UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2025
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 000-10140
CVB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
California
95-3629339
(State or other jurisdiction of
Incorporation or organization)
(I.R.S. Employer
Identification No.)
701 North Haven Ave., Suite 350
Ontario, California
91764
(Address of principal executive offices)
(Zip Code)
(909) 980-4030
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, No Par Value
CVBF
The Nasdaq Stock Market, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
Number of shares of common stock of the registrant: 137,804,604 outstanding as of May 01, 2025.
TABLE OF CONTENTS
PART I –
FINANCIAL INFORMATION (UNAUDITED)
3
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
43
CRITICAL ACCOUNTING POLICIES
OVERVIEW
45
ANALYSIS OF THE RESULTS OF OPERATIONS
47
ANALYSIS OF FINANCIAL CONDITION
54
ASSET/LIABILITY AND MARKET RISK MANAGEMENT
69
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
72
ITEM 4.
CONTROLS AND PROCEDURES
PART II –
OTHER INFORMATION
73
LEGAL PROCEEDINGS
ITEM 1A.
RISK FACTORS
74
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
75
DEFAULTS UPON SENIOR SECURITIES
MINE SAFETY DISCLOSURES
ITEM 5.
ITEM 6.
EXHIBITS
76
SIGNATURES
77
2
GENERAL
Cautionary Note Regarding Forward-Looking Statements
Certain statements set forth herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “will likely result”, “aims”, “anticipates”, “believes”, “could”, “estimates”, “expects”, “hopes”, “intends”, “may”, “plans”, “projects”, “seeks”, “should”, “will,” “strategy”, “possibility”, and variations of these words and similar expressions help to identify these forward-looking statements, which involve risks and uncertainties that could cause actual results or performance to differ materially from those projected. These forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, including, without limitation, plans, strategies, goals and statements about the Company’s outlook regarding revenue and asset growth, financial performance and profitability, capital and liquidity levels, loan and deposit growth and retention, yields and returns, loan diversification and credit management, stockholder value creation, tax rates, the impact of economic developments, the impact of monetary, fiscal and trade policies, and the impact of acquisitions we have made or may make. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company, and there can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors in addition to those set forth below could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements.
General risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct business; the effects of, and changes in, immigration, trade, tariff, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; the effect of acquisitions we have made or may make, including, without limitation, the failure to obtain the necessary regulatory approvals, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target, key personnel and customers into our operations; the timely development of competitive new products and services, and the acceptance of these products and services by new and existing customers; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies; the effectiveness of our risk management framework and quantitative models; changes in the levels of our nonperforming assets and charge-offs; the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters; possible credit related impairments or declines in the fair value of loans and securities held by us; possible impairment charges to goodwill, including any impairment that may result from increased volatility in our stock price; changes in consumer spending, borrowing, and savings habits; the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; periodic fluctuations in commercial or residential real estate prices or values; our ability to attract and retain deposits (including low cost deposits) or to access government or private lending facilities and other sources of liquidity; the possibility that we may reduce or discontinue the payments of dividends on our common stock; changes in the financial performance and/or condition of our borrowers; changes in the competitive environment among financial and bank holding companies and other financial service providers; technological changes in banking and financial services; systemic or non-systemic bank failures or crises; geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism, and/or military conflicts, which could impact business and economic conditions in the United States and abroad; catastrophic events or natural disasters, including earthquakes, drought, climate change or extreme weather events that may affect our assets, communications or computer services, customers, employees or third party vendors; public health crises and pandemics, and their effects on our asset credit quality, business operations, and employees, as well as the impact on general economic and financial market conditions; cybersecurity threats and fraud and the cost of defending against them, including the costs of compliance with legislation or regulations to combat cybersecurity threats and fraud; our ability to recruit and retain key executives, board members and other employees, and our compliance with federal, state and local employment laws and regulations; ongoing or unanticipated regulatory or legal proceedings or outcomes; and our ability to manage the risks involved in the foregoing.
Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's 2024 Annual Report on Form 10-K filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).
The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.
CVB FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)
March 31,
December 31,
2025
2024
Assets
Cash and due from banks
$
187,981
153,875
Interest-earning balances due from Federal Reserve
341,108
50,823
Total cash and cash equivalents
529,089
204,698
Interest-earning balances due from depository institutions
3,451
480
Investment securities available-for-sale, at fair value (with amortized cost of $2,922,404 at March 31, 2025, and $2,997,047 at December 31, 2024)
2,535,066
2,542,115
Investment securities held-to-maturity (with fair value of $1,965,088 at March 31, 2025, and $1,954,345 at December 31, 2024)
2,359,141
2,379,668
Total investment securities
4,894,207
4,921,783
Investment in stock of Federal Home Loan Bank (FHLB)
18,012
Loans and lease finance receivables
8,363,632
8,536,432
Allowance for credit losses
(78,252
)
(80,122
Net loans and lease finance receivables
8,285,380
8,456,310
Premises and equipment, net
26,772
27,543
Bank owned life insurance (BOLI)
318,301
316,248
Accrued interest receivable
42,334
45,716
Intangibles
8,812
9,967
Goodwill
765,822
Income taxes
151,326
171,178
Other assets
213,085
215,898
Total assets
15,256,591
15,153,655
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing
7,184,267
7,037,096
Interest-bearing
4,805,654
4,911,285
Total deposits
11,989,921
11,948,381
Customer repurchase agreements
276,163
261,887
Other borrowings
500,000
Deferred compensation
23,054
22,909
Accrued interest payable
4,362
5,047
Other liabilities
234,672
229,115
Total liabilities
13,028,172
12,967,339
Commitments and Contingencies
Stockholders' Equity
Common stock, authorized, 225,000,000 shares without par; issued and outstanding 139,089,612 at March 31, 2025, and 139,690,086 at December 31, 2024
1,280,969
1,296,881
Retained earnings
1,224,750
1,201,499
Accumulated other comprehensive loss, net of tax
(277,300
(312,064
Total stockholders' equity
2,228,419
2,186,316
Total liabilities and stockholders' equity
See accompanying notes to the unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended
Interest income:
Loans and leases, including fees
109,071
116,349
Investment securities:
Investment securities available-for-sale
18,734
21,446
Investment securities held-to-maturity
13,021
13,402
Total investment income
31,755
34,848
Dividends from FHLB stock
379
419
Interest-earning deposits with other institutions
1,797
6,073
Total interest income
143,002
157,689
Interest expense:
Deposits
25,322
21,366
Borrowings and customer repurchase agreements
6,800
23,862
Other
436
—
Total interest expense
32,558
45,228
Net interest income before (recapture of) provision for credit losses
110,444
112,461
(Recapture of) provision for credit losses
(2,000
Net interest income after (recapture of) provision for credit losses
112,444
Noninterest income:
Service charges on deposit accounts
4,908
5,036
Trust and investment services
3,411
3,224
Bankcard services
630
385
BOLI income
2,831
3,593
Gain on OREO, net
2,183
2,266
1,875
Total noninterest income
16,229
14,113
Noninterest expense:
Salaries and employee benefits
36,477
36,401
Occupancy and equipment
5,998
5,565
Professional services
2,081
2,255
Computer software expense
4,221
3,525
Marketing and promotion
1,988
1,630
Provision for unfunded loan commitments
500
Amortization of intangible assets
1,155
1,438
6,724
8,957
Total noninterest expense
59,144
59,771
Earnings before income taxes
69,529
66,803
18,425
18,204
Net earnings
51,104
48,599
Other comprehensive income (loss):
Unrealized gain (loss) on securities arising during the period, before tax
49,360
(17,073
Less: Income tax (expense) benefit related to items of other comprehensive income
(14,596
5,357
Other comprehensive income (loss), net of tax
34,764
(11,716
Comprehensive income (loss)
85,868
36,883
Basic earnings per common share
0.37
0.35
Diluted earnings per common share
0.36
5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars and shares in thousands)
Three Months Ended March 31, 2025 and 2024
Common Shares Outstanding
Common Stock
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total
Balance, January 1, 2025
139,690
Repurchase of common stock
(954
(18,687
Exercise of stock options
15
252
Shares issued pursuant to stock-based compensation plan
339
2,523
Cash dividends declared on common stock ($0.20 per share)
(27,853
Other comprehensive income
Balance, March 31, 2025
139,090
Balance, January 1, 2024
139,345
1,288,899
1,112,642
(323,569
2,077,972
(146
(2,573
440
2,386
(27,886
Other comprehensive loss
Balance, March 31, 2024
139,642
1,288,755
1,133,355
(335,285
2,086,825
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash Flows from Operating Activities
Interest and dividends received
148,887
161,187
Service charges and other fees received
10,966
10,560
Interest paid
(33,242
(23,092
Net cash paid to vendors, employees and others
(84,709
(71,181
(24
Net cash provided by operating activities
41,878
77,474
Cash Flows from Investing Activities
Net change in interest-earning balances from depository institutions
(2,971
(4,416
Proceeds from repayment of investment securities available-for-sale
65,507
82,060
Proceeds from maturity of investment securities available-for-sale
15,000
Proceeds from repayment and maturity of investment securities held-to-maturity
19,169
18,446
Purchases of investment securities held-to-maturity
(1,700
(11,455
Net (increase) decrease in equity investments
(1,679
(1,599
Net decrease in loan and lease finance receivables
173,174
132,281
Purchase of premises and equipment
(679
(166
Proceeds from BOLI death benefit
901
882
Proceeds from sales of other real estate owned
21,348
Net cash provided by investing activities
273,070
231,033
Cash Flows from Financing Activities
Net increase in other deposits
53,311
182,120
Net (decrease) increase in time deposits
(11,771
279,159
Net (decrease) increase in other borrowings
(75,000
Net increase in customer repurchase agreements
14,276
4,078
Cash dividends on common stock
(27,938
(28,030
Proceeds from exercise of stock options
Net cash provided by financing activities
9,443
359,797
Net increase in cash and cash equivalents
324,391
668,304
Cash and cash equivalents, beginning of period
281,285
Cash and cash equivalents, end of period
949,589
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gain on sale of other real estate owned
(2,045
Increase in BOLI
(2,831
(3,593
Net amortization of premiums and discounts on investment securities
3,878
4,142
Accretion of discount for acquired loans, net
(674
(1,042
Valuation allowance on other real estate owned
28
Stock-based compensation
Depreciation and amortization, net
4,820
3,092
Change in other assets and liabilities
(13,397
Total adjustments
(9,226
28,875
Supplemental Disclosure of Non-cash Investing Activities
Transfer of loans to other real estate owned
495
675
8
1. BUSINESS
The condensed consolidated financial statements include CVB Financial Corp. (referred to herein on an unconsolidated basis as “CVB” and on a consolidated basis as “we”, “our” or the “Company”) and its wholly owned subsidiary: Citizens Business Bank (the “Bank” or “CBB”), after elimination of all intercompany transactions and balances. The Company has one inactive subsidiary, Chino Valley Bancorp.
The Company’s primary operations are related to traditional banking activities. This includes the acceptance of deposits and the lending and investing of money through the operations of the Bank. The Bank also provides trust and investment-related services to customers through its CitizensTrust Division. The Bank’s customers consist primarily of small to mid-sized businesses and individuals located throughout California. As of March 31, 2025, the Bank operated 62 banking centers and three trust office locations. The Company is headquartered in the city of Ontario, California.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q and conform to practices within the banking industry and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the three months ended March 31, 2025 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, 2024, 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, 2024 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 the valuation of deferred tax assets.
Business Segments — We regularly assess our strategic plans, operations, reporting structures and financial information provided to the Chief Executive Officer, our chief operating decision maker (“CODM”), to identify our reportable segments. At March 31, 2025 and since September 30, 2018, we have operated as one reportable segment. Changes to our reportable segments are expected to be infrequent.
The factors considered in making this determination included the nature of products and services offered, geographic regions in which we operate, the applicable regulatory environment, and the materiality of discrete financial information reviewed by our CODM. Through our network of banking centers, we provide relationship-based banking products, services
and solutions for small to mid-sized companies, real estate investors, non-profit organizations, professionals and other individuals. Our products include loans for commercial businesses, commercial real estate, multi-family, construction, land, dairy & livestock and agribusiness, consumer and government-guaranteed small business loans. We also provide business deposit products and treasury cash management services, as well as deposit products to the owners and employees of the businesses we serve. Our operations are throughout the state of California.
