CVB Financial Corporation
11/07/2025 | Press release | Distributed by Public on 11/07/2025 16:35
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the results of operations, financial condition, liquidity and capital resources of CVB Financial Corp. (referred to herein on an unconsolidated basis as "CVB" and on a consolidated basis as "we," "our" or the "Company") and its wholly owned bank subsidiary, Citizens Business Bank (the "Bank" or "CBB"). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024 and the unaudited condensed consolidated financial statements and accompanying notes presented elsewhere in this report.
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
Our significant accounting policies are described in greater detail in our 2024 Annual Report on Form 10-K in the "Critical Accounting Policies" section of Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 3 - Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2024, which are essential to understanding Management's Discussion and Analysis of Financial Condition and Results of Operations.
Recently Issued Accounting Pronouncements but Not Adopted as of September 30, 2025
|
Standard |
Description |
Adoption Timing |
Impact on Financial Statements |
|||
|
ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses |
In November, 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40 Disaggregation of Income Statement Expenses. This ASU requires disaggregated disclosure of income statement expenses for public business entities. This ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures in tabular format within the footnotes to the financial statements. The prescribed categories include employee compensation, depreciation, and intangible asset amortization. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning in 2028. This ASU is to be applied on a prospective basis, though early adoption and retrospective application are permitted. |
December 31, |
The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. |
|||
|
ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date |
In January, 2025, the FASB issued ASU 2025-01, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual periods after December 15, 2026, and interim periods in fiscal years beginning after December 15, 2027. |
See ASU 2024-03 |
||||
|
ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity (VIE) |
In May, 2025, the FASB issued ASU 2025-03, which clarifies the accounting acquirer determination in acquisitions where the legal acquiree is a VIE. |
December 31, |
The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. |
|||
|
ASU 2025-04, Compensation-Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer |
In May, 2025, the FASB issued ASU 2025-04, which revises the definition of performance condition for share-based consideration payable to a customer, eliminates the forfeiture policy election for awards granted to customers (unless granted in exchange for a distinct good or service), and clarifies applicability of the variable consideration constraint. |
December 31, |
The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. |
|||
|
ASU 2025-05, Financial Instruments - Credit Losses (Topic 326) : Measurement of Credit Losses for Accounts Receivable and Contract Assets |
In July, 2025, the FASB issued ASU 2025-05, which introduces a practical expedient and policy election to simplify application of CECL to trade accounts receivable and contract assets. |
December 31, |
The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. |
|||
|
ASU 2025-06, Intangibles - Goodwill and Other Internal-Use Software (subtopic 350-40) |
In September, 2025, the FASB issued ASU 2025-06, which provides targeted improvements to the accounting for internal-use software, including revising the cost capitalization threshold. |
December 31, |
The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. |
|
Standard |
Description |
Adoption Timing |
Impact on Financial Statements |
|||
|
ASU 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606) |
In September, 2025, the FASB issued ASU 2025-07, which establishes accounting requirements for contracts that meet the characteristics-based definition of a derivative and are not otherwise excluded from the Topic's scope. |
December 31, |
The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. |
OVERVIEW
For the third quarter of 2025, we reported net earnings of $52.6 million, compared with $50.6 million for the second quarter of 2025 and $51.2 million for the third quarter of 2024. Diluted earnings per share were $0.38 for the third quarter, compared to $0.37 for the prior quarter and $0.37 for the same period last year. Net income for the third quarter of 2025 produced an annualized return on average equity ("ROAE") of 9.19%, an annualized return on average tangible common equity ("ROATCE") of 14.11%, and an annualized return on average assets ("ROAA") of 1.35%. Our net interest margin, tax equivalent ("NIM"), was 3.33% for the third quarter of 2025, while our efficiency ratio was 45.56%. Year-to-date net earnings for 2025 were $154.3 million, a $4.4 million increase compared to the same period in 2024.
