CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended

March 31,

2020

2019

Interest income:

Loans and leases, including fees
  $



92,117
  $




99,687

Investment securities:

Investment securities
available-for-sale

10,049

10,645

Investment securities
held-to-maturity

3,998

4,525

Total investment income
14,047

15,170

Dividends from FHLB stock

332

332

Interest-earning deposits with other institutions

613

94

Total interest income
107,109

115,283

Interest expense:

Deposits

4,124

3,871

Borrowings and customer repurchase agreements

479

1,610

Junior subordinated debentures

200

266

Total interest expense
4,803

5,747

Net interest income before provision for credit losses

102,306

109,536

Provision for credit losses

12,000

1,500

Net interest income after provision for credit losses

90,306

108,036

Noninterest income:

Service charges on deposit accounts

4,776

5,141

Trust and investment services

2,420

2,182

Bankcard services

577

950

BOLI income

2,059

1,336

Gain on OREO, net

10

105

Gain on sale of building, net

-

4,545

Other

1,798

2,044

Total noninterest income
11,640

16,303

Noninterest expense:

Salaries and employee benefits

30,877

29,302

Occupancy and equipment

4,837

5,424

Professional services

2,256

1,925

Software licenses and maintenance

2,816

2,613

Marketing and promotion

1,555

1,394

Amortization of intangible assets

2,445

2,857

Acquisition related expenses

-

3,149

Other

3,855

4,940

Total noninterest expense
48,641

51,604

Earnings before income taxes

53,305

72,735

Income taxes

15,325

21,093

Net earnings
  $
37,980
  $
51,642

Other comprehensive income:

Unrealized gain on securities arising during the period, before tax
  $
36,618
  $
18,227

Less: Income tax benefit related to items of other comprehensive income

(10,826
)
(5,388
)

Other comprehensive income, net of tax

25,792

12,839

Comprehensive income
  $
63,772
  $
64,481

Basic earnings per common share
  $
0.27
  $
0.37

Diluted earnings per common share
  $
0.27
  $
0.37


	Three Months Ended March 31,
	2021			2020
Interest income:
Loans and leases, including fees	$	91,795		$	92,117
Investment securities:
Investment securities available-for-sale		9,159			10,049
Investment securities held-to-maturity		3,940			3,998

Total investment income		13,099			14,047

Dividends from FHLB stock		217			332
Interest-earning deposits with other institutions		413			613

Total interest income		105,524			107,109

Interest expense:
Deposits		1,812			4,124
Borrowings and customer repurchase agreements		141			479
Junior subordinated debentures		103			200

Total interest expense		2,056			4,803

Net interest income before (recapture of) provision for credit losses		103,468			102,306
(Recapture of) provision for credit losses		(19,500	)		12,000

Net interest income after (recapture of) provision for credit losses		122,968			90,306

Noninterest income:
Service charges on deposit accounts		3,985			4,776
Trust and investment services		2,611			2,420
Bankcard services		350			577
BOLI income		4,624			2,059
Gain on OREO, net		429			10
Other		1,682			1,798

Total noninterest income		13,681			11,640

Noninterest expense:
Salaries and employee benefits		29,706			30,877
Occupancy and equipment		4,863			4,837
Professional services		2,168			2,256
Computer software expense		2,844			2,816
Marketing and promotion		725			1,555
Amortization of intangible assets		2,167			2,445
Other		4,690			3,855

Total noninterest expense		47,163			48,641

Earnings before income taxes		89,486			53,305
Income taxes		25,593			15,325

Net earnings	$	63,893		$	37,980


Other comprehensive (loss) income:
Unrealized (loss) gain on securities arising during the period, before tax	$	(40,310	)	$	36,618
Less: Income tax benefit (expense) related to items of other comprehensive income		11,917			(10,826	)

Other comprehensive (loss) income, net of tax		(28,393	)		25,792

Comprehensive income	$	35,500		$	63,772


Basic earnings per common share	$	0.47		$	0.27
Diluted earnings per common share	$	0.47		$	0.27

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2021 and 2020

(Dollars and shares in thousands)

(Unaudited)

~~Three Months Ended March 31, 2020~~

~~and 2019~~

Common
Shares
Outstanding

Common
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total

Balance, January 1, 20
20

140,102
  $
1,298,792
  $
682,692
  $
12,614
  $
1,994,098

Cumulative adjustment upon adoption of ASU 2016-13

-

-

(1,325
)
-

(1,325
)
Repurchase of common stock

(4,988
)
(92,402
)
-

-

(92,402
)
Exercise of stock options

4

42

-

-

42

Shares issued pursuant to stock-based compensation plan

393

1,617

-

-

1,617

Cash dividends declared on common stock ($0.18 per share)

-

-

(24,416
)
-

(24,416
)
Net earnings

-

-

37,980

-

37,980

Other comprehensive income

-

-

-

25,792

25,792

Balance, March 31, 20
20

135,511
  $
1,208,049
  $
694,931
  $
38,406
  $
1,941,386

Balance, January 1, 20
19

140,000
  $
1,293,669
  $
575,805
  $
(18,284
)   $
1,851,190

Repurchase of common stock

(33
)
(735
)
-

-
(735 )
Exercise of stock options

9

140

-

-

140

Shares issued pursuant to stock-based compensation plan

33

1,019

-

-

1,019

Cash dividends declared on common stock ($0.18 per share)

-

-

(25,168
)
-

(25,168
)
Net earnings

-

-

51,642

-

51,642

Other comprehensive income

-

-

-

12,839

12,839

Balance, March 31, 20
19

140,009
  $

1,294,093
  $

602,279
  $
(5,445
)   $

1,890,927


	Common Shares Outstanding			Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2021		135,601		$	1,211,780		$	760,861		$	35,349		$	2,007,990
Repurchase of common stock		(22	)		(502	)		-			-			(502	)
Exercise of stock options		40			891			-			-			891
Shares issued pursuant to stock-based compensation plan		301			1,282			-			-			1,282
Cash dividends declared on common stock ($0.18 per share)		-			-			(24,495	)		-			(24,495	)
Net earnings		-			-			63,893			-			63,893
Other comprehensive loss		-			-			-			(28,393	)		(28,393	)

Balance, March 31, 2021		135,920		$	1,213,451		$	800,259		$	6,956		$	2,020,666


Balance, January 1, 2020		140,102		$	1,298,792		$	682,692		$	12,614		$	1,994,098
Cumulative adjustment upon adoption of ASU 2016-13		0			0			(1,325	)		0			(1,325	)
Repurchase of common stock		(4,988	)		(92,402	)		-			-			(92,402	)
Exercise of stock options		4			42			-			-			42
Shares issued pursuant to stock-based compensation plan		393			1,617			-			-			1,617
Cash dividends declared on common stock ($0.18 per share)		-			-			(24,416	)		-			(24,416	)
Net earnings		-			-			37,980			-			37,980
Other comprehensive income		-			-			-			25,792			25,792

Balance, March 31, 2020		135,511		$	1,208,049		$	694,931		$	38,406		$	1,941,386

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

    Three Months Ended
March 31,

2020

2019

Cash Flows from Operating Activities

Interest and dividends received
  $
105,673
  $
109,857

Service charges and other fees received

9,644

10,247

Interest paid

(4,589
)
(5,336
)
Net cash paid to vendors, employees and others

(35,201
)
(60,281
)

Net cash provided by operating activities

75,527

54,487

Cash Flows from Investing Activities

Net change in interest-earning balances from depository institutions

(20,868
)
250

Proceeds from repayment of investment securities
available-for-sale

92,519

77,303

Proceeds from maturity of investment securities
available-for-sale

2,390

565

Proceeds from repayment and maturity of investment securities
held-to-maturity

33,297

29,598

Purchases of investment securities
held-to-maturity

(1,509
)
(19,844
)
Net increase in equity investments

(2,985
)
(2,314
)
Net decrease in loan and lease finance receivables

103,890

163,588

Proceeds from sale of building, net

-

5,487

Purchase of premises and equipment

(882
)
(1,490
)
Proceeds from BOLI death benefit

138

175

Proceeds from sales of other real estate owned

-

523

Net cash provided by investing activities

205,990

253,841

Cash Flows from Financing Activities

Net increase (decrease) in other deposits

403,546

(156,745
)
Net increase (decrease) in time deposits

5,130

(16,625
)
Net decrease in other borrowings

-

(127,000
)
Net (decrease) increase in customer repurchase agreements

(59,744
)
20,519

Cash dividends on common stock

(25,252
)
(19,616
)
Repurchase of common stock

(85,018
)
(735
)
Proceeds from exercise of stock options

42

140

Net cash provided by (used in) financing activities

238,704

(300,062
)

Net increase in cash and cash equivalents

520,221

8,266

Cash and cash equivalents, beginning of period

185,518

163,948

Cash and cash equivalents, end of period
  $
705,739
  $
172,214


	Three Months Ended March 31,
	2021			2020
Cash Flows from Operating Activities
Interest and dividends received	$	95,475		$	105,673
Service charges and other fees received		8,636			9,644
Interest paid		(1,859	)		(4,589	)
Net cash paid to vendors, employees and others		(56,221	)		(35,201	)
Income taxes		907			0

Net cash provided by operating activities		46,938			75,527

Cash Flows from Investing Activities
Net change in interest-earning balances from depository institutions		15,815			(20,868	)
Proceeds from repayment of investment securities available-for-sale		224,104			92,519
Proceeds from maturity of investment securities available-for-sale		0			2,390
Purchases of investment securities available-for-sale		(661,857	)		0
Proceeds from repayment and maturity of investment securities held-to-maturity		35,766			33,297
Purchases of investment securities held-to-maturity		(545,681	)		(1,509	)
Net increase in equity investments		(4,961	)		(2,985	)
Net decrease in loan and lease finance receivables		64,167			103,890
Proceeds from sale of building, net of selling costs		1,157			0
Purchase of premises and equipment		(662	)		(882	)
Proceeds from BOLI death benefit		5,062			138
Proceeds from sales of other real estate owned		2,216			0

Net cash (used in) provided by investing activities		(864,874	)		205,990

Cash Flows from Financing Activities
Net increase in other deposits		336,518			403,546
Net increase in time deposits		5,636			5,130
Net increase (decrease) in customer repurchase agreements		66,940			(59,744	)
Cash dividends on common stock		(24,408	)		(25,252	)
Repurchase of common stock		(502	)		(85,018	)
Proceeds from exercise of stock options		891			42

Net cash provided by financing activities		385,075			238,704

Net (decrease) increase in cash and cash equivalents		(432,861	)		520,221

Cash and cash equivalents, beginning of period		1,958,160			185,518

Cash and cash equivalents, end of period	$	1,525,299		$	705,739

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

CVB FINANCIAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

(Unaudited)

    Three Months Ended
March 31,

2020

2019

Reconciliation of Net Earnings to Net Cash Provided by Operating Activities

   Net earnings
  $
37,980
  $
51,642

   Adjustments to reconcile net earnings to net cash provided by operating activities:

  Gain on sale of building, net

-

(4,545
)
  Gain on sale of other real estate owned
-
(105
)
I
ncrease in BOLI

(1,344
)
(1,427
)
  Net amortization of premiums and discounts on investment securities

2,620

2,498

  Accretion of discount for acquired loans, net

(4,776
)
(7,200
)

Provision for

credit
losses

12,000

1,500

  Stock-based compensation

1,617

1,019

  Depreciation and amortization, net

5,176

5,669

  Change in other assets and liabilities

22,254

5,436

     Total adjustments

37,547

2,845

    Net cash provided by operating activities
  $
75,527
  $
54,487

Supplemental Disclosure of
Non-cash
Investing Activities

   Transfer of loans to other real estate owned
  $
-
  $
2,275


	Three Months Ended March 31,
	2021			2020
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
Net earnings	$	63,893		$	37,980

Adjustments to reconcile net earnings to net cash provided by operating activities:

Gain on sale of building, net		(189	)		0
Gain on sale of other real estate owned		(399	)		0
Increase in BOLI		(4,624	)		(1,344	)
Net amortization of premiums and discounts on investment securities		6,411			2,620
Accretion of discount for acquired loans, net		(4,028	)		(4,776	)
(Recapture of) provision for credit losses		(19,500	)		12,000
Stock-based compensation		1,282			1,617
Depreciation and amortization, net		(3,526	)		5,176
Change in other assets and liabilities		7,618			22,254

Total adjustments		(16,955	)		37,547

Net cash provided by operating activities	$	46,938		$	75,527


Supplemental Disclosure of Non-cash Investing Activities
Securities purchased and not settled	$	80,973		$	0

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

CVB FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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,”~~“we”, “our” or the “Company”)

and its wholly owned ~~subsidiary,~~subsidiary: Citizens Business Bank (the “Bank” or “CBB”), after elimination of all intercompany transactions and balances. The Company has 1 inactive subsidiary, Chino Valley Bancorp. The Company is also the common stockholder of CVB Statutory Trust III. CVB Statutory Trust III was created in January 2006 to issue trust preferred securities in order to raise capital for the Company. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, this trust does not meet the criteria for consolidation.

The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through its CitizensTrust Division. The Bank’s customers consist primarily of small to

mid-sized

businesses and individuals located in the Inland Empire, Los Angeles County, Orange County, San Diego County, Ventura County, Santa Barbara County, and the Central Valley area of California. The Bank operates 5857 banking centers, 1 loan production office in Modesto, California and 3 trust office locations. The Company is ~~headquartered~~head quartered in the city of Ontario, California.

2.	BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form

10-Q

and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three months ended March 31, ~~2020~~2021 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, ~~2019,~~2020, 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, ~~2019~~2020 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.

~~Table of Contents~~

~~Adoption of New Accounting Standard~~

~~Provision and Allowance for Credit Losses~~

~~— On January 1, 2020, the Company adopted ASU No.~~

~~2016-13,~~

“Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. This ASU replaces the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the Current Expected Credit Loss (“CECL”) model, applies to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off balance sheet credit exposures. This includes, but is not limited to, loans,

~~held-to-maturity~~

~~securities, loan commitments, and financial guarantees. The CECL model does not apply to~~

~~available-for-sale~~

(“AFS”) debt securities. For AFS debt securities with unrealized losses, we will measure credit impairment in a manner similar to the approach used prior to the adoption of CECL, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, we will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as required prior to the adoption of CECL. As a policy election, we excluded the accrued interest receivable balance from the amortized cost basis of financing receivables and HTM

securities, as well as AFS securities, and disclose total accrued interest receivable separately on the condensed consolidated balance sheet. If accrued interest is not received, it is reversed against interest income, which was zero for the first quarter of 2020.

~~The Company adopted this ASU using the modified retrospective method for all financial assets measured at amortized cost and~~

~~off-balance~~

sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to beginning retained earnings of $1.3 million, net of tax as of January 1, 2020 for the cumulative adjustment upon adoption of ASC 326. The transition adjustment of

~~$1.8 million was added to the beginning balance of the allowance for credit losses (“ACL”) for loans and $41,000 was added to the beginning balance of reserve for unfunded loan commitments.~~

~~Upon adoption of CECL there was no impact on the accounting for AFS or HTM investment securities.~~

The Company developed a CECL allowance model that calculates reserves over the life of the loan and is largely driven by portfolio characteristics, risk grading, macroeconomic variables and the associated economic outlook, as well as other key methodology assumptions. The allowance is based upon historical lifetime loss rate models segregated by three loan segments: Commercial and Industrial, Commercial Real Estate, and Consumer Retail. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, the ASU indicates management has the opportunity to layer on current conditions and forecast adjustments to ensure that the life of loan loss rate reflects both the current state of the portfolio, and expectations for macroeconomic changes in the near future. We utilized a single economic forecast that is based on probability weighted scenarios to incorporate macroeconomic uncertainty over a 2 or

~~3-year~~

forecast horizon. After the initial 2 to 3 year forecast horizon, we use an input reversion methodology in the model structure to complete a reasonable and supportable forecast period for the life of the loan.

~~During the second half of March 2020, the broader economy experienced a significant deterioration in the economic environment driven by the COVID-19 pandemic resulting in~~

adverse changes to the forecasted macroeconomic variables utilized in our modeling processes. This expected economic deterioration, coupled with the implementation of the expected loss methodology for determining our provision for credit losses, have contributed to an increased provision for credit losses of

~~$12~~

~~million for~~

the first quarter of 2020. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from the CARES Act. The extent to which the COVID-19 pandemic will impact our operations and financial results during the remainder of 2020 is highly uncertain, but we may experience increased provision for credit losses if the

~~COVID-19~~

~~pandemic results in additional economic stress on our borrowers and loan portfolios.~~

Table of Contents

4.	INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are

available-for-sale

securities with fair value based on quoted prices for similar assets in active markets or quoted prices for identical assets in markets that are not active. Estimated fair values were obtained from an independent pricing service based upon market quotes.

March 31, 2020

   Amortized
Cost

Gross


Unrealized

Holding
Gain

Gross

Unrealized

Holding
Loss



Fair Value

Total Percent

(Dollars in thousands)
Investment securities
available-for-sale:

Mortgage-backed securities
  $
1,118,385
  $
43,546
  $
-
  $
1,161,931

69.18%
CMO/REMIC

466,033

14,060

-

480,093

28.58%
Municipal bonds

36,119

913

-

37,032

2.20%
Other securities

699

-

-

699

0.04%

Total
available-for-sale
securities
  $
1,621,236
  $
58,519
  $
-
  $
1,679,755

100.00%

Investment securities
held-to-maturity:

Government agency/GSE
  $
111,452
  $
3,468
  $
(207)
  $
114,713

17.35%
Mortgage-backed securities

161,983

8,182

-

170,165

25.22%
CMO/REMIC

184,316

591

(98)

184,809

28.70%
Municipal bonds

184,504

4,054

(426)

188,132

28.73%

Total
held-to-maturity
securities
  $
642,255
  $
16,295
  $
(731)
  $
657,819

100.00%

December 31, 2019

   Amortized
Cost

Gross
   Unrealized
Holding
Gain

Gross
   Unrealized
Holding
Loss

   Fair Value

Total Percent

(Dollars in thousands)
Investment securities
available-for-sale:

Mortgage-backed securities
  $
1,185,757
  $
21,306
  $
(750)
  $
1,206,313

69.32%
CMO/REMIC

493,214

1,392

(896)

493,710

28.37%
Municipal bonds

38,506

850

(2)

39,354

2.26%
Other securities

880

-

-

880

0.05%

Total
available-for-sale
securities
  $
1,718,357
  $
23,548
  $
(1,648)
  $
1,740,257

100.00%

Investment securities
held-to-maturity:

Government agency/GSE
  $
117,366
  $
2,280
  $
(657)
  $
118,989

17.40%
Mortgage-backed securities

168,479

2,083

(54)

170,508

24.98%
CMO/REMIC

192,548

-

(2,458)

190,090

28.55%
Municipal bonds

196,059

3,867

(565)

199,361

29.07%

Total
held-to-maturity
securities
  $
674,452
  $
8,230
  $
(3,734)
  $
678,948

100.00%


	March 31, 2021
	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	$	2,175,414	$	38,333	$	(22,409)		$	2,191,338		77.92%
CMO/REMIC		592,915		4,072		(6,821)			590,166		20.99%
Municipal bonds		28,703		1,183		0-			29,886		1.06%
Other securities		958		0-		0-			958		0.03%

Total available-for-sale securities	$	2,797,990	$	43,588	$	(29,230)		$	2,812,348		100.00%

Investment securities held-to-maturity:
Government agency/GSE	$	601,142	$	3,860	$	(016,289	)	$	588,713		55.30%
Mortgage-backed securities		135,137		5,348		(0255	)		140,230		12.43%
CMO/REMIC		133,556		2,832		0-			136,388		12.29%
Municipal bonds		217,149		5,095		(2,094)			220,150		19.98%

Total held-to-maturity securities	$	1,086,984	$	17,135	$	(18,638)		$	1,085,481		100.00%


	December 31, 2020
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss		Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	1,857,030	$	48,006	$	(101)	$	1,904,935		79.41%
CMO/REMIC		457,548		5,515		(249)		462,814		19.29%
Municipal bonds		28,707		1,578		0		30,285		1.26%
Other securities		889		0-		0-		889		0.04%

Total available-for-sale securities	$	2,344,174	$	55,099	$	(350)	$	2,398,923		100.00%

Investment securities held-to-maturity:
Government agency/GSE	$	98,663	$	5,877	$	0	$	104,540		17.05%
Mortgage-backed securities		146,382		7,644		(32)		153,994		25.30%
CMO/REMIC		145,309		5,202		0		150,511		25.11%
Municipal bonds		188,272		6,980		(74)		195,178		32.54%

Total held-to-maturity securities	$	578,626	$	25,703	$	(106)	$	604,223		100.00%

Table of Contents

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

    Three Months Ended
March 31,

2020

2019

(Dollars in thousands)
Investment securities
available-for-sale:

Taxable
  $
9,825
  $
10,309

Tax-advantaged

224

336

Total interest income from
available-for-sale
securities

10,049

10,645

Investment securities
held-to-maturity:

Taxable

2,698

2,910

Tax-advantaged

1,300

1,615

Total interest income from
held-to-maturity
securities

3,998

4,525

Total interest income from investment securities
  $
14,047
  $

15,170


	Three Months Ended
	March 31,
	2021		2020
	(Dollars in thousands)
Investment securities available-for-sale:
Taxable	$	8,968	$	9,825
Tax-advantaged		191		224

Total interest income from available-for-sale securities		9,159		10,049

Investment securities held-to-maturity:
Taxable		2,811		2,698
Tax-advantaged		1,129		1,300

Total interest income from held-to-maturity securities		3,940		3,998

Total interest income from investment securities	$	13,099	$	14,047

The adoption of CECL did not have a material impact on the accounting for investment securities, as approximately

~~90%~~

94% of the total investment securities portfolio at March 31, ~~2020~~2021 represents securities issued by the U.S. government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest. The remaining securities are predominately

AA-

or better general-obligation municipal bonds. The allowance for credit losses for

held-to-maturity

investment securities under the new CECL model was zero at March 31, 2021 and December 31, 2020.

We adopted ASU

2016-13

on January 1, 2020, on a

prospective

basis. Under ~~the new guidance,~~this ASU, once it is determined that a credit loss has occurred, an allowance for credit losses is established on our

~~available-for-sale~~

AFS and

~~held-to-maturity~~

HTM securities. Prior to adoption of this standard, when a decline in fair value of a debt security was determined to be other than temporary, an impairment charge for the credit component was recorded, and a new cost basis in the investment was established. During the first quarter of 2020, managementManagement determined that there were no credit losses ~~did not exist~~ for securities in an unrealized loss ~~position. As~~position as of March 31, ~~2020, there were no AFS~~ 2021 and December 31, 2020.

The following table presents the Company’s

available-for-sale

investment securities, ~~with~~by investment category, in an unrealized loss ~~position.~~position for which an allowance for credit losses has not been recorded as of March 31, 2021 and December 31, 2020.


	March 31, 2021
	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	$	1,327,126	$	(22,409	)	$	0-	$	0-	$	1,327,126	$	(22,409	)
CMO/REMIC		422,765		(6,821	)		0-		0-		422,765		(6,821	)
Municipal bonds		0-		0-			0-		0-		0-		0-

Total available-for-sale securities	$	1,749,891	$	(29,230	)	$	0-	$	0-	$	1,749,891	$	(29,230	)


	December 31, 2020
	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	72,219	$	(101	)	$	0	$	0	$	72,219	$	(101	)
CMO/REMIC		96,974		(249	)		0		0		96,974		(249	)
Municipal bonds		0-		0-			0		0		0		0

Total available-for-sale securities	$	169,193	$	(350	)	$	0	$	0	$	169,193	$	(350	)

The tables below show the Company’s investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at12

~~December 31, 2019, prior to adoption of ASU 2016-13. Management~~

~~previously~~

reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be other-than-temporarily-impaired

December
31, 2019

    Less Than 12 Months

    12 Months or Longer

    Total

Fair Value

Gross
Unrealized
Holding
Losses

Fair Value

Gross
Unrealized
Holding
Losses

Fair Value

Gross
Unrealized
Holding
Losses

(Dollars in thousands)
Investment securities
available-for-sale:

Mortgage-backed securities
  $

20,289
  $
(6
)   $
97,964
  $
(744
)   $
118,253
  $
(750
)
CMO/REMIC

177,517

(705
)
34,565

(191
)
212,082

(896
)
Municipal bonds

-

-

563

(2
)
563

(2
)

Total
available-for-sale
securities
  $

197,806
  $
(711
)   $

133,092
  $
(937
)   $

330,898
  $
(1,648
)

Investment securities
held-to-maturity:

Government agency/GSE
  $
28,359
  $
(252
)   $
19,405
  $
(405
)   $
47,764
  $
(657
)
Mortgage-backed securities

10,411

(54
)
-

-

10,411

(54
)
CMO/REMIC

23,897

(104
)
166,193

(2,354
)
190,090

(2,458
)
Municipal bonds

7,583

(32
)
29,981

(533
)
37,564

(565
)

Total
held-to-maturity
securities
  $
70,250
  $

(442
)   $
215,579
  $

(3,292
)   $
285,829
  $

(3,734
)

Table of Contents

At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, investment securities having a carrying value of approximately ~~$1.63~~$1.92 billion and ~~$1.64~~$1.81 billion, respectively, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.

The amortized cost and fair value of debt securities at March 31, ~~2020,~~2021, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have weighted average remaining contractual maturities ~~through 2058,~~of approximately 19 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.

March 31, 2020

Available-for-sale

Held-to-maturity

  Amortized
Cost

  Fair Value

  Amortized
Cost

  Fair Value

(Dollars in thousands)

Due in one year or less
  $
13,043
  $
13,160
  $
768
  $
788

Due after one year through five years

1,376,413

1,427,373

358,973

367,734

Due after five years through ten years

176,690

182,573

103,004

104,787

Due after ten years

55,090

56,649

179,510

184,510

Total investment securities
  $

1,621,236
  $

1,679,755
  $

642,255
  $

657,819


	March 31, 2021
	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	4,821	$	4,920	$	4,054	$	4,086
Due after one year through five years		2,368,827		2,383,641		280,057		288,032
Due after five years through ten years		393,699		392,160		133,106		134,081
Due after ten years		30,643		31,627		669,767		659,282

Total investment securities	$	2,797,990	$	2,812,348	$	1,086,984	$	1,085,481

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. NaN

impairment losses have been recorded through March 31, ~~2020.~~2021.

Table of Contents

5.	LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

The following table provides a summary of total loans and lease finance receivables by type.

March 31, 2020

December 31, 2019

(Dollars in thousands)

Commercial and industrial
  $
960,761
  $
935,127

SBA

313,071

305,008

Real estate:

Commercial real estate

5,347,925

5,374,617

Construction

128,045

116,925

SFR mortgage

278,743

283,468

Dairy & livestock and agribusiness

272,114

383,709

Municipal lease finance receivables

51,287

53,146

Consumer and other loans

114,206

116,319

Gross loans

7,466,152

7,568,319

Less: Deferred loan fees, net (1)

-

(3,742
)

Gross loans, net of deferred loan fees

7,466,152

7,564,577

Less: Allowance for
credit
losses

(82,641
)
(68,660
)

Total loans and lease finance receivables
  $
7,383,511
  $
7,495,917

~~(1)~~

~~Beginning with March 31, 2020, gross loans are presented net of deferred loan fees by respective class of financing receivables.~~


	March 31, 2021			December 31, 2020
	(Dollars in thousands)
Commercial real estate	$	5,596,781		$	5,501,509
Construction		96,356			85,145
SBA		307,727			303,896
SBA - Paycheck Protection Program (PPP)		897,724			0882,986
Commercial and industrial		753,708			812,062
Dairy & livestock and agribusiness		261,088			361,146
Municipal lease finance receivables		42,349			45,547
SFR mortgage		255,400			270,511
Consumer and other loans		81,924			86,006

Total loans, at amortized cost		8,293,057			8,348,808
Less: Allowance for credit losses		(71,805	)		(93,692	)

Total loans and lease finance receivables, net	$	8,221,252		$	8,255,116

As of March 31, ~~2020, 77.08%~~2021, 71.73% of the Company’s total ~~gross~~ loan portfolio consisted of real estate loans, with commercial real estate loans representing ~~71.63%~~67.49% of total loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. As of March 31, ~~2020, $248.2~~2021, $327.4 million, or ~~4.64%~~5.85% of the total commercial real estate loans included loans secured by farmland, compared to ~~$241.8~~$314.4 million, or ~~4.50%~~5.72%, at December 31, ~~2019.~~2020. The loans secured by farmland included ~~$122.5~~$129.2 million for loans secured by dairy & livestock land and ~~$125.7~~$198.1 million for loans secured by agricultural land at March 31, ~~2020,~~2021, compared to ~~$125.9~~$132.9 million for loans secured by dairy & livestock land and ~~$115.9~~$181.5 million for loans secured by agricultural land at December 31, ~~2019.~~2020. As of March 31, ~~2020,~~2021, dairy & livestock and agribusiness loans of ~~$272.1~~$261.1 million were comprised of ~~$218.0~~$229.1 million for dairy & livestock loans and ~~$54.1~~$31.9 million for agribusiness loans, compared to ~~$323.5~~$320.1 million for dairy & livestock loans and ~~$60.2~~$41.0 million for agribusiness loans at December 31, ~~2019.~~2020.

At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, loans totaling ~~$6.06~~$6.07 billion and ~~$6.03~~$6.07 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

There were 0

outstanding loans

held-for-sale

as of March 31, ~~2020~~2021 and December 31, ~~2019.~~

2020.

Table of Contents

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 ~~on an ongoing basis~~ 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 (Credit Quality Indicators):~~categories: Pass, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:

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

Special Mention — Loans assigned to this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard — Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or the liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset with insignificant value even though partial recovery may be affected in the future.

615

Table of Contents

The following table summarizes loans by type and origination year, according to our internal risk ratings as of the ~~date~~dates presented.