The Company has determined that all of its banking divisions meet the aggregation criteria of ASU 2023-07, Segment Reporting, as its current operating model is structured whereby banking divisions serve a similar base of primarily commercial clients utilizing a company-wide offering of similar products and services managed through similar processes and platforms, and therefore operates one line of business that is collectively reviewed by the CODM. The CODM regularly assesses performance of the aggregated single reporting segment and decides how to allocate resources based on net income calculated on the same basis as net income reported in the Company's consolidated statements of earnings and comprehensive income. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company's consolidated statements of earnings and comprehensive income. No additional qualitative segment disclosures are required based on this assessment.
10
4. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities are summarized below. The majority of securities held are available-for-sale securities with fair value based on quoted prices for similar assets in active markets or quoted prices for identical assets in markets that are not active. Estimated fair values were obtained from an independent pricing service based upon market quotes.
March 31, 2025
Amortized Cost
Gross Unrealized Holding Gain
Gross Unrealized Holding Loss
Fair Value
Total Percent
Investment securities available-for-sale:
Government agency/GSE
34,757
46
34,803
1.37
%
Mortgage-backed securities
2,398,291
1,058
(274,693
2,124,656
83.81
CMO/REMIC
467,263
(113,401
353,862
13.96
Municipal bonds
21,762
27
(1,470
20,319
0.80
Other securities
1,426
0.06
Unallocated portfolio layer fair value basis adjustments (1)
(1,095
1,095
0.00
Total available-for-sale securities
2,922,404
2,226
(389,564
100.00
Investment securities held-to-maturity:
510,593
(93,645
416,948
21.64
603,927
(99,271
504,656
25.60
777,391
(159,636
617,755
32.95
454,075
482
(41,983
412,574
19.25
Other securities (2)
13,155
0.56
Total held-to-maturity securities
(394,535
1,965,088
11
December 31, 2024
34,149
106
34,255
1.35
2,460,573
337
(326,376
2,134,534
83.97
471,921
(120,399
351,522
13.82
21,755
(1,406
20,377
1,427
7,222
(7,222
2,997,047
471
(455,403
514,572
(106,315
408,257
21.62
614,383
(110,020
504,363
25.82
784,059
(170,121
613,938
455,199
1,158
(40,025
416,332
19.13
11,455
0.48
(426,481
1,954,345
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.
Taxable
18,590
21,280
Tax-advantaged
144
166
Total interest income from available-for-sale securities
10,659
10,984
2,362
2,418
Total interest income from held-to-maturity securities
Total interest income from investment securities
Approximately 90% of the total investment securities portfolio at March 31, 2025 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 CECL model was zero at March 31, 2025 and December 31, 2024.
12
The following table presents the Company’s available-for-sale and held-to-maturity investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of March 31, 2025 and December 31, 2024.
Less Than 12 Months
12 Months or Longer
Gross Unrealized Holding Losses
85,194
(159
1,756,443
(274,534
1,841,637
353,861
19,409
2,129,713
(389,405
2,214,907
2,016
(17
502,640
(99,254
75,606
(2,413
298,020
(39,569
373,626
77,622
(2,430
1,835,363
(392,105
1,912,984
204,428
(700
1,757,066
(325,677
1,961,494
(326,377
1
351,521
3,215
(155
16,262
(1,250
19,477
(1,405
207,644
(855
2,124,849
(447,326
2,332,493
(448,181
2,072
(42
502,292
(109,978
504,364
613,937
63,668
(1,067
286,868
(38,958
350,536
65,740
(1,109
1,811,354
(425,372
1,877,094
At March 31, 2025 investment securities with carrying values of $2.71 billion were pledged to secure various types of deposits, including $1.14 billion of public funds, $310 million for repurchase agreements, and for other purposes as required or permitted by law. In addition, investment securities with carrying values of $1.62 billion were pledged for unused borrowing capacity.
At December 31, 2024, investment securities with carrying values of $2.79 billion were pledged to secure various types of deposits, including $1.18 billion of public funds, $315 million for repurchase agreements, and for other purposes as required or permitted by law. In addition, investment securities with carrying values of $1.63 billion were pledged for unused borrowing capacity.
The amortized cost and fair value of debt securities at March 31, 2025, by contractual maturity, are shown in the table below. Although mortgage-backed and CMO/REMIC securities have weighted average remaining contractual maturities of approximately 25 years, expected maturities will differ from contractual maturities because borrowers may have the right to
13
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.
Available-for-sale
Held-to-maturity
Due in one year or less
42,417
42,370
22,354
21,879
Due after one year through five years
145,113
132,724
47,513
46,017
Due after five years through ten years
1,894,064
1,633,571
320,024
282,325
Due after ten years
840,810
726,401
1,969,250
1,614,867
The Bank is a member of the FHLB and members are required to own a certain amount of FHLB stock based on the level of borrowings and other factors. The investment in FHLB stock is periodically evaluated for impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through March 31, 2025.
14
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.
Commercial real estate
6,490,604
6,507,452
Construction
15,706
16,082
SBA
271,844
273,013
SBA - Paycheck Protection Program (PPP)
179
774
Commercial and industrial
942,301
925,178
Dairy & livestock and agribusiness
252,532
419,904
Municipal lease finance receivables
65,203
66,114
SFR mortgage
269,493
269,172
Consumer and other loans
55,770
58,743
Total loans, at amortized cost
Less: Allowance for credit losses
Total loans and lease finance receivables, net
As of March 31, 2025, 81.02% of the Company’s total loan portfolio consisted of real estate loans, with commercial real estate loans representing 77.6% of total loans. The Company’s real estate loans and construction loans are secured by real properties primarily located in California. As of March 31, 2025, $437.3 million, or 6.70% of the total commercial real estate loans included loans secured by farmland, compared to $449.8 million, or 6.91%, at December 31, 2024. The loans secured by farmland included $103.6 million for loans secured by dairy & livestock land and $333.7 million secured by agricultural land at March 31, 2025, compared to $109.1 million for loans secured by dairy & livestock land and $340.7 million for loans secured by agricultural land at December 31, 2024. As of March 31, 2025, dairy & livestock and agribusiness loans of $252.5 million were comprised of $217.4 million for dairy & livestock loans and $35.1 million for agribusiness loans, compared to $419.9 million were comprised of $385.3 million for dairy & livestock loans and $34.6 million of agribusiness loans at December 31, 2024.
At March 31, 2025 and December 31, 2024, loans were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank totaling $4.36 billion and $4.44 billion, respectively.
There were no outstanding loans held-for-sale as of March 31, 2025 and December 31, 2024.
Credit Quality Indicators
We monitor credit quality by evaluating various risk attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. Internal credit risk ratings, within our loan risk rating system, are the credit quality indicators that we most closely monitor.
An important element of our approach to credit risk management is our loan risk rating system. The originating officer assigns each loan an initial risk rating, which is reviewed and confirmed or changed, as appropriate, by credit management. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration or improvement in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary.
Loans are risk rated into the following categories: Pass, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:
Pass — These loans, including loans on the Bank’s internal watch list, range from minimal credit risk to lower than average, but still acceptable, credit risk. Watch list loans usually require more than normal management attention. Loans on the watch list may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent.
Special Mention — Loans assigned to this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard — Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.
Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or the liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset with insignificant value even though partial recovery may be affected in the future.
16
The following table summarizes loans by type and origination year, according to our internal risk ratings as of the dates presented.
Origination Year
Revolving loans amortized
Revolving loans converted to
2023
2022
2021
Prior
cost basis
term loans
Commercial real estate loans:
Risk Rating:
Pass
118,405
298,954
402,954
1,199,575
1,047,396
2,900,403
195,573
36,343
6,199,603
Special Mention
9,633
7,534
41,993
21,203
127,980
4,826
6,778
219,947
Substandard
1,174
680
6,731
8,978
46,534
5,783
71,054
Doubtful & Loss
Total Commercial real estate loans:
119,579
309,761
411,168
1,248,299
1,077,577
3,074,917
206,182
43,121
Current YTD Period: Gross charge-offs
Construction loans:
7,020
319
8,367
Total Construction loans:
SBA loans:
6,795
29,325
15,905
46,045
46,482
111,111
255,663
3,365
1,328
6,293
10,986
1,570
3,625
5,195
Total SBA loans:
32,690
47,615
47,810
121,029
19
SBA - PPP loans:
133
Total SBA - PPP loans:
Commercial and industrial loans:
34,204
95,519
109,970
104,308
62,801
177,705
314,411
5,974
904,892
776
2,297
1,724
1,478
3,965
12,604
5,284
28,128
3,074
469
241
1,747
3,750
9,281
Total Commercial and industrial loans:
96,295
115,341
106,501
64,520
181,670
328,762
15,008
21
17
Dairy & livestock and agribusiness loans:
729
597
893
204,881
207,106
36,674
1,367
38,041
60
6,525
800
7,385
Total Dairy & livestock and agribusiness loans:
953
248,080
2,173
Municipal lease finance receivables loans:
2,799
5,095
24,714
32,496
65,104
99
Total Municipal lease finance receivables loans:
32,595
SFR mortgage loans:
5,894
18,617
19,979
59,518
40,891
122,071
266,970
1,290
276
1,566
957
Total SFR mortgage loans:
124,318
Consumer and other loans:
753
4,941
2,747
907
1,591
611
40,863
2,953
55,366
103
107
297
Total Consumer and other loans:
1,694
40,867
3,250
Total Loans, at amortized cost:
166,051
457,904
551,874
1,423,815
1,224,605
3,345,336
755,728
45,276
7,970,589
13,774
9,831
43,717
24,112
139,627
54,108
13,705
298,874
3,754
8,770
9,219
51,176
14,055
4,847
94,169
Total Loans at amortized cost:
167,225
472,852
565,459
1,476,302
1,257,936
3,536,139
823,891
63,828
Current YTD Period: Total gross charge-offs
40
18
2020
307,984
419,547
1,216,126
1,066,694
828,493
2,170,119
197,991
37,704
6,244,658
1,075
4,910
36,505
21,478
17,056
104,201
3,937
1,287
190,449
1,176
244
6,775
9,057
15,138
34,259
5,696
72,345
310,235
424,701
1,259,406
1,097,229
860,687
2,308,579
207,624
38,991
2,258
7,717
315
8,050
33,531
16,064
46,393
23,733
92,012
259,543
1,337
4,716
1,830
7,883
1,581
4,006
5,587
47,974
49,147
28,449
97,848
165
254
520
100,465
100,242
111,982
67,706
69,084
118,069
318,147
6,213
891,908
819
2,213
1,026
2,169
421
4,175
8,136
4,830
23,789
3,029
523
1,997
3,921
9,481
101,284
105,484
113,531
69,886
69,505
122,244
328,280
14,964
300
1,186
1,981
812
596
786
141
327,850
330,198
2,901
84,295
1,650
88,846
860
3,713
201
412,145
2,463
2,540
5,111
24,715
5,140
28,510
66,016
98
28,608
20,261
21,055
59,763
41,156
38,730
85,637
266,602
896
411
284
979
39,626
87,027
7,242
3,043
1,521
1,850
142
624
42,035
1,855
58,312
130
134
1,980
42,039
2,152
480,552
560,266
1,448,946
1,250,781
966,628
2,495,112
886,023
45,785
8,134,093
4,795
7,123
37,531
25,114
23,089
110,715
96,372
8,051
312,790
3,273
8,879
9,068
39,304
7,693
5,018
89,549
486,523
570,662
1,495,356
1,284,963
1,004,855
2,645,131
990,088
58,854
3,609
498
4,408
Allowance for Credit Losses ("ACL")
The Company's allowance models calculate reserves over the average life of the loan, which includes the remaining time to maturity, adjusted for estimated prepayments applied as an adjustment to our commercial real estate and commercial and industrial loans. Our allowance for credit losses is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. A substantial portion of the ACL relates to loans within the Commercial Real Estate and Commercial and Industrial methodologies, each evaluated on a collective basis. Our ACL amounts are largely driven by portfolio characteristics, including loss history, internal risk grading, various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real
20
estate loans include Original Loan to Value ratios ("OLTV"), origination year, loan seasoning, and macroeconomic variables that include Real GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans. The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA loans. The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the amortized cost basis of the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes. The Company’s ACL estimate incorporates a reasonable and supportable forecast of various macroeconomic variables over the remaining average life of our loans. This forecast incorporates an assumption that each macroeconomic variable will revert to a long-term expectation, starting in years two through three, of the reasonable and supportable forecast period, with the reversion largely completed within the first five years of the forecast. The economic forecast is based on probability weighted scenarios to address macroeconomic uncertainty. Our methodology for assessing the appropriateness of the allowance is reviewed on a regular basis and considers overall risks in the Bank’s loan portfolio. Refer to Note 3 – Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2024 for a more detailed discussion concerning the allowance for credit losses.
