13,436 |  |  |  | 12,686 |  |  |  | 36,589 |  |  |  | 28,398 |  |  |  | 78,625 |  |  |  | 33,783 |  |  |  | 1,397 |  |  |  | 212,154 |
Substandard |  | 1,535 |  |  |  | — |  |  |  | 16,392 |  |  |  | 17,256 |  |  |  | 6,369 |  |  |  | 23,735 |  |  |  | 5,046 |  |  |  | 8,325 |  |  |  | 78,658 |
Doubtful & Loss |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Loans at amortized cost: | $ | 1,683,162 |  |  | $ | 1,512,519 |  |  | $ | 1,178,645 |  |  | $ | 744,349 |  |  | $ | 633,929 |  |  | $ | 2,265,644 |  |  | $ | 1,002,474 |  |  | $ | 58,670 |  |  | $ | 9,079,392 |

Allowance for Credit Losses ("ACL")

Our allowance for credit losses is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. 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 Original Loan to Value ratios ("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 Paycheck 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 Paycheck Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the amortized cost basis of the portfolio segments, management reviews current

20

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 included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a more detailed discussion concerning the allowance for credit losses.

The ACL totaled $87.0 million a t June 30, 2023, compared to $85.1 million at December 31, 2022. The $1.9 million increase in the ACL from December 31, 2022 to June 30, 2023 was comprised of $2.0 million in provision for credit losses, offset by $150,000 in net charge-offs. At June 30, 2023, the ACL as a percentage of total loans and leases, at amortized cost, was 0.98%. This compares to 0.94% at December 31, 2022. Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario. As of June 30, 2023, the resulting weighted forecast assumes GDP will increase by 1.5% for all of 2023 and 0.8% for 2024 and then grow by 2.0% in 2025. The unemployment rate is forecasted to be 3.8% in 2023 an d 5.0% in 2024 and 2025.

Management believes that the ACL was appropriate at June 30, 2023 and December 31, 2022. Due to inflationary pressures, rising interest rates and geopolitical events, no assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for credit losses in the future.

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

| Three Months Ended June 30, 2023 |
| Ending Balance March 31, 2023 |  |  | Charge-offs |  |  | Recoveries |  |  | Provision for (Recapture of) Credit Losses |  |  | Ending Balance June 30, 2023 |
| (Dollars in thousands) |
Commercial real estate | $ | 67,117 |  |  | $ | — |  |  | $ | — |  |  | $ | 826 |  |  | $ | 67,943 |
Construction |  | 1,674 |  |  |  | — |  |  |  | 3 |  |  |  | (515 | ) |  |  | 1,162 |
SBA |  | 2,729 |  |  |  | (87 | ) |  |  | 9 |  |  |  | 5 |  |  |  | 2,656 |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  | 8,963 |  |  |  | — |  |  |  | — |  |  |  | 158 |  |  |  | 9,121 |
Dairy & livestock and agribusiness |  | 4,770 |  |  |  | — |  |  |  | 3 |  |  |  | 187 |  |  |  | 4,960 |
Municipal lease finance receivables |  | 283 |  |  |  | — |  |  |  | — |  |  |  | (10 | ) |  |  | 273 |
SFR mortgage |  | 409 |  |  |  | — |  |  |  | — |  |  |  | 41 |  |  |  | 450 |
Consumer and other loans |  | 595 |  |  |  | (1 | ) |  |  | — |  |  |  | (192 | ) |  |  | 402 |
Total allowance for credit losses | $ | 86,540 |  |  | $ | (88 | ) |  | $ | 15 |  |  | $ | 500 |  |  | $ | 86,967 |

| Three Months Ended June 30, 2022 |
| Ending Balance March 31, 2022 |  |  | Charge-offs |  |  | Recoveries |  |  | Provision for (Recapture of) Credit Losses |  |  | Ending Balance June 30, 2022 |
| (Dollars in thousands) |
Commercial real estate | $ | 57,835 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,678 |  |  | $ | 61,513 |
Construction |  | 988 |  |  |  | — |  |  |  | 3 |  |  |  | 71 |  |  |  | 1,062 |
SBA |  | 2,824 |  |  |  | — |  |  |  | 53 |  |  |  | (264 | ) |  |  | 2,613 |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  | 6,831 |  |  |  | (6 | ) |  |  | 453 |  |  |  | (84 | ) |  |  | 7,194 |
Dairy & livestock and agribusiness |  | 6,703 |  |  |  | — |  |  |  | 2 |  |  |  | 127 |  |  |  | 6,832 |
Municipal lease finance receivables |  | 152 |  |  |  | — |  |  |  | — |  |  |  | 31 |  |  |  | 183 |
SFR mortgage |  | 227 |  |  |  | — |  |  |  | — |  |  |  | 27 |  |  |  | 254 |
Consumer and other loans |  | 559 |  |  |  | (2 | ) |  |  | — |  |  |  | 14 |  |  |  | 571 |
Total allowance for credit losses | $ | 76,119 |  |  | $ | (8 | ) |  | $ | 511 |  |  | $ | 3,600 |  |  | $ | 80,222 |

21

| Six Months Ended June 30, 2023 |
| Ending Balance December 31, 2022 |  |  | Charge-offs |  |  | Recoveries |  |  | Provision for (Recapture of) Credit Losses |  |  | Ending Balance June 30, 2023 |
| (Dollars in thousands) |
Commercial real estate | $ | 64,806 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,137 |  |  | $ | 67,943 |
Construction |  | 1,702 |  |  |  | — |  |  |  | 6 |  |  |  | (546 | ) |  |  | 1,162 |
SBA |  | 2,809 |  |  |  | (181 | ) |  |  | 21 |  |  |  | 7 |  |  |  | 2,656 |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  | 10,206 |  |  |  | (16 | ) |  |  | 14 |  |  |  | (1,083 | ) |  |  | 9,121 |
Dairy & livestock and agribusiness |  | 4,400 |  |  |  | — |  |  |  | 7 |  |  |  | 553 |  |  |  | 4,960 |
Municipal lease finance receivables |  | 296 |  |  |  | — |  |  |  | — |  |  |  | (23 | ) |  |  | 273 |
SFR mortgage |  | 366 |  |  |  | — |  |  |  | — |  |  |  | 84 |  |  |  | 450 |
Consumer and other loans |  | 532 |  |  |  | (1 | ) |  |  | — |  |  |  | (129 | ) |  |  | 402 |
Total allowance for credit losses | $ | 85,117 |  |  | $ | (198 | ) |  | $ | 48 |  |  | $ | 2,000 |  |  | $ | 86,967 |

| Six Months Ended June 30, 2022 |
| Ending Balance December 31, 2021 |  |  | Charge-offs |  |  | Recoveries |  |  | Initial ACL for PCD Loans at Acquisition |  |  | Provision Recorded at Acquisition |  |  | Provision for (Recapture of) Credit Losses |  |  | Ending Balance June 30, 2022 |
| (Dollars in thousands) |
Commercial real estate | $ | 50,950 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,086 |  |  | $ | 4,127 |  |  | $ | 1,350 |  |  | $ | 61,513 |
Construction |  | 765 |  |  |  | — |  |  |  | 6 |  |  |  | 122 |  |  |  | 58 |  |  |  | 111 |  |  |  | 1,062 |
SBA |  | 2,668 |  |  |  | — |  |  |  | 58 |  |  |  | 62 |  |  |  | 64 |  |  |  | (239 | ) |  |  | 2,613 |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  | 6,669 |  |  |  | (21 | ) |  |  | 456 |  |  |  | 500 |  |  |  | 508 |  |  |  | (918 | ) |  |  | 7,194 |
Dairy & livestock and agribusiness |  | 3,066 |  |  |  | — |  |  |  | 2 |  |  |  | 2,832 |  |  |  | 149 |  |  |  | 783 |  |  |  | 6,832 |
Municipal lease finance receivables |  | 100 |  |  |  | — |  |  |  | — |  |  |  | 3 |  |  |  | 26 |  |  |  | 54 |  |  |  | 183 |
SFR mortgage |  | 188 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 66 |  |  |  | 254 |
Consumer and other loans |  | 613 |  |  |  | (3 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (39 | ) |  |  | 571 |
Total allowance for credit losses | $ | 65,019 |  |  | $ | (24 | ) |  | $ | 522 |  |  | $ | 8,605 |  |  | $ | 4,932 |  |  | $ | 1,168 |  |  | $ | 80,222 |

Past Due and Nonperforming Loans

We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is responsible for monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for credit losses, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated credit losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2022, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

22

The following table presents the recorded investment in, and the aging of, past due loans (including nonaccrual loans), by type of loans as of the dates presented.

| June 30, 2023 |
| 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | Greater than 89 Days Past Due |  |  | Total Past Due |  |  | Loans Not Past Due |  |  | Total Loans and Financing Receivables |
| (Dollars in thousands) |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied | $ | — |  |  | $ | 563 |  |  | $ | 2,579 |  |  | $ | 3,142 |  |  | $ | 2,494,095 |  |  | $ | 2,497,237 |
Non-owner occupied |  | 532 |  |  |  | — |  |  |  | — |  |  |  | 532 |  |  |  | 4,406,326 |  |  |  | 4,406,858 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative (1) |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 57,312 |  |  |  | 57,312 |
Non-speculative |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11,524 |  |  |  | 11,524 |
SBA |  | — |  |  |  | — |  |  |  | 629 |  |  |  | 629 |  |  |  | 278,275 |  |  |  | 278,904 |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,017 |  |  |  | 5,017 |
Commercial and industrial |  | — |  |  |  | — |  |  |  | 2,038 |  |  |  | 2,038 |  |  |  | 954,204 |  |  |  | 956,242 |
Dairy & livestock and agribusiness |  | — |  |  |  | 555 |  |  |  | 65 |  |  |  | 620 |  |  |  | 297,627 |  |  |  | 298,247 |
Municipal lease finance receivables |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 77,867 |  |  |  | 77,867 |
SFR mortgage |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 263,201 |  |  |  | 263,201 |
Consumer and other loans |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 54,988 |  |  |  | 54,988 |
Total loans | $ | 532 |  |  | $ | 1,118 |  |  | $ | 5,311 |  |  | $ | 6,961 |  |  | $ | 8,900,436 |  |  | $ | 8,907,397 |

(1)
Speculative construction loans are generally for properties where there is no identified buyer or renter.

| December 31, 2022 |
| 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | Greater than 89 Days Past Due |  |  | Total Past Due |  |  | Loans Not Past Due |  |  | Total Loans and Financing Receivables |
| (Dollars in thousands) |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied | $ | — |  |  | $ | — |  |  | $ | 2,639 |  |  | $ | 2,639 |  |  | $ | 2,482,471 |  |  | $ | 2,485,110 |
Non-owner occupied |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4,399,838 |  |  |  | 4,399,838 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative (1) |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 67,436 |  |  |  | 67,436 |
Non-speculative |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 20,835 |  |  |  | 20,835 |
SBA |  | 374 |  |  |  | 182 |  |  |  | 443 |  |  |  | 999 |  |  |  | 289,909 |  |  |  | 290,908 |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 9,087 |  |  |  | 9,087 |
Commercial and industrial |  | — |  |  |  | — |  |  |  | 1,318 |  |  |  | 1,318 |  |  |  | 947,365 |  |  |  | 948,683 |
Dairy & livestock and agribusiness |  | — |  |  |  | — |  |  |  | 269 |  |  |  | 269 |  |  |  | 433,295 |  |  |  | 433,564 |
Municipal lease finance receivables |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 81,126 |  |  |  | 81,126 |
SFR mortgage |  | — |  |  |  | 388 |  |  |  | — |  |  |  | 388 |  |  |  | 265,636 |  |  |  | 266,024 |
Consumer and other loans |  | 175 |  |  |  | — |  |  |  | 33 |  |  |  | 208 |  |  |  | 76,573 |  |  |  | 76,781 |
Total loans | $ | 549 |  |  | $ | 570 |  |  | $ | 4,702 |  |  | $ | 5,821 |  |  | $ | 9,073,571 |  |  | $ | 9,079,392 |

(1)
Speculative construction loans are generally for properties where there is no identified buyer or renter.

23

Amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance are presented as of June 30, 2023 and December 31, 2022 by type of loan.

| June 30, 2023 |
| 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 | $ | 3,142 |  |  | $ | 3,142 |  |  | $ | — |
Non-owner occupied |  | 17 |  |  |  | 17 |  |  |  | — |
Construction |  |  |  |  |  |  |  |
Speculative (2) |  | — |  |  |  | — |  |  |  | — |
Non-speculative |  | — |  |  |  | — |  |  |  | — |
SBA |  | 445 |  |  |  | 629 |  |  |  | — |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  | 672 |  |  |  | 2,039 |  |  |  | — |
Dairy & livestock and agribusiness |  | 161 |  |  |  | 273 |  |  |  | — |
Municipal lease finance receivables |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  | 354 |  |  |  | 354 |  |  |  | — |
Consumer and other loans |  | — |  |  |  | — |  |  |  | — |
Total loans | $ | 4,791 |  |  | $ | 6,454 |  |  | $ | — |

(1)
As of June 30, 2023, $580,000 of nonaccruing loans were current, $563,000 were 60-89 days past due, and $5.3 million were 90+ days past due.
(2)
Speculative construction loans are generally for properties where there is no identified buyer or renter.

| December 31, 2022 |
| 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 | $ | 2,639 |  |  | $ | 2,639 |  |  | $ | — |
Non-owner occupied |  | 18 |  |  |  | 18 |  |  |  | — |
Construction |  |  |  |  |  |  |  |
Speculative (2) |  | — |  |  |  | — |  |  |  | — |
Non-speculative |  | — |  |  |  | — |  |  |  | — |
SBA |  | 268 |  |  |  | 443 |  |  |  | — |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  | 771 |  |  |  | 1,320 |  |  |  | — |
Dairy & livestock and agribusiness |  | 364 |  |  |  | 477 |  |  |  | — |
Municipal lease finance receivables |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  | — |  |  |  | — |  |  |  | — |
Consumer and other loans |  | 34 |  |  |  | 33 |  |  |  | — |
Total loans | $ | 4,094 |  |  | $ | 4,930 |  |  | $ | — |

(1)
As of December 31, 2022, $228,000 of nonaccruing loans were current and $4.7 million were 90+ days past due.
(2)
Speculative construction loans are generally for properties where there is no identified buyer or renter.
(3)
Excludes $221,000 of guaranteed portion of nonaccrual SBA loans that are in process of collection.

24

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.

| June 30, 2023 |  |  | Number of Loans |
| Real Estate |  |  | Business Assets |  |  | Other |  |  | Dependent on Collateral |
| (Dollars in thousands) |  |
Commercial real estate | $ | 3,159 |  |  | $ | — |  |  | $ | — |  |  |  | 4 |
Construction |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SBA |  | 407 |  |  |  | 221 |  |  |  | — |  |  |  | 5 |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  | 405 |  |  |  | 466 |  |  |  | 1,167 |  |  |  | 8 |
Dairy & livestock and agribusiness |  | 161 |  |  |  | — |  |  |  | 113 |  |  |  | 3 |
Municipal lease finance receivables |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  | 354 |  |  |  | — |  |  |  | — |  |  |  | 1 |
Consumer and other loans |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total collateral-dependent loans | $ | 4,486 |  |  | $ | 687 |  |  | $ | 1,280 |  |  |  | 21 |

| December 31, 2022 |  |  | Number of Loans |
| Real Estate |  |  | Business Assets |  |  | Other |  |  | Dependent on Collateral |
| (Dollars in thousands) |  |
Commercial real estate | $ | 17,935 |  |  | $ | — |  |  | $ | — |  |  |  | 4 |
Construction |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SBA |  | 151 |  |  |  | 292 |  |  |  | — |  |  |  | 6 |
SBA - PPP |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  | 87 |  |  |  | 2,774 |  |  |  | 81 |  |  |  | 13 |
Dairy & livestock and agribusiness |  | 269 |  |  |  | 2,000 |  |  |  | 208 |  |  |  | 4 |
Municipal lease finance receivables |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer and other loans |  | 33 |  |  |  | — |  |  |  | — |  |  |  | 1 |
Total collateral-dependent loans | $ | 18,475 |  |  | $ | 5,066 |  |  | $ | 289 |  |  |  | 28 |

25

Reserve for Unfunded Loan Commitments

The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the off-balance sheet loan commitments in the same manner as it evaluates credit risk associated with the loan and lease portfolio. The Bank's ACL methodology produced an allowance of $8.9 millio n for the off-balance sheet credit exposures as of June 30, 2023. There was $900,000 in provision for unfunded loan commitments for the six months ended June 30, 2023 and no provision for the six months ended June 30, 2022. As of June 30, 2023 and December 31,2022, the balance in this reserve was $8.9 million and $8.0 million, res pectively, and was included in other liabilities.

Modifications of Loans to Borrowers Experiencing Financial Difficulty

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

The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified during the three months ended June 30, 2023.

|  |  | Term Extension |
|  |  | Amortized Cost Basis |  |  | % of Total Class of |
|  |  | at June 30,2023 |  |  | Financing Receivables |
|  |  | (Dollars in thousands) |  |  |  |
| Commercial real estate loans |  | $ | 1,579 |  |  |  | 0.02 | %
| Commercial and industrial |  |  | 1,000 |  |  |  | 0.01 | %
| Dairy & livestock and agribusiness |  |  | 728 |  |  |  | 0.01 | %
| Total |  | $ | 3,307 |  |  |  |

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

| Loan Type |  | Financial Effect
|  |  | Term Extension
| Commercial real estate loans |  | Added a weighted-average 1.1 years to the life of loans, which reduced monthly payment amounts for the borrowers.
| Commercial and industrial |  | Added a weighted-average 0.8 years to the life of loans, which reduced monthly payment amounts for the borrowers.
| Dairy & livestock and agribusiness |  | Added a weighted-average 1.4 years to the life of loans, which reduced monthly payment amounts for the borrowers.

26

As of June 30, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first six months of 2023 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first.

The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty that were modified on or after January 1, 2023, the date we adopted ASU 2022-02.

|  |  | Payment Status (amortized cost basis) |
|  |  | Current |  |  | 30-89 Days Past Due |  |  | 90+ Days Past Due |
|  |  | (Dollars in thousands) |
| Commercial real estate loans |  | $ | 1,579 |  |  | $ | — |  |  | $ | — |
| Commercial and industrial |  |  | 1,000 |  |  |  | — |  |  |  | — |
| Dairy & livestock and agribusiness |  |  | 728 |  |  |  | — |  |  |  | — |
| Total |  | $ | 3,307 |  |  | $ | — |  |  | $ | — |

Prior to January 1, 2023, loans reported as TDRs were considered impaired and charge-off amounts were taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a more detailed discussion regarding TDRs.

As of December 31, 2022, there were $7.8 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, 2022, performing TDRs were comprised of four commercial and industrial loans of $4.8 million, one dairy & livestock and agribusiness loan of $2.0 million, and five SFR mortgage loans of $1.0 million.

The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time the loan is considered uncollectible. We had no allocated allowance to TDRs as of December 31, 2022 and June 30, 2022.

As of December 31, 2022 and June 30, 2022, there were no loans that w ere modified as a TDR within the previous 12 months that subsequently defaulted during the six months ended December 31, 2022 and June 30, 2022, respectively.