Origination Year

Revolving
loans
amortized
cost basis

Revolving
loans
converted to
term loans

March 31, 2020

2020

2019

2018

2017

2016

Prior

Total

(Dollars in thousands)

Commercial and industrial loans:

Risk Rating:

Pass
  $
35,101
  $
160,551
  $
79,808
  $
74,291
  $
48,698
  $
85,803
  $
423,186
  $
8,849
  $
916,287

Special Mention

1,066

257

7,405

1,694

539

3,524

12,598

2,442

29,525

Substandard

-

143

796

855

637

37

11,256

1,225

14,949

Doubtful & Loss

-

-

-

-

-

-

-

-

-

Total Commercial and industrial loans:
  $
36,167
  $
160,951
  $
88,009
  $
76,840
  $
49,874
  $
89,364
  $
447,040
  $
12,516
  $
960,761

SBA:

Risk Rating:

Pass
  $
26,599
  $
18,009
  $
48,416
  $
77,219
  $
27,922
  $
93,865
  $
-
  $
-
  $
292,030

Special Mention

-

-

-

1,177

1,277

7,809

-

-

10,263

Substandard

-

-

1,424

3,835

1,604

3,915

-

-

10,778

Doubtful & Loss

-

-

-

-

-

-

-

-

-

Total SBA:
  $
26,599
  $
18,009
  $
49,840
  $
82,231
  $
30,803
  $
105,589
  $
-
  $
-
  $
313,071

Commercial real estate loans:

Risk Rating:

Pass
  $
153,366
  $
726,268
  $
743,909
  $
732,319
  $
626,561
  $
2,021,759
  $
197,335
  $
18,747
  $
5,220,264

Special Mention

-

5,343

9,106

16,484

7,211

52,995

3,457

-

94,596

Substandard

-

-

5,155

5,813

1,315

18,819

250

1,713

33,065

Doubtful & Loss

-

-

-

-

-

-

-

-

-

Total Commercial real estate loans:
  $
153,366
  $
731,611
  $
758,170
  $
754,616
  $
635,087
  $
2,093,573
  $
201,042
  $
20,460
  $
5,347,925

Construction loans:

Risk Rating:

Pass
  $
550
  $
13,414
  $
13,300
  $
35,130
  $
10,592
  $
5
  $
49,591
  $
5,463
  $
128,045

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

-

-

-

-

Doubtful & Loss

-

-

-

-

-

-

-

-

-

Total Construction loans:
  $
550
  $
13,414
  $
13,300
  $
35,130
  $
10,592
  $
5
  $
49,591
  $
5,463
  $
128,045

SFR mortgage loans:

Risk Rating:

Pass
  $
10,473
  $
66,680
  $
38,192
  $
26,819
  $
35,992
  $
96,795
  $
-
  $
-
  $
274,951

Special Mention

-

-

-

-

-

1,942

-

-

1,942

Substandard

-

-

-

379

-

1,025

-

446

1,850

Doubtful & Loss

-

-

-

-

-

-

-

-

-

Total SFR mortgage loans:
  $
10,473
  $
66,680
  $
38,192
  $
27,198
  $
35,992
  $
99,762
  $
-
  $
446
  $
278,743


		Origination Year												Revolving loans amortized cost basis		Revolving loans converted to term loans
March 31, 2021		2021		2020		2019		2018		2017		Prior		Revolving loans amortized cost basis		Revolving loans converted to term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass		$	282,950	$	981,750	$	678,640	$	588,405	$	569,006	$	2,063,996	$	180,542	$	35,794	$	5,381,083
Special Mention			10,420		9,254		11,441		25,826		50,811		66,570		4,609		9,890		188,821
Substandard			0		0		479		2,156		9,064		14,347		500		331		26,877
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total Commercial real estate loans:		$	293,370	$	991,004	$	690,560	$	616,387	$	628,881	$	2,144,913	$	185,651	$	46,015	$	5,596,781

Construction loans:
Risk Rating:
Pass		$	876	$	19,034	$	7,974	$	6,380	$	2,257	$	4	$	52,058	$	0	$	88,583
Special Mention			0		0		0		7,773		0		0		0		0		7,773
Substandard			0		0		0		0		0		0		0		0		0
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total Construction loans:		$	876	$	19,034	$	7,974	$	14,153	$	2,257	$	4	$	52,058	$	0	$	96,356

SBA loans:
Risk Rating:
Pass		$	20,599	$	44,593	$	12,742	$	43,163	$	55,759	$	104,385	$	0	$	2,976	$	284,217
Special Mention			0		0		0		0		5,408		6,864		0		0		12,272
Substandard			0		0		0		876		5,145		5,217		0		0		11,238
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total SBA loans:		$	20,599	$	44,593	$	12,742	$	44,039	$	66,312	$	116,466	$	0	$	2,976	$	307,727

SBA - PPP loans:
Risk Rating:
Pass		$	314,940	$	581,281	$	0	$	0	$	0	$	0	$	0	$	0	$	896,221
Special Mention			0		0		0		0		0		0		0		0		0
Substandard			0		1,503		0		0		0		0		0		0		1,503
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total SBA - PPP loans:		$	314,940	$	582,784	$	0	$	0	$	0	$	0	$	0	$	0	$	897,724

Commercial and industrial loans:
Risk Rating:
Pass		$	31,474	$	100,585	$	147,772	$	59,414	$	50,335	$	97,792	$	219,271	$	6,303	$	712,946
Special Mention			486		1,781		1,881		1,732		856		4,798		10,485		247		22,266
Substandard			2,643		1,611		808		3,467		2,039		355		6,183		1,390		18,496
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total Commercial and industrial loans:		$	34,603	$	103,977	$	150,461	$	64,613	$	53,230	$	102,945	$	235,939	$	7,940	$	753,708

Table of Contents


	Origination Year												Revolving loans amortized cost basis		Revolving loans converted to term loans					Origination Year												Revolving loans amortized cost basis		Revolving loans converted to term loans
March 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term loans		Total																	Revolving loans converted to term loans
March 31, 2021																				2021		2020		2019		2018		2017		Prior		Revolving loans amortized cost basis		Revolving loans amortized cost basis		Revolving loans converted to term loans		Total
	(Dollars in thousands)																		(Dollars in thousands)															Revolving loans amortized cost basis		Revolving loans converted to term loans
Dairy & livestock and agribusiness loans:
Risk Rating:
Pass	$	78	$	2,945	$	1,940	$	8,109	$	2,831	$	14,655	$	192,649	$	-	$	223,207		$	0	$	2,216	$	1,660	$	1,102	$	256	$	391	$	227,667	$	387	$	233,679
Special Mention		-		-		166		722		-		-		22,150		3,686		26,724			0		0		0		347		0		1,684		11,029		7,342		20,402
Substandard		-		-		882		-		4,016		-		4,625		12,660		22,183			0		0		0		259		0		0		0		6,748		7,007
Doubtful & Loss		-		-		-		-		-		-		-		-		-			0		0		0		0		0		0		0		0		0

Total Dairy & livestock and agribusiness loans:	$	78	$	2,945	$	2,988	$	8,831	$	6,847	$	14,655	$	219,424	$	16,346	$	272,114		$	0	$	2,216	$	1,660	$	1,708	$	256	$	2,075	$	238,696	$	14,477	$	261,088

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	147	$	-	$	3,081	$	10,961	$	7,912	$	28,739	$	-	$	-	$	50,840		$	0	$	8,217	$	0	$	2,556	$	10,248	$	20,916	$	0	$	0	$	41,937
Special Mention		-		-		-		-		-		447		-		-		447			0		0		0		0		0		412		0		0		412
Substandard		-		-		-		-		-		-		-		-		-			0		0		0		0		0		0		0		0		0
Doubtful & Loss		-		-		-		-		-		-		-		-		-			0		0		0		0		0		0		0		0		0

Total Municipal lease finance receivables loans:	$	147	$	-	$	3,081	$	10,961	$	7,912	$	29,186	$	-	$	-	$	51,287		$	0	$	8,217	$	0	$	2,556	$	10,248	$	21,328	$	0	$	0	$	42,349

SFR mortgage loans:
Risk Rating:
Pass																				$	7,745	$	61,021	$	53,148	$	27,117	$	20,857	$	81,721	$	2	$	0	$	251,611
Special Mention																					0		0		0		0		0		195		0		0		195
Substandard																					0		0		0		0		0		3,168		0		426		3,594
Doubtful & Loss																					0		0		0		0		0		0		0		0		0

Total SFR mortgage loans:																				$	7,745	$	61,021	$	53,148	$	27,117	$	20,857	$	85,084	$	2	$	426	$	255,400

Consumer and other loans:
Risk Rating:
Pass	$	1,647	$	3,197	$	1,160	$	1,372	$	2,094	$	2,612	$	98,953	$	1,582	$	112,617		$	2,618	$	7,558	$	1,833	$	778	$	878	$	2,157	$	61,735	$	1,791	$	79,348
Special Mention		-		-		-		-		80		148		609		-		837			975		0		0		0		0		90		516		0		1,581
Substandard		-		-		5		-		-		179		148		420		752			0		0		0		0		0		170		149		676		995
Doubtful & Loss		-		-		-		-		-		-		-		-		-			0		0		0		0		0		0		0		0		0

Total Consumer and other loans:	$	1,647	$	3,197	$	1,165	$	1,372	$	2,174	$	2,939	$	99,710	$	2,002	$	114,206		$	3,593	$	7,558	$	1,833	$	778	$	878	$	2,417	$	62,400	$	2,467	$	81,924

Gross loans:
Total Loans:
Risk Rating:
Pass	$	227,961	$	991,064	$	929,806	$	966,220	$	762,602	$	2,344,233	$	961,714	$	34,641	$	7,218,241		$	661,202	$	1,806,255	$	903,769	$	728,915	$	709,596	$	2,371,362	$	741,275	$	47,251	$	7,969,625
Special Mention		1,066		5,600		16,677		20,077		9,107		66,865		38,814		6,128		164,334			11,881		11,035		13,322		35,678		57,075		80,613		26,639		17,479		253,722
Substandard		-		143		8,262		10,882		7,572		23,975		16,279		16,464		83,577			2,643		3,114		1,287		6,758		16,248		23,257		6,832		9,571		69,710
Doubtful & Loss		-		-		-		-		-		-		-		-		-			0		0		0		0		0		0		0		0		0

Total Gross loans:	$	229,027	$	996,807	$	954,745	$	997,179	$	779,281	$	2,435,073	$	1,016,807	$	57,233	$	7,466,152
Total Loans:																				$	675,726	$	1,820,404	$	918,378	$	771,351	$	782,919	$	2,475,232	$	774,746	$	74,301	$	8,293,057

817

Table of Contents


		Origination Year												Revolving loans amortized cost basis		Revolving loans converted to term loans
December 31, 2020		2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass		$	979,499	$	691,091	$	607,753	$	617,640	$	550,105	$	1,646,876	$	192,583	$	24,548	$	5,310,095
Special Mention			9,332		7,162		30,049		43,870		17,398		49,840		5,720		994		164,365
Substandard			0		491		2,157		7,382		2,528		13,790		360		341		27,049
Doubtful & Loss			0		0		0		0		0		0		0		0		0
Total Commercial real estate loans:		$	988,831	$	698,744	$	639,959	$	668,892	$	570,031	$	1,710,506	$	198,663	$	25,883	$	5,501,509
Construction loans:
Risk Rating:
Pass		$	14,511	$	9,350	$	14,945	$	2,258	$	0	$	4	$	44,077	$	0	$	85,145
Special Mention			0		0		0		0		0		0		0		0		0
Substandard			0		0		0		0		0		0		0		0		0
Doubtful & Loss			0		0		0		0		0		0		0		0		0
Total Construction loans:		$	14,511	$	9,350	$	14,945	$	2,258	$	0	$	4	$	44,077	$	0	$	85,145
SBA loans:
Risk Rating:
Pass		$	47,901	$	12,821	$	44,950	$	58,839	$	26,136	$	86,085	$	0	$	2,976	$	279,708
Special Mention			0		0		0		5,446		1,336		5,648		0		0		12,430
Substandard			0		0		904		5,503		1,554		3,797		0		0		11,758
Doubtful & Loss			0		0		0		0		0		0		0		0		0
Total SBA loans:		$	47,901	$	12,821	$	45,854	$	69,788	$	29,026	$	95,530	$	0	$	2,976	$	303,896
SBA - PPP loans:
Risk Rating:
Pass		$	882,986	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	882,986
Special Mention			0		0		0		0		0		0		0		0		0
Substandard			0		0		0		0		0		0		0		0		0
Doubtful & Loss			0		0		0		0		0		0		0		0		0
Total SBA - PPP loans:		$	882,986	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	882,986
Commercial and industrial loans:
Risk Rating:
Pass		$	104,478	$	168,050	$	62,453	$	56,043	$	32,149	$	76,019	$	257,250	$	6,058	$	762,500
Special Mention			1,995		1,081		1,892		1,028		95		4,882		17,395		1,132		29,500
Substandard			4,346		860		3,996		2,282		285		94		6,677		1,522		20,062
Doubtful & Loss			0		0		0		0		0		0		0		0		0
Total Commercial and industrial loans:		$	110,819	$	169,991	$	68,341	$	59,353	$	32,529	$	80,995	$	281,322	$	8,712	$	812,062

~~The following table summarizes lo~~

an18

~~s by type, according to our internal risk ratings as of the date presented.~~

December 31, 2019

    Pass

Special

Mention

Substandard

Doubtful &
Loss

    Total

(Dollars in thousands)
Commercial and industrial
  $
895,234
  $
35,473
  $
4,420
  $
-
  $
935,127

SBA

283,430

11,032

10,546

-

305,008

Real estate:

Commercial real estate

Owner occupied

1,977,007

78,208

28,435

-

2,083,650

Non-owner
occupied

3,280,580

10,005

382

-

3,290,967

Construction

Speculative

106,895

-

-

-

106,895

Non-speculative

10,030

-

-

-

10,030

SFR mortgage

280,010

1,957

1,501

-

283,468

Dairy & livestock and agribusiness

320,670

35,920

27,119

-

383,709

Municipal lease finance receivables

52,676

470

-

-

53,146

Consumer and other loans

114,870

421

1,028

-

116,319

Total gross loans
$



7,321,402
  $



173,486

$



73,431
$

-
  $

7,568,319

Table of Contents


		Origination Year												Revolving loans amortized cost basis		Revolving loans converted to term loans
December 31, 2020		2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term loans		Total
	(Dollars in thousands)
Dairy & livestock and agribusiness loans:
Risk Rating:
Pass		$	1,041	$	1,765	$	1,199	$	5,680	$	120	$	320	$	319,211	$	363	$	329,699
Special Mention			878		0		364		0		0		0		13,255		1,511		16,008
Substandard			0		0		784		693		2,285		0		0		11,677		15,439
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total Dairy & livestock and agribusiness loans:		$	1,919	$	1,765	$	2,347	$	6,373	$	2,405	$	320	$	332,466	$	13,551	$	361,146

Municipal lease finance receivables loans:
Risk Rating:
Pass		$	8,478	$	0	$	2,556	$	10,249	$	3,586	$	20,266	$	0	$	0	$	45,135
Special Mention			0		0		0		0		0		412		0		0		412
Substandard			0		0		0		0		0		0		0		0		0
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total Municipal lease finance receivables loans:		$	8,478	$	0	$	2,556	$	10,249	$	3,586	$	20,678	$	0	$	0	$	45,547

SFR mortgage loans:
Risk Rating:
Pass		$	65,463	$	59,596	$	29,142	$	22,452	$	27,192	$	62,593	$	3	$	0	$	266,441
Special Mention			0		0		0		0		0		452		0		0		452
Substandard			0		0		0		0		229		2,957		0		432		3,618
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total SFR mortgage loans:		$	65,463	$	59,596	$	29,142	$	22,452	$	27,421	$	66,002	$	3	$	432	$	270,511

Consumer and other loans:
Risk Rating:
Pass		$	8,557	$	2,077	$	871	$	969	$	1,586	$	961	$	67,774	$	1,688	$	84,483
Special Mention			0		0		0		0		0		91		517		22		630
Substandard			0		0		0		0		0		172		0		721		893
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total Consumer and other loans:		$	8,557	$	2,077	$	871	$	969	$	1,586	$	1,224	$	68,291	$	2,431	$	86,006

Total Loans:
Risk Rating:
Pass		$	2,112,914	$	944,750	$	763,869	$	774,130	$	640,874	$	1,893,124	$	880,898	$	35,633	$	8,046,192
Special Mention			12,205		8,243		32,305		50,344		18,829		61,325		36,887		3,659		223,797
Substandard			4,346		1,351		7,841		15,860		6,881		20,810		7,037		14,693		78,819
Doubtful & Loss			0		0		0		0		0		0		0		0		0

Total Loans:		$	2,129,465	$	954,344	$	804,015	$	840,334	$	666,584	$	1,975,259	$	924,822	$	53,985	$	8,348,808

Table of Contents

Allowance for Credit Losses

~~The~~Our allowance for credit losses ~~for 2020~~ is based upon ~~historical~~ lifetime loss rate models ~~segregated by~~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 ~~segments:~~pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real estate loans include OLTV, origination year, loan seasoning, and macroeconomic variables that include GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA loans (excluding Payment Protection Program loans). The Consumer ~~Retail.~~methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the amortized cost basis of the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes. Our methodology for assessing the appropriateness of the allowance is reviewed on a regular basis and considers overall risks in the Bank’s loan portfolio. Refer to Note 3 –

Summary of Significant Accounting Policies

contained herein for a more detailed discussion concerning the allowance for credit losses.

~~During~~Our allowance for credit losses at March 31, 2021 decreased from the ~~second half~~prior quarter end by $21.9 million, as a result of ~~March 2020, the broader economy experienced~~ a ~~significant deterioration in the economic environment driven by the~~

~~COVID-19~~

~~pandemic resulting in adverse changes~~$19.5 million recapture of provision for credit losses and net charge-offs of $2.4 million. The recapture of provision for credit losses was primarily due to the forecasted improvements in macroeconomic

variables, ~~utilized~~with the greatest impact reflected in ~~our modeling processes. For~~an $18.9 million decline in the ACL for Commercial Real Estate loans. During the first quarter ~~ended March 31,~~of 2020, ~~the Bank’s CECL methodology produced an ACL of $82.6 million, resulting in~~we recorded a provision for credit losses of $12.0 ~~million. The ACL/Total Loan Coverage Ratio as of March 31, 2020 increased to 1.11%, compared to 0.93% as of January 1, 2020~~million, due to the ~~more~~initial forecast of a severe economic ~~forecast that resulted~~downturn from the

COVID-19

~~crisis.~~

pandemic. The provision in the first quarter of 2020 was followed by an additional $11.5 million provision for credit losses in the second quarter of 2020, as the forecasted economic impact from the pandemic increased in both severity and duration. Based on the magnitude of government economic stimulus and the wide availability of vaccines, our latest economic forecast reflects improvements in key macroeconomic variables, particularly the commercial real estate price index and the unemployment rate. Our economic forecast iscontinues to be a blend of multiple forecasts produced by ~~Moody’s.~~Moody’s, including Moody’s baseline forecast, as well as upside and downside forecasts. Our forecast at the end of the first quarter of 2021, assumes GDP will increase by 4.0% in 2021 and then grow by 3.2 % in 2022 and 2.8% in 2023. The ~~resulting~~ forecast ~~assumes a decline in GDP~~ for the ~~second quarter~~unemployment rate is 6.4% in 2021, 6.3% in 2022 and 5.5% in 2023. At March 31, 2021, the allowance for credit losses of ~~almost 20%~~$71.8 million was 0.87% of total loans, compared to 1.12% and ~~unemployment rising to more than 9% in the second quarter of 2020. GDP is forecasted to rebound to growth of approximately 10% in the third quarter of~~1.11% at December 31, 2020 ~~but unemployment continues to be inflated at more than 6% through the remainder of 2020.~~and March 31, 2020, respectively.

Management believes that the ACL was appropriate at March 31, ~~2020~~2021 and December 31, ~~2019. No~~2020. As there is a high degree of uncertainty around the epidemiological assumptions and impact of government responses to the pandemic that impact our economic forecast, no assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for credit losses in the future.

Table of Contents

The following tables present the balance and activity related to the allowance for credit losses for

held-for-investment

loans by type for the periods presented.

Three Months Ended March 31, 2020

Ending Balance,
  prior to adoption of
ASU 2016-13
December 31, 2019

Impact of
adopting ASU
2016-13

Provision for
    (Recapture of)
Credit Losses
Expense

Charge-offs

    Recoveries

Ending Balance
March 31, 2020

(Dollars
i
in thousands)

Commercial and industrial
  $
8,880
  $
(2,442
)   $
2,947
  $
-
  $
2
  $
9,387

SBA

1,453

1,818

675

-

-

3,946

Real estate:

Commercial real estate

48,629

3,547

6,251

-

-

58,427

Construction

858

655

3,116

-

3

4,632

SFR mortgage

2,339

(2,043
)
(221
)
-

206

281

Dairy & livestock and agribusiness

5,255

(186
)
(803
)
-

-

4,266

Municipal lease finance receivables

623

(416
)
70

-

-

277

Consumer and other loans

623

907

(35
)
(86
)
16

1,425

Total allowance for credit losses
  $
68,660
  $
1,840
  $
12,000
  $
(86
)   $
227
  $
82,641

Three Months Ended March 31, 2019

     Ending Balance

December 31,
2018

    Charge-offs

    Recoveries

Provision for

    (Recapture of)

Loan Losses

  Ending Balance

March 31, 2019

(Dollars in thousands)

Commercial and industrial
  $
7,520
  $
-
  $
110
  $
(31
)   $
7,599

SBA

1,062

(20
)
5

232

1,279

Real estate:

-

-

Commercial real estate

44,934

-

-

1,144

46,078

Construction

981

-

3

(120
)
864

SFR mortgage

2,196

-

68

(76
)
2,188

Dairy & livestock and agribusiness

5,215

(78
)
-

562

5,699

Municipal lease finance receivabl
es

775

-

-

(37
)
738

Consumer and other loans

726

(1
)
1

(150
)
576

PCI loans

204

-

-

(24
)
180

Total allowance for loan losses
  $
63,613
  $
(99
)   $
187
  $
1,500
  $
65,201

~~The following table presents the recorded investment in loans~~

~~held-for-investment~~

~~and the related~~

~~ACL~~

~~by loan type, based on the Company’s methodology for determining the~~

~~ACL~~

~~for the periods presented. Acquired loans are also supported by a credit discount established through the determination of fair value for the acquired loan portfolio.~~

March 31, 2019

Recorded Investment in Loans

Allowance for Loan Losses

Individually
Evaluated for
Impairment

Collectively
Evaluated for
Impairment

Acquired with
Deterioriated
Credit Quality

Individually
Evaluated for
Impairment

Collectively
Evaluated for
Impairment

Acquired with
Deterioriated
Credit Quality

(Dollars in thousands)
Commercial and industrial
  $
8,512
  $
948,614
  $
-
  $
117
$
7,482
  $
-

SBA

4,661

333,296

-

317

962

-

Real estate:

Commercial real estate

1,589

5,387,277

-

-

46,078

-

Construction

-

121,912

-

-

864

-

SFR mortgage

5,051

280,736

-

-

2,188

-

Dairy & livestock and agribusiness

-

322,321

-

-

5,699

-

Municipal lease finance receivables

-

61,249

-

-

738

-

Consumer and other loans

477

120,291

-

1

575

-

PCI loans

-

-

15,356

-

-

180

Total
  $
20,290
  $
7,575,696
  $
15,356
  $
435
  $
64,586
  $
180

~~Table of Contents~~


	Three Months Ended March 31, 2021
	Ending Balance December 31, 2020		Charge-offs			Recoveries		(Recapture of) Provision for Credit Losses			Ending Balance March 31, 2021
	(Dollars in thousands)
Commercial real estate	$	75,439	$	0		$	0	$	(18,867	)	$	56,572
Construction		1,934		0			3		(59	)		1,878
SBA		2,992		0			4		(484	)		2,512
SBA - PPP		0		0			0		0			0
Commercial and industrial		7,142		(2,475	)		2		1,770			6,439
Dairy & livestock and agribusiness		3,949		0			0		(1,227	)		2,722
Municipal lease finance receivables		74		0			0		(39	)		35
SFR mortgage		367		0			79		(148	)		298
Consumer and other loans		1,795		0			0		(446	)		1,349

Total allowance for credit losses	$	93,692	$	(2,475	)	$	88	$	(19,500	)	$	71,805


	Three Months Ended March 31, 2020
	Ending Balance, prior to adoption of ASU 2016-13 December 31, 2019	Impact of Adoption of ASU 2016-13			Charge-offs			Recoveries		Provision for (Recapture of) Credit Losses			Ending Balance March 31, 2020
	(Dollars in thousands)
Commercial real estate	$48,629	$	3,547		$	0		$	-	$	6,251		$	58,427
Construction	858		655			0			3		3,116			4,632
SBA	1,453		1,818			0			-		675			3,946
Commercial and industrial	8,880		(2,442	)		0			2		2,947			9,387
Dairy & livestock and agribusiness	5,255		(186	)		0			-		(803	)		4,266
Municipal lease finance receivables	623		(416	)		0			-		70			277
SFR mortgage	2,339		(2,043	)		0			206		(221	)		281
Consumer and other loans	623		907			(86	)		16		(35	)		1,425

Total allowance for credit losses	$68,660	$	1,840		$	(86	)	$	227	$	12,000		$	82,641

Past Due and Nonperforming Loans

We seek to manage asset

quality

and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for ~~loan~~credit losses, ~~and to determine the adequacy of the ACL,~~ are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated ~~loan~~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

~~10-~~

K for the year ended December 31, ~~2019,~~2020, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

Table of Contents

The following table presents the recorded investment in, and the ag

gaging of, past due loans (including nonaccrual loans), by type of loans as of the ~~date pres~~

~~ent~~

~~ed.~~dates presented.

March 31, 2020

30-59
Days
Past Due

60-89
Days
Past Due

Greater
than 89 Days
Past Due

Total Past
Due

Loans Not
Past Due

Total Loans

and Financing
Receivables

(Dollars in thousands)
Commercial and industrial
  $
347
  $
362
  $
1,487
  $
2,196
  $
958,565
  $
960,761

SBA

3,086

954

1,669

5,709

307,362

313,071

Real estate:

Commercial real estate

  Owner occupied

154

310

250

714

2,069,646

2,070,360


Non-owner
occupied

210

-

-

210

3,277,355

3,277,565

Construction

  Speculative (1)

-

-

-

-

116,143

116,143


Non-speculative

-

-

-

-

11,902

11,902

SFR mortgage

233

-

486

719

278,024

278,743

Dairy & livestock and agribusiness

166

-

-

166

271,948

272,114

Municipal lease finance receivables

-

-

-

-

51,287

51,287

Consumer and other loans

-

-

93

93

114,113

114,206

  Total gross loans
  $
4,196
  $
1,626
  $
3,985
  $
9,807
  $
7,456,345
  $
7,466,152


	March 31, 2021
	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	$	0	$	211	$	6,934	$	7,145	$	2,165,178	$	2,172,323
Non-owner occupied		178		0		0		178		3,424,280		3,424,458
Construction
Speculative (1)		0		0		0		-		80,857		80,857
Non-speculative		0		0		0		-		15,499		15,499
SBA		258		0		1,028		1,286		306,441		307,727
SBA - PPP		0		0		0		-		897,724		897,724
Commercial and industrial		452		689		2,606		3,747		749,961		753,708
Dairy & livestock and agribusiness		0		0		259		259		260,829		261,088
Municipal lease finance receivables		0		0		0		-		42,349		42,349
SFR mortgage		266		0		229		495		254,905		255,400
Consumer and other loans		21		0		193		214		81,710		81,924

Total loans	$	1,175	$	900	$	11,249	$	13,324	$	8,279,733	$	8,293,057

(1)

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


	December 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due			Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	0	$	0	$	7,208	$	7,208	$	2,136,051		$	2,143,259
Non-owner occupied		0		0		0		0		3,358,250			3,358,250
Construction
Speculative (1)		0		0		0		0		72,126			72,126
Non-speculative		0		0		0		0		13,019			13,019
SBA		531		2,415		1,025		3,971		299,925			303,896
SBA - PPP		0		0		0		0		882,986			882,986
Commercial and industrial		608		811		2,338		3,757		808,305			812,062
Dairy & livestock and agribusiness		0		0		784		784		360,362			361,146
Municipal lease finance receivables		0		0		0		0		45,547			45,547
SFR mortgage		0		0		229		229		270,282			270,511
Consumer and other loans		0		0		0		0		86,006			86,006
											��
Total loans	$	1,139	$	3,226	$	11,584	$	15,949	$	8,332,859		$	8,348,808

(1)

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

~~Following the adoption~~

Table of ~~CECL on January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. Under CECL, amortized~~Contents

Amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance are presented as of March 31, 2021 and December 31, 2020 by type of loan.


	March 31, 2021
	Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1)		Loans Past Due Over 89 Days Still Accruing
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	7,395	$	7,395	$	0
Non-owner occupied		0		0		0
Construction
Speculative (2)		0		0		0
Non-speculative		0		0		0
SBA		2,076		2,412		0
SBA - PPP		0		0		0
Commercial and industrial		1,506		2,967		0
Dairy & livestock and agribusiness		0		259		0
Municipal lease finance receivables		0		0		0
SFR mortgage		424		424		0
Consumer and other loans		312		312		0

Total loans	$	11,713	$	13,769	$	0

March 31, 2020

Nonaccrual
with No
Allowance for
Credit Losses

Total
Nonaccrual
(1) (3)

Loans Past Due
Over 89 Days
Still Accruing

(Dollars in thousands)

Commercial and industrial
  $
549
  $
1,703
  $
-

SBA

2,110

2,748

-

Real estate:

Commercial real estate

  Owner occupied

715

715

-


Non-owner
occupied

232

232

-

Construction

  Speculative (2)

-

-

-


Non-speculative

-

-

-

SFR mortgage

864

864

-

Dairy & livestock and agribusiness

-

-

-

Municipal lease finance receivables

-

-

-

Consumer and other loans

166

166

-

  Total gross loans
  $
4,636
  $
6,428
  $
-

(1)

As of March 31, ~~2020, $982,000~~2021, $2.1 million of nonaccruing loans were current, ~~$154,000 were~~

~~30-59~~

~~days past due, $1.3 million~~$400,000 were

60-89

days past due, and ~~$4.0~~$11.2 million were 90+ days past due.

(2)

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


	December 31, 2020
	Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1)(3)		Loans Past Due Over 89 Days Still Accruing
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	7,563	$	7,563	$	0
Non-owner occupied		0		0		0
Construction
Speculative (2)		0		0		0
Non-speculative		0		0		0
SBA		2,035		2,273		0
SBA - PPP		0		0		0
Commercial and industrial		1,576		3,129		0
Dairy & livestock and agribusiness		785		785		0
Municipal lease finance receivables		430		0		0
SFR mortgage		0		430		0
Consumer and other loans		167		167		0

Total loans	$	12,556	$	14,347	$	0

(

)(1)

As of December 31, 2020, $1.4 million of nonaccruing loans were current, $2,000 were

30-59

days past due, $1.3 million were

60-89

days past due, and $11.6 million were 90+ days past due.

(2)

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

(3)

Excludes ~~$1.7 million~~$184,000 of guaranteed portion of nonaccrual SBA loans that are in process of collection.

~~Table of Contents~~

~~The following table presents the recorded investment in, and the aging of, past due and nonaccrual loans, by type of loans as of the date presented.~~

December 31, 2019

30-59
Days
Past Due

60-89 Days
Past Due

Total Past Due
and Accruing

Nonaccrual
(1) (3)

Current

Total Loans
and Financing
Receivables

(Dollars in thousands)

Commercial and industrial
  $
2
  $
-
  $
2
  $
1,266
  $
933,859
  $
935,127

SBA

870

532

1,402

2,032

301,574

305,008

Real estate:

Commercial real estate

  Owner occupied

-

-

-

479

2,083,171

2,083,650

  Non-owner occupied

-

-

-

245

3,290,722

3,290,967

Construction

  Speculative (2)

-

-

-

-

106,895

106,895

  Non-speculative

-

-

-

-

10,030

10,030

SFR mortgage

6

243

249

878

282,341

283,468

Dairy & livestock and agribusiness

-

-

-

-

383,709

383,709

Municipal lease finance receivables

-

-

-

-

53,146

53,146

Consumer and other loans

-

-

-

377

115,942

116,319

  Total gross loans
  $

878
  $

775
  $

1,653
  $

5,277
  $

7,561,389
  $
7,568,319

~~(1)~~

~~As of December 31, 2019, $1.2 million of nonaccruing loans were current, $59,000 were~~

~~30-59~~

~~days past due, $1.1 million were~~

~~60-89~~

~~days past due and $2.9 million were 90+ days past due.~~

~~(2)~~

~~Speculative construction loans are generally for properties where~~

~~there~~

~~is no identifi~~

~~buyer or renter.~~

(

)

~~Excludes $2.0 million of guaranteed porti~~

~~of nonaccrual SBA loans that are in process of collection.~~

Table of Contents

~~Impaired Loans (prior to adoption of CECL)~~

Following the adoption of CECL as of January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. As a result of the change, the following tables present information about our impaired loans and lease finance receivables, individually evaluated for impairment by type of loans, as of March 31, 2019 and December 31, 2019, prior to the date of adoption of the amendments to the credit loss standard.

Three Months Ended

March 31, 2019

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

(Dollars in thousands)
With no related allowance recorded:

Commercial and industrial
  $
8,208
  $
12,317
  $
-
  $
8,230
  $
2

SBA

3,400

5,779

-

3,511

11

Real estate:

Commercial real estate

Owner occupied

519

618

-

521

-

Non-owner
occupied

1,070

1,231

-

1,084

7

Construction

Speculative

-

-

-

-

-

Non-speculative

-

-

-

-

-

SFR mortgage

5,051

5,865

-

5,082

21

Dairy & livestock and agribusiness

-

-

-

-

-

Municipal lease finance receivables

-

-

-

-

-

Consumer and other loans

476

625

-

482

-

Total

18,724

26,435

-

18,910

41

With a related allowance recorded:

Commercial and industrial

304

309

117

323

-

SBA

1,261

1,236

317

1,261

-

Real estate:

Commercial real estate

Owner occupied

-

-

-

-

-

Non-owner
occupied

-

-

-

-

-

Construction

Speculative

-

-

-

-

-

Non-speculative

-

-

-

-

-

SFR mortgage

-

-

-

-

-

Dairy & livestock and agribusiness

-

-

-

-

-

Municipal lease finance receivables

-

-

-

-

-

Consumer and other loans

1

1

1

1

-

Total

1,566

1,546

435

1,585

-

Total impaired loans
  $
20,290
  $

27,981
  $
435
  $
20,495
  $
41

~~Table of Contents~~

December 31, 2019

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

(Dollars in thousands)
With no related allowance recorded:

Commercial and industrial
  $
1,091
  $
1,261
  $
-

SBA

2,243

2,734

-

Real estate:

Commercial real estate

Owner occupied

479

613

-

Non-owner
occupied

642

643

-

Construction

Speculative

-

-

-

Non-speculative

-

-

-

SFR mortgage

2,979

3,310

-

Dairy & livestock and agribusiness

-

-

-

Municipal lease finance receivables

-

-

-

Consumer and other loans

377

514

-

Total

7,811

9,075

-

With a related allowance recorded:

Commercial and industrial

253

347

251

SBA

325

324

257

Real estate:

Commercial real estate

Owner occupied

-

-

-

Non-owner
occup
ied

-

-

-

Construction

Speculative

-

-

-

Non-speculative

-

-

-

SFR mortgage

-

-

-

Dairy & livestock and agribusiness

-

-

-

Municipal lease finance receivables

-

-

-

Consumer and other loans

-

-

-

Total

578

671

508

Total impaired loans
  $

8,389
  $

9,746
  $

508

~~Table of Contents~~

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~~dates presented.

March 31, 2020

Number of
Loans

Dependent on
Collateral

Real Estate

Business Assets

Other

(Dollars in thousands)

Commercial and industrial
  $
112
  $
1,652
  $
8

12

SBA

1,852

2,524

8

19

Real estate:

Commercial real estate

1,324

-

-

5

Construction

-

-

-

-

SFR mortgage

864

-

-

3

Dairy & livestock and agribusiness

-

-

-

-

Municipal lease finance receivables

-

-

-

-

Consumer and other loans

84

-

22

4

Total collateral-dependent loans
  $

4,236
  $

4,176
  $

38


43


	March 31, 2021						Number of Loans Dependent on Collateral
	Real Estate		Business Assets		Other		Number of Loans Dependent on Collateral
	(Dollars in thousands)
Commercial real estate	$	7,689	$	0	$	0		8
Construction		0		0		0		11
SBA		1,826		418		168		0
SBA - PPP		0		0		0		0
Commercial and industrial		421		7,708		143		21
Dairy & livestock and agribusiness		0		259		0		1
Municipal lease finance receivables		0		0		0		0
SFR mortgage		424		0		0		2
Consumer and other loans		312		0		0		3

Total collateral-dependent loans	$	10,672	$	8,385	$	311		46


	December 31, 2020						Number of Loans Dependent on Collateral
	Real Estate		Business Assets		Other		Number of Loans Dependent on Collateral
	(Dollars in thousands)
Commercial real estate	$	7,883	$	0	$	0		8
Construction		0		0		0		0
SBA		1,761		326		185		10
SBA - PPP		0		0		0		0
Commercial and industrial		470		5,542		95		18
Dairy & livestock and agribusiness		0		785		0		1
Municipal lease finance receivables		0		0		0		0
SFR mortgage		430		0		0		2
Consumer and other loans		168		0		0		2

Total collateral-dependent loans	$	10,712	$	6,653	$	280		41

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 atin the same ~~time~~manner as it evaluates credit risk associated with the loan and lease portfolio. ~~As a result of the adoption of ASU~~

~~2016-13,~~

~~the reserve for unfunded loan commitments~~

~~included a transition adjustment of~~

~~$41,000~~

~~January 1,~~

~~2020.~~ There was 0 provision or recapture of provision for unfunded commitments for the three months ended March 31, 2021 and 2020. As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the balance in this reserve was $9.0 million and was included in other liabilities.