The ACL totaled $78.3 million at March 31, 2025, compared to $80.1 million at December 31, 2024. The $1.9 million decrease in the ACL from December 31, 2024 to March 31, 2025 is comprised of $130,000 in net recoveries and $2 million recapture of provision for credit losses. At March 31, 2025, the ACL as a percentage of total loans and leases, at amortized cost, was 0.94%. This compares to 0.94% at December 31, 2024. Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. These U.S. economic forecasts include a baseline forecast, as well as downside forecasts. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with both upside and downside risks weighted among multiple forecasts. As of March 31, 2025, the resulting economic forecast has Real GDP growing at a slower rate for the remainder of 2025 and only reaching a 2% growth rate in the second half of 2026. Commercial real estate values are forecasted to continue their decline through the first half of 2026. Unemployment is forecasted to rise in 2025 and reach 5% by the beginning of 2026 and stay elevated through 2028.
Management believes that the ACL was appropriate at March 31, 2025 and December 31, 2024. Due to inflationary pressures, high interest rates, lower commercial real estate values, international tariffs, and other geopolitical events, no assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for credit losses in the future.
The following tables present the balance and activity related to the allowance for credit losses for held-for-investment loans by type for the periods presented.
Three Months Ended March 31, 2025
Ending Balance December 31, 2024
Charge-offs
Recoveries
(Recapture of) Provision for Credit Losses
Ending Balance March 31, 2025
66,237
(935
65,302
312
(80
238
2,629
(19
22
2,608
6,093
(21
(96
6,118
3,610
(786
2,824
205
210
424
427
612
(87
525
Total allowance for credit losses
80,122
(40
170
78,252
Three Months Ended March 31, 2024
Ending Balance December 31, 2023
Provision for (Recapture of) Credit Losses
Ending Balance March 31, 2024
69,466
(2,258
2,237
69,445
1,277
1,296
2,679
(90
63
(121
2,531
9,116
(1,917
176
(2,316
5,059
3,098
154
3,252
(16
194
535
(52
483
461
(2
557
86,842
(4,267
242
82,817
Past Due and Nonperforming Loans
We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is responsible for monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for credit losses, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated credit losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2024, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.
The following table presents the recorded investment in, and the aging of, past due loans (including nonaccrual loans), by type of loans as of the dates presented.
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
Owner occupied
2,308,238
Non-owner occupied
23,707
4,158,659
4,182,366
Speculative (1)
8,439
Non-speculative
7,267
718
253
971
270,873
SBA - PPP
942,300
252,472
Total loans at amortized cost
24,021
24,739
8,338,893
196
2,329,380
2,329,576
24,430
4,153,446
4,177,876
8,091
7,991
190
1,617
271,396
399
140
539
924,639
419,844
26,253
26,842
8,509,590
Amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance are presented as of March 31, 2025 and December 31, 2024 by type of loan.
Nonaccrual with No Allowance for Credit Losses
Total Nonaccrual (1) (3)
Loans Past Due Over 89 Days Still Accruing
672
Speculative (2)
940
1,024
173
24,880
25,636
23
Total Nonaccrual (1)
1,436
1,146
1,529
340
27,273
27,795
24
Collateral Dependent Loans
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents the recorded investment in collateral-dependent loans by type of loans as of the date presented.
Number of Loans
Real Estate
Business Assets
Dependent on Collateral
24,378
172
Total collateral-dependent loans
25,462
25,866
327
27,466
25
Reserve for Unfunded Loan Commitments
The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the off-balance sheet loan commitments in the same manner as it evaluates credit risk associated with the loan and lease portfolio. The Bank's ACL methodology produced an allowance of $6.8 million for the off-balance sheet credit exposures as of March 31, 2025. There was a $500,000 provision for unfunded loan commitments for the three months ended March 31, 2025, and no provision for the three months ended March 31, 2024. As of March 31, 2025 and December 31, 2024, the balance in this reserve was $6.8 million and $6.3 million, respectively, and was included in other liabilities.
Modifications of Loans to Borrowers Experiencing Financial Difficulty
There were three loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2025 with an amortized cost totaling $6.2 million as of March 31, 2025, including two commercial real estate loans totaling $6.0 million and one dairy & livestock and agribusiness loan of $225,000.
The tables below reflect the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified as of March 31, 2025 and March 31, 2024, and the financial effect of those modifications.
Amortized Cost Basis
% of Total Class of Financing Receivables
Financial Effect
Term Extension
Commercial real estate loans
7,516
0.09
Added a weighted-average 1.2 years to the life of loans, which reduced monthly payment amounts for the borrowers.
2,728
0.03
1,025
0.01
Added a weighted-average 1.6 years to the life of loans, which reduced monthly payment amounts for the borrowers.
11,269
Term Extension and Interest Rate Reduction
Added a weighted-average 1.4 years to the life of loans, which reduced monthly payment amounts for the borrowers; reduced weighted-average contractual interest rate from 10.00% to 7.25%.
Total Modified
11,949
26
March 31, 2024
2,466
Added a weighted-average 1.3 years to the life of loans, which reduced monthly payment amounts for the borrowers.
1,644
0.02
Added a weighted-average 0.7 years to the life of loans, which reduced monthly payment amounts for the borrowers.
5,727
0.07
Added a weighted-average 0.6 years to the life of loans, which reduced monthly payment amounts for the borrowers.
9,837
686
Added a weighted-average 7.6 years to the life of loans, which reduced monthly payment amounts for the borrowers; reduced weighted-average contractual interest rate from 10% to 7.25%.
Added a weighted-average 2.0 years to the life of loans, which reduced monthly payment amounts for the borrowers; reduced weighted-average contractual interest rate from 8.75% to 7.75%.
928
10,765
As of March 31, 2025, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2025 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first.
The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty as of March 31, 2025.
Payment Status (amortized cost basis)
Current
30-89 Days Past Due
90+ Days Past Due
8,196
6. BORROWINGS
Customer Repurchase Agreements
The Bank offers a repurchase agreement product to its customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price which reflects the market value of the use of funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a pre-determined balance in a demand deposit account, in order to earn interest. As of March 31, 2025, total funds borrowed under these agreements were $276.2 million with a weighted average interest rate of 1.24%, compared to $261.9 million with a weighted average interest rate of 0.72% at December 31, 2024.
Federal Home Loan Bank Advances and Other Borrowings
As of March 31, 2025, total borrowings were $500 million and consisted of advances from the FHLB, at an average rate of 4.6%. The FHLB advances include $300 million, at a fixed rate of 4.73%, maturing in May 2026, and $200 million, at a fixed rate of 4.27%, maturing in May 2027.
At March 31, 2025, $4.36 billion of loans and $4.69 billion of investment securities, at carrying value, were pledged to secure FHLB advances, public deposits, repurchase agreements, borrowing lines, and for other purposes as required or permitted by law.
7. EARNINGS PER SHARE RECONCILIATION
Basic earnings per common share are computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding during each period. The computation of diluted earnings per common share considers the number of shares issuable upon the assumed exercise of outstanding common stock options. Antidilutive common shares are not included in the calculation of diluted earnings per common share. For the three months ended March 31, 2025 and March 31, 2024, shares deemed to be antidilutive, and thus excluded from the computation of earnings per common share, were 717,000 and 1,021,000, 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 EndedMarch 31,
(In thousands, except per share amounts)
Earnings per common share:
Less: Net earnings allocated to restricted stock
334
324
Net earnings allocated to common shareholders
50,770
48,275
Weighted average shares outstanding
138,974
138,429
Diluted earnings per common share:
Net income allocated to common shareholders
Incremental shares from assumed exercise of outstanding options
320
174
Diluted weighted average shares outstanding
139,294
138,603
29
8. FAIR VALUE INFORMATION
Fair Value Hierarchy
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The valuation methodologies for financial assets and liabilities measured at fair value on a recurring and non-recurring basis are described in Note 17 — Fair Value Information, included in our Annual Report on Form 10-K for the year ended December 31, 2024.
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, 2025
Quoted Pricesin Active Markets forIdentical Assets(Level 1)
Significant Other Observable Inputs(Level 2)
Significant Unobservable Inputs(Level 3)
Description of assets
Investment securities - AFS:
Total investment securities - AFS
Derivatives not designated as hedging instruments:
Interest rate swaps
78
Derivatives designated as hedging instruments:
Fair value hedges: interest rate swaps
Cash flow hedges: interest rate swaps
2,535,144
Description of liability
2,257
3,430
30
Carrying Value at December 31, 2024
2,549,367
517
547
31
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
We may be required to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting or write-downs of individual assets.
For assets measured at fair value on a non-recurring basis that were held on the balance sheet at March 31, 2025 and December 31, 2024, 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.
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, 2025
Loans:
32,575
1,079
1,085
Other real estate owned
38,135
34
Total Losses For the Year Ended December 31, 2024
28,728
1,532
49
3,144
220
10,429
2,296
44,693
2,585
32
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, 2025 and December 31, 2024, respectively. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Carrying
Estimated Fair Value
Amount
Level 1
Level 2
Level 3
Total loans, net of allowance for credit losses
8,009,031
Liabilities
4,802,342
Borrowings
776,163
746,328
33
8,149,801
4,908,070
761,887
716,566
The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2025 and December 31, 2024. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented above.
9. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives Not Designated as Hedging Instruments
The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset/liability management strategy to help manage its interest rate risk position. As of March 31, 2025, the Bank has entered into 109 interest-rate swap agreements with customers with a notional amount totaling $359.3 million. The Bank then entered into identical offsetting swaps with counterparties. The swap agreements are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and to provide the customer the financial effects of a fixed-rate loan without creating significant volatility in the Bank’s earnings.
The structure of the swaps is as follows. The Bank enters into an interest rate swap with its customers in which the Bank pays the customer a variable rate and the customer pays the Bank a fixed rate, therefore allowing customers to convert variable rate loans to fixed rate loans. At the same time, the Bank enters into a swap with a counterparty bank in which the Bank pays the counterparty a fixed rate and the counterparty in return pays the Bank a variable rate. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on SOFR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore should not have a significant impact on the Company’s results of operations, although the Company does incur credit and counterparty risk with respect to performance on the swap agreements by the Bank’s customer and counterparty, respectively. These instruments contain language outlining collateral pledging requirements for each counterparty, in which collateral must be posted if market value exceeds certain agreed upon threshold limits. Cash or securities are pledged as collateral. Our interest rate swap derivatives
are subject to a master netting arrangement with our counterparties. None of our derivative assets and liabilities are offset in the Company’s condensed consolidated balance sheet.
We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure, although there can be no assurances in this regard since the performance of our swaps is subject to market and counterparty risk.
Derivatives Designated as Hedging Instruments
Fair Value Hedges
To manage interest rate risk on our AFS securities portfolio, we have entered into pay-fixed, receive-floating interest rate swap contracts to hedge against exposure to changes in the fair value of such securities resulting from changes in interest rates. We designate these interest rate swap contracts as fair value hedges that qualify for hedge accounting under ASC 815, Derivatives and Hedging. We elected to account for the fair value hedges using the portfolio layer method in accordance with ASU 2022-01. We record the interest rate swaps in the line items "accrued interest receivable and other assets" and "other liabilities" on our consolidated balance sheet. For qualifying fair value hedges, both the changes in the fair value of the derivative and the portion of the fair value adjustments associated with the portfolio layer attributable to the hedged risk are recognized into earnings as they occur. Derivative amounts impacting earnings are recognized consistent with the classification of the hedged item in the line item "investment securities available for sale" as part of interest income, a component of consolidated net income.
In June 2023, fair value hedging transactions were executed in which $1 billion notional pay-fixed interest rate swaps were consummated with original maturities ranging from four to five years, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. In December 2024, we terminated one of these swaps which had a notional value of $300 million, a maturity date of June 2027, and paid a fixed rate of 3.95%. The remaining $700 million notional pay-fixed interest rate swaps had a fair value which totaled $1.1 million and was reflected as a liability at March 31, 2025.