7. BORROWINGS

Borrowings as of June 30, 2023, consisted of $695 million from the Federal Reserve's Bank Term Funding Program that were borrowed during the second quarter of 2023 at a rate of 4.7%. These borrowings can be prepaid without penalty and mature in May, 2024. These borrowings replaced higher cost borrowings from the FHLB. FHLB borrowings consist of short-term advances that declined from $1.4 billion at March 31, 2023 to $800 million with a cost of approximately 5% at June 30, 2023. These FHLB advances will mature over the next two quarters, with the final maturity at the end of November.

The Bank has $4.1 billion of secured and unused capacity with the FHLB, $1.3 billion of secured unused borrowing capacity at the Fed’s discount window or Bank Term Funding Program, more than $550 million of unpledged AFS securities that could be pledged at the discount window or the Fed’s Bank Term Funding Program and $300 million of unsecured lines of credit.

27

8. EARNINGS PER SHARE RECONCILIATION

Basic earnings per common share are computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of shares issuable upon the assumed exercise of outstanding common stock options. Antidilutive common shares are not included in the calculation of diluted earnings per common share. For the three and six months ended June 30, 2023, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 1,412,000 and 1,058,000, r espectively. For the three and six months ended June 30, 2022, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, we re 99,000 and 540,000, 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.

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (In thousands, except per share amounts) |
Earnings per common share: |  |  |  |  |  |  |  |  |  |  |  |
Net earnings |  | $ | 55,770 |  |  | $ | 59,058 |  |  | $ | 115,040 |  |  | $ | 104,618 |
Less: Net earnings allocated to restricted stock |  |  | 390 |  |  |  | 398 |  |  |  | 798 |  |  |  | 650 |
Net earnings allocated to common shareholders |  | $ | 55,380 |  |  | $ | 58,660 |  |  | $ | 114,242 |  |  | $ | 103,968 |
Weighted average shares outstanding |  |  | 138,330 |  |  |  | 139,748 |  |  |  | 138,420 |  |  |  | 140,467 |
Basic earnings per common share |  | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | 0.83 |  |  | $ | 0.74 |
Diluted earnings per common share: |  |  |  |  |  |  |  |  |  |  |  |
Net income allocated to common shareholders |  | $ | 55,380 |  |  | $ | 58,660 |  |  | $ | 114,242 |  |  | $ | 103,968 |
Weighted average shares outstanding |  |  | 138,330 |  |  |  | 139,748 |  |  |  | 138,420 |  |  |  | 140,467 |
Incremental shares from assumed exercise of outstanding options |  |  | 53 |  |  |  | 305 |  |  |  | 137 |  |  |  | 263 |
Diluted weighted average shares outstanding |  |  | 138,383 |  |  |  | 140,053 |  |  |  | 138,557 |  |  |  | 140,730 |
Diluted earnings per common share |  | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | 0.82 |  |  | $ | 0.74 |

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9. FAIR VALUE INFORMATION

Fair Value Hierarchy

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The valuation methodologies for financial assets and liabilities measured at fair value on a recurring and non-recurring basis are described in Note 19 — Fair Value Information, included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis as of the dates presented.

|  | Carrying Value at June 30, 2023 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
|  | (Dollars in thousands) |
Description of assets |  |  |  |  |  |  |  |  |  |  |  |
Investment securities - AFS: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 2,633,021 |  |  | $ | — |  |  | $ | 2,633,021 |  |  | $ | — |
CMO/REMIC |  |  | 408,459 |  |  |  | — |  |  |  | 408,459 |  |  |  | — |
Municipal bonds |  |  | 25,566 |  |  |  | — |  |  |  | 25,566 |  |  |  | — |
Other securities |  |  | 1,105 |  |  |  | — |  |  |  | 1,105 |  |  |  | — |
Total investment securities - AFS |  |  | 3,068,151 |  |  |  | — |  |  |  | 3,068,151 |  |  |  | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 71 |  |  |  | — |  |  |  | 71 |  |  |  | — |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 11,129 |  |  |  | — |  |  |  | 11,129 |  |  |  | — |
Total assets |  | $ | 3,079,351 |  |  | $ | — |  |  | $ | 3,079,351 |  |  | $ | — |
Description of liability |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 71 |  |  | $ | — |  |  | $ | 71 |  |  | $ | — |
Total liabilities |  | $ | 71 |  |  | $ | — |  |  | $ | 71 |  |  | $ | — |

29

|  | Carrying Value at December 31, 2022 |  |  | 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 |  | $ | 2,789,141 |  |  | $ | — |  |  | $ | 2,789,141 |  |  | $ | — |
CMO/REMIC |  |  | 439,303 |  |  |  | — |  |  |  | 439,303 |  |  |  | — |
Municipal bonds |  |  | 25,687 |  |  |  | — |  |  |  | 25,687 |  |  |  | — |
Other securities |  |  | 1,080 |  |  |  | — |  |  |  | 1,080 |  |  |  | — |
Total investment securities - AFS |  |  | 3,255,211 |  |  |  | — |  |  |  | 3,255,211 |  |  |  | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 82 |  |  |  | — |  |  |  | 82 |  |  |  | — |
Total assets |  | $ | 3,255,293 |  |  | $ | — |  |  |  | 3,255,293 |  |  | $ | — |
Description of liability |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 82 |  |  | $ | — |  |  | $ | 82 |  |  | $ | — |
Total liabilities |  | $ | 82 |  |  | $ | — |  |  | $ | 82 |  |  | $ | — |

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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 impairment write-downs of individual assets.

For assets measured at fair value on a non-recurring basis that were held on the balance sheet at June 30, 2023 and December 31, 2022, 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 June 30, 2023 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total Losses For the Six Months Ended June 30, 2023 |
|  | (Dollars in thousands) |
Description of assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 2,141 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,141 |  |  | $ | 1 |
Construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SBA |  |  | 497 |  |  |  | — |  |  |  | — |  |  |  | 497 |  |  |  | 147 |
SBA - PPP |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  |  | 1,088 |  |  |  | — |  |  |  | — |  |  |  | 1,088 |  |  |  | 1,051 |
Dairy & livestock and agribusiness |  |  | 728 |  |  |  | — |  |  |  | — |  |  |  | 728 |  |  |  | 35 |
Municipal lease finance receivables |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer and other loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other real estate owned |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Asset held-for-sale |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total assets |  | $ | 4,454 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,454 |  |  | $ | 1,234 |

|  | Carrying Value at December 31, 2022 |  |  | 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, 2022 |
|  | (Dollars in thousands) |
Description of assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 2,639 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,639 |  |  | $ | 1 |
Construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SBA |  |  | 323 |  |  |  | — |  |  |  | — |  |  |  | 323 |  |  |  | 182 |
SBA - PPP |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2 |
Commercial and industrial |  |  | 451 |  |  |  | — |  |  |  | — |  |  |  | 451 |  |  |  | 326 |
Dairy & livestock and agribusiness |  |  | 113 |  |  |  | — |  |  |  | — |  |  |  | 113 |  |  |  | 113 |
Municipal lease finance receivables |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer and other loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2 |
Other real estate owned |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Asset held-for-sale |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total assets |  | $ | 3,526 |  |  |  | — |  |  |  | — |  |  | $ | 3,526 |  |  | $ | 626 |

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Fair Value of Financial Instruments

The following disclosure presents estimated fair value of our financial instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company may realize in a current market exchange as of June 30, 2023 and December 31, 2022, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

| June 30, 2023 |
| Carrying |  |  | Estimated Fair Value |
| Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
| (Dollars in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total cash and cash equivalents | $ | 618,355 |  |  | $ | 618,355 |  |  | $ | — |  |  | $ | — |  |  | $ | 618,355 |
Interest-earning balances due from depository institutions |  | 30,478 |  |  |  | — |  |  |  | 30,478 |  |  |  | — |  |  |  | 30,478 |
Investment securities available-for-sale |  | 3,068,151 |  |  |  | — |  |  |  | 3,068,151 |  |  |  | — |  |  |  | 3,068,151 |
Investment securities held-to-maturity |  | 2,512,707 |  |  |  | — |  |  |  | 2,108,653 |  |  |  | — |  |  |  | 2,108,653 |
Total loans, net of allowance for credit losses |  | 8,820,430 |  |  |  | — |  |  |  | — |  |  |  | 8,057,666 |  |  |  | 8,057,666 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | 71 |  |  |  | — |  |  |  | 71 |  |  |  | — |  |  |  | 71 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | 11,129 |  |  |  | — |  |  |  | 11,129 |  |  |  | — |  |  |  | 11,129 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing | $ | 4,518,711 |  |  | $ | — |  |  | $ | 4,512,855 |  |  | $ | — |  |  | $ | 4,512,855 |
Borrowings |  | 1,947,373 |  |  |  | — |  |  |  | 1,849,015 |  |  |  | — |  |  |  | 1,849,015 |
Junior subordinated debentures |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | 71 |  |  |  | — |  |  |  | 71 |  |  |  | — |  |  |  | 71 |

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| December 31, 2022 |
| Carrying |  |  | Estimated Fair Value |
| Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
| (Dollars in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total cash and cash equivalents | $ | 203,461 |  |  | $ | 203,461 |  |  | $ | — |  |  | $ | — |  |  | $ | 203,461 |
Interest-earning balances due from depository institutions |  | 9,553 |  |  |  | — |  |  |  | 9,553 |  |  |  | — |  |  |  | 9,553 |
Investment securities available-for-sale |  | 3,255,211 |  |  |  | — |  |  |  | 3,255,211 |  |  |  | — |  |  |  | 3,255,211 |
Investment securities held-to-maturity |  | 2,554,301 |  |  |  | — |  |  |  | 2,155,587 |  |  |  | — |  |  |  | 2,155,587 |
Total loans, net of allowance for credit losses |  | 8,994,275 |  |  |  | — |  |  |  | — |  |  |  | 8,074,952 |  |  |  | 8,074,952 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | 82 |  |  |  | — |  |  |  | 82 |  |  |  | — |  |  |  | 82 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing | $ | 4,671,881 |  |  | $ | — |  |  | $ | 4,664,657 |  |  | $ | — |  |  | $ | 4,664,657 |
Borrowings |  | 1,560,431 |  |  |  | — |  |  |  | 1,444,659 |  |  |  | — |  |  |  | 1,444,659 |
Junior subordinated debentures |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | 82 |  |  |  | — |  |  |  | 82 |  |  |  | — |  |  |  | 82 |

The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2023 and December 31, 2022. 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.

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10. DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives Not Designated as Hedging Instruments

The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset/liability management strategy to help manage its interest rate risk position. As of June 30, 2023, the Bank has entered into 124 interest-rate swap agreements with customers with a notional amount totaling $415.6 million. The Bank then entered in to identical offsetting swaps with a counterparties. The swap agreements are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and to provide the customer the financial effects of a fixed-rate loan without creating significant volatility in the Bank’s earnings.

The structure of the swaps is as follows. The Bank enters into an interest rate swap with its customers in which the Bank pays the customer a variable rate and the customer pays the Bank a fixed rate, therefore allowing customers to convert variable rate loans to fixed rate loans. At the same time, the Bank enters into a swap with a counterparty bank in which the Bank pays the counterparty a fixed rate and the counterparty in return pays the Bank a variable rate. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on SOFR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore should not have a significant impact on the Company’s results of operations, although the Company does incur credit and counterparty risk with respect to performance on the swap agreements by the Bank’s customer and counterparty, respectively. These instruments contain language outlining collateral pledging requirements for each counterparty, in which collateral must be posted if market value exceeds certain agreed upon threshold limits. Cash or securities are pledged as collateral. Our interest rate swap derivatives are subject to a master netting arrangement with our counterparties. None 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.

Derivatives Designated as Hedging Instruments

To manage interest rate risk on our AFS securities portfolio, we have entered into pay-fixed, receive-floating interest rate swap contracts to hedge against exposure to changes in the fair value of such securities resulting from changes in interest rates. We designate these interest rate swap contracts as fair value hedges that qualify for hedge accounting under ASC 815, Derivatives and Hedging. We elected to account for the fair value hedges using the portfolio layer method in accordance with ASU 2022-01. We record the interest rate swaps in the line items "accrued interest receivable and other assets" and "other liabilities" on our consolidated balance sheet. For qualifying fair value hedges, both the changes in the fair value of the derivative and the portion of the fair value adjustments associated with the portfolio layer attributable to the hedged risk are recognized into earnings as they occur. Derivative amounts impacting earnings are recognized consistent with the classification of the hedged item in the line item "investment securities available for sale" as part of interest income, a component of consolidated net income.

In June 2023, fair value hedging transactions were executed in which $1.0 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years in which the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. The fair value of these instruments totaled $11.1 million at June 30, 2023.

We assess hedge effectiveness under ASC 815 on a quarterly basis to ensure all hedges remain highly effective and hedge accounting under ASC 815 can be applied. In conjunction with the assessment of effectiveness, we assess the hedged

34

item to ensure it is expected to be outstanding at the hedged item’s assumed maturity date and the portfolio layer method of accounting under ASC 815 can be applied.

Balance Sheet Classification of Derivative Financial Instruments

As of June 30, 2023 and December 31, 2022, the total notional amount of the Company’s swaps not designated as hedging instruments was $415.6 million, a nd $425.6 million, respectively. The location of the asset and liability, and their respective fair values, are summarized in the tables below.

|  | June 30, 2023 |
|  | 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 |  | $ | 71 |  |  | Other liabilities |  | $ | 71 |
Total |  |  |  | $ | 71 |  |  |  |  | $ | 71 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Other assets |  | $ | 11,129 |  |  | Other liabilities |  | $ | — |
Total |  |  |  | $ | 11,129 |  |  |  |  | $ | — |

|  | December 31, 2022 |
|  | 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 |  | $ | 82 |  |  | Other liabilities |  | $ | 82 |
Total derivatives |  |  |  | $ | 82 |  |  |  |  | $ | 82 |

The Effect of Derivatives Financial Instruments on the Condensed Consolidated Statements of Earnings

The following table summarizes the effect of derivative financial instruments on the condensed consolidated statements of earnings for the periods presented.

|  | Location of Gain Recognized in Income on Derivative Instruments |  | Amount of Gain Recognized in Income on Derivative Instruments |
|  |  |  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  |  |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Derivatives Not Designated as Hedging Instruments: |  |  |  | (Dollars in thousands) |
Interest rate swaps |  | Other income |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

35

|  | Location of Gain Recognized in Income on Derivative Instruments |  | Amount of Gains (Losses) Recognized in Interest Income on Derivative Instruments |  |  | OCI Impact on Derivatives-Gains (Losses) recorded in OCI |
|  |  |  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |  |  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  |  |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  |  |  | (Dollars in thousands) |  |  | (Dollars in thousands) |
Derivatives Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Interest income |  | $ | 446 |  |  | $ | — |  |  | $ | 446 |  |  | $ | — |  |  | $ | 7,846 |  |  | $ | — |  |  | $ | 7,846 |  |  | $ | — |
Total |  |  |  | $ | 446 |  |  | $ | — |  |  | $ | 446 |  |  | $ | — |  |  | $ | 7,846 |  |  | $ | — |  |  | $ | 7,846 |  |  | $ | — |

11. OTHER COMPREHENSIVE INCOME

The table below provides a summary of the components of other comprehensive income (“OCI”) for the periods presented.

|  | Three Months Ended June 30, |
|  | 2023 |  |  | 2022 |
|  | 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 |  | $ | (37,996 | ) |  | $ | 11,233 |  |  | $ | (26,763 | ) |  | $ | (142,883 | ) |  | $ | 42,241 |  |  | $ | (100,642 | )
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity |  |  | 3,532 |  |  |  | (3,364 | ) |  |  | 168 |  |  |  | 93 |  |  |  | (28 | ) |  |  | 65 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net change in fair value recorded in accumulated OCI |  |  | 11,129 |  |  |  | (3,283 | ) |  |  | 7,846 |  |  |  | — |  |  |  | — |  |  |  | — |
Net change |  | $ | (23,335 | ) |  | $ | 4,586 |  |  | $ | (18,749 | ) |  | $ | (142,790 | ) |  | $ | 42,213 |  |  | $ | (100,577 | )

|  | Six Months Ended June 30, |
|  | 2023 |  |  | 2022 |
|  | 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 |  | $ | 2,428 |  |  | $ | (718 | ) |  | $ | 1,710 |  |  | $ | (344,955 | ) |  | $ | 101,981 |  |  | $ | (242,974 | )
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity |  |  | 3,810 |  |  |  | (3,446 | ) |  |  | 364 |  |  |  | 147 |  |  |  | (44 | ) |  |  | 103 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net change in fair value recorded in accumulated OCI |  |  | 11,129 |  |  |  | (3,283 | ) |  |  | 7,846 |  |  |  | — |  |  |  | — |  |  |  | — |
Net change |  | $ | 17,367 |  |  | $ | (7,447 | ) |  | $ | 9,920 |  |  | $ | (344,809 | ) |  | $ | 101,938 |  |  | $ | (242,871 | )

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12. BALANCE SHEET OFFSETTING

Assets and liabilities relating to certain financial instruments, including, derivatives and securities sold under repurchase agreements (“repurchase agreements”), may be eligible for offset in the condensed consolidated balance sheets as permitted under accounting guidance. As noted above, our interest rate swap derivatives not designated as hedging instruments are subject to master netting arrangements. These interest rate swap derivatives require the Company to pledge investment securities as collateral based on certain risk thresholds. Investment securities that have been pledged by the Company to counterparties continue to be reported in the Company’s condensed consolidated balance sheets unless the Company defaults. We offer a repurchase agreement product to our customers, which include master netting agreements that allow for the netting of collateral positions. This product, known as Citizens Sweep Manager, sells certain of our securities overnight to our customers under an agreement to repurchase them the next day. The repurchase agreements are not offset in the Company’s condensed consolidated balances.

In June 2023, fair value hedging transactions were executed in which $1.0 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years in which the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. The fair value of these instruments totaled $11.1 million at June 30, 2023. Refer to Note 10 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information.

| Gross Amounts Recognized in the Condensed |  |  | Gross Amounts Offset in the Condensed |  |  | Net Amounts Presented in the Condensed |  |  | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |  |  |  |
| Consolidated Balance Sheets |  |  | Consolidated Balance Sheets |  |  | Consolidated Balance Sheets |  |  | Financial Instruments |  |  | Collateral Pledged |  |  | Net Amount |
| (Dollars in thousands) |
June 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments | $ | 71 |  |  | $ | — |  |  | $ | — |  |  | $ | 71 |  |  | $ | — |  |  | $ | 71 |
Derivatives designated as hedging instruments |  | 11,129 |  |  |  | — |  |  |  | — |  |  |  | 11,129 |  |  |  | — |  |  |  | 11,129 |
Total | $ | 11,200 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,200 |  |  | $ | — |  |  | $ | 11,200 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments | $ | 51,364 |  |  | $ | (51,293 | ) |  | $ | 71 |  |  | $ | 51,293 |  |  | $ | (33,914 | ) |  | $ | 17,450 |
Repurchase agreements |  | 452,373 |  |  |  | — |  |  |  | 452,373 |  |  |  | — |  |  |  | 512,146 |  |  |  | 964,519 |
Total | $ | 503,737 |  |  | $ | (51,293 | ) |  | $ | 452,444 |  |  | $ | 51,293 |  |  | $ | 478,232 |  |  | $ | 981,969 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments | $ | 82 |  |  | $ | — |  |  | $ | — |  |  | $ | 82 |  |  | $ | — |  |  | $ | 82 |
Total | $ | 82 |  |  | $ | — |  |  | $ | — |  |  | $ | 82 |  |  | $ | — |  |  | $ | 82 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments | $ | 53,996 |  |  | $ | (53,914 | ) |  | $ | 82 |  |  | $ | 53,914 |  |  | $ | (18,258 | ) |  | $ | 35,738 |
Repurchase agreements |  | 565,431 |  |  |  | — |  |  |  | 565,431 |  |  |  | — |  |  |  | (634,075 | ) |  |  | (68,644 | )
Total | $ | 619,427 |  |  | $ | (53,914 | ) |  | $ | 565,513 |  |  | $ | 53,914 |  |  | $ | (652,333 | ) |  | $ | (32,906 | )

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13. LEASES

The Company’s operating leases, where the Company is a lessee, include real estate, such as office space and banking centers. Lease expense for operating leases is recognized on a straight-line basis over the term of the lease and is reflected in the consolidated statement of earnings. Right-of-use (“ROU”) assets and lease liabilities are included in other assets and other liabilities, respectively, on the Company’s condensed consolidated balance sheet.