Table of Contents

Troubled Debt Restructurings (“TDRs”)

Loans that are reported as TDRs are considered

~~nonperforming~~

impaired and

charge-off

amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3

–

Summary of Significant Accounting Policies,

included in our Annual Report on Form

10-K

for the year ended December 31, ~~2019~~2020 for a more detailed discussion regarding TDRs.

As of March 31, ~~2020,~~2021, there were ~~$2.8~~$5.8 million of loans classified as a TDR, all of which ~~$2.8 million~~ were ~~performing and none were nonperforming.~~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 March 31, ~~2020,~~2021, performing TDRs were comprised of ~~seven~~three commercial and industrial loans of $4.5 million, five SFR mortgage loans of ~~$1.8~~$1.0 million, ~~one SBA loan of $524,000,~~and one commercial real estate loan of ~~$377,000, and two commercial and industrial loans of $68,000.~~$294,000.

The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time ~~a probable loss~~the loan is ~~determined.~~considered uncollectible. We have 0

allocated allowance to TDRs as of March 31, ~~2020~~2021 and December 31, ~~2019~~

.2020.

~~Table of Contents~~

The following table provides a summary of the activity related to TDRs for the periods presented.

Three Months Ended
March 31,

2020

2019

(Dollars in thousands)
Performing TDRs:

Beginning balance
  $
3,112
  $
3,594

New modifications

-

-

Payoffs/payments, net and other

(299
)
(295
)
TDRs returned to accrual status

-

-

TDRs placed on nonaccrual status

-

-

Ending balance
  $
2,813
  $
3,299

Nonperforming TDRs:

Beginning balance
  $
244
  $
3,509

New modifications

-

-

Charge-offs

-

(78
)
Transfer to OREO

-

(2,275
)
Payoffs/payments, net and other

(244
)
(879
)
TDRs returned to accrual status

-

-

TDRs placed on nonaccrual status

-

-

Ending balance
  $
-
  $
277

Total TDRs
  $
2,813
  $
3,576


	Three Months Ended
	March 31,
	2021			2020
	(Dollars in thousands)
Performing TDRs:
Beginning balance	$	2,159		$	3,112
New modifications		4,643			0
Payoffs/payments, net and other		(989	)		(299	)
TDRs returned to accrual status		0			0
TDRs placed on nonaccrual status		0			0

Ending balance	$	5,813		$	2,813

Nonperforming TDRs:
Beginning balance	$	0		$	244
New modifications		0			0
Charge-offs		0			0
Payoffs/payments, net and other		0			(244	)
TDRs returned to accrual status		0			0
TDRs placed on nonaccrual status		0			0

Ending balance	$	0		$	0

Total TDRs	$	5,813		$	2,813

Table of Contents

The following table summarizes loans modified as TDRs for the period presented.

Modifications (1)


	For the Three Months Ended March 31, 2021
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at March 31, 2021		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial real estate:
Interest rate reduction		0	$	0	$	0	$	0	$	0
Change in amortization period or maturity		0		0		0		0		0
Commercial and industrial:				��
Interest rate reduction		0		0		0		0		0
Change in amortization period or maturity		2		4,643		4,643		4,443		0
SFR mortgage:
Interest rate reduction		0		0		0		0		0
Change in amortization period or maturity		0		0		0		0		0

Total loans		2	$	4,643	$	4,643	$	4,443	$	0

(1)

The tables above exclude modified loans that were paid off prior to the end of the period.

(2)

Financial effects resulting from modifications represent charge-offs and current allowance for credit losses at modification date.

As of March 31, ~~2020~~2021 and ~~2019,~~2020, there were no loans that were ~~modified as TDRs dur~~

~~ing~~

~~the three months ended March 31, 2020 and 2019, respectively.~~

~~There were 0 loans that were previously~~ modified as a TDR within the previous 12 months that subsequently defaulted during the three months ended March 31, 2021 and 2020, ~~and 2019.~~respectively.

In accordance with regulatory guidance, if borrowers are less than 30 days past due on their loans, upon implementation of the modification program, or as allowed under the CARES Act if borrowers are less than 30 days past due on their loans as of December 31, 2019, and enter into short-term loan modifications offered as a result of

~~COVID-19,~~

their loans generally continue to be considered performing loans and continue to accrue interest during the period of the loan modification. For borrowers who are 30 days or more past due when entering into loan modifications offered as a result of

~~COVID-19,~~

we evaluate the loan modifications under our existing troubled debt restructuring framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR and will generally not accrue interest. For all borrowers who enroll in these loan modification programs offered as a result of

~~COVID-19,~~

the delinquency status of the borrowers is frozen, resulting in a static delinquency metric during the deferral period. Upon exiting the deferral program, the measurement of loan delinquency will resume where it had left off upon entry into the program. Through May 3, 2020, we have granted temporary payment deferments of interest or of principal and interest for 90 days on 620 loans in the amount of $940 million, or approximately 13% of our total loan portfolio at March 31, 2020.

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6.	EARNINGS PER SHARE RECONCILIATION

Basic earnings per common share are computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of shares issuable upon the assumed exercise of outstanding common stock options. Antidilutive common shares are not included in the calculation of diluted earnings per common share. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were ~~269,000~~117,000 and ~~396,000,~~269,000, 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
March 31,

2020

2019

(In thousands, except per share amounts)
Earnings per common share:

Net earnings
  $

37,980
  $

51,642

  Less: Net earnings allocated to restricted stock

83

141

Net earnings allocated to common shareholders
  $
37,897
  $
51,501

Weighted average shares outstanding

139,107

139,615

Basic earnings per common share
  $
0.27
  $
0.37

Diluted earnings per common share:

Net income allocated to common shareholders

37,897

51,501

  Weighted average shares outstanding

139,107

139,615

  Incremental shares from assumed exercise of outstanding options

209

216

Diluted weighted average shares outstanding

139,316

139,831

Diluted earnings per common share
  $
0.27
  $
0.37


	Three Months Ended March 31,
	2021		2020
	(In thousands, except per share amounts)
Earnings per common share:
Net earnings	$	63,893	$	37,980
Less: Net earnings allocated to restricted stock		309		83

Net earnings allocated to common shareholders	$	63,584	$	37,897

Weighted average shares outstanding		135,175		139,107
Basic earnings per common share	$	0.47	$	0.27


Diluted earnings per common share:
Net income allocated to common shareholders		63,584		37,897

Weighted average shares outstanding		135,175		139,107
Incremental shares from assumed exercise of outstanding options		253		209

Diluted weighted average shares outstanding		135,428		139,316
Diluted earnings per common share	$	0.47	$	0.27

727

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7.	FAIR VALUE INFORMATION

Fair Value Hierarchy

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

The ~~following disclosure provides the fair value information~~valuation methodologies for financial assets and liabilities ~~as of March~~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, 2020. ~~The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (Level 1, Level 2 and Level 3).~~

~~Level 1~~

~~– Quoted prices in active markets for identical assets or liabilities in active markets that are accessible at the measurement date.~~

~~Level 2~~

– Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs or model-derived valuations that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of the financial instrument.

~~Level 3~~

– Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation.

~~There were 0 transfers in and out of Level 1 and Level 2 during the three months ended March 31, 2020 and 2019.~~

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

  Carrying Value at
March 31, 2020

Quoted Prices in
  Active Markets for
Identical Assets
(Level 1)

Significant Other
  Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

(Dollars in thousands)
Description of assets

Investment securities - AFS:

Mortgage-backed securities
  $
1,161,931
  $
-
  $
1,161,931
  $
-

CMO/REMIC

480,093

-

480,093

-

Municipal bonds

37,032

-

37,032

-

Other securities

699

-

699

-

  Total investment securities - AFS

1,679,755

-

1,679,755

-

Interest rate swaps

33,255

-

33,255

-

Total assets
  $
1,713,010
  $
-
  $
1,713,010
  $
-

Description of liability

Interest rate swaps
  $
33,255
  $
-
  $
33,255
  $
-

Total liabilities
  $
33,255
  $
-
  $
33,255
  $
-

Carrying Value at
December 31, 2019

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

(Dollars in thousands)
Description of assets

Investment securities - AFS:

Mortgage-backed securities
  $
1,206,313
  $
-
  $
1,206,313
  $
-

CMO/REMIC

493,710

-

493,710

-

Municipal bonds

39,354

-

39,354

-

Other securities

880

-

880

-

  Total investment securities - AFS

1,740,257

-

1,740,257

-

Interest rate swaps

11,502

-

11,502

-

Total assets
  $
1,751,759
  $
-
  $
1,751,759
  $
-

Description of liability

Interest rate swaps
  $
11,502
  $
-
  $
11,502
  $
-

Total liabilities
  $
11,502
  $
-
  $
11,502
  $
-


	Carrying Value at March 31, 2021		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	$	2,191,338	$	0	$	2,191,338	$	0
CMO/REMIC		590,166		0		590,166		0
Municipal bonds		29,886		0		29,886		0
Other securities		958		0		958		0

Total investment securities - AFS		2,812,348		0		2,812,348		0
Interest rate swaps		14,692		0		14,692		0

Total assets	$	2,827,040	$	0	$	2,827,040	$	0

Description of liability
Interest rate swaps	$	14,692	$	0	$	14,692	$	0

Total liabilities	$	14,692	$	0	$	14,692	$	0


	Carrying Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Mortgage-backed securities	$	1,904,935	$	0	$	1,904,935	$	0
CMO/REMIC		462,814		0		462,814		0
Municipal bonds		30,285		0		30,285		0
Other securities		889		0		889		0

Total investment securities - AFS		2,398,923		0		2,398,923		0
Interest rate swaps		30,181		0		30,181		0

Total assets	$	2,429,104	$	0	$	2,429,104	$	0

Description of liability
Interest rate swaps	$	30,181	$	0	$	30,181	$	0

Total liabilities	$	30,181	$	0	$	30,181	$	0

Table of Contents

Assets and Liabilities Measured at Fair Value on a

Non-Recurring

Basis

We may be required to measure certain assets at fair value on a

non-recurring

basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting or 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 March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets that had losses during the period.

Carrying Value at
March 31, 2020

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Total Losses
For the Three
Months Ended
March 31, 2020

(Dollars in thousands)

Description of assets

Loans:

Commercial and industrial
  $
903
  $
-
  $
-
  $
903
  $
9024

SBA

1,000

-

-

1,000

36

Real estate:

Commercial real estate

-

-

-

-

-

Construction

-

-

-

-

-

SFR mortgage

-

-

-

-

-

Dairy & livestock and agribusiness

-

-

-

-

-

Consumer and other loans

-

-

-

-

-

Other real estate owned

-

-

-

-

-

Asset
held-for-sale

-

-

-

-

-

  Total assets
  $
1,903
  $
-
  $
-
  $
1,903
  $
938

Carrying Value at
December 31,
2019

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Total Losses

For the Year

Ended
December 31, 2019

(Dollars in thousands)

Description of assets

Impaired loans:

Commercial and industrial
  $
253
  $
-
  $
-
  $
253
  $
251

SBA

359

-

-

359

513

Real estate:

Commercial real estate

-

-

-

-

-

Construction

-

-

-

-

-

SFR mortgage

-

-

-

-

-

Dairy & livestock and agribusiness

-

-

-

-

-

Consumer and other loans

-

-

-

-

-

Other real estate owned

444

-

-

444

64

Asset
held-for-sale

-

-

-

-

-

  Total assets
  $
1,056
  $
-
  $
-
  $
1,056
  $
828


	Carrying Value at March 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Three Months Ended March 31, 2021
	(Dollars in thousands)
Description of assets
Loans:
Commercial real estate	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
SBA		97		0		0		97		19
Commercial and industrial		2,248		0		0		2,248		307
Dairy & livestock and agribusiness		260		0		0		260		102
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		0		0		0		0		0
Consumer and other loans		0		0		0		0		0
Other real estate owned		0		0		0		0		0
Asset held-for-sale		0		0		0		0		0

Total assets	$	2,605	$	0	$	0	$	2,605	$	428


	Carrying Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses For the Year Ended December 31, 2020
	(Dollars in thousands)
Description of assets
Loans:
Commercial real estate	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
SBA		76		0		0		76		24
Commercial and industrial		4,266		0		0		4,266		2,316
Dairy & livestock and agribusiness		0		0		0		0		0
Municipal lease finance receivables		0		0		0		0		0
SFR mortgage		0		0		0		0		0
Consumer and other loans		0		0		0		0		0
Other real estate owned		2,275		0		0		2,275		700
Asset held-for-sale		0		0		0		0		0

Total assets	$	6,617	$	0	$	0	$	6,617	$	3,040

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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 March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

March 31, 2020

       Carrying

Estimated Fair Value

Amount

       Level 1

       Level 2

       Level 3

       Total

(Dollars in thousands)
Assets

Total cash and cash equivalents
$
705,739

$
705,739

$
-

$
-

$
705,739

Interest-earning balances due from depository institutions

23,799

-

23,840

-

23,840

Investment securities
available-for-sale

1,679,755

-

1,679,755

-

1,679,755

Investment securities
held-to-maturity

642,255

-

657,819

-

657,819

Total loans, net of allowance for credit losses

7,383,511

-

-

7,338,946

7,338,946

Swaps

33,255

-

33,255

-

33,255

Liabilities

Deposits:

Interest-bearing
$
3,540,955

$
-

$
3,540,407

$
-

$
3,540,407

Borrowings

368,915

-

368,654

-

368,654

Junior subordinated debentures

25,774

-

-

13,619

13,619

Swaps

33,255

-

33,255

-

33,255

December 31, 2019

Carrying

Estimated Fair Value

Amount

Level 1

Level 2

Level 3

Total

(Dollars in thousands)
Assets

Total cash and cash equivalents

$
185,518

$
185,518

$
-

$
-
$
185,518

Interest-earning balances due from depository institutions

2,931

-

2,938

-

2,938

Investment securities
available-for-sale

1,740,257

-

1,740,257

-

1,740,257

Investment securities
held-to-maturity

674,452

-

678,948

-

678,948

Total loans, net of allowance for loan losses

7,495,917

-

-

7,343,167

7,343,167

Swaps

11,502

-

11,502

-

11,502

Liabilities

Deposits:

Interest-bearing

$
3,459,411

$
-

$
3,457,922

$
-
$
3,457,922

Borrowings

428,659

-

428,330

-

428,330

Junior subordinated debentures

25,774

-

-

20,669

20,669

Swaps

11,502

-

11,502

-

11,502


	March 31, 2021
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	1,525,299	$	1,525,299	$	0	$	0	$	1,525,299
Interest-earning balances due from depository institutions		27,748		0		27,748		0		27,748
Investment securities available-for-sale		2,812,348		0		2,812,348		0		2,812,348
Investment securities held-to-maturity		1,086,984		0		1,085,481		0		1,085,481
Total loans, net of allowance for credit losses		8,221,252		0		0		8,231,707		8,231,707
Swaps		14,692		0		14,692		0		14,692
Liabilities
Deposits:
Interest-bearing	$	4,500,816	$	0	$	4,500,611	$	0	$	4,500,611
Borrowings		511,346		0		504,563		0		504,563
Junior subordinated debentures		25,774		0		0		20,351		20,351
Swaps		14,692		0		14,692		0		14,692


	December 31, 2020
			Estimated Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	1,958,160	$	1,958,160	$	0	$	0	$	1,958,160
Interest-earning balances due from depository institutions		43,563		0		43,600		0		43,600
Investment securities available-for-sale		2,398,923		0		2,398,923		0		2,398,923
Investment securities held-to-maturity		578,626		0		604,223		0		604,223
Total loans, net of allowance for credit losses		8,255,116		0		0		8,256,178		8,256,178
Swaps		30,181		0		30,181		0		30,181
Liabilities
Deposits:
Interest-bearing	$	4,281,114	$	0	$	4,281,952	$	0	$	4,281,952
Borrowings		444,406		0		444,349		0		444,349
Junior subordinated debentures		25,774		0		0		19,431		19,431
Swaps		30,181		0		30,181		0		30,181

The fair value estimates presented herein are based on pertinent information available to management as of March 31, ~~2020 and~~2021and December 31, ~~2019.~~2020. 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.

030

Table of Contents

8.	DERIVATIVE FINANCIAL INSTRUMENTS

The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset/liability management strategy to help manage its interest rate risk position. As of March 31, ~~2020,~~2021, the Bank has entered into 91148 interest-rate swap agreements with ~~customers.~~customers with a notional amount totaling $509.5 million. The Bank then entered into identical offsetting swaps with a counterparty. The swap agreements are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and to provide the customer the financial effects of a fixed-rate loan without creating significant volatility in the Bank’s earnings.

The structure of the swaps is as follows. The Bank enters into an interest rate swap with its customers in which the Bank pays the customer a variable rate and the customer pays the Bank a fixed rate, therefore allowing customers to convert variable rate loans to fixed rate loans. At the same time, the Bank enters into a swap with the counterparty bank in which the Bank pays the counterparty a fixed rate and the counterparty in return pays the Bank a variable rate. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on LIBOR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore should not have a significant impact on the Company’s results of operations, although the Company does incur credit and counterparty risk with respect to performance on the swap agreements by the Bank’s customer and counterparty, respectively. As a result of the Bank exceeding $10 billion in assets, federal regulations ~~require~~required the Bank, beginning in January 2019, to clear most interest rate swaps through a clearing house (“centrally cleared”). These instruments contain language outlining collateral pledging requirements for each counterparty, in which collateral must be posted if market value exceeds certain agreed upon threshold limits. Cash or securities are pledged as collateral. Our interest rate swap derivatives are subject to a master netting arrangement with our counterparties. ~~NaN~~NaNne of our derivative assets and liabilities are offset in the Company’s condensed consolidated balance sheet.

We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure, although there can be no assurances in this regard since the performance of our swaps is subject to market and counterparty risk.

Balance Sheet Classification of Derivative Financial Instruments

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the total notional amount of the Company’s swaps was ~~$269.8~~$509.5 million, and ~~$260.0~~$503.8 million, respectively. The location of the asset and liability, and their respective fair values, are summarized in the tables below.

March 31, 2020

March 31, 2021

Asset Derivatives

Liability Derivatives

Asset Derivatives

Liability Derivatives

Balance Sheet

Location

Fair

Value

Balance Sheet

Location

Fair

Value

Balance Sheet

Location

Fair

Value

Balance Sheet

Location

Fair

Value

(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps

Other assets

33,255

Other liabilities

33,255

Other assets

$14,692

Other liabilities

$14,692

Total derivatives

33,255

$14,692

December 31, 2019

December 31, 2020

Asset Derivatives

Liability Derivatives

Asset Derivatives

Liability Derivatives

Balance Sheet

Location

Fair

Value

Balance Sheet
Location

Fair

Value

Balance Sheet

Location

Fair

Value

Balance Sheet

Location

Fair

Value

(Dollars in thousands)

Derivatives not designated as hedging instruments:

Interest rate swaps

Other assets

11,502

Other liabilities

11,502

Other assets

$30,181

Other liabilities

$30,181

Total derivatives

11,502

$30,181

131

Table of Contents

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

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

Derivatives Not Designated as
Hedging Instruments

Location of Gain Recognized in
  Income on Derivative Instruments

  Amount of Gain Recognized in Income on
Derivative Instruments

Three Months Ended March 31,

2020

2019

(Dollars in thousands)

Interest rate swaps

Other income
  $
373
  $
384

Total
  $
373
  $
384


Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivative Instruments		Amount of Gain Recognized in Income on Derivative Instruments
			Three Months Ended March 31,
			2021		2020
			(Dollars in thousands)
Interest rate swaps		Other income	$	215	$	373

Total			$	215	$	373

9.	OTHER COMPREHENSIVE INCOME

The table below provides a summary of the components of other comprehensive ~~inc~~

eincome (“OCI”) for the periods presented.


	Three Months Ended March 31,																		Three Months Ended March 31,
	2020									2019									2021									2020
	Before-tax			Tax effect			After-tax			Before-tax			Tax effect			After-tax				Before-tax			Tax effect			After-tax			Before-tax			Tax effect			After-tax
	(Dollars in thousands)																		(Dollars in thousands)
Investment securities:
Net change in fair value recorded in accumulated OCI	$	36,619		$	(10,826	)	$	25,793		$	19,350		$	(5,720	)	$	13,630		$	(40,391	)	$	11,941		$	(28,450	)	$	36,619		$	(10,826	)	$	25,793
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity		(1	)		-			(1	)		(1,123	)		332			(791	)		81			(24	)		57			(1	)		0			(1	)

Net change	$	36,618		$	(10,826	)	$	25,792		$	18,227		$	(5,388	)	$	12,839		$	(40,310	)	$	11,917		$	(28,393	)	$	36,618		$	(10,826	)	$	25,792

232

Table of Contents

10.	BALANCE SHEET OFFSETTING

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

dcondensed consolidated balances.

Gross Amounts
Recognized in
the Condensed

Gross Amounts
Offset in the
Con
densed

Net Amounts
Presented
in the
Condensed

Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheets

Consolidated
Balance Sheets

Consolidated
Balance Sheets

Consolidated
Balance Sheets

Financial
Instruments

Collateral
Pledged

Net Amount

(Dollars in thousands)
March 31, 2020

Financial assets:

Derivatives not designated as hedging instruments
  $
33,255
  $
-
  $
-
  $
33,255
  $
-
  $
33,255

Total
  $
33,255
  $
-
  $
-
  $
33,255
  $
-
  $
33,255

Financial liabilities:

Derivatives not designated as hedging instruments
  $
33,255
  $
-
  $
33,255
  $
-
  $
(52,171
)   $
(18,916
)
Repurchase agreements

368,915

-

368,915

-

(417,665
)
(48,750
)

Total
  $
402,170
  $
-
  $
402,170
  $
-
  $
(469,836
)   $
(67,666
)

December 31, 2019

Financial assets:

Derivatives not designated as hedging instruments
  $
11,502
  $
-
  $
-
  $
11,502
  $
-
  $
11,502

Total
  $
11,502
  $
-
  $
-
  $
11,502
  $
-
  $
11,502

Financial liabilities:

Derivatives not designated as hedging instruments
  $
11,619
  $
(117
)   $
11,502
  $
117
  $
(23,312
)   $
(11,693
)
Repurchase agreements

428,659

-

428,659

-

(510,138
)
(81,479
)

Total
  $
440,278
  $
(117
)   $
440,161
  $
117
  $
(533,450
)   $
(93,172
)


	Gross Amounts Recognized in		Gross Amounts Offset in the			Net Amounts Presented in the		Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	the Condensed Consolidated Balance Sheets		Condensed Consolidated Balance Sheets			Condensed Consolidated Balance Sheets		Financial Instruments		Collateral Pledged			Net Amount
	(Dollars in thousands)
March 31, 2021
Financial assets:
Derivatives not designated as hedging instruments	$	14,692	$	0		$	0	$	14,692	$	0		$	14,692

Total	$	14,692	$	0		$	0	$	14,692	$	0		$	14,692


Financial liabilities:
Derivatives not designated as hedging instruments	$	27,826	$	(13,134	)	$	14,692	$	13,134	$	(45,482	)	$	(17,656	)
Repurchase agreements		506,346		0			506,346		0		(543,551	)		(37,205	)

Total	$	534,172	$	(13,134	)	$	521,038	$	13,134	$	(589,033	)	$	(54,861	)


December 31, 2020
Financial assets:
Derivatives not designated as hedging instruments	$	30,181	$	0		$	0	$	30,181	$	0		$	30,181

Total	$	30,181	$	0		$	0	$	30,181	$	0		$	30,181


Financial liabilities:
Derivatives not designated as hedging instruments	$	30,434	$	(253	)	$	30,181	$	253	$	(63,730	)	$	(33,296	)
Repurchase agreements		439,406		0			439,406		0		(483,603	)		(44,197	)

Total	$	469,840	$	(253	)	$	469,587	$	253	$	(547,333	)	$	(77,493	)

333

Table of Contents

~~11.~~

~~LEASES~~

11. 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. ~~ROU~~

Right-of-use

(“ROU”) assets and lease liabilities are included in other assets and other liabilities, respectively, on the Company’s condensed consolidated balance sheet.

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

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


	March 31, 2021		December 31, 2020
	(Dollars in thousands)
Lease Assets and Liabilities
ROU assets	$	20,340	$	19,112
Total lease liabilities		22,237		21,164

        March 31, 2020

        December 31, 2019

(Dollars in thousands)

Lease Assets and Liabilities

ROU assets
  $
16,917
  $
18,522

Total lease liabilities
  $
19,484
  $
21,392

Three Months Ended March 31,

2020

2019

(Dollars in thousands)

Lease Cost

Operating lease expense (1)
  $
1,623
  $
2,100

Sublease income

-

-

Total lease expense
  $
1,623
  $
2,100

~~(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
$
1,935
$
2,746

March 31, 2020

December 31, 2019

Lease Term and Discount Rate

Weighted average remaining lease term (years)

3.99

4.18

Weighted average discount rate

3.34
%
3.34
%


	Three Months Ended
	March 31,
	2021		2020
	(Dollars in thousands)
Lease Cost
Operating lease expense (1)	$	1,662	$	1,623
Sublease income		0		0

Total lease expense	$	1,662	$	1,623


(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		$	1,819			$	1,935


	March 31, 2021		December 31, 020
Lease Term and Discount Rate
Weighted average remaining lease term (years)		4.40		4.16
Weighted average discount rate		2.63%		2.80%

The Company’s lease arrangements that have not yet commenced as of March 31, ~~2020~~2021 and the Company’s short-term lease costs and variable lease costs, for the three months ended March 31, ~~2020~~2021 are not material to the consolidated financial statements. The future lease payments required for leases that have initial or remaining

non-cancelable

lease terms in excess of one year as of March 31, ~~2020,~~2021, excluding property taxes and insurance, are as follows:

March 31, 2020

(Dollars in thousands)

Year:

2020 (excluding the three months ended March 31, 2020)
$
5,179

2021

5,509

2022

4,322

2023

2,540

2024

1,495

Thereafter

1,781

Total future lease payments

20,826

Less: Imputed interest

(1,342
)

Present value of lease liabilities
$
19,484


	March 31, 2021
	(Dollars in thousands)
Year:
2021 (excluding the three months ended March 31, 2021)	$	5,142
2022		6,031
2023		4,279
2024		3,107
2025		2,433
Thereafter		2,499

Total future lease payments		23,491
Less: Imputed interest		(1,254	)

Present value of lease liabilities	$	22,237

Table of Contents

~~12.~~

~~REVENUE RECOGNITION~~

12. REVENUE RECOGNITION

The following presents noninterest income, segregated by revenue streams

in-scope

and

out-of-scope

of ASU

~~On January 1, 2018, the~~

~~Company~~

~~adopted ASU~~ No.

2014-09

“Revenue from Contracts with Customers (Topic 606)” ~~and all subsequent ASUs that modified Topic 606.~~ , for the periods indicated.


	Three Months Ended March 31,
	2021		2020
	(Dollars in thousands)
Noninterest income:
In-scope of Topic 606:
Service charges on deposit accounts	$	3,985	$	4,776
Trust and investment services		2,611		2,420
Bankcard services		350		577
Gain on OREO, net		429		10
Other		1,682		1,798

Noninterest Income (in-scope of Topic 606)		9,057		9,581
Noninterest Income (out-of-scope of Topic 606)		4,624		2,059

Total noninterest income	$	13,681	$	11,640

Refer to Note 3

–

Summary of Significant Accounting Policies

and Note 24

–

Revenue Recognition,

~~of the 2019~~included in our Annual Report on Form

10-K

for the year ended December 31, ~~2019~~2020 for a more detailed discussion about noninterest revenue streams that are

in-scope

of Topic 606.

~~The following presents noninterest income, segregated by revenue streams~~

~~in-scope~~

~~and~~

~~out-of-scope~~

~~of Topic 606, for the periods indicated.~~

Three Months Ended
March 31,

2020

2019

(Dollars in thousands)
Noninterest income:

In-scope
of Topic 606:

Service charges on deposit accounts
  $
4,776
  $
5,141

Trust and investment services

2,420

2,182

Bankcard services

577

950

Gain on OREO, net

10

105

Other

1,798

2,044

Noninterest Income
(in-scope
of Topic 606)

9,581

10,422

Noninterest Income
(out-of-scope
of Topic 606)

2,059

5,881

Total noninterest income
  $
11,640
  $
16,303

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND 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, ~~2019,~~2020 and the unaudited condensed consolidated financial statements and accompanying notes presented elsewhere in this report.

IMPACT OF

COVID-19

The spread of

COVID-19

has created a global public health crisis that has resulted in unprecedented volatility and disruption in financial markets and deterioration in economic activity and market conditions in the markets we serve. The pandemic has ~~already~~ affected our customers and the communities we serve and depending on the duration of the crisis and government actions, the adverse impact on our financial position and results of operations could be significant. In response to the ~~anticipated~~ effects of the pandemic on the U.S. economy, the Board of Governors of the Federal Reserve System ~~(the “FRB”~~(“FRB”) has taken significant actions, including a reduction in the target range of the federal funds rate to

~~-0-~~

0.0% to 0.25% and an indeterminate amount of purchases of Treasury and mortgage-backed securities.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. It ~~contains~~contain substantial tax and spending provisions intended to address the impact of the

COVID-19

pandemic. The CARES Act includes the Paycheck Protection Program (“PPP”), a $349 billion program designed to aid small- and

medium-sized

businesses through 100% ~~SBA~~Small Business Administration (“SBA”) guaranteed loans distributed through banks. These loans ~~are~~were intended to guarantee ~~eight~~24 weeks of payroll and other costs to help those businesses remain viable and keep their workers employed. ~~The SBA exhausted the initial funding for this program on April 15, 2020, but legislation~~Legislation passed on April 24, 2020 ~~to provide~~provided additional PPP funds of $310 billion. ~~We obtained approvals for about 3,800~~During 2020, we originated and funded approximately 4,100 loans, totaling ~~approximately $1.25 billion through May 3, 2020.~~$1.10 billion. In response to the

COVID-19

pandemic and the CARES Act, we ~~have~~ also implemented a short-term loan modification program to provide temporary payment relief to certain of our borrowers who meet the program’s qualifications. ~~This program allows for a deferral~~There were six loans with approximately $10 million in outstanding loan amounts that remained on deferment, as of payments for 90 days. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. Through May 3, 2020, we have granted temporary paymentMarch 31, 2021. These deferments of ~~interest~~principal or of principal and interest, are for

90-

days or less. On January 13, 2021, the SBA reopened the PPP for ~~620~~Second Draw loans to small businesses and

non-profit

organizations that did receive a loan through the initial PPP phase. At least $25 billion has been set aside for Second Draw PPP (“round two”) loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in ~~the amount~~low or moderate income neighborhoods. Generally speaking, businesses with more than 300 employees and/or less than a 25% reduction in gross receipts between comparable quarters in 2019 and 2020 are not eligible for Second Draw loans. Further, maximum loan amounts have been increased for accommodation and food service businesses. As of ~~$940 million, or approximately 13% of our total loan portfolio, at~~ March 31, ~~2020.~~

~~As significant uncertainties as to future economic conditions exist,~~2021, we have ~~taken deliberate actions~~originated approximately 1,500 round two loans totaling $325 million in ~~response, including the termination~~outstanding borrowings. The Paycheck Protection Program is expected to end on May 31, 2021.

The first quarter of ~~our stock repurchases under our~~

~~10b5-1~~

~~repurchase plan. Additionally, the expected economic deterioration, coupled with the implementation~~2021 includes a $19.5 million recapture of ~~the expected loss methodology for determining our~~ provision for credit losses, ~~better known~~ as ~~CECL, have contributed~~the economic outlook has improved markedly due to ~~an increased~~widely available vaccines and government economic stimulus. In comparison, the Company recorded a provision for credit losses of ~~$12~~$12.0 million ~~for~~in the first quarter of ~~2020.~~2020, as well as $11.5 million in the second quarter of 2020, due to the initial forecasts of a severe economic downturn. We continue to monitor the impact of

COVID-19

~~closely, as well as any effects that may result from the CARES Act.~~closely. The extent to which the

COVID-19

pandemic will impact our operations and financial results during ~~the remainder of 2020~~2021 is highly uncertain, but we may experience ~~increased~~continued volatility in the provision for credit losses if ~~the COVID-19~~this pandemic results in ~~additional~~ economic stress greater than forecasted on our borrowers and loan ~~portfolios.~~portfolios and lower interest income if the current low interest rate environment continues.