Cash Flow Hedges
To manage our interest rate risk associated with brokered CDs, FHLB advances or other fixed rate advances for specified periods, the Company enters into interest rate derivative contracts that are designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rates. During the first quarter of 2024, $300 million of 3-month term brokered CDs were issued and cash flow hedging transactions were also executed in which $300 million notional pay-fixed interest rate swaps were consummated with maturities of three years, wherein the Company pays a weighted average fixed rate of approximately 4.2% and receives daily SOFR.
To qualify for hedge accounting, a formal assessment is prepared to determine whether the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge if a cash flow hedge. At inception a statistical regression analysis is prepared to determine hedge effectiveness. At each reporting period thereafter, a statistical regression or qualitative analysis is performed to determine hedge effectiveness. If it is determined that hedge effectiveness has not been or will not continue to be highly effective, then hedge accounting ceases and any gain or loss in AOCI is recognized in earnings immediately. The cash flow hedges are recorded at fair value in other assets and other liabilities on the consolidated balance sheets with changes in fair value recorded in AOCI, net of tax. All related cash flows are reported in the operating activities section of the consolidated statement of cash flows. Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability.
35
Balance Sheet Classification of Derivative Financial Instruments
As of March 31, 2025 and December 31, 2024, the notional amount, the location of the asset and liability, and their respective fair values, are summarized in the tables below.
Asset Derivatives
Liability Derivatives
Notional
Balance Sheet Location
359,311
Total derivatives
700,000
300,000
3,352
363,440
The Effect of Derivative Financial Instruments on the Condensed Consolidated Statements of Earnings
The following table summarizes the effect of derivative financial instruments on the condensed consolidated statements of earnings for the periods presented.
Location of Gain Recognized in Income on Derivative Instruments
Amount of Gain Recognized in Income on Derivative Instruments
Derivatives Not Designated as Hedging Instruments:
Other income
36
Amount of Gains (Losses) Recognized in InterestIncome on Derivative Instruments
OCI Impact on Derivatives-Gains (Losses) recorded in OCI
Three Months Ended March 31,
Derivatives Designated as Hedging Instruments:
Interest income
1,052
3,687
(781
12,869
Interest expense
168
178
(1,590
556
1,220
3,865
(2,371
13,425
10. OTHER COMPREHENSIVE INCOME
The table below provides a summary of the components of other comprehensive income (“OCI”) for the periods presented.
Before-tax
Tax effect
After-tax
Net change in fair value recorded in accumulated OCI
59,279
(17,525
41,754
(35,856
10,600
(25,256
Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity
138
(41
97
163
(48
115
Fair value hedges:
(8,317
2,456
(5,861
17,831
(4,962
Cash flow hedges:
(1,740
514
(1,226
789
(233
Net change
37
11. BALANCE SHEET OFFSETTING
Assets and liabilities relating to certain financial instruments, including, derivatives and securities sold under repurchase agreements (“repurchase agreements”), may be eligible for offset in the condensed consolidated balance sheets as permitted under accounting guidance. As noted above, our interest rate swap derivatives are subject to master netting arrangements. Our interest rate swap derivatives require the Company to pledge investment securities as collateral based on certain risk thresholds. Investment securities that have been pledged by the Company to counterparties continue to be reported in the Company’s condensed consolidated balance sheets unless the Company defaults. We offer a repurchase agreement product to our customers, which include master netting agreements that allow for the netting of collateral positions. This product, known as Citizens Sweep Manager, sells certain of our securities overnight to our customers under an agreement to repurchase them the next day. The repurchase agreements are not offset in the Company’s condensed consolidated balances.
In June 2023, fair value hedging transactions were executed in which $1 billion notional pay-fixed interest rate swaps were consummated with original maturities ranging from four to five years, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. In December 2024, we terminated one of these swaps which had a notional value of $300 million, a maturity date of June 2027, and paid a fixed rate of 3.95%. The remaining $700 million notional pay-fixed interest rate swaps had a fair value which totaled $1.1 million and were reflected as a liability on March 31, 2025.
During the first quarter of 2024, cash flow hedging transactions were executed in which $300 million notional pay-fixed interest rate swaps were consummated with maturities of three years, wherein the Company pays a weighted average fixed rate of approximately 4.2% and receives daily SOFR. The fair value of these instruments totaled $2.3 million and were reflected as a liability on March 31, 2025.
Refer to Note 9 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information.
38
Gross Amounts Recognized in the Condensed
Gross Amounts Offset in the Condensed
Net Amounts Presented in the Condensed
Gross Amounts Not Offsetin the Condensed Consolidated Balance Sheets
Consolidated Balance Sheets
Financial Instruments
Collateral Pledged
Net Amount
Financial assets:
35,382
(35,304
35,843
(35,850
71
3,318
(32,532
3,389
Financial liabilities:
110
188
Repurchase agreements
276,164
(310,246
(34,082
279,594
(310,136
(30,542
41,933
(41,903
42,538
(42,390
(6,899
323
49,155
7,252
(49,289
501
(306,401
(44,514
262,434
(43,967
39
12. LEASES
The Company’s operating leases, where the Company is a lessee, include real estate, such as office space and banking centers. Lease expense for operating leases is recognized on a straight-line basis over the term of the lease and is reflected in the consolidated statement of earnings. Right-of-use (“ROU”) assets and lease liabilities are included in other assets and other liabilities, respectively, on the Company’s condensed consolidated balance sheet.
While the Company has, as a lessor, certain equipment finance leases, such leases are not material to the Company’s consolidated financial statements.
The tables below present the components of lease costs and supplemental information related to leases as of and for the periods presented.
March 31,2025
December 31,2024
Lease Assets and Liabilities
ROU assets
45,174
47,117
Total lease liabilities
47,834
49,617
Lease Cost
Operating lease expense (1)
2,541
1,845
Sublease income
Total lease expense
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases, net
2,270
1,864
Lease Term and Discount Rate
Weighted average remaining lease term (years)
9.97
9.99
Weighted average discount rate
6.01
5.95
The Company’s lease arrangements that have not yet commenced as of March 31, 2025 and the Company’s short-term lease costs and variable lease costs, for the three months ended March 31, 2025 and 2024 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, 2025, excluding property taxes and insurance, are as follows:
Year:
2025 (excluding the three months ended March 31, 2025)
7,622
2026
9,114
2027
2028
5,900
2029
4,172
2030
3,518
Thereafter
29,151
Total future lease payments
67,172
Less: Imputed interest
(19,337
Present value of lease liabilities
13. REVENUE RECOGNITION
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods indicated.
In-scope of Topic 606:
Noninterest Income (in-scope of Topic 606)
13,398
10,520
Noninterest Income (out-of-scope of Topic 606)
Refer to Note 3 – Summary of Significant Accounting Policies and Note 22 – Revenue Recognition, included in our Annual Report on Form 10-K for the year ended December 31, 2024 for a more detailed discussion about noninterest revenue streams that are in-scope of Topic 606.
41
14. INCOME TAXES
The company invests in low income housing tax credit and solar tax funds that are designed to generate a return primarily through the realization of federal tax credits. The company accounts for these investments by amortizing the cost of tax credit investments over the life of the investment using a proportional amortization method and tax credit investment amortization expense is a component of the provision for income taxes.
The following table presents the balances of the Company's tax credit investments and related unfunded commitments at March 31, 2025 and December 31, 2024:
Tax credit investments
79,424
57,264
Unfunded commitments - tax credit investments
71,797
45,809
The following table presents other information related to the Company's tax credit investments as of March 31, 2025 and December 31, 2024:
Tax credits and other tax benefits recognized
37,725
21,257
Tax credit amortization expense included in provision for income taxes
33,451
17,421
42
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, 2024 and the unaudited condensed consolidated financial statements and accompanying notes presented elsewhere in this report.
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.
Our significant accounting policies are described in greater detail in our 2024 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, 2024, 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, 2025
Standard
Description
Adoption Timing
Impact on Financial Statements
ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax DisclosuresIssued December 2023
On December 14, 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU enhances annual income tax disclosures to address investor requests for more detailed information about tax risks and improved transparency of income tax disclosures. The two primary enhancements disaggregate existing income tax disclosures related to the effective tax rate reconciliation and information on income taxes paid disaggregated by jurisdiction. This ASU is effective for annual reporting periods beginning after December 15, 2024 and are to be applied on a prospective basis; early adoption is permitted.
December 31, 2025
The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.
ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement ExpensesIssued November 2024
On November 4, 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40 Disaggregation of Income Statement Expenses. This ASU requires disaggregated disclosure of income statement expenses for public business entities. This ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures in tabular format within the footnotes to the financial statements. The prescribed categories include employee compensation, depreciation, and intangible asset amortization. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning in 2028. This ASU is to be applied on a prospective basis, though early adoption and retrospective application are permitted.
December 31, 2027
ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective DateIssued January 2025
On January 06, 2025, the FASB issued ASU 2025-01, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual periods after December 15, 2026, and interim periods in fiscal years beginning after December 15, 2027.
See ASU 2024-03
44
For the first quarter of 2025, we reported net earnings of $51.1 million, compared with $50.9 million for the fourth quarter of 2024 and $48.6 million for the first quarter of 2024. Diluted earnings per share were $0.36 for the first quarter, and prior quarter and $0.35 for the same period last year. Net income of $51.1 million for the first quarter of 2025 produced an annualized return on average equity (“ROAE”) of 9.31%, an annualized return on average tangible common equity (“ROATCE”) of 14.51%, and an annualized return on average assets (“ROAA”) of 1.37%. Our net interest margin, tax equivalent (“NIM”), was 3.31% for the first quarter of 2025, while our efficiency ratio was 46.69%.
Net interest income was $110.4 million for the first quarter of 2025 consistent with the fourth quarter of 2024, and a $2.0 million, or 1.79%, decrease from the first quarter of 2024. Our net interest margin increased by 21 basis points compared to the first quarter of 2024, primarily driven by lower cost of funds as a result of balance sheet deleveraging that occurred in the second half of 2024. This balance sheet deleveraging impacted average earning assets, which declined from the first quarter of 2024 by $1.1 billion. Interest expense from borrowings decreased by approximately $17.1 million compared to the first quarter of 2024, as average borrowings declined by $1.5 billion.
Noninterest income was $16.2 million for the first quarter of 2025, compared with $13.1 million for the fourth quarter of 2024 and $14.1 million for the first quarter of 2024. During the first quarter of 2025, the Bank sold four OREO properties resulting in a net gain of $2.2 million.
Noninterest expense for the first quarter of 2025 was $59.1 million, compared to $58.5 million for the fourth quarter of 2024 and $59.8 million for the first quarter of 2024. The quarter-over-quarter increase includes a $500 thousand provision for unfunded commitments in the first quarter of 2025. The decrease of $627,000 compared to first quarter of 2024 is inclusive of lower regulatory assessment expense, as the first quarter of 2024 included an additional accrual of $2.3 million for the FDIC special assessment associated with the bank failures in 2023.
At March 31, 2025, total assets of $15.26 billion increased by $102.9 million, or 0.68%, from total assets of $15.15 billion at December 31, 2024. Interest-earning assets of $13.62 billion at March 31, 2025, increased by $92.9 million, or 0.69%, when compared with $13.53 billion at December 31, 2024. The increase in interest-earning assets was primarily due to a $290.3 million increase in interest-earning balances due from the Federal Reserve, offset by a $27.6 million decrease in investment securities, and a $172.8 million decrease in total loans.
Total investment securities were $4.9 billion at March 31, 2025, a decrease of $27.6 million, or 0.56%, from $4.92 billion at December 31, 2024. At March 31, 2025, investment securities held-to-maturity (“HTM”) totaled $2.36 billion, a decrease of $20.5 million, or 0.86%, from December 31, 2024. At March 31, 2025, investment securities available-for-sale (“AFS”) totaled $2.54 billion, inclusive of a pre-tax net unrealized loss of $338.4 million. AFS securities decreased by $7.0 million, or 0.28%, from $2.54 billion at December 31, 2024. Pre-tax unrealized loss decreased by $58.9 million from December 31, 2024. Our tax equivalent yield on investments was 2.63% for the quarter ended March 31, 2025, compared to 2.58% for the fourth quarter of 2024 and 2.64% for the first quarter of 2024.
