DISCUSSION AND ANALYSIS OF THE MANAGEMENT OF SOCIÉTÉ FINANCIÈRE CVB ON THE FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

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, 2020 and the unaudited condensed
consolidated financial statements and accompanying notes presented elsewhere in
this report.



                               IMPACT OF COVID-19



The spread of COVID-19 has created a global public health crisis that has
resulted in unprecedented volatility and disruption in financial markets and
deterioration in economic activity and market conditions in the markets we
serve. The pandemic has affected our customers and the communities we serve and
depending on the duration of the crisis and government actions, the adverse
impact on our financial position and results of operations could be significant.
In response to the effects of the pandemic on the U.S. economy, the Board of
Governors of the Federal Reserve System ("FRB") has taken significant actions,
including a reduction in the target range of the federal funds rate to 0.0% to
0.25% and an indeterminate amount of purchases of Treasury and mortgage-backed
securities.



On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES")
Act was signed into law. It contain substantial tax and spending provisions
intended to address the impact of the COVID-19 pandemic. The CARES Act includes
the Paycheck Protection Program ("PPP"), a $349 billion program designed to aid
small- and medium-sized businesses through 100% Small Business Administration
("SBA") guaranteed loans distributed through banks. These loans were intended to
guarantee 24 weeks of payroll and other costs to help those businesses remain
viable and keep their workers employed. Legislation passed on April 24, 2020
provided additional PPP funds of $310 billion. During 2020, we originated and
funded approximately 4,100 loans, totaling $1.10 billion. In response to the
COVID-19 pandemic and the CARES Act, we also implemented a short-term loan
modification program to provide temporary payment relief to certain of our
borrowers who meet the program's qualifications. On January 13, 2021, the SBA
reopened the PPP for Second Draw loans to small businesses and non-profit
organizations that did receive a loan through the initial PPP phase. At least
$25 billion has been set aside for Second Draw ("round two") PPP loans to
eligible borrowers with a maximum of 10 employees or for loans of $250,000 or
less to eligible borrowers in low or moderate income neighborhoods. Generally
speaking, businesses with more than 300 employees and/or less than a 25%
reduction in gross receipts between comparable quarters in 2019 and 2020 are not
eligible for Second Draw loans. Further, maximum loan amounts have been
increased for accommodation and food service businesses. As of September 30,
2021, we have originated approximately 1,900 round two loans totaling $420
million in outstanding borrowings. The Paycheck Protection Program officially
ended on May 31, 2021. As of September 30, 2021, approximately 4,800 loans,
representing approximately $1.2 billion in PPP loan balances were submitted to
the SBA and granted forgiveness.



The third quarter of 2021 included $4.0 million in recapture of provision for
credit losses, primarily due to a modest improvement in our economic forecast.
In comparison, the second quarter of 2021 included $2.0 million in recapture of
provision. The Company's allowance for credit losses at September 30, 2021 of
$65.4 million, compares to the pre-pandemic allowance of $68.7 million at
December 31, 2019. We continue to monitor the impact of COVID-19 closely. The
extent to which the COVID-19 pandemic will impact our operations and financial
results during 2021 is uncertain, but we may experience continued volatility in
the provision for credit losses if this pandemic results in economic stress
greater than forecasted on our borrowers and loan portfolios and lower interest
income if the current low interest rate environment continues.

                                       36



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                          CRITICAL ACCOUNTING POLICIES



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



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



?
Allowance for Credit Losses ("ACL")
?
Business Combinations
?
Valuation and Recoverability of Goodwill
?
Income Taxes



Our significant accounting policies are described in greater detail in our 2020
Annual Report on Form 10-K in the "Critical Accounting Policies" section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in Note 3 - Summary of Significant Accounting Policies, included
in our Annual Report on Form 10-K for the year ended December 31, 2020, which
are essential to understanding Management's Discussion and Analysis of Financial
Condition and Results of Operations.



Recently Issued Accounting Pronouncements but Not Adopted as of September 30,
2021



                                                      Adoption     Impact on Financial
    Standard                  Description              Timing           Statements

ASU No. 2020-04,    The FASB issued ASU 2020-04,        1st      The Company established
Reference Rate      Reference Rate Reform:            Quarter    a LIBOR Transition Task
Reform (Topic       Facilitation of the Effects of      2020     Force in 2020, which has
848):               Reference Rate Reform on          through    inventoried our
Facilitation of     Financial Reporting. The            the      instruments that reflect
the Effects of      amendments in this update           4th      exposure to LIBOR,
Reference Rate      provide temporary, optional       Quarter    created a framework to
Reform on           guidance to ease the potential      2022     manage the transition
Financial           burden in accounting for                     and established a
Reporting           transitioning away from                      timeline for key
                    reference rates such as LIBOR.               decisions and actions,
                    The amendments provide optional              and started the
Issued March 2020   expedients and exceptions for                transition from LIBOR in
                    applying GAAP to transactions                2021. Although the
                    affected by reference rate                   Company is assessing the
                    reform if certain criteria are               impacts of this
                    met. The amendments primarily                transition and exploring
                    include relief related to                   

alternatives to use in

                    contract modifications and                   place of LIBOR for
                    hedging relationships, as well               various financial
                    as providing a one-time                     

instruments, mainly

                    election for the sale or                     related to 

our

                    transfer of debt securities                  

variable rate loans and

                    classified as held-to-maturity.              our 

interest rate swap

                    This guidance is effective                   

derivatives which are

                    immediately and the amendments               indexed to LIBOR, we do
                    may be applied prospectively                 not expect this ASU to
                    through December 31, 2022.                   have a material impact
                                                                 on the Company's
                                                                 consolidated financial
                                                                 statements.

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

Issued August
2020





                                       37


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                                    OVERVIEW



For the third quarter of 2021, we reported net earnings of $49.8 million,
compared with $51.2 million for the quarter ended June 30, 2021 and $47.5
million for the quarter ended September 30, 2020. Diluted earnings per share
were $0.37 for the third quarter, compared to $0.38 for the prior quarter and
$0.35 for the same period last year.



The third quarter of 2021 included $4.0 million in recapture of provision for
credit losses, primarily due to a modest improvement in our economic forecast,
compared to $2.0 million in recapture of provision in the second quarter of
2021. A $25.5 million recapture of provision for credit losses was recorded for
the nine months ended September 30, 2021. In comparison, $23.5 million in
provision for credit losses was recorded for the nine months ended September 30,
2020 due to the severe economic forecast at that time as a result of the
pandemic. During the third quarter of 2021, we experienced credit charge-offs of
$11,000 and total recoveries of $33,000, resulting in net recoveries of $22,000.
Of the approximately 4,100 SBA PPP loans we originated in 2020, $52.4 million
remained outstanding at September 30, 2021, after loan forgiveness and customer
repayment. As of September 30 2021, the Company originated approximately 1,900
PPP loans in round two, with a loan balance, at amortized cost, of $278.6
million at September 30, 2021. Interest and fee income from PPP loans was $7.9
million for the third quarter of 2021, compared to $8.1 million for the second
quarter of 2021.



At September 30, 2021, total assets of $16.20 billion increased $1.78 billion,
or 12.36%, from total assets of $14.42 billion at December 31, 2020.
Interest-earning assets of $14.93 billion at September 30, 2021 increased $1.71
billion, or 12.92%, when compared with $13.22 billion at December 31, 2020. The
increase in interest-earning assets was primarily due to a $1.66 billion
increase in investment securities and a $565.9 million increase in
interest-earning balances due from the Federal Reserve, partially offset by a
$499.3 million decrease in total loans which included a decrease in PPP loans of
$552 million for the nine months ended September 30, 2021.



Total investment securities were $4.64 billion at September 30, 2021, an
increase of $1.66 billion, or 55.70%, from $2.98 billion at December 31, 2020.
In the third quarter of 2021, we purchased $892.5 million of investment
securities with an average investment yield of approximately 1.70%, compared to
$317.1 million of securities with an average investment yield of approximately
1.69% in the second quarter of 2021 and $1.23 billion of securities purchased in
the first quarter of 2021, with an average expected yield of approximately
1.57%. At September 30, 2021, investment securities held-to-maturity ("HTM")
totaled $1.71 billion. At September 30, 2021, investment securities
available-for-sale ("AFS") totaled $2.93 billion, inclusive of a net pre-tax
unrealized gain of $8.8 million, which decreased $46.0 million from December 31,
2020. HTM securities increased by $1.13 billion, or 195.69%, and AFS securities
increased $526.1 million, or 21.93%, from December 31, 2020. In the third
quarter of 2021, we purchased $705.1 million of HTM securities. We purchased
$545.7 million of HTM securities in the first quarter of 2021. Our tax
equivalent yield on investments was 1.54% for the quarter ended September 30,
2021, compared to 1.55% for the quarter ended June 30, 2021 and 1.99% for the
third quarter of 2020.



Total loans and leases, at amortized cost, of $7.85 billion at September 30,
2021 decreased by $499.3 million, or 5.98%, from December 31, 2020. The $499.3
million decrease in total loans included decreases of $552.0 million in PPP
loans, $81.6 million in dairy & livestock and agribusiness loans due to seasonal
pay downs, $42.1 million in commercial and industrial loans, $39.2 million in
SFR mortgage loans, $7.7 million in construction loans, and $13.5 million in
consumer and other loans, partially offset by an increase of $233.2 million in
commercial real estate loans and $3.6 million in SBA loans. After adjusting for
seasonality and PPP loans, our loans grew by $134.3 million or at an annualized
rate of approximately 3% from the end of the fourth quarter of 2020. Our yield
on loans was 4.43% for the quarter ended September 30, 2021, compared to 4.46%
for the second quarter of 2021 and 4.47% for the third quarter of 2020. The
significant decline in interest rates since the start of the pandemic has had a
negative impact on loan yields, which after excluding discount accretion,
nonaccrual interest income, and the impact from PPP loans, declined by 29 basis
points for the nine months ended September 30, 2021 when compared to the same
period of 2020.



Noninterest-bearing deposits were $8.31 billion at September 30, 2021, an
increase of $855.3 million, or 11.47%, when compared to $7.46 billion at
December 31, 2020. At September 30, 2021, noninterest-bearing deposits were
64.27% of total deposits, compared to 63.52% at December 31, 2020. Our average
cost of total deposits was 0.03% for the quarter ended September 30, 2021,
compared to 0.05% for the quarter ended June 30, 2021 and 0.11% for the third
quarter of 2020.



Customer repurchase agreements totaled $659.6 million at September 30, 2021,
compared to $439.4 million at December 31, 2020. Our average cost of total
deposits including customer repurchase agreements was 0.04% for the quarter
ended September 30, 2021, compared to 0.05% for the quarter ended June 30, 2021
and 0.11% for the third quarter of 2020.