Table of Contents

CRITICAL ACCOUNTING POLICIES

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

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

Allowance for Credit Losses (“ACL”)

Business Combinations

~~Business Combinations~~

Valuation and Recoverability of Goodwill

~~Valuation and Recoverability of Goodwill~~

Income Taxes

Our significant accounting policies are described in greater detail in our ~~2019~~2020 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, ~~2019,~~2020, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Adoption of Allowance for Credit Losses~~

~~We adopted ASU~~

~~2016-13,~~

commonly referred to as Current Expected Credit Losses (“CECL”), which replaces the “incurred loss” approach with an “expected loss” model over the life of the loan, effective on January 1, 2020. We adopted the guidance using a modified retrospective approach, as required, and have not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance. The adoption of ASU 2016-13, resulted in a reduction to our opening retained earnings of approximately $1.3 million. The ACL policy is described more fully in Note 3—

~~Summary of Significant Accounting Policies~~

~~of the notes to the unaudited condensed consolidated financial statements.~~

Recently Issued Accounting Pronouncements but Not Adopted as of March 31, ~~2020~~2021


Standard	Description	Adoption Timing	Impact on Financial Statements

ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting Issued 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 guidance is effective immediately and the amendments may be applied prospectively through December 31, 2022.	1st Quarter 2020 through the 4th Quarter 2022	The Company established a LIBOR Transition Task Force in 2020, which has inventoried our instruments that reflect exposure to LIBOR, created a framework to manage the transition and established a timeline for key decisions and actions to complete the transition from LIBOR in 2021. Although the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR for various financial instruments, primarily related to our variable-rate loans, our subordinated debentures, and interest rate swap derivatives that are indexed to LIBOR, we do not expect this ASU to have a material impact on the ~~Company's~~Company’s consolidated financial statements.
~~Issued March 2020~~



ASU ~~ASU 2020-01 "Investments—Equity Securities (Topic 321), Investments—Equity Method~~2020-06, Debt — Debt with Conversion and ~~Joint Ventures (Topic 323),~~ Other Options (Subtopic 470-20) and Derivatives and ~~Hedging (Topic 815)~~Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity Issued August 2020	The FASB issued ASU ~~2020-01 "Investments—Equity Securities (Topic 321), Investments—Equity Method~~ 2020-06, Debt — Debt with Conversion and ~~Joint Ventures (Topic 323),~~ Other Options (Subtopic 470-20) and Derivatives and ~~Hedging (Topic 815).~~Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU ~~clarifies~~reduces the ~~interactions between ASC 321, ASC 323~~number of accounting models for convertible instruments and ~~ASC 815 and addresses accounting~~allows more contracts to qualify for ~~the transition into and out of the~~ equity ~~method and also provides guidance on whether equity method accounting would be applied to certain purchased options and forward contracts upon settlement.~~ classification.	1st Quarter ~~2021~~ 2022	The adoption of this ASU ~~will~~is not expected to have ana material impact on our consolidated financial statements.

~~Issued January 2020~~

Table of Contents

OVERVIEW

For the first quarter of ~~2020,~~2021, we reported net earnings of ~~$38.0~~$63.9 million, compared with ~~$51.3~~$50.1 million for the fourth quarter of ~~2019~~2020 and ~~$51.6~~$38.0 million for the first quarter of ~~2019.~~2020. Diluted earnings per share were ~~$0.27~~$0.47 for the first quarter, compared to $0.37 for the prior quarter and ~~$0.37~~$0.27 for the same period last year.

The ~~implementation~~first quarter of ~~CECL resulted in~~2021 included a ~~beginning balance transition adjustment to our allowance~~$19.5 million recapture of provision for credit losses, ~~(“ACL”)~~due to the improvement in our economic forecast of ~~$1.8~~certain macroeconomic variables, which were impacted by

COVID-19.

In comparison, there was no provision for credit losses recorded in the fourth quarter of 2020, while the first quarter of 2020 included a $12.0 million provision for credit losses at the start of the pandemic. During the first quarter of 2021, we experienced credit charge-offs of $2.5 million and total recoveries of $88,000, resulting in net charge-offs of $2.4 million. Gross charge-offs during the first quarter include one commercial and industrial loan, previously rated substandard, that was

charged-off

in total for approximately $2.5 million. Of the 4,100 SBA PPP loans we originated in 2020, $582.8 million was outstanding at March 31, 2021. During the first quarter of 2021, the Company originated, approximately 1,500 PPP loans in round two, with a ~~cumulative effect adjustment to beginning retained earnings~~loan balance, at amortized cost, of ~~$1.3~~$314.9 million ~~net of tax. A $12.0~~at March 31, 2021. Interest and fee income from PPP loans was $10.4 million ~~credit loss provision was recorded~~ for the first quarter of ~~2020, due primarily~~2021, compared to $10.5 million for the ~~forecasted economic disruption resulting from~~

~~COVID-19.~~

~~During the~~fourth quarter ~~we experienced minimal credit charge-offs~~ of ~~$86,000 and total recoveries of $227,000, resulting in net recoveries of $141,000.~~2020.

At March 31, ~~2020,~~2021, total assets of ~~$11.61~~$14.84 billion increased ~~$324.4~~$421.1 million, or ~~2.88%~~2.92%, from total assets of ~~$11.28~~$14.42 billion at December 31, ~~2019.~~2020. Interest-earning assets of ~~$10.40~~$13.62 billion at March 31, ~~2020~~2021 increased ~~$369.7~~$399.9 million, or ~~3.69%~~3.02%, when compared with ~~$10.03~~$13.22 billion at December 31, ~~2019.~~2020. The increase in interest-earning assets was primarily due to a ~~$539.9~~$921.8 million increase in investment securities, partially offset by a $450.3 million decrease in interest-earning balances due from the Federal Reserve, ~~partially offset by~~and a ~~$98.4~~$55.8 million decrease in total ~~loans and a $92.7 million decrease in investment securities.~~loans.

Total investment securities were ~~$2.32~~$3.90 billion at March 31, ~~2020, a decrease~~2021, an increase of ~~$92.7~~$921.8 million, or ~~3.84%~~30.96%, from ~~$2.41~~$2.98 billion at December 31, ~~2019.~~2020. In the first quarter of 2021, we purchased $1.23 billion of securities, with an average expected yield of approximately 1.57%. At March 31, ~~2020,~~2021, investment securities

held-to-maturity

(“HTM”) totaled ~~$642.3 million.~~$1.09 billion. At March 31, ~~2020,~~2021, investment securities

available-for-sale

(“AFS”) totaled ~~$1.68~~$2.81 billion, inclusive of a net

pre-tax

unrealized gain of ~~$58.5~~$14.4 million, ~~an increase of $36.6~~which decreased $40.4 million from December 31, ~~2019.~~2020. HTM securities ~~declined~~increased by ~~$32.2~~$508.4 million, or ~~4.77%~~87.86%, and AFS securities ~~declined~~increased by ~~$60.5~~$413.4 million, or ~~3.48%~~17.23%, from December 31, ~~2019.~~2020. Our tax equivalent yield on investments was ~~2.45%~~1.65% for the quarter ended March 31, ~~2020,~~2021, compared to ~~2.43%~~1.81% for the fourth quarter of ~~2019~~2020 and ~~2.57%~~2.45% for the first quarter of ~~2019.~~2020.

Total loans and leases, net of deferred fees and discounts (amortized cost), of ~~$7.47~~$8.29 billion at March 31, ~~2020~~2021 decreased by ~~$98.4~~$55.8 million, or ~~1.30%~~0.67%, from December 31, ~~2019.~~2020. The $55.8 million decrease in total loans included ~~a $111.6~~decreases of $100.1 million ~~decline~~ in dairy & livestock and agribusiness loans ~~primarily~~ due to seasonal pay downs, which historically occur in the first quarter of each calendar year. Excluding dairy and livestock loans, total loans grew by $13.2 million, or 0.18%. The $13.2 million increase in loans included increases of $25.6$58.4 million in commercial and industrial loans, ~~$11.1~~$15.1 million in SFR mortgage loans, and $7.3 million in other loans, partially offset by increases of $95.3 million in commercial real estate loans, $14.7 million in PPP loans, $11.2 million in construction loans, and ~~$8.1~~$3.8 million in SBA loans. After adjusting for seasonality and PPP loans, ~~partially offset~~our loans grew by ~~a $26.7~~$29.6 million, ~~decrease in commercial real estate loans and collectively a $4.9 million decline in other loan segments.~~or 0.42%, from the end of the fourth quarter of 2020. Our yield on loans was ~~4.95%~~4.50% for the quarter ended March 31, ~~2020,~~2021, compared to ~~5.15%~~4.56% for the fourth quarter of ~~2019~~2020 and ~~5.27%~~4.95% for the first quarter of ~~2019.~~2020. The significant decline in interest rates since the start of the pandemic has had a negative impact on loan yields, which after excluding discount accretion, nonaccrual interest income, and the impact from PPP loans, declined by 15 basis points and 44 basis points compared to the fourth quarter and first quarter of 2020, respectively. Interest income for yield adjustments related to discount accretion on acquired loans was ~~$4.8~~$4.0 million for the quarter ended March 31, ~~2020,~~2021, compared to ~~$6.5~~$4.3 million for the fourth quarter of ~~2019~~2020 and ~~$7.2~~$4.8 million for the first quarter of ~~2019.~~2020.

Noninterest-bearing deposits were ~~$5.57~~$7.58 billion at March 31, ~~2020,~~2021, an increase of ~~$327.1~~$122.5 million, or ~~6.24%~~1.64%, when compared to December 31, ~~2019.~~2020. At March 31, ~~2020,~~2021, noninterest-bearing deposits were ~~61.15%~~62.74% of total deposits, compared to ~~60.26%~~63.52% at December 31, 2019. Given what is typically a seasonally low quarter for us, deposit growth for the first quarter of 2020 was strong, although some of this growth was inflated by approximately $100 million of short-term noninterest-bearing deposits at the end of the first quarter.2020. Our average cost of total deposits was ~~0.19%~~0.06% for the quarter ended March 31, ~~2020,~~2021, compared to ~~0.21%~~0.09% for the fourth quarter of ~~2019~~2020 and ~~0.18%~~0.19% for the first quarter of ~~2019.~~2020.

Customer repurchase agreements totaled ~~$368.9~~$506.3 million at March 31, ~~2020,~~2021, compared to ~~$428.7~~$439.4 million at December 31, ~~2019.~~2020. Our average cost of total deposits including customer repurchase agreements was ~~0.20%~~0.06% for the quarter ended March 31, ~~2020, 0.21%~~2021, compared to 0.09% for the fourth quarter of ~~2019,~~2020 and 0.20% for the first quarter of ~~2019.~~2020.

Table of Contents

At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, we had no$5.0 million in short-term borrowings with 0% cost, compared to ~~$153.0 million~~no borrowings at March 31, ~~2019.~~2020. At March 31, ~~2020,~~2021, we had $25.8 million of junior subordinated debentures, bearing interest at three-month LIBOR plus 1.38% and mature in 2036, which was unchanged from December 31, ~~2019.~~2020. We plan to redeem these debentures, which had a cost of 1.60% during the first quarter of 2021, by the end of the second quarter of 2021. Our average cost of funds was ~~0.21%~~0.07% for the quarter ended March 31, ~~2020, 0.22%~~2021, 0.09% for the fourth quarter of ~~2019,~~2020, and ~~0.25%~~0.21% for the first quarter of ~~2019.~~2020.

The allowance for credit losses totaled ~~$82.6~~$71.8 million at March 31, ~~2020,~~2021, compared to ~~$68.7~~$93.7 million at December 31, 2019. Due to the adoption of CECL, effective on January 1, 2020, a transition adjustment of $1.8 million was added to the beginning balance of the allowance and was increased by $12.0 million in provision for credit losses in the first quarter of 2020 due to the severe economic disruption forecasted to result from the coronavirus pandemic.2020. The allowance for credit losses for the first quarter of 2021 was ~~1.11%~~decreased by $19.5 million due to the improved outlook in our forecast of certain macroeconomic variable that were influenced by the economic impact of the pandemic and ~~0.91%~~government stimulus, and by $2.4 million in net charge-offs. At March 31, 2021, ACL as a percentage of total loans and leases outstanding was 0.87% or 0.97% when PPP loans are excluded. This compares to 1.12% at ~~March~~December 31, 2020, ~~and December 31, 2019, respectively.~~or 1.25% when PPP loans are excluded. As of March 31, ~~2020,~~2021, total discounts on acquired loans were ~~$43.4~~$26.9 million.

~~Table of Contents~~

The Company’s total equity was ~~$1.94~~$2.02 billion at March 31, ~~2020.~~2021. This represented ~~a decrease~~an increase of ~~$52.7~~$12.7 million, or ~~2.64%~~0.63%, from total equity of ~~$1.99~~$2.01 billion at December 31, ~~2019.~~2020. This ~~decrease~~increase was primarily due to ~~repurchase~~net earnings of ~~common stock of $91.7~~$63.9 million, ~~under our 10b5-1 stock repurchase program, that was~~partially offset by a ~~$25.8~~$28.4 million ~~increase~~decrease in other comprehensive income resulting from the ~~tax effected~~

tax-effected

impact of the ~~increase~~decrease in market value of our

available-for-sale

investment securities ~~portfolio. Equity also increased by $13.6 million in retained earnings for the quarter after $24.4~~portfolio and $24.5 million in cash ~~dividends were declared by the Company for the first quarter of 2020.~~dividends. Our tangible common equity ratio was ~~11.3%~~9.4% at March 31, ~~2020.~~

2021.

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of March 31, ~~2020,~~2021, the Company’s Tier 1 leverage capital ratio totaled ~~11.60%~~9.83%, our common equity Tier 1 ratio totaled ~~14.13%~~14.87%, our Tier 1 risk-based capital ratio totaled ~~14.42%~~15.15%, and our total risk-based capital ratio totaled ~~15.49%~~16.05%. 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. Refer to our

Analysis of Financial Condition – Capital Resources

Table of Contents

ANALYSIS OF THE RESULTS OF OPERATIONS

Financial Performance

For the Three Months Ended
March 31,

Variance

2020

2019

$

%

(Dollars in thousands, except per share amounts)

Net interest income
  $
     102,306
  $
109,536
  $
  (7,230)

-6.60%

Provision for credit losses

(12,000
)
(1,500
)
(10,500)

-700.00%

Noninterest income

11,640

16,303

(4,663)

-28.60%

Noninterest expense

(48,641
)
(51,604
)
2,963

5.74%

Income taxes

(15,325
)
(21,093
)
5,768

27.35%

Net earnings
  $
37,980
  $
51,642
  $
(13,662)

-26.46%

Earnings per common share:

Basic
  $
0.27
  $
0.37
  $
(0.10)

Diluted
  $
0.27
  $
0.37
  $
(0.10)

Return on average assets

1.34%

1.84%

-0.50%

Return on average shareholders’ equity

7.61%

11.14%

-3.53%

Efficiency ratio

42.69%

41.01%

1.68%

Noninterest expense to average assets

1.72%

1.83%

-0.11%

For the Three Months Ended

Variance

March 31,
2020

December 31,
2019

$

%

(Dollars in thousands, except per share amounts)

Net interest income
  $
     102,306
  $
107,020
  $
(4,714)

-4.40%

Provision for credit losses

(12,000
)
-

(12,000)

-

Noninterest income

11,640

12,640

(1,000)

-7.91%

Noninterest expense

(48,641
)
(49,073
)
432

0.88%

Income taxes

(15,325
)
(19,306
)
3,981

20.62%

Net earnings
  $
37,980
  $
51,281
  $
  (13,301)

-25.94%

Earnings per common share:

Basic
  $
0.27
  $
0.37
  $
(0.10)

Diluted
  $
0.27
  $
0.37
  $
(0.10)

Return on average assets

1.34%

1.79%

-0.45%

Return on average shareholders’ equity

7.61%

10.21%

-2.60%

Efficiency ratio

42.69%

41.01%

1.68%

Noninterest expense to average assets

1.72%

1.71%

0.01%


	Three Months Ended March 31,						Variance
	2021			2020			$		%
	(Dollars in thousands, except per share amounts)

Net interest income	$	103,468		$	102,306		$	1,162		1.14	%
Recapture of (provision for) credit losses		19,500			(12,000	)		31,500		262.50	%
Noninterest income		13,681			11,640			2,041		17.53	%
Noninterest expense		(47,163	)		(48,641	)		1,478		3.04	%
Income taxes		(25,593	)		(15,325	)		(10,268)		-67.00	%

Net earnings	$	63,893		$	37,980		$	25,913		68.23	%

Earnings per common share:
Basic	$	0.47		$	0.27		$	0.20
Diluted	$	0.47		$	0.27		$	0.20
Return on average assets		1.79	%		1.34	%		0.45%
Return on average shareholders’ equity		12.75	%		7.61	%		5.14%
Efficiency ratio		40.26	%		42.69	%		-2.43%
Noninterest expense to average assets		1.32	%		1.72	%		-0.40%

	Three Months Ended						Variance
	March 31, 2021			December 31, 2020			$		%
	(Dollars in thousands, except per share amounts)

Net interest income	$	103,468		$	105,853		$	(2,385)		-2.25	%
Recapture of credit losses		19,500			-			19,500		-
Noninterest income		13,681			12,925			756		5.85	%
Noninterest expense		(47,163	)		(48,276	)		1,113		2.31	%
Income taxes		(25,593	)		(20,446	)		(5,147)		-25.17	%

Net earnings	$	63,893		$	50,056		$	13,837		27.64	%

Earnings per common share:
Basic	$	0.47		$	0.37		$	0.10
Diluted	$	0.47		$	0.37		$	0.10
Return on average assets		1.79	%		1.42	%		0.37%
Return on average shareholders’ equity		12.75	%		9.92	%		2.83%
Efficiency ratio		40.26	%		40.64	%		-0.38%
Noninterest expense to average assets		1.32	%		1.37	%		-0.05%

Table of Contents

Return on Average Tangible Common Equity Reconciliation

(Non-GAAP)

The return on average tangible common equity is a

non-GAAP

disclosure. The Company uses certain

non-GAAP

financial measures to provide supplemental information regarding the Company’s performance. The following is a reconciliation of net income, adjusted for

tax-effected

amortization of intangibles, to net income computed in accordance with GAAP; a reconciliation of average tangible common equity to the Company’s average stockholders’ equity computed in accordance with GAAP; as well as a calculation of return on average tangible common equity.

Three Months Ended

March 31,
2020

December 31,
2019

March 31,
2019

(Dollars in thousands)

Net Income
  $
37,980
  $
51,281
  $
51,642

Add: Amortization of intangible assets

2,445

2,460

2,857

Less: Tax effect of amortization of intangible assets (1)

(723)

(727)

(845)

Tangible net income
  $
39,702
  $
53,014
  $
53,654

Average stockholders’ equity
  $
2,006,464
  $
1,993,315
  $
1,879,685

Less: Average goodwill

(663,707)

(663,707)

(666,539)

Less: Average intangible assets

(41,732)

(44,185)

(52,777)

Average tangible common equity
  $
1,301,025
  $
1,285,423
  $
1,160,369

Return on average equity, annualized

7.61
%
10.21
%
11.14
%
Return on average tangible common equity, annualized

12.27
%
16.36
%
18.75
%


	Three Months Ended
	March 31, 2021			December 31, 2020			March 31, 2020
	(Dollars in thousands)

Net Income	$	63,893		$	50,056		$	37,980
Add: Amortization of intangible assets		2,167			2,170			2,445
Less: Tax effect of amortization of intangible assets (1)		(641	)		(642	)		(723	)

Tangible net income	$	65,419		$	51,584		$	39,702


Average stockholders’ equity	$	2,032,676		$	2,007,640		$	2,006,464
Less: Average goodwill		(663,707	)		(663,707	)		(663,707	)
Less: Average intangible assets		(32,590	)		(34,711	)		(41,732	)

Average tangible common equity	$	1,336,379		$	1,309,222		$	1,301,025


Return on average equity, annualized		12.75%			9.92%			7.61%
Return on average tangible common equity, annualized		19.85%			15.67%			12.27%

(1)

Tax effected at respective statutory rates.

Net Interest Income

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 2 –

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management

included herein.

Table of Contents

The table below presents 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.

For the Three Months Ended March 31,

2020

2019

      Average
Balance

    Interest

    Yield/
Rate

      Average
Balance

    Interest

    Yield/
Rate

(Dollars in thousands)

INTEREST-EARNING ASSETS

Investment securities (1)

Available-for-sale
securities:

Taxable
  $
1,659,394
  $
9,825

2.37%
  $
1,654,324
  $
10,309

2.49%

Tax-advantaged

38,086

224

3.36%

44,380

336

4.07%

Held-to-maturity
securities:

Taxable

469,394

2,698

2.30%

509,608

2,910

2.30%

Tax-advantaged

189,522

1,300

3.32%

227,908

1,615

3.43%

Investment in FHLB stock

17,688

332

7.55%

17,688

332

7.61%

Interest-earning deposits with other institutions

261,041

613

0.94%

18,695

94

2.04%

Loans (2)

7,482,805

92,117

4.95%

7,662,573

99,687

5.27%

Total interest-earning assets

10,117,930

107,109

4.27%

10,135,176

115,283

4.62%

Total noninterest-earning assets

1,257,870

1,273,078

Total assets
  $
11,375,800
  $
11,408,254

INTEREST-BEARING LIABILITIES

Savings deposits (3)
  $
3,056,743

3,111

0.41%
  $
3,127,839

2,685

0.35%

Time deposits

445,431

1,013

0.91%

524,822

1,186

0.92%

Total interest-bearing deposits

3,502,174

4,124

0.47%

3,652,661

3,871

0.43%

FHLB advances, other borrowings, and customer repurchase agreements

504,585

679

0.54%

691,965

1,876

1.09%

Interest-bearing liabilities

4,006,759

4,803

0.48%

4,344,626

5,747

0.54%

Noninterest-bearing deposits

5,247,025

5,085,764

Other liabilities

115,552

98,179

Stockholders’ equity

2,006,464

1,879,685

Total liabilities and stockholders’ equity
  $
   11,375,800
  $
   11,408,254

Net interest income
  $
     102,306
  $
109,536

Net interest spread - tax equivalent

3.79%

4.08%

Net interest margin

4.06%

4.37%

Net interest margin - tax equivalent

4.08%

4.39%


	Three Months Ended March 31,
	2021						2020
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
	(Dollars in thousands)
INTEREST-EARNING ASSETS
Investment securities (1)
Available-for-sale securities:
Taxable	$	2,523,609	$	8,968		1.47%	$	1,659,394	$	9,825		2.37%
Tax-advantaged		30,158		191		3.02%		38,086		224		3.36%
Held-to-maturity securities:
Taxable		580,478		2,811		1.95%		469,394		2,698		2.30%
Tax-advantaged		199,348		1,129		2.74%		189,522		1,300		3.32%
Investment in FHLB stock		17,688		217		4.98%		17,688		332		7.55%
Interest-earning deposits with other institutions		1,664,193		413		0.10%		261,041		613		0.94%
Loans (2)		8,270,282		91,795		4.50%		7,482,805		92,117		4.95%

Total interest-earning assets		13,285,756		105,524		3.24%		10,117,930		107,109		4.27%
Total noninterest-earning assets		1,220,899						1,257,870

Total assets	$	14,506,655					$	11,375,800


INTEREST-BEARING LIABILITIES

Savings deposits (3)	$	4,026,248		1,198		0.12%	$	3,056,743		3,111		0.41%
Time deposits		408,034		614		0.61%		445,431		1,013		0.91%

Total interest-bearing deposits		4,434,282		1,812		0.17%		3,502,174		4,124		0.47%
FHLB advances, other borrowings, and customer repurchase agreements		590,170		244		0.17%		504,585		679		0.54%

Interest-bearing liabilities		5,024,452		2,056		0.17%		4,006,759		4,803		0.48%

Noninterest-bearing deposits		7,240,494						5,247,025
Other liabilities		209,033						115,552
Stockholders’ equity		2,032,676						2,006,464

Total liabilities and stockholders’ equity	$	14,506,655					$	11,375,800


Net interest income			$	103,468					$	102,306


Net interest spread—tax equivalent						3.07%						3.79%
Net interest margin						3.17%						4.06%
Net interest margin—tax equivalent						3.18%						4.08%

(1)

Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. The non TE rates were ~~2.38%~~1.62% and ~~2.49%~~2.38% for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

(2)

Includes loan fees of ~~$548,000~~$8.9 million and ~~$827,000~~$548,000 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Prepayment penalty fees of ~~$1.5~~$1.6 million and ~~$1.0~~$1.5 million are included in interest income for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

(3)

Includes interest-bearing demand and money market accounts.

Table of Contents

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.

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

Comparision of Three Months Ended March 31,

2020 Compared to 2019

Increase (Decrease) Due to

    Volume

Rate

Rate/
    Volume

    Total

(Dollars in thousands)

Interest income:

Available-for-sale
securities:

Taxable investment securities
  $
31
  $
(514
)   $
(1
)   $
(484
)
Tax-advantaged
investment securities

(40
)
(63
)
(9
)
(112
)
Held-to-maturity
securities:

Taxable investment securities

(214
)
2

-

(212
)
Tax-advantaged
investment securities

(258
)
(49
)
(8
)
(315
)
Investment in FHLB stock

-

-

-

-

Interest-earning deposits with other institutions

1,231

(51
)
(661
)
519

Loans

(2,060
)
(5,384
)
(126
)
(7,570
)

Total interest income

(1,310
)
(6,059
)
(805
)
(8,174
)

Interest expense:

Savings deposits

(65
)
503

(12
)
426

Time deposits

(171
)
(2
)
-

(173
)
FHLB advances, other borrowings, and customer repurchase agreements

(354
)
(663
)
(180
)
(1,197
)

Total interest expense

(590
)
(162
)
(192
)
(944
)

Net interest income
  $
(720
)   $
(5,897
)   $
(613
)   $
(7,230
)


	Comparison of Three Months Ended March 31, 2021 Compared to 2020 Increase (Decrease) Due to
	Volume			Rate			Rate/ Volume			Total
				(Dollars in thousands)
Interest income:
Available-for-sale securities:
Taxable investment securities	$	4,541		$	(3,674	)	$	(1,724	)	$	(857	)
Tax-advantaged investment securities		(46	)		17			(4	)		(33	)
Held-to-maturity securities:
Taxable investment securities		609			(404	)		(92	)		113
Tax-advantaged investment securities		65			(224	)		(12	)		(171	)
Investment in FHLB stock		-			(115	)		-			(115	)
Interest-earning deposits with other institutions		3,266			(543	)		(2,923	)		(200	)
Loans		9,232			(8,644	)		(910	)		(322	)

Total interest income		17,667			(13,587	)		(5,665	)		(1,585	)


Interest expense:
Savings deposits		972			(2,191	)		(694	)		(1,913	)
Time deposits		(63	)		(250	)		(86	)		(399	)
FHLB advances, other borrowings, and customer repurchase agreements		113			(469	)		(79	)		(435	)

Total interest expense		1,022			(2,910	)		(859	)		(2,747	)

Net interest income	$	16,645		$	(10,677	)	$	(4,806	)	$	1,162

First Quarter of ~~2020~~2021 Compared to the First Quarter of ~~2019~~2020

Net interest income, before provision for credit losses, of $103.5 million for the first quarter of 2021 increased $1.2 million, or 1.14%, compared to $102.3 million for the first quarter of ~~2020 decreased $7.2 million, or 6.60%, compared to $109.5 million for the first quarter of 2019.~~2020. Interest-earning assets ~~decreased~~increased on average by ~~$17.2 million,~~$3.17 billion, or ~~0.17%~~31.31%, from ~~$10.14 billion for the first quarter of 2019 to~~ $10.12 billion for the first quarter of ~~2020.~~2020 to $13.29 billion for the first quarter of 2021. Our net interest margin (TE) was 3.18% for the first quarter of 2021, compared to 4.08% for the first quarter of ~~2020, compared to 4.39% for the first quarter of 2019.~~2020.

Interest income for the first quarter of ~~2020~~2021 was ~~$107.1~~$105.5 million, which represented ~~an $8.2~~a $1.6 million, or ~~7.09%~~1.48%, decrease when compared to the same period of ~~2019.~~2020. Average interest-earning assets ~~decreased by $17.2 million~~increased to $13.29 billion and the average interest-earning asset yield ~~of 4.27%, compared to 4.62%~~was 3.24% for the first quarter of ~~2019.~~2021, compared to 4.27% for the first quarter of 2020. The 35102 basis point decrease in the average interest-earning asset yield ~~over~~compared to the first quarter of ~~2019~~2020, was primarily due to a 32combination of a 45 basis point decrease in loan ~~yields.~~yields, a 76 basis point decrease in the

non-tax

equivalent investment yields, and a change in mix of average earning assets, with average balances at the Federal Reserve growing to 12.21% of earning assets for the first quarter of 2021, compared to 2.40% for the first quarter of 2020. The increase in balances at the Federal Reserve was impacted by $2.93 billion in average deposit growth compared to the first quarter of 2020. The net interest margin for the first quarter of 2021 would have been approximately 35 basis points higher without the $1.38 billion year-over-year increase in average deposits at the Federal Reserve, earning 10 basis points.

Table of Contents

Interest income and fees on loans for the first quarter of ~~2020~~2021 of ~~$92.1~~$91.8 million decreased ~~$7.6 million,~~$322,000, or ~~7.59%~~0.35%, when compared to the first quarter of ~~2019.~~2020. Average loans ~~decreased $179.8~~increased $787.5 million for the first quarter of ~~2020~~2021 when compared with the same period of ~~2019.~~2020, primarily due to $880.7 million in average PPP loans. The PPP loans we originated resulted in the recognition of approximately $8.2 million in fee income and $2.2 million in loan interest during the first quarter of 2021. Discount accretion on acquired loans decreased by $748,000 compared to the first quarter of 2020. The significant decline in interest rates since the start of the pandemic has had a negative impact on loan yields, which after excluding the impact from PPP loans, discount accretion and nonaccrual interest income, declined by 44 basis points from the first quarter of 2020.

Interest income from investment securities was ~~$4.8~~$13.1 million for the first quarter of ~~2020, compared to $7.2 million for the first quarter of 2019. The significant decline in interest rates over the past three quarters had~~2021, a negative impact on loans yields, which after excluding discount accretion, declined by 18 basis points compared to the prior year. The Federal Reserve lowered short-term interest rates by 150 basis points in the first quarter of 2020, after having lowered them by 75 basis points in the second half of 2019.

~~Interest income~~$948,000, or 6.75%, decrease from ~~investment securities was~~ $14.0 million for the first quarter of ~~2020, a $1.1 million, or 7.40%, decrease from $15.2 million for the first quarter of 2019.~~2020. This decrease was primarily the result of a ~~$79.8~~76 basis point decline in the

non-tax

equivalent yield on investments as the decline in interest rates over the past four quarters decreased yields on investment securities due to higher levels of premium amortization, as well as lower yields on investments purchased during the past four quarters. Partially offsetting the decline from lower rates was a $977.2 million ~~decline~~increase in average investment securities for the first quarter of ~~2020,~~2021, compared to the same period of ~~2019. The non tax-equivalent yield on investments decreased by 11 basis points compared to the first quarter of 2019.~~2020.

~~Table of Contents~~

Interest expense of ~~$4.8~~$2.1 million for the first quarter of ~~2020,~~2021, decreased ~~$944,000,~~$2.7 million, or ~~16.43%~~57.19%, compared to the first quarter of ~~2019. Total cost of funds declined~~2020. The average rate paid on interest-bearing liabilities decreased by 31 basis points, to ~~0.21%~~0.17% for the first quarter of ~~2020~~2021 from ~~0.25%~~0.48% for the first quarter of ~~2019.~~2020. Average interest-bearing liabilities were $1.02 billion higher for the first quarter of 2021 when compared to the first quarter of 2020. On average, noninterest-bearing deposits were ~~59.97%~~62.02% of our total deposits for the first quarter of ~~2020,~~2021, compared to ~~58.20%~~59.97% for the first quarter of ~~2019.~~2020. In comparison to the first quarter of ~~2019,~~2020, our overall cost of funds decreased by ~~four~~14 basis points, aspartially due to growth in average noninterest-bearing deposits ~~grew by $161.3 million and overnight borrowings~~of $1.99 billion, compared to the increase in average interest-bearing deposits of $932.1 million. In addition, the cost of interest-bearing deposits decreased by ~~$159.0 million. Interest-bearing deposits declined by $150.5 million~~30 basis points for the first quarter of 2021 compared to the first quarter of ~~2019, while the cost of interest-bearing deposits increased by four basis points.~~2020.

Provision for Credit Losses

The provision for 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 at the balance sheet date. ~~On January 1, 2020, we adopted ASU~~

~~2016-13,~~

~~commonly referred to as CECL, which replaces the “incurred loss” approach with an “expected loss” model over the life of the loan.~~

The allowance for credit losses on loans totaled ~~$82.6~~$71.8 million at March 31, ~~2020,~~2021, compared to ~~$68.7~~$93.7 million at December 31, ~~2019~~2020 and ~~$65.2~~$82.6 million as of March 31, ~~2019. Upon adoption~~2020. For the first quarter of ~~CECL, a transition adjustment of $1.8 million was added to the beginning balance of the allowance, with no impact on the consolidated statement of earnings, and was increased by $12.0~~2021, we recaptured $19.5 million in provision for credit losses, due to the improved outlook in our forecast of certain macroeconomic variables that were influenced by the economic impact of the pandemic and government stimulus. For the first quarter of ~~2020 due to the severe economic disruption forecasted as a result of the coronavirus pandemic. During the first quarter of 2020,~~2021, we experienced ~~minimal~~ credit charge-offs of ~~$86,000~~$2.5 million and total recoveries of ~~$227,000,~~$88,000, resulting in net ~~recoveries~~charge-offs of ~~$141,000.~~$2.4 million. This compares to a ~~$1.5~~$12.0 million ~~loan~~credit loss provision and net recoveries of ~~$88,000~~$141,000 for the same period of ~~2019. We believe the allowance is appropriate at March 31,~~ 2020. The ratio of the allowance for credit losses to total loans and leases outstanding, net of deferred fees and discount, as of March 31, ~~2020,~~2021, was 0.87%, or 0.97% when PPP loans are excluded. This compares to 1.12% and 1.11%, as of December 31, ~~2019~~2020 and March 31, ~~2019 was 1.11%, 0.91% and 0.86%,~~2020, respectively. As of March 31, ~~2020,~~2021, remaining discounts on acquired loans were ~~$43.4~~$26.9 million. 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 ~~adversely~~ affect the Company’s service areas or other circumstances will or will not be reflected in ~~increased provisions~~future changes in the level of our allowance for credit losses inand the ~~future, as the nature~~resulting provision or recapture of ~~this process requires considerable judgment.~~

~~We may experience increases in the~~ provision for credit losses. The process to estimate the allowance for credit losses ~~in future periods,~~requires considerable judgment and our economic forecasts may continue to vary due to ~~further deterioration in economic conditions from~~ the ~~COVID-19 epidemic.~~uncertainty of the future impact of the pandemic on our business and customers. See “Allowance for Credit Losses” under

Analysis of Financial Condition

herein.