Net interest income was $115.6 million for the third quarter of 2025, that represented a $4.0 million, or 3.56%, increase from the second quarter of 2025, and a $2.0 million, or 1.72%, increase from the third quarter of 2024. The quarter-over-quarter increase in net interest income was due to a $5.9 million increase in interest income resulting from a $315.0 million increase in average earning assets and a four basis point increase in the yield on average earning assets. The increase in interest income was partially offset by a $1.9 million increase in interest expense that was due to a $217 million increase in interest bearing deposits and customer repurchases and a two basis point increase in cost of funds. The increase in net interest income compared to the third quarter of 2024 was the net result of a $17.6 million decline in interest expense, that exceeded a $15.6 million decline in interest income. As a result of the Company's deleveraging strategy in the second half of 2024, average earning assets in the third quarter of 2025 were $1.1 billion lower than the third quarter of 2024, while the net interest margin increased by 28 basis points between the two periods. Year-to-date net interest income for 2025 was $337.6 million, a $700,000 increase compared to the same period in 2024.
Noninterest income was $13.0 million for the third quarter of 2025, compared with $14.7 million for the second quarter of 2025 and $12.8 million for the third quarter of 2024. Noninterest income decreased by $1.7 million in the third quarter of 2025 compared to the second quarter due primarily to a loss on sale of available-for-sale securities in the third quarter of 2025 of $8.2 million, that was partially offset by a $6.4 million increase in other income. The increase in other income includes a $6.0 million legal settlement received in the third quarter of 2025. Excluding the loss on sale of AFS securities and legal settlement, noninterest income grew by approximately $447,000 compared to the second quarter of 2025. Noninterest income for the first nine months of 2025 was $44.0 million, a $2.6 million, or 6.30% increase over the same period in 2024.
Noninterest expense for the third quarter of 2025 was $58.6 million, compared to $57.6 million for the second quarter of 2025 and $58.8 million for the third quarter of 2024. The $1.0 million quarter-over-quarter increase was primarily due to an $877,000 increase in salaries and benefits and a $500,000 provision for unfunded loan commitments in the third quarter of 2025. Noninterest expense for the first nine months of 2025 was $175.3 million, a $173,000, or 0.10% increase over the same period in 2024.
At September 30, 2025, total assets were $15.67 billion, an increase $512.6 million, or 3.38%, from total assets of $15.15 billion at December 31, 2024. Interest-earning assets were $14.0 billion at September 30, 2025, an increase of $483.9 million, or 3.58%, when compared with $13.53 billion at December 31, 2024. The increase in interest-earning assets was primarily due to a $581.2 million increase in interest-earning balances due from the Federal Reserve, offset by a $65.5 million decrease in total loans, and a $44.5 million decrease in investment securities.
Total investment securities were $4.88 billion at September 30, 2025, a decrease of $44.5 million, or 0.90%, from $4.92 billion at December 31, 2024. At September 30, 2025, investment securities held-to-maturity ("HTM") totaled $2.30 billion, a $81.8 million, or 3.44%, decline from $2.38 billion at December 31, 2024. At September 30, 2025, investment securities available-for-sale ("AFS") totaled $2.58 billion, inclusive of a pre-tax net unrealized loss of $333.8 million. AFS securities increased by $37.3 million, or 1.47%, from $2.54 billion at December 31, 2024. The pre-tax unrealized loss decreased by $113.9 million from December 31, 2024. Our tax equivalent yield on investments was 2.66% for the quarter ended September 30, 2025, compared to 2.62% for the second quarter of 2025 and 2.67% for the third quarter of 2024.
Total loans and leases, at amortized cost, of $8.47 billion at September 30, 2025, decreased by $65.5 million, or 0.77%, from December 31, 2024. The decrease in total loans included decreases of $138.5 million in dairy and livestock loans, offset partially by increases of $27.9 million in commercial real estate loans, $16.9 million in SFR mortgage loans, $14.0 million in commercial and industrial loans and $13.9 million in construction loans. The decline in dairy & livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 81% at December 31, 2024 to 64% at September 30, 2025. Our yield on loans was 5.25% for the quarter ended September 30, 2025, compared to 5.22% for the quarter ended June 30, 2025 and 5.31% for the third quarter of 2024.