                                       38


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We had no borrowings at September 30, 2021, compared to $5.0 million in
short-term borrowings with 0% cost at December 31, 2020, and $10.0 million in
short-term borrowings with 0% cost at September 30, 2020. We redeemed our $25.8
million junior subordinated debentures on June 15, 2021. The debentures, bearing
interest at three-month LIBOR plus 1.38%, had an original maturity of 2036.
These debentures had a borrowing cost of 1.57% for the second quarter of 2021
and 1.69% for the third quarter of 2020. Our average cost of funds was 0.04% for
the quarter ended September 30, 2021, 0.05% for the quarter ended June 30, 2021,
and 0.11% for the third quarter of 2020.



The allowance for credit losses totaled $65.4 million at September 30, 2021,
compared to $93.7 million at December 31, 2020. The allowance for credit losses
for the first nine months of 2021 was decreased by $25.5 million, due to the
improved outlook in our forecast of certain macroeconomic variables that were
influenced by the economic impact of the pandemic and government stimulus, and
by $2.8 million in year-to-date net charge-offs. At September 30, 2021, ACL as a
percentage of total loans and leases outstanding was 0.83%, or 0.87% when PPP
loans are excluded. This compares to 1.12% at December 31, 2020, or 1.25% when
PPP loans are excluded. As of September 30, 2021, total discounts on acquired
loans were $20.7 million.



The Company's total equity was $2.06 billion at September 30, 2021. This
represented an increase of $55.9 million, or 2.79%, from total equity of $2.01
billion at December 31, 2020. The increase was primarily due to net earnings of
$164.8 million, partially offset by a $32.3 million decrease in other
comprehensive income from the tax effected impact of the decrease in market
value of available-for-sale securities and $73.4 million in cash dividends. Our
tangible common equity ratio was 8.9% at September 30, 2021. During the third
quarter, we repurchased 390,336 shares of common stock for $7.4 million, or an
average repurchase price of $18.97. Our tangible book value per share at
September 30, 2021 was $10.13.



Our capital ratios under the revised capital framework referred to as Basel III
remain well-above regulatory requirements. As of September 30, 2021, the
Company's Tier 1 leverage capital ratio was 9.2%, common equity Tier 1 ratio was
14.9%, Tier 1 risk-based capital ratio was 14.9%, and total risk-based capital
ratio was 15.7%. We did not elect to phase in the impact of CECL on regulatory
capital, as allowed under the interim final rule of the FDIC and other U.S.
banking agencies. Refer to our Analysis of Financial Condition - Capital
Resources.



Acquisition Related



As previously announced on July 27, 2021, we entered into a definitive agreement
to merge Suncrest Bank with and into Citizens Business Bank. Suncrest Bank,
headquartered in Visalia, California, had approximately $1.4 billion in total
assets, $821 million in gross loans and $1.2 billion in total deposits as of
September 30, 2021. Consummation of the merger is subject to customary closing
conditions, including, among others, Suncrest shareholders and regulatory
approval. Suncrest Bank shareholders voted in favor of the merger at a special
shareholders meeting held on October 27, 2021. The merger is pending regulatory
approval and is anticipated to close in the fourth quarter of 2021 or first
quarter of 2022.

                                       39


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                     ANALYSIS OF THE RESULTS OF OPERATIONS



Financial Performance



                                         Three Months Ended                Variance
                                     September
                                        30,            June 30,
                                       2021              2021           $            %
                                       (Dollars in thousands, except per share amounts)
Net interest income                 $   103,299       $  105,388     $ (2,089 )      -1.98 %
Recapture of (provision for) credit       4,000            2,000        2,000       100.00 %
losses
Noninterest income                       10,483           10,836         (353 )      -3.26 %
Noninterest expense                     (48,099 )        (46,545 )     (1,554 )      -3.34 %
Income taxes                            (19,930 )        (20,500 )        570         2.78 %
   Net earnings                     $    49,753       $   51,179     $ (1,426 )      -2.79 %
Earnings per common share:
   Basic                            $      0.37       $     0.38     $  (0.01 )
   Diluted                          $      0.37       $     0.38     $  (0.01 )
Return on average assets                   1.26 %           1.35 %      -0.09 %
Return on average shareholders'            9.49 %          10.02 %      -0.53 %
equity
Efficiency ratio                          42.27 %          40.05 %       2.22 %
Noninterest expense to average             1.22 %           1.23 %      -0.01 %
assets






                                           Three Months Ended
                                              September 30,                       Variance
                                        2021                2020               $            %
                                          (Dollars in thousands, except per share amounts)
Net interest income                 $     103,299       $     103,325       $    (26 )      -0.03 %
Recapture of (provision for) credit         4,000                   -          4,000            -
losses
Noninterest income                         10,483              13,153         (2,670 )     -20.30 %
Noninterest expense                       (48,099 )           (49,588 )        1,489         3.00 %
Income taxes                              (19,930 )           (19,398 )         (532 )      -2.74 %
   Net earnings                     $      49,753       $      47,492       $  2,261         4.76 %
Earnings per common share:
   Basic                            $        0.37       $        0.35       $   0.02
   Diluted                          $        0.37       $        0.35       $   0.02
Return on average assets                     1.26 %              1.38 %        -0.12 %
Return on average shareholders'              9.49 %              9.51 %        -0.02 %
equity
Efficiency ratio                            42.27 %             42.57 %        -0.30 %
Noninterest expense to average               1.22 %              1.44 %        -0.22 %
assets






                                             Nine Months Ended
                                               September 30,                       Variance
                                         2021                2020               $            %
                                           (Dollars in thousands, except per share amounts)
Net interest income                  $     312,155       $     310,200      $   1,955         0.63 %
Recapture of (provision for) credit         25,500             (23,500 )       49,000       208.51 %
losses
Noninterest income                          35,000              36,945         (1,945 )      -5.26 %
Noninterest expense                       (141,807 )          (144,627 )        2,820         1.95 %
Income taxes                               (66,023 )           (51,915 )      (14,108 )     -27.18 %
   Net earnings                      $     164,825       $     127,103      $  37,722        29.68 %
Earnings per common share:
   Basic                             $        1.21       $        0.93      $    0.28
   Diluted                           $        1.21       $        0.93      $    0.28
Return on average assets                      1.46 %              1.35 %         0.11 %
Return on average shareholders'              10.73 %              8.55 %         2.18 %
equity
Efficiency ratio                             40.85 %             41.66 %        -0.81 %
Noninterest expense to average                1.25 %              1.54 %        -0.29 %
assets






                                       40


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Average tangible common equity (non-GAAP) reconciliation performance



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



                                                  Three Months Ended                                Nine Months Ended
                                  September 30,         June 30,        September 30,       September 30,       September 30,
                                       2021               2021              2020                2021                2020
                                                                    (Dollars in thousands)
Net Income                       $         49,753     $     51,179     $        47,492     $       164,825     $       127,103
Add: Amortization of
intangible assets                           2,014            2,167               2,292               6,348               7,182
Less: Tax effect of
amortization of intangible
assets (1)                                   (595 )           (641 )              (678 )            (1,877 )            (2,123 )
Tangible net income              $         51,172     $     52,705     $        49,106     $       169,296     $       132,162

Average equity $ 2,080,238 $ 2,048,956 $

1 985 842 $ 2,054,132 $ 1,986,300
Less: Average goodwill

                   (663,707 )       (663,707 )        

(663,707) (663,707) (663,707) Less: Average intangible assets

                                    (28,240 )        (30,348 )           (37,133 )           (30,377 )           (39,376 )

Average tangible ordinary equity $ 1,388,291 $ 1,354,901 $

1,285,002 $ 1,360,048 $ 1,283,217

Return on average equity,
annualized                                   9.49 %          10.02 %              9.51 %             10.73 %              8.55 %
Return on average tangible
common equity, annualized                   14.62 %          15.60 %             15.20 %             16.64 %             13.76 %




(1)

Tax paid at the respective statutory rates.

Net interest income

The principal component of our earnings is net interest income, which is the
difference between the interest and fees earned on loans and investments
(interest-earning assets) and the interest paid on deposits and borrowed funds
(interest-bearing liabilities). Net interest margin is net interest income as a
percentage of average interest-earning assets for the period. The level of
interest rates and the volume and mix of interest-earning assets and
interest-bearing liabilities impact net interest income and net interest margin.
The net interest spread is the yield on average interest-earning assets minus
the cost of average interest-bearing liabilities. Net interest margin and net
interest spread are included on a tax equivalent (TE) basis by adjusting
interest income utilizing the federal statutory tax rates of 21% in effect for
the three and nine months ended September 30, 2021 and 2020. Our net interest
income, interest spread, and net interest margin are sensitive to general
business and economic conditions. These conditions include short-term and
long-term interest rates, inflation, monetary supply, and the strength of the
international, national and state economies, in general, and more specifically,
the local economies in which we conduct business. Our ability to manage net
interest income during changing interest rate environments will have a
significant impact on our overall performance. We manage net interest income
through affecting changes in the mix of interest-earning assets as well as the
mix of interest-bearing liabilities, changes in the level of interest-bearing
liabilities in proportion to interest-earning assets, and in the growth and
maturity of earning assets. See Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability and Market Risk
Management - Interest Rate Sensitivity Management included herein.



                                       41


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



                                                        Three Months Ended September 30,
                                                 2021                                       2020
                                  Average                      Yield/        Average                      Yield/
                                  Balance        Interest       Rate         Balance        Interest       Rate
                                                             (Dollars in thousands)
INTEREST-EARNING ASSETS
Investment securities (1)
Available-for-sale securities:
Taxable                         $  2,912,382     $   9,630        1.34 %   $  1,970,636     $   8,244        1.82 %
Tax-advantaged                        29,873           183        2.95 %         36,193           203        3.26 %
Held-to-maturity securities:
Taxable                              970,696         4,099        1.90 %        429,897         2,265        2.11 %
Tax-advantaged                       199,196         1,089        2.64 %        164,854         1,110        3.26 %
Investment in FHLB stock              17,688           258        5.79 %         17,688           215        4.84 %
Interest-earning deposits with
other institutions                 2,356,121           898        0.15 %      1,494,149           389        0.10 %
Loans (2)                          7,916,443        88,390        4.43 %      8,382,257        94,200        4.47 %
Total interest-earning assets     14,402,399       104,547        2.92 %     12,495,674       106,626        3.45 %
Total noninterest-earning
assets                             1,270,862                                  1,231,502
Total assets                    $ 15,673,261                               $ 13,727,176

INTEREST-BEARING LIABILITIES
Savings deposits (3)            $  4,349,441     $     967        0.09 %   $  3,735,204     $   2,010        0.21 %
Time deposits                        355,535           146        0.16 %        449,484           948        0.84 %

Total interest-bearing deposits 4,704,976 1,113 0.09%

  4,184,688         2,958        0.28 %
FHLB advances, other
borrowings, and customer
  repurchase agreements              636,397           135        0.08 %        539,833           343        0.25 %
Interest-bearing liabilities       5,341,373         1,248        0.09 %      4,724,521         3,301        0.28 %
Noninterest-bearing deposits       7,991,462                                  6,731,711
Other liabilities                    260,188                                    285,102
Stockholders' equity               2,080,238                                  1,985,842
Total liabilities and
stockholders' equity            $ 15,673,261                               $ 13,727,176

Net interest income                              $ 103,299                                  $ 103,325

    Net interest spread - tax
equivalent                                                        2.83 %                                     3.17 %
    Net interest margin                                           2.88 %                                     3.33 %
    Net interest margin - tax
equivalent                                                        2.89 %                                     3.34 %




(1)
Includes tax equivalent (TE) adjustments utilizing federal statutory rates of
21% in effect for the three months ended September 30, 2021 and 2020. The non TE
rates for tax-advantaged AFS investment securities were 2.45% and 2.24% for the
three months ended September 30, 2021 and 2020 respectively. The non TE rates
for total AFS investment securities were 1.52% and 1.93% for the three months
ended September 30, 2021 and 2020, respectively.
(2)
Includes loan fees of $7.5 million and $7.4 million for the three months ended
September 30, 2021 and 2020, respectively. Prepayment penalty fees of $2.0
million and $1.8 million are included in interest income for the three months
ended September 30, 2021 and 2020, respectively.
(3)
Includes interest-bearing demand and money market accounts.