Total loans and leases, at amortized cost, of $8.36 billion at March 31, 2025, decreased by $172.8 million, or 2.02%, from December 31, 2024. The quarter-over-quarter decline in loans included decreases of $16.8 million in commercial real estate loans, $167.8 million in dairy & livestock loans, offset by an increase of $17.1 million in commercial and industrial loans. The decline in dairy and livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 81% at the end of 2024 to 64% at March 31, 2025. Our yield on loans was 5.22% for the quarter ended March 31, 2025, compared to 5.15% for the fourth quarter of 2024 and 5.30% for the first quarter of 2024.
The allowance for credit losses totaled $78.3 million at March 31, 2025, compared to $80.1 million at December 31, 2024. There was $2.0 million recapture of credit losses in the first quarter of 2025. The decline in the allowance was due primarily to improved credit ratings for dairy and livestock loans. The allowance for credit losses as a percentage of total loans was .94% at both March 31, 2025 and December 31, 2024.
Noninterest-bearing deposits were $7.18 billion at March 31, 2025, an increase of $147.1 million, or 2.09%, when compared to $7.04 billion at December 31, 2024 . At March 31, 2025, noninterest-bearing deposits were 59.92% of total deposits, compared to 58.90% at December 31, 2024.
Interest-bearing deposits were $4.81 billion at March 31, 2025, a decrease of $105.6 million, or 2.15%, when compared to $4.91 billion at December 31, 2024. Customer repurchase agreements totaled $276.2 million at March 31, 2025, compared
to $261.9 million at December 31, 2024. Our average cost of total deposits including customer repurchase agreements was 0.87% for the first quarter of 2025, compared to 0.97% for the fourth quarter of 2024 and 0.73% for the first quarter of 2024.
At March 31, 2025, total borrowings, consisted of $500.0 million of FHLB advances, at a weighted average cost of approximately 4.6%. The FHLB advances include maturities of $300 million in May 2026 and $200 million in May 2027.
The Company’s total equity was $2.23 billion at March 31, 2025. This represented an overall increase of $42.1 million from total equity of $2.19 billion at December 31, 2024. Increases to equity included $51.1 million in net earnings and a $34.8 million increase in other comprehensive income, that were partially offset by $27.9 million in cash dividends. During the first quarter of 2025, we repurchased 782,063 shares at an average price of $19.55, totaling $15.3 million. We engaged in no stock repurchases during the first quarter of 2024 other than the shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards. Our tangible book value per share at March 31, 2025 was $10.45.
Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of March 31, 2025, the Company’s Tier 1 leverage capital ratio was 11.81%, common equity Tier 1 ratio was 16.52%, Tier 1 risk-based capital ratio was 16.52%, and total risk-based capital ratio was 17.33%. Refer to our Analysis of Financial Condition – Capital Resources.
Financial Performance
Variance
Net interest income
(2,017
-1.79
Recapture of (provision for) credit losses
2,000
Noninterest income
2,116
14.99
Noninterest expense
(59,144
(59,771
627
1.05
(18,425
(18,204
(221
-1.21
2,505
5.15
Basic
Diluted
Return on average assets
1.21
0.16
Return on average shareholders' equity
9.31
Efficiency ratio
46.69
47.22
-0.53
Noninterest expense to average assets
1.58
1.48
0.10
110,418
3,000
(1,000
-33.33
13,103
3,126
23.86
(58,480
(664
-1.14
(17,183
(1,242
-7.23
50,858
246
1.30
9.14
0.17
47.34
-0.65
1.49
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.
Net Income
Add: Amortization of intangible assets
1,163
Less: Tax effect of amortization of intangible assets (1)
(341
(344
(425
Tangible net income
51,918
51,677
49,612
Average stockholders' equity
2,226,948
2,213,556
2,098,868
Less: Average goodwill
(765,822
Less: Average intangible assets
(9,518
(10,650
(14,585
Average tangible common equity
1,451,608
1,437,084
1,318,461
Return on average equity, annualized (2)
Return on average tangible common equity, annualized (2)
14.51
14.31
15.13
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, 2025 and 2024. 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.
48
The tables below present the interest rate spread, net interest margin and the composition of average interest-earning assets and average interest-bearing liabilities by category for the periods indicated, including the changes in average balance, composition, and average yield/rate between these respective periods.
Average
Yield/
Balance
Interest
Rate
INTEREST-EARNING ASSETS
Investment securities (1)
Available-for-sale securities:
2,518,657
2.96
2,874,642
20,554
3.35
25,455
3.13
Held-to-maturity securities:
2,003,206
2.13
2,080,985
2.11
366,301
3.12
376,626
3.11
Investment in FHLB stock
8.53
9.36
162,389
4.49
444,101
5.50
Loans (2)
8,467,465
5.22
8,824,579
5.30
Total interest-earning assets
13,556,584
4.28
14,644,400
4.34
Total noninterest-earning assets
1,612,722
1,561,013
15,169,306
16,205,413
INTEREST-BEARING LIABILITIES
Savings deposits (3)
4,303,105
21,375
2.01
4,007,124
18,529
1.86
Time deposits
563,213
3,947
2.84
447,011
2,837
2.55
Total interest-bearing deposits
4,866,318
4,454,135
1.93
FHLB advances, other borrowings, and customer repurchase agreements
830,400
3.32
2,301,250
4.17
Interest expense - Other interest-bearing liabilities
40,284
4.33
Interest-bearing liabilities
5,737,002
2.30
6,755,385
2.69
Noninterest-bearing deposits
7,006,357
7,182,718
198,999
168,442
Stockholders' equity
Net interest spread - tax equivalent
1.98
1.65
Net interest margin
3.29
3.08
Net interest margin - tax equivalent
3.31
3.10
The following table presents a comparison of interest income and interest expense resulting from changes in the volumes and rates on average interest-earning assets and average interest-bearing liabilities for the periods indicated. Changes in interest income or expense attributable to volume changes are calculated by multiplying the change in volume by the initial average interest rate. The change in interest income or expense attributable to changes in interest rates is calculated by multiplying the change in interest rate by the initial volume. The changes attributable to interest rate and volume changes are calculated by multiplying the change in rate times the change in volume and reflect an adjustment for the number of days as appropriate.
Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income
Comparison of Three Months Ended March 31,
2025 Compared to 2024
Increase (Decrease) Due to
Rate/
Volume
Taxable investment securities
(2,602
(61
(27
(2,690
Tax-advantaged investment securities
(32
(22
(405
88
(8
(325
(65
(1
(56
(37
(3
(3,820
(1,108
652
(4,276
Loans
(4,669
(1,741
(868
(7,278
(11,593
(2,837
(257
(14,687
Savings deposits
1,357
2,846
731
1,110
(15,125
(4,820
2,883
(17,062
(13,037
(2,972
3,339
(12,670
1,444
135
(3,596
First Quarter of 2025 Compared to the First Quarter of 2024
Net interest income, before provision for credit losses, of $110.4 million for the first quarter of 2025 decreased by $2.02 million, or 1.79%, from the first quarter of 2024. The decline in net interest income compared to the first quarter of 2024 was the net result of a $1.09 billion decline in earning assets and a 21 basis point increase in net interest margin. The expansion of the net interest margin was the result of an 27 basis point decrease in funding costs, which offset a 6 basis point decrease in the earning asset yield. The decrease in funding costs includes interest expense from borrowings, which decreased by approximately $17.1 million compared to the first quarter of 2024, as average borrowings declined by approximately $1.5 billion.
Total interest income of $143.0 million decreased by $14.7 million, or 9.31%, when compared to the first quarter of 2024. This decrease was primarily due to a $1.09 billion decline in earning assets. Average loan balances declined by $357.1 million, while total investment securities declined by an average of $449 million and funds held at the Federal Reserve declined by $272.0 million on average. Earning asset yields decreased from 4.34% in the first quarter of 2024 to 4.28% in the first quarter of 2025. Loan yields declined from 5.30% for the first quarter of 2024 to 5.22% for the first quarter of 2025, as the Federal Reserve decreased the federal funds rate by 100 basis points during the second half of 2024. The yield on investment securities increased by 17 basis points from the prior year quarter, as certain low yielding AFS securities were sold during the second half of 2024 and new higher yielding investments were purchased during the fourth quarter of 2024.
Total interest income and fees on loans for the first quarter of 2025 was $109.1 million, a decrease of $7.3 million, or 6.26%, from the first quarter of 2024. This decrease in income was primarily due to $357.1 million decrease in average loans outstanding, as well as an 8 basis point decline in loan yields. Loan yields decreased from 5.30% in the first quarter of 2024 to 5.22% in the first quarter of 2025, as declining short term interest rates, such as the Prime rate impacted variable indexed loans.
Interest income from investment securities was $31.8 million, a decrease of $3.1 million, or 8.88%, from the first quarter of 2024. The decrease includes a $2.6 million decrease in the positive carry from pay-fixed swaps that are fair value hedges of our AFS investment portfolio. This decrease was due to both a reduction in the positive carry between the fixed rate on the swaps and daily SOFR and a decrease in the notional value of the swaps from $1 billion during the first quarter of 2024 to $700 million in the first quarter of 2025, after a $300 million swap was terminated at the end of 2024. Excluding the
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fair value hedges, the yield on investment securities increased by 17 basis points when compared to the first quarter of 2024. The increase in the investment yields was offset by a $449 million year over year decline in average investments.
Interest expense of $32.6 million for the first quarter of 2025, decreased $12.7 million, compared to the first quarter of 2024. Total cost of funds of 1.04% for the first quarter of 2025 decreased from 1.31% for the year ago quarter. This 27 basis point decrease in cost of funds was the result of a $1.5 billion decline in average borrowings that had a cost of 4.76% on average in the first quarter of 2024 and an average cost of 4.61% in the first quarter of 2025. The cost of total deposit and customer repurchase agreements increased from .73% in the first quarter of 2024 to .87% in the first quarter of 2025. Average noninterest-bearing deposits were 59.01% of total deposits for the first quarter of 2025, compared to 61.72% for the first quarter of 2024.
The provision for (recapture of) credit losses is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected lifetime losses in the loan portfolio as of the balance sheet date.
There was $2.0 million recapture of credit losses in the first quarter of 2025, compared to no provision in the first quarter of 2024. Projected loss rates were 0.94% at March 31, 2025, compared to 0.94% at March 31, 2024. Refer to the discussion of “Allowance for Credit Losses” in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.
No assurance can be given that economic conditions which affect the Company’s service areas or other circumstances will or will not be reflected in future changes in the level of our allowance for credit losses and the resulting provision or recapture of provision for credit losses. The process to estimate the allowance for credit losses requires considerable judgment and our economic forecasts may continue to vary due to the uncertainty of the future impact from the recent rise in interest rates, geopolitical events in Europe, and global inflation will have on future interest rates, unemployment, the overall economy and resulting impact on our customers. See “Allowance for Credit Losses” under Analysis of Financial Condition herein.
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Noninterest Income
Noninterest income includes income derived from financial services offered to our customers, such as CitizensTrust, merchant processing and card services, international banking, and other business services. Also included in noninterest income are service charges and fees, primarily from deposit accounts, gains (net of losses) from the disposition of investment securities, loans, other real estate owned, and fixed assets, and other revenues not included as interest on earning assets.
The following table sets forth the various components of noninterest income for the periods presented.
(128
-2.54
187
5.80
245
63.64
(762
-21.21
391
20.85
The $2.1 million increase in noninterest income included a $2.2 million gain on sale of OREO. CRA investment income increased by approximately $450,000, due to changes in the net asset value of certain equity investments.
Trust and Investment Services represents our CitizensTrust group. The CitizensTrust group is made up of wealth management and investment services. They provide a variety of services, which include asset management, financial planning, estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other non-insured investment products. At March 31, 2025, CitizensTrust had approximately $4.7 billion in assets under management and administration, including $3.38 billion in assets under management. CitizensTrust generated fees of $3.4 million for the first quarter of 2025, compared to $3.2 million for the first quarter of 2024.
The Bank’s investment in BOLI includes life insurance policies generally acquired through acquisitions or the purchase of life insurance by the Bank on a select group of employees to fund deferred compensation plans. The Bank is the owner and beneficiary of these policies. BOLI is recorded as an asset at its cash surrender value. Increases in the cash value of these policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income tax, as long as they are held for the life of the covered parties. The $762,000 decrease in BOLI income was primarily due to receiving in the first quarter of 2024 $531,000 in death benefits that exceeded the asset value on certain policies.