The allowance for credit losses totaled $79.3 million at September 30, 2025, compared to $80.1 million at December 31, 2024. There was a $1.0 million provision for credit losses in the third quarter of 2025 and a $1.0 million recapture of credit losses for the nine months ending September 30, 2025
Noninterest-bearing deposits were $7.24 billion at September 30, 2025, an increase of $207.9 million, or 2.95%, when compared to $7.04 billion at December 31, 2024. At September 30, 2025, noninterest-bearing deposits were 59.76% of total deposits, compared to 58.90% at December 31, 2024.
Interest-bearing deposits were $4.88 billion at September 30, 2025, a decrease of $32.0 million, or 0.65%, when compared to $4.91 billion at December 31, 2024. Customer repurchase agreements totaled $451.3 million at September 30, 2025, compared to $261.9 million at December 31, 2024. Our average cost of total deposits including customer repurchase agreements was 0.90% for the quarter ended September 30, 2025, compared to 0.87% for the quarter ended June 30, 2025, and 1.01% for the quarter ended September 30, 2024.
At September 30, 2025, total borrowings, consisted of $500.0 million of FHLB advances, at a weighted average cost of approximately 4.6%. The FHLB advances include maturities of $300 million in May 2026 and $200 million in May 2027.
The Company's total equity was $2.28 billion at September 30, 2025. This represented an overall increase of $95.8 million from total equity of $2.19 billion at December 31, 2024. Increases to equity included $154.3 million in net earnings and a $64.3 million increase in other comprehensive income that were partially offset by $83.1 million in cash dividends. During the first nine months of 2025, we repurchased, under our stock repurchase plan, 2,360,070 shares at an average price of $18.43, totaling $43.5 million. Our tangible book value per share at September 30, 2025 was $10.98, which compares to $10.10 at December 31, 2024.
Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of September 30, 2025, the Company's Tier 1 leverage capital ratio was 11.8%, common equity Tier 1 ratio was 16.3%, Tier 1 risk-based capital ratio was 16.3%, and total risk-based capital ratio was 17.1%. Refer to our Analysis of Financial Condition - Capital Resources.
ANALYSIS OF THE RESULTS OF OPERATIONS
Financial Performance
|
Three Months Ended |
Variance |
||||||||||||||
|
September 30, |
June 30, |
||||||||||||||
|
2025 |
2025 |
$ |
% |
||||||||||||
|
(Dollars in thousands, except per share amounts) |
|||||||||||||||
|
Net interest income |
$ |
115,577 |
$ |
111,608 |
$ |
3,969 |
3.56 |
% |
|||||||
|
(Provision for) recapture of credit losses |
(1,000 |
) |
- |
(1,000 |
) |
- |
|||||||||
|
Noninterest income |
13,006 |
14,744 |
(1,738 |
) |
-11.79 |
% |
|||||||||
|
Noninterest expense |
(58,576 |
) |
(57,557 |
) |
(1,019 |
) |
-1.77 |
% |
|||||||
|
Income taxes |
(16,421 |
) |
(18,231 |
) |
1,810 |
9.93 |
% |
||||||||
|
Net earnings |
$ |
52,586 |
$ |
50,564 |
$ |
2,022 |
4.00 |
% |
|||||||
|
Earnings per common share: |
|||||||||||||||
|
Basic |
$ |
0.38 |
$ |
0.37 |
$ |
0.01 |
|||||||||
|
Diluted |
$ |