                                       42


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                                                       Nine Months Ended September 30,
                                               2021                                       2020
                                Average                      Yield/        Average                      Yield/
                                Balance        Interest       Rate         Balance        Interest       Rate
                                                           (Dollars in thousands)
INTEREST-EARNING ASSETS
Investment securities (1)
Available-for-sale
securities:
Taxable                       $  2,757,685     $  27,824        1.38 %   $  1,737,723     $  26,313        2.08 %
Tax-advantaged                      29,932           558        2.98 %         36,897           632        3.30 %
Held-to-maturity securities:
Taxable                            804,869        10,917        1.90 %        449,230         7,410        2.20 %
Tax-advantaged                     200,744         3,341        2.68 %        177,364         3,623        3.29 %
Investment in FHLB stock            17,688           758        5.73 %         17,688           761        5.75 %
Interest-earning deposits
with other institutions          1,922,234         1,790        0.12 %        947,211         1,285        0.18 %
Loans (2)                        8,144,105       271,911        4.46 %      7,972,208       281,669        4.72 %
Total interest-earning assets   13,877,257       317,099        3.09 %     11,338,321       321,693        3.82 %
Total noninterest-earning
assets                           1,250,370                                  1,237,241
Total assets                  $ 15,127,627                               $ 12,575,562

INTEREST-BEARING LIABILITIES
Savings deposits (3)          $  4,203,684     $   3,263        0.10 %   $  3,396,259     $   7,131        0.28 %
Time deposits                      388,095         1,087        0.37 %        448,615         2,946        0.88 %
Total interest-bearing
deposits                         4,591,779         4,350        0.13 %      3,844,874        10,077        0.35 %
FHLB advances, other
borrowings, and customer
  repurchase agreements            611,684           594        0.13 %        505,710         1,416        0.37 %
Interest-bearing liabilities     5,203,463         4,944        0.13 %      4,350,584        11,493        0.35 %
Noninterest-bearing deposits     7,646,283                                  6,063,469
Other liabilities                  223,749                                    175,209
Stockholders' equity             2,054,132                                  1,986,300
Total liabilities and
stockholders' equity          $ 15,127,627                               $ 12,575,562

Net interest income                            $ 312,155                                  $ 310,200

    Net interest spread - tax
equivalent                                                      2.96 %                                     3.47 %
    Net interest margin                                         3.03 %                                     3.67 %
    Net interest margin - tax
equivalent                                                      3.04 %                                     3.68 %




(1)
Includes tax equivalent (TE) adjustments utilizing federal statutory rates of
21% in effect for the nine months ended September 30, 2021 and 2020. The non TE
rates for tax-advantaged AFS investment securities were 2.49% and 2.28% for the
nine months ended September 30, 2021 and 2020 respectively. The non TE rates for
total AFS investment securities were 1.55% and 2.16% for the nine months ended
September 30, 2021 and 2020, respectively.
(2)
Includes loan fees of $23.2 million and $15.3 million for nine months ended
September 30, 2021 and 2020, respectively. Prepayment penalty fees of $7.1
million and $5.4 million are included in interest income for the nine months
ended September 30, 2021 and 2020, respectively.
(3)
Includes interest-bearing demand and money market accounts.



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



                                       43


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



                                              Comparison of Three Months Ended September 30,
                                                           2021 Compared to 2020
                                                        Increase (Decrease) Due to
                                                                               Rate/
                                          Volume              Rate            Volume         Total
                                                          (Dollars in thousands)
Interest income:
Available-for-sale securities:
Taxable investment securities          $      4,821       $     (2,173 )     $  (1,262 )   $   1,386
Tax-advantaged investment securities            (36 )               19              (3 )         (20 )
Held-to-maturity securities:                      -                  -               -             -
Taxable investment securities                 2,295               (229 )          (232 )       1,834
Tax-advantaged investment securities            233               (210 )           (44 )         (21 )
Investment in FHLB stock                          -                 43               -            43
Interest-earning deposits with other
institutions                                    226                180             103           509
Loans                                        (4,838 )             (796 )          (176 )      (5,810 )
Total interest income                         2,701             (3,166 )        (1,614 )      (2,079 )

Interest expense:
Savings deposits                                332             (1,181 )          (194 )      (1,043 )
Time deposits                                  (100 )             (384 )          (318 )        (802 )
FHLB advances, other borrowings, and             61               (228 )    

(41) (208)

  customer repurchase agreements
Total interest expense                          293             (1,793 )          (553 )      (2,053 )
Net interest income                    $      2,408       $     (1,373 )     $  (1,061 )   $     (26 )






                                              Comparison of Nine Months Ended September 30,
                                                          2021 Compared to 2020
                                                        Increase (Decrease) Due to
                                                                              Rate/
                                         Volume              Rate            Volume         Total
                                                          (Dollars in thousands)
Interest income:
Available-for-sale securities:
Taxable investment securities          $    15,575       $     (8,834 )     $  (5,230 )   $   1,511
Tax-advantaged investment securities          (119 )               55             (10 )         (74 )
Held-to-maturity securities:
Taxable investment securities                5,100               (889 )          (704 )       3,507
Tax-advantaged investment securities           475               (669 )           (88 )        (282 )
Investment in FHLB stock                         -                 (3 )             -            (3 )
Interest-earning deposits with other
institutions                                 1,319               (401 )          (413 )         505
Loans                                        6,231            (15,652 )          (337 )      (9,758 )
Total interest income                       28,581            (26,393 )        (6,782 )      (4,594 )

Interest expense:
Savings deposits                             1,697             (4,496 )        (1,069 )      (3,868 )
Time deposits                                 (398 )           (1,689 )           228        (1,859 )
FHLB advances, other borrowings, and           297               (925 )     

(194) (822)

  customer repurchase agreements
Total interest expense                       1,596             (7,110 )        (1,035 )      (6,549 )
Net interest income                    $    26,985       $    (19,283 )     $  (5,747 )   $   1,955








                                       44


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Third quarter 2021 compared to third quarter 2020

Net interest income, before recapture of provision for credit losses, of $103.3
million in the third quarter of 2021 was essentially the same as the third
quarter of 2020, as the growth in interest-earning assets was offset by a
decline in our net interest margin. Interest-earning assets increased on average
by $1.91 billion, or 15.26%, from $12.50 billion for the third quarter of 2020
to $14.40 billion for the third quarter of 2021. Our net interest margin (TE)
was 2.89% for the third quarter of 2021, compared to 3.34% for the third quarter
of 2020.



Interest income for the third quarter of 2021 was $104.5 million, which
represented a $2.1 million, or 1.95%, decrease when compared to the same period
of 2020. Average interest-earning assets increased to $14.40 billion and the
average interest-earning asset yield was 2.92% for the third quarter of 2021,
compared to 3.45% for the third quarter of 2020. The 53 basis point decrease in
the average interest-earning asset yield compared to the third quarter of 2020,
was primarily due to a combination of a 41 basis point decrease in the non-tax
equivalent investment yields, a 4 basis point decrease in loan yields, and a
change in mix of average earning assets, with loan balances declining to 54.97%
of earning assets on average for the third quarter of 2021, compared to 67.08%
for the third quarter of 2020. Average balances at the Federal Reserve grew to
16.17% of earning assets for the third quarter of 2021, compared to 11.62% for
the third quarter of 2020. The increase in balances at the Federal Reserve was
impacted by $1.78 billion in average deposit growth compared to the third
quarter of 2020. The net interest margin for the third quarter of 2021 would
have been approximately 19 basis points higher without the $876.6 million
year-over-year increase in average deposits at the Federal Reserve, earning 15
basis points.



Interest income and fees on loans for the third quarter of 2021 of $88.4 million
decreased $5.8 million, or 6.17%, when compared to the third quarter of 2020.
Average loans decreased $465.8 million for the third quarter of 2021 when
compared with the same period of 2020. The decrease in average loans included a
$336.7 million decrease in average PPP loans. PPP loans generated approximately
$6.6 million in amortized loan fee income and $1.3 million in loan interest
during the third quarter of 2021. This compares to $9.5 million in loan fee and
interest income in the third quarter of 2020. Discount accretion on acquired
loans decreased by $1.6 million compared to the third quarter of 2020. The
significant decline in interest rates since the start of the pandemic has had a
negative impact on loan yields, which after excluding the impact from PPP loans,
discount accretion and nonaccrual interest income, declined by 23 basis points
from the third quarter of 2020.



Interest income from investment securities was $15.0 million for the third
quarter of 2021, a $3.2 million, or 26.89%, increase from $11.8 million for the
third quarter of 2020. This increase was primarily the result of a $1.51 billion
increase in average investment securities, when compared to the same period of
2020, as a result of purchases of investment securities funded by the growth in
the Bank's deposits. Partially offsetting the increase in interest revenue from
higher levels of investment securities was a 41 basis point decline in the
non-tax equivalent yield on investments. The significant decline in interest
rates over the past four quarters decreased yields on investment securities due
to higher levels of premium amortization, as well as lower yields on investments
purchased during the past four quarters.