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Noninterest Expense
The following table summarizes the various components of noninterest expense for the periods presented.
0.21
Occupancy
4,763
4,570
193
4.22
Equipment
1,235
995
240
24.12
(174
-7.72
696
19.74
358
21.96
(283
-19.68
Telecommunications expense
493
4.26
Regulatory assessments
2,017
4,445
(2,428
-54.62
Insurance
507
(25
-4.93
Directors' expenses
302
328
(26
-7.93
3,409
3,184
225
7.07
(627
-1.05
Efficiency ratio (1)
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 1.58% for the first quarter of 2025, compared to 1.48% for the first quarter of 2024. This ratio was impacted by the deleveraging strategy that culminated at the end of 2024 and resulted in a $1.04 billion decrease in average assets between the first quarter of 2024 and the first quarter of 2025.
Our ability to control noninterest expenses in relation to the level of total revenue (net interest income before provision for credit losses plus noninterest income) can be measured by the efficiency ratio and indicates the percentage of net revenue that is used to cover expenses. The efficiency ratio for the first quarter of 2025 was 46.69%, compared to 47.22% for the first quarter of 2024.
Noninterest expense of $59.1 million for the first quarter of 2025 was $627,000, or 1.05%, lower than the first quarter of 2024. Noninterest expense in the first quarter of 2024 included an additional accrual of $2.3 million for the FDIC special assessment resulting from a 25% increase in the FDIC's initial loss estimate, which was $9.2 million as reflected in the fourth quarter of 2023. Year-over-year expense growth included a $500,000 provision for unfunded loan commitments in the first quarter of 2025, in addition to approximately $700,000 higher software expense and a $433,000 increase in occupancy and equipment expense. There was no provision for unfunded loan commitments in the first quarter of 2024. The increase in occupancy expense included the higher rent expense for the four buildings that were sold and leased back during the second half of 2024.
Income Taxes
The Company’s effective tax rate for the three months ended March 31, 2025 was 26.50%, compared to 27.25% for the three months ended March 31, 2024, respectively. The decrease in the effective tax rate was a result of increased investments in tax credits during 2024 and 2025. Our estimated annual effective tax rate also varies depending upon the level of tax-advantaged income from municipal securities and BOLI, as well as available tax credits.
The Company’s effective tax rates are below the nominal combined Federal and State tax rate primarily as a result of tax-advantaged income from certain municipal security investments, municipal loans and leases and BOLI, as well as available tax credits for each period.
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Total assets of $15.26 billion at March 31, 2025 increased by $102.9 million, or 0.68%, from total assets of $15.15 billion at December 31, 2024. Interest-earning assets of $13.6 billion at March 31, 2025, increased by $92.9 million, or 0.69%, when compared with $13.53 billion at December 31, 2024. The increase in interest-earning assets was primarily due to a $290.3 million increase in interest-earning balances due from the Federal Reserve, offset by a $27.6 million decrease in investment securities, and a $170.9 million decrease in net loans.
Total liabilities were $13.03 billion at March 31, 2025, an increase of $60.8 million, or 0.47%, from total liabilities of $12.97 billion at December 31, 2024. Total deposits increased by $41.5 million, or 0.35%, with noninterest-bearing deposits increasing by $147.2 million, or 2.09%. Interest-bearing deposits declined by $105.6 million, or 2.15%. Borrowings remained the same balance as of December 31, 2024. At March 31, 2025, total borrowings consisted of $500 million of FHLB advances, at an average cost of approximately 4.6%.
Total equity increased $42.1 million to $2.23 billion at March 31, 2025, compared to total equity of $2.19 billion at December 31, 2024. Increases to equity included $51.1 million in net earnings and a $34.8 million increase in other comprehensive income that were partially offset by $27.9 million in cash dividends. In the first quarter of 2025, we repurchased, under our stock repurchase plan, 782,063 shares of common stock, at an average repurchase price of $19.55, totaling $15.3 million. We engaged in no stock repurchases during the first quarter of 2024.
Investment Securities
The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. We continued to shrink our investment portfolio. At March 31, 2025, total investment securities were $4.89 billion. This represented a decrease of $27.6 million, or 0.56%, from $4.92 billion at December 31, 2024. The overall decrease in investment securities was primarily due to a $20.5 million decline in our HTM securities. At March 31, 2025, investment securities HTM totaled $2.36 billion. At March 31, 2025, our AFS investment securities totaled $2.54 billion, inclusive of a pre-tax net unrealized loss of $388.4 million, compared to $447.7 million at December 31, 2024. The $59.3 million increase in fair value of our AFS securities was partially offset by an $8.3 million decrease in the fair value of our derivatives that hedge the change in value of our AFS portfolio. The after-tax unrealized loss reported in AOCI on our AFS investment securities and fair-value hedges at March 31, 2025 was $272.8 million. The changes in the net unrealized holding loss resulted primarily from fluctuations in market interest rates. For the three months ended March 31, 2025 and 2024, repayments/maturities of investment securities totaled $84.7 million and $115.5 million, respectively. The Company purchased $1.7 million and $11.5 million of HTM securities during the first quarter of 2025 and 2024 respectively. There were no investment securities sold during the first quarter of 2025 and 2024.
The tables below set forth our investment securities AFS and HTM portfolio by type for the dates presented.
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As of March 31, 2025, approximately $25.5 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.
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, 2025 and December 31, 2024.
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.
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Total loans and leases, at amortized cost, of $8.36 billion at March 31, 2025 decreased by $172.8 million, or 2.02%, from December 31, 2024. The decrease in total loans quarter-over-quarter included decreases of $16.8 million in commercial real estate loans and $167.4 million in dairy & livestock and agribusiness loans, offset by an increase of $17.1 million in commercial and industrial loans. The decline in dairy and livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in the utilization rate from 81% at the end of 2024 to 64% at March 31, 2025.
The following table presents our loan portfolio by type as of the dates presented.
Distribution of Loan Portfolio by Type
As of March 31, 2025, $437.3 million, or 6.70% of the total commercial real estate loans included loans secured by farmland, compared to $449.8 million, or 6.91%, at December 31, 2024. The loans secured by farmland included $103.6 million for loans secured by dairy & livestock land and $333.7 million secured by agricultural land at March 31, 2025, compared to $109.1 million for loans secured by dairy & livestock land and $340.7 million for loans secured by agricultural land at December 31, 2024. As of March 31, 2025, dairy & livestock and agribusiness loans of $252.5 million were comprised of $217.4 million for dairy & livestock loans and $35.1 million for agribusiness loans, compared to $419.9 million were comprised of $385.3 million for dairy & livestock loans and $34.6 million for agribusiness loans at December 31, 2024.
Real estate loans are loans secured by conforming trust deeds on real property, including property under construction, land development, commercial property and single-family and multi-family residences. Our real estate loans are comprised of industrial, office, retail, medical, single family residences, multi-family residences, and farmland. Consumer loans include installment loans to consumers as well as home equity loans, auto and equipment leases and other loans secured by junior liens on real property. Municipal lease finance receivables are leases to municipalities. Dairy & livestock and agribusiness loans are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers and farmers.
As of March 31, 2025, the Company had $207.2 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, 2025, the Company had $64.6 million of total SBA 7(a) loans that include a guarantee of payment from the SBA (typically 75% of the loan amount, but up to 90% in certain cases) in the event of default. The SBA 7(a) loans include revolving lines of credit (SBA Express) and term loans of up to ten (10) years to finance long-term working capital requirements, capital expenditures, and/or for the purchase or refinance of commercial real estate.
As of March 31, 2025, the Company had $15.7 million in construction loans. This represents 0.19% of total gross loans held-for-investment. Although our construction loans are located throughout our market footprint, the majority of
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construction loans consist of commercial land development and construction projects throughout California. There were no nonperforming construction loans at March 31, 2025.
Our loan portfolio is geographically disbursed throughout our marketplace. The following is the breakdown of our total held-for-investment and commercial real estate loans, by region as of March 31, 2025.
Total Loans
Commercial RealEstate Loans
Los Angeles County
3,073,314
36.7
2,219,262
34.2
Central Valley and Sacramento
1,912,918
22.9
1,541,963
23.8
Orange County
1,167,750
14.0
718,216
11.1
Inland Empire
997,739
11.9
884,975
13.6
Central Coast
441,117
5.3
377,555
5.8
San Diego
314,550
3.7
315,939
4.9
Other California
148,875
1.8
91,943
1.4
Out of State
307,369
340,751
5.2
100.0
The table below breaks down our commercial real estate portfolio.
Loan Balance
Percent
Percent Owner-Occupied (1)
AverageLoan Balance
Commercial real estate:
Industrial
2,216,922
47.8
1,631
Office
1,021,513
15.7
26.7
1,664
Retail
899,386
13.9
11.3
1,726
Multi-family
813,032
12.5
0.5
1,549
Secured by farmland (2)
437,295
6.7
98.8
Medical
293,287
4.5
30.7
1,424
Other (3)
809,169
43.1
1,790
Total commercial real estate
35.6
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Nonperforming Assets
The following table provides information on nonperforming assets as of the dates presented.
Nonaccrual loans
Loans past due 90 days or more and still accruing interest
Nonperforming modified loans to borrowers experiencing financial difficulty
Total nonperforming loans
OREO, net
19,303
Total nonperforming assets
26,131
47,098
Modified loans to borrowers experiencing financial difficulty
6,467
Total nonperforming loans and performing modified loans to borrowers experiencing financial difficulty
37,585
34,262
Percentage of nonperforming loans and performing modified loans to borrowers experiencing financial difficulty to total loans, at amortized cost
0.45
0.40
Percentage of nonperforming assets to total loans, at amortized cost, and OREO
0.31
0.55
Percentage of nonperforming assets to total assets
The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified as of three months ended March 31, 2025 and March 31, 2024, and the financial effect of those modifications.
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As of March 31, 2025 and March 31, 2024, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2025 and 2024 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first.
The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty as of March 31, 2024.
At March 31, 2025 and December 31, 2024, there was no ACL allocated to modified loans to borrowers experiencing financial difficulty. Impairment amounts identified are typically charged off against the allowance at the time the loan is considered uncollectible. There were no charge-offs on loans to borrowers experiencing financial difficulty for the three months ended March 31, 2025 and 2024.
Nonperforming Assets and Delinquencies
The table below provides trends in our nonperforming assets and delinquencies as of the dates presented.
September 30,
June 30,
Nonperforming loans:
24,379
18,794
21,908
10,661
151
2,825
2,712
2,727
143
308
21,913
24,957
13,810
% of Total loans
0.33
0.26
0.29
Past due 30-89 days (accruing):
30,701
19,781
408
64
487
30,765
146
20,195
0.23
OREO:
18,656
647
Total nonperforming, past due, and OREO
26,849
47,585
53,325
25,750
34,652
0.32
0.25
0.62
0.30
Classified Loans
124,606
124,728
103,080
Nonperforming loans, defined as nonaccrual loans, including modified loans on nonaccrual, and loans past due 90 days or more and still accruing interest, were $25.6 million at March 31, 2025, or 0.31% of total loans. This compares to nonperforming loans of $27.8 million, or 0.33% of total loans, at December 31, 2024 and $13.8 million, or 0.16% of total loans, at March 31, 2024. The $2.2 million decrease in nonperforming loans from December 31, 2024 was primarily due to the payoff of two nonperforming commercial real estate loans totaling $764 thousand, and various paydowns.
Classified loans are loans that are graded “substandard” or worse. Classified loans increased $4.6 million quarter-over-quarter, primarily due to increases of $6.5 million in classified dairy and livestock loans, offset with a $1.3 million decline in commercial real estate loans.
At March 31, 2025, we had one OREO property totaling $495,000. At December 31, 2024 we had four OREO properties totaling $19.3 million. In the first quarter of 2025, we sold four properties with a total book value of $19.3 million. These sales resulted in gains on sale of approximately $2.0 million.
Allowance for Credit Losses
The allowance for credit losses totaled $78.3 million as of March 31, 2025, compared to $80.1 million as of December 31, 2024 and $82.8 million as of March 31, 2024. Our allowance for credit losses at March 31, 2025 was 0.94% of total loans. This compares to 0.94% and 0.94% at December 31, 2024 and March 31, 2024, respectively. The decrease in our allowance for credit losses from December 31, 2024 was due to a $2 million recapture of credit losses primarily due to lower amounts of criticized dairy and livestock loans at March 31, 2025.