While the Company has, as a lessor, certain equipment finance leases, such leases are not material to the Company’s consolidated financial statements.

The tables below present the components of lease costs and supplemental information related to leases as of and for the periods presented.

|  | June 30, 2023 |  |  | December 31, 2022 |
|  | (Dollars in thousands) |
Lease Assets and Liabilities |  |  |  |  |  |
ROU assets |  | $ | 23,204 |  |  | $ | 22,696 |
Total lease liabilities |  |  | 25,227 |  |  |  | 24,458 |

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (Dollars in thousands) |
Lease Cost |  |  |  |  |  |  |  |  |  |  |  |
Operating lease expense (1) |  | $ | 1,840 |  |  | $ | 1,849 |  |  | $ | 3,681 |  |  | $ | 3,695 |
Sublease income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total lease expense |  | $ | 1,840 |  |  | $ | 1,849 |  |  | $ | 3,681 |  |  | $ | 3,695 |

(1)
Includes short-term leases and variable lease costs, which are immaterial.

Other Information |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |
Operating cash outflows from operating leases, net |  | $ | 1,514 |  |  | $ | 1,860 |

|  | June 30, 2023 |  |  | December 31, 2022 |
Lease Term and Discount Rate |  |  |  |  |  |
Weighted average remaining lease term (years) |  |  | 4.22 |  |  |  | 4.12 |
Weighted average discount rate |  |  | 3.22 | % |  |  | 2.80 | %

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The Company’s lease arrangements that have not yet commenced as of June 30, 2023 and the Company’s short-term lease costs and variable lease costs, for the six months ended June 30, 2023 and 2022 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 June 30, 2023, excluding property taxes and insurance, are as follows:

|  | June 30, 2023 |
|  | (Dollars in thousands) |
Year: |  |  |
2023 (excluding the six months ended June 30, 2023) |  | $ | 3,486 |
2024 |  |  | 6,858 |
2025 |  |  | 6,211 |
2026 |  |  | 4,929 |
2027 |  |  | 3,427 |
Thereafter |  |  | 2,262 |
Total future lease payments |  |  | 27,173 |
Less: Imputed interest |  |  | (1,946 | )
Present value of lease liabilities |  | $ | 25,227 |

14. REVENUE RECOGNITION

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)”, for the periods indicated.

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (Dollars in thousands) |
Noninterest income: |  |  |  |  |  |  |  |  |  |  |  |
In-scope of Topic 606: |  |  |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | $ | 4,838 |  |  | $ | 5,333 |  |  | $ | 10,182 |  |  | $ | 10,392 |
Trust and investment services |  |  | 3,315 |  |  |  | 2,962 |  |  |  | 6,229 |  |  |  | 5,784 |
Bankcard services |  |  | 490 |  |  |  | 310 |  |  |  | 867 |  |  |  | 726 |
Other |  |  | 1,916 |  |  |  | 5,462 |  |  |  | 5,294 |  |  |  | 7,080 |
Noninterest Income (in-scope of Topic 606) |  |  | 10,559 |  |  |  | 14,067 |  |  |  | 22,572 |  |  |  | 23,982 |
Noninterest Income (out-of-scope of Topic 606) |  |  | 2,097 |  |  |  | 603 |  |  |  | 3,286 |  |  |  | 1,952 |
Total noninterest income |  | $ | 12,656 |  |  | $ | 14,670 |  |  | $ | 25,858 |  |  | $ | 25,934 |

Refer to Note 3 – Summary of Significant Accounting Policies and Note 24 – Revenue Recognition, included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a more detailed discussion about noninterest revenue streams that are in-scope of Topic 606.

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

The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “we,” “our” or the “Company”) and its wholly owned bank subsidiary, Citizens Business Bank (the “Bank” or “CBB”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 and the unaudited condensed consolidated financial statements and accompanying notes presented elsewhere in this report.

CRITICAL ACCO UNTING POLICIES

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

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

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

Our significant accounting policies are described in greater detail in our 2022 Annual Report on Form 10-K in the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2022, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Recently Issued Accounting Pronouncements but Not Adopted as of June 30, 2023

Standard |  | Description |  | Adoption Timing |  | Impact on Financial Statements
ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions Issued June 2022 |  | On June 30, 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and is not considered in measuring fair value. Further, this ASU clarifies that an entity cannot, recognize and measure a contractual sale restriction as a separate unit of account. Additionally, the amendments require the disclosures for equity securities subject to contractual sale restrictions to include the fair value of equity securities subject to contractual sale restrictions reflected on the balance sheet, the nature and remaining duration of the restrictions and the circumstances that could cause a lapse in the restrictions. This ASU is effective for interim and annual reporting periods beginning after December 15, 2023; early adoption is permitted. |  | 1st Quarter 2024 |  | The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

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OVER VIEW

For the second quarter of 2023, we reported net earnings of $55.8 million, compared with $59.3 million for the first quarter of 2023 and $59.1 million for the second quarter of 2022. Diluted earnings per share were $0.40 for the second quarter, compared to $0.42 for the prior quarter and $0.42 for the same period last year. Net income of $55.8 million for the second quarter of 2023 produced an annualized return on average equity (“ROAE”) of 11.03%, an annualized return on average tangible common equity (“ROATCE”) of 18.39%, and an annualized return on average assets (“ROAA”) of 1.36%. Our net interest margin, tax equivalent (“NIM”), was 3.22% for the second quarter of 2023, while our efficiency ratio was 40.86%.

The second quarter of 2023 included $500,000 in provision for credit losses, compared to $1.5 million in provision for credit losses in the first quarter of 2023 and $3.6 million in the second quarter of 2022. The year-to-date provision for credit losses of $2.0 million was the result of an overall increase in projected loss rates from 0.94% at the end of 2022 to 0.98% at June 30, 2023. The increase in projected loss rates continues to be driven primarily by a deteriorating economic forecast that assumes modest GDP growth through 2024, as well as lower commercial real estate values and an increase in the rate of unemployment. Our forecast reflects GDP growth of 1.5% for all of 2023 and 0.8% in 2024. Unemployment is forecasted to be 3.8% in 2023 and 5.0% in 2024.

On January 7, 2022, we completed the acquisition of Suncrest Bank (“Suncrest”). At close, Citizens Business Bank acquired loans with a fair value of $774.5 million, assumed $512.8 million of noninterest-bearing deposits, and $669.8 million of interest-bearing deposits. The integration of Suncrest was completed in the second quarter with the consolidation of two banking centers. As a result of the Suncrest merger, we incurred $6.0 million in acquisition expense during the first six months of 2022.

As a result of the acquisition of Suncrest, we recorded a provision for credit loss of $4.9 million on January 7, 2022 for the acquired loans that were not considered purchased credit deteriorated (“PCD”). The $6.1 million provision for credit losses for the first six months of 2022 was the net result of the January 7, 2022 provision for credit losses recorded for the acquisition of the Suncrest non-PCD loans and the impact of changes in the economic forecast of certain macroeconomic variables compared to the end of 2021.

At June 30, 2023, total assets of $16.48 billion increased by $8.0 million, or 0.05%, from total assets of $16.48 billion at December 31, 2022. Interest-earning assets of $14.94 billion at June 30, 2023 decreased by $36.1 million, or 0.24%, when compared with $14.97 billion at December 31, 2022. The decrease in interest-earning assets was primarily due to a $228.7 million decrease in investment securities and a $172.0 million decrease in total loans, partially offset by a $341.8 million increase in interest-earning balances due from the Federal Reserve.

In June 2023, fair value hedging transactions were executed in which $1 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. The fair value of these instruments totaled $11.1 million on June 30, 2023. These instruments generated interest income of $446,000 for the second quarter of 2023. Refer to Note 10 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information.

Total investment securities were $5.58 billion at June 30, 2023, a decrease of $228.7 million, or 3.94%, from $5.81 billion at December 31, 2022. At June 30, 2023, investment securities held-to-maturity (“HTM”) totaled $2.51 billion, a decrease of $41.6 million, or 1.63%, from December 31, 2022. At June 30, 2023, investment securities available-for-sale (“AFS”) totaled $3.07 billion, inclusive of a pre-tax net unrealized loss of $497.7 million. AFS securities decreased by $187.1 million, or 5.75%, from $3.26 billion at December 31, 2022. Our tax equivalent yield on investments was 2.37% for the quarter ended June 30, 2023, compared to 2.37% for the March 31, 2023 and 1.93% for the second quarter of 2022.

41

Total loans and leases, at amortized cost, of $8.91 billion at June 30, 2023, declined by $172.0 million, or 1.89%, from December 31, 2022. After adjusting for seasonality of dairy & livestock and PPP loans, our core loans declined by $31.9 million, or 0.37%, from December 31, 2022. The $172.0 million decrease in total loans included decreases of $136.0 million in dairy & livestock loans, $19.4 million in construction loans, $12.0 million in SBA loans, $4.1 million in PPP loans, and $21.8 million in consumer and other loans, partially offset by increases of $19.1 million in commercial real estate loans, and $7.6 million in commercial and industrial loans. The decline in dairy & livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 78% at December 31, 2022 to 68% at June 30, 2023. Our yield on loans was 5.01% for the quarter ended June 30, 2023, compared to 4.90% for the quarter ended March 31, 2023 and 4.31% for the second quarter of 2022. Loan yields, excluding the impact of PPP loans and discount accretion from acquired loans, increased from 4.20% in the second quarter of 2022 to 4.96% in the second quarter of 2023. This 76 basis point increase in our core loan yields year-over-year is a result of recent increases in interest rates, highlighted by the 500 basis point increase in the Fed Funds rate since the end of the first quarter of 2022.

The allowance for credit losses totaled $87.0 million at June 30, 2023, compared to $85.1 million at December 31, 2022. The $2 million provision for credit losses in the first half of 2023 was the result of an overall increase in projected loss rates from 0.94% at the end of 2022 to 0.98% at June 30, 2023. The increase in projected loss rates continues to be driven primarily by a deteriorating economic forecast that assumes modest GDP growth through 2024, as well as lower commercial real estate values and an increase in the rate of unemployment.

Noninterest-bearing deposits were $7.88 billion at June 30, 2023, an increase of $34.5 million, or 0.44%, when compared to $7.84 billion at March 31, 2023, a decrease $285.6 million, or 3.50% when compared to $8.16 billion at December 31, 2022, and a decrease of $1.0 billion, or 11.29%, when compared to $8.88 billion at June 30, 2022. At June 30, 2023, noninterest-bearing deposits were 63.55% of total deposits, compared to 63.92% at March 31, 2023, 63.60% at December 31, 2022, and 63.11% at June 30, 2022.

Interest-bearing deposits were $4.52 billion at June 30, 2023, an increase of $91.2 million, or 2.06%, when compared to $4.43 billion at March 31, 2023, a decrease of $153.2 million, or 3.28%, when compared to $4.67 billion at December 31, 2022 and a decrease of $672.3 million when compared to June 30, 2022. Customer repurchase agreements totaled $452.4 million at June 30, 2023, compared to $490.2 million at March 31, 2023, $565.4 million at December 31, 2022 and $502.8 million at June 30, 2022. Our average cost of total deposits including customer repurchase agreements was 0.35% for the quarter ended June 30, 2023, compared to 0.17% for the quarter ended March 31, 2023 and 0.04% for the second quarter of 2022.

At June 30, 2023, total short-term borrowings of $1.50 billion consisted of $695 million of one-year advances from the Federal Reserve’s Bank Term Funding Program, at a cost of 4.7% and $800 million of short-term Federal Home Loan Bank ("FHLB") advances, at an average cost of approximately 5%. The $90 million increase in borrowings from the end of the first quarter of 2023 to the end of the second quarter of 2023, coincided with a $322.2 million increase in funds on deposit at the Federal Reserve, which earn a rate of more than 5%. As of December 31, 2022, we had $995.0 million in short-term FHLB borrowings. The $500 million increase in short-term borrowings from December 31, 2022 reflects the $341.8 million increase in funds held at the Federal Reserve, as well as the decline in deposits that resulted from market conditions that include the availability of higher interest rates on short-term alternatives to deposits, such as money market mutual funds and treasury notes. With slowing loan demand, cash flow generated from our investment securities, and the normal historical inflows of deposits we experience during the third quarter of most years, borrowings may moderate during the second half of 2023. However, continued increases in short-term rates and overall inflationary pressures may continue to create challenges that impact deposit levels and our liquidity in the near term. Since April of 2022 to June of 2023, the Federal Reserve has increased the Federal Funds rate by 500 basis points to the target range of 5.00% to 5.25%. In comparison to the rising Federal Funds rate, our average cost of deposits has increased from 3 basis points for the second quarter of 2022 to 35 basis points for the second quarter of 2023. We had $1.53 billion in average short-term borrowings at a cost of 4.90% for the second quarter of 2023, compared to $971.7 million in the first quarter of 2023 at a cost of 4.81%. These short-term borrowings and an increase in the cost of deposits and customer repurchase agreements from 17 basis points in the first quarter of 2023 to 35 basis points in the second quarter of 2023, increased our cost of funds by 34 basis points to 0.83% for the second quarter of 2023.

The Company’s total equity was $2.00 billion at June 30, 2023. This represented an overall increase of $52.9 million from total equity of $1.95 billion at December 31, 2022. Increases to equity included $115.0 million in net earnings and a $9.9 million increase in other comprehensive income. At the end of the second quarter of 2023, we entered into pay-fixed rate swaps to mitigate the risks of rising interest rates on our AFS securities portfolio. This resulted in a fair value remeasurement of this swap derivative at June 30, 2023, resulting in an after tax increase in other comprehensive income of $7.8 million. Decreases from December 31, 2022 included $55.8 million in cash dividends. We engaged in no stock repurchases during

42

the second quarter of 2023, compared to the first quarter of 2023, when we repurchased, under our 10b5-1 stock repurchase plan, 791,800 shares of common stock, at an average repurchase price of $23.43, totaling $18.5 million. This 10b5-1 plan expired on March 2, 2023 and no new plan has been put in place since that time. Our tangible book value per share at June 30, 2023 was $8.74.

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of June 30, 2023, the Company’s Tier 1 leverage capital ratio was 9.81%, common equity Tier 1 ratio was 14.07%, Tier 1 risk-based capital ratio was 14.07%, and total risk-based capital ratio was 14.92%. Refer to our Analysis of Financial Condition – Capital Resources.

43

ANALYSIS OF THE R ESULTS OF OPERATIONS

Financial Performance

| Three Months Ended |  |  |  |  |  |  |
| June 30, |  |  | March 31, |  |  | Variance |
| 2023 |  |  | 2023 |  |  | $ |  |  | % |
| (Dollars in thousands, except per share amounts) |
Net interest income | $ | 119,535 |  |  | $ | 125,728 |  |  | $ | (6,193 | ) |  |  | -4.93 | %
Provision for credit losses |  | (500 | ) |  |  | (1,500 | ) |  |  | 1,000 |  |  |  | 66.67 | %
Noninterest income |  | 12,656 |  |  |  | 13,202 |  |  |  | (546 | ) |  |  | -4.14 | %
Noninterest expense |  | (54,017 | ) |  |  | (54,881 | ) |  |  | 864 |  |  |  | 1.57 | %
Income taxes |  | (21,904 | ) |  |  | (23,279 | ) |  |  | 1,375 |  |  |  | 5.91 | %
Net earnings | $ | 55,770 |  |  | $ | 59,270 |  |  | $ | (3,500 | ) |  |  | -5.91 | %
Earnings per common share: |  |  |  |  |  |  |  |  |  |  |
Basic | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | (0.02 | ) |  |  |
Diluted | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | (0.02 | ) |  |  |
Return on average assets |  | 1.36 | % |  |  | 1.47 | % |  |  | -0.11 | % |  |  |
Return on average shareholders' equity |  | 11.03 | % |  |  | 12.15 | % |  |  | -1.12 | % |  |  |
Efficiency ratio |  | 40.86 | % |  |  | 39.50 | % |  |  | 1.36 | % |  |  |
Noninterest expense to average assets |  | 1.32 | % |  |  | 1.36 | % |  |  | -0.04 | % |  |  |

| Three Months Ended |  |  | Variance |
| June 30, |  |  |  |  |  |  |
| 2023 |  |  | 2022 |  |  | $ |  |  | % |
| (Dollars in thousands, except per share amounts) |
Net interest income | $ | 119,535 |  |  | $ | 121,940 |  |  | $ | (2,405 | ) |  |  | -1.97 | %
Provision for credit losses |  | (500 | ) |  |  | (3,600 | ) |  |  | 3,100 |  |  |  | 86.11 | %
Noninterest income |  | 12,656 |  |  |  | 14,670 |  |  |  | (2,014 | ) |  |  | -13.73 | %
Noninterest expense |  | (54,017 | ) |  |  | (50,871 | ) |  |  | (3,146 | ) |  |  | -6.18 | %
Income taxes |  | (21,904 | ) |  |  | (23,081 | ) |  |  | 1,177 |  |  |  | 5.10 | %
Net earnings | $ | 55,770 |  |  | $ | 59,058 |  |  | $ | (3,288 | ) |  |  | -5.57 | %
Earnings per common share: |  |  |  |  |  |  |  |  |  |  |
Basic | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | (0.02 | ) |  |  |
Diluted | $ | 0.40 |  |  | $ | 0.42 |  |  | $ | (0.02 | ) |  |  |
Return on average assets |  | 1.36 | % |  |  | 1.39 | % |  |  | -0.03 | % |  |  |
Return on average shareholders' equity |  | 11.03 | % |  |  | 11.33 | % |  |  | -0.30 | % |  |  |
Efficiency ratio |  | 40.86 | % |  |  | 37.24 | % |  |  | 3.62 | % |  |  |
Noninterest expense to average assets |  | 1.32 | % |  |  | 1.20 | % |  |  | 0.12 | % |  |  |

| Six Months Ended |  |  |  |  |  |  |
| June 30, |  |  | Variance |
| 2023 |  |  | 2022 |  |  | $ |  |  | % |
| (Dollars in thousands, except per share amounts) |
Net interest income | $ | 245,263 |  |  | $ | 234,780 |  |  | $ | 10,483 |  |  |  | 4.47 | %
Provision for credit losses |  | (2,000 | ) |  |  | (6,100 | ) |  |  | 4,100 |  |  |  | -67.21 | %
Noninterest income |  | 25,858 |  |  |  | 25,934 |  |  |  | (76 | ) |  |  | -0.29 | %
Noninterest expense |  | (108,898 | ) |  |  | (109,109 | ) |  |  | 211 |  |  |  | 0.19 | %
Income taxes |  | (45,183 | ) |  |  | (40,887 | ) |  |  | (4,296 | ) |  |  | -10.51 | %
Net earnings | $ | 115,040 |  |  | $ | 104,618 |  |  | $ | 10,422 |  |  |  | 9.96 | %
Earnings per common share: |  |  |  |  |  |  |  |  |  |  |
Basic | $ | 0.83 |  |  | $ | 0.74 |  |  | $ | 0.09 |  |  |  |
Diluted | $ | 0.82 |  |  | $ | 0.74 |  |  | $ | 0.08 |  |  |  |
Return on average assets |  | 1.42 | % |  |  | 1.23 | % |  |  | 0.19 | % |  |  |
Return on average shareholders' equity |  | 11.58 | % |  |  | 9.74 | % |  |  | 1.84 | % |  |  |
Efficiency ratio |  | 40.17 | % |  |  | 41.85 | % |  |  | -1.68 | % |  |  |
Noninterest expense to average assets |  | 1.34 | % |  |  | 1.28 | % |  |  | 0.06 | % |  |  |