Interest expense of $1.2 million for the third quarter of 2021, decreased $2.1
million, or 62.19%, compared to the third quarter of 2020. The average rate paid
on interest-bearing liabilities decreased by 19 basis points, to 0.09% for the
third quarter of 2021 from 0.28% for the third quarter of 2020. Average
interest-bearing liabilities were $616.9 million higher for the third quarter of
2021 when compared to the third quarter of 2020. On average, noninterest-bearing
deposits were 62.94% of our total deposits for the third quarter of 2021,
compared to 61.67% for the third quarter of 2020. In comparison to the third
quarter of 2020, our overall cost of funds decreased by 7 basis points,
partially due to growth in average noninterest-bearing deposits of $1.26
billion, compared to the increase in average interest-bearing deposits of $652.6
million. In addition, the cost of interest-bearing deposits decreased by 19
basis points for the third quarter of 2021 compared to the third quarter of
2020.





                                       45


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Nine months of 2021 versus nine months of 2020

Net interest income, before recapture of provision for credit losses, was $312.2
million for the nine months ended September 30, 2021, an increase of $2.0
million, or 0.63%, compared to $310.2 million for the same period of 2020.
Interest-earning assets increased on average by $2.54 billion, or 22.39%, from
$11.34 billion for the nine months ended September 30, 2020 to $13.88 billion
for the current year. Our net interest margin (TE) was 3.04% for the first nine
months of 2021, compared to 3.68% for the same period of 2020.



Interest income for the nine months ended September 30, 2021 was $317.1 million,
which represented a $4.6 million, or 1.43%, decrease when compared to the same
period of 2020. Compared to the first nine months of 2020, average
interest-earning assets increased by $2.54 billion, and the yield on
interest-earning assets decreased by 73 basis points. The 73 basis point
decrease in the earning asset yield over the first nine months of 2020, resulted
from a 26 basis point decrease in loan yields from 4.72% for first nine months
of 2020 to 4.46% for the same period of 2021, and a 65 basis point decline in
tax-equivalent investment yields, as well as a change in the mix of earning
assets resulting from a $973.3 million increase in average balances at the
Federal Reserve. Average loans as a percentage of earning assets declined from
70.31% for the first nine months of 2020 to 58.69% for the first nine months of
2021. Conversely, average balances at the Federal Reserve grew as a percentage
of earning assets from 8.09% in the prior year to 13.62% for the first nine
months of 2021.



Interest income and fees on loans for the first nine months of 2021 of $271.9
million decreased $9.8 million, or 3.46%, when compared to the same period of
2020. Average loans increased $171.9 million for the first nine months of 2021
when compared with the same period of 2020, primarily due to a $147.5 million
increase in average PPP loans. The PPP loans generated approximately $26.4
million in loan fee and interest income during the first nine months of 2021,
compared to $18.0 million for the same period in 2020. The first nine months of
2021 reflected a $2.9 million decrease in discount accretion on acquired loans
and nonaccrual interest income when compared to the first nine months of 2020.
Loan yields decreased by 26 basis points from the prior nine month period.
Excluding the impact of PPP loans, interest income related to purchase discount
accretion and nonaccrual interest income, loan yields were 29 basis points lower
than the first nine months of 2020. The decline in loan yields was primarily due
to lower rates on loans indexed to variable interest rates such as the Bank's
prime rate and lower yields on new loans in the low rate environment experienced
for the past 12 months.



Interest income from investment securities was $42.6 million for the nine months
ended September 30, 2021, a $4.6 million increase from $38.0 million for the
first nine months of 2020. This increase was the net result of a $1.39 billion
increase in average investment securities, partially offset by a 61 basis point
decline in the non tax-equivalent yield on securities, compared to the first
nine months of 2020.



Interest expense of $4.9 million for the nine months ended September 30, 2021,
decreased by $6.5 million from the same period of 2020. The average rate paid on
interest-bearing liabilities decreased by 22 basis points, to 0.13% for the
first nine months of 2021, from 0.35% for the same period of 2020. The rate on
interest-bearing deposits for the first nine months of 2021 decreased by 22
basis points from the same period in 2020. Average interest-bearing liabilities
were $853.0 million higher for the first nine months of 2021 when compared with
the same period of 2020. Average interest-bearing deposits grew by $746.9
million when compared to the first nine months of 2020. Average
noninterest-bearing deposits represented 62.48% of our total deposits for the
nine months ended September 30, 2021, compared to 61.20% for the same period of
2020. Total cost of funds for the first nine months of 2021 was 0.05%, compared
with 0.15% for the same period of 2020.



                                       46


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Provision for (recovery) of credit losses



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



The allowance for credit losses on loans totaled $65.4 million at September 30,
2021, compared to $93.7 million at December 31, 2020 and $93.9 million as of
September 30, 2020. For the nine months ended September 30, 2021, we recaptured
$25.5 million in provision for credit losses, due to the improved outlook in our
forecast of certain macroeconomic variables that were influenced by the economic
impact of the pandemic and government stimulus. For the nine months ended
September 30, 2021, we experienced credit charge-offs of $3.0 million and total
recoveries of $168,000, resulting in net charge-offs of $2.8 million. This
compares to a $23.5 million credit loss provision and net charge-offs of
$131,000 for the same period of 2020. The provision for credit losses during the
first nine months of 2020 was primarily the result of the forecast of a
significant decline in economic activity due to the impact of the COVID-19
pandemic. The ratio of the allowance for credit losses to total loans and leases
outstanding, net of deferred fees and discount, as of September 30, 2021, was
0.83%. This compares to 1.12% and 1.12%, as of December 31, 2020 and September
30, 2020, respectively. When PPP loans are excluded, allowance for credit losses
as a percentage of total adjusted loans and leases outstanding was 0.87% at
September 30, 2021, compared to 1.25% at December 31, 2020 and 1.28% at
September 30, 2020. As of September 30, 2021, remaining discounts on acquired
loans were $20.7 million. Refer to the discussion of "Allowance for Credit
Losses" in Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations contained herein for discussion concerning observed
changes in the credit quality of various components of our loan portfolio as
well as changes and refinements to our methodology.



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



Noninterest Income



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

The following table presents the various components of non-interest income for the periods presented.


                        Three Months Ended                                     Nine Months Ended
                           September 30,                 Variance                September 30,                 Variance
                         2021          2020          $             %           2021          2020          $             %
                                                               (Dollars in thousands)
Noninterest income:
Service charges on
deposit
 accounts             $    4,513     $  3,970     $    543         13.68 %  

$ 12,667 $ 12,555 $ 112 0.89% Trust and Investment Services

                   2,681        2,405          276         11.48 %  

8,459 7,302 1,157 15.84% Bank card services

            479          456           23          5.04 %       1,362        1,438          (76 )       -5.29 %
BOLI income                1,229        1,469         (240 )      -16.34 %       7,093        5,211        1,882         36.12 %
Swap fee income              167        1,591       (1,424 )      -89.50 %         382        4,149       (3,767 )      -90.79 %
Gain on OREO, net              -           13          (13 )     -100.00 %         477           23          454       1973.91 %
Gain on sale of
building, net                  -        1,680       (1,680 )     -100.00 %         189        1,680       (1,491 )      -88.75 %
Other                      1,414        1,569         (155 )       -9.88 %       4,371        4,587         (216 )       -4.71 %
Total noninterest
income                $   10,483     $ 13,153     $ (2,670 )      -20.30 %   $  35,000     $ 36,945     $ (1,945 )       -5.26 %



Third quarter 2021 compared to third quarter 2020

The $ 2.7 million decrease in non-interest income is mainly attributable to a $ 1.7 million gain on the sale of a building owned by the bank during the third quarter of 2020 and a $ 1.4 million decrease in income from swap fees. These decreases were partially offset by a $ 543,000 increased service charges on deposit accounts.



The Bank enters into interest rate swap agreements with our customers to manage
our interest rate risk and enters into identical offsetting swaps with a
counterparty. The changes in the fair value of the swaps primarily offset each
other resulting in swap fee income (refer to Note 8 - Derivative Financial
Instruments of the notes to the unaudited condensed

                                       47



--------------------------------------------------------------------------------


consolidated financial statements of this report for additional information).
Fees from interest rate swaps decreased $1.4 million compared to the third
quarter of 2020, due to lower volume of swap transactions. We executed swap
agreements related to new loan originations for the third quarter of 2021 with a
notional amount of $9.8 million, compared to executed swap agreements related to
new loan originations with a notional amount totaling $73.2 million for the
third quarter of 2020.



CitizensTrust consists of Wealth Management and Investment Services income. The
Wealth Management group provides a variety of services, which include asset
management, financial planning, estate planning, retirement planning, private
and corporate trustee services, and probate services. Investment Services
provides self-directed brokerage, 401(k) plans, mutual funds, insurance and
other non-insured investment products. At September 30, 2021, CitizensTrust had
approximately $3.28 billion in assets under management and administration,
including $2.39 billion in assets under management. CitizensTrust generated fees
of $2.7 million for the third quarter of 2021, compared to $2.4 million for the
third quarter of 2020, due to the growth in assets under management and higher
investment services fees.



The Bank's investment in BOLI includes life insurance policies acquired through
acquisitions and the purchase of life insurance by the Bank on a select group of
employees. The Bank is the owner and beneficiary of these policies. BOLI is
recorded as an asset at its cash surrender value. Increases in the cash value of
these policies, as well as insurance proceeds received, are recorded in
noninterest income and are not subject to income tax, as long as they are held
for the life of the covered parties. There were no death benefits from our BOLI
policies for the third quarters of 2021 and 2020. Income from BOLI declined by
$240,000 compared to the third quarter of 2020.



Nine months of 2021 versus nine months of 2020



The $1.9 million decrease in noninterest income was primarily due to a $3.8
million decrease in swap fee income from the first nine months of 2020 due to
lower volume of swap transactions. The third quarter of 2020 also included a
$1.7 million net gain on the sale of one of our bank owned buildings. Partially
offsetting the overall decrease in noninterest income was a $1.9 million
increase in BOLI income primarily due to $2.3 million in higher death benefits
that result from life insurance proceeds exceeding the asset value of certain
BOLI policies. Trust and investment services income increased $1.2 million, or
15.84%, compared with the first nine months of 2020. Growth in assets under
management and higher investment services fees equally contributed to this
growth in fee income.



                                       48


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Non-interest charges

The following table summarizes the various components of non-interest expense for the periods presented.