The allowance for credit losses as of March 31, 2025 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure
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the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. The allowance for credit loss is sensitive to both changes in these portfolio characteristics and the forecast of macroeconomic variables. Risk attributes for commercial real estate loans include Original Loan to Value ratios ("OLTV"), origination year, loan seasoning, and macroeconomic variables that include Real GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans. The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of Small Business Administration (SBA) loans (excluding Paycheck Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.
Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with downside risks weighted among multiple forecasts. As of March 31, 2025, the resulting weighted forecast resulted in Real GDP growth increase at a slower rate. Real GDP forecasted to be below 2% for the remainder of 2025 until reaching a growth in the second half of 2026. Commercial real estate values are forecasted to continue their decline through the first half of 2026. Unemployment is forecasted to rise in 2025 and reach 5% by the beginning of 2026 and stay elevated through 2028.
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The table below presents a summary of charge-offs and recoveries by type, the provision for credit losses on loans, and the resulting allowance for credit losses for the periods presented.
As of and For the
Allowance for credit losses at beginning of period
Charge-offs:
Total charge-offs
Recoveries:
Total recoveries
Net recoveries (charge-offs)
(4,025
Allowance for credit losses at end of period
Summary of reserve for unfunded loan commitments:
Reserve for unfunded loan commitments at beginning of period
6,250
7,500
Reserve for unfunded loan commitments at end of period
6,750
Reserve for unfunded loan commitments to total unfunded loan commitments
0.34
Amount of total loans at end of period (1)
8,770,713
Average total loans outstanding (1)
Net charge-offs to average total loans
-0.05
Net charge-offs to total loans at end of period
Allowance for credit losses to average total loans
0.92
0.94
Allowance for credit losses to total loans at end of period
Net recoveries (charge-offs) to allowance for credit losses
-4.86
Net (charge-offs) recoveries to provision for credit losses
-6.50
The Bank’s ACL methodology also produced an allowance of $6.8 million for our off-balance sheet credit exposures as of March 31, 2025, compared with $6.3 million and $7.5 million as of December 31, 2024 and March 31, 2024, respectively. The increase from December 31, 2024 was due to a $500,000 provision for unfunded loan commitments for the first quarter of 2025.
While we believe that the allowance at March 31, 2025 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that future economic conditions, interest rate fluctuations, conditions of our borrowers (including fraudulent activity), or natural disasters, which adversely affect our service areas or other circumstances or conditions, including those defined above, will not be reflected in increased provisions for credit losses in the future.
Changes in economic and business conditions could have an impact on our market area and on our loan portfolio. We continually monitor these conditions in determining our estimates of needed reserves. However, we cannot predict the extent to which the deterioration in general economic conditions, real estate values, changes in general rates of interest and changes in the financial conditions or business of a borrower may adversely affect a specific borrower’s ability to pay or the value of our collateral. See “Risk Management – Credit Risk Management” contained in our Annual Report on Form 10-K for the year ended December 31, 2024.
The primary source of funds to support earning assets (loans and investments) is the generation of deposits.
Total deposits were $11.99 billion at March 31, 2025. This represented an increase of $41.5 million, or 0.35%, from total deposits of $11.95 billion at December 31, 2024.
The composition of deposits is summarized as of the dates presented in the table below.
59.92
58.90
Interest-bearing deposits
Investment checking
533,220
4.45
551,305
4.61
Money market
3,289,121
27.43
3,363,804
28.15
Savings
421,491
3.52
422,583
3.54
561,822
4.68
573,593
4.80
Total Deposits
The amount of noninterest-bearing deposits in relation to total deposits is an integral element in our strategy of seeking to achieve a low cost of funds. Noninterest-bearing deposits totaled $7.18 billion at March 31, 2025, an increase of $147.2 million, or 2.09%, from noninterest-bearing deposits of $7.04 billion at December 31, 2024. Noninterest-bearing deposits were 59.92% of total deposits at the end of the first quarter of 2025, compared to 58.90% at December 31, 2024.
Interest-bearing non-maturity deposits, which include savings, interest-bearing demand, and money market accounts, totaled $4.24 billion at March 31, 2025, representing a decrease of $93.9 million, or 2.16%, from $4.34 billion at December 31, 2024.
Time deposits totaled $561.8 million at March 31, 2025, representing a decrease of $11.8 million, or 2.05%, from total time deposits of $573.6 million at December 31, 2024.
During the first quarter of 2024, $300 million of brokered deposits were issued and cash flow hedging transactions were simultaneously executed in which $300 million notional pay-fixed interest rate swaps were consummated with maturities of three years, wherein the Company pays a weighted average fixed rate of approximately 4.2% and receives daily SOFR. We entered into these interest rate derivative contracts that are designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate. The fair value of these instruments totaled $2.26 million and were reflected as a liability at March 31, 2025.
Our deposits are primarily relationship based and include deposits and customer repurchase agreements ("repos"). For the first quarter of 2025, 72% of our deposits consist of business deposits and 28% consist of consumer deposits, primarily the owners and employees of our business customers. The largest percentage of our deposits, 39%, are analyzed business accounts, which represent customer operating accounts that generally utilize a wide array of treasury management products. As most of our business customers need to operate with more than $250,000 in their operating account, we have a significant percentage of deposits that are uninsured. As of March 31, 2025, 46% of our total deposits and customer repos were uncollateralized and uninsured.
Our customer deposit relationships represent a diverse set of industries. The industry classification with the largest concentration is construction, which represents 8% of our deposits. Overall, there are 14 different industry classifications that represent 2% or more of our deposits as of March 31, 2025. Our depositors have typically banked with us for many years. As of March 31, 2025, 46% of our deposit relationships have banked with us more than 10 years and 75% of our deposit relationships have been with us for three or more years.
Average total deposits for the first quarter decreased by approximately $242 million compared to the fourth quarter of 2024, as we typically experience a seasonally low level of deposits in the first quarter of each calendar. Our average noninterest-bearing deposits continued to be greater than 59% of our average total deposits for the first quarter of 2025.
Our cost of deposits was 86 basis points on average for the first quarter of 2025, which compares to 93 basis points for the fourth quarter of 2024 and 74 basis points for the first quarter of 2024. From the first quarter of 2022 through the first quarter of 2025, our cost of deposits has increased by 83 basis points. During the Federal Reserve's interest rates tightening cycle from the first quarter of 2022 through the third quarter of 2024, our deposit costs rose by 95 basis points, representing a deposit beta of 18%, when compared to the 525 basis point increase in the Fed Funds rate during the rising rate period.
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At March 31, 2025, our borrowings were $776.2 million and included $276.2 million of repurchase agreements and $500.0 million of FHLB advances, at an average cost of approximately 4.6%. At December 31, 2024, our borrowings were $761.9 million and included $261.9 million of repurchase agreements and $500.0 million of FHLB advances, at an average cost of approximately 4.6%. Refer to Note 6 - Borrowings of the notes to the consolidated financial statements for a more detailed discussion.
We offer a repurchase agreement product to our customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price that reflects the market value of the use of these funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a pre-determined balance in a demand deposit account, in order to earn interest. As of March 31, 2025 and December 31, 2024, total funds borrowed under these agreements were $276.2 million and $261.9 million, respectively, with a weighted average interest rate of 1.24% for the first quarter of 2025, compared to 2.16% for the fourth quarter of 2024 and 0.39% for the first quarter of 2024.
At March 31, 2025, loans with a carrying value of $4.4 billion were pledged to secure available lines of credit from the FHLB and Federal Reserve Bank. At March 31, 2025, the Bank had unused borrowing capacity at the FHLB of $4.09 billion and unused borrowing capacity at the FRB of $1.06 billion.
Aggregate Contractual Obligations
The following table summarizes the aggregate contractual obligations as of March 31, 2025.
Maturity by Period
Less Than One Year
One Year Through Three Years
Four Years Through Five Years
Over Five Years
Deposits (1)
11,982,108
6,205
1,336
272
Customer repurchase agreements (1)
577
1,150
20,177
Operating leases
10,048
16,074
9,262
31,788
Equity investments
63,280
6,791
1,040
12,928,107
12,332,176
530,220
12,434
53,277
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.
Other borrowings represent amounts due for FHLB advances based on their contractual maturity dates.
Deferred compensation represents the amounts that are due to former employees based on salary continuation agreements as a result of acquisitions and amounts due to current and retired employees under our deferred compensation plans.
Operating leases represent the total minimum lease payments due under non-cancelable operating leases. Refer to Note 12 – Leases of the notes to the Company’s unaudited condensed consolidated financial statements for a more detailed discussion about leases.
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Equity investments represent commitments to contribute capital to LIHTC and other CRA-related investment partnerships.
Off-Balance Sheet Arrangements
The following table summarizes the off-balance sheet items at March 31, 2025.
After Five Years
Commitment to extend credit:
390,157
79,187
189,534
96,976
24,460
48,059
38,059
10,000
1,044,282
857,882
144,050
5,084
37,266
Dairy & livestock and agribusiness (1)
301,393
231,615
69,778
SFR Mortgage
1,162
137,681
11,504
23,031
1,887
101,259
Total commitment to extend credit
1,922,734
1,218,247
426,393
103,947
174,147
Obligations under letters of credit
69,933
52,129
12,599
5,187
1,992,667
1,270,376
438,992
109,134
174,165
As of March 31, 2025, we had commitments to extend credit of approximately $1.92 billion, and obligations under letters of credit of $69.9 million. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit underwriting policies in granting or accepting such commitments or contingent obligations as we do for on-balance sheet instruments, which consist of evaluating customers’ creditworthiness individually. As of March 31, 2025 and December 31, 2024, the balance in this reserve was $6.8 million and $6.3 million, respectively, and was included in other liabilities. There was no provision or recapture of provision for unfunded commitments for the first quarter of 2025 or 2024.
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.
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Capital Resources
Our primary source of capital has been the retention of operating earnings and issuance of common stock in connection with periodic acquisitions. In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources, needs and uses of capital in conjunction with projected increases in assets and the level of risk. As part of this ongoing assessment, the Board of Directors reviews the various components of our capital plan and capital stress testing.
Total equity increased $42.1 million, or 1.93%, to $2.23 billion at March 31, 2025, compared to total equity of $2.19 billion at December 31, 2024. Increases to equity included $51.1 million in net earnings and a $37.8 million increase in other comprehensive income that were partially offset by $27.9 million in cash dividends. During the first quarter of 2025, we repurchased 782,063 shares at an average price of $19.55, totaling $15.3 million. We engaged in no stock repurchases during the first quarter of 2024 other than the shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards. Our tangible book value per share at March 31, 2025 was $10.45.
During the first quarter of 2025, the Board of Directors of CVB declared quarterly cash dividends totaling $0.20 per share. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB’s ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the Federal Reserve, and covenants set forth in various agreements we are a party to.
On November 20, 2024, our Board of Directors approved a program to repurchase up to 10,000,000 shares (the “Maximum Amount”) of CVB common stock including by means of one or more Rule 10b5-1 plans or other appropriate buy-back arrangements, including open market purchases and private transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations (“2024 Repurchase Program”). This 2024 Repurchase Program replaced in its entirety the Company's previous 2022 share repurchase program under which 4,300,059 shares remained available for repurchase and which has now been terminated. The 2024 Repurchase Program terminates on the earlier of the repurchase of the Maximum Amount or five years from the date of authorization. During the first quarter of 2025, we repurchased 782,063 shares at an average price of $19.55, totaling $15.3 million. We engaged in no stock repurchases during the first quarter of 2024 other than the shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.
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, 2025, 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, 2024.
The table below presents the Company’s and the Bank’s risk-based and leverage capital ratios for the periods presented.