0.38 |
$ |
0.37 |
$ |
0.01 |
|||||||||
|
Return on average assets |
1.35 |
% |
1.34 |
% |
0.01 |
% |
|||||||||
|
Return on average shareholders' equity |
9.19 |
% |
9.06 |
% |
0.13 |
% |
|||||||||
|
Efficiency ratio |
45.56 |
% |
45.55 |
% |
0.01 |
% |
|||||||||
|
Noninterest expense to average assets |
1.50 |
% |
1.52 |
% |
-0.02 |
% |
|||||||||
|
Three Months Ended |
|||||||||||||||
|
September 30, |
Variance |
||||||||||||||
|
2025 |
2024 |
$ |
% |
||||||||||||
|
(Dollars in thousands, except per share amounts) |
|||||||||||||||
|
Net interest income |
$ |
115,577 |
$ |
113,619 |
$ |
1,958 |
1.72 |
% |
|||||||
|
(Provision for) recapture of credit losses |
(1,000 |
) |
- |
(1,000 |
) |
0.00 |
% |
||||||||
|
Noninterest income |
13,006 |
12,834 |
172 |
1.34 |
% |
||||||||||
|
Noninterest expense |
(58,576 |
) |
(58,835 |
) |
259 |
0.44 |
% |
||||||||
|
Income taxes |
(16,421 |
) |
(16,394 |
) |
(27 |
) |
-0.16 |
% |
|||||||
|
Net earnings |
$ |
52,586 |
$ |
51,224 |
$ |
1,362 |
2.66 |
% |
|||||||
|
Earnings per common share: |
|||||||||||||||
|
Basic |
$ |
0.38 |
$ |
0.37 |
$ |
0.01 |
|||||||||
|
Diluted |
$ |
0.38 |
$ |
0.37 |
$ |
0.01 |
|||||||||
|
Return on average assets |
1.35 |
% |
1.23 |
% |
0.12 |
% |
|||||||||
|
Return on average shareholders' equity |
9.19 |
% |
9.40 |
% |
-0.21 |
% |
|||||||||
|
Efficiency ratio |
45.56 |
% |
46.53 |
% |
-0.97 |
% |
|||||||||
|
Noninterest expense to average assets |
1.50 |
% |
1.42 |
% |
0.08 |
% |
|||||||||
|
Nine Months Ended |
|||||||||||||||
|
September 30, |
Variance |
||||||||||||||
|
2025 |
2024 |
$ |
% |
||||||||||||
|
(Dollars in thousands, except per share amounts) |
|||||||||||||||
|
Net interest income |
$ |
337,629 |
$ |
336,929 |
$ |
700 |
0.21 |
% |
|||||||
|
Recapture of (provision for) credit losses |
1,000 |
- |
1,000 |
100.00 |
% |
||||||||||
|
Noninterest income |
43,978 |
41,371 |
2,607 |
6.30 |
% |
||||||||||
|
Noninterest expense |
(175,276 |
) |
(175,103 |
) |
(173 |
) |
-0.10 |
% |
|||||||
|
Income taxes |
(53,077 |
) |
(53,339 |
) |
262 |
0.49 |
% |
||||||||
|
Net earnings |
$ |
154,254 |
$ |
149,858 |
$ |
4,396 |
2.93 |
% |
|||||||
|
Earnings per common share: |
|||||||||||||||
|
Basic |
$ |
1.12 |
$ |
1.07 |
$ |
0.05 |
|||||||||
|
Diluted |
$ |
1.11 |
$ |
1.07 |
$ |
0.04 |
|||||||||
|
Return on average assets |
1.35 |
% |
1.23 |
% |
0.12 |
% |
|||||||||
|
Return on average shareholders' equity |
9.18 |
% |
9.43 |
% |
-0.25 |
% |
|||||||||
|
Efficiency ratio |
45.93 |
% |
46.29 |
% |
-0.36 |
% |
|||||||||
|
Noninterest expense to average assets |
1.53 |
% |
1.43 |
% |
0.10 |
% |
|||||||||
Return on Average Tangible Common Equity Reconciliation (Non-GAAP)
The return on average tangible common equity is a non-GAAP disclosure. The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance. The following is a reconciliation of net income, adjusted for tax-effected amortization of intangibles, to net income computed in accordance with GAAP, a reconciliation of average tangible common equity to the Company's average stockholders' equity computed in accordance with GAAP, as well as a calculation of return on average tangible common equity.