                         Three Months Ended                                      Nine Months Ended
                            September 30,                 Variance                 September 30,                Variance
                          2021          2020          $             %           2021          2020           $            %
                                                                (Dollars in thousands)
Noninterest expense:
Salaries and employee
benefits               $   29,741     $ 31,034     $ (1,293 )       -4.17 %   $  88,283     $  90,617     $ (2,334 )      -2.58 %
Occupancy                   4,292        4,290            2          0.05 %      12,655        12,171          484         3.98 %
Equipment                     830          985         (155 )      -15.74 %

2,279 2,972 (693) -23.32% Professional services 1,626 2,019 (393) -19.47%

      6,042         6,643         (601 )      -9.05 %
Computer software
expense                     3,020        2,837          183          6.45 %       8,521         8,407          114         1.36 %
Marketing and
promotion                     857          728          129         17.72 %       3,381         3,538         (157 )      -4.44 %
Amortization of
intangible
  assets                    2,014        2,292         (278 )      -12.13 %       6,348         7,182         (834 )     -11.61 %
Telecommunications
expense                       514          643         (129 )      -20.06 %

1,592 1,929 (337) -17.47% Regulatory assessments 1,226,998 228 22.85%

      3,424         1,313        2,111       160.78 %
Insurance                     452          400           52         13.00 %       1,360         1,192          168        14.09 %
Loan expense                  276          207           69         33.33 %         825           833           (8 )      -0.96 %
OREO expense                    -          830         (830 )     -100.00 %          42         1,200       (1,158 )     -96.50 %
(Recapture of)
provision for
  unfunded loan
commitments                     -            -            -             -        (1,000 )                   (1,000 )          -
Directors' expenses           388          358           30          8.38 %       1,156         1,067           89         8.34 %
Stationery and
supplies                      254          227           27         11.89 %         739           894         (155 )     -17.34 %
Acquisition related
expenses                      809            -          809             -           809                        809            -
Other                       1,800        1,740           60          3.45 % 

5,351 4,669,682 14.61% Total non-interest expenses

                $   48,099     $ 49,588     $ (1,489 )       -3.00 % 

$ 141,807 $ 144,627 $ (2,820) -1.95%

Noninterest expense to
average
  assets                     1.22 %       1.44 %                                   1.25 %        1.54 %
Efficiency ratio (1)        42.27 %      42.57 %                                  40.85 %       41.66 %




(1)

Non-interest expense divided by net interest income before allowance for credit losses plus non-interest income.



Our ability to control noninterest expenses in relation to asset growth can be
measured in terms of total noninterest expenses as a percentage of average
assets. Noninterest expense as a percentage of average assets was 1.22% for the
third quarter of 2021, compared to 1.44% for the third quarter of 2020. The
decline in this ratio for 2021 reflects the $2.55 billion growth in average
assets that resulted primarily from $2.33 billion in average deposit growth.



Our ability to control noninterest expenses in relation to the level of total
revenue (net interest income before provision for credit losses plus noninterest
income) can be measured by the efficiency ratio and indicates the percentage of
net revenue that is used to cover expenses. The efficiency ratio was 42.27% for
the third quarter of 2021, compared to 42.57% for the third quarter of 2020. For
the nine months ending September 30, 2021, the efficiency ratio was 40.85%,
compared to 41.66% for the same period in 2020.





                                       49


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Third quarter 2021 compared to third quarter 2020



Noninterest expense of $48.1 million for the third quarter of 2021 was $1.5
million, or 3.00%, lower than the third quarter of 2020. The year-over-year
decrease of $1.5 million included a $1.3 million decrease in salaries and
employee benefits, including $1.1 million in additional bonus expense for "Thank
You Awards" paid to all Bank employees during the third quarter of 2020, and an
$830,000 decrease in OREO expense, primarily due to a $700,000 write-down of one
OREO property in the third quarter of 2020. Merger related expenses increased
$809,000 in the third quarter of 2021, for the pending acquisition of Suncrest
Bank that was announced in July of 2021.



Nine months of 2021 versus nine months of 2020



Noninterest expense of $141.8 million for the first nine months of 2021 was $2.8
million lower than the prior year period. Salaries and employee benefits
declined by $2.3 million from the first nine months of 2020, due to lower
employee benefit expense that was partially offset by higher bonus and profit
sharing expense. The year-over-year decrease also included the $1.0 million
recapture of provision for unfunded loan commitments in the second quarter of
2021 and an $834,000 year-over-year decrease in amortization of CDI. An increase
of $2.1 million in regulatory assessment expense was the result of the final
application of assessment credits provided by the FDIC at the end of the second
quarter of 2020. As a percentage of average assets, noninterest expense was
1.25% for the nine months ended September 30, 2021, compared to 1.54% for the
same period of 2020.



Income Taxes

The Company's effective tax rate for the three and nine months ended September
30, 2021 was 28.60%, compared to 29.00% for the three and nine months ended
September 30, 2020, respectively. Our estimated annual effective tax rate varies
depending upon the level of tax-advantaged income as well as available tax
credits.



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



                                       50


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                        ANALYSIS OF FINANCIAL CONDITION



Total assets of $16.20 billion at September 30, 2021 increased $1.78 billion, or
12.36%, from total assets of $14.42 billion at December 31, 2020.
Interest-earning assets totaled $14.93 billion at September 30, 2021 increased
$1.71 billion, or 12.92%, when compared with $13.22 billion at December 31,
2020. The increase in interest-earning assets was primarily due to a $1.66
billion increase in investment securities and a $565.9 million increase in
interest-earning balances due from the Federal Reserve, partially offset by a
$499.3 million decrease in total loans which included a decrease in PPP loans of
$552 million for the nine months ended September 30, 2021. Excluding PPP loans,
total loans increased by $52.7 million, or 0.71%, from December 31, 2020.



Total liabilities were $14.14 billion at September 30, 2021, an increase of
$1.73 billion, or 13.91%, from total liabilities of $12.41 billion at December
31, 2020. Total deposits grew by $1.19 billion, or 10.17%. Total equity
increased $55.9 million, or 2.79%, to $2.06 billion at September 30, 2021,
compared to total equity of $2.01 billion at December 31, 2020. The $55.9
million increase in equity was primarily due to net earnings of $164.8 million
for the first nine months of 2021, partially offset by a $32.3 million decrease
in other comprehensive income from the tax-effected impact of the decrease in
market value of available-for-sale securities and $73.4 million in cash
dividends.



Investment Securities



The Company maintains a portfolio of investment securities to provide interest
income and to serve as a source of liquidity for its ongoing operations. At
September 30, 2021, total investment securities were $4.64 billion. This
represented an increase of $1.66 billion, or 55.70%, from total investment
securities of $2.98 billion at December 31, 2020. The increase in investment
securities was primarily due to new securities purchased exceeding cash outflow
from the portfolio in the third quarter of 2021. At September 30, 2021,
investment securities HTM totaled $1.71 billion. At September 30, 2021, our AFS
investment securities totaled $2.93 billion, inclusive of a pre-tax net
unrealized gain of $8.8 million. The after-tax unrealized gain reported in AOCI
on AFS investment securities was $6.2 million. The changes in the net unrealized
holding gain resulted primarily from fluctuations in market interest rates. For
the nine months ended September 30, 2021 and 2020, repayments/maturities of
investment securities totaled $712.3 million and $536.7 million, respectively.
The Company purchased additional investment securities totaling $2.44 billion
and $882.1 million for the nine months ended September 30, 2021 and 2020,
respectively. During the third quarter of 2021, we purchased approximately
$187.4 million of AFS securities with an average expected yield of approximately
1.49% and $705.1 million of HTM securities with an average expected yield of
approximately 1.75%. The second quarter included purchases of $317.1 million of
AFS securities with an average investment yield of approximately 1.69% and the
first quarter included purchases of $1.23 billion of securities purchased in the
first quarter of 2021, with an average expected yield of approximately 1.57%.
The first quarter purchases included $682.9 million in AFS securities that were
comprised of MBS with average lives of less than five years that are expected to
yield approximately 1.37% and $545.7 million in HTM securities that were
comprised of fixed rate agency and municipal bonds, with longer maturities that
on average exceed 10 years that will generate a yield of approximately 1.81% on
a non-tax equivalent basis. There were no investment securities sold during the
first nine months of 2021 and 2020.



                                       51


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



                                                            September 30, 2021
                                                     Gross              Gross
                                                  Unrealized          Unrealized                         Total
                            Amortized Cost       Holding Gain        Holding Loss      Fair Value       Percent
                                                          (Dollars in thousands)
Investment securities
available-for-sale:
Mortgage-backed securities $      2,256,252     $        31,251     $      (18,430 )   $ 2,269,073         77.57 %
CMO/REMIC                           630,351               2,846             (8,030 )       625,167         21.37 %
Municipal bonds                      28,697               1,123                  -          29,820          1.02 %
Other securities                      1,000                   -                  -           1,000          0.04 %
Total available-for-sale
securities                 $      2,916,300     $        35,220     $      (26,460 )   $ 2,925,060        100.00 %
Investment securities
held-to-maturity:
Government agency/GSE      $        585,022     $         6,785     $       (8,112 )   $   583,695         34.19 %
Mortgage-backed securities          648,613               5,450             (1,502 )       652,561         37.91 %
CMO/REMIC                           264,324               1,642             (1,118 )       264,848         15.45 %
Municipal bonds                     212,979               4,761             (1,614 )       216,126         12.45 %
Total held-to-maturity
securities                 $      1,710,938     $        18,638     $      (12,346 )   $ 1,717,230        100.00 %




                                                             December 31, 2020
                                                     Gross               Gross
                                                  Unrealized          Unrealized                          Total
                            Amortized Cost       Holding Gain        Holding Loss       Fair Value       Percent
                                                           (Dollars in thousands)
Investment securities
available-for-sale:
Mortgage-backed securities $      1,857,030     $        48,006     $          (101 )   $ 1,904,935         79.41 %
CMO/REMIC                           457,548               5,515                (249 )       462,814         19.29 %
Municipal bonds                      28,707               1,578                   -          30,285          1.26 %
Other securities                        889                   -                   -             889          0.04 %
Total available-for-sale
securities                 $      2,344,174     $        55,099     $          (350 )   $ 2,398,923        100.00 %
Investment securities
held-to-maturity:
Government agency/GSE      $         98,663     $         5,877     $             -     $   104,540         17.05 %
Mortgage-backed securities          146,382               7,644                 (32 )       153,994         25.30 %
CMO/REMIC                           145,309               5,202                   -         150,511         25.11 %
Municipal bonds                     188,272               6,980                 (74 )       195,178         32.54 %
Total held-to-maturity
securities                 $        578,626     $        25,703     $          (106 )   $   604,223        100.00 %




As of September 30, 2021, approximately $53.2 million in U.S. government agency
bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled
collateral. Municipal bonds, which represented approximately 6% of the total
investment portfolio, are predominately AA or higher rated securities.



The following table presents the Company's available-for-sale investment
securities, by investment category, in an unrealized loss position for which an
allowance for credit losses has not been recorded as of September 30, 2021 and
December 31, 2020.