~~herein.~~

Table of Contents

Noninterest Income

Noninterest income includes income derived from financial services offered, 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.

For the Three Months Ended
March 31,

Variance

2020

2019

$

%

(Dollars in thousands)

Noninterest income:

Service charges on deposit accounts
$
4,776
$
5,141
$
(365
)
-7.10
%
Trust and investment services

2,420

2,182

238

10.91
%
Bankcard services

577

950

(373
)
-39.26
%
BOLI income

2,059

1,336

723

54.12
%
Gain on OREO, net

10

105

(95
)
-90.48
%
Gain on sale of building, net

-

4,545

(4,545
)
-100.00
%
Other

1,798

2,044

(246
)
-12.04
%

Total noninterest income
$
   11,640
$
   16,303
$
   (4,663
)
-28.60
%


	Three Months Ended March 31,				Variance
	2021		2020		$			%
			(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	3,985	$	4,776	$	(791	)		-16.56%
Trust and investment services		2,611		2,420		191			7.89%
Bankcard services		350		577		(227	)		-39.34%
BOLI income		4,624		2,059		2,565			124.58%
Swap fee income		215		373		(158	)		-42.36%
Gain on OREO, net		429		10		419			4190.00%
Other		1,467		1,425		42			2.95%

Total noninterest income	$	13,681	$	11,640	$	2,041			17.53%

First Quarter of ~~2020~~2021 Compared to the First Quarter of ~~2019~~2020

The ~~$4.7~~$2.0 million ~~decrease~~increase in noninterest income was primarily due to a ~~$4.5~~$2.6 million ~~net~~increase in BOLI income and a $399,000 gain on the sale of one ~~of our bank owned buildings~~OREO property in the first quarter of ~~2019. Service~~2021, partially offset by a $791,000 decrease in service charges on deposit ~~accounts decreased~~accounts. This decrease was primarily due to the offset of fees due to higher earnings credits generated by ~~$365,000 from~~ the ~~first quarter of 2019. The Durbin Amendment’s cap on interchange fees reduced~~significant increase in our ~~debit card interchange fee income for bankcard services by approximately $300,000~~customer’s noninterest-bearing deposits held at the Bank when compared to the first quarter of ~~2019.~~2020.

The Bank 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 the swaps primarily offset each other resulting in swap fee income (refer to Note 8 –

Derivative Financial Instruments

of the notes to the unaudited condensed consolidated financial statements of this report for additional information). The first quarter of 2021 included lower swap fee income of $158,000 compared to the first quarter of 2020, due to lower volume of swap transactions. The steepening of the yield curve has made it less attractive for our customers to enter into interest rates swaps that convert floating rate loans to fixed rate instruments, compared to a conventional fixed rate loan. We executed on swap agreements related to new loan originations with a notional amount totaling $15.4 million for the first quarter of 2021, compared to $23.3 million for the first quarter of 2020.

CitizensTrust consists of Wealth Management and Investment Services income. The Wealth Management group provides a variety of services, which include asset management, financial planning, estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other

non-insured

investment products. At March 31, ~~2020,~~2021, CitizensTrust had approximately ~~$2.70~~$3.10 billion in assets under management and administration, including ~~$1.95~~$2.29 billion in assets under management. CitizensTrust generated fees of $2.6 million for the first quarter of 2021, compared to $2.4 million for the first quarter of 2020, ~~an increase of $238,000 compared to the first quarter of 2019,~~ due to the growth in assets under ~~management.~~management and investment services.

The Bank’s investment in BOLI includes life insurance policies acquired through acquisitions and the purchase of life insurance by the Bank on a ~~selected~~select group of employees. 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. ~~Death benefits of $715,000 were included in~~Income from our BOLI policies for the first quarter of 2021 included $3.5 million in death benefits that exceeded cash surrender values of certain BOLI policies, compared to $715,000 in death benefits for the first quarter of 2020.

Table of Contents

~~Noninterest Expense~~Income Taxes

Our significant accounting policies are described in greater detail in our 2020 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, 2020, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Recently Issued Accounting Pronouncements but Not Adopted as of March 31, 2021

Standard

Description

Adoption Timing

Impact on Financial Statements

ASU

No. 2020-04,

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Issued March 2020

The ~~following table summarizes~~FASB issued ASU

2020-04,

Reference Rate Reform: Facilitation of the ~~various components~~Effects of ~~noninterest expense~~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 ~~periods presented.~~sale or transfer of debt securities classified as

held-to-maturity.

For the Three Months Ended
March 31,

Variance

2020

2019

$

%

(Dollars in thousands)

Noninterest expense:

Salaries and employee benefits
$
30,877
$
29,302
$
1,575

5.38%

Occupancy

3,803

4,407

(604
)
-13.71%

Equipment

1,034

1,017

17

1.67%

Professional services

2,256

1,925

331

17.19%

Computer software expense

2,816

2,613

203

7.77%

Marketing and promotion

1,555

1,394

161

11.55%

Amortization of intangible assets

2,445

2,857

(412
)
-14.42%

Telecommunications expense

636

758

(122
)
-16.09%

Regulatory assessments

148

924

(776
)
-83.98%

Insurance

406

469

(63
)
-13.43%

Loan expense

257

316

(59
)
-18.67%

Directors’ expenses

315

287

28

9.76%

Stationery and supplies

285

292

(7
)
-2.40%

Acquisition related expenses

-

3,149

(3,149
)
-100.00%

Other

1,808

1,894

(86
)
-4.54%

Total noninterest expense
$
   48,641
$
   51,604
$
(2,963
)
-5.74%

Noninterest expense to average assets

1.72%

1.83%

Efficiency ratio (1)

42.69%

41.01%

This guidance is effective immediately and the amendments may be applied prospectively through December 31, 2022.

1st Quarter 2020 through the 4th Quarter 2022

The Company established a LIBOR Transition Task Force in 2020, which has inventoried our instruments that reflect exposure to LIBOR, created a framework to manage the transition and established a timeline for key decisions and actions to complete the transition from LIBOR in 2021. Although the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR for various financial instruments, primarily related to our variable-rate loans, our subordinated debentures, and interest rate swap derivatives that are indexed to LIBOR, we do not expect this ASU to have a material impact on the Company’s consolidated financial statements.

ASU

2020-06,

Debt — Debt with Conversion and Other Options (Subtopic

470-20)

and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic

815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

Issued August 2020

The FASB issued ASU

2020-06,

Debt — Debt with Conversion and Other Options (Subtopic

470-20)

and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic

815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification.

1st Quarter 2022

The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

~~(1)~~

~~Noninterest expense divided by net interest income before provision for credit losses plus noninterest income.~~

Table of Contents

OVERVIEW

For the first quarter of 2021, we reported net earnings of $63.9 million, compared with $50.1 million for the fourth quarter of 2020 and $38.0 million for the first quarter of 2020. Diluted earnings per share were $0.47 for the first quarter, compared to $0.37 for the prior quarter and $0.27 for the same period last year.

The first quarter of 2021 included a $19.5 million recapture of provision for credit losses, due to the improvement in our economic forecast of certain macroeconomic variables, which were impacted by

COVID-19.

charged-off

in total for approximately $2.5 million. Of the 4,100 SBA PPP loans we originated in 2020, $582.8 million was outstanding at March 31, 2021. During the first quarter of 2021, the Company originated, approximately 1,500 PPP loans in round two, with a loan balance, at amortized cost, of $314.9 million at March 31, 2021. Interest and fee income from PPP loans was $10.4 million for the first quarter of 2021, compared to $10.5 million for the fourth quarter of 2020.

At March 31, 2021, total assets of $14.84 billion increased $421.1 million, or 2.92%, from total assets of $14.42 billion at December 31, 2020. Interest-earning assets of $13.62 billion at March 31, 2021 increased $399.9 million, or 3.02%, when compared with $13.22 billion at December 31, 2020. The increase in interest-earning assets was primarily due to a $921.8 million increase in investment securities, partially offset by a $450.3 million decrease in interest-earning balances due from the Federal Reserve, and a $55.8 million decrease in total loans.

Total investment securities were $3.90 billion at March 31, 2021, an increase of $921.8 million, or 30.96%, from $2.98 billion at December 31, 2020. In the first quarter of 2021, we purchased $1.23 billion of securities, with an average expected yield of approximately 1.57%. At March 31, 2021, investment securities

held-to-maturity

(“HTM”) totaled $1.09 billion. At March 31, 2021, investment securities

available-for-sale

(“AFS”) totaled $2.81 billion, inclusive of a net

pre-tax

unrealized gain of $14.4 million, which decreased $40.4 million from December 31, 2020. HTM securities increased by $508.4 million, or 87.86%, and AFS securities increased by $413.4 million, or 17.23%, from December 31, 2020. Our tax equivalent yield on investments was 1.65% for the quarter ended March 31, 2021, compared to 1.81% for the fourth quarter of 2020 and 2.45% for the first quarter of 2020.

Total loans and leases, net of deferred fees and discounts (amortized cost), of $8.29 billion at March 31, 2021 decreased by $55.8 million, or 0.67%, from December 31, 2020. The $55.8 million decrease in total loans included decreases of $100.1 million in dairy & livestock and agribusiness loans due to seasonal pay downs, $58.4 million in commercial and industrial loans, $15.1 million in SFR mortgage loans, and $7.3 million in other loans, partially offset by increases of $95.3 million in commercial real estate loans, $14.7 million in PPP loans, $11.2 million in construction loans, and $3.8 million in SBA loans. After adjusting for seasonality and PPP loans, our loans grew by $29.6 million, or 0.42%, from the end of the fourth quarter of 2020. Our yield on loans was 4.50% for the quarter ended March 31, 2021, compared to 4.56% for the fourth quarter of 2020 and 4.95% for the first quarter of 2020. The significant decline in interest rates since the start of the pandemic has had a negative impact on loan yields, which after excluding discount accretion, nonaccrual interest income, and the impact from PPP loans, declined by 15 basis points and 44 basis points compared to the fourth quarter and first quarter of 2020, respectively. Interest income for yield adjustments related to discount accretion on acquired loans was $4.0 million for the quarter ended March 31, 2021, compared to $4.3 million for the fourth quarter of 2020 and $4.8 million for the first quarter of 2020.

Noninterest-bearing deposits were $7.58 billion at March 31, 2021, an increase of $122.5 million, or 1.64%, when compared to December 31, 2020. At March 31, 2021, noninterest-bearing deposits were 62.74% of total deposits, compared to 63.52% at December 31, 2020. Our average cost of total deposits was 0.06% for the quarter ended March 31, 2021, compared to 0.09% for the fourth quarter of 2020 and 0.19% for the first quarter of 2020.

Customer repurchase agreements totaled $506.3 million at March 31, 2021, compared to $439.4 million at December 31, 2020. Our average cost of total deposits including customer repurchase agreements was 0.06% for the quarter ended March 31, 2021, compared to 0.09% for the fourth quarter of 2020 and 0.20% for the first quarter of 2020.

Table of Contents

At March 31, 2021 and December 31, 2020, we had $5.0 million in short-term borrowings with 0% cost, compared to no borrowings at March 31, 2020. At March 31, 2021, we had $25.8 million of junior subordinated debentures, bearing interest at three-month LIBOR plus 1.38% and mature in 2036, which was unchanged from December 31, 2020. We plan to redeem these debentures, which had a cost of 1.60% during the first quarter of 2021, by the end of the second quarter of 2021. Our average cost of funds was 0.07% for the quarter ended March 31, 2021, 0.09% for the fourth quarter of 2020, and 0.21% for the first quarter of 2020.

The allowance for credit losses totaled $71.8 million at March 31, 2021, compared to $93.7 million at December 31, 2020. The allowance for credit losses for the first quarter of 2021 was decreased by $19.5 million due to the improved outlook in our forecast of certain macroeconomic variable that were influenced by the economic impact of the pandemic and government stimulus, and by $2.4 million in net charge-offs. At March 31, 2021, ACL as a percentage of total loans and leases outstanding was 0.87% or 0.97% when PPP loans are excluded. This compares to 1.12% at December 31, 2020, or 1.25% when PPP loans are excluded. As of March 31, 2021, total discounts on acquired loans were $26.9 million.

The Company’s total equity was $2.02 billion at March 31, 2021. This represented an increase of $12.7 million, or 0.63%, from total equity of $2.01 billion at December 31, 2020. This increase was primarily due to net earnings of $63.9 million, partially offset by a $28.4 million decrease in other comprehensive income resulting from the

tax-effected

impact of the decrease in market value of our

available-for-sale

investment securities portfolio and $24.5 million in cash dividends. Our tangible common equity ratio was 9.4% at March 31, 2021.

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of March 31, 2021, the Company’s Tier 1 leverage capital ratio totaled 9.83%, our common equity Tier 1 ratio totaled 14.87%, our Tier 1 risk-based capital ratio totaled 15.15%, and our total risk-based capital ratio totaled 16.05%. 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. Refer to our

Analysis of Financial Condition – Capital Resources

Table of Contents

ANALYSIS OF THE RESULTS OF OPERATIONS

~~First Quarter of 2020 Compared to the First Quarter of 2019~~

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 42.69% for the first quarter of 2020, compared to 41.01% for the first quarter of 2019.

Noninterest expense of $48.6 million for the first quarter of 2020 was $3.0 million, or 5.74%, lower than the first quarter of 2020. There were no merger related expenses related to the Community Bank acquisition for the first quarter of 2020, compared to $3.1 million for the first quarter of 2019. The year-over-year decrease also included a $776,000 decrease in regulatory assessments, a $587,000 decrease in occupancy and equipment expense primarily due to the consolidation of banking centers, and a $412,000 decrease in Core Deposit Intangible (“CDI”) amortization. These decreases were partially offset by a $1.6 million increase in salaries and employee benefit costs.

Financial Performance


	Three Months Ended March 31,						Variance
	2021			2020			$		%
	(Dollars in thousands, except per share amounts)

Net interest income	$	103,468		$	102,306		$	1,162		1.14	%
Recapture of (provision for) credit losses		19,500			(12,000	)		31,500		262.50	%
Noninterest income		13,681			11,640			2,041		17.53	%
Noninterest expense		(47,163	)		(48,641	)		1,478		3.04	%
Income taxes		(25,593	)		(15,325	)		(10,268)		-67.00	%

Net earnings	$	63,893		$	37,980		$	25,913		68.23	%

Earnings per common share:
Basic	$	0.47		$	0.27		$	0.20
Diluted	$	0.47		$	0.27		$	0.20
Return on average assets		1.79	%		1.34	%		0.45%
Return on average shareholders’ equity		12.75	%		7.61	%		5.14%
Efficiency ratio		40.26	%		42.69	%		-2.43%
Noninterest expense to average assets		1.32	%		1.72	%		-0.40%

	Three Months Ended						Variance
	March 31, 2021			December 31, 2020			$		%
	(Dollars in thousands, except per share amounts)

Net interest income	$	103,468		$	105,853		$	(2,385)		-2.25	%
Recapture of credit losses		19,500			-			19,500		-
Noninterest income		13,681			12,925			756		5.85	%
Noninterest expense		(47,163	)		(48,276	)		1,113		2.31	%
Income taxes		(25,593	)		(20,446	)		(5,147)		-25.17	%

Net earnings	$	63,893		$	50,056		$	13,837		27.64	%

Earnings per common share:
Basic	$	0.47		$	0.37		$	0.10
Diluted	$	0.47		$	0.37		$	0.10
Return on average assets		1.79	%		1.42	%		0.37%
Return on average shareholders’ equity		12.75	%		9.92	%		2.83%
Efficiency ratio		40.26	%		40.64	%		-0.38%
Noninterest expense to average assets		1.32	%		1.37	%		-0.05%

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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


	Three Months Ended
	March 31, 2021			December 31, 2020			March 31, 2020
	(Dollars in thousands)

Net Income	$	63,893		$	50,056		$	37,980
Add: Amortization of intangible assets		2,167			2,170			2,445
Less: Tax effect of amortization of intangible assets (1)		(641	)		(642	)		(723	)

Tangible net income	$	65,419		$	51,584		$	39,702


Average stockholders’ equity	$	2,032,676		$	2,007,640		$	2,006,464
Less: Average goodwill		(663,707	)		(663,707	)		(663,707	)
Less: Average intangible assets		(32,590	)		(34,711	)		(41,732	)

Average tangible common equity	$	1,336,379		$	1,309,222		$	1,301,025


Return on average equity, annualized		12.75%			9.92%			7.61%
Return on average tangible common equity, annualized		19.85%			15.67%			12.27%

(1)

Tax effected at respective statutory rates.

Net Interest Income

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the three months ended March 31, 2021 and 2020. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 2 –

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management

included herein.

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	Three Months Ended March 31,
	2021						2020
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
	(Dollars in thousands)
INTEREST-EARNING ASSETS
Investment securities (1)
Available-for-sale securities:
Taxable	$	2,523,609	$	8,968		1.47%	$	1,659,394	$	9,825		2.37%
Tax-advantaged		30,158		191		3.02%		38,086		224		3.36%
Held-to-maturity securities:
Taxable		580,478		2,811		1.95%		469,394		2,698		2.30%
Tax-advantaged		199,348		1,129		2.74%		189,522		1,300		3.32%
Investment in FHLB stock		17,688		217		4.98%		17,688		332		7.55%
Interest-earning deposits with other institutions		1,664,193		413		0.10%		261,041		613		0.94%
Loans (2)		8,270,282		91,795		4.50%		7,482,805		92,117		4.95%

Total interest-earning assets		13,285,756		105,524		3.24%		10,117,930		107,109		4.27%
Total noninterest-earning assets		1,220,899						1,257,870

Total assets	$	14,506,655					$	11,375,800


INTEREST-BEARING LIABILITIES

Savings deposits (3)	$	4,026,248		1,198		0.12%	$	3,056,743		3,111		0.41%
Time deposits		408,034		614		0.61%		445,431		1,013		0.91%

Total interest-bearing deposits		4,434,282		1,812		0.17%		3,502,174		4,124		0.47%
FHLB advances, other borrowings, and customer repurchase agreements		590,170		244		0.17%		504,585		679		0.54%

Interest-bearing liabilities		5,024,452		2,056		0.17%		4,006,759		4,803		0.48%

Noninterest-bearing deposits		7,240,494						5,247,025
Other liabilities		209,033						115,552
Stockholders’ equity		2,032,676						2,006,464

Total liabilities and stockholders’ equity	$	14,506,655					$	11,375,800


Net interest income			$	103,468					$	102,306


Net interest spread—tax equivalent						3.07%						3.79%
Net interest margin						3.17%						4.06%
Net interest margin—tax equivalent						3.18%						4.08%

(1)

Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended March 31, 2021 and 2020. The non TE rates were 1.62% and 2.38% for the three months ended March 31, 2021 and 2020, respectively.

(2)

Includes loan fees of $8.9 million and $548,000 for the three months ended March 31, 2021 and 2020, respectively. Prepayment penalty fees of $1.6 million and $1.5 million are included in interest income for the three months ended March 31, 2021 and 2020, respectively.

(3)

Includes interest-bearing demand and money market accounts.

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


	Comparison of Three Months Ended March 31, 2021 Compared to 2020 Increase (Decrease) Due to
	Volume			Rate			Rate/ Volume			Total
				(Dollars in thousands)
Interest income:
Available-for-sale securities:
Taxable investment securities	$	4,541		$	(3,674	)	$	(1,724	)	$	(857	)
Tax-advantaged investment securities		(46	)		17			(4	)		(33	)
Held-to-maturity securities:
Taxable investment securities		609			(404	)		(92	)		113
Tax-advantaged investment securities		65			(224	)		(12	)		(171	)
Investment in FHLB stock		-			(115	)		-			(115	)
Interest-earning deposits with other institutions		3,266			(543	)		(2,923	)		(200	)
Loans		9,232			(8,644	)		(910	)		(322	)

Total interest income		17,667			(13,587	)		(5,665	)		(1,585	)


Interest expense:
Savings deposits		972			(2,191	)		(694	)		(1,913	)
Time deposits		(63	)		(250	)		(86	)		(399	)
FHLB advances, other borrowings, and customer repurchase agreements		113			(469	)		(79	)		(435	)

Total interest expense		1,022			(2,910	)		(859	)		(2,747	)

Net interest income	$	16,645		$	(10,677	)	$	(4,806	)	$	1,162

First Quarter of 2021 Compared to the First Quarter of 2020

Net interest income, before provision for credit losses, of $103.5 million for the first quarter of 2021 increased $1.2 million, or 1.14%, compared to $102.3 million for the first quarter of 2020. Interest-earning assets increased on average by $3.17 billion, or 31.31%, from $10.12 billion for the first quarter of 2020 to $13.29 billion for the first quarter of 2021. Our net interest margin (TE) was 3.18% for the first quarter of 2021, compared to 4.08% for the first quarter of 2020.

Interest income for the first quarter of 2021 was $105.5 million, which represented a $1.6 million, or 1.48%, decrease when compared to the same period of 2020. Average interest-earning assets increased to $13.29 billion and the average interest-earning asset yield was 3.24% for the first quarter of 2021, compared to 4.27% for the first quarter of 2020. The 102 basis point decrease in the average interest-earning asset yield compared to the first quarter of 2020, was primarily due to a combination of a 45 basis point decrease in loan yields, a 76 basis point decrease in the

non-tax

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Interest income and fees on loans for the first quarter of 2021 of $91.8 million decreased $322,000, or 0.35%, when compared to the first quarter of 2020. Average loans increased $787.5 million for the first quarter of 2021 when compared with the same period of 2020, primarily due to $880.7 million in average PPP loans. The PPP loans we originated resulted in the recognition of approximately $8.2 million in fee income and $2.2 million in loan interest during the first quarter of 2021. Discount accretion on acquired loans decreased by $748,000 compared to the first quarter of 2020. The significant decline in interest rates since the start of the pandemic has had a negative impact on loan yields, which after excluding the impact from PPP loans, discount accretion and nonaccrual interest income, declined by 44 basis points from the first quarter of 2020.

Interest income from investment securities was $13.1 million for the first quarter of 2021, a $948,000, or 6.75%, decrease from $14.0 million for the first quarter of 2020. This decrease was primarily the result of a 76 basis point decline in the

non-tax

equivalent yield on investments as the decline in interest rates over the past four quarters decreased yields on investment securities due to higher levels of premium amortization, as well as lower yields on investments purchased during the past four quarters. Partially offsetting the decline from lower rates was a $977.2 million increase in average investment securities for the first quarter of 2021, compared to the same period of 2020.

Interest expense of $2.1 million for the first quarter of 2021, decreased $2.7 million, or 57.19%, compared to the first quarter of 2020. The average rate paid on interest-bearing liabilities decreased by 31 basis points, to 0.17% for the first quarter of 2021 from 0.48% for the first quarter of 2020. Average interest-bearing liabilities were $1.02 billion higher for the first quarter of 2021 when compared to the first quarter of 2020. On average, noninterest-bearing deposits were 62.02% of our total deposits for the first quarter of 2021, compared to 59.97% for the first quarter of 2020. In comparison to the first quarter of 2020, our overall cost of funds decreased by 14 basis points, partially due to growth in average noninterest-bearing deposits of $1.99 billion, compared to the increase in average interest-bearing deposits of $932.1 million. In addition, the cost of interest-bearing deposits decreased by 30 basis points for the first quarter of 2021 compared to the first quarter of 2020.

Provision for Credit Losses

The allowance for credit losses on loans totaled $71.8 million at March 31, 2021, compared to $93.7 million at December 31, 2020 and $82.6 million as of March 31, 2020. For the first quarter of 2021, we recaptured $19.5 million in provision for credit losses, due to the improved outlook in our forecast of certain macroeconomic variables that were influenced by the economic impact of the pandemic and government stimulus. For the first quarter of 2021, we experienced credit charge-offs of $2.5 million and total recoveries of $88,000, resulting in net charge-offs of $2.4 million. This compares to a $12.0 million credit loss provision and net recoveries of $141,000 for the same period of 2020. The ratio of the allowance for credit losses to total loans and leases outstanding, net of deferred fees and discount, as of March 31, 2021, was 0.87%, or 0.97% when PPP loans are excluded. This compares to 1.12% and 1.11%, as of December 31, 2020 and March 31, 2020, respectively. As of March 31, 2021, remaining discounts on acquired loans were $26.9 million. 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 of the pandemic on our business and customers. See “Allowance for Credit Losses” under

Analysis of Financial Condition

herein.

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Noninterest Income

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


	Three Months Ended March 31,				Variance
	2021		2020		$			%
			(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	3,985	$	4,776	$	(791	)		-16.56%
Trust and investment services		2,611		2,420		191			7.89%
Bankcard services		350		577		(227	)		-39.34%
BOLI income		4,624		2,059		2,565			124.58%
Swap fee income		215		373		(158	)		-42.36%
Gain on OREO, net		429		10		419			4190.00%
Other		1,467		1,425		42			2.95%

Total noninterest income	$	13,681	$	11,640	$	2,041			17.53%

First Quarter of 2021 Compared to the First Quarter of 2020

The $2.0 million increase in noninterest income was primarily due to a $2.6 million increase in BOLI income and a $399,000 gain on the sale of one OREO property in the first quarter of 2021, partially offset by a $791,000 decrease in service charges on deposit accounts. This decrease was primarily due to the offset of fees due to higher earnings credits generated by the significant increase in our customer’s noninterest-bearing deposits held at the Bank when compared to the first quarter of 2020.

Derivative Financial Instruments

non-insured

investment products. At March 31, 2021, CitizensTrust had approximately $3.10 billion in assets under management and administration, including $2.29 billion in assets under management. CitizensTrust generated fees of $2.6 million for the first quarter of 2021, compared to $2.4 million for the first quarter of 2020, due to the growth in assets under management and investment services.

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. 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. Income from our BOLI policies for the first quarter of 2021 included $3.5 million in death benefits that exceeded cash surrender values of certain BOLI policies, compared to $715,000 in death benefits for the first quarter of 2020.

Table of Contents

Income Taxes

Our significant accounting policies are described in greater detail in our 2020 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, 2020, which are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Recently Issued Accounting Pronouncements but Not Adopted as of March 31, 2021


Standard	Description	Adoption Timing	Impact on Financial Statements

ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting Issued 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 guidance is effective immediately and the amendments may be applied prospectively through December 31, 2022.	1st Quarter 2020 through the 4th Quarter 2022	The Company established a LIBOR Transition Task Force in 2020, which has inventoried our instruments that reflect exposure to LIBOR, created a framework to manage the transition and established a timeline for key decisions and actions to complete the transition from LIBOR in 2021. Although the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR for various financial instruments, primarily related to our variable-rate loans, our subordinated debentures, and interest rate swap derivatives that are indexed to LIBOR, we do not expect this ASU to have a material impact on the Company’s ~~effective~~consolidated financial statements.


ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity Issued August 2020	The FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification.	1st Quarter 2022	The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

Table of Contents

OVERVIEW

The first quarter of 2021 included a $19.5 million recapture of provision for credit losses, due to the improvement in our economic forecast of certain macroeconomic variables, which were impacted by

COVID-19.

charged-off

in total for approximately $2.5 million. Of the 4,100 SBA PPP loans we originated in 2020, $582.8 million was outstanding at March 31, 2021. During the first quarter of 2021, the Company originated, approximately 1,500 PPP loans in round two, with a loan balance, at amortized cost, of $314.9 million at March 31, 2021. Interest and fee income from PPP loans was $10.4 million for the first quarter of 2021, compared to $10.5 million for the fourth quarter of 2020.

held-to-maturity

(“HTM”) totaled $1.09 billion. At March 31, 2021, investment securities

available-for-sale

(“AFS”) totaled $2.81 billion, inclusive of a net

pre-tax

Table of Contents

tax-effected

impact of the decrease in market value of our

available-for-sale

investment securities portfolio and $24.5 million in cash dividends. Our tangible common equity ratio was 9.4% at March 31, 2021.

Analysis of Financial Condition – Capital Resources

Table of Contents

ANALYSIS OF THE RESULTS OF OPERATIONS

Financial Performance


	Three Months Ended March 31,						Variance
	2021			2020			$		%
	(Dollars in thousands, except per share amounts)

Net interest income	$	103,468		$	102,306		$	1,162		1.14	%
Recapture of (provision for) credit losses		19,500			(12,000	)		31,500		262.50	%
Noninterest income		13,681			11,640			2,041		17.53	%
Noninterest expense		(47,163	)		(48,641	)		1,478		3.04	%
Income taxes		(25,593	)		(15,325	)		(10,268)		-67.00	%

Net earnings	$	63,893		$	37,980		$	25,913		68.23	%

Earnings per common share:
Basic	$	0.47		$	0.27		$	0.20
Diluted	$	0.47		$	0.27		$	0.20
Return on average assets		1.79	%		1.34	%		0.45%
Return on average shareholders’ equity		12.75	%		7.61	%		5.14%
Efficiency ratio		40.26	%		42.69	%		-2.43%
Noninterest expense to average assets		1.32	%		1.72	%		-0.40%

	Three Months Ended						Variance
	March 31, 2021			December 31, 2020			$		%
	(Dollars in thousands, except per share amounts)

Net interest income	$	103,468		$	105,853		$	(2,385)		-2.25	%
Recapture of credit losses		19,500			-			19,500		-
Noninterest income		13,681			12,925			756		5.85	%
Noninterest expense		(47,163	)		(48,276	)		1,113		2.31	%
Income taxes		(25,593	)		(20,446	)		(5,147)		-25.17	%

Net earnings	$	63,893		$	50,056		$	13,837		27.64	%

Earnings per common share:
Basic	$	0.47		$	0.37		$	0.10
Diluted	$	0.47		$	0.37		$	0.10
Return on average assets		1.79	%		1.42	%		0.37%
Return on average shareholders’ equity		12.75	%		9.92	%		2.83%
Efficiency ratio		40.26	%		40.64	%		-0.38%
Noninterest expense to average assets		1.32	%		1.37	%		-0.05%

Table of Contents

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


	Three Months Ended
	March 31, 2021			December 31, 2020			March 31, 2020
	(Dollars in thousands)

Net Income	$	63,893		$	50,056		$	37,980
Add: Amortization of intangible assets		2,167			2,170			2,445
Less: Tax effect of amortization of intangible assets (1)		(641	)		(642	)		(723	)

Tangible net income	$	65,419		$	51,584		$	39,702


Average stockholders’ equity	$	2,032,676		$	2,007,640		$	2,006,464
Less: Average goodwill		(663,707	)		(663,707	)		(663,707	)
Less: Average intangible assets		(32,590	)		(34,711	)		(41,732	)

Average tangible common equity	$	1,336,379		$	1,309,222		$	1,301,025


Return on average equity, annualized		12.75%			9.92%			7.61%
Return on average tangible common equity, annualized		19.85%			15.67%			12.27%

(1)

Tax effected at respective statutory rates.

Net Interest Income

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the three months ended March 31, 2021 and 2020. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 2 –

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management

included herein.

Table of Contents


	Three Months Ended March 31,
	2021						2020
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
	(Dollars in thousands)
INTEREST-EARNING ASSETS
Investment securities (1)
Available-for-sale securities:
Taxable	$	2,523,609	$	8,968		1.47%	$	1,659,394	$	9,825		2.37%
Tax-advantaged		30,158		191		3.02%		38,086		224		3.36%
Held-to-maturity securities:
Taxable		580,478		2,811		1.95%		469,394		2,698		2.30%
Tax-advantaged		199,348		1,129		2.74%		189,522		1,300		3.32%
Investment in FHLB stock		17,688		217		4.98%		17,688		332		7.55%
Interest-earning deposits with other institutions		1,664,193		413		0.10%		261,041		613		0.94%
Loans (2)		8,270,282		91,795		4.50%		7,482,805		92,117		4.95%

Total interest-earning assets		13,285,756		105,524		3.24%		10,117,930		107,109		4.27%
Total noninterest-earning assets		1,220,899						1,257,870

Total assets	$	14,506,655					$	11,375,800


INTEREST-BEARING LIABILITIES

Savings deposits (3)	$	4,026,248		1,198		0.12%	$	3,056,743		3,111		0.41%
Time deposits		408,034		614		0.61%		445,431		1,013		0.91%

Total interest-bearing deposits		4,434,282		1,812		0.17%		3,502,174		4,124		0.47%
FHLB advances, other borrowings, and customer repurchase agreements		590,170		244		0.17%		504,585		679		0.54%

Interest-bearing liabilities		5,024,452		2,056		0.17%		4,006,759		4,803		0.48%

Noninterest-bearing deposits		7,240,494						5,247,025
Other liabilities		209,033						115,552
Stockholders’ equity		2,032,676						2,006,464

Total liabilities and stockholders’ equity	$	14,506,655					$	11,375,800


Net interest income			$	103,468					$	102,306


Net interest spread—tax equivalent						3.07%						3.79%
Net interest margin						3.17%						4.06%
Net interest margin—tax equivalent						3.18%						4.08%

(1)

Includes tax ~~rate~~equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended March 31, ~~2020 was 28.75%, compared to 29.00%~~2021 and 2020. The non TE rates were 1.62% and 2.38% for ~~the same periods of 2019. Our estimated annual effective tax rate also 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.~~

~~Table of Contents~~

~~ANALYSIS OF FINANCIAL CONDITION~~

Total assets of $11.61 billion at March 31, 2020 increased $324.4 million, or 2.88%, from total assets of $11.28 billion at December 31, 2019. Interest-earning assets totaled $10.40 billion at March 31, 2020, an increase of $369.7 million, or 3.69%, when compared with $10.03 billion at December 31, 2019. The increase in interest-earning assets was primarily due to a $539.9 million increase in interest-earning balances due from the Federal Reserve. Partially offsetting these increases was a $98.4 million decrease in total loans and a $92.7 million decrease in investment securities. The decrease in total loans included a $111.6 million decline in dairy & livestock loans primarily due to seasonal pay downs, which historically occur in the first quarter of each calendar year. Excluding dairy and livestock loans, total loans grew by $13.2 million, or 0.18%. The Company is well positioned to use the excess liquidity

~~built-up~~

during the quarter to fund customer loan requests under the SBA’s Paycheck Protection Program. The SBA exhausted the funding for these loans on April 15, 2020, but through that date we processed 911 loans, totaling $558 million.