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||
|
September 30, |
June 30, |
September 30, |
September 30, |
September 30, |
||||||||||||||||
|
2025 |
2025 |
2024 |
2025 |
2024 |
||||||||||||||||
|
(Dollars in thousands) |
||||||||||||||||||||
|
Net Income |
$ |
52,586 |
$ |
50,564 |
$ |
51,224 |
$ |
154,254 |
$ |
149,858 |
||||||||||
|
Add: Amortization of intangible assets |
1,003 |
1,155 |
1,286 |
3,312 |
4,161 |
|||||||||||||||
|
Less: Tax effect of amortization of intangible assets (1) |
(297 |
) |
(341 |
) |
(380 |
) |
(979 |
) |
(1,230 |
) |
||||||||||
|
Tangible net income |
$ |
53,292 |
$ |
51,378 |
$ |
52,130 |
$ |
156,587 |
$ |
152,789 |
||||||||||
|
Average stockholders' equity |
$ |
2,271,151 |
$ |
2,237,948 |
$ |
2,166,793 |
$ |
2,245,511 |
$ |
2,122,870 |
||||||||||
|
Less: Average goodwill |
(765,822 |
) |
(765,822 |
) |
(765,822 |
) |
(765,822 |
) |
(765,822 |
) |
||||||||||
|
Less: Average intangible assets |
(7,111 |
) |
(8,232 |
) |
(11,819 |
) |
(8,278 |
) |
(13,216 |
) |
||||||||||
|
Average tangible common equity |
$ |
1,498,218 |
$ |
1,463,894 |
$ |
1,389,152 |
$ |
1,471,411 |
$ |
1,343,832 |
||||||||||
|
Return on average equity, annualized (2) |
9.19 |
% |
9.06 |
% |
9.40 |
% |
9.18 |
% |
9.43 |
% |
||||||||||
|
Return on average tangible common equity, annualized (2) |
14.11 |
% |
14.08 |
% |
14.93 |
% |
14.23 |
% |
15.19 |
% |
||||||||||
(1)
Tax effected at respective statutory rates.
(2)
Annualized where applicable.
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 corporate tax rates of 21% in effect for the three and nine months ended September 30, 2025 and 2024. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. We manage interest rate risk within policy limits approved by the Board of Directors, which guides and limits the interest rate risk over short-term and long-term horizons. Sources of interest rate risk include differences in maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, and embedded options in assets or liabilities. The mix of interest-earning assets as well as the mix of noninterest bearing deposits and interest-bearing liabilities impacts our ability to manage net interest income during changing interest rate conditions. We also utilize certain derivative instruments to partially hedge interest rate risk. 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.
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, |
|||||||||||||||||||||||
|
2025 |
2024 |
||||||||||||||||||||||
|
Average |
Yield/ |
Average |
Yield/ |
||||||||||||||||||||
|
Balance |
Interest |
Rate |
Balance |
Interest |
Rate |
||||||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||||||
|
INTEREST-EARNING ASSETS |
|||||||||||||||||||||||
|
Investment securities (1) |
|||||||||||||||||||||||
|
Available-for-sale securities: |
|||||||||||||||||||||||
|
Taxable |
$ |
2,501,923 |
$ |
18,722 |
2.99 |
% |
$ |
2,637,216 |
$ |
20,010 |
3.03 |
% |
|||||||||||
|
Tax-advantaged |