44

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

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

|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, |  |  | March 31, |  |  | June 30, |  |  | June 30, |  |  | June 30, |
|  | 2023 |  |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (Dollars in thousands) |
Net Income |  | $ | 55,770 |  |  | $ | 59,270 |  |  | $ | 59,058 |  |  | $ | 115,040 |  |  | $ | 104,618 |
Add: Amortization of intangible assets |  |  | 1,719 |  |  |  | 1,720 |  |  |  | 1,998 |  |  |  | 3,439 |  |  |  | 3,996 |
Less: Tax effect of amortization of intangible assets (1) |  |  | (509 | ) |  |  | (508 | ) |  |  | (591 | ) |  |  | (1,017 | ) |  |  | (1,181 | )
Tangible net income |  | $ | 56,980 |  |  | $ | 60,482 |  |  | $ | 60,465 |  |  | $ | 117,462 |  |  | $ | 107,433 |
Average stockholders' equity |  | $ | 2,027,708 |  |  | $ | 1,978,244 |  |  | $ | 2,091,454 |  |  | $ | 2,003,112 |  |  | $ | 2,166,975 |
Less: Average goodwill |  |  | (765,822 | ) |  |  | (765,822 | ) |  |  | (765,822 | ) |  |  | (765,822 | ) |  |  | (762,437 | )
Less: Average intangible assets |  |  | (19,298 | ) |  |  | (20,983 | ) |  |  | (26,381 | ) |  |  | (20,136 | ) |  |  | (27,280 | )
Average tangible common equity |  | $ | 1,242,588 |  |  | $ | 1,191,439 |  |  | $ | 1,299,251 |  |  | $ | 1,217,154 |  |  | $ | 1,377,258 |
Return on average equity, annualized |  |  | 11.03 | % |  |  | 12.15 | % |  |  | 11.33 | % |  |  | 11.58 | % |  |  | 9.74 | %
Return on average tangible common equity, annualized |  |  | 18.39 | % |  |  | 20.59 | % |  |  | 18.67 | % |  |  | 19.46 | % |  |  | 15.73 | %

(1)
Tax effected at respective statutory rates.

Net Interest Income

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans, investments and interest earning cash (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the three and six months ended June 30, 2023 and 2022. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary policy, and the strength of the global, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, the growth and maturity of earning assets, and derivative financial instruments. See Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management included herein.

45

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

| Three Months Ended June 30, |
| 2023 |  |  | 2022 |
| Average |  |  |  |  |  | Yield/ |  |  | Average |  |  |  |  |  | Yield/ |
| Balance |  |  | Interest |  |  | Rate |  |  | Balance |  |  | Interest |  |  | Rate |
| (Dollars in thousands) |
INTEREST-EARNING ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable | $ | 3,136,769 |  |  | $ | 19,187 |  |  |  | 2.45 | % |  | $ | 3,708,306 |  |  | $ | 16,863 |  |  |  | 1.85 | %
Tax-advantaged |  | 26,148 |  |  |  | 169 |  |  |  | 3.09 | % |  |  | 27,770 |  |  |  | 179 |  |  |  | 3.10 | %
Held-to-maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  | 2,144,571 |  |  |  | 11,293 |  |  |  | 2.11 | % |  |  | 2,078,983 |  |  |  | 9,978 |  |  |  | 1.93 | %
Tax-advantaged |  | 382,118 |  |  |  | 2,447 |  |  |  | 3.10 | % |  |  | 288,978 |  |  |  | 1,736 |  |  |  | 2.92 | %
Investment in FHLB stock |  | 32,032 |  |  |  | 483 |  |  |  | 6.05 | % |  |  | 18,012 |  |  |  | 273 |  |  |  | 6.08 | %
Interest-earning deposits with other institutions |  | 353,610 |  |  |  | 4,670 |  |  |  | 5.30 | % |  |  | 804,147 |  |  |  | 1,463 |  |  |  | 0.73 | %
Loans (2) |  | 8,892,414 |  |  |  | 110,990 |  |  |  | 5.01 | % |  |  | 8,634,575 |  |  |  | 92,770 |  |  |  | 4.31 | %
Total interest-earning assets |  | 14,967,662 |  |  |  | 149,239 |  |  |  | 4.01 | % |  |  | 15,560,771 |  |  |  | 123,262 |  |  |  | 3.20 | %
Total noninterest-earning assets |  | 1,488,862 |  |  |  |  |  |  |  |  |  | 1,446,177 |  |  |  |  |  |  |
Total assets | $ | 16,456,524 |  |  |  |  |  |  |  |  | $ | 17,006,948 |  |  |  |  |  |  |
INTEREST-BEARING LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Savings deposits (3) | $ | 4,186,438 |  |  | $ | 10,351 |  |  |  | 0.99 | % |  | $ | 4,887,799 |  |  | $ | 1,136 |  |  |  | 0.09 | %
Time deposits |  | 295,328 |  |  |  | 414 |  |  |  | 0.56 | % |  |  | 361,463 |  |  |  | 65 |  |  |  | 0.07 | %
Total interest-bearing deposits |  | 4,481,766 |  |  |  | 10,765 |  |  |  | 0.96 | % |  |  | 5,249,262 |  |  |  | 1,201 |  |  |  | 0.09 | %
FHLB advances, other borrowings, and customer repurchase agreements |  | 2,022,137 |  |  |  | 18,939 |  |  |  | 3.76 | % |  |  | 581,613 |  |  |  | 121 |  |  |  | 0.08 | %
Interest-bearing liabilities |  | 6,503,903 |  |  |  | 29,704 |  |  |  | 1.83 | % |  |  | 5,830,875 |  |  |  | 1,322 |  |  |  | 0.09 | %
Noninterest-bearing deposits |  | 7,823,496 |  |  |  |  |  |  |  |  |  | 8,923,043 |  |  |  |  |  |  |
Other liabilities |  | 101,417 |  |  |  |  |  |  |  |  |  | 161,576 |  |  |  |  |  |  |
Stockholders' equity |  | 2,027,708 |  |  |  |  |  |  |  |  |  | 2,091,454 |  |  |  |  |  |  |
Total liabilities and stockholders' equity | $ | 16,456,524 |  |  |  |  |  |  |  |  | $ | 17,006,948 |  |  |  |  |  |  |
Net interest income |  |  |  | $ | 119,535 |  |  |  |  |  |  |  |  | $ | 121,940 |  |  |  |
Net interest spread - tax equivalent |  |  |  |  |  |  |  | 2.18 | % |  |  |  |  |  |  |  |  | 3.11 | %
Net interest margin |  |  |  |  |  |  |  | 3.20 | % |  |  |  |  |  |  |  |  | 3.15 | %
Net interest margin - tax equivalent |  |  |  |  |  |  |  | 3.22 | % |  |  |  |  |  |  |  |  | 3.16 | %

(1)
Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended June 30, 2023 and June 30, 2022. The non TE rates for total investment securities were 2.33% and 1.91% for the three months ended June 30, 2023 and June 30, 2022, respectively.
(2)
Includes loan fees of $890,000 and $2.1 million for the three months ended June 30, 2023 and June 30, 2022, respectively. Prepayment penalty fees of $686,000 and $2.4 million are included in interest income for the three months ended June 30, 2023 and June 30, 2022, respectively.
(3)
Includes interest-bearing demand and money market accounts.

46

| Six Months Ended June 30, |
| 2023 |  |  | 2022 |
| Average |  |  |  |  |  | Yield/ |  |  | Average |  |  |  |  |  | Yield/ |
| Balance |  |  | Interest |  |  | Rate |  |  | Balance |  |  | Interest |  |  | Rate |
| (Dollars in thousands) |
INTEREST-EARNING ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable | $ | 3,163,468 |  |  | $ | 38,615 |  |  |  | 2.44 | % |  | $ | 3,613,093 |  |  | $ | 29,512 |  |  |  | 1.68 | %
Tax-advantaged |  | 25,916 |  |  |  | 337 |  |  |  | 3.11 | % |  |  | 28,916 |  |  |  | 362 |  |  |  | 3.00 | %
Held-to-maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  | 2,154,188 |  |  |  | 22,800 |  |  |  | 2.12 | % |  |  | 2,022,005 |  |  |  | 19,082 |  |  |  | 1.90 | %
Tax-advantaged |  | 382,392 |  |  |  | 4,896 |  |  |  | 3.10 | % |  |  | 277,129 |  |  |  | 3,295 |  |  |  | 2.88 | %
Investment in FHLB stock |  | 30,459 |  |  |  | 832 |  |  |  | 5.51 | % |  |  | 18,470 |  |  |  | 644 |  |  |  | 7.03 | %
Interest-earning deposits with other institutions |  | 201,617 |  |  |  | 5,161 |  |  |  | 5.16 | % |  |  | 1,232,928 |  |  |  | 2,236 |  |  |  | 0.37 | %
Loans (2) |  | 8,927,671 |  |  |  | 219,384 |  |  |  | 4.95 | % |  |  | 8,567,876 |  |  |  | 182,231 |  |  |  | 4.29 | %
Total interest-earning assets |  | 14,885,711 |  |  |  | 292,025 |  |  |  | 3.96 | % |  |  | 15,760,417 |  |  |  | 237,362 |  |  |  | 3.06 | %
Total noninterest-earning assets |  | 1,499,515 |  |  |  |  |  |  |  |  |  | 1,433,991 |  |  |  |  |  |  |
Total assets | $ | 16,385,226 |  |  |  |  |  |  |  |  | $ | 17,194,408 |  |  |  |  |  |  |
INTEREST-BEARING LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Savings deposits (3) | $ | 4,260,782 |  |  | $ | 15,598 |  |  |  | 0.74 | % |  | $ | 4,984,664 |  |  | $ | 2,189 |  |  |  | 0.09 | %
Time deposits |  | 290,340 |  |  |  | 532 |  |  |  | 0.37 | % |  |  | 371,648 |  |  |  | 139 |  |  |  | 0.08 | %
Total interest-bearing deposits |  | 4,551,122 |  |  |  | 16,130 |  |  |  | 0.71 | % |  |  | 5,356,312 |  |  |  | 2,328 |  |  |  | 0.09 | %
FHLB advances, other borrowings, and customer repurchase agreements |  | 1,773,677 |  |  |  | 30,632 |  |  |  | 3.48 | % |  |  | 630,526 |  |  |  | 254 |  |  |  | 0.08 | %
Interest-bearing liabilities |  | 6,324,799 |  |  |  | 46,762 |  |  |  | 1.49 | % |  |  | 5,986,838 |  |  |  | 2,582 |  |  |  | 0.09 | %
Noninterest-bearing deposits |  | 7,957,357 |  |  |  |  |  |  |  |  |  | 8,822,444 |  |  |  |  |  |  |
Other liabilities |  | 99,959 |  |  |  |  |  |  |  |  |  | 218,151 |  |  |  |  |  |  |
Stockholders' equity |  | 2,003,112 |  |  |  |  |  |  |  |  |  | 2,166,975 |  |  |  |  |  |  |
Total liabilities and stockholders' equity | $ | 16,385,227 |  |  |  |  |  |  |  |  | $ | 17,194,408 |  |  |  |  |  |  |
Net interest income |  |  |  | $ | 245,263 |  |  |  |  |  |  |  |  | $ | 234,780 |  |  |  |
Net interest spread - tax equivalent |  |  |  |  |  |  |  | 2.47 | % |  |  |  |  |  |  |  |  | 2.98 | %
Net interest margin |  |  |  |  |  |  |  | 3.31 | % |  |  |  |  |  |  |  |  | 3.02 | %
Net interest margin - tax equivalent |  |  |  |  |  |  |  | 3.33 | % |  |  |  |  |  |  |  |  | 3.03 | %

(1)
Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the six months ended June 30, 2023 and June 30, 2022. The non TE rates for total investment securities were 2.33% and 1.79% for the six months ended June 30, 2023 and June 30, 2022, respectively.
(2)
Includes loan fees of $1.7 million and $5.4 million for the six months ended June 30, 2023 and June 30, 2022, respectively. Prepayment penalty fees of $1.3 million and $4.6 million are included in interest income for the six months ended June 30, 2023 and June 30, 2022, respectively.
(3)
Includes interest-bearing demand and money market accounts.

47

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

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

| Comparison of Three Months Ended June 30, |
| 2023 Compared to 2022 |
| Increase (Decrease) Due to |
|  |  |  |  |  |  | Rate/ |  |  |  |
| Volume |  |  | Rate |  |  | Volume |  |  | Total |
| (Dollars in thousands) |
Interest income: |  |  |  |  |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |
Taxable investment securities | $ | (2,363 | ) |  | $ | 5,448 |  |  | $ | (761 | ) |  | $ | 2,324 |
Tax-advantaged investment securities |  | (10 | ) |  |  | — |  |  |  | — |  |  |  | (10 | )
Held-to-maturity securities: |  |  |  |  |  |  |  |  |  |  |
Taxable investment securities |  | 347 |  |  |  | 931 |  |  |  | 37 |  |  |  | 1,315 |
Tax-advantaged investment securities |  | 569 |  |  |  | 106 |  |  |  | 36 |  |  |  | 711 |
Investment in FHLB stock |  | 212 |  |  |  | (1 | ) |  |  | (1 | ) |  |  | 210 |
Interest-earning deposits with other institutions |  | (820 | ) |  |  | 9,157 |  |  |  | (5,130 | ) |  |  | 3,207 |
Loans |  | 2,770 |  |  |  | 15,002 |  |  |  | 448 |  |  |  | 18,220 |
Total interest income |  | 705 |  |  |  | 30,643 |  |  |  | (5,371 | ) |  |  | 25,977 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |
Savings deposits |  | (163 | ) |  |  | 10,949 |  |  |  | (1,571 | ) |  |  | 9,215 |
Time deposits |  | (12 | ) |  |  | 442 |  |  |  | (81 | ) |  |  | 349 |
FHLB advances, other borrowings, and customer repurchase agreements |  | 300 |  |  |  | 5,326 |  |  |  | 13,192 |  |  |  | 18,818 |
Total interest expense |  | 125 |  |  |  | 16,717 |  |  |  | 11,540 |  |  |  | 28,382 |
Net interest income | $ | 580 |  |  | $ | 13,926 |  |  | $ | (16,911 | ) |  | $ | (2,405 | )

48

| Comparison of Six Months Ended June 30, |
| 2023 Compared to 2022 |
| Increase (Decrease) Due to |
|  |  |  |  |  |  | Rate/ |  |  |  |
| Volume |  |  | Rate |  |  | Volume |  |  | Total |
| (Dollars in thousands) |
Interest income: |  |  |  |  |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |
Taxable investment securities | $ | (5,865 | ) |  | $ | 26,735 |  |  | $ | (11,767 | ) |  | $ | 9,103 |
Tax-advantaged investment securities |  | (75 | ) |  |  | 28 |  |  |  | 22 |  |  |  | (25 | )
Held-to-maturity securities: |  |  |  |  |  |  |  |  |  |  |
Taxable investment securities |  | 2,790 |  |  |  | 4,331 |  |  |  | (3,403 | ) |  |  | 3,718 |
Tax-advantaged investment securities |  | 2,528 |  |  |  | 487 |  |  |  | (1,414 | ) |  |  | 1,601 |
Investment in FHLB stock |  | 843 |  |  |  | (281 | ) |  |  | (374 | ) |  |  | 188 |
Interest-earning deposits with other institutions |  | (3,772 | ) |  |  | 59,135 |  |  |  | (52,438 | ) |  |  | 2,925 |
Loans |  | 15,429 |  |  |  | 57,090 |  |  |  | (35,366 | ) |  |  | 37,153 |
Total interest income |  | 11,878 |  |  |  | 147,525 |  |  |  | (104,740 | ) |  |  | 54,663 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |
Savings deposits |  | (641 | ) |  |  | 32,384 |  |  |  | (18,334 | ) |  |  | 13,409 |
Time deposits |  | (61 | ) |  |  | 1,093 |  |  |  | (639 | ) |  |  | 393 |
FHLB advances, other borrowings, and customer repurchase agreements |  | 929 |  |  |  | 21,447 |  |  |  | 8,002 |  |  |  | 30,378 |
Total interest expense |  | 227 |  |  |  | 54,924 |  |  |  | (10,971 | ) |  |  | 44,180 |
Net interest income | $ | 11,651 |  |  | $ | 92,601 |  |  | $ | (93,769 | ) |  | $ | 10,483 |

Second Quarter of 2023 Compared to the Second Quarter of 2022

Net interest income, before provision for credit losses, of $119.5 million for the second quarter of 2023 decreased by $2.4 million, or 1.97%, from the second quarter of 2022. The decline in net interest income compared to the second quarter of 2022 was primarily due to a $593.1 million decrease in average earning assets, that was partially offset by a six basis point increase in the net interest margin.

Total interest income was $149.2 million for the second quarter of 2023, which was $26.0 million, or 21.07%, higher than the same period of 2022. This increase was primarily due to an 81 basis point expansion of the yield on earning assets, which offset a $593.1 million decline in average interest-earning assets. Total interest income and fees on loans for the second quarter of 2023 was $111.0 million, an increase of $18.2 million, or 19.64%, from the second quarter of 2022. Loan yields grew from 4.31% for the second quarter of 2022 to 5.01% for the second quarter of 2023, while average loans also grew by $257.8 million. Interest income from investment securities was $33.1 million, an increase of $4.3 million, or 15.09%, from the second quarter of 2022. The increase was a result of a 44 basis point increase in security yields, offset by investment securities declining on average by $414.4 million. Average funds on deposit at the Federal Reserve also declined by $450.1 million.

In June 2023, fair value hedging transactions were executed in which $1.0 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years in which the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. The second quarter of 2023 included approximately $450,000 of interest income associated with these interest rate swaps. Refer to Note 10 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information.