Total liabilities were $9.67 billion at March 31, 2020, an increase of $377.2 million, or 4.06%, from total liabilities of $9.29 billion at December 31, 2019. Total deposits grew by $408.7 million, or 4.69%. Total equity decreased $52.7 million, or 2.67%, to $1.94 billion at March 31, 2020, compared to total equity of $1.99 billion at December 31, 2019. The $52.7 million decrease in equity was primarily due to the repurchase of 4.9 million shares of common stock for $91.7 million under our 10b5-1 stock repurchase program. We previously announced that we suspended this

~~10b5-1~~

~~stock repurchase program due to the uncertainty of the~~

~~COVID-19~~

pandemic. We had $38.0 million in net earnings during the quarter, offset by $24.4 million in cash dividends declared and a cumulative effect adjustment to beginning retained earnings of $1.3 million, net of tax, due to the adoption of CECL on January 1, 2020. Our equity also increased by $25.8 million as a result of an increase in other comprehensive income from the increase in our tax adjusted market value of our

~~available-for-sale~~

~~investment securities.~~

~~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 March 31, 2020, we reported total investment securities of $2.32 billion. This represented a decrease of $92.7 million, or 3.84%, from total investment securities of $2.41 billion at December 31, 2019. The decrease in investment securities was due to cash outflow from the portfolio exceeding new securities purchased in the first quarter of 2020, partially offset by an increase in the fair value of AFS investment securities as a result of declining interest rates. At March 31, 2020, investment securities HTM totaled $642.3 million. At March 31, 2020, our AFS investment securities totaled $1.68 billion, inclusive of a

~~pre-tax~~

~~net unrealized gain of $58.5 million. The~~

~~after-tax~~

~~unrealized gain reported in AOCI on AFS investment securities was $41.2 million.~~

~~As of March 31, 2020, the Company had a~~

~~pre-tax~~

~~net unrealized holding gain on AFS investment securities of $58.5 million, compared to a~~

~~pre-tax~~

~~net unrealized holding gain of $21.9 million at December 31, 2019. The changes in the net unrealized holding gain resulted primarily from fluctuations in market interest rates. For~~ the three months ended March 31, 2021 and 2020, ~~and 2019, repayments/maturities~~respectively.

(2)

Includes loan fees of ~~investment securities totaled $128.2~~$8.9 million and ~~$107.5 million, respectively. The Company purchased additional investment securities totaling $1.5 million and $19.8 million~~$548,000 for the ~~first~~ three months ended March 31, 2021 and 2020, respectively. Prepayment penalty fees of $1.6 million and ~~2019, respectively. No investment securities were sold during~~$1.5 million are included in interest income for the ~~first~~ three months ~~of 2020 and 2019.~~

~~Table of Contents~~

~~The tables below set forth investment securities AFS and HTM as of the dates presented.~~

December 31, 2019

  Amortized
Cost

Gross
  Unrealized
Holding
Gain

Gross
  Unrealized
Holding
Loss

  Fair Value

Total Percent

(Dollars in thousands)

Investment securities
available-for-sale:

Mortgage-backed securities
  $
  1,185,757
  $
  21,306
  $
(750)
  $
1,206,313

69.32%

CMO/REMIC

493,214

1,392

(896)

493,710

28.37%

Municipal bonds

38,506

850

(2)

39,354

2.26%

Other securities

880

-

-

880

0.05%

Total
available-for-sale
securities
  $
1,718,357
  $
23,548
  $
(1,648)
  $
1,740,257

100.00%

Investment securities
held-to-maturity:

Government agency/GSE
  $
117,366
  $
2,280
  $
(657)
  $
118,989

17.40%

Mortgage-backed securities

168,479

2,083

(54)

170,508

24.98%

CMO/REMIC

192,548

-

(2,458)

190,090

28.55%

Municipal bonds

196,059

3,867

(565)

199,361

29.07%

Total
held-to-maturity
securities
  $
674,452
  $
8,230
  $
(3,734)
  $
678,948

100.00%

~~The weighted-average yield (TE) on the total investment portfolio at~~ended March 31, 2021 and 2020, was 2.53% with a weighted-average life of 2.9 years. This compares to a weighted-average yield of 2.54% at December 31, 2019 with a weighted-average life of 3.6 years. The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principalrespectively.

(3)

~~pay-downs.~~

Includes interest-bearing demand and money market accounts.

Table of Contents

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


	Comparison of Three Months Ended March 31, 2021 Compared to 2020 Increase (Decrease) Due to
	Volume			Rate			Rate/ Volume			Total
				(Dollars in thousands)
Interest income:
Available-for-sale securities:
Taxable investment securities	$	4,541		$	(3,674	)	$	(1,724	)	$	(857	)
Tax-advantaged investment securities		(46	)		17			(4	)		(33	)
Held-to-maturity securities:
Taxable investment securities		609			(404	)		(92	)		113
Tax-advantaged investment securities		65			(224	)		(12	)		(171	)
Investment in FHLB stock		-			(115	)		-			(115	)
Interest-earning deposits with other institutions		3,266			(543	)		(2,923	)		(200	)
Loans		9,232			(8,644	)		(910	)		(322	)

Total interest income		17,667			(13,587	)		(5,665	)		(1,585	)


Interest expense:
Savings deposits		972			(2,191	)		(694	)		(1,913	)
Time deposits		(63	)		(250	)		(86	)		(399	)
FHLB advances, other borrowings, and customer repurchase agreements		113			(469	)		(79	)		(435	)

Total interest expense		1,022			(2,910	)		(859	)		(2,747	)

Net interest income	$	16,645		$	(10,677	)	$	(4,806	)	$	1,162

First Quarter of 2021 Compared to the First Quarter of 2020

Net interest income, before provision for credit losses, of $103.5 million for the first quarter of 2021 increased $1.2 million, or 1.14%, compared to $102.3 million for the first quarter of 2020. Interest-earning assets increased on average by $3.17 billion, or 31.31%, from $10.12 billion for the first quarter of 2020 to $13.29 billion for the first quarter of 2021. Our net interest margin (TE) was 3.18% for the first quarter of 2021, compared to 4.08% for the first quarter of 2020.

non-tax

Table of Contents

non-tax

equivalent yield on investments as the decline in interest rates over the past four quarters decreased yields on investment securities due to higher levels of premium amortization, as well as lower yields on investments purchased during the past four quarters. Partially offsetting the decline from lower rates was a $977.2 million increase in average investment securities for the first quarter of 2021, compared to the same period of 2020.

Provision for Credit Losses

Approximately 90% of the securities in the total investment portfolio, at March 31, 2020, are issued by the U.S. government or U.S. government-sponsored agencies and enterprises, which have the implied guarantee of payment of principal and interest. As of March 31, 2020, approximately $71.8 million in U.S. government agency bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds, which represented approximately 10% of the total investment portfolio, are predominately AA or higher rated securities. The allowance for credit losses on loans totaled $71.8 million at March 31, 2021, compared to $93.7 million at December 31, 2020 and $82.6 million as of March 31, 2020. For the first quarter of 2021, we recaptured $19.5 million in provision for credit losses, due to the improved outlook in our forecast of certain macroeconomic variables that were influenced by the economic impact of the pandemic and government stimulus. For the first quarter of 2021, we experienced credit charge-offs of $2.5 million and total recoveries of $88,000, resulting in net charge-offs of $2.4 million. This compares to a $12.0 million credit loss provision and net recoveries of $141,000 for the same period of 2020. The ratio of the allowance for credit losses to total loans and leases outstanding, net of deferred fees and discount, as of March 31, 2021, was 0.87%, or 0.97% when PPP loans are excluded. This compares to 1.12% and 1.11%, as of December 31, 2020 and March 31, 2020, respectively. As of March 31, 2021, remaining discounts on acquired loans were $26.9 million. 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.

Analysis of Financial Condition

herein.

Table of Contents

Noninterest Income

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


	Three Months Ended March 31,				Variance
	2021		2020		$			%
			(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	3,985	$	4,776	$	(791	)		-16.56%
Trust and investment services		2,611		2,420		191			7.89%
Bankcard services		350		577		(227	)		-39.34%
BOLI income		4,624		2,059		2,565			124.58%
Swap fee income		215		373		(158	)		-42.36%
Gain on OREO, net		429		10		419			4190.00%
Other		1,467		1,425		42			2.95%

Total noninterest income	$	13,681	$	11,640	$	2,041			17.53%

First Quarter of 2021 Compared to the First Quarter of 2020

Derivative Financial Instruments

non-insured

Table of Contents

Noninterest Expense

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


	Three Months Ended March 31,				Variance
	2021		2020		$		%
			(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	29,706	$	30,877	$	(1,171)		-3.79%
Occupancy		4,107		3,803		304		7.99%
Equipment		756		1,034		(278)		-26.89%
Professional services		2,168		2,256		(88)		-3.90%
Computer software expense		2,844		2,816		28		0.99%
Marketing and promotion		725		1,555		(830)		-53.38%
Amortization of intangible assets		2,167		2,445		(278)		-11.37%
Telecommunications expense		552		636		(84)		-13.21%
Regulatory assessments		1,059		148		911		615.54%
Insurance		453		406		47		11.58%
Loan expense		238		257		(19)		-7.39%
OREO expense		9		258		(249)		-96.51%
Directors’ expenses		379		351		28		7.98%
Stationery and supplies		244		285		(41)		-14.39%
Other		1,756		1,514		242		15.98%
Total noninterest expense	$	47,163	$	48,641	$	(1,478)		-3.04%

Noninterest expense to average assets		1.32%		1.72%

Efficiency ratio (1)		40.26%		42.69%

(1)

Noninterest expense divided by net interest income before provision for credit losses ~~for~~

~~held-to-maturity~~plus noninterest income.

~~investment securities under the new CECL model was zero~~

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 first quarter of 2021, compared to 1.72% for the first quarter of 2020. The decline in this ratio for 2021 reflects the $3.13 billion growth in average assets that resulted primarily from $2.93 billion in average deposit growth.

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 40.26% for the first quarter of 2021, compared to 42.69% for the first quarter of 2020.

First Quarter of 2021 Compared to the First Quarter of 2020

Noninterest expense of $47.2 million for the first quarter of 2021 was $1.5 million, or 3.04%, lower than the first quarter of 2020. Salaries and employee benefits declined by $1.2 million from the first quarter of 2020, as deferred loan origination costs, which are a contra expense, increased by $1.0 million due primarily to the origination of more than 1,500 PPP loans in the first quarter of 2021. Additionally, marketing and promotion expense declined by $830,000, partly due to restrictions resulting from the pandemic. An increase of $911,000 in regulatory assessment expense in the first quarter of 2021, compared to the prior year quarter, resulted from the final application of assessment credits provided by the FDIC at the end of the second quarter of 2020.

Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2021 was 28.60%, compared to 28.75% for the same period of 2020. 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.

Table of Contents

ANALYSIS OF FINANCIAL CONDITION

Total assets of $14.84 billion at March 31, 2021 increased $421.1 million, or 2.92%, from total assets of $14.42 billion at December 31, 2020. Interest-earning assets totaled $13.62 billion at March 31, 2021, an increase of $399.9 million, or 3.02%, when compared with $13.22 billion at December 31, 2020. The increase in interest-earning assets was primarily due to a $921.8 million increase in investment securities, partially offset by a $450.3 million decrease in interest-earning balances due from the Federal Reserve, and a $55.8 million decrease in total loans. During the first quarter of 2021, we originated approximately 1,500 SBA PPP loans in round two, with a loan balance, at amortized cost, of $314.9 million at March 31, 2021. Of the 4,100 PPP loans we originated in 2020, $582.8 million remained outstanding at March 31, 2021. Excluding PPP loans, total loans declined by $70.5 million, or 0.94%, from December 31, 2020.

Total liabilities were $12.82 billion at March 31, 2021, an increase of $408.4 million, or 3.29%, from total liabilities of $12.41 billion at December 31, 2020. Total deposits grew by $342.2 million, or 2.92%. Total equity increased $12.7 million, or 0.63%, to $2.02 billion at March 31, 2021, compared to total equity of $2.01 billion at December 31, 2020. The $12.7 million increase in equity was primarily due to net earnings of $63.9 million during the first quarter of 2021, partially offset by a $28.4 million decrease in other comprehensive income from the

tax-effected

impact of the decrease in market value of

available-for-sale

securities and $24.5 million in cash dividends.

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 March 31, 2021, total investment securities were $3.90 billion. This represented an increase of $921.8 million, or 30.96%, from total investment securities of $2.98 billion at December 31, 2020. The increase in investment securities was primarily due to new securities purchased exceeding cash outflow from the portfolio in the first quarter of 2021. At March 31, 2021, investment securities HTM totaled $1.09 billion. At March 31, 2021, our AFS investment securities totaled $2.81 billion, inclusive of a

pre-tax

net unrealized gain of $14.4 million. The

after-tax

unrealized gain reported in AOCI on AFS investment securities was $10.1 million. The changes in the net unrealized holding gain resulted primarily from fluctuations in market interest rates. For the three months ended March 31, 2021 and 2020, repayments/maturities of investment securities totaled $259.9 million and $128.2 million, respectively. The Company purchased additional investment securities totaling $1.23 billion and $1.5 million for the three months ended March 31, 2021 and 2020, respectively. The current quarter purchases included $682.9 million in AFS securities that were comprised of MBS with average lives of less than five years that are expected to yield approximately 1.37%. Additionally, we purchased $545.7 million dollars in HTM securities that were comprised of fixed rate agency and municipal bonds, with longer maturities that on average exceed ten years. On a

non-tax

equivalent basis, these securities will generate a yield of approximately 1.81%. There were no investment securities sold during the first three months of 2021 and 2020.

Table of Contents

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


	March 31, 2021
	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	$	2,175,414	$	38,333	$	(22,409	)	$	2,191,338		77.92%
CMO/REMIC		592,915		4,072		(6,821	)		590,166		20.99%
Municipal bonds		28,703		1,183		-			29,886		1.06%
Other securities		958		-		-			958		0.03%

Total available-for-sale securities	$	2,797,990	$	43,588	$	(29,230	)	$	2,812,348		100.00%

Investment securities held-to-maturity:
Government agency/GSE	$	601,142	$	3,860	$	(16,289	)	$	588,713		55.30%
Mortgage-backed securities		135,137		5,348		(255	)		140,230		12.43%
CMO/REMIC		133,556		2,832		-			136,388		12.29%
Municipal bonds		217,149		5,095		(2,094	)		220,150		19.98%
			��
Total held-to-maturity securities	$	1,086,984	$	17,135	$	(18,638	)	$	1,085,481		100.00%


	December 31, 2020
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss			Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	1,857,030	$	48,006	$	(101	)	$	1,904,935		79.41%
CMO/REMIC		457,548		5,515		(249	)		462,814		19.29%
Municipal bonds		28,707		1,578		-			30,285		1.26%
Other securities		889		-		-			889		0.04%

Total available-for-sale securities	$	2,344,174	$	55,099	$	(350	)	$	2,398,923		100.00%

Investment securities held-to-maturity:
Government agency/GSE	$	98,663	$	5,877	$	-		$	104,540		17.05%
Mortgage-backed securities		146,382		7,644		(32	)		153,994		25.30%
CMO/REMIC		145,309		5,202		-			150,511		25.11%
Municipal bonds		188,272		6,980		(74	)		195,178		32.54%

Total held-to-maturity securities	$	578,626	$	25,703	$	(106	)	$	604,223		100.00%

As of March 31, 2021, approximately $60.6 million in U.S. government agency bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds, which represented approximately 6% of the total investment portfolio, are predominately AA or higher rated securities.

Table of Contents

The following table presents the Company’s

available-for-sale

investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of March 31, 2021 and December 31, 2020.


	March 31, 2021
	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	$	1,327,126	$	(22,409	)	$	-	$	-	$	1,327,126	$	(22,409	)
CMO/REMIC		422,765		(6,821	)		-		-		422,765		(6,821	)
Municipal bonds		-		-			-		-		-		-

Total available-for-sale securities	$	1,749,891	$	(29,230	)	$	-	$	-	$	1,749,891	$	(29,230	)


	December 31, 2020
	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses		Fair Value		Gross Unrealized Holding Losses
						(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	72,219	$	(101	)	$	-	$	-	$	72,219	$	(101	)
CMO/REMIC		96,974		(249	)		-		-		96,974		(249	)
Municipal bonds		-		-			-		-		-		-

Total available-for-sale securities	$	169,193	$	(350	)	$	-	$	-	$	169,193	$	(350	)

Once it is determined that a credit loss has occurred, an allowance for credit losses is established on our

available-for-sale

and

held-to-maturity

securities. Management determined that credit losses did not exist for securities in an unrealized loss position as of March 31, 2021 and December 31, 2020.

Refer to Note 4 –

Investment Securities

of the notes to the unaudited condensed consolidated financial statements of this report for additional information on our investment securities portfolio.

Table of Contents

Loans

Total loans and leases, at amortized cost, of $8.29 billion at March 31, 2021 decreased by $55.8 million, or 0.67%, from December 31, 2020. The $55.8 million decrease in total loans included decreases of $100.1 million in dairy & livestock and agribusiness loans due to seasonal pay downs, $58.4 million in commercial and industrial loans, $15.1 million in SFR mortgage loans, and $7.3 million in other loans, partially offset by increases of $95.3 million in commercial real estate loans, $14.7 million in PPP loans, $11.2 million in construction loans, and $3.8 million SBA loans. After adjusting for seasonality and PPP loans, our loans grew by $29.6 million or 0.42% from December 31, 2020.

~~Table of Contents~~

~~We adopted ASU~~

~~2016-13~~

~~on January 1, 2020, on a prospective basis. Under the new guidance, 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. Prior to adoption of this standard, when a decline in fair value of a debt security was determined to be other than temporary, an impairment charge for the credit component was recorded, and a new cost basis in the investment was established. During the first quarter of 2020, management determined that credit losses did not exist for securities in an unrealized loss position. As of March 31, 2020, there were no AFS investment securities with an unrealized loss position.

~~2016-13.~~

Management previously reviewed individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. The unrealized losses on these securities were primarily attributed to changes in interest rates. The issuers of these securities have not, to our knowledge, evidenced any cause for default on these securities. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. However, we have the ability and the intention to hold these securities until their fair values recover to cost or maturity. As such, management does not deem these securities to be other-than-temporarily-impaired.

December 31, 2019

Less Than 12 Months

12 Months or Longer

Total

  Fair Value

Gross
  Unrealized
Holding
Losses

  Fair Value

Gross
  Unrealized
Holding
Losses

  Fair Value

Gross
  Unrealized
Holding
Losses

(Dollars in thousands)

Investment securities
available-for-sale:

Mortgage-backed securities
  $
20,289
  $
(6)
  $
97,964
  $
(744)
  $
118,253
  $
(750)

CMO/REMIC

177,517

(705)

34,565

(191)

212,082

(896)

Municipal bonds

-

-

563

(2)

563

(2)

Total
available-for-sale
securities
  $
197,806
  $
(711)
  $
133,092
  $
(937)
  $
330,898
  $
(1,648)

Investment securities
held-to-maturity:

Government agency/GSE
  $
28,359
  $
(252)
  $
19,405
  $
(405)
  $
47,764
  $
(657)

Mortgage-backed securities

10,411

(54)

-

-

10,411

(54)

CMO/REMIC

23,897

(104)

166,193

(2,354)

190,090

(2,458)

Municipal bonds

7,583

(32)

29,981

(533)

37,564

(565)

Total
held-to-maturity
securities
  $
70,250
  $
(442)
  $
215,579
  $
(3,292)
  $
285,829
  $
(3,734)

~~Table of Contents~~

~~Loans~~

Total loans and leases, net of deferred fees and discounts, of $7.47 billion at March 31, 2020 decreased by $98.4 million, or 1.30%, from $7.56 billion at December 31, 2019. The decrease in total loans included a $111.6 million decline in dairy & livestock and agribusiness loans primarily due to seasonal pay downs, which historically occur in the first quarter of each calendar year. Excluding dairy and livestock loans, total loans grew by $13.2 million, or 0.18%. The $13.2 million increase in loans included increases of $25.6 million in commercial and industrial loans, $11.1 million in construction loans, and $8.1 million in SBA loans, partially offset by a $26.7 million decrease in commercial real estate loans and collectively a $4.9 million decline in other loan segments.

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

Distribution of Loan Portfolio by Type

    March 31, 2020

  December 31, 2019

(Dollars in thousands)
Commercial and industrial
  $
960,761
  $
935,127

SBA

313,071

305,008

Real estate:

Commercial real estate

5,347,925

5,374,617

Construction

128,045

116,925

SFR mortgage

278,743

283,468

Dairy & livestock and agribusiness

272,114

383,709

Municipal lease finance receivables

51,287

53,146

Consumer and other loans

114,206

116,319

Gross loans

7,466,152

7,568,319

Less: Deferred loan fees, net (1)

-

(3,742
)

Gross loans, net of deferred loan fees

7,466,152

7,564,577

Less: Allowance for credit losses

(82,641
)
(68,660
)

Total loans and lease finance receivables
  $
7,383,511
  $
     7,495,917

~~(1)~~

~~Beginning with March 31, 2020, gross loans are presented net of deferred loan fees by respective class of financing receivables.~~


	March 31, 2021			December 31, 2020
	(Dollars in thousands)
Commercial real estate	$	5,596,781		$	5,501,509
Construction		96,356			85,145
SBA		307,727			303,896
SBA - Paycheck Protection Program (PPP)		897,724			882,986
Commercial and industrial		753,708			812,062
Dairy & livestock and agribusiness		261,088			361,146
Municipal lease finance receivables		42,349			45,547
SFR mortgage		255,400			270,511
Consumer and other loans		81,924			86,006

Total loans, at amortized cost		8,293,057			8,348,808
Less: Allowance for credit losses		(71,805	)		(93,692	)

Total loans and lease finance receivables, net	$	8,221,252		$	8,255,116

As of March 31, ~~2020, $248.2~~2021, $327.4 million, or ~~4.64%~~5.85% of the total commercial real estate loans included loans secured by farmland, compared to ~~$241.8~~$314.4 million, or ~~4.50%~~5.72%, at December 31, ~~2019.~~2020. The loans secured by farmland included ~~$122.5~~$129.2 million for loans secured by dairy & livestock land and ~~$125.7~~$198.1 million for loans secured by agricultural land at March 31, ~~2020,~~2021, compared to ~~$125.9~~$132.9 million for loans secured by dairy & livestock land and ~~$115.9~~$181.5 million for loans secured by agricultural land at December 31, ~~2019.~~2020. As of March 31, ~~2020,~~2021, dairy & livestock and agribusiness loans of ~~$272.1~~$261.1 million were comprised of ~~$218.0~~$229.1 million for dairy & livestock loans and ~~$54.1~~$31.9 million for agribusiness loans, compared to ~~$323.5~~$320.1 million for dairy & livestock loans and ~~$60.2~~$41.0 million for agribusiness loans at December 31, ~~2019.~~2020.

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~~single family residences, multi-family residences, and farmland. Consumer loans include installment loans to consumers as well as home equity loans, auto and equipment leases and other loans secured by junior liens on real property. Municipal lease finance receivables are leases to municipalities. Dairy & livestock and agribusiness loans are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers and farmers.

As of March 31, ~~2020,~~2021, the Company had ~~$189.5~~$200.5 million of total SBA 504 loans. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with the first lien is typically at a 50% advance to the acquisition costs and the second lien loan provides the financing for 40% of the acquisition costs with the borrower’s down payment of 10% of the acquisition costs. The Bank retains the first lien loan for its term and sells the second lien loan to the SBA subordinated debenture program. A majority of the Bank’s 504 loans are granted for the purpose of commercial real estate acquisition. As of March 31, ~~2020,~~2021, the Company had ~~$123.6~~$107.2 million of total SBA 7(a) loans that include a guarantee of payment ~~form~~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.

~~Table of Contents~~

~~We have been~~As an active participant in the SBA’s Paycheck Protection ~~Program. Including the second round of funding after Legislation passed on April 24, 2020,~~Program, we ~~obtained approvals for about 3,800~~originated approximately 4,100 PPP loans totaling ~~approximately~~

~~$1.25~~$1.10 billion, with a remaining outstanding balance of $582.8 million as of ~~May 3, 2020.~~March 31, 2021. As of March 31, 2021, we have originated approximately 1,500 PPP loans in round two with a loan balance, at amortized cost, of $314.9 million.

Table of Contents

As of March 31, ~~2020,~~2021, the Company had ~~$128.0~~$96.4 million in construction loans. This represents ~~1.72%~~1.16% 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 in Los Angeles County, Orange County, and the Inland Empire region of Southern California. There were no nonperforming construction loans at March 31, ~~2020.~~2021.

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 March 31, ~~2020.~~2021.

March 31, 2020

Total Loans

Commercial Real Estate
Loans

(Dollars in thousands)

Los Angeles County
  $
3,297,399

44.2%
  $
2,214,541

41.4%

Central Valley

1,120,563

15.0%

899,197

16.8%

Orange County

968,575

13.0%

654,593

12.2%

Inland Empire

987,534

13.2%

845,578

15.8%

Central Coast

457,225

6.1%

361,910

6.8%

San Diego

210,065

2.8%

128,828

2.4%

Other California

139,860

1.9%

78,833

1.5%

Out of State

284,931

3.8%

164,445

3.1%

  $
       7,466,152

      100.0%
  $
       5,347,925

    100.0%


	March 31, 2021
	Total Loans			Commercial Real Estate Loans
	(Dollars in thousands)
Los Angeles County	$	3,549,896	42.8%	$	2,232,034	39.9%
Central Valley		1,344,718	16.2%		1,028,703	18.4%
Inland Empire		1,168,494	14.1%		865,648	15.5%
Orange County		1,083,075	13.1%		679,585	12.1%
Central Coast		492,532	5.9%		366,547	6.5%
San Diego		232,277	2.8%		170,091	3.0%
Other California		137,582	1.7%		87,463	1.6%
Out of State		284,483	3.4%		166,710	3.0%

	$	8,293,057	100.0%	$	5,596,781	100.0%

The table below breaks down our commercial real estate portfolio.

March 31, 2020

  Loan Balance

  Percent

Percent
Owner-
    Occupied (1)

Average
Loan Balance

(Dollars in thousands)

Commercial real estate:

Industrial
  $
1,848,941

34.6%

54.0%
  $
1,377

Office

940,513

17.6%

25.3%

1,512

Retail

783,047

14.6%

11.8%

1,635

Multi-family

586,221

11.0%

0.5%

1,642

Medical

279,466

5.2%

45.7%

1,791

Secured by farmland (2)

248,172

4.6%

100.0%

2,034

Other (3)

661,565

12.4%

54.8%

1,402

Total commercial real estate
  $
         5,347,925

    100.0%

38.7%
$
1,506


	March 31, 2021
	Loan Balance		Percent		Percent Owner- Occupied (1)		Average Loan Balance
	(Dollars in thousands)
Commercial real estate:
Industrial	$	1,915,437		34.2%		52.4%	$	1,434
Office		1,025,167		18.3%		24.2%		1,635
Retail		793,485		14.2%		13.0%		1,714
Multi-family		605,110		10.8%		2.0%		1,548
Secured by farmland (2)		327,363		5.8%		96.6%		2,154
Medical		293,909		5.3%		42.6%		1,729
Other (3)		636,310		11.4%		57.4%		1,398

Total commercial real estate	$	5,596,781		100.0%		38.8%	$	1,557

(1)

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

(2)

The loans secured by farmland included ~~$122.5~~$129.2 million for loans secured by dairy & livestock land and ~~$125.7~~$198.1 million for loans secured by agricultural land at March 31, ~~2020.~~2021.

(3)

Other loans consist of a variety of loan types, none of which exceeds 2.0% of total commercial real estate ~~loans.~~loans at March 31, 2021.

At March 31, 2020, loans to customers in the hotel, restaurant, entertainment, or recreation industries represented approximately 3% of our loan portfolio and loans to customers in educational services were only 1% of the overall portfolio. Other retail related loans, primarily loans collateralized by commercial real estate, comprised approximately 12% of the loan portfolio at March 31, 2020. At origination, these loans were underwritten with

~~loan-to-values~~

~~averaging approximately 53%.~~

Table of Contents

Nonperforming Assets

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

    March 31, 2020

  December 31, 2019

(Dollars in thousands)

Nonaccrual loans
  $
6,428
$
5,033

Troubled debt restructured loans (nonperforming)

-

244

OREO, net

4,889

4,889

Total nonperforming assets
  $
11,317
  $
10,166

Troubled debt restructured performing loans
  $
2,813
  $
3,112

Percentage of nonperforming assets to total loans outstanding,
net of deferred fees, and OREO

0.15%

0.13%

Percentage of nonperforming assets to total assets

0.10%

0.09%


	March 31, 2021			December 31, 2020
	(Dollars in thousands)
Nonaccrual loans	$	13,769		$	14,347
Loans past due 90 days or more and still accruing interest		-			-
Nonperforming troubled debt restructured loans (TDRs)		-			-

Total nonperforming loans		13,769			14,347
OREO, net		1,575			3,392

Total nonperforming assets	$	15,344		$	17,739

Performing TDRs	$	5,813		$	2,159

Total nonperforming loans and performing TDRs	$	19,582		$	16,506
Percentage of nonperforming loans and performing TDRs to total loans, net of deferred fees		0.24	%		0.20	%
Percentage of nonperforming assets to total loans, net of deferred fees, and OREO		0.18	%		0.21	%
Percentage of nonperforming assets to total assets		0.10	%		0.12	%

At March 31, 2020, nonaccrual loans and performing TDR loans totaled $9.2 million, or 0.12% of total gross loans, compared to $8.4 million, or 0.11% of total loans at December 31, 2019. At March 31, 2020, total nonaccrual loans and performing TDR loans resulting from troubled debt restructures represented $2.8 million, all of which were performing.

Of the $9.2 million total nonaccrual loans and performing TDR loans as of March 31, 2020, $8.5 million were considered collateral dependent and measured using the fair value of the collateral based on current appraisals (obtained within 1 year).

~~Table of Contents~~

Troubled Debt Restructurings (“TDRs”)

Total TDRs were ~~$2.8~~$5.8 million at March 31, ~~2020,~~2021, compared to ~~$3.4~~$2.2 million at December 31, ~~2019.~~2020. At March 31, ~~2020, we had zero in nonperforming~~2021, all of our TDRs ~~and $2.8 million of~~were performing ~~TDRs were~~and accruing interest as restructured loans. ~~Performing~~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.

~~In accordance with regulatory guidance, if borrowers are less than 30 days past due on their loans and enter into loan modifications offered as a result of~~

~~COVID-19,~~

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

March 31, 2020

December 31, 2019

Balance

Number of
Loans

Balance

Number of
Loans

(Dollars in thousands)
Performing TDRs:

Commercial and industrial
  $
68

2
  $
78

2

SBA

524

1

536

1

Real Estate:

Commercial real estate

377

1

397

1

Construction

-

-

-

-

SFR mortgage

1,844

7

2,101

8

Dairy & livestock and agribusiness

-

-

-

-

Consumer and other

-

-

-

-

Total performing TDRs
  $
     2,813

        11
  $
     3,112

        12

Nonperforming TDRs:

Commercial and industrial
  $
-

-
  $
-

-

SBA

-

-

-

-

Real Estate:

Commercial real estate

-

-

-

-

Construction

-

-

-

-

SFR mortgage

-

-

-

-

Dairy & livestock and agribusiness

-

-

-

-

Consumer and other

-

-

244

1

Total nonperforming TDRs
  $
-

-
  $
244

1

Total TDRs
  $
2,813

11
  $
3,356

13


	March 31, 2021				December 31, 2020
	Balance		Number of Loans		Balance		Number of Loans
			(Dollars in thousands)
Performing TDRs:
Commercial real estate	$	294		1	$	320		1
Construction		-		-		-		-
SBA		-		-		-		-
Commercial and industrial		4,482		3		43		1
Dairy & livestock and agribusiness		-		-		-		-
SFR mortgage		1,037		5		1,796		7
Consumer and other		-		-		-		-

Total performing TDRs	$	5,813		9	$	2,159		9

Nonperforming TDRs:
Commercial real estate	$	-		-	$	-		-
Construction		-		-		-		-
SBA		-		-		-		-
Commercial and industrial		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-
SFR mortgage		-		-		-		-
Consumer and other		-		-		-		-

Total nonperforming TDRs	$	-		-	$	-		-

Total TDRs	$	5,813		9	$	2,159		9

At March 31, 2021 and December 31, 2020, there was no ~~allowance for credit losses allocated to TDRs. At December 31, 2019, there was no allowance for credit losses specifically~~ACL allocated to TDRs. Impairment amounts identified are typically charged off against the allowance at the time ~~a probable loss~~the loan is ~~determined.~~considered uncollectible. There were no charge-offs on TDRs for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

Table of Contents

Nonperforming Assets and Delinquencies

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

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

March 31,
2019

(Dollars in thousands)

Nonperforming loans:

Commercial and industrial
  $
1,703
  $
1,266
  $
1,550
  $
1,993
  $
8,388

SBA

2,748

2,032

2,706

5,082

4,098

Real estate:

Commercial real estate

947

724

1,083

1,095

1,134

Construction

-

-

-

-

-

SFR mortgage

864

878

888

2,720

2,894

Dairy & livestock and agribusiness

-

-

-

-

-

Consumer and other loans

166

377

385

397

477

Total
  $
6,428
  $
5,277
  $
6,612
  $
11,287
  $
16,991

% of Total gross loans

0.09%

0.07%

0.09%

0.15%

0.22%

Past due
30-89
days:

Commercial and industrial
  $
665
  $
2
  $
756
  $
310
  $
369

SBA

3,086

1,402

303

-

601

Real estate:

Commercial real estate

210

-

368

-

124

Construction

-

-

-

-

-

SFR mortgage

233

249

-

-

-

Dairy & livestock and agribusiness

166

-

-

-

-

Consumer and other loans

-

-

-

22

101

Total
  $
4,360
  $
1,653
  $
1,427
  $
332
  $
1,195

% of Total gross loans

0.06%

0.02%

0.02%

0.004%

0.02%

OREO:

SBA
  $
797
  $
797
  $
444
  $
-
  $
-

Real estate:

Commercial real estate

2,275

2,275

2,275

2,275

2,275

SFR mortgage

1,817

1,817

6,731

-

-

Total
  $
4,889
  $
4,889
  $
9,450
  $
2,275
  $
2,275

Total nonperforming, past due, and OREO
  $
15,677
  $
       11,819
  $
       17,489
  $
13,894
  $
20,461

% of Total gross loans

0.21%

0.16%

0.23%

0.18%

0.27%


	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
	(Dollars in thousands)
Nonperforming loans (1):
Commercial real estate	$	7,395	$	7,563	$	6,481	$	2,628	$	947
Construction		-		-		-		-		-
SBA		2,412		2,273		1,724		1,598		2,748
Commercial and industrial		2,967		3,129		1,822		1,222		1,703
Dairy & livestock and agribusiness		259		785		849		-		-
SFR mortgage		424		430		675		1,080		864
Consumer and other loans		312		167		224		289		166

Total	$	13,769	$	14,347	$	11,775	$	6,817	$	6,428

% of Total loans		0.17%		0.17%		0.14%		0.08%		0.09%

Past due 30-89 days:
Commercial real estate	$	178	$	-	$	-	$	4	$	210
Construction		-		-		-		-		-
SBA		258		1,965		66		214		3,086
Commercial and industrial		952		1,101		3,627		630		665
Dairy & livestock and agribusiness		-		-		-		882		166
SFR mortgage		266		-		-		446		233
Consumer and other loans		21		-		67		413		-

Total	$	1,675	$	3,066	$	3,760	$	2,589	$	4,360

% of Total loans		0.02%		0.04%		0.04%		0.03%		0.06%
OREO:
Commercial real estate	$	1,575	$	1,575	$	1,575	$	2,275	$	2,275
SBA		-		-		797		797		797
SFR mortgage		-		1,817		1,817		1,817		1,817

Total	$	1,575	$	3,392	$	4,189	$	4,889	$	4,889

Total nonperforming, past due, and OREO	$	17,019	$	20,805	$	19,724	$	14,295	$	15,677

% of Total loans		0.21%		0.25%		0.23%		0.17%		0.21%

(1)

As of June 30, 2020, nonperforming loans included $25,000 of commercial and industrial loans past due 90 days or more and still accruing interest.