                                       52


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                                                                      September 30, 2021
                                Less Than 12 Months                  12 Months or Longer                         Total
                                               Gross                                                                     Gross
                                             Unrealized                         Gross Unrealized                       Unrealized
                           Fair Value      Holding Losses      Fair Value        Holding Losses      Fair Value      Holding Losses
                                                                    (Dollars in thousands)
Investment securities
available-for-sale:
Mortgage-backed securities $ 1,349,856     $      (18,243 )   $     21,273      $           (187 )   $ 1,371,129     $      (18,430 )
CMO/REMIC                      510,308             (7,758 )         11,162                  (272 )       521,470             (8,030 )
Municipal bonds                      -                  -                -                     -               -                  -
Total available-for-sale
securities                 $ 1,860,164     $      (26,001 )   $     32,435      $           (459 )   $ 1,892,599     $      (26,460 )




                                                                         December 31, 2020
                                Less Than 12 Months                     12 Months or Longer                            Total
                                                                                           Gross
                                                                                        Unrealized
                                           Gross Unrealized                               Holding                         Gross Unrealized
                          Fair Value        Holding Losses       Fair Value               Losses          Fair Value       Holding Losses
                                                                      (Dollars in thousands)
Investment securities
available-for-sale:
Mortgage-backed
securities               $     72,219      $           (101 )   $          -           $           -     $     72,219     $           (101 )
CMO/REMIC                      96,974                  (249 )              -                       -           96,974                 (249 )
Municipal bonds                     -                     -                -                       -                -                    -
Total available-for-sale
securities               $    169,193      $           (350 )   $          -           $           -     $    169,193     $           (350 )




Once it is determined that a credit loss has occurred, an allowance for credit
losses is established on our available-for-sale and held-to-maturity securities.
Management determined that credit losses did not exist for securities in an
unrealized loss position as of September 30, 2021 and December 31, 2020.



Refer to Note 4 - Investment Securities of the notes to the unaudited condensed
consolidated financial statements of this report for additional information on
our investment securities portfolio.

                                       53



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Loans



Total loans and leases, at amortized cost, of $7.85 billion at September 30,
2021 decreased by $499.3 million, or 5.98%, from December 31, 2020. The $499.3
million decrease in total loans included decreases of $552.0 million in PPP
loans, $81.6 million in dairy & livestock and agribusiness loans due to seasonal
pay downs, $42.1 million in commercial and industrial loans, $39.2 million in
SFR mortgage loans, $7.7 million in construction loans, and $13.5 million in
consumer and other loans, partially offset by an increase of $233.2 million in
commercial real estate loans and $3.6 million in SBA loans. After adjusting for
seasonality and PPP loans, our loans grew by $134.3 million or at an annualized
rate of approximately 3% from the end of the fourth quarter of 2020.



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



                     Distribution of Loan Portfolio by Type



                                                  September 30, 2021        December 31, 2020
                                                            (Dollars in thousands)

Commercial real estate                           $          5,734,699      $         5,501,509
Construction                                                   77,398                   85,145
SBA                                                           307,533                  303,896
SBA - Paycheck Protection Program (PPP)                       330,960                  882,986
Commercial and industrial                                     769,977                  812,062
Dairy & livestock and agribusiness                            279,584                  361,146
Municipal lease finance receivables                            47,305                   45,547
SFR mortgage                                                  231,323                  270,511
Consumer and other loans                                       70,741                   86,006
Total loans, at amortized cost                              7,849,520       

8 348 808

Less: Allowance for credit losses                             (65,364 )                (93,692 )

Total loans and leasing receivables, net $ 7,784,156 $ 8,255,116




As of September 30, 2021, $354.3 million, or 6.18% of the total commercial real
estate loans included loans secured by farmland, compared to $314.4 million, or
5.72%, at December 31, 2020. The loans secured by farmland included $125.1
million for loans secured by dairy & livestock land and $229.2 million for loans
secured by agricultural land at September 30, 2021, compared to $132.9 million
for loans secured by dairy & livestock land and $181.5 million for loans secured
by agricultural land at December 31, 2020. As of September 30, 2021, dairy &
livestock and agribusiness loans of $279.6 million were comprised of $242.0
million for dairy & livestock loans and $37.6 million for agribusiness loans,
compared to $320.1 million for dairy & livestock loans and $41.0 million for
agribusiness loans at December 31, 2020.



Real estate loans are loans secured by conforming trust deeds on real property,
including property under construction, land development, commercial property and
single-family and multi-family residences. Our real estate loans are comprised
of industrial, office, retail, medical, single family 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 September 30, 2021, the Company had $209.7 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 September
30, 2021, the Company had $97.8 million of total SBA 7(a) loans that include a
guarantee of payment from the SBA (typically 75% of the loan amount, but up to
90% in certain cases) in the event of default. The SBA 7(a) loans include
revolving lines of credit (SBA Express) and term loans of up to ten (10) years
to finance long-term working capital requirements, capital expenditures, and/or
for the purchase or refinance of commercial real estate.



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As an active participant in the SBA's Paycheck Protection Program, we originated
approximately 4,100 PPP loans totaling $1.10 billion in round one, with a
remaining outstanding balance of $52.4 million as of September 30, 2021. As of
September 30, 2021, we have originated approximately 1,900 PPP loans in round
two with a remaining outstanding balance of $278.6 million.



Our loan portfolio is geographically spread across our entire market. Here is the breakdown of our total commercial real estate loans held for investment, by region in September 30, 2021.


                                   September 30, 2021
                                                   Commercial Real
                         Total Loans                Estate Loans
                                 (Dollars in thousands)
Los Angeles County $ 3,272,657        41.7 %   $ 2,201,389        38.4 %
Central Valley       1,389,634        17.7 %     1,088,972        19.0 %
Orange County        1,034,232        13.2 %       674,864        11.8 %
Inland Empire        1,009,682        12.9 %       855,165        14.9 %
Central Coast          457,836         5.8 %       386,436         6.7 %
San Diego              248,478         3.2 %       224,549         3.9 %
Other California       145,338         1.8 %        92,624         1.6 %
Out of State           291,663         3.7 %       210,700         3.7 %
                   $ 7,849,520       100.0 %   $ 5,734,699       100.0 %



The table below shows the breakdown of our commercial real estate portfolio.



                                                           September 30, 2021
                                                                       Percent
                                                                        Owner-            Average
                                     Loan Balance      Percent       Occupied (1)      Loan Balance
                                                         (Dollars in thousands)
Commercial real estate:
Industrial                          $    1,945,809         33.9 %             50.9 %   $       1,466
Office                                   1,045,711         18.2 %             23.3 %           1,676
Retail                                     809,686         14.1 %             10.5 %           1,726
Multi-family                               646,004         11.3 %              1.9 %           1,545
Secured by farmland (2)                    354,341          6.2 %             96.8 %           2,229
Medical                                    295,580          5.2 %             37.6 %           1,699
Other (3)                                  637,568         11.1 %             52.3 %           1,433
Total commercial real estate        $    5,734,699        100.0 %             37.0 %           1,586




(1)
Represents percentage of reported owner-occupied at origination in each real
estate loan category.
(2)
The loans secured by farmland included $125.1 million for loans secured by dairy
& livestock land and $229.2 million for loans secured by agricultural land at
September 30, 2021.
(3)
Other loans consist of a variety of loan types, none of which exceeds 2.0% of
total commercial real estate loans at September 30, 2021.



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Nonperforming Assets



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



                                                    September 30, 2021       December 31, 2020
                                                              (Dollars in thousands)
Nonaccrual loans                                   $              8,446     $            14,347
Loans past due 90 days or more and still accruing
interest                                                              -                       -
Nonperforming troubled debt restructured loans
(TDRs)                                                                -                       -
  Total nonperforming loans                                       8,446                  14,347
OREO, net                                                             -                   3,392
Total nonperforming assets                         $              8,446     $            17,739
Performing TDRs                                    $              7,975     $             2,159

Total nonperforming loans and performing TDRs      $             16,421     $            16,506

Percentage of nonperforming loans and performing
TDRs to total loans,
  at amortized cost                                                0.21 %                  0.20 %

Percentage of non-performing assets in relation to total loans, at amortized cost,

  and OREO                                                         0.11 %                  0.21 %
Percentage of nonperforming assets to total assets                 0.05 %                  0.12 %



Distressed Debt Restructuring (“TDR”)



Total TDRs were $8.0 million at September 30, 2021, compared to $2.2 million at
December 31, 2020. At September 30, 2021, all of our TDRs were performing and
accruing interest as restructured loans. Our performing TDRs were generally
provided a modification of loan repayment terms in response to borrower
financial difficulties. The performing restructured loans represent the only
loans accruing interest at each respective reporting date. A performing
restructured loan is categorized as such if we believe that it is reasonably
assured of repayment and is performing in accordance with the modified terms.



The following table provides a summary of the TORs on the dates presented.



                                               September 30, 2021                       December 31, 2020
                                         Balance          Number of Loans        Balance           Number of Loans
                                                                  (Dollars in thousands)
Performing TDRs:
Commercial real estate                 $      2,632                      2     $        320                       1
Construction                                      -                      -                -                       -
SBA                                               -                      -                -                       -
Commercial and industrial                     4,323                      3               43                       1
Dairy & livestock and agribusiness                -                      -                -                       -
SFR mortgage                                  1,020                      5            1,796                       7
Consumer and other                                -                      -                -                       -
Total performing TDRs                  $      7,975                     10     $      2,159                       9

Nonperforming TDRs:
Commercial real estate                 $          -                      -     $          -                       -
Construction                                      -                      -                -                       -
SBA                                               -                      -                -                       -
Commercial and industrial                         -                      -                -                       -
Dairy & livestock and agribusiness                -                      -                -                       -
SFR mortgage                                      -                      -                -                       -
Consumer and other                                -                      -                -                       -
Total nonperforming TDRs               $          -                      -     $          -                       -
Total TDRs                             $      7,975                     10     $      2,159                       9




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At September 30, 2021 and December 31, 2020, there was no ACL allocated to TDRs.
Impairment amounts identified are typically charged off against the allowance at
the time the loan is considered uncollectible. There were no charge-offs on TDRs
for the nine months ended September 30, 2021 and 2020.