Interest expense of $29.7 million for the second quarter of 2023 increased $28.4 million, compared to the second quarter of 2022. Total cost of funds of 0.83% for the second quarter of 2023 increased from 0.04% for the year ago quarter. This 79 basis point increase in cost of funds was the result of an 87 basis point increase in the cost of interest-bearing deposits and an average cost of 4.90% on $1.53 billion of short-term borrowings for the second quarter of 2023. On average, noninterest-bearing deposits were 63.58% of total deposits for the second quarter of 2023, compared to 62.96% for the second quarter of 2022.

49

Six Months of 2023 Compared to Six Months of 2022

Net interest income, before provision for credit losses, was $245.3 million for the six months ended June 30, 2023, an increase of $10.5 million, or 4.47%, compared to $234.8 million for the same period of 2022. Interest-earning assets decreased on average by $874.7 million, or 5.55%, from $15.76 billion for the six months ended June 30, 2022 to $14.89 billion for the same period in the current year. Our net interest margin (TE) was 3.33% for the first six months of 2023, compared to 3.03% for the same period of 2022.

Interest income for the six months ended June 30, 2023, was $292.0 million, which was $54.7 million, or 23.03%, higher than the same period of 2022. Compared to the first six months of 2022, average interest-earning assets decreased by $874.7 million, while the yield on interest-earning assets increased by 90 basis points. The $874.7 million year-over-year decrease in earning assets resulted from a $1.0 billion decrease in average earning balances due from the Federal Reserve and a decline of $215.2 million in average investment securities, offset by $359.8 million of growth in average loans. The 90 basis point increase in the earning asset yield over the first six months of 2022 resulted from a 66 basis point increase in loan yields, from 4.29% for the first six months of 2022 to 4.95% for the same period of 2023, as well as a change in the mix of earning assets. Average loans as a percentage of earning assets grew from 54.36% for the first six months of 2022 to 59.97% for the first six months of 2023. The non tax-equivalent yield on investment securities was 2.33% for the six months ended June 30, 2023, compared to 1.79% for the same period of 2022.

Total interest income and fees on loans for the six months ended June 30, 2023 was $219.4 million, an increase of $37.2 million, or 20.39%, when compared to the same period of 2022. This increase in income was partly due to growth in average loans of $359.8 million. Discount accretion on acquired loans decreased by $1.7 million and interest and fee income from PPP loans declined by $4.1 million compared to the same period of 2022. After excluding discount accretion and the impact from PPP loans, our core loan yields grew by 75 basis points compared to the first six months of 2022. Core loan yields grew year-over-year, as rising interest rates contributed to an increase in yields from 4.29% for the first six months of 2022 to 4.95% for the same period of 2023.

Interest income from investment securities of $66.6 million for the six months ended June 30, 2023, increased $14.4 million from $52.3 million for the first six months of 2022. This increase was driven by a 55 basis point increase in the yield on securities, compared to the first six months of 2022. Average investment securities declined modestly from the first six months of 2022 by $215.2 million.

Interest expense of $46.8 million for the six months ended June 30, 2023, increased by $44.2 million from the same period of 2022. The average rate paid on interest-bearing liabilities increased by 140 basis points, to 1.49% for the first six months of 2023, from 0.09% for the same period of 2022. Likewise, the rate on interest-bearing deposits for the first six months of 2023 increased by 62 basis points from the same period in 2022. Average interest-bearing deposits declined by $805.2 million when compared to the first six months of 2022. Total cost of funds for the first six months of 2023 was 0.66%, compared with 0.04% for the same period of 2022. This 62 basis point increase in cost of funds was the result of the increase in the cost of interest-bearing deposits and the addition of $1.25 billion of short-term borrowings, on average, for the six months ended June 30, 2023, at an average cost of 4.87%. Average noninterest-bearing deposits represented 63.62% of our total deposits for the six months ended June 30, 2023, compared to 62.22% for the same period of 2022.

50

Provision for (Recapture of) Credit Losses

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

The second quarter of 2023 included $500,000 in provision for credit losses, compared to $1.5 million in provision for credit losses in the first quarter of 2023 and $3.6 million in the second quarter of 2022. The year-to-date provision for credit losses of $2.0 million was the result of an overall increase in projected loss rates from 0.94% at the end of 2022 to 0.98% at June 30, 2023. The increase in projected loss rates continues to be driven primarily by a deteriorating economic forecast that assumes modest GDP growth through 2024, as well as lower commercial real estate values and an increase in the rate of unemployment. Refer to the discussion of “Allowance for Credit Losses” in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.

For the six months ended June 30, 2023, we recorded $2.0 million in provision for credit losses, and experienced credit charge-offs of $198,000 and total recoveries of $48,000, resulting in net charge-offs of $150,000. For the six months ended June 30, 2022, we recorded $6.1 million in provision for credit losses, and experienced credit charge-offs of $24,000 and total recoveries of $522,000, resulting in net recoveries of $498,000. Refer to the discussion of “Allowance for Credit Losses” in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.

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

Noninterest Income

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

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

| Three Months Ended |  |  |  |  |  |  |  |  | Six Months Ended |  |  |  |  |  |  |
| June 30, |  |  | Variance |  |  | June 30, |  |  | Variance |
| 2023 |  |  | 2022 |  |  | $ |  |  | % |  |  | 2023 |  |  | 2022 |  |  | $ |  |  | % |
| (Dollars in thousands) |
Noninterest income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts | $ | 4,838 |  |  | $ | 5,333 |  |  | $ | (495 | ) |  |  | -9.28 | % |  | $ | 10,182 |  |  | $ | 10,392 |  |  | $ | (210 | ) |  |  | -2.02 | %
Trust and investment services |  | 3,315 |  |  |  | 2,962 |  |  |  | 353 |  |  |  | 11.92 | % |  |  | 6,229 |  |  |  | 5,784 |  |  |  | 445 |  |  |  | 7.69 | %
Bankcard services |  | 490 |  |  |  | 310 |  |  |  | 180 |  |  |  | 58.06 | % |  |  | 867 |  |  |  | 726 |  |  |  | 141 |  |  |  | 19.42 | %
BOLI income |  | 2,097 |  |  |  | 603 |  |  |  | 1,494 |  |  |  | 247.76 | % |  |  | 3,286 |  |  |  | 1,952 |  |  |  | 1,334 |  |  |  | 68.34 | %
Swap fee income |  | 82 |  |  |  | — |  |  |  | 82 |  |  | — |  |  |  | 632 |  |  |  | — |  |  |  | 632 |  |  | — |
Other |  | 1,834 |  |  |  | 5,462 |  |  |  | (3,628 | ) |  |  | -66.42 | % |  |  | 4,662 |  |  |  | 7,080 |  |  |  | (2,418 | ) |  |  | -34.15 | %
Total noninterest income | $ | 12,656 |  |  | $ | 14,670 |  |  | $ | (2,014 | ) |  |  | -13.73 | % |  | $ | 25,858 |  |  | $ | 25,934 |  |  | $ | (76 | ) |  |  | -0.29 | %

Second Quarter of 2023 Compared to the Second Quarter of 2022

Noninterest income was $12.7 million for the second quarter of 2023, compared with $14.7 million for the second quarter of 2022.The second quarter of 2023 included $806,000 in death benefits that exceeded the asset value of certain BOLI policies, partially offset by a $716,000 decline in CRA investment income. The second quarter of 2022 included a $1.3 million gain from an equity fund distribution related to a CRA investment, as well as $2.7 million in net gains on the sale of properties associated with banking centers, including $2.4 million from the sale of one property. Swap fees for transitioning our back-to-back swaps out of LIBOR to term SOFR were approximately $100,000 in the second quarter of 2023. Service charges on deposit accounts declined by $495,000, or 9.28% from the prior year quarter, while bankcard fees grew by $180,000.

51

Trust and Investment Services represents our CitizensTrust group. The CitizensTrust group is made up of wealth management and investment services. They provide a variety of services, which include asset management, financial planning, estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other non-insured investment products. At June 30, 2023, CitizensTrust had approximately $3.61 billion in assets under management and administration, including $2.41 billion in assets under management. CitizensTrust generated fees of $3.3 million for the second quarter of 2023, compared to $3.0 million for the same period of 2022.

The Bank’s investment in BOLI includes life insurance policies acquired through acquisitions and the purchase of life insurance by the Bank on a select group of employees to fund deferred compensation plans. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at its cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income tax, as long as they are held for the life of the covered parties. BOLI income increased by $1.5 million compared to the second quarter of 2022 due to both the death benefits received in the second quarter of 2023 and higher returns for the underlying investments in separate fund life insurance policies used to fund deferred compensation plans. The second quarter of 2023 included $806,000 in death benefits that exceeded the asset value of certain BOLI policies, compared to no death benefits from BOLI policies in the second quarter of 2022.

The Bank also enters into interest rate swap agreements with our customers to manage our interest rate risk and enters into identical offsetting swaps with a counterparty. The changes in the fair value of these non-hedged swaps primarily offset each other resulting in swap fee income. Generally speaking, our volume of back-to-back interest rate swaps is impacted by the level and shape of the yield curve and the Bank's management of interest rate risk. There was one executed swap agreement related to new loan originations for the second quarter of 2023, compared to no executed swap agreements in the second quarter of 2022. The remaining LIBOR indexed swaps that were not converted to term SOFR in the first quarter of 2023 were converted during the second quarter, generating fee income of approximately $100,000. Refer to Note 10 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information.

Six Months of 2023 Compared to Six Months of 2022

The $1.3 million year-over-year increase in BOLI income was primarily due to higher returns for the underlying investments in separate fund life insurance policies used to fund deferred compensation plans and the $806,000 in death benefits received in 2023. The six months ended June 30, 2022 included $2.7 million in net gains from the sale of properties associated with banking centers. Trust and investment fees grew by $445,000 or 7.69% due to increased assets under management.

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Noninterest Expense

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

| Three Months Ended |  |  |  |  |  |  |  |  | Six Months Ended |  |  |  |  |  |  |
| June 30, |  |  | Variance |  |  | June 30, |  |  | Variance |
| 2023 |  |  | 2022 |  |  | $ |  |  | % |  |  | 2023 |  |  | 2022 |  |  | $ |  |  | % |
| (Dollars in thousands) |
Noninterest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits | $ | 33,548 |  |  | $ | 31,553 |  |  | $ | 1,995 |  |  |  | 6.32 | % |  | $ | 68,795 |  |  | $ | 64,209 |  |  | $ | 4,586 |  |  |  | 7.14 | %
Occupancy |  | 4,591 |  |  |  | 4,483 |  |  |  | 108 |  |  |  | 2.41 | % |  |  | 9,185 |  |  |  | 9,031 |  |  |  | 154 |  |  |  | 1.71 | %
Equipment |  | 926 |  |  |  | 1,084 |  |  |  | (158 | ) |  |  | -14.58 | % |  |  | 1,782 |  |  |  | 2,107 |  |  |  | (325 | ) |  |  | -15.42 | %
Professional services |  | 2,562 |  |  |  | 2,305 |  |  |  | 257 |  |  |  | 11.15 | % |  |  | 4,258 |  |  |  | 4,350 |  |  |  | (92 | ) |  |  | -2.11 | %
Computer software expense |  | 3,316 |  |  |  | 3,103 |  |  |  | 213 |  |  |  | 6.86 | % |  |  | 6,724 |  |  |  | 6,898 |  |  |  | (174 | ) |  |  | -2.52 | %
Marketing and promotion |  | 1,321 |  |  |  | 1,638 |  |  |  | (317 | ) |  |  | -19.35 | % |  |  | 3,036 |  |  |  | 3,096 |  |  |  | (60 | ) |  |  | -1.94 | %
Amortization of intangible assets |  | 1,719 |  |  |  | 1,998 |  |  |  | (279 | ) |  |  | -13.96 | % |  |  | 3,439 |  |  |  | 3,996 |  |  |  | (557 | ) |  |  | -13.94 | %
Telecommunications expense |  | 519 |  |  |  | 516 |  |  |  | 3 |  |  |  | 0.58 | % |  |  | 1,022 |  |  |  | 1,070 |  |  |  | (48 | ) |  |  | -4.49 | %
Regulatory assessments |  | 2,164 |  |  |  | 1,379 |  |  |  | 785 |  |  |  | 56.93 | % |  |  | 4,236 |  |  |  | 2,768 |  |  |  | 1,468 |  |  |  | 53.03 | %
Insurance |  | 506 |  |  |  | 494 |  |  |  | 12 |  |  |  | 2.43 | % |  |  | 1,011 |  |  |  | 982 |  |  |  | 29 |  |  |  | 2.95 | %
Loan expense |  | 182 |  |  |  | 171 |  |  |  | 11 |  |  |  | 6.43 | % |  |  | 481 |  |  |  | 539 |  |  |  | (58 | ) |  |  | -10.76 | %
OREO expense |  | — |  |  |  | — |  |  |  | — |  |  | — |  |  |  | — |  |  |  | (3 | ) |  |  | 3 |  |  |  | 100.00 | %
Provision for unfunded loan commitments |  | 400 |  |  |  | — |  |  |  | 400 |  |  | — |  |  |  | 900 |  |  |  | — |  |  |  | 900 |  |  | — |
Directors' expenses |  | 220 |  |  |  | 365 |  |  |  | (145 | ) |  |  | -39.73 | % |  |  | 509 |  |  |  | 729 |  |  |  | (220 | ) |  |  | -30.18 | %
Stationery and supplies |  | 207 |  |  |  | 232 |  |  |  | (25 | ) |  |  | -10.78 | % |  |  | 493 |  |  |  | 466 |  |  |  | 27 |  |  |  | 5.79 | %
Acquisition related expenses |  | — |  |  |  | 375 |  |  |  | (375 | ) |  |  | -100.00 | % |  |  | — |  |  |  | 6,013 |  |  |  | (6,013 | ) |  |  | -100.00 | %
Other |  | 1,836 |  |  |  | 1,175 |  |  |  | 661 |  |  |  | 56.26 | % |  |  | 3,027 |  |  |  | 2,858 |  |  |  | 169 |  |  |  | 5.91 | %
Total noninterest expense | $ | 54,017 |  |  | $ | 50,871 |  |  | $ | 3,146 |  |  |  | 6.18 | % |  | $ | 108,898 |  |  | $ | 109,109 |  |  | $ | (211 | ) |  |  | -0.19 | %
Noninterest expense to average assets |  | 1.32 | % |  |  | 1.20 | % |  |  |  |  |  |  |  |  | 1.34 | % |  |  | 1.28 | % |  |  |  |  |  |
Efficiency ratio (1) |  | 40.86 | % |  |  | 37.24 | % |  |  |  |  |  |  |  |  | 40.17 | % |  |  | 41.85 | % |  |  |  |  |  |

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

Our ability to control noninterest expenses in relation to asset growth can be measured in terms of total noninterest expenses as a percentage of average assets. Noninterest expense as a percentage of average assets was 1.32% for the second quarter of 2023, compared to 1.20% for the second quarter of 2022.

Our ability to control noninterest expenses in relation to the level of total revenue (net interest income before provision for credit losses plus noninterest income) can be measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. The efficiency ratio was 40.86% for the second quarter of 2023, compared to 37.24% for the second quarter of 2022.

Second Quarter of 2023 Compared to the Second Quarter of 2022

Noninterest expense for the second quarter of 2023 was $54.0 million, compared to $50.9 million for the second quarter of 2022. The $3.1 million increase in noninterest expense year-over-year included an increase of $2.0 million, or 6.32%, in salaries and employee benefits due to inflationary pressures primarily experienced in the second half of 2022 and a $785,000 increase in FDIC assessments as higher assessment rates were effective at the beginning of 2023. The second quarter of 2023 included $400,000 in provision for unfunded loan commitments, compared to no provision for the second quarter of 2022.

Six Months of 2023 Compared to Six Months of 2022

Noninterest expense of $108.9 million for the first six months of 2023 was $211,000 lower than the prior year period. Year-over-year increases included a $4.6 million in salaries and employee benefits primarily due to inflationary pressures on salary and benefits, $900,000 in provision for unfunded commitments, and a $1.5 million increase in FDIC assessments, offset by a $6.0 million decrease in acquisition expense. As a percentage of average assets, noninterest expense was 1.34% for the six months ended June 30, 2023, compared to 1.28% for the same period of 2022. If acquisition expense is excluded, noninterest expense as a percentage of average assets was 1.21% for the first six months of 2022. For the six months ended June 30, 2023, the efficiency ratio was 40.17%, compared to 41.85% for the same period of 2022. Excluding acquisition expense, the efficiency ratio was 39.54% for the six months ended June 30, 2022.

53

Income Taxes

The Company’s effective tax rate for the three and six months ended June 30, 2023 was 28.20%, compared to 28.10% for the three and six months ended June 30, 2022, respectively. Our estimated annual effective tax rate varies depending upon the level of tax-advantaged income as well as available tax credits.

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

54

ANALYSIS OF F INANCIAL CONDITION

Total assets of $16.48 billion at June 30, 2023 increased by $8.0 million, or 0.05%, from total assets of $16.48 billion at December 31, 2022. Interest-earning assets of $14.94 billion at June 30, 2023 decreased by $36.1 million, or 0.24%, when compared with $14.97 billion at December 31, 2022. The decrease in interest-earning assets was primarily due to a $228.7 million decrease in investment securities and a $172.0 million decrease in total loans, partially offset by a $341.8 million increase in interest-earning balances due from the Federal Reserve.

Total liabilities were $14.48 billion at June 30, 2023, a decrease of $44.8 million, or 0.31%, from total liabilities of $14.53 billion at December 31, 2022. Total deposits declined by $438.7 million, or 3.42%. Higher interest rates that have resulted from the Federal Reserve’s significant increase in the federal funds rate over the last year have continued to impact deposit levels, including $550 million of funds on deposit at the end of 2022 that transferred from the Bank's balance sheet to CitizensTrust for investment in higher yielding securities such as treasury notes, including $180 million that were transferred in the current quarter. Short-term borrowings increased by $500.0 million from December 31, 2022. As of June 30, 2023, total short-term borrowings, consisted of $695 million of one-year advances from the Federal Reserve’s Bank Term Funding Program, at a cost of 4.7% and $800 million of short-term FHLB advances, at an average cost of approximately 5%. Total equity increased $52.9 million, or 2.71%, to $2.0 billion at June 30, 2023, compared to total equity of $1.95 billion at December 31, 2022. At the end of the second quarter of 2023, we entered into pay-fixed rate swaps to mitigate the risks of rising interest rates. This resulted in a fair value remeasurement of this swap derivative at June 30, 2023, resulting in an after tax increase in other comprehensive income of $7.8 million. Decreases from December 31, 2022 included $55.8 million in cash dividends. We engaged in no stock repurchases during the second quarter of 2023, compared to the first quarter of 2023, when we repurchased, under our 10b5-1 stock repurchase plan, 791,800 shares of common stock, at an average repurchase price of $23.43, totaling $18.5 million. This 10b5-1 plan expired on March 2, 2023 and no new plan has been put in place since that time.

Investment Securities

The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. At June 30, 2023, total investment securities were $5.58 billion. This represented a decrease of $228.7 million, or 3.94%, from $5.81 billion at December 31, 2022. The decrease in investment securities was primarily due to cash outflow from the portfolio in the first half of 2023. At June 30, 2023, investment securities HTM totaled $2.51 billion. At June 30, 2023, our AFS investment securities totaled $3.07 billion, inclusive of a pre-tax net unrealized loss of $497.7 million. The after-tax unrealized loss reported in AOCI on AFS investment securities was $350.5 million. The changes in the net unrealized holding loss resulted primarily from fluctuations in market interest rates. For the six months ended June 30, 2023 and 2022, repayments/maturities of investment securities totaled $231.9 million and $497.3 million, respectively. There were no investment securities sold during the second quarter of 2023 and 2022.