Nonperforming loans, defined as nonaccrual loans, ~~plus~~ nonperforming TDR loans and loans past due 90 days or more and still accruing interest, were ~~$6.4~~$13.8 million at March 31, ~~2020,~~2021, or ~~0.09%~~0.17% of total loans. ~~Total nonperforming loans at March 31, 2020 included $4.7 million of nonperforming loans acquired from CB in the third quarter of 2018.~~ This compares to nonperforming loans of ~~$5.3~~$14.3 million, or ~~0.07%~~0.17% of total loans, at December 31, ~~2019~~2020 and ~~$17.0~~$6.4 million, or ~~0.22%~~0.09% of total loans, at March 31, ~~2019.~~2020. The ~~$1.2 million~~$578,000 quarter-over-quarter ~~increase~~decrease in nonperforming loans was primarily due to ~~$716,000~~decreases of $526,000 in nonperforming ~~SBA~~dairy & livestock and agribusiness loans, ~~$437,000~~$168,000 in commercial real estate loans, and $162,000 in nonperforming commercial and industrial ~~loans, and $223,000 in nonperforming commercial real estate~~ loans. This was partially offset by a ~~$211,000 decrease~~$145,000 increase in nonperforming consumer and other loans and a $139,000 increase in SBA loans.

~~In response to the~~

~~COVID-19~~

pandemic, we have implemented a short-term loan modification program to provide temporary payment relief to certain of our borrowers who meet the program’s qualifications. This program allows for a deferral of payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative basis. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan.

At March 31, ~~2020 and~~2021, we had one OREO property with a carrying value of $1.6 million, compared to two OREO properties with a carrying value of $3.4 million at December 31, ~~2019, we had~~2020 and four OREO properties with a carrying value of $4.9 million ~~compared to~~at March 31, 2020. We recognized a $399,000 gain on the sale of one OREO property ~~with a carrying value~~in the first quarter of ~~$2.3 million at March 31, 2019.~~2021. There were no additions to or sales of OREO properties ~~during~~for the ~~first quarter of 2020.~~three months ended March 31, 2021.

~~Table of Contents~~

Changes in economic and business conditions have had 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, ~~2019.~~2020.

Table of Contents

Allowance for Credit Losses

We adopted CECL on January 1, 2020, which replaces the “incurred loss” approach with an “expected loss” model over the life of the loan, as further described in Note 3—

Summary of Significant Accounting Policies

of the notes tocontained in our Annual Report on Form

10-K

for the ~~unaudited condensed consolidated financial statements.~~year ended December 31, 2020. The allowance for credit losses totaled $71.8 million as of March 31, 2021, compared to $93.7 million as of December 31, 2020 and $82.6 million as of March 31, ~~2020, compared to $68.7 million as of December 31, 2019 and $65.2 million as of~~2020. Our allowance for credit losses at March 31, ~~2019. Upon implementation~~2021 was 0.87%, or 0.97% of ~~CECL,~~total loans when excluding the $897.7 million in PPP loans. The first quarter of 2021 included a ~~transition adjustment~~$19.5 million recapture of ~~$1.8 million was added to the beginning balance~~provision for credit losses as a result of the ~~allowance and was increased by a $12.0~~improvement in our economic forecast. The Company previously recorded provision for credit losses totaling $23.5 million ~~credit loss provision~~ in ~~the first quarter of~~ 2020, due to the severe ~~forecasted~~decline in economic ~~disruption forecasted as a result of~~forecasts associated with the ~~coronavirus~~ pandemic. Net ~~recoveries~~charge-offs were ~~$141,000~~$2.4 million for the three months ended March 31, ~~2020.~~2021. This compares to a ~~$1.5~~$12.0 million ~~loan~~credit loss provision and ~~$88,000~~$141,000 in net recoveries for the same period of ~~2019.~~2020.

~~Our modeling processes incorporate a~~The allowance for credit losses as of March 31, 2021 is based upon lifetime ~~historical~~ loss rate ~~methodology~~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 ~~different asset classes. These models use key~~portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real estate loans include OLTV, origination year, loan ~~attributes by asset class~~seasoning, and macroeconomic ~~variables. 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 ~~among others.~~and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of Small Business Administration (SBA) loans (excluding Payment Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the 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.

Based on the magnitude of government economic stimulus and the wide availability of vaccines, our latest economic forecast reflects improvements in key macroeconomic variables, particularly the commercial real estate price index and the unemployment rate. Our economic forecast ~~incorporates~~continues to be a ~~weighting~~blend of multiple forecasts produced by Moody’s, including Moody’s baseline forecast, as well as upside and downside forecasts. Our forecast at the end of the first quarter of 2021, assumes GDP will increase by 4.0% in 2021 and then grow by 3.2% in 2022 and 2.8% in 2023. The forecast ~~includes a reasonable and supportable forecast period of two to three years~~ for the macroeconomic variables, which revert to an historical mean based on an input reversion approach. We consider publicly published economic forecasts from multiple sources, including the Moody’s forecast from March 27, 2020 that reflected the most recent available information and forecast of evolving impacts on macroeconomic variables from the

~~COVID-19~~

~~pandemic. This stressed economic forecast included a significant contraction in GDP approaching 20% in the second quarter of 2020 and~~ the unemployment rate ~~rising~~is 6.4% in 2021, 6.3% in 2022 and 5.5% in 2023. Management believes that the ACL was appropriate at March 31, 2021 and December 31, 2020. As there is a high degree of uncertainty around the epidemiological assumptions and impact of government responses to ~~more than 9% in~~ the ~~second quarter and sustaining at an elevated level through 2020 and into~~

~~2021. If the~~pandemic that impact our economic forecast, ~~deteriorates further due to~~no assurance can be given that economic conditions that adversely affect the ~~COVID-19 epidemic, we may experience increases~~Company’s service areas or other circumstances will not be reflected in ~~the~~an increased allowance for credit losses in future periods.

5554

Table of Contents

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

As of and For the
Three Months Ended
March 31,

2020

2019

(Dollars in thousands)

Allowance for credit losses at beginning of period
  $
         68,660
��$
         63,613

Impact of adopting ASU
2016-13

1,840

-

Charge-offs:

Commercial and industrial

-

-

SBA

-

(20
)
Commercial real estate

-

-

Construction

-

-

SFR mortgage

-

-

Dairy & livestock and agribusiness

-

(78
)
Consumer and other loans

(86
)
(1
)

Total charge-offs

(86
)
(99
)

Recoveries:

Commercial and industrial

2

110

SBA

-

5

Commercial real estate

-

-

Construction

3

3

SFR mortgage

206

68

Dairy & livestock and agribusiness

-

-

Consumer and other loans

16

1

Total recoveries

227

187

Net recoveries

141

88

Provision for credit losses

12,000

1,500

Allowance for credit losses at end of period
  $
         82,641
  $
         65,201

Summary of reserve for unfunded loan commitments:

Reserve for unfunded loan commitments at beginning of period
  $
           8,959
  $
           8,959

Impact of adopting ASU
2016-13

41

-

Provision for unfunded loan commitments

-

-

Reserve for unfunded loan commitments at end of period
  $
           9,000
  $
           8,959

Reserve for unfunded loan commitments to total unfunded loan commitments

0.56%

0.54%

Amount of total loans at end of period (1)
  $
    7,466,152
  $
    7,606,863

Average total loans outstanding (1)
  $
    7,482,805
  $
    7,662,573

Net recoveries to average total loans

0.002%

0.001%

Net recoveries to total loans at end of period

0.002%

0.001%

Allowance for credit losses to average total loans

1.10%

0.85%

Allowance for credit losses to total loans at end of period

1.11%

0.86%

Net recoveries to allowance for credit losses

0.17%

0.13%

Net recoveries to provision for credit losses

1.18%

5.87%


	As of and For the Three Months Ended March 31,
	2021		2020
	(Dollars in thousands)
Allowance for credit losses at beginning of period	$	93,692	$	68,660
Impact of adopting ASU 2016-13		-		1,840
Charge-offs:
Commercial real estate		-		-
Construction		-		-
SBA		-		-
Commercial and industrial		(2,475)		-
Dairy & livestock and agribusiness		-		-
SFR mortgage		-		-
Consumer and other loans		-		(86)

Total charge-offs		(2,475)		(86)

Recoveries:
Commercial real estate		-		-
Construction		3		3
SBA		4		-
Commercial and industrial		2		2
Dairy & livestock and agribusiness		-		-
SFR mortgage		79		206
Consumer and other loans		-		16

Total recoveries		88		227

Net (charge-offs) recoveries		(2,387)		141
(Recapture of) provision for credit losses		(19,500)		12,000

Allowance for credit losses at end of period	$	71,805	$	82,641

Summary of reserve for unfunded loan commitments:
Reserve for unfunded loan commitments at beginning of period	$	9,000	$	8,959
Impact of adopting ASU 2016-13		-		41
Provision for unfunded loan commitments		-		-

Reserve for unfunded loan commitments at end of period	$	9,000	$	9,000

Reserve for unfunded loan commitments to total unfunded loan commitments		0.48%		0.56%

Amount of total loans at end of period (1)	$	8,293,057	$	7,466,152
Average total loans outstanding (1)	$	8,270,282	$	7,482,805

Net (charge-offs) recoveries to average total loans		-0.029%		0.002%
Net (charge-offs) recoveries to total loans at end of period		-0.029%		0.002%
Allowance for credit losses to average total loans		0.87%		1.10%
Allowance for credit losses to total loans at end of period		0.87%		1.11%
Net (charge-offs) recoveries to allowance for credit losses		-3.32%		0.17%
Net (charge-offs) recoveries to (recapature of ) provision for credit losses		12.24%		1.18%

(1)

~~Includes PCI loans and is net~~

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

Table of Contents

The ACL/Total Loan Coverage Ratio as of March 31, ~~2020 increased~~2021 decreased to ~~1.11%~~0.87%, compared to ~~0.93%~~1.11% as of ~~January 1,~~March 31, 2020 due to the ~~more severe~~forecasted impact of improved economic ~~forecast that resulted from the~~

~~COVID-19~~conditions on future life of loan.

~~crisis.~~

~~At implementation of CECL on January 1, 2020, the reserve for unfunded loan commitments included a transition adjustment of $41,000 for our~~

~~off-balance~~

~~sheet credit exposures.~~ The Bank’s ~~CECL~~ACL methodology also produced an allowance of $9.0 million for our

off-balance

sheet credit exposures as of March 31, 2021, which was unchanged from the allowance at ~~January 1,~~March 31, 2020.

While we believe that the allowance at March 31, ~~2020~~2021 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that 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.

~~Table of Contents~~

Deposits

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

Total deposits were ~~$9.11~~$12.08 billion at March 31, ~~2020.~~2021. This represented an increase of ~~$408.7~~$342.2 million, or ~~4.69%~~2.92%, over total deposits of ~~$8.70~~$11.74 billion at December 31, ~~2019.~~2020. The composition of deposits is summarized as of the dates presented in the table below.

March 31, 2020

December 31, 2019

Balance

Percent

Balance

Percent

(Dollars in thousands)

Noninterest-bearing deposits
  $
5,572,649

61.15%
  $
5,245,517

60.26%

Interest-bearing deposits

Investment checking

454,153

4.98%

454,565

5.22%

Money market

2,217,656

24.34%

2,158,161

24.79%

Savings

417,708

4.58%

400,377

4.60%

Time deposits

451,438

4.95%

446,308

5.13%

Total deposits
  $
     9,113,604

    100.00%
  $
     8,704,928

    100.00%


	March 31, 2021				December 31, 2020

	Balance		Percent		Balance		Percent

	(Dollars in thousands)

Noninterest-bearing deposits	$	7,577,839		62.74%	$	7,455,387		63.52%
Interest-bearing deposits
Investment checking		567,062		4.69%		517,976		4.42%
Money market		2,996,378		24.81%		2,869,348		24.45%
Savings		530,046		4.39%		492,096		4.19%
Time deposits		407,330		3.37%		401,694		3.42%

Total deposits	$	12,078,655		100.00%	$	11,736,501		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 ~~$5.57~~$7.58 billion at March 31, ~~2020,~~2021, representing an increase of ~~$327.1~~$122.5 million, or ~~6.24%~~1.64%, from noninterest-bearing deposits of ~~$5.25~~$7.46 billion at December 31, ~~2019.~~2020. Noninterest-bearing deposits represented ~~61.15%~~62.74% of total deposits ~~for~~at March 31, ~~2020,~~2021, compared to ~~60.26%~~63.52% of total deposits ~~for~~at December 31, ~~2019.~~2020.

Savings deposits, which include savings, interest-bearing demand, and money market accounts, totaled ~~$3.09~~$4.09 billion at March 31, ~~2020,~~2021, representing an increase of ~~$76.4~~$214.1 million, or ~~2.54%~~5.52%, from savings deposits of ~~$3.01~~$3.88 billion at December 31, ~~2019.~~2020.

Time deposits totaled ~~$451.4~~$407.3 million at March 31, ~~2020,~~2021, representing an increase of ~~$5.1~~$5.6 million, or ~~1.15%~~1.40%, from total time deposits of ~~$446.3~~$401.7 million for December 31, ~~2019.~~2020.

Table of Contents

Borrowings

In order to enhance the Bank’s spread between its cost of funds and interest-earning assets, we first seek noninterest-bearing deposits (the lowest cost of funds to the Bank). Next, we pursue growth in interest-bearing deposits, and finally, we supplement the growth in deposits with borrowed funds (borrowings and customer repurchase agreements). Average borrowed funds, as a percent of total funding (total deposits plus borrowed funds), was 5.19% for the first quarter of 2020, compared to 7.08% for the same period of 2019.

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 funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a

pre-determined

balance in a demand deposit account, in order to earn interest. As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, total funds borrowed under these agreements were ~~$368.9~~$506.3 million and ~~$428.7~~$439.4 million, respectively, with a weighted average interest rate of ~~0.26%~~0.09% and ~~0.44%~~0.10%, respectively.

WeAt March 31, 2021 and December 31, 2020, we had $5.0 million in short-term borrowings that were interest-free advances from the FHLB, compared to no ~~short-term~~ borrowings at March 31, ~~2020 and~~2020.

At December 31, ~~2019.~~2020, our junior subordinated debentures of $25.8 million represent the amounts that are due from the Company to CVB Statutory Trust III. The debentures have the same maturity as the Trust Preferred Securities. These debentures bear interest at three-month LIBOR plus 1.38% and mature in 2036.

At March 31, ~~2020, $6.06~~2021, $6.07 billion of loans and ~~$1.63~~$1.92 billion of investment securities, at carrying value, were pledged to secure public deposits, short and long-term borrowings, and for other purposes as required or permitted by law.

~~Table of Contents~~

Aggregate Contractual Obligations

The following table summarizes the aggregate contractual obligations as of March 31, ~~2020.~~2021.

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)
  $
9,113,604
  $
9,036,138
  $
66,253
  $
10,626
  $
587

Customer repurchase agreements (1)

          368,915

          368,915

-

-

-

Junior subordinated debentures (1)

25,774

-

-

-

           25,774

Deferred compensation

23,233

763

1,305

636

20,529

Operating leases

20,826

6,706

9,109

           3,423

1,588

Affordable housing investment

3,159

2,285

814

47

13

Total
  $
9,555,511
  $
9,414,807
  $
77,481
  $
14,732
  $
48,491


			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)	$	12,078,655	$	12,041,777	$	26,966	$	9,293	$	619
Customer repurchase agreements (1)		506,346		506,346		-		-		-
Junior subordinated debentures (1)		25,774		-		-		-		25,774
Deferred compensation		22,482		674		956		622		20,230
Operating leases		23,491		6,757		9,555		5,173		2,006
Affordable housing investment		1,950		1,859		55		30		6

Total	$	12,658,698	$	12,557,413	$	37,532	$	15,118	$	48,635

(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.

~~At March 31, 2020, we had no short-term borrowings, compared to zero at December 31, 2019, and $153.0 million at March 31, 2019.~~

Junior subordinated debentures represent the amounts that are due from the Company to CVB Statutory Trust III. ~~The debentures have the same maturity as the Trust Preferred Securities.~~ These debentures bear interest at three-month LIBOR plus 1.38% and mature in 2036. We plan to redeem our $25.8 million junior subordinated debentures, which had a cost of 1.60% during the first quarter of 2021, by the end of the second quarter of this year.

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 11 –

Leases

of the notes to the Company’s unaudited condensed consolidated financial statements for a more detailed discussion about leases.

Table of Contents

Off-Balance

Sheet Arrangements

The following table summarizes the

off-balance

sheet items at March 31, ~~2020.~~2021.

Maturity by Period

Total

Less Than
One
Year

One Year
to Three
Years

Four Years
to Five
Years

After
Five
Years

(Dollars in thousands)

Commitment to extend credit:

Commercial and industrial
$
917,055
$
614,928
$
168,309
$
5,196
$
128,622

SBA

396

362

4

-

30

Real estate:

Commercial real estate/

247,308

42,254

74,850

121,004

9,200

Construction

52,545

35,972

13,373

-

3,200

SFR Mortgage

5,540

3,500

-

-

2,040

Dairy & livestock and agribusiness (1)

208,932

113,190

94,949

393

400

Consumer and other loans

123,928

14,114

6,985

5,018

97,811

Total commitment to extend credit

1,555,704

824,320

358,470

131,611

241,303

Obligations under letters of credit

50,159

45,415

4,496

248

-

Total
$
1,605,863
$
869,735
$
362,966
$
131,859
$
241,303


			Maturity by Period
			Less Than		One Year		Four Years		After
			One		to Three		to Five		Five
	Total		Year		Years		Years		Years
	(Dollars in thousands)
Commitment to extend credit:
Commercial real estate	$	329,913	$	56,821	$	110,606	$	136,422	$	26,064
Construction		110,133		43,477		66,656		-		-
SBA		98		28		-		-		70
SBA - PPP		-		-		-		-		-
Commercial and industrial		1,047,807		736,354		212,758		8,095		90,600
Dairy & livestock and agribusiness (1)		219,510		148,395		71,115		-		-
SFR Mortgage		3,877		-		500		-		3,377
Consumer and other loans		127,634		10,231		11,628		3,697		102,078

Total commitment to extend credit		1,838,972		995,306		473,263		148,214		222,189
Obligations under letters of credit		50,835		46,971		3,864		-		-

Total	$	1,889,807	$	1,042,277	$	477,127	$	148,214	$	222,189

(1)

Total commitments to extend credit to agribusiness were ~~$19.5~~$24.5 million at March 31, ~~2020.~~2021.

As of March 31, ~~2020,~~2021, we had commitments to extend credit of approximately ~~$1.56~~$1.84 billion, and obligations under letters of credit of ~~$50.2~~$50.8 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. ~~Due to the adoption of CECL on January 1, 2020, a transition adjustment of $41,000 was added to the beginning balance of the reserve for unfunded loan commitments.~~ The Company recorded no provision or recapture of provision for unfunded loan commitments for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. The Company had a reserve for unfunded loan commitments of $9.0 million as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 included in other liabilities.

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

~~Table of Contents~~

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.

Total equity ~~decreased $52.7~~increased $12.7 million, or ~~2.67%~~0.63%, to ~~$1.94~~$2.02 billion at March 31, ~~2020,~~2021, compared to total equity of ~~$1.99~~$2.01 billion at December 31, ~~2019.~~2020. The ~~$52.7~~$12.7 million ~~decrease~~increase in equity was primarily due to ~~the repurchase of 4.9 million shares of common stock for $91.7 million under our 10b5-1 stock repurchase program. We previously announced that we suspended this~~

~~10b5-1~~

~~stock repurchase program due to the uncertainty of the~~

~~COVID-19~~

~~pandemic. We had $38.0~~$63.9 million in net earnings ~~during the quarter,~~and $1.7 million for various stock based compensation items. This was partially offset by ~~$24.4~~a $28.4 million decrease in other comprehensive income resulting from the tax effected impact of the decrease in market value of our investment securities portfolio and $24.5 million in cash dividends declared and a cumulative effect adjustment to beginning retained earnings of $1.3 million, net of tax, due to the adoption of CECL on January 1, 2020. Our equity also increased by $25.8 million as a result of an increase in other comprehensive income from the increase in our tax adjusted market value of our

~~available-for-sale~~

~~investment securities.~~declared. Our tangible common equity ratio was ~~11.3%~~9.37% at March 31, ~~2020.~~2021.

During the first quarter of ~~2020,~~2021, the Board of Directors of CVB declared quarterly cash dividends totaling $0.18 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 including covenants set forth in our junior subordinated debentures.

Table of Contents

On August 11, 2016, our Board of Directors approved a program to repurchase up to 10,000,000 shares of CVB common stock in the open market or in privately negotiated transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations. There is no expiration date for this repurchase program. ~~Up to 9,577,917 of such shares may be repurchased from time to time under the Company’s current~~

~~10b5-1~~

~~plan originally adopted in November, 2018 and subsequently amended in July, 2019. On March 31, 2020, the Company announced that it suspended its~~

~~10b5-1~~

~~stock repurchase program due to the uncertainty of the~~

~~COVID-19~~

~~pandemic.~~ For the ~~three months~~year ended ~~March~~December 31, 2020, the Company repurchased 4,944,290 shares of CVB common stock outstanding under this program. As of March 31, ~~2020,~~2021, we have 4,585,145 shares of CVB common stock remaining that are eligible for repurchase under the common stock repurchase program.

The Bank and the Company are required to meet risk-based capital standards under the revised capital framework referred to as Basel III set by their respective regulatory authorities. The risk-based capital standards require the achievement of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital ratio of 6.0% and a common equity Tier 1 (“CET1”) capital ratio of 4.5%. In addition, the regulatory authorities require the highest rated institutions to maintain a minimum leverage ratio of 4.0%. To be considered “well-capitalized” for bank regulatory purposes, the Bank and the Company are required to have a CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%. At March 31, ~~2020,~~2021, 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, ~~2019.~~2020.

At March 31, ~~2020,~~2021, 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.

March 31, 2020

December 31, 2019

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%

11.60%

11.44%

12.33%

12.19%

Common equity Tier 1 capital ratio

4.50%

7.00%

6.50%

14.13%

14.23%

14.83%

14.94%

Tier 1 risk-based capital ratio

6.00%

8.50%

8.00%

14.42%

14.23%

15.11%

14.94%

Total risk-based capital ratio

8.00%

10.50%

10.00%

15.49%

15.30%

16.00%

15.83%


										March 31, 2021						December 31, 2020
	Adequately			Minimum Required			Well			CVB Financial			Citizens			CVB Financial			Citizens
	Capitalized			Plus Capital			Capitalized			Corp.			Business			Corp.			Business
Capital Ratios	Ratios			Conservation Buffer			Ratios			Consolidated			Bank			Consolidated			Bank
Tier 1 leverage capital ratio		4.00	%		4.00	%		5.00	%		9.83	%		9.45	%		9.90	%		9.58	%
Common equity Tier 1 capital ratio		4.50	%		7.00	%		6.50	%		14.87	%		14.55	%		14.77	%		14.57	%
Tier 1 risk-based capital ratio		6.00	%		8.50	%		8.00	%		15.15	%		14.55	%		15.06	%		14.57	%
Total risk-based capital ratio		8.00	%		10.50	%		10.00	%		16.05	%		15.46	%		16.24	%		15.75	%

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ASSET/LIABILITY AND MARKET RISK MANAGEMENT

Liquidity and Cash Flow

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

We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual customer funding needs, as well as current and planned business activities. Management has an Asset/Liability Committee that meets monthly. This committee analyzes the cash flows from loans, investments, deposits and borrowings. In addition, the Company has a Balance Sheet Management Committee of the Board of Directors that meets ~~monthly~~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.

Our primary sources and uses of funds for the Company are deposits and loans. 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. Total deposits of ~~$9.11~~$12.08 billion at March 31, ~~2020~~2021 increased ~~$408.7~~$342.2 million, or ~~4.69%~~2.92%, over total deposits of ~~$8.70~~$11.74 billion at December 31, ~~2019.~~2020. This deposit growth was primarily due to our customers maintaining greater liquidity.

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 and deposit fluctuations. 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. Our balance sheet has significant liquidity and our assets are funded almost entirely with core deposits. Furthermore, 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 exceeding $4 billion, most of which is secured by pledged loans. The sale of investment securities can also serve as a contingent source of funds. We can obtain additional liquidity from deposit growth by offering competitive interest rates on deposits from both our local and national wholesale markets.

At ~~quarter end, we~~March 31, 2021, the Bank had ~~only $25.8~~$5.0 million in ~~subordinated debt and no other borrowings. The Bank has available lines~~FHLB short-term borrowings at 0% cost that mature in May of credit exceeding $4 billion, most of which is secured by pledged loans. We are well positioned with a balance sheet that is highly liquid, funded almost entirely with core deposits and the availability of significant

~~off-balance~~

~~sheet sources of liquidity.~~2021.

CVB is a holding company separate and apart from the Bank that must provide for its own liquidity and must service its own obligations. At March 31, 2021, we had $25.8 million in subordinated debt at an interest rate of three month LIBOR plus 1.38%. This subordinated debt is scheduled to be redeemed at par on June 15, 2021. Substantially all of CVB’s revenues are obtained from dividends declared and paid by the Bank to CVB. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. In addition, our regulators could limit the ability of the Bank or CVB to pay dividends or make other distributions. For the Bank, sources of funds include principal payments on loans and investments, growth in deposits, FHLB advances, and other borrowed funds. Uses of funds include withdrawal of deposits, interest paid on deposits, increased loan balances, purchases, and noninterest expenses.

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Below is a summary of our average cash position and statement of cash flows for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. 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

For the Three Months Ended
March 31,

2020

2019

(Dollars in thousands)

Average cash and cash equivalents
  $
409,885
  $
186,473

Percentage of total average assets

3.60%

1.63%

Net cash provided by operating activities
  $
75,527
  $
54,487

Net cash provided by investing activities

205,990

253,841

Net cash provided by (used in) financing activities

238,704

(300,062
)

Net increase in cash and cash equivalents
  $
520,221
  $
8,266


	Three Months Ended March 31,
	2021		2020
	(Dollars in thousands)
Average cash and cash equivalents	$	1,772,635	$	409,885
Percentage of total average assets		12.22%		3.60%

Net cash provided by operating activities	$	46,938	$	75,527
Net cash (used in) provided by investing activities		(864,874)		205,990
Net cash provided by financing activities		385,075		238,704

Net (decrease) increase in cash and cash equivalents	$	(432,861)	$	520,221

Average cash and cash equivalents increased by ~~$223.4 million,~~$1.36 billion, or ~~119.81%~~332.47%, to ~~$409.9 million~~$1.77 billion for the three months ended March 31, ~~2020,~~2021, compared to ~~$186.5~~$409.9 million for the same period of ~~2019.~~

2020.

At March 31, ~~2020,~~2021, cash and cash equivalents totaled ~~$705.7 million.~~$1.53 billion. This represented an increase of ~~$533.5~~$819.6 million, or ~~309.80%~~116.13%, from ~~$172.2~~$705.7 million at March 31, ~~2019.~~2020.

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 ~~re pricing~~repricing mismatches and is considered a shorter term measure, while EVE sensitivity captures mismatches within the period end balance sheets through the financial instruments’ respective maturities or estimated durations and is considered a longer term measure.

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

re-pricing

characteristics and balance fluctuations of deposits with indeterminate or

non-contractual

maturities, and prepayment of loans and securities.

Our interest rate risk policy measures the sensitivity of our net interest income over both a

one-year

and

two-year

cumulative time horizon.

The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a

one-year

horizon assuming no balance sheet growth, given a 200 basis point upward and ~~either~~ a 100 ~~or 200~~ basis point downward shift in interest rates depending on the level of current market rates. The simulation model uses a parallel yield curve shift that ramps rates up or down on a pro rata basis over the

12-month

and

24-month

time horizon.

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The following depicts the Company’s net interest income sensitivity analysis ~~as of~~for the periods presented ~~below.~~below, when rates are ramped up 200bps or ramped down 100bps over a

12-month

time horizon.

Estimated Net Interest Income Sensitivity (1)

March 31, 2020

December 31, 2019

Interest Rate Scenario

12-month
Period

24-month
Period
(Cumulative)

Interest Rate Scenario

12-month
Period

24-month
Period
(Cumulative)

+ 200 basis points

5.20%

10.01%

+ 200 basis points

5.20%

10.00%

- 100 basis points

-0.50%

-1.60%

- 100 basis points

-2.10%

-4.60%


Estimated Net Interest Income Sensitivity (1)
	March 31, 2021			December 31, 2020
		24-month Period			24-month Period
Interest Rate Scenario	12-month Period	(Cumulative)	Interest Rate Scenario	12-month Period	(Cumulative)
+ 200 basis points	9.99%	18.97%	+ 200 basis points	11.10%	19.60%
- 100 basis points	-4.64%	-5.79%	- 100 basis points	-1.20%	-2.40%

(1)

Percentage change from base scenario, but the current low interest rate environment limits the absolute decline in rates as the model does not assume rates go below zero.

Based on our current simulation models, we believe that the interest rate risk profile of the balance sheet is asset sensitive over both a

one-year

and a

two-year

horizon. The estimated sensitivity does not necessarily represent a forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape,

re-pricing

characteristics and balance fluctuations of deposits with indeterminate or

non-contractual

maturities, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change. Our exposure in the rates down scenario is impacted by the current low interest rate environment and the model does not assume that rates go below ~~0.25%.~~zero.

We also perform valuation analysis, which incorporates all cash flows over the estimated remaining life of all material balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows minus the discounted present value of all liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term

re-pricing

risk and options risk embedded in the balance sheet. EVE uses instantaneous changes in rates, as shown in the table below. Assumptions about the timing and variability of balance sheet cash flows are critical in the

EVE analysis. Particularly important are the assumptions driving prepayments and the expected duration and pricing of the indeterminate deposit portfolios. EVE sensitivity is reported in both upward and downward rate shocks. At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the EVE profile indicates a decline in net balance sheet value due to instantaneous downward changes in rates, compared to an increase resulting from an increase in rates.

Economic Value of Equity Sensitivity

Instantaneous Rate Change

March 31, 2020

December 31, 2019

100 bp decrease in interest rates

-28.3%

-17.5%

100 bp increase in interest rates

19.5%

14.2%

200 bp increase in interest rates

34.5%

25.5%

300 bp increase in interest rates

39.7%

30.0%

400 bp increase in interest rates

46.8%

36.2%


Instantaneous Rate Change	March 31, 2021	December 31, 2020

100 bp decrease in interest rates	-11.1%	-21.0%
100 bp increase in interest rates	9.7%	16.1%
200 bp increase in interest rates	18.6%	28.4%
300 bp increase in interest rates	23.4%	34.4%
400 bp increase in interest rates	29.8%	41.6%

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 QUALITATIVE DISCLOSURES ABOUT MARKET RISK

LIBOR is expected to be completely phased out ~~after 2021,~~by 2023, as such the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR for various financial instruments, primarily related to our variable-rate loans ~~our subordinated debentures,~~ and interest rate swap derivatives that are indexed to LIBOR. 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, ~~2019.~~2020. 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.

~~Table of Contents~~

ITEM 4. CONTROLS AND 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 ~~fiscal~~ quarter ended March 31, ~~2020,~~2021, 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 – OTHER 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 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.

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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, ~~2019.~~2020. 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.