Non-performing assets and defaults



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



                            September 30,       June 30,       March 31,       December 31,       September 30,
                                2021              2021           2020              2020               2020
                                                          (Dollars in thousands)
Nonperforming loans:
Commercial real estate     $         4,073     $    4,439     $     7,395     $        7,563     $         6,481
Construction                             -              -               -                  -                   -
SBA                                  1,513          1,382           2,412              2,273               1,724
Commercial and
industrial                           2,038          1,818           2,967              3,129               1,822
Dairy & livestock and
agribusiness                           118            118             259                785                 849
SFR mortgage                           399            406             424                430                 675
Consumer and other loans               305            308             312                167                 224
Total                      $         8,446     $    8,471     $    13,769     $       14,347     $        11,775
% of Total loans                      0.11 %         0.10 %          0.17 %             0.17 %              0.14 %

Past due 30-89 days:
Commercial real estate     $             -     $        -     $       178     $            -     $             -
Construction                             -              -               -                  -                   -
SBA                                      -              -             258              1,965                  66
Commercial and
industrial                             122            415             952              1,101               3,627
Dairy & livestock and
agribusiness                         1,000              -               -                  -                   -
SFR mortgage                             -              -             266                  -                   -
Consumer and other loans                 -              -              21                  -                  67
Total                      $         1,122     $      415     $     1,675     $        3,066     $         3,760
% of Total loans                      0.01 %         0.01 %          0.02 %             0.04 %              0.04 %

OREO:
Commercial real estate     $             -     $        -     $     1,575     $        1,575     $         1,575
SBA                                      -              -               -                  -                 797
SFR mortgage                             -              -               -              1,817               1,817
Total                      $             -     $        -     $     1,575     $        3,392     $         4,189
Total nonperforming,
past due,
  and OREO                 $         9,568     $    8,886     $    17,019     $       20,805     $        19,724
% of Total loans                      0.12 %         0.11 %          0.21 %             0.25 %              0.23 %








Nonperforming loans, defined as nonaccrual loans, nonperforming TDR loans and
loans past due 90 days or more and still accruing interest, were $8.4 million at
September 30, 2021, or 0.11% of total loans. This compares to nonperforming
loans of $14.3 million, or 0.17% of total loans, at December 31, 2020 and $11.8
million, or 0.14% of total loans, at September 30, 2020. The $8.4 million in
nonperforming loans at September 30, 2021 are summarized as follows: $4.1
million in commercial real estate loans, $2.0 million in commercial and
industrial loans, $1.5 million in SBA loans, $399,000 in SFR mortgage loans,
$305,000 in consumer and other loans, and $118,000 in dairy & livestock and
agribusiness loans.



At September 30, 2021, we had no OREO properties, compared to two OREO
properties with a carrying value of $3.4 million at December 31, 2020 and four
OREO properties with a carrying value of $4.2 million at September 30, 2020. For
the nine months ended September 30, 2020, we sold two OREO properties, realizing
a net gain on sale of $477,000. There were no additions to OREO properties for
the nine months ended September 30, 2021.







                                       57


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Allowance for Credit Losses



We adopted CECL on January 1, 2020, which replaces the "incurred loss" approach
with an "expected loss" model over the life of the loan, as further described in
Note 3-Summary of Significant Accounting Policies of the notes contained in our
Annual Report on Form 10-K for the year ended December 31, 2020. The allowance
for credit losses totaled $65.4 million as of September 30, 2021, compared to
$93.7 million as of December 31, 2020 and $93.9 million as of September 30,
2020. Our allowance for credit losses at September 30, 2021 was 0.83%, or 0.87%
of total loans when excluding the $331.0 million in PPP loans. The allowance for
credit losses for 2021 was decreased by $25.5 million, due to the improved
outlook in our forecast of certain macroeconomic variables that were influenced
by the economic impact of the pandemic and government stimulus, and by $2.8
million in year-to-date net charge-offs. The Company previously recorded
provision for credit losses totaling $23.5 million in 2020, due to the severe
decline in economic forecasts associated with the pandemic. Net charge-offs were
$2.8 million for the nine months ended September 30, 2021, which compares to
$131,000 in net charge-offs for the same period of 2020.



The allowance for credit losses as of September 30, 2021 is based upon lifetime
loss rate models developed from an estimation framework that uses historical
lifetime loss experiences to derive loss rates at a collective pool level. We
measure the expected credit losses on a collective (pooled) basis for those
loans that share similar risk characteristics. We have three collective loan
pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL
amounts are largely driven by portfolio characteristics, including loss history
and various risk attributes, and the economic outlook for certain macroeconomic
variables. Risk attributes for commercial real estate loans include OLTV,
origination year, loan seasoning, and macroeconomic variables that include GDP
growth, commercial real estate price index and unemployment rate. Risk
attributes for commercial and industrial loans include internal risk ratings,
borrower industry sector, loan credit spreads and macroeconomic variables that
include unemployment rate and BBB spread. The macroeconomic variables for
Consumer include unemployment rate and GDP. The Commercial Real Estate
methodology is applied over commercial real estate loans, a portion of
construction loans, and a portion of SBA loans (excluding Payment Protection
Program loans). The Commercial and Industrial methodology is applied over a
substantial portion of the Company's commercial and industrial loans, all dairy
& livestock and agribusiness loans, municipal lease receivables, as well as the
remaining portion of Small Business Administration (SBA) loans (excluding
Payment Protection Program loans). The Consumer methodology is applied to SFR
mortgage loans, consumer loans, as well as the remaining construction loans. In
addition to determining the quantitative life of loan loss rate to be applied
against the portfolio segments, management reviews current conditions and
forecasts to determine whether adjustments are needed to ensure that the life of
loan loss rates reflect both the current state of the portfolio, and
expectations for macroeconomic changes.



Based on the magnitude of government economic stimulus and the wide availability
of vaccines, our latest economic forecast reflects continued improvement in key
macroeconomic variables, including GDP, the commercial real estate price index
and the unemployment rate. 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 upside and downside forecasts, with the largest
weighting on the baseline. Our weighted forecast assumes GDP will increase by
5.7% in 2021, and then grows by more than 2% in both 2022 and 2023. The
unemployment rate is forecasted to be 5.7% in 2021 and then 5.6% in 2022, before
declining to 5.3% in 2023. Management believes that the ACL was appropriate at
September 30, 2021 and December 31, 2020. As there is a high degree of
uncertainty around the epidemiological assumptions and impact of government
responses to the pandemic that impact our economic forecast, no assurance can be
given that economic conditions that adversely affect the Company's service areas
or other circumstances will not be reflected in an increased allowance for
credit losses in future periods.











                                       58


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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
                                                             Nine Months Ended
                                                               September 30,
                                                           2021            2020
                                                          (Dollars in thousands)

Provision for credit losses at the beginning of the period $ 93,692 $

68 660

Impact of adopting ASU 2016-13                                    -           1,840
Charge-offs:
Commercial real estate                                            -               -
Construction                                                      -               -
SBA                                                               -            (203 )
Commercial and industrial                                    (2,985 )          (172 )
Dairy & livestock and agribusiness                                -               -
SFR mortgage                                                      -               -
Consumer and other loans                                        (11 )          (109 )
Total charge-offs                                            (2,996 )          (484 )
Recoveries:
Commercial real estate                                            -               -
Construction                                                     55               9
SBA                                                              13              72
Commercial and industrial                                        10               7
Dairy & livestock and agribusiness                                -               -
SFR mortgage                                                     79             206
Consumer and other loans                                         11              59
Total recoveries                                                168             353
Net (charge-offs) recoveries                                 (2,828 )          (131 )
(Recapture of) provision for credit losses                  (25,500 )       

23,500

Allowance for credit losses at end of period            $    65,364     $   

93,869

Summary of the reserve for unfunded loan commitments: Reserve for unfunded loan commitments at the start of the period

                                                  $     9,000     $   

8 959

Impact of adopting ASU 2016-13                                    -         

41

(Recovery of) allowance for unfunded loan commitments (1,000)

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

9,000

Reserve for unfunded loan commitments out of total unfunded loans

  commitments                                                  0.46 %       

0.50%

Amount of total loans at end of period (1)              $ 7,849,520     $ 

8 407 872

Average total loans outstanding (1)                     $ 8,144,105     $ 

7 972 208

Net charge-offs to average total loans                       -0.035 %        -0.002 %
Net charge-offs to total loans at end of period              -0.036 %        -0.002 %
Allowance for credit losses to average total loans             0.80 %       

1.18% Provision for credit losses of total loans at the end of the period

                                                         0.83 %          1.12 %
Net charge-offs to allowance for credit losses                -4.33 %         -0.14 %
Net charge-offs to (recapture of) provision for credit
losses                                                        11.09 %         -0.56 %




(1)

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

The ACL / Total loan coverage ratio in September 30, 2021 decreased to 0.83%, from 1.12% at September 30, 2020 due to the expected impact of improved economic conditions on the future life of loan loss rates.


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The Bank's ACL methodology also produced an allowance of $8.0 million for our
off-balance sheet credit exposures as of September 30, 2021, compared to $9.0
million as of December 31, 2020 and September 30, 2020. The year-over-year
decrease included a $1.0 million recapture of provision for unfunded loan
commitments in the second quarter of 2021.



While we believe that the allowance at September 30, 2021 was appropriate to
absorb losses from known or inherent risks in the portfolio, no assurance can be
given that economic conditions, interest rate fluctuations, conditions of our
borrowers (including fraudulent activity), or natural disasters, which adversely
affect our service areas or other circumstances or conditions, including those
defined above, will not be reflected in increased provisions for credit losses
in the future.



Changes in economic and business conditions have had an impact on our market
area and on our loan portfolio. We continually monitor these conditions in
determining our estimates of needed reserves. However, we cannot predict the
extent to which the deterioration in general economic conditions, real estate
values, changes in general rates of interest and changes in the financial
conditions or business of a borrower may adversely affect a specific borrower's
ability to pay or the value of our collateral. See "Risk Management - Credit
Risk Management" contained in our Annual Report on Form 10-K for the year ended
December 31, 2020.





Deposits


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



Total deposits were $12.93 billion at September 30, 2021. This represented an
increase of $1.19 billion, or 10.17%, over total deposits of $11.74 billion at
December 31, 2020. The composition of deposits is summarized as of the dates
presented in the table below.



                                September 30, 2021             December 31, 2020
                               Balance        Percent        Balance        Percent
                                             (Dollars in thousands)

Non-interest bearing deposits $ 8,310,709 64.27% $ 7,455,387

   63.52 %
Interest-bearing deposits
Investment checking               594,347         4.61 %        517,976         4.42 %
Money market                    3,129,473        24.20 %      2,869,348        24.45 %
Savings                           551,248         4.26 %        492,096         4.19 %
Time deposits                     344,439         2.66 %        401,694         3.42 %
Total Deposits               $ 12,930,216       100.00 %   $ 11,736,501       100.00 %




The amount of noninterest-bearing deposits in relation to total deposits is an
integral element in our strategy of seeking to achieve a low cost of funds.
Noninterest-bearing deposits totaled $8.31 billion at September 30, 2021,
representing an increase of $855.3 million, or 11.47%, from noninterest-bearing
deposits of $7.46 billion at December 31, 2020. Noninterest-bearing deposits
represented 64.27% of total deposits at September 30, 2021, compared to 63.52%
of total deposits at December 31, 2020.



Savings deposits, which include savings, interest-bearing demand, and money
market accounts, totaled $4.28 billion at September 30, 2021, representing an
increase of $395.6 million, or 10.20%, from savings deposits of $3.88 billion at
December 31, 2020.


Total term deposits $ 344.4 million To September 30, 2021, which represents a decrease of $ 57.3 million, or 14.25%, of the total term deposits of $ 401.7 million
for December 31, 2020.