Capital Ratios
Adequately Capitalized Ratios
Minimum Required Plus Capital Conservation Buffer
Well Capitalized Ratios
CVB Financial Corp. Consolidated
Citizens Business Bank
Tier 1 leverage capital ratio
4.00%
5.00%
11.81%
11.70%
11.46%
11.30%
Common equity Tier 1 capital ratio
4.50%
7.00%
6.50%
16.52%
16.36%
16.24%
16.01%
Tier 1 risk-based capital ratio
6.00%
8.50%
8.00%
Total risk-based capital ratio
10.50%
10.00%
17.33%
17.17%
17.06%
16.82%
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Liquidity and Cash Flow
The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations when they come due without incurring unnecessary cost or risk, or causing a disruption to our normal operating activities. This includes the ability to manage unplanned decreases or changes in funding sources, accommodating loan demand and growth, funding investments, repurchasing securities, paying creditors as necessary, and other operating or capital needs.
We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual customer funding needs, as well as current and planned business activities. Management has an Asset/Liability Committee that meets monthly. This committee analyzes the cash flows from loans, investments, deposits and borrowings, as well as the input assumptions and results from various models. In addition, the Company has a Balance Sheet Management Committee of the Board of Directors that meets at least quarterly to review the Company’s balance sheet and liquidity position. This committee provides oversight to the balance sheet and liquidity management process and recommends policy guidelines for the approval of our Board of Directors, and courses of action to address our actual and projected liquidity needs.
In general, our liquidity is managed daily by controlling the level of liquid assets as well as the use of funds provided by the cash flow from the investment portfolio, loan demand, deposit fluctuations, and borrowings. Our definition of liquid assets includes cash and cash equivalents in excess of minimum levels needed to fulfill normal business operations, short-term investment securities, and other anticipated near term cash flows from investments. In addition to on balance sheet liquidity, we have significant off-balance sheet sources of liquidity. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal Reserve, although availability under these lines of credit are subject to certain conditions. In addition to having more than $500 million of cash on the balance sheet at March 31, 2025, we had substantial sources of off-balance sheet liquidity. These sources of available liquidity include $4.1 billion of secured and unused capacity with the Federal Home Loan Bank, $1.1 billion of secured unused borrowing capacity at the Fed’s discount window, more than $188 million of unpledged AFS securities that could be pledged at the discount window and $305 million of unsecured lines of credit. In addition to these borrowing sources, the Bank has capacity to utilize additional brokered deposits as of March 31, 2025, as the Bank only had $300 million of brokered deposits at March 31, 2025, or approximately 2.5% of total deposits. We can also obtain additional liquidity from deposit growth by utilizing state and national wholesale markets.
Our primary sources of funds for the Company are deposits, customer repurchase agreements and borrowings. Total deposits and customer repos of $12.27 billion at March 31, 2025 increased $55.8 million, or 0.46%, over total deposits and customer repos of $12.21 billion at December 31, 2024. As of March 31, 2025, total borrowings, consisted of $500 million of FHLB advances, at an average cost of approximately 4.6%. Our deposit levels and cost of deposits may fluctuate from period-to-period due to a variety of factors, including the stability of our deposit base, prevailing interest rates, and market conditions. At March 31, 2025, our deposits and customer repurchase agreements that are neither collateralized nor insured were approximately $5.7 billion, or 46% of our total deposits and customer repos.
Additional sources of liquidity include cash on deposit at the Federal Reserve, which exceeded $300 million at March 31, 2025, and principal and interest payments from our investment portfolio. We shrank our investment portfolio by not reinvesting the cashflows generated by our investments during the first quarter of 2025. Our total investment portfolio declined by $27.6 million from December 31, 2024 to $4.89 billion as of March 31, 2025. The decrease was primarily due to a $20.5 million decline in HTM securities. AFS securities totaled $2.54 billion at March 31, 2025, inclusive of a pre-tax net unrealized loss of $388.4 million. Pre-tax unrealized loss decline by $59.3 million from December 31, 2024. Market risk, is partly managed by $700 million notional pay fixed swaps hedging the fair value of the AFS portfolio. The $41.7 million increase in fair value of our AFS securities was partially offset by an $5.9 million decrease in the fair value of our derivatives that hedge the change in value of our AFS portfolio.
CVB is a holding company separate and apart from the Bank that must provide for its own liquidity and must service its own obligations. Substantially all of CVB’s revenues are obtained from dividends declared and paid by the Bank to CVB. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. In addition, our regulators could limit the ability of the Bank or CVB to pay dividends or make other distributions.
Below is a summary of our average cash position and statement of cash flows for the three months ended March 31, 2025 and 2024. 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
Average cash and cash equivalents
315,760
595,470
Percentage of total average assets
2.08
3.67
Average cash and cash equivalents decreased by $279.7 million, or 46.97%, to $315.8 million for the three months ended March 31, 2025, compared to $595.5 million for the same period of 2024.
At March 31, 2025, cash and cash equivalents totaled $529.1 million. This represented an increase of $324.4 million, or 158.47%, from $204.7 million at December 31, 2024. Our cash on deposit at the Federal Reserve grew by more than $290 million when compared to December 31, 2024.
Interest Rate Sensitivity Management
During periods of changing interest rates, the ability to re-price interest-earning assets and interest-bearing liabilities can influence net interest income, the net interest margin, and consequently, our earnings. Interest rate risk is managed by attempting to control the spread between rates earned on interest-earning assets and the rates paid on interest-bearing liabilities within the constraints imposed by market competition in our service area. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the Board of Directors. These limits and guidelines reflect our risk appetite for interest rate risk over both short-term and long-term horizons. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models, which, as described in additional detail below, are employed by management to understand net interest income (NII) at risk and economic value of equity (EVE) at risk. Net interest income at risk sensitivity captures asset and liability repricing mismatches and is considered a shorter term measure, while EVE sensitivity captures mismatches within the period end balance sheets through the financial instruments’ respective maturities or estimated durations and is considered a longer term measure.
One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model NII from the Company’s balance sheet under various interest rate scenarios. We use simulation analysis to project rate sensitive income under many scenarios. The analyses may include rapid and gradual ramping of interest rates, rate shocks, basis risk analysis, and yield curve scenarios. Specific balance sheet management strategies are also analyzed to determine their impact on NII and EVE. Key assumptions in the simulation analysis relate to the behavior of interest rates and pricing spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments. This analysis incorporates several assumptions, the most material of which relate to the re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, and prepayment of loans and securities.
Our interest rate risk policy measures the sensitivity of our net interest income over both a one-year and two-year cumulative time horizon.
The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one and two year horizon assuming no balance sheet growth, given a 200 basis point upward and a 200 basis point downward shift in interest rates depending on the level of current market rates. The simulation model uses a parallel yield curve shift that ramps rates up
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or down on a pro rata basis over 12-months and measures the resulting net interest income sensitivity over both the 12-month and 24-month time horizons.
The following depicts the Company’s net interest income sensitivity analysis for the periods presented below, when rates are ramped up 200bps or ramped down 200bps over a 12-month time horizon.
Estimated Net Interest Income Sensitivity (1)
Interest Rate Scenario
12-month Period
24-month Period (Cumulative)
+ 200 basis points
5.25%
7.30%
4.66%
6.26%
- 200 basis points
-4.26%
-7.68%
-3.63%
-6.36%
Based on our current simulation models, we believe that the interest rate risk profile of the balance sheet is modestly asset sensitive over both a one-year and a two-year horizon. The estimated sensitivity does not necessarily represent a forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.
We also perform valuation analysis, which incorporates all cash flows over the estimated remaining life of all material balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows minus the discounted present value of all liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. EVE uses instantaneous changes in rates, as shown in the table below. Assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected duration and pricing of the indeterminate deposit portfolios. EVE sensitivity is reported in both upward and downward rate shocks. At March 31, 2025 and December 31, 2024, the EVE profile indicates a decline in net balance sheet value due to instantaneous downward changes in rates. For both December 31, 2024 to March 31, 2025, our EVE sensitivity to rising rates reflects a modest gain in value. Our overall sensitivity of EVE to changes in interest rates is modest, with the exception of more meaningful reductions in value if rates were to immediately decline by 300 or 400 basis points.
Economic Value of Equity Sensitivity
400 bp decrease in interest rates
16.0%
15.7%
300 bp decrease in interest rates
16.3%
17.1%
200 bp decrease in interest rates
17.9%
100 bp decrease in interest rates
17.7%
18.4%
Base
18.2%
19.0%
100 bp increase in interest rates
18.6%
19.2%
200 bp increase in interest rates
18.9%
19.6%
300 bp increase in interest rates
19.1%
19.8%
400 bp increase in interest rates
19.3%
20.0%
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in the market prices and interest rates. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. We do not currently have futures, forwards, or option contracts. As a result of the phase out of LIBOR, our interest rate swap derivatives and the associated loans that were indexed to LIBOR, have been replaced with one month CME Term SOFR. For further quantitative and qualitative disclosures about market risks in our portfolio, see “Asset/Liability Management and Interest Rate Sensitivity Management” included in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented elsewhere in this report. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Part I regarding such forward-looking information.
ITEM 4. CONTROLS 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 quarter ended March 31, 2025, 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.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various lawsuits and threatened lawsuits in the course of business. From time to time, such lawsuits and threatened lawsuits may include, but are not limited to, actions involving securities litigation, employment matters, wage-hour and labor law claims, consumer claims, regulatory compliance claims, data privacy claims, lender liability claims, credit and bankruptcy-related claims and negligence claims, some of which may be styled as “class action” or representative cases. Some of these lawsuits may be similar in nature to other lawsuits pending against the Company’s competitors.
For lawsuits where the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded in accordance with FASB guidance over loss contingencies (ASC 450). However, as a result of inherent uncertainties in judicial interpretation and application of a myriad of laws and regulations applicable to the Company’s business, and the unique, complex factual issues presented in any given lawsuit, the Company often cannot determine the probability of loss or estimate the amount of damages which a plaintiff might successfully prove if the Company were found to be liable. For lawsuits or threatened lawsuits where a claim has been asserted or the Company has determined that it is probable that a claim will be asserted, and there is a reasonable possibility that the outcome will be unfavorable, the Company will disclose the existence of the loss contingency, even if the Company is not able to make an estimate of the possible loss or range of possible loss with respect to the action or potential action in question, unless the Company believes that the nature, potential magnitude or potential timing (if known) of the loss contingency is not reasonably likely to be material to the Company’s liquidity, consolidated financial position, and/or results of operations.
Our accruals and disclosures for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. We disclose a loss contingency and/or the amount accrued if we believe it is reasonably likely to be material or if we believe such disclosure is necessary for our financial statements to not be misleading. If we determine that an exposure to loss exists in excess of an amount previously accrued or disclosed, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred, and we adjust our accruals and disclosures accordingly.
We do not presently believe that the ultimate resolution of any lawsuits currently pending against the Company will have a material adverse effect on the Company’s results of operations, financial condition, or cash flows. The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal matters currently pending or threatened against the Company could have a material adverse effect on our results of operations, financial condition or cash flows.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors as previously disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the year ended December 31, 2024. The materiality of any risks and uncertainties identified in our Forward Looking Statements contained in this report together with those previously disclosed in the Form 10-K or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On November 20, 2024, our Board of Directors approved a program to repurchase up to 10,000,000 shares (the "Maximum Amount") of CVB common stock including by means of one or more Rule 10b5-1 plans or other appropriate buy-back arrangements, including open market purchases and private transactions, at times and at prices considered appropriate by us, depending upon prevailing market conditions and other corporate and legal considerations ("2024 Repurchase Program"). This 2024 Repurchase Program replaces in its entirety the Company's previous 2022 share repurchase program under which 4,300,059 shares remained available for repurchase and which has now been terminated. The 2024 Repurchase Program terminates on the earlier of the repurchase of the Maximum Amount or five years from the date of authorization. In the first quarter of 2025, we repurchased 782,063 shares of common stock under this program, at an average price of $19.55, totaling $15.3 million. As of March 31, 2025, an aggregate of 9,217,937 shares remained available for repurchase under our 2024 Repurchase Program. Additionally, there were 172,250 shares repurchased during the first quarter of 2025 pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares Available for Repurchase Under the Plans or Programs
January 1 - 31, 2025
99,107
20.30
1,122
19.29
9,998,878
February 1 - 28, 2025
18,396
19.82
350,000
19.99
9,648,878
March 1 - 31, 2025
54,747
18.71
430,941
19.19
9,217,937
172,250
19.75
782,063
19.55
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit No.
Description of Exhibits
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, has been formatted in Inline XBRL.
*
Filed herewith
**
Furnished herewith
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.
(Registrant)
Date: May 9, 2025
/s/ E. Allen Nicholson
E. Allen Nicholson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)