20,797 |
145 |
3.33 |
% |
24,774 |
168 |
3.25 |
% |
|||||||||||||||
|
Held-to-maturity securities: |
|||||||||||||||||||||||
|
Taxable |
1,953,725 |
10,494 |
2.15 |
% |
2,046,987 |
10,896 |
2.13 |
% |
|||||||||||||||
|
Tax-advantaged |
359,483 |
2,318 |
3.12 |
% |
371,056 |
2,388 |
3.11 |
% |
|||||||||||||||
|
Investment in FHLB stock |
18,012 |
377 |
8.30 |
% |
18,012 |
375 |
8.28 |
% |
|||||||||||||||
|
Interest-earning deposits with other institutions |
646,979 |
7,231 |
4.43 |
% |
1,232,551 |
16,986 |
5.48 |
% |
|||||||||||||||
|
Loans (2) |
8,372,383 |
110,825 |
5.25 |
% |
8,605,270 |
114,929 |
5.31 |
% |
|||||||||||||||
|
Total interest-earning assets |
13,873,302 |
150,112 |
4.32 |
% |
14,935,866 |
165,752 |
4.43 |
% |
|||||||||||||||
|
Total noninterest-earning assets |
1,625,088 |
1,577,295 |
|||||||||||||||||||||
|
Total assets |
$ |
15,498,390 |
$ |
16,513,161 |
|||||||||||||||||||
|
INTEREST-BEARING LIABILITIES |
|||||||||||||||||||||||
|
Savings deposits (3) |
$ |
4,311,097 |
$ |
22,060 |
2.03 |
% |
$ |
4,189,345 |
$ |
23,427 |
2.22 |
% |
|||||||||||
|
Time deposits |
582,117 |
4,036 |
2.75 |
% |
741,875 |
6,394 |
3.43 |
% |
|||||||||||||||
|
Total interest-bearing deposits |
4,893,214 |
26,096 |
2.12 |
% |
4,931,220 |
29,821 |
2.41 |
% |
|||||||||||||||
|
FHLB advances, other borrowings, and customer |
956,235 |
8,109 |
3.36 |
% |
2,093,364 |
22,312 |
4.24 |
% |
|||||||||||||||
|
Interest expense - Other interest-bearing liabilities |
30,029 |
330 |
4.30 |
% |
- |
- |
0.00 |
% |
|||||||||||||||
|
Interest-bearing liabilities |
5,879,478 |
34,535 |
2.33 |
% |
7,024,584 |
52,133 |
2.95 |
% |
|||||||||||||||
|
Noninterest-bearing deposits |
7,123,511 |
7,124,952 |
|||||||||||||||||||||
|
Other liabilities |
224,250 |
196,832 |
|||||||||||||||||||||
|
Stockholders' equity |
2,271,151 |
2,166,793 |
|||||||||||||||||||||
|
Total liabilities and stockholders' equity |
$ |
15,498,390 |
$ |
16,513,161 |
|||||||||||||||||||
|
Net interest income |
$ |
115,577 |
$ |
113,619 |
|||||||||||||||||||
|
Net interest spread - tax equivalent |
1.99 |
% |
1.48 |
% |
|||||||||||||||||||
|
Net interest margin |
3.31 |
% |
3.03 |
% |
|||||||||||||||||||
|
Net interest margin - tax equivalent |
3.33 |
% |
3.05 |
% |
|||||||||||||||||||
(1)
Includes tax equivalent (TE) adjustments utilizing federal statutory corporate rates of 21% in effect for the three months ended September 30, 2025 and September 30, 2024. The non TE rates for total investment securities were 2.62% and 2.63% for the three months ended September 30, 2025 and September 30, 2024, respectively.
(2)
Includes loan fees of $781,000 and $748,000 for the three months ended September 30, 2025 and September 30, 2024, respectively. Prepayment penalty fees of $643,000 and $830,000 are included in interest income for the three months ended September 30, 2025 and September 30, 2024, respectively.
(3)
Includes interest-bearing demand and money market accounts.