Risks relating to the

COVID-19

Pandemic

The

COVID-19

pandemic has significantly impacted the banking industry and our business. The ultimate impact on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The

COVID-19

pandemic has negatively impacted the global, U.S., California and local economies, disrupted supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and sharply increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, including in California and the principal counties and cities in which our banking centers are located. Our operations, like those of other financial institutions that operate in our markets, are significantly influenced by economic conditions in California, including the strength of the real estate market and business conditions in the industries to which we lend or from which we gather deposits. The

COVID-19

pandemic has resulted in a substantial decline in the revenues of many business sectors as well as in commercial and residential property sales and construction activities. As a result, the demand for our products and services has been, and may continue to be, significantly impacted.

~~Table of Contents~~

Furthermore, the pandemic could further influence the recognition of credit losses in our loan portfolios and further increase our allowance for credit losses, particularly as many businesses remain closed ~~and as more of our~~or partially open. Our customers ~~are~~could be expected to draw further on their lines of credit or to seek deferments of scheduled loan payments to help mitigate the effects of lost revenues. As previously noted, we have already increased our allowance for expected credit losses by $12 million for the first quarter of 2020, due to the anticipated impact of COVID-19-related economic distress on our loan portfolios, coupled with the implementation ofWe implemented CECL, for determining our overall provision for credit losses, at the beginning of the first quarter of 2020. For the year ended December 31, 2020, our allowance for credit losses increased by $23.5 million in provision for credit losses, primarily due to the forecasted impact of

COVID-19

on certain economic variables that may cause distress to our loan portfolios. During the first quarter of 2021, forecasted improvements in macroeconomic variables, because of the wide availability of vaccines and government economic stimulus, resulted in a $19.5 million recapture of provision for credit losses. In addition, ~~as also noted above,~~ through ~~May 3, 2020,~~March 31, 2021 we have ~~granted~~ temporary payment deferments of interest or of principal and interest to customers for ~~620~~six loans, ~~in an aggregate amount~~with a gross balance of ~~$940~~$10 million, or ~~approximately 13%~~0.12% of our total loan portfolio at March 31, ~~2020.~~2021. Depending on the scope and duration of the

COVID-19

pandemic, we believe there is a ~~significant likelihood~~possibility that ~~additional loan payment deferments and~~ increased provisions for ~~expected~~ credit losses could prove necessary ~~for future calendar quarters~~ in ~~2020.~~

the future.

Similarly, because of changing economic and market conditions affecting bond issuers, we may be required to recognize credit losses in future periods on the securities we hold as well as reductions in other comprehensive income. Our business operations may also be disrupted if significant or critical portions of our workforce or managers are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. In response to the pandemic, and to comply with or follow various government recommendations or mandates, we have also suspended certain real property foreclosure actions and sales, and in certain instances, we are providing fee waivers, payment deferrals, and other expanded assistance for our business and mortgage customers. The extent to which the

COVID-19

pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the safety, effectiveness, distribution and acceptance of vaccines developed to mitigate the pandemic, and actions taken by governmental authorities and other third parties in response to the pandemic.

Our bank has elected to participate as a lender in the ~~Federal~~Small Business Administration’s Paycheck Protection Program (PPP), and has accordingly become subject to a number of significant risks applicable to lenders under the PPP.

As one set of responses to the

COVID-19

pandemic, our federal, state and local governments have promulgated a wide variety of laws, regulations, executive orders and programs designed to ameliorate the severe and widespread economic distress caused by the mandatory closings of many businesses throughout the State of California and counties in which we operate. One such program is the ~~Paycheck Protection Program (PPP)~~PPP enacted under the federal CARES Act. This program is designed, among other things, to provide employee payroll maintenance support for small and

medium-sized

businesses throughout the United States,

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including in the State of California, through loans made by authorized lenders and guaranteed by the federal Small Business Administration (SBA). Because the Company is an authorized SBA lender and our primary customer base consists of small and

medium-sized

businesses, the Company has actively participated in the PPP. Including the second round of funding, after ~~Legislation~~legislation passed on April 24, 2020, we originated and funded approximately 4,100 PPP loans totaling approximately $1.10 billion, of which $582.8 million was outstanding at March 31, 2021. On January 13, 2021, the SBA reopened the PPP for Second Draw loans to small businesses and

non-profit

organizations that did receive a loan through the initial PPP phase. At least $25 billion has been set aside for Second Draw PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods. Generally speaking, businesses with more than 300 employees and/or less than a 25% reduction in gross receipts between comparable quarters in 2019 and 2020 are not eligible for Second Draw loans. Further, maximum loan amounts have ~~received approximately 4,200~~been increased for accommodation and food service businesses. Recently, the Bank began accepting applications for the second round of PPP ~~loans from our customers and, through two separate rounds~~loans. As of ~~authorized funding for the PPP,~~March 31, 2021, we have ~~obtained about 3,800 PPP loan approvals from the SBA, for a total potential dollar amount of PPP~~originated approximately 1,500 round two loans ~~of approximately $1.25 billion as of May 3, 2020.~~

totaling $325 million in customer borrowings.

Under interim final regulations promulgated by the SBA, PPP lenders are entitled to rely on borrower certifications with respect to issues such as program eligibility and eligible loan amounts, and PPP loans are designed to be subsequently forgivable, in whole or part, if certain additional criteria are met by the borrower with respect to employee payroll maintenance. However, in view of the fact that the PPP was by design intended to support economically distressed businesses, the SBA’s guarantee of PPP loan amounts to participating lenders is a critical feature of the program. ~~In this regard, because the PPP was quickly implemented into operation and the SBA’s interim regulations have been repeatedly revised and are continuing to evolve, there~~There are significant risks to the Company’s participation in the PPP, including whether certain borrowers will ultimately be found to have been eligible for PPP loans, whether eligible PPP loan amounts for certain borrowers were correctly calculated, whether certain PPP loans will ultimately be determined to be forgivable, and if not, whether the SBA’s guarantee will continue to apply to any unforgiven PPP loan amounts. As of March 31, 2021, approximately 2,400 loans, representing nearly $544 million in loan balances, were submitted to the SBA and granted forgiveness. To date, our customers who have had their forgiveness requests reviewed by the SBA have received almost 100% loan forgiveness.

~~Table of Contents~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On August 11, 2016, our Board of Directors approved a program to repurchase up to 10,000,000 shares of CVB common stock in the open market or in privately negotiated ~~transactions.~~transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations. There is no expiration date for this repurchase program. ~~On March 31, 2020, the Company announced that it suspended its~~

~~10b5-1~~

~~stock repurchase program.~~ During the three months ended March 31, ~~2020,~~2021, the Company ~~repurchased 4,944,290~~did not repurchase any shares of CVB common stock outstanding under this program. As of March 31, ~~2020,~~2021, we have 4,585,145 shares of CVB common stock available for repurchase under the common stock repurchase program.

Period

Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs



    Average Price
    Paid Per Share



Maximum Number of Shares
Available for Repurchase Under
the Plans or Programs

January 1 - 31, 2020

-
$
-

9,529,435

February 1 - 29, 2020

351,100
$
19.59

9,178,335

March 1 - 31, 2020

4,593,190
$
18.46

4,585,145

Total

                        4,944,290
$
18.54

4,585,145

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS


Exhibit No.			Description of Exhibits
	~~3.1~~
10.1		Employee Offer Letter, executed March 24, 2021, for Mr. Brian T. Mauntel†(1)
	~~Amended and Restated Bylaws of CVB Financial Corp. (1)~~
	~~10.1~~ 31.1			~~Employment Agreement by and among CVB Financial Corp. and Citizens Business Bank, on the one hand, and David A. Brager, on the other hand, dated February 14, 2020.† (2)~~
	~~31.1~~			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
	31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
	32.1			Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
	32.2			Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
	101.INS			Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
	101.SCH			Inline XBRL Taxonomy Extension Schema Document
	101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
	101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
	104			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020,~~2021, has been formatted in Inline XBRL.

*	Filed herewith

**	Furnished herewith

†	Indicates a management contract or compensation plan.

(1)	~~Incorporated herein by reference to Exhibits 3.1 to our Form 8-K filed with the SEC on January 23, 2020.~~

~~(2)~~

Incorporated herein by reference to Exhibit 10.1 to our Form 8-K filed with the SEC on ~~February 20, 2020.~~April 13, 2021.

6867

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SIGNATURES

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


				CVB FINANCIAL CORP.
				(Registrant)
Date: May ~~11, 2020~~10, 2021

				/s/ E. Allen Nicholson
				E. Allen Nicholson
				Executive Vice President and Chief Financial Officer
				(Principal Financial Officer)

6968


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)


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


Large accelerated filer	☒		Accelerated filer		☐
Non-accelerated filer	☐		Smaller reporting company		☐
Emerging growth company	☐
~~Large accelerated filer~~	☒	~~Accelerated filer~~		☐
~~Non-accelerated~~ ~~filer~~	☐	~~Smaller reporting company~~		☐
~~Emerging growth company~~	☐


PART I –	FINANCIAL INFORMATION (UNAUDITED)	3

ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5


	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	10

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	36


	CRITICAL ACCOUNTING POLICIES	37


	OVERVIEW	38


	ANALYSIS OF THE RESULTS OF OPERATIONS	40


	ANALYSIS OF FINANCIAL CONDITION	47


	ASSET/LIABILITY AND MARKET RISK MANAGEMENT	62 60

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	64 63

ITEM 4.	CONTROLS AND PROCEDURES	65 63

PART II –	OTHER INFORMATION	66 64

ITEM 1.	LEGAL PROCEEDINGS	66 64

ITEM 1A.	RISK FACTORS	66 65

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	68 66

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	68 66

ITEM 4.	MINE SAFETY DISCLOSURES	68 66

ITEM 5.	OTHER INFORMATION	68 66

ITEM 6.	EXHIBITS	68 67

SIGNATURES
~~SIGNATURES~~		69 68


	March 31, 2020			December 31, 2019
Assets
Cash and due from banks	$	138,615		$	158,310
Interest-earning balances due from Federal Reserve		567,124			27,208

Total cash and cash equivalents		705,739			185,518

Interest-earning balances due from depository institutions		23,799			2,931
Investment securities available-for-sale, at fair value (with amortized cost of $1,621,236 at March 31, 2020, and $1,718,357 at December 31, 2019)		1,679,755			1,740,257
Investment securities held-to-maturity (with fair value of $657,819 at March 31, 2020, and $678,948 at December 31, 2019)		642,255			674,452

Total investment securities		2,322,010			2,414,709

Investment in stock of Federal Home Loan Bank (FHLB)		17,688			17,688
Loans and lease finance receivables		7,466,152			7,564,577
Allowance for credit losses		(82,641	)		(68,660	)

Net loans and lease finance receivables		7,383,511			7,495,917

Premises and equipment, net		52,867			53,978
Bank owned life insurance (BOLI)		225,455			226,281
Accrued interest receivable		26,855			28,122
Intangibles		40,541			42,986
Goodwill		663,707			663,707
Other real estate owned (OREO)		4,889			4,889
Income taxes		10,473			35,587
Other assets		129,354			110,137

Total assets	$	11,606,888		$	11,282,450


Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	5,572,649		$	5,245,517
Interest-bearing		3,540,955			3,459,411

Total deposits		9,113,604			8,704,928
Customer repurchase agreements		368,915			428,659
Other borrowings		-			-
Deferred compensation		22,454			22,666
Junior subordinated debentures		25,774			25,774
Other liabilities		134,755			106,325

Total liabilities		9,665,502			9,288,352


Commitments and Contingencies
Stockholders’ Equity
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 135,510,960 at March 31, 2020, and 140,102,480 at December 31, 2019		1,208,049			1,298,792
Retained earnings		694,931			682,692
Accumulated other comprehensive income, net of tax		38,406			12,614

Total stockholders’ equity		1,941,386			1,994,098

Total liabilities and stockholders’ equity	$	11,606,888		$	11,282,450

	March 31, 2020
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss		Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	1,118,385	$	43,546	$	-	$	1,161,931		69.18%
CMO/REMIC		466,033		14,060		-		480,093		28.58%
Municipal bonds		36,119		913		-		37,032		2.20%
Other securities		699		-		-		699		0.04%

Total available-for-sale securities	$	1,621,236	$	58,519	$	-	$	1,679,755		100.00%

Investment securities held-to-maturity:
Government agency/GSE	$	111,452	$	3,468	$	(207)	$	114,713		17.35%
Mortgage-backed securities		161,983		8,182		-		170,165		25.22%
CMO/REMIC		184,316		591		(98)		184,809		28.70%
Municipal bonds		184,504		4,054		(426)		188,132		28.73%

Total held-to-maturity securities	$	642,255	$	16,295	$	(731)	$	657,819		100.00%


	December 31, 2019
	Amortized Cost		Gross Unrealized Holding Gain		Gross Unrealized Holding Loss		Fair Value		Total Percent
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	1,185,757	$	21,306	$	(750)	$	1,206,313		69.32%
CMO/REMIC		493,214		1,392		(896)		493,710		28.37%
Municipal bonds		38,506		850		(2)		39,354		2.26%
Other securities		880		-		-		880		0.05%

Total available-for-sale securities	$	1,718,357	$	23,548	$	(1,648)	$	1,740,257		100.00%

Investment securities held-to-maturity:
Government agency/GSE	$	117,366	$	2,280	$	(657)	$	118,989		17.40%
Mortgage-backed securities		168,479		2,083		(54)		170,508		24.98%
CMO/REMIC		192,548		-		(2,458)		190,090		28.55%
Municipal bonds		196,059		3,867		(565)		199,361		29.07%

Total held-to-maturity securities	$	674,452	$	8,230	$	(3,734)	$	678,948		100.00%

	December 31, 2019
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Losses
	(Dollars in thousands)
Investment securities available-for-sale:
Mortgage-backed securities	$	20,289	$	(6	)	$	97,964	$	(744	)	$	118,253	$	(750	)
CMO/REMIC		177,517		(705	)		34,565		(191	)		212,082		(896	)
Municipal bonds		-		-			563		(2	)		563		(2	)

Total available-for-sale securities	$	197,806	$	(711	)	$	133,092	$	(937	)	$	330,898	$	(1,648	)

Investment securities held-to-maturity:
Government agency/GSE	$	28,359	$	(252	)	$	19,405	$	(405	)	$	47,764	$	(657	)
Mortgage-backed securities		10,411		(54	)		-		-			10,411		(54	)
CMO/REMIC		23,897		(104	)		166,193		(2,354	)		190,090		(2,458	)
Municipal bonds		7,583		(32	)		29,981		(533	)		37,564		(565	)

Total held-to-maturity securities	$	70,250	$	(442	)	$	215,579	$	(3,292	)	$	285,829	$	(3,734	)


	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	895,234	$	35,473	$	4,420	$	-	$	935,127
SBA		283,430		11,032		10,546		-		305,008
Real estate:
Commercial real estate
Owner occupied		1,977,007		78,208		28,435		-		2,083,650
Non-owner occupied		3,280,580		10,005		382		-		3,290,967
Construction
Speculative		106,895		-		-		-		106,895
Non-speculative		10,030		-		-		-		10,030
SFR mortgage		280,010		1,957		1,501		-		283,468
Dairy & livestock and agribusiness		320,670		35,920		27,119		-		383,709
Municipal lease finance receivables		52,676		470		-		-		53,146
Consumer and other loans		114,870		421		1,028		-		116,319

Total gross loans	$	7,321,402	$	173,486	$	73,431	$	-	$	7,568,319


	Three Months Ended March 31, 2020
	Ending Balance, prior to adoption of ASU 2016-13 December 31, 2019		Impact of adopting ASU 2016-13			Provision for (Recapture of) Credit Losses Expense			Charge-offs			Recoveries		Ending Balance March 31, 2020
	(Dollars i in thousands)
Commercial and industrial	$	8,880	$	(2,442	)	$	2,947		$	-		$	2	$	9,387
SBA		1,453		1,818			675			-			-		3,946
Real estate:
Commercial real estate		48,629		3,547			6,251			-			-		58,427
Construction		858		655			3,116			-			3		4,632
SFR mortgage		2,339		(2,043	)		(221	)		-			206		281
Dairy & livestock and agribusiness		5,255		(186	)		(803	)		-			-		4,266
Municipal lease finance receivables		623		(416	)		70			-			-		277
Consumer and other loans		623		907			(35	)		(86	)		16		1,425

Total allowance for credit losses	$	68,660	$	1,840		$	12,000		$	(86	)	$	227	$	82,641


	Three Months Ended March 31, 2019
	Ending Balance December 31, 2018		Charge-offs			Recoveries		Provision for (Recapture of) Loan Losses			Ending Balance March 31, 2019
	(Dollars in thousands)
Commercial and industrial	$	7,520	$	-		$	110	$	(31	)	$	7,599
SBA		1,062		(20	)		5		232			1,279
Real estate:				-			-
Commercial real estate		44,934		-			-		1,144			46,078
Construction		981		-			3		(120	)		864
SFR mortgage		2,196		-			68		(76	)		2,188
Dairy & livestock and agribusiness		5,215		(78	)		-		562			5,699
Municipal lease finance receivabl es		775		-			-		(37	)		738
Consumer and other loans		726		(1	)		1		(150	)		576
PCI loans		204		-			-		(24	)		180

Total allowance for loan losses	$	63,613	$	(99	)	$	187	$	1,500		$	65,201


	March 31, 2019
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
	(Dollars in thousands)
Commercial and industrial	$	8,512	$	948,614	$	-	$	117	$	7,482	$	-
SBA		4,661		333,296		-		317		962		-
Real estate:
Commercial real estate		1,589		5,387,277		-		-		46,078		-
Construction		-		121,912		-		-		864		-
SFR mortgage		5,051		280,736		-		-		2,188		-
Dairy & livestock and agribusiness		-		322,321		-		-		5,699		-
Municipal lease finance receivables		-		61,249		-		-		738		-
Consumer and other loans		477		120,291		-		1		575		-
PCI loans		-		-		15,356		-		-		180

Total	$	20,290	$	7,575,696	$	15,356	$	435	$	64,586	$	180


	March 31, 2020
	30-59 Days Past Due		60-89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	347	$	362	$	1,487	$	2,196	$	958,565	$	960,761
SBA		3,086		954		1,669		5,709		307,362		313,071
Real estate:
Commercial real estate
Owner occupied		154		310		250		714		2,069,646		2,070,360
Non-owner occupied		210		-		-		210		3,277,355		3,277,565
Construction
Speculative (1)		-		-		-		-		116,143		116,143
Non-speculative		-		-		-		-		11,902		11,902
SFR mortgage		233		-		486		719		278,024		278,743
Dairy & livestock and agribusiness		166		-		-		166		271,948		272,114
Municipal lease finance receivables		-		-		-		-		51,287		51,287
Consumer and other loans		-		-		93		93		114,113		114,206

Total gross loans	$	4,196	$	1,626	$	3,985	$	9,807	$	7,456,345	$	7,466,152


	March 31, 2020
	Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1) (3)		Loans Past Due Over 89 Days Still Accruing
	(Dollars in thousands)
Commercial and industrial	$	549	$	1,703	$	-
SBA		2,110		2,748		-
Real estate:
Commercial real estate
Owner occupied		715		715		-
Non-owner occupied		232		232		-
Construction
Speculative (2)		-		-		-
Non-speculative		-		-		-
SFR mortgage		864		864		-
Dairy & livestock and agribusiness		-		-		-
Municipal lease finance receivables		-		-		-
Consumer and other loans		166		166		-

Total gross loans	$	4,636	$	6,428	$	-


	December 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1) (3)		Current		Total Loans and Financing Receivables
					(Dollars in thousands)
Commercial and industrial	$	2	$	-	$	2	$	1,266	$	933,859	$	935,127
SBA		870		532		1,402		2,032		301,574		305,008
Real estate:
Commercial real estate
Owner occupied		-		-		-		479		2,083,171		2,083,650
Non-owner occupied		-		-		-		245		3,290,722		3,290,967
Construction
Speculative (2)		-		-		-		-		106,895		106,895
Non-speculative		-		-		-		-		10,030		10,030
SFR mortgage		6		243		249		878		282,341		283,468
Dairy & livestock and agribusiness		-		-		-		-		383,709		383,709
Municipal lease finance receivables		-		-		-		-		53,146		53,146
Consumer and other loans		-		-		-		377		115,942		116,319

Total gross loans	$	878	$	775	$	1,653	$	5,277	$	7,561,389	$	7,568,319


	Three Months Ended March 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	8,208	$	12,317	$	-	$	8,230	$	2
SBA		3,400		5,779		-		3,511		11
Real estate:
Commercial real estate
Owner occupied		519		618		-		521		-
Non-owner occupied		1,070		1,231		-		1,084		7
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		5,051		5,865		-		5,082		21
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		476		625		-		482		-

Total		18,724		26,435		-		18,910		41

With a related allowance recorded:
Commercial and industrial		304		309		117		323		-
SBA		1,261		1,236		317		1,261		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		1		1		1		1		-

Total		1,566		1,546		435		1,585		-

Total impaired loans	$	20,290	$	27,981	$	435	$	20,495	$	41


	March 31, 2020						Number of Loans Dependent on Collateral
	Real Estate		Business Assets		Other		Number of Loans Dependent on Collateral
	(Dollars in thousands)
Commercial and industrial	$	112	$	1,652	$	8		12
SBA		1,852		2,524		8		19
Real estate:
Commercial real estate		1,324		-		-		5
Construction		-		-		-		-
SFR mortgage		864		-		-		3
Dairy & livestock and agribusiness		-		-		-		-
Municipal lease finance receivables		-		-		-		-
Consumer and other loans		84		-		22		4

Total collateral-dependent loans	$	4,236	$	4,176	$	38		43


	Carrying Value at March 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Mortgage-backed securities	$	1,161,931	$	-	$	1,161,931	$	-
CMO/REMIC		480,093		-		480,093		-
Municipal bonds		37,032		-		37,032		-
Other securities		699		-		699		-

Total investment securities - AFS		1,679,755		-		1,679,755		-
Interest rate swaps		33,255		-		33,255		-

Total assets	$	1,713,010	$	-	$	1,713,010	$	-

Description of liability
Interest rate swaps	$	33,255	$	-	$	33,255	$	-

Total liabilities	$	33,255	$	-	$	33,255	$	-


	Carrying Value at December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Description of assets
Investment securities - AFS:
Mortgage-backed securities	$	1,206,313	$	-	$	1,206,313	$	-
CMO/REMIC		493,710		-		493,710		-
Municipal bonds		39,354		-		39,354		-
Other securities		880		-		880		-

Total investment securities - AFS		1,740,257		-		1,740,257		-
Interest rate swaps		11,502		-		11,502		-

Total assets	$	1,751,759	$	-	$	1,751,759	$	-

Description of liability
Interest rate swaps	$	11,502	$	-	$	11,502	$	-

Total liabilities	$	11,502	$	-	$	11,502	$	-

	March 31, 2020
	Carrying		Estimated Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	705,739	$	705,739	$	-	$	-	$	705,739
Interest-earning balances due from depository institutions		23,799		-		23,840		-		23,840
Investment securities available-for-sale		1,679,755		-		1,679,755		-		1,679,755
Investment securities held-to-maturity		642,255		-		657,819		-		657,819
Total loans, net of allowance for credit losses		7,383,511		-		-		7,338,946		7,338,946
Swaps		33,255		-		33,255		-		33,255
Liabilities
Deposits:
Interest-bearing	$	3,540,955	$	-	$	3,540,407	$	-	$	3,540,407
Borrowings		368,915		-		368,654		-		368,654
Junior subordinated debentures		25,774		-		-		13,619		13,619
Swaps		33,255		-		33,255		-		33,255

	December 31, 2019
	Carrying		Estimated Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets
Total cash and cash equivalents	$	185,518	$	185,518	$	-	$	-	$	185,518
Interest-earning balances due from depository institutions		2,931		-		2,938		-		2,938
Investment securities available-for-sale		1,740,257		-		1,740,257		-		1,740,257
Investment securities held-to-maturity		674,452		-		678,948		-		678,948
Total loans, net of allowance for loan losses		7,495,917		-		-		7,343,167		7,343,167
Swaps		11,502		-		11,502		-		11,502
Liabilities
Deposits:
Interest-bearing	$	3,459,411	$	-	$	3,457,922	$	-	$	3,457,922
Borrowings		428,659		-		428,330		-		428,330
Junior subordinated debentures		25,774		-		-		20,669		20,669
Swaps		11,502		-		11,502		-		11,502


Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivative Instruments		Amount of Gain Recognized in Income on Derivative Instruments
			Three Months Ended March 31,
			2020		2019
			(Dollars in thousands)
Interest rate swaps		Other income	$	373	$	384

Total			$	373	$	384


	Gross Amounts Recognized in the Condensed		Gross Amounts Offset in the Con densed			Net Amounts Presented in the Condensed		Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Consolidated Balance Sheets		Consolidated Balance Sheets			Consolidated Balance Sheets		Financial Instruments		Collateral Pledged			Net Amount
	(Dollars in thousands)
March 31, 2020
Financial assets:
Derivatives not designated as hedging instruments	$	33,255	$	-		$	-	$	33,255	$	-		$	33,255

Total	$	33,255	$	-		$	-	$	33,255	$	-		$	33,255


Financial liabilities:
Derivatives not designated as hedging instruments	$	33,255	$	-		$	33,255	$	-	$	(52,171	)	$	(18,916	)
Repurchase agreements		368,915		-			368,915		-		(417,665	)		(48,750	)

Total	$	402,170	$	-		$	402,170	$	-	$	(469,836	)	$	(67,666	)


December 31, 2019
Financial assets:
Derivatives not designated as hedging instruments	$	11,502	$	-		$	-	$	11,502	$	-		$	11,502

Total	$	11,502	$	-		$	-	$	11,502	$	-		$	11,502


Financial liabilities:
Derivatives not designated as hedging instruments	$	11,619	$	(117	)	$	11,502	$	117	$	(23,312	)	$	(11,693	)
Repurchase agreements		428,659		-			428,659		-		(510,138	)		(81,479	)

Total	$	440,278	$	(117	)	$	440,161	$	117	$	(533,450	)	$	(93,172	)


	For the Three Months Ended March 31,						Variance
	2020			2019			$		%
	(Dollars in thousands, except per share amounts)

Net interest income	$	102,306		$	109,536		$	(7,230)		-6.60%
Provision for credit losses		(12,000	)		(1,500	)		(10,500)		-700.00%
Noninterest income		11,640			16,303			(4,663)		-28.60%
Noninterest expense		(48,641	)		(51,604	)		2,963		5.74%
Income taxes		(15,325	)		(21,093	)		5,768		27.35%

Net earnings	$	37,980		$	51,642		$	(13,662)		-26.46%

Earnings per common share:
Basic	$	0.27		$	0.37		$	(0.10)
Diluted	$	0.27		$	0.37		$	(0.10)
Return on average assets		1.34%			1.84%			-0.50%
Return on average shareholders’ equity		7.61%			11.14%			-3.53%
Efficiency ratio		42.69%			41.01%			1.68%
Noninterest expense to average assets		1.72%			1.83%			-0.11%


	For the Three Months Ended						Variance
	March 31, 2020			December 31, 2019			$		%
	(Dollars in thousands, except per share amounts)

Net interest income	$	102,306		$	107,020		$	(4,714)		-4.40%
Provision for credit losses		(12,000	)		-			(12,000)		-
Noninterest income		11,640			12,640			(1,000)		-7.91%
Noninterest expense		(48,641	)		(49,073	)		432		0.88%
Income taxes		(15,325	)		(19,306	)		3,981		20.62%

Net earnings	$	37,980		$	51,281		$	(13,301)		-25.94%

Earnings per common share:
Basic	$	0.27		$	0.37		$	(0.10)
Diluted	$	0.27		$	0.37		$	(0.10)
Return on average assets		1.34%			1.79%			-0.45%
Return on average shareholders’ equity		7.61%			10.21%			-2.60%
Efficiency ratio		42.69%			41.01%			1.68%
Noninterest expense to average assets		1.72%			1.71%			0.01%


	For the Three Months Ended March 31,
	2020						2019
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
	(Dollars in thousands)
INTEREST-EARNING ASSETS
Investment securities (1)
Available-for-sale securities:
Taxable	$	1,659,394	$	9,825		2.37%	$	1,654,324	$	10,309		2.49%
Tax-advantaged		38,086		224		3.36%		44,380		336		4.07%
Held-to-maturity securities:
Taxable		469,394		2,698		2.30%		509,608		2,910		2.30%
Tax-advantaged		189,522		1,300		3.32%		227,908		1,615		3.43%
Investment in FHLB stock		17,688		332		7.55%		17,688		332		7.61%
Interest-earning deposits with other institutions		261,041		613		0.94%		18,695		94		2.04%
Loans (2)		7,482,805		92,117		4.95%		7,662,573		99,687		5.27%

Total interest-earning assets		10,117,930		107,109		4.27%		10,135,176		115,283		4.62%
Total noninterest-earning assets		1,257,870						1,273,078

Total assets	$	11,375,800					$	11,408,254


INTEREST-BEARING LIABILITIES
Savings deposits (3)	$	3,056,743		3,111		0.41%	$	3,127,839		2,685		0.35%
Time deposits		445,431		1,013		0.91%		524,822		1,186		0.92%

Total interest-bearing deposits		3,502,174		4,124		0.47%		3,652,661		3,871		0.43%
FHLB advances, other borrowings, and customer repurchase agreements		504,585		679		0.54%		691,965		1,876		1.09%

Interest-bearing liabilities		4,006,759		4,803		0.48%		4,344,626		5,747		0.54%

Noninterest-bearing deposits		5,247,025						5,085,764
Other liabilities		115,552						98,179
Stockholders’ equity		2,006,464						1,879,685

Total liabilities and stockholders’ equity	$	11,375,800					$	11,408,254


Net interest income			$	102,306					$	109,536


Net interest spread - tax equivalent						3.79%						4.08%
Net interest margin						4.06%						4.37%
Net interest margin - tax equivalent						4.08%						4.39%


	March 31, 2020
	Total Loans			Commercial Real Estate Loans
	(Dollars in thousands)
Los Angeles County	$	3,297,399	44.2%	$	2,214,541	41.4%
Central Valley		1,120,563	15.0%		899,197	16.8%
Orange County		968,575	13.0%		654,593	12.2%
Inland Empire		987,534	13.2%		845,578	15.8%
Central Coast		457,225	6.1%		361,910	6.8%
San Diego		210,065	2.8%		128,828	2.4%
Other California		139,860	1.9%		78,833	1.5%
Out of State		284,931	3.8%		164,445	3.1%

	$	7,466,152	100.0%	$	5,347,925	100.0%


	March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019		March 31, 2019
	(Dollars in thousands)
Nonperforming loans:
Commercial and industrial	$	1,703	$	1,266	$	1,550	$	1,993	$	8,388
SBA		2,748		2,032		2,706		5,082		4,098
Real estate:
Commercial real estate		947		724		1,083		1,095		1,134
Construction		-		-		-		-		-
SFR mortgage		864		878		888		2,720		2,894
Dairy & livestock and agribusiness		-		-		-		-		-
Consumer and other loans		166		377		385		397		477

Total	$	6,428	$	5,277	$	6,612	$	11,287	$	16,991

% of Total gross loans		0.09%		0.07%		0.09%		0.15%		0.22%

Past due 30-89 days:
Commercial and industrial	$	665	$	2	$	756	$	310	$	369
SBA		3,086		1,402		303		-		601
Real estate:
Commercial real estate		210		-		368		-		124
Construction		-		-		-		-		-
SFR mortgage		233		249		-		-		-
Dairy & livestock and agribusiness		166		-		-		-		-
Consumer and other loans		-		-		-		22		101

Total	$	4,360	$	1,653	$	1,427	$	332	$	1,195

% of Total gross loans		0.06%		0.02%		0.02%		0.004%		0.02%

OREO:
SBA	$	797	$	797	$	444	$	-	$	-
Real estate:
Commercial real estate		2,275		2,275		2,275		2,275		2,275
SFR mortgage		1,817		1,817		6,731		-		-

Total	$	4,889	$	4,889	$	9,450	$	2,275	$	2,275

Total nonperforming, past due, and OREO	$	15,677	$	11,819	$	17,489	$	13,894	$	20,461

% of Total gross loans		0.21%		0.16%		0.23%		0.18%		0.27%


			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)	$	9,113,604	$	9,036,138	$	66,253	$	10,626	$	587
Customer repurchase agreements (1)		368,915		368,915		-		-		-
Junior subordinated debentures (1)		25,774		-		-		-		25,774
Deferred compensation		23,233		763		1,305		636		20,529
Operating leases		20,826		6,706		9,109		3,423		1,588
Affordable housing investment		3,159		2,285		814		47		13

Total	$	9,555,511	$	9,414,807	$	77,481	$	14,732	$	48,491


			Maturity by Period
	Total		Less Than One Year		One Year to Three Years		Four Years to Five Years		After Five Years
	(Dollars in thousands)
Commitment to extend credit:
Commercial and industrial	$	917,055	$	614,928	$	168,309	$	5,196	$	128,622
SBA		396		362		4		-		30
Real estate:
Commercial real estate/		247,308		42,254		74,850		121,004		9,200
Construction		52,545		35,972		13,373		-		3,200
SFR Mortgage		5,540		3,500		-		-		2,040
Dairy & livestock and agribusiness (1)		208,932		113,190		94,949		393		400
Consumer and other loans		123,928		14,114		6,985		5,018		97,811

Total commitment to extend credit		1,555,704		824,320		358,470		131,611		241,303
Obligations under letters of credit		50,159		45,415		4,496		248		-

Total	$	1,605,863	$	869,735	$	362,966	$	131,859	$	241,303


Period	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Average Price Paid Per Share		Maximum Number of Shares Available for Repurchase Under the Plans or Programs

January 1 - 31, 2020		-	$	-		9,529,435
February 1 - 29, 2020		351,100	$	19.59		9,178,335
March 1 - 31, 2020		4,593,190	$	18.46		4,585,145

Total		4,944,290	$	18.54		4,585,145