55

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

| June 30, 2023 |
| 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 | $ | 3,018,260 |  |  | $ | 24 |  |  | $ | (385,263 | ) |  | $ | 2,633,021 |  |  |  | 85.82 | %
CMO/REMIC |  | 519,646 |  |  |  | — |  |  |  | (111,187 | ) |  |  | 408,459 |  |  |  | 13.30 | %
Municipal bonds |  | 26,797 |  |  |  | 52 |  |  |  | (1,283 | ) |  |  | 25,566 |  |  |  | 0.83 | %
Other securities |  | 1,105 |  |  |  | — |  |  |  | — |  |  |  | 1,105 |  |  |  | 0.05 | %
Unallocated portfolio layer fair value basis adjustments (1) |  | 11,129 |  |  |  | — |  |  |  | (11,129 | ) |  | N/A |  |  | N/A |
Total available-for-sale securities | $ | 3,576,937 |  |  | $ | 76 |  |  | $ | (508,862 | ) |  | $ | 3,068,151 |  |  |  | 100.00 | %
Investment securities held-to-maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government agency/GSE | $ | 538,923 |  |  | $ | — |  |  | $ | (105,252 | ) |  | $ | 433,671 |  |  |  | 21.45 | %
Mortgage-backed securities |  | 684,917 |  |  |  | — |  |  |  | (103,649 | ) |  |  | 581,268 |  |  |  | 27.26 | %
CMO/REMIC |  | 817,801 |  |  |  | — |  |  |  | (155,611 | ) |  |  | 662,190 |  |  |  | 32.55 | %
Municipal bonds |  | 471,066 |  |  |  | 1,654 |  |  |  | (41,196 | ) |  |  | 431,524 |  |  |  | 18.74 | %
Total held-to-maturity securities | $ | 2,512,707 |  |  | $ | 1,654 |  |  | $ | (405,708 | ) |  | $ | 2,108,653 |  |  |  | 100.00 | %

| December 31, 2022 |
| 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 | $ | 3,192,151 |  |  | $ | 39 |  |  | $ | (403,049 | ) |  | $ | 2,789,141 |  |  |  | 85.68 | %
CMO/REMIC |  | 535,269 |  |  |  | — |  |  |  | (95,966 | ) |  |  | 439,303 |  |  |  | 13.50 | %
Municipal bonds |  | 26,797 |  |  |  | 67 |  |  |  | (1,177 | ) |  |  | 25,687 |  |  |  | 0.79 | %
Other securities |  | 1,080 |  |  |  | — |  |  |  | — |  |  |  | 1,080 |  |  |  | 0.03 | %
Total available-for-sale securities | $ | 3,755,297 |  |  | $ | 106 |  |  | $ | (500,192 | ) |  | $ | 3,255,211 |  |  |  | 100.00 | %
Investment securities held-to-maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government agency/GSE | $ | 548,771 |  |  | $ | — |  |  | $ | (114,343 | ) |  | $ | 434,428 |  |  |  | 21.48 | %
Mortgage-backed securities |  | 706,796 |  |  |  | — |  |  |  | (105,867 | ) |  |  | 600,929 |  |  |  | 27.67 | %
CMO/REMIC |  | 827,346 |  |  |  | — |  |  |  | (131,730 | ) |  |  | 695,616 |  |  |  | 32.39 | %
Municipal bonds |  | 471,388 |  |  |  | 913 |  |  |  | (47,687 | ) |  |  | 424,614 |  |  |  | 18.46 | %
Total held-to-maturity securities | $ | 2,554,301 |  |  | $ | 913 |  |  | $ | (399,627 | ) |  | $ | 2,155,587 |  |  |  | 100.00 | %

As of June 30, 2023, approximately $34.0 million in U.S. government agency bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds, which represented approximately 9% of the total investment portfolio, are predominately AA or higher rated securities.

56

The following table presents the Company’s AFS investment securities and HTM investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of June 30, 2023 and December 31, 2022.

| June 30, 2023 |
| Less Than 12 Months |  |  | 12 Months or Longer |  |  | Total |
| Fair Value |  |  | Gross Unrealized Holding Losses |  |  | Fair Value |  |  | Gross Unrealized Holding Losses |  |  | Fair Value |  |  | Gross Unrealized Holding Losses |
| (Dollars in thousands) |
Investment securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities | $ | 80,414 |  |  | $ | (3,322 | ) |  | $ | 2,551,205 |  |  | $ | (381,941 | ) |  | $ | 2,631,619 |  |  | $ | (385,263 | )
CMO/REMIC |  | 745 |  |  |  | (17 | ) |  |  | 407,711 |  |  |  | (111,170 | ) |  |  | 408,456 |  |  |  | (111,187 | )
Municipal bonds |  | 6,442 |  |  |  | (47 | ) |  |  | 17,940 |  |  |  | (1,236 | ) |  |  | 24,382 |  |  |  | (1,283 | )
Total available-for-sale securities | $ | 87,601 |  |  | $ | (3,386 | ) |  | $ | 2,976,856 |  |  | $ | (494,347 | ) |  | $ | 3,064,457 |  |  | $ | (497,733 | )
Investment securities held-to-maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government agency/GSE | $ | 14,155 |  |  | $ | (619 | ) |  | $ | 419,516 |  |  | $ | (104,633 | ) |  | $ | 433,671 |  |  | $ | (105,252 | )
Mortgage-backed securities |  | 91,805 |  |  |  | (3,138 | ) |  |  | 489,463 |  |  |  | (100,511 | ) |  |  | 581,268 |  |  |  | (103,649 | )
CMO/REMIC |  | 47,110 |  |  |  | (2,884 | ) |  |  | 615,080 |  |  |  | (152,727 | ) |  |  | 662,190 |  |  |  | (155,611 | )
Municipal bonds |  | 92,899 |  |  |  | (2,499 | ) |  |  | 253,674 |  |  |  | (38,697 | ) |  |  | 346,573 |  |  |  | (41,196 | )
Total held-to-maturity securities | $ | 245,969 |  |  | $ | (9,140 | ) |  | $ | 1,777,733 |  |  | $ | (396,568 | ) |  | $ | 2,023,702 |  |  | $ | (405,708 | )

| December 31, 2022 |
| 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 | $ | 1,658,331 |  |  | $ | (187,842 | ) |  | $ | 1,129,257 |  |  | $ | (215,207 | ) |  | $ | 2,787,588 |  |  | $ | (403,049 | )
CMO/REMIC |  | 54,005 |  |  |  | (4,796 | ) |  |  | 385,295 |  |  |  | (91,170 | ) |  |  | 439,300 |  |  |  | (95,966 | )
Municipal bonds |  | 24,507 |  |  |  | (1,177 | ) |  |  | — |  |  |  | — |  |  |  | 24,507 |  |  |  | (1,177 | )
Total available-for-sale securities | $ | 1,736,843 |  |  | $ | (193,815 | ) |  | $ | 1,514,552 |  |  | $ | (306,377 | ) |  | $ | 3,251,395 |  |  | $ | (500,192 | )
Investment securities held-to-maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government agency/GSE |  | 179,348 |  |  |  | (39,866 | ) |  |  | 255,080 |  |  |  | (74,477 | ) |  |  | 434,428 |  |  |  | (114,343 | )
Mortgage-backed securities |  | 188,480 |  |  |  | (9,042 | ) |  |  | 412,449 |  |  |  | (96,825 | ) |  |  | 600,929 |  |  |  | (105,867 | )
CMO/REMIC |  | 376,540 |  |  |  | (60,598 | ) |  |  | 319,076 |  |  |  | (71,132 | ) |  |  | 695,616 |  |  |  | (131,730 | )
Municipal bonds |  | 312,702 |  |  |  | (35,656 | ) |  |  | 53,350 |  |  |  | (12,031 | ) |  |  | 366,052 |  |  |  | (47,687 | )
Total held-to-maturity securities | $ | 1,057,070 |  |  | $ | (145,162 | ) |  | $ | 1,039,955 |  |  | $ | (254,465 | ) |  | $ | 2,097,025 |  |  | $ | (399,627 | )

Once it is determined that a credit loss has occurred, an allowance for credit losses is established on our available-for-sale and held-to-maturity securities. Management determined that credit losses did not exist for securities in an unrealized loss position as of June 30, 2023 and December 31, 2022.

Refer to Note 5 – Investment Securities of the notes to the unaudited condensed consolidated financial statements of this report for additional information on our investment securities portfolio.

57

Loans

Total loans and leases, at amortized cost, of $8.91 billion at June 30, 2023 decreased by $172.0 million, or 1.89%, from December 31, 2022. After adjusting for seasonality of dairy and livestock and PPP loans, our core loans declined by $31.9 million, or 0.37%, from the end of the fourth quarter. The $172.0 million decrease in total loans included decreases of $136.0 million in dairy & livestock loans, $19.4 million in construction loans, $12.0 million in SBA loans, $4.1 million in PPP loans, and $21.8 million in consumer and other loans, partially offset by increases of $19.1 million in commercial real estate loans and $7.6 million in commercial and industrial loans. Commercial and industrial line utilization was 31% at June 30, 2023, compared to 33% at the end of 2022. The decline in dairy & livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 78% at the end of 2022 to 68% at June 30, 2023.

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

Distribution of Loan Portfolio by Type

| June 30, 2023 |  |  | December 31, 2022 |
| (Dollars in thousands) |
Commercial real estate | $ | 6,904,095 |  |  | $ | 6,884,948 |
Construction |  | 68,836 |  |  |  | 88,271 |
SBA |  | 278,904 |  |  |  | 290,908 |
SBA - Paycheck Protection Program (PPP) |  | 5,017 |  |  |  | 9,087 |
Commercial and industrial |  | 956,242 |  |  |  | 948,683 |
Dairy & livestock and agribusiness |  | 298,247 |  |  |  | 433,564 |
Municipal lease finance receivables |  | 77,867 |  |  |  | 81,126 |
SFR mortgage |  | 263,201 |  |  |  | 266,024 |
Consumer and other loans |  | 54,988 |  |  |  | 76,781 |
Total loans, at amortized cost |  | 8,907,397 |  |  |  | 9,079,392 |
Less: Allowance for credit losses |  | (86,967 | ) |  |  | (85,117 | )
Total loans and lease finance receivables, net | $ | 8,820,430 |  |  | $ | 8,994,275 |

As of June 30, 2023, $517.6 million, or 7.50% of the total commercial real estate loans included loans secured by farmland, compared to $517.8 million, or 7.52%, at December 31, 2022. The loans secured by farmland included $135.8 million for loans secured by dairy & livestock land and $381.8 million for loans secured by agricultural land at June 30, 2023, compared to $140.5 million for loans secured by dairy & livestock land and $377.3 million for loans secured by agricultural land at December 31, 2022. As of June 30, 2023, dairy & livestock and agribusiness loans of $298.2 million were comprised of $252.5 million of dairy & livestock loans and $45.7 million of agribusiness loans, compared to $433.6 million comprised of $388.5 million of dairy & livestock loans and $45.1 million of agribusiness loans December 31, 2022.

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

As of June 30, 2023, the Company had $201.3 million of total SBA 504 loans. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with the first lien is typically at a 50% advance to the acquisition costs and the second lien loan provides the financing for 40% of the acquisition costs with the borrower’s down payment of 10% of the acquisition costs. The Bank retains the first lien loan for its term and sells the second lien loan to the SBA subordinated debenture program. A majority of the Bank’s 504 loans are granted for the purpose of commercial real estate acquisition. As of June 30, 2023, the Company had $77.6 million of total SBA 7(a) loans that include a guarantee of payment from the SBA (typically 75% of the loan amount, but up to 90% in certain cases) in the event of default. The SBA 7(a) loans include revolving lines of credit (SBA Express) and term loans of up to ten (10) years to finance long-term working capital requirements, capital expenditures, and/or for the purchase or refinance of commercial real estate.

58

As of June 30, 2023, the Company had $68.8 million in construction loans. This represented 0.77% of total gross loans held-for-investment. Although our construction loans are located throughout our market footprint, the majority of construction loans consist of commercial land development and construction projects throughout California. There were no nonperforming construction loans at June 30, 2023.

Our loan portfolio is geographically disbursed throughout our marketplace. The following is the breakdown of our total held-for-investment commercial real estate loans, by region as of June 30, 2023.

| June 30, 2023 |
| Total Loans |  |  | Commercial Real Estate Loans |
| (Dollars in thousands) |
Los Angeles County | $ | 3,351,184 |  |  |  | 37.6 | % |  | $ | 2,413,332 |  |  |  | 35.0 | %
Central Valley and Sacramento |  | 2,087,446 |  |  |  | 23.4 | % |  |  | 1,722,781 |  |  |  | 25.0 | %
Orange County |  | 1,126,986 |  |  |  | 12.7 | % |  |  | 720,381 |  |  |  | 10.4 | %
Inland Empire |  | 1,008,354 |  |  |  | 11.3 | % |  |  | 904,227 |  |  |  | 13.1 | %
Central Coast |  | 477,620 |  |  |  | 5.4 | % |  |  | 396,447 |  |  |  | 5.7 | %
San Diego |  | 345,031 |  |  |  | 3.9 | % |  |  | 346,049 |  |  |  | 5.0 | %
Other California |  | 152,945 |  |  |  | 1.7 | % |  |  | 92,685 |  |  |  | 1.3 | %
Out of State |  | 357,831 |  |  |  | 4.0 | % |  |  | 308,193 |  |  |  | 4.5 | %
| $ | 8,907,397 |  |  |  | 100.0 | % |  | $ | 6,904,095 |  |  |  | 100.0 | %

The table below breaks down our commercial real estate portfolio.

| June 30, 2023 |
| Loan Balance |  |  | Percent |  |  | Percent Owner- Occupied (1) |  |  | Average Loan Balance |
| (Dollars in thousands) |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |
Industrial | $ | 2,287,710 |  |  |  | 33.1 | % |  |  | 48.9 | % |  | $ | 1,622 |
Office |  | 1,144,586 |  |  |  | 16.6 | % |  |  | 25.0 | % |  |  | 1,671 |
Retail |  | 979,826 |  |  |  | 14.2 | % |  |  | 11.0 | % |  |  | 1,716 |
Multi-family |  | 836,978 |  |  |  | 12.1 | % |  |  | 0.0 | % |  |  | 1,594 |
Secured by farmland (2) |  | 517,635 |  |  |  | 7.5 | % |  |  | 98.6 | % |  |  | 1,522 |
Medical |  | 318,641 |  |  |  | 4.6 | % |  |  | 33.4 | % |  |  | 1,532 |
Other (3) |  | 818,719 |  |  |  | 11.9 | % |  |  | 43.8 | % |  |  | 1,596 |
Total commercial real estate | $ | 6,904,095 |  |  |  | 100.0 | % |  |  | 36.0 | % |  | $ | 1,624 |

(1)
Represents percentage of reported owner-occupied at origination in each real estate loan category.
(2)
The loans secured by farmland included $135.8 million for loans secured by dairy & livestock land and $381.8 million for loans secured by agricultural land at June 30, 2023.
(3)
Other loans consist of a variety of loan types, none of which exceeded 2.0% of total commercial real estate loans at June 30, 2023.

59

Nonperforming Assets

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

| June 30, 2023 |  |  | December 31, 2022 |
| (Dollars in thousands) |
Nonaccrual loans | $ | 6,454 |  |  | $ | 4,930 |
Loans past due 90 days or more and still accruing interest |  | — |  |  |  | — |
Nonperforming modified loans / troubled debt restructured loans (TDRs) |  | — |  |  |  | — |
Total nonperforming loans |  | 6,454 |  |  |  | 4,930 |
OREO, net |  | — |  |  |  | — |
Total nonperforming assets | $ | 6,454 |  |  | $ | 4,930 |
Modified loans / Performing TDRs | $ | 3,307 |  |  | $ | 7,817 |
Total nonperforming loans and performing modified loans/TDRs | $ | 9,761 |  |  | $ | 12,747 |
Percentage of nonperforming loans and performing modified loans/TDRs to total loans, at amortized cost |  | 0.11 | % |  |  | 0.14 | %
Percentage of nonperforming assets to total loans, at amortized cost, and OREO |  | 0.07 | % |  |  | 0.05 | %
Percentage of nonperforming assets to total assets |  | 0.04 | % |  |  | 0.03 | %

Modifications of Loans to Borrowers Experiencing Financial Difficulty

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

The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified during the three months ended June 30, 2023.

|  |  | Term Extension |
|  |  | Amortized Cost Basis |  |  | % of Total Class of |
|  |  | at June 30,2023 |  |  | Financing Receivables |
|  |  | (Dollars in thousands) |  |  |  |
| Commercial real estate loans |  | $ | 1,579 |  |  |  | 0.02 | %
| Commercial and industrial |  |  | 1,000 |  |  |  | 0.01 | %
| Dairy & livestock and agribusiness |  |  | 728 |  |  |  | 0.01 | %
| Total |  | $ | 3,307 |  |  |  |

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

| Loan Type |  | Financial Effect
|  |  | Term Extension
| Commercial real estate loans |  | Added a weighted-average 1.1 years to the life of loans, which reduced monthly payment amounts for the borrowers.
| Commercial and industrial |  | Added a weighted-average 0.8 years to the life of loans, which reduced monthly payment amounts for the borrowers.
| Dairy & livestock and agribusiness |  | Added a weighted-average 1.4 years to the life of loans, which reduced monthly payment amounts for the borrowers.

60

As of June 30, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the second quarter of 2023 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first.

The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty that were modified on or after January 1, 2023, the date we adopted ASU 2022-02.

|  |  | Payment Status (amortized cost basis) |
|  |  | Current |  |  | 30-89 Days Past Due |  |  | 90+ Days Past Due |
|  |  | (Dollars in thousands) |
| Commercial real estate loans |  | $ | 1,579 |  |  | $ | — |  |  | $ | — |
| Commercial and industrial |  |  | 1,000 |  |  |  | — |  |  |  | — |
| Dairy & livestock and agribusiness |  |  | 728 |  |  |  | — |  |  |  | — |
| Total |  | $ | 3,307 |  |  | $ | — |  |  | $ | — |

Troubled Debt Restructurings (“TDRs”)

Prior to January 1, 2023, loans reported as TDRs were considered impaired and charge-off amounts were taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a more detailed discussion regarding TDRs.

Total TDRs $7.8 million at December 31, 2022. At December 31, 2022, all of our TDRs were performing and accruing interest as restructured loans. Our performing TDRs were generally provided a modification of loan repayment terms in response to borrower financial difficulties. The performing restructured loans represent the only loans accruing interest at each respective reporting date. A performing restructured loan is categorized as such if we believe that it is reasonably assured of repayment and is performing in accordance with the modified terms.