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Borrowings



We offer a repurchase agreement product to our customers. This product, known as
Citizens Sweep Manager, sells our investment securities overnight to our
customers under an agreement to repurchase them the next day at a price that
reflects the market value of the use of these funds by the Bank for the period
concerned. These repurchase agreements are signed with customers who want to
invest their excess deposits, above a pre-determined balance in a demand deposit
account, in order to earn interest. As of September 30, 2021 and December 31,
2020, total funds borrowed under these agreements were $659.6 million and $439.4
million, respectively, with a weighted average interest rate of 0.08% and 0.10%,
respectively.



We had no other borrowings at September 30, 2021, compared to $5.0 million and
$10.0 million in short-term borrowings that were interest-free advances from the
FHLB at December 31, 2020 and September 31, 2020, respectively.



On June 15, 2021, we redeemed our junior subordinated debentures of $25.8
million, representing the amounts that are due from the Company to CVB Statutory
Trust III, which had a borrowing cost of approximately 1.60%. The debentures and
the Trust Preferred Securities had an original maturity date of 2036. The
interest rate on these debentures were based on three-month LIBOR plus 1.38%.



At September 30, 2021, $6.26 billion of loans and $2.20 billion of investment
securities, at carrying value, were pledged to secure public deposits, short and
long-term borrowings, and for other purposes as required or permitted by law.



Global contractual obligations



The following table summarizes the aggregate contractual obligations as of
September 30, 2021.



                                                                         Maturity by Period
                                                                       One Year       Four Years
                                                    Less Than One       Through         Through        Over Five
                                      Total             Year          Three Years     Five Years         Years
                                                               (Dollars in thousands)
Deposits (1)                       $ 12,930,216     $  12,902,846     $    17,736     $     9,019     $       615
Customer repurchase agreements (1)      659,579           659,579               -               -               -
Deferred compensation                    20,973               675             819             621          18,858
Operating leases                         22,154             6,666           8,864           4,980           1,644
Affordable housing investment             1,350             1,259              55              30               6
  Total                            $ 13,634,272     $  13,571,025     $    27,474     $    14,650     $    21,123




(1)

Amounts exclude accrued interest.

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

Client repurchase agreements represent excess amounts withdrawn from clients’ demand deposit accounts, which expire the next business day and are secured by investment securities. These sums are owed to customers.



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



Operating leases represent the total of minimum payments under non-cancellable operating leases. Refer to Note 11 – Leases of the notes to the Company’s unaudited condensed consolidated financial statements for a more detailed discussion of the leases.

                                       61



--------------------------------------------------------------------------------

Off-balance sheet provisions



The following table summarizes the off-balance sheet items at September 30,
2021.



                                                                  Maturity by Period
                                                                One Year
                                                                Through       Four Years
                                                Less Than        Three          Through       Over Five
                                  Total         One Year         Years        Five Years        Years
                                                        (Dollars in thousands)
Commitment to extend credit:
Commercial real estate         $   315,799     $    49,608     $  126,713     $   123,577     $   15,901
Construction                        90,224          38,456         51,768               -              -
SBA                                  2,247           1,570              -               -            677
SBA - PPP                          916,126         697,971        139,212          10,629         68,314
Commercial and industrial          209,528          76,947        132,581               -              -
Dairy & livestock and
agribusiness (1)                    17,948               -              -               -         17,948
SFR Mortgage                         3,432               -            350               -          3,082
Consumer and other loans           123,899          18,026          4,227           4,809         96,837
 Total commitment to extend
credit                           1,679,203         882,578        454,851         139,015        202,759
Obligations under letters of
credit                              45,779          39,728          6,051               -              -
  Total                        $ 1,724,982     $   922,306     $  460,902     $   139,015     $  202,759




(1)

Total agro-industry credit commitments were $ 20.9 million To
September 30, 2021.



As of September 30, 2021, we had commitments to extend credit of approximately
$1.68 billion, and obligations under letters of credit of $45.8 million.
Commitments to extend credit are agreements to lend to customers, provided there
is no violation of any material condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Commitments are generally variable rate, and
many of these commitments are expected to expire without being drawn upon. As
such, the total commitment amounts do not necessarily represent future cash
requirements. We use the same credit underwriting policies in granting or
accepting such commitments or contingent obligations as we do for on-balance
sheet instruments, which consist of evaluating customers' creditworthiness
individually. There was no provision or recapture of provision for unfunded loan
commitments recorded for the three months ended September 30, 2021 and $1.0
million in recapture of provision for unfunded loan commitments was recorded for
the nine months ended September 30, 2021, compared to no provision or recapture
of provision for unfunded loan commitments for the three and nine months ended
September 30, 2020. The Company had a reserve for unfunded loan commitments of
$8.0 million as of September 30, 2021 included in other liabilities September
30, 2021, compared to $9.0 million as of December 31, 2020.



Stand-by letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a client to a third party. These guarantees are primarily issued to support private loan or purchase agreements. The credit risk associated with the issuance of letters of credit is essentially the same as that associated with the granting of loan facilities to customers. When deemed necessary, we hold appropriate guarantees in support of these 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.



Total equity increased $55.9 million, or 2.79%, to $2.06 billion at September
30, 2021, compared to total equity of $2.01 billion at December 31, 2020. The
$55.9 million increase in equity was primarily due to $164.8 million in net
earnings and $4.2 million for various stock based compensation items. This was
partially offset by a $32.3 million decrease in other comprehensive income from
the tax effected impact of the decrease in market value of available-for-sale
securities and $73.4 million in cash dividends. During the third quarter, we
repurchased 390,336 shares of common stock for $7.4 million, or an average
repurchase price of $18.97. Our tangible common equity ratio was 8.85% at
September 30, 2021.



During the third quarter of 2021, the Board of Directors of CVB declared
quarterly cash dividends totaling $0.18 per share. Dividends are payable at the
discretion of the Board of Directors and there can be no assurance that the
Board of Directors will continue to pay dividends at the same rate, or at all,
in the future. CVB's ability to pay cash dividends to its shareholders is
subject to restrictions under federal and California law, including restrictions
imposed by the Federal Reserve, and covenants set forth in various agreements we
are a party to including covenants set forth in our junior subordinated
debentures.



On August 11, 2016, our Board of Directors approved a program to repurchase up
to 10,000,000 shares of CVB common stock in the open market or in privately
negotiated transactions, at times and at prices considered appropriate by us,
depending upon prevailing market conditions and other corporate and legal
considerations. There is no expiration date for this repurchase program. For the
year ended December 31, 2020, the Company repurchased 4,944,290 shares of CVB
common stock outstanding under this program. The Company terminated the 10b5-1
stock buyback plan on September 23, 2021 as a result of the Company's
prospective issuance of common stock related to the pending acquisition of
Suncrest Bank. For the three and nine months ended September 30, 2021, the
Company repurchased 390,336 shares of CVB common stock outstanding under this
program. As of September 30, 2021, we had 4,194,809 shares of CVB common stock
remaining that are eligible for repurchase under the common stock repurchase
program.



The Bank and the Company are required to meet risk-based capital standards under
the revised capital framework referred to as Basel III set by their respective
regulatory authorities. The risk-based capital standards require the achievement
of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital
ratio of 6.0% and a common equity Tier 1 ("CET1") capital ratio of 4.5%. In
addition, the regulatory authorities require the highest rated institutions to
maintain a minimum leverage ratio of 4.0%. To be considered "well-capitalized"
for bank regulatory purposes, the Bank and the Company are required to have a
CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital
ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to
or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%.
At September 30, 2021, the Bank and the Company exceeded the minimum risk-based
capital ratios and leverage ratios required to be considered "well-capitalized"
for regulatory purposes. For further information about capital requirements and
our capital ratios, see "Item 1. Business - Capital Adequacy Requirements" as
described in our Annual Report on Form 10-K for the year ended December 31,
2021.



At September 30, 2021 the Bank and the Company exceeded the minimum risk-based
capital ratios and leverage ratios, under the revised capital framework referred
to as Basel III, required to be considered "well-capitalized" for regulatory
purposes. We did not elect to phase in the impact of CECL on regulatory capital,
as allowed under the interim final rule of the FDIC and other U.S. banking
agencies.



The table below presents the risk capital and financial leverage ratios of the Company and the Bank for the periods presented.



                                                                    September 30, 2021         December 31, 2020
                                       Minimum
                                    Required Plus                     CVB                       CVB
                      Adequately       Capital         Well        Financial     Citizens    Financial     Citizens
                      Capitalized   Conservation    Capitalized      Corp.       Business      Corp.       Business
Capital Ratios          Ratios         Buffer         Ratios      Consolidated     Bank     Consolidated     Bank

Tier 1 leverage
capital ratio            4.00%          4.00%          5.00%         9.22%        8.94%        9.90%        9.58%
Common equity Tier
1 capital ratio          4.50%          7.00%          6.50%         14.94%       14.50%       14.77%       14.57%
Tier 1 risk-based
capital ratio            6.00%          8.50%          8.00%         14.94%       14.50%       15.06%       14.57%
Total risk-based
capital ratio            8.00%         10.50%         10.00%         15.74%       15.30%       16.24%       15.75%




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                   ASSET/LIABILITY AND MARKET RISK MANAGEMENT



Liquidity and Cash Flow



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



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



Our primary sources and uses of funds for the Company are deposits and loans.
Our deposit levels and cost of deposits may fluctuate from period-to-period due
to a variety of factors, including the stability of our deposit base, prevailing
interest rates, and market conditions. Total deposits of $12.93 billion at
September 30, 2021 increased $1.19 billion, or 10.17%, over total deposits of
$11.74 billion at December 31, 2020. This deposit growth was primarily due to
our customers maintaining greater liquidity.



In general, our liquidity is managed daily by controlling the level of liquid
assets as well as the use of funds provided by the cash flow from the investment
portfolio, loan demand and deposit fluctuations. Our definition of liquid assets
includes cash and cash equivalents in excess of minimum levels needed to fulfill
normal business operations, short-term investment securities, and other
anticipated near term cash flows from investments. Our balance sheet has
significant liquidity and our assets are funded almost entirely with core
deposits. Furthermore, we have significant off-balance sheet sources of
liquidity. To meet unexpected demands, lines of credit are maintained with
correspondent banks, the Federal Home Loan Bank and the Federal Reserve,
although availability under these lines of credit are subject to certain
conditions. The Bank has available lines of credit exceeding $4 billion, most of
which is secured by pledged loans. The sale of investment securities can also
serve as a contingent source of funds. We can obtain additional liquidity from
deposit growth by offering competitive interest rates on deposits from both our
local and national wholesale markets. At September 30, 2021, the Bank had no
short-term borrowings.



CVB is a holding company separate and apart from the Bank that must provide for
its own liquidity and must service its own obligations. On June 15, 2021, we
redeemed our $25.8 million in subordinated debt with an interest rate of three
month LIBOR plus 1.38% at par. 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 nine months ended September 30, 2021 and 2020. For further details see our
"Condensed Consolidated Statements of Cash Flows (Unaudited)" under Part I, Item
1 of this report.



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