The following table provides a summary of TDRs as of the dates presented.

|  | December 31, 2022 |
|  | Balance |  |  | Number of Loans |
| (Dollars in thousands) |
Performing TDRs: |  |  |  |  |  |
Commercial real estate |  | $ | — |  |  |  | — |
Construction |  |  | — |  |  |  | — |
SBA |  |  | — |  |  |  | — |
Commercial and industrial |  |  | 4,826 |  |  |  | 4 |
Dairy & livestock and agribusiness |  |  | 2,000 |  |  |  | 1 |
SFR mortgage |  |  | 991 |  |  |  | 5 |
Consumer and other |  |  | — |  |  |  | — |
Total performing TDRs |  | $ | 7,817 |  |  |  | 10 |
Nonperforming TDRs: |  |  |  |  |  |
Commercial real estate |  | $ | — |  |  |  | — |
Construction |  |  | — |  |  |  | — |
SBA |  |  | — |  |  |  | — |
Commercial and industrial |  |  | — |  |  |  | — |
Dairy & livestock and agribusiness |  |  | — |  |  |  | — |
SFR mortgage |  |  | — |  |  |  | — |
Consumer and other |  |  | — |  |  |  | — |
Total nonperforming TDRs |  |  | — |  |  |  | — |
Total TDRs |  | $ | 7,817 |  |  |  | 10 |

61

At June 30, 2023 and December 31, 2022, there was no ACL allocated to modified loans to borrowers experiencing financial difficulty under the ASU 2022-02 or under TDRs, respectively. Impairment amounts identified are typically charged off against the allowance at the time the loan is considered uncollectible. There were no charge-offs on modified loans to borrowers experiencing financial difficulty or TDRs for the six months ended June 30, 2023 and 2022.

Nonperforming Assets and Delinquencies

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

|  | June 30, |  |  | March 31, |  |  | December 31, |  |  | September 30, |  |  | June 30, |
|  | 2023 |  |  | 2023 |  |  | 2022 |  |  | 2022 |  |  | 2022 |
|  | (Dollars in thousands) |
Nonperforming loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 3,159 |  |  | $ | 2,634 |  |  | $ | 2,657 |  |  | $ | 6,705 |  |  | $ | 6,843 |
Construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SBA |  |  | 629 |  |  |  | 702 |  |  |  | 443 |  |  |  | 1,065 |  |  |  | 1,075 |
SBA - PPP |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial and industrial |  |  | 2,039 |  |  |  | 2,049 |  |  |  | 1,320 |  |  |  | 1,308 |  |  |  | 1,655 |
Dairy & livestock and agribusiness |  |  | 273 |  |  |  | 406 |  |  |  | 477 |  |  |  | 1,007 |  |  |  | 3,354 |
SFR mortgage |  |  | 354 |  |  |  | 384 |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer and other loans |  |  | — |  |  |  | — |  |  |  | 33 |  |  |  | 32 |  |  |  | 37 |
Total |  | $ | 6,454 |  |  | $ | 6,175 |  |  | $ | 4,930 |  |  | $ | 10,117 |  |  | $ | 12,964 |
% of Total loans |  |  | 0.07 | % |  |  | 0.07 | % |  |  | 0.05 | % |  |  | 0.12 | % |  |  | 0.15 | %
Past due 30-89 days: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 532 |  |  | $ | 425 |  |  | $ | — |  |  | $ | — |  |  | $ | 559 |
Construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SBA |  |  | — |  |  |  | 575 |  |  |  | 556 |  |  |  | — |  |  |  | — |
Commercial and industrial |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Dairy & livestock and agribusiness |  |  | 555 |  |  |  | 183 |  |  |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  |  | — |  |  |  | — |  |  |  | 388 |  |  |  | — |  |  |  | — |
Consumer and other loans |  |  | — |  |  |  | — |  |  |  | 175 |  |  |  | — |  |  |  | — |
Total |  | $ | 1,087 |  |  | $ | 1,183 |  |  | $ | 1,119 |  |  | $ | — |  |  | $ | 559 |
% of Total loans |  |  | 0.01 | % |  |  | 0.01 | % |  |  | 0.01 | % |  |  | — |  |  |  | 0.01 | %
OREO: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
SBA |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total nonperforming, past due, and OREO |  | $ | 7,541 |  |  | $ | 7,358 |  |  | $ | 6,049 |  |  | $ | 10,117 |  |  | $ | 13,523 |
% of Total loans |  |  | 0.08 | % |  |  | 0.08 | % |  |  | 0.07 | % |  |  | 0.12 | % |  |  | 0.16 | %
Classified Loans |  | $ | 77,834 |  |  | $ | 66,977 |  |  | $ | 78,658 |  |  | $ | 63,651 |  |  | $ | 76,170 |

Nonperforming loans, defined as nonaccrual loans, nonperforming modified/TDR loans and loans past due 90 days or more, were $6.5 million at June 30, 2023, or 0.07% of total loans. This compares to nonperforming loans of $4.9 million, or 0.05% of total loans, at December 31, 2022 and $13.0 million, or 0.15% of total loans, at June 30, 2022. The $1.5 million increase in nonperforming loans from December 31, 2022 was primarily due to an increase of $719,000 in commercial and industrial loans and $502,000 in commercial real estate loans. Classified loans are loans that are graded “substandard” or worse. Classified loans increased $10.9 million quarter-over-quarter, primarily due to a $9.7 million increase in classified commercial real estate loans and a $6.1 million increase in classified dairy & livestock and agribusiness loans, partially offset by a $4.4 million decrease in classified commercial and industrial loans.

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Allowance for Credit Losses

The allowance for credit losses totaled $87.0 million as of June 30, 2023, compared to $85.1 million as of December 31, 2022 and $80.2 million as of June 30, 2022. Our allowance for credit losses at June 30, 2023 was 0.98% of total loans. This compares to 0.94% and 0.92% at December 31, 2022 and June 30, 2022, respectively. The ACL was increased by $1.9 million for the first six month of 2023, including $2.0 million in provision for credit losses. The ACL increased by $15.2 million for the six months ended June 30, 2022, including $8.6 million for the acquired Suncrest PCD loans and $6.1 million in provision for credit losses. Net charge-offs were $150,000 for the six months ended June 30, 2023, which compares to $498,000 in net recoveries for the same period of 2022.

The allowance for credit losses as of June 30, 2023 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. The allowance for credit loss is sensitive to both changes in these portfolio characteristics and the forecast of macroeconomic variables. Risk attributes for commercial real estate loans include Original Loan to Value ratios ("OLTV"), origination year, loan seasoning, and macroeconomic variables that include 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 Paycheck 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 Small Business Administration (SBA) loans (excluding Paycheck Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.

Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with downside risks, including a stagflation scenario, weighted among these multiple forecasts. As of June 30, 2023, the resulting weighted forecast assumes GDP will increase by 1.5% in 2023, including a decline in GDP in the second half of this year, followed by modest growth of 0.8% for 2024 and then grow by 2.0% in 2025. The unemployment rate is forecasted to be 3.8% in 2023, followed by an increase to 5.0% in both 2024 and 2025. As there is continued uncertainty around the assumptions that impact our economic forecast, no assurance can be given that economic conditions that adversely affect the Company's service areas and customers will not be reflected in an increased allowance for credit losses in future periods.

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

| As of and For the |
| Six Months Ended |
| June 30, |
| 2023 |  |  | 2022 |
| (Dollars in thousands) |
Allowance for credit losses at beginning of period | $ | 85,117 |  |  | $ | 65,019 |
Charge-offs: |  |  |  |  |
Commercial real estate |  | — |  |  |  | — |
Construction |  | — |  |  |  | — |
SBA |  | (181 | ) |  |  | — |
Commercial and industrial |  | (16 | ) |  |  | (21 | )
Dairy & livestock and agribusiness |  | — |  |  |  | — |
SFR mortgage |  | — |  |  |  | — |
Consumer and other loans |  | (1 | ) |  |  | (3 | )
Total charge-offs |  | (198 | ) |  |  | (24 | )
Recoveries: |  |  |  |  |
Commercial real estate |  | — |  |  |  | — |
Construction |  | 6 |  |  |  | 6 |
SBA |  | 21 |  |  |  | 58 |
Commercial and industrial |  | 14 |  |  |  | 456 |
Dairy & livestock and agribusiness |  | 7 |  |  |  | 2 |
SFR mortgage |  | — |  |  |  | — |
Consumer and other loans |  | — |  |  |  | — |
Total recoveries |  | 48 |  |  |  | 522 |
Net (charge-offs) recoveries |  | (150 | ) |  |  | 498 |
Initial ACL for PCD loans at acquisition |  | — |  |  |  | 8,605 |
Provision recorded at acquisition |  | — |  |  |  | 4,932 |
Provision for (recapture of) credit losses |  | 2,000 |  |  |  | 1,168 |
Allowance for credit losses at end of period | $ | 86,967 |  |  | $ | 80,222 |
Summary of reserve for unfunded loan commitments: |  |  |  |  |
Reserve for unfunded loan commitments at beginning of period |  | 8,000 |  |  | $ | 8,000 |
Provision for unfunded loan commitments |  | 900 |  |  |  | — |
Reserve for unfunded loan commitments at end of period | $ | 8,900 |  |  | $ | 8,000 |
Reserve for unfunded loan commitments to total unfunded loan commitments |  | 0.48 | % |  |  | 0.43 | %
Amount of total loans at end of period (1) | $ | 8,907,397 |  |  | $ | 8,692,229 |
Average total loans outstanding (1) | $ | 8,927,672 |  |  | $ | 8,567,876 |
Net (charge-offs) to average total loans |  | 0.00 | % |  |  | 0.01 | %
Net (charge-offs) to total loans at end of period |  | 0.00 | % |  |  | 0.01 | %
Allowance for credit losses to average total loans |  | 0.97 | % |  |  | 0.94 | %
Allowance for credit losses to total loans at end of period |  | 0.98 | % |  |  | 0.92 | %
Net (charge-offs) to allowance for credit losses |  | -0.17 | % |  |  | 0.62 | %
Net (charge-offs) to provision for credit losses |  | -7.50 | % |  |  | 8.16 | %

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

The Bank’s ACL methodology also produced an allowance of $8.9 million for our off-balance sheet credit exposures as of June 30, 2023, compared with $8.0 million as of December 31, 2022 and June 30, 2022. The year-over-year increase included $900,000 in provision for unfunded loan commitments in the first six months of 2023.

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While we believe that the allowance at June 30, 2023 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that future economic conditions, interest rate fluctuations, conditions of our borrowers (including fraudulent activity), or natural disasters, which adversely affect our service areas or other circumstances or conditions, including those defined above, will not be reflected in increased provisions for credit losses in the future.

Changes in economic and business conditions could have an impact on our market area and on our loan portfolio. We continually monitor these conditions in determining our estimates of needed reserves. However, we cannot predict the extent to which the deterioration in general economic conditions, real estate values, changes in general rates of interest and changes in the financial conditions or business of a borrower may adversely affect a specific borrower’s ability to pay or the value of our collateral. See “Risk Management – Credit Risk Management” contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

Deposits

The primary source of funds to support earning assets (loans and investments) is the generation of deposits. We have no brokered deposits with 100% of our deposits being core deposits based on long-term customer relationships.

Total deposits were $12.40 billion at June 30, 2023. This represented a decrease of $438.7 million, or 3.42%, when compared with total deposits of $12.84 billion at December 31, 2022. The composition of deposits is summarized as of the dates presented in the table below.

| June 30, 2023 |  |  | December 31, 2022 |
| Balance |  |  | Percent |  |  | Balance |  |  | Percent |
| (Dollars in thousands) |
Noninterest-bearing deposits | $ | 7,878,810 |  |  |  | 63.55 | % |  | $ | 8,164,364 |  |  |  | 63.60 | %
Interest-bearing deposits |  |  |  |  |  |  |  |  |  |  |
Investment checking |  | 574,817 |  |  |  | 4.64 | % |  |  | 723,870 |  |  |  | 5.64 | %
Money market |  | 3,124,524 |  |  |  | 25.20 | % |  |  | 3,070,674 |  |  |  | 23.92 | %
Savings |  | 503,334 |  |  |  | 4.06 | % |  |  | 582,711 |  |  |  | 4.54 | %
Time deposits |  | 316,036 |  |  |  | 2.55 | % |  |  | 294,626 |  |  |  | 2.30 | %
Total Deposits | $ | 12,397,521 |  |  |  | 100.00 | % |  | $ | 12,836,245 |  |  |  | 100.00 | %

The amount of noninterest-bearing deposits in relation to total deposits is an integral element in our strategy of seeking to achieve a low cost of funds. Noninterest-bearing deposits totaled $7.88 billion at June 30, 2023, representing a decrease of $285.6 million, or 3.50%, from noninterest-bearing deposits of $8.16 billion at December 31, 2022. Noninterest-bearing deposits represented 63.55% of total deposits at June 30, 2023, compared to 63.60% of total deposits at December 31, 2022, and over the last five quarters have been consistently greater than 63%.

Savings deposits, which include savings, interest-bearing demand, and money market accounts, totaled $4.20 billion at June 30, 2023, representing a decrease of $174.6 million, or 3.99%, from savings deposits of $4.38 billion at December 31, 2022.

Time deposits totaled $316.0 million at June 30, 2023, representing an increase of $21.4 million, or 7.27%, from total time deposits of $294.6 million for December 31, 2022.

Our deposits are 100% relationship based core deposits and customer repurchase agreements ("repos"). We had zero brokered deposits at the end of the second quarter of 2023 with 76% of our deposits consisting of business deposits and 24% consisting of consumer deposits, primarily the owners and employees of our business customers. The largest percentage of our deposits, 41%, are analyzed business accounts, which represent customer operating accounts that generally utilize a wide array of treasury management products that exceed the FDIC’s insurance coverage level of $250,000. Therefore, 52% of total deposits and customer repurchase agreements were uninsured and uncollateralized at June 30, 2023.

Our customer deposit relationships represent a diverse set of industries. The industry classification with the largest concentration is manufacturing, which represents 10% of our deposits. Overall, there are 14 different industry classifications that represent 2% or more of our deposits as of June 30, 2023. Our depositors have typically banked with us for many years. As of June 30, 2023, 40% of our deposit relationships have banked with us more than 10 years and 77% of our deposit relationships have been with us for three or more years.

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The unprecedented increase in short-term interest rates impacted our deposit levels. Total deposits and customer repos were $12.85 billion at June 30, 2023, an $87.8 million, or 0.69% increase from March 31, 2023. However, deposits and customer repos were $551.8 million lower than the end of 2022, which includes $550 million that was moved into Citizens Trust, where these funds were invested in higher yielding liquid assets such as treasury notes. The velocity of deposits moving to CitizensTrust declined in the second quarter of 2023, with approximately $180 million transferred off balance sheet in the quarter, compared to $370 million in the first quarter of 2023. The Bank continues to acquire new deposit customers and the deposit pipeline has strengthened over the last three months. New accounts opened during the first half of 2023 totaled approximately $650 million of new average deposits.

Borrowings

We offer a repurchase agreement product to our customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price that reflects the market value of the use of these funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a pre-determined balance in a demand deposit account, in order to earn interest. As of June 30, 2023 and December 31, 2022, total funds borrowed under these agreements were $452.4 million and $565.4 million, respectively, with a weighted average interest rate of 0.22% and 0.10%, respectively.

As a result of declining deposit balances and increased funds on deposit at the Federal Reserve, we borrowed on average $1.53 billion during the second quarter of 2023. As of June 30, 2023, total short-term borrowings, consisted of $695 million of one-year advances from the Federal Reserve’s Bank Term Funding Program at a cost of 4.7%, which replaced higher cost borrowings from the FHLB, and $800 million of short-term FHLB advances, at an average cost of approximately 5%. These FHLB advances will mature over the next two quarters, with the final maturity at the end of November 2023. The modest growth of $90 million in borrowings from the end of the first quarter of 2023 to the end of the second quarter of 2023, coincided with a $322.2 million increase in funds on deposit at the Federal Reserve, which earn a rate of more than 5%.

At June 30, 2023, loans with a carrying value of $4.29 billion were pledged to secure available lines of credit from the FHLB and the Federal Reserve Bank.

At June 30, 2023, investment securities, with the following carrying values, were pledged to secure $1.87 billion of total deposits which includes $1.25 billion to secure public funds, $551.2 million of repurchase agreements, approximately $695 million of outstanding borrowings, and approximately $20 million for other purposes as required or permitted by law. In addition, investment securities having a carrying value of $1.9 billion were pledged to secure unused borrowing capacity as of June 30, 2023.

Aggregate Contractual Obligations

The following table summarizes the aggregate contractual obligations as of June 30, 2023.

|  |  |  | Maturity by Period |
| Total |  |  | Less Than One Year |  |  | One Year Through Three Years |  |  | Four Years Through Five Years |  |  | Over Five Years |
| (Dollars in thousands) |
Deposits (1) | $ | 12,397,521 |  |  | $ | 12,374,710 |  |  | $ | 18,323 |  |  | $ | 4,217 |  |  | $ | 271 |
Customer repurchase agreements (1) |  | 452,373 |  |  |  | 452,373 |  |  |  | — |  |  |  | — |  |  |  | — |
Other borrowings |  | 1,495,000 |  |  |  | 1,495,000 |  |  |  | — |  |  |  | — |  |  |  | — |
Deferred compensation |  | 23,095 |  |  |  | 577 |  |  |  | 1,152 |  |  |  | 1,150 |  |  |  | 20,216 |
Operating leases |  | 27,173 |  |  |  | 7,045 |  |  |  | 12,119 |  |  |  | 6,841 |  |  |  | 1,168 |
Equity investments |  | 18,514 |  |  |  | 12,525 |  |  |  | 5,663 |  |  |  | 42 |  |  |  | 284 |
Total | $ | 14,413,676 |  |  | $ | 14,342,230 |  |  | $ | 37,257 |  |  | $ | 12,250 |  |  | $ | 21,939 |

(1)
Amounts exclude accrued interest.

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

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

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

Operating leases represent the total minimum lease payments due under non-cancelable operating leases. Refer to Note 13 – Leases of the notes to the Company’s unaudited condensed consolidated financial statements for a more detailed discussion about leases.

Off-Balance Sheet Arrangements

The following table summarizes the off-balance sheet items at June 30, 2023.

|  |  |  | Maturity by Period |
| Total |  |  | Less Than One Year |  |  | One Year Through Three Years |  |  | Four Years Through Five Years |  |  | After Five Years |
| (Dollars in thousands) |
Commitment to extend credit: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate | $ | 425,803 |  |  | $ | 80,376 |  |  | $ | 165,660 |  |  | $ | 154,100 |  |  | $ | 25,667 |
Construction |  | 27,743 |  |  |  | 24,415 |  |  |  | — |  |  |  | — |  |  |  | 3,328 |
SBA |  | 178 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 178 |
Commercial and industrial |  | 965,060 |  |  |  | 750,671 |  |  |  | 184,964 |  |  |  | 3,847 |  |  |  | 25,578 |
Dairy & livestock and agribusiness (1) |  | 266,624 |  |  |  | 211,618 |  |  |  | 55,006 |  |  |  | — |  |  |  | — |
Municipal lease finance receivables |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SFR Mortgage |  | 6,726 |  |  |  | 4,163 |  |  |  | — |  |  |  | — |  |  |  | 2,563 |
Consumer and other loans |  | 123,639 |  |  |  | 15,258 |  |  |  | 5,596 |  |  |  | 3,746 |  |  |  | 99,039 |
Total commitment to extend credit |  | 1,815,773 |  |  |  | 1,086,501 |  |  |  | 411,226 |  |  |  | 161,693 |  |  |  | 156,353 |
Obligations under letters of credit |  | 51,800 |  |  |  | 12,264 |  |  |  | 39,518 |  |  |  | — |  |  |  | 18 |
Total | $ | 1,867,573 |  |  | $ | 1,098,765 |  |  | $ | 450,744 |  |  | $ | 161,693 |  |  | $ | 156,371 |

(1)
Total commitments to extend credit to agribusiness were $33.1 million at June 30, 2023.

As of June 30, 2023, we had commitments to extend credit of approximately $1.82 billion, and obligations under letters of credit of $51.8 million. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit underwriting policies in granting or accepting such commitments or contingent obligations as we do for on-balance sheet instruments, which consist of evaluating customers’ creditworthiness individually. As of June 30, 2023 and 2022, the balance in this reserve was $8.9 million and $8.0 million, respectively, and was included in other liabilities. The year-over-year increase included $900,000 in provision for unfunded loan commitments for the six months ended June 30, 2023, compared to no provision for the same period of 2022.

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

Capital Resources

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

Total equity increased $52.9 million, or 2.71%, to $2.00 billion at June 30, 2023, compared to total equity of $1.95 billion at December 31, 2022. Increases to equity included $115.0 million in net earnings and a $9.9 million increase in other comprehensive income. At the end of the second quarter of 2023, we entered into pay-fixed rate swaps to mitigate the risks of rising interest rates. This resulted in a fair value remeasurement of this swap derivative at June 30, 2023, resulting in an after

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tax increase in other comprehensive income of $7.8 million. Decreases from December 31, 2022 included $55.8 million in cash dividends. We engaged in no stock repurchases during the second quarter of 2023, compared to the first quarter of 2023, when we repurchased, under our 10b5-1 stock repurchase plan, 791,800 shares of common stock, at an average repurchase price of $23.43, totaling $18.5 million. This 10b5-1 plan expired on March 2, 2023 and no new plan has been put in place since that time. Our tangible book value per share at June 30, 2023 was $8.74.

During the second quarter of 2023, the Board of Directors of CVB declared quarterly cash dividends totaling $0.20 per share. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB’s ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the Federal Reserve, and covenants set forth in various agreements we are a party to.

On February 1, 2022, we announced that our Board of Directors authorized a share repurchase plan to repurchase up to 10,000,000 shares of the Company’s common stock ("2022 Repurchase Program"), including by means of (i) an initial $70 million dollar Accelerated Share Repurchase, or ASR Plan, and (ii) one or more Rule 10b5-1 plans or other appropriate buy-back arrangements, including open market purchases and private transactions. During the first quarter of 2022, we executed on the $70 million accelerated stock repurchase program and retired 2,544,298 shares of common stock. We also repurchased, under our 10b5-1 stock repurchase plan, 536,010 shares of common stock, at an average repurchase price of $23.40, totaling $12.5 million. During the first quarter of 2023, we repurchased 791,800 shares at an average price of $23.43. We engaged in no stock repurchases during the second quarter of 2023. This 10b5-1 plan expired on March 2, 2023 and no new plan has been put in place since that time.

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The Bank and the Company are required to meet risk-based capital standards under the revised capital framework referred to as Basel III set by their respective regulatory authorities. The risk-based capital standards require the achievement of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital ratio of 6.0% and a common equity Tier 1 (“CET1”) capital ratio of 4.5%. In addition, the regulatory authorities require the highest rated institutions to maintain a minimum leverage ratio of 4.0%. To be considered “well-capitalized” for bank regulatory purposes, the Bank and the Company are required to have a CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%. At June 30, 2023, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios required to be considered “well-capitalized” for regulatory purposes. For further information about capital requirements and our capital ratios, see “Item 1. Business – Capital Adequacy Requirements” as described in our Annual Report on Form 10-K for the year ended December 31, 2022.

At June 30, 2023 the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios, under the revised capital framework referred to as Basel III, required to be considered “well-capitalized” for regulatory purposes. We did not elect to phase in the impact of CECL on regulatory capital, as allowed under the interim final rule of the FDIC and other U.S. banking agencies.

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

|  |  |  |  |  |  |  | June 30, 2023 |  | December 31, 2022
Capital Ratios |  | Adequately Capitalized Ratios |  | Minimum Required Plus Capital Conservation Buffer |  | Well Capitalized Ratios |  | CVB Financial Corp. Consolidated |  | Citizens Business Bank |  | CVB Financial Corp. Consolidated |  | Citizens Business Bank
Tier 1 leverage capital ratio |  | 4.00% |  | 4.00% |  | 5.00% |  | 9.81% |  | 9.73% |  | 9.53% |  | 9.42%
Common equity Tier 1 capital ratio |  | 4.50% |  | 7.00% |  | 6.50% |  | 14.07% |  | 13.95% |  | 13.55% |  | 13.39%
Tier 1 risk-based capital ratio |  | 6.00% |  | 8.50% |  | 8.00% |  | 14.07% |  | 13.95% |  | 13.55% |  | 13.39%
Total risk-based capital ratio |  | 8.00% |  | 10.50% |  | 10.00% |  | 14.92% |  | 14.80% |  | 14.37% |  | 14.22%

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ASSET/LIABILITY AND M ARKET RISK MANAGEMENT

Liquidity and Cash Flow

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

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

In general, our liquidity is managed daily by controlling the level of liquid assets as well as the use of funds provided by the cash flow from the investment portfolio, loan demand, deposit fluctuations, and borrowings. Our definition of liquid assets includes cash and cash equivalents in excess of minimum levels needed to fulfill normal business operations, short-term investment securities, and other anticipated near term cash flows from investments. In addition to on balance sheet liquidity, we have significant off-balance sheet sources of liquidity. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal Reserve, although availability under these lines of credit are subject to certain conditions. The Bank has available lines of credit totaling approximately $5.4 billion, of which $3.5 billion is secured by pledged loans and another $1.9 billion is secured by investment securities. In addition to having more than $600 million of cash on the balance sheet at June 30, 2023, we had substantial sources of off-balance sheet liquidity. These sources of available liquidity include $4.1 billion of secured and unused capacity with the Federal Home Loan Bank, $1.3 billion of secured unused borrowing capacity at the Fed’s discount window or Bank Term Funding Program, more than $550 million of unpledged AFS securities that could be pledged at the discount window or the Fed’s Bank Term Funding Program and $300 million of unsecured lines of credit. In addition to these borrowing sources, the Bank has not utilized any brokered deposits as of June 30, 2023. We can also obtain additional liquidity from deposit growth by utilizing state and national wholesale markets.

Our primary sources and uses of funds for the Company are deposits, customer repurchase agreements and loans. Total deposits and customer repos of $12.85 billion at June 30, 2023 decreased $551.8 million, or 4.12%, over total deposits and customer repos of $13.40 billion at December 31, 2022. As a result of declining deposit balances, we borrowed on average $1.53 billion during the second quarter of 2023. We had no brokered deposits throughout the quarter. As of June 30, 2023, total short-term borrowings, consisted of $695 million of one-year advances from the Federal Reserve’s Bank Term Funding Program at a cost of 4.7%, which replaced higher cost borrowings from the FHLB, and $800 million of short-term FHLB advances, at an average cost of approximately 5%. These FHLB advances will mature over the next two quarters, with the final maturity at the end of November 2023. Our deposit levels and cost of deposits may fluctuate from period-to-period due to a variety of factors, including the stability of our deposit base, prevailing interest rates, and market conditions. At June 30, 2023, our deposits and customer repurchase agreements that are neither collateralized nor insured were $6.7 billion.

In addition to the increase in short-term borrowing during the first half of 2023, we shrank our investment portfolio by not reinvesting the approximately $120 million of cashflows generated by our investments during the second quarter of 2023. Our total investment portfolio declined by $160 million from March 31, 2023 to $5.58 billion as of June 30, 2023. The decrease was primarily due to a $136.4 million decline in AFS investment securities. AFS securities totaled $3.07 billion at the end of the second quarter, inclusive of a pre-tax net unrealized loss of $497.7 million.

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Below is a summary of our average cash position and statement of cash flows for the six months ended June 30, 2023 and 2022. For further details see our “Condensed Consolidated Statements of Cash Flows (Unaudited)” under Part I, Item 1 of this report.

Consolidated Summary of Cash Flows

| Six Months Ended June 30, |
| 2023 |  |  | 2022 |
| (Dollars in thousands) |
Average cash and cash equivalents | $ | 369,689 |  |  | $ | 1,405,827 |
Percentage of total average assets |  | 2.26 | % |  |  | 8.18 | %
Net cash provided by operating activities | $ | 162,103 |  |  | $ | 128,388 |
Net cash provided by (used in) investing activities |  | 381,502 |  |  |  | (776,221 | )
Net cash used in financing activities |  | (128,711 | ) |  |  | (388,006 | )
Net increase (decrease) in cash and cash equivalents | $ | 414,895 |  |  | $ | (1,035,839 | )

Average cash and cash equivalents decreased by $1.04 million, or 73.70%, to $369.7 million for the six months ended June 30, 2023, compared to $1.41 billion for the same period of 2022.

At June 30, 2023, cash and cash equivalents totaled $618.4 million. This represented a decrease of $78.4 million, or 11.25%, from $696.7 billion at June 30, 2022.

Interest Rate Sensitivity Management

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

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

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

The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our period end balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon assuming no balance sheet growth, given a 200 basis point upward and a 200 basis point downward shift in interest

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rates, depending on the level of current market rates. The simulation model uses a parallel yield curve shift that ramps rates up or down on a pro rata basis over the 12-month and 24-month time horizon.

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

|  | Estimated Net Interest Income Sensitivity
|  | June 30, 2023 |  |  |  | December 31, 2022
Interest Rate Scenario |  | 12-month Period |  | 24-month Period (Cumulative) |  | Interest Rate Scenario |  | 12-month Period |  | 24-month Period (Cumulative)
+ 200 basis points |  | 1.48% |  | 2.69% |  | + 200 basis points |  | 2.32% |  | 4.96%
- 200 basis points |  | -0.98% |  | -3.07% |  | - 200 basis points |  | -2.28% |  | -6.83%

Based on our current simulation models, we believe that the interest rate risk profile of the June 30, 2023 balance sheet is slightly asset sensitive over both a one-year and a two-year horizon. The estimated sensitivity does not necessarily represent a forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, re-pricing characteristics and rate fluctuations of deposits with indeterminate or non-contractual maturities, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change. Continued near term declines in deposits due to higher interest rates, that result in higher levels of borrowings, will increase the probability that net interest income decreases in future periods.

We also perform valuation analysis, which incorporates all cash flows over the estimated remaining life of all material balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows minus the discounted present value of all liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. EVE uses instantaneous changes in rates, as shown in the table below. Assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected duration and pricing of the indeterminate deposit portfolios. EVE sensitivity is reported in both upward and downward rate shocks. At June 30, 2023 and December 31, 2022, the EVE profile indicates a larger decline in net balance sheet value due to instantaneous downward changes in rates, compared to an increase in rates.

Economic Value of Equity Sensitivity

Instantaneous Rate Change |  | June 30, 2023 |  | December 31, 2022
300 bp decrease in interest rates |  | -26.2% |  | N/A
200 bp decrease in interest rates |  | -9.0% |  | -12.8%
100 bp decrease in interest rates |  | -2.5% |  | -4.4%
100 bp increase in interest rates |  | 0.9% |  | 1.2%
200 bp increase in interest rates |  | 1.1% |  | 2.2%
300 bp increase in interest rates |  | 1.5% |  | 3.8%
400 bp increase in interest rates |  | 2.7% |  | 5.3%

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

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ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

We do not currently have futures, forwards, or option contracts. As a result of the phase out of LIBOR, our interest rate swap derivatives and the associated loans that were indexed to LIBOR, have been replaced with one month CME Term SOFR. The Bank will continue to use multiple alternative indices as replacements for LIBOR for newly originated instruments. All remaining financial instruments indexed to LIBOR have been transitioned to a replacement index, as of June 30, 2023. For further quantitative and qualitative disclosures about market risks in our portfolio, see Asset/Liability Management and Interest Rate Sensitivity Management” included in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented elsewhere in this report. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Part I regarding such forward-looking information.

ITEM 4. CONTROLS A ND PROCEDURES

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

During the quarter ended June 30, 2023, there have been no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

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PART II – OTH ER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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, consumer claims, regulatory compliance claims, data privacy claims, lender liability claims, bankruptcy 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.

ITEM 1A. RISK FACTORS

Except as discussed below there have been no material changes to the risk factors as previously disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the year ended December 31, 2022. The materiality of any risks and uncertainties identified in our Forward Looking Statements contained in this report together with those previously disclosed in the Form 10-K and any subsequent Form 10-Q or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.

Recent negative developments affecting the banking industry could adversely impact our liquidity.

The recent high-profile bank failures have generated significant market volatility among publicly traded bank holding companies and, in particular, regional community banks like CBB. These market developments have negatively impacted customer confidence in the safety and soundness of smaller regional and community banks. As a result, customers may choose to maintain deposits with larger more systematically important financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact CBB’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While CBB currently has access to substantial borrowing capacity from the Federal Reserve Bank, the Federal Home Loan Bank and credit facilities established with larger banks, there can be no assurance that customer confidence in regional banks and the banking system more broadly will be fully restored or that potential liquidity concerns will recede.

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Rising interest rates have decreased the value of the Company’s available for sale and held-to-maturity securities and loan portfolios, and the Company would realize losses if it were required to sell such securities or loans to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates initiated by the Federal Reserve over the last year, the mark-to-market values of previously issued government and other fixed income securities have declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the available-for-sale and held-to-maturity portion of U.S. banks’ securities and loan portfolios. While the Company does not currently intend to sell these securities or loans, if the Company were required to sell such securities or loans to meet liquidity needs, it could incur losses, which could impair the Company’s capital, financial condition, and results of operations, thereby negatively impacting our profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing the Company's liquidity needs as they arise.

If the goodwill that we recorded in connection with business acquisitions becomes impaired, it could require charges to earnings, which would have a negative impact on our financial condition and results of operations.

Goodwill resulting from business combinations represents the excess of the purchase price over the fair value of the net assets of the businesses we acquired. Goodwill has an indefinite useful life and is not amortized, however, it is tested for impairment at least annually, or more frequently, if events and circumstances exist that indicate that the carrying value of the asset might be impaired, including as a result of a decline in our stock price and market capitalization below our stated book value. We determine impairment by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. Estimates of fair value are determined based on a complex model using, among other things, discounted cash flows, the fair value of our Company as determined by our stock price, and peer company comparisons. Adverse events in the banking sector have caused market volatility and declines in the stock market prices for many community and regional banks, including the Company’s, resulting in a recent decline in the Company’s market capitalization. If management’s estimates of future cash flows are rendered inaccurate, fair value determined could likewise become inaccurate and impairment may not be recognized in a timely manner. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which they become known. There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.

Any enhanced regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations and acquisition opportunities.

Recent events in the banking industry could result in increased regulatory scrutiny in the course of routine examinations and otherwise, and new regulations directed towards regional banks, designed to address the recent negative developments in the banking industry, could increase the Company’s costs of doing business, result in decreased regulatory support for merger and acquisition activity, and reduce our profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition, levels of uninsured deposits, and embedded interest rate risk on bank balance sheets. As a primarily commercial bank, CBB has a relatively higher percentage of uninsured deposits compared to larger national banks or smaller community banks with a stronger focus on retail deposits. As a result, CBB could face increased scrutiny or be viewed as higher risk by regulators and the investor community.

Changes in economic, market and political conditions can adversely affect our operating results and financial condition.

We are subject to macroeconomic and interest rate risk due to domestic and global economic instability that has resulted in higher inflation than the United States has experienced in more than 40 years. The global economic impact from the geopolitical events in Europe that is contributing to rising energy and commodity prices, as well as the on-going supply chain disruptions have resulted in inflationary pressures and increases to prevailing interest rates. The Federal Reserve’s Open Market Committee (“FOMC”) raised the target range for the federal funds rate to 5.00% to 5.25% in May 2023, resulting in a cumulative increase of 5.00% from March of 2022. These recent increases in prevailing interest rates and the

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expectation that further increases are likely will impact both our customers and many aspects of our business. Higher interest rates will not only impact the interest we receive on loans and investment securities and the amount of interest we pay our depositors, but could also impact our ability to grow loans and deposits. Rising interest rates, higher commodity prices, and supply chain issues and an overall slowdown in economic growth could also impact the fair value of our assets and adversely impact our asset quality.

The occurrence of fraudulent activity, breaches or failures of information security controls or cybersecurity-related incidents to either our information systems or information systems provided by third party vendors could have a material adverse effect on our business, financial condition and results of operations.

As a financial institution, we are susceptible to fraudulent activity, information security breaches and other cybersecurity-related incidents and attacks that may be committed against us, our customers or our key vendors and business partners, which in turn may result in financial losses or increased costs to us, our customers, or our key vendors and business partners, disclosure or misuse of our information or our customer information, theft or misappropriation of assets (including bank or customer funds), privacy breaches against us or our customers, litigation, regulatory enforcement action, and damage to our reputation. The U.S. government has warned financial institutions of the potential increase in the frequency and severity of malicious cyber-attacks and other activities involving critical infrastructure, specifically including the financial sector, and has encouraged the banking sector to enhance cyber-defenses, and these risks have increased in connection with the current conflict in Europe initiated by Russia against Ukraine. While CBB has taken measures to protect its own and customer funds and confidential information against cyber-attacks, as well as other malicious activities, there can be no assurance that such measures will be successful in thwarting such attacks and activities.

ITEM 2. UNREGISTERED SA LES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 1, 2022, we announced that our Board of Directors authorized a share repurchase plan to repurchase up to 10,000,000 shares of the Company’s common stock ("2022 Repurchase Program"). We did not repurchase any shares of our common stock during the quarter ended June 30, 2023. As of June 30, 2023, an aggregate of 4,300,059 shares remained available for repurchase under our 2022 Repurchase Program. The only shares repurchased during the second quarter of 2023 were shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.

None of the Company’s directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended June 30, 2023.

Period |  | Total Number of Shares Purchased (1) |  |  | Average Price Paid Per Share |  |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  |  | Maximum Number of Shares Available for Repurchase Under the Plans or Programs |
April 1 - 30, 2023 |  |  | 531 |  |  | $ | 15.52 |  |  |  | — |  |  |  | 4,300,059 |
May 1 - 31, 2023 |  |  | — |  |  | $ | — |  |  |  | — |  |  |  | 4,300,059 |
June 1 - 30, 2023 |  |  | 428 |  |  | $ | 14.57 |  |  |  | — |  |  |  | 4,300,059 |
Total |  |  | 959 |  |  | $ | 15.10 |  |  |  | — |  |  |  | 4,300,059 |

(1) Shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the

vesting of Company stock awards.

ITEM 3. DEFAULTS U PON SENIOR SECURITIES

Not Applicable

ITEM 4. MINE SAFE TY DISCLOSURES

Not Applicable

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ITEM 5. OTHER IN FORMATION

None

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ITEM 6. EXH IBITS

Exhibit No. |  | Description of Exhibits
31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS |  | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH |  | 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, has been formatted in Inline XBRL.

* |  | Filed herewith
** |  | Furnished herewith
† |  | Indicates a management contract or compensation plan.

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SIGNA TURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CVB FINANCIAL CORP.

(Registrant)

Date: August 9, 2023

/s/ E. Allen Nicholson

E. Allen Nicholson

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

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