|
Nine Months Ended September 30, |
|||||||||||||||||||||||
|
2025 |
2024 |
||||||||||||||||||||||
|
Average |
Yield/ |
Average |
Yield/ |
||||||||||||||||||||
|
Balance |
Interest |
Rate |
Balance |
Interest |
Rate |
||||||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||||||
|
INTEREST-EARNING ASSETS |
|||||||||||||||||||||||
|
Investment securities (1) |
|||||||||||||||||||||||
|
Available-for-sale securities: |
|||||||||||||||||||||||
|
Taxable |
$ |
2,501,899 |
$ |
55,466 |
2.96 |
% |
$ |
2,750,063 |
$ |
62,347 |
3.02 |
% |
|||||||||||
|
Tax-advantaged |
20,552 |
434 |
3.36 |
% |
24,918 |
502 |
3.22 |
% |
|||||||||||||||
|
Held-to-maturity securities: |
|||||||||||||||||||||||
|
Taxable |
1,978,043 |
31,690 |
2.14 |
% |
2,065,950 |
32,930 |
2.13 |
% |
|||||||||||||||
|
Tax-advantaged |
363,260 |
7,029 |
3.12 |
% |
373,477 |
7,201 |
3.11 |
% |
|||||||||||||||
|
Investment in FHLB stock |
18,012 |
1,167 |
8.66 |
% |
18,012 |
1,171 |
8.68 |
% |
|||||||||||||||
|
Interest-earning deposits with other institutions |
384,208 |
12,796 |
4.45 |
% |
799,443 |
32,884 |
5.49 |
% |
|||||||||||||||
|
Loans (2) |
8,397,900 |
328,741 |
5.23 |
% |
8,720,058 |
345,478 |
5.29 |
% |
|||||||||||||||
|
Total interest-earning assets |
13,663,874 |
437,323 |
4.29 |
% |
14,751,921 |
482,513 |
4.38 |
% |
|||||||||||||||
|
Total noninterest-earning assets |
1,620,955 |
15,814,501 |
|||||||||||||||||||||
|
Total assets |
$ |
15,284,829 |
$ |
16,333,372 |
|||||||||||||||||||
|
INTEREST-BEARING LIABILITIES |
|||||||||||||||||||||||
|
Savings deposits (3) |
$ |
4,265,958 |
$ |
64,344 |
2.02 |
% |
$ |
4,064,625 |
$ |
61,844 |
2.03 |
% |
|||||||||||
|
Time deposits |
572,593 |
11,903 |
2.78 |
% |
640,941 |
15,322 |
3.19 |
% |
|||||||||||||||
|
Total interest-bearing deposits |
4,838,551 |
76,247 |
2.11 |
% |
4,705,566 |
77,166 |
2.19 |
% |
|||||||||||||||
|
FHLB advances, other borrowings, and customer |
890,936 |
22,310 |
3.35 |
% |
2,177,051 |
68,418 |
4.20 |
% |
|||||||||||||||
|
Interest expense - Other interest-bearing liabilities |
34,697 |
1,137 |
4.32 |
% |
- |
- |
0.00 |
% |
|||||||||||||||
|
Interest-bearing liabilities |
5,764,184 |
99,694 |
2.31 |
% |
6,882,617 |
145,584 |
2.83 |
% |
|||||||||||||||
|
Noninterest-bearing deposits |
7,060,953 |
7,153,557 |
|||||||||||||||||||||
|
Other liabilities |
214,181 |
174,328 |
|||||||||||||||||||||
|
Stockholders' equity |
2,245,511 |
2,122,870 |
|||||||||||||||||||||
|
Total liabilities and stockholders' equity |
$ |
15,284,829 |
$ |
16,333,372 |
|||||||||||||||||||
|
Net interest income |
$ |
337,629 |
$ |
336,929 |
|||||||||||||||||||
|
Net interest spread - tax equivalent |
1.98 |
% |
1.56 |
% |
|||||||||||||||||||
|
Net interest margin |
3.30 |
% |
3.05 |
% |
|||||||||||||||||||
|
Net interest margin - tax equivalent |
3.32 |
% |
3.06 |
% |
|||||||||||||||||||
(1)
Includes tax equivalent (TE) adjustments utilizing federal statutory corporate rates of 21% in effect for the nine months ended September 30, 2025 and September 30, 2024. The non TE rates for total investment securities were 2.59% and 2.63% for the nine months ended September 30, 2025 and September 30, 2024, respectively.
(2)
Includes loan fees of $2.1 million and $2.2 million for the nine months ended September 30, 2025 and September 30, 2024, respectively. Prepayment penalty fees of $2.3 million and $1.9 million are included in interest income for the nine months ended September 30, 2025 and September 30, 2024, 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 interest rate. The change in interest income or expense attributable to changes in interest rates is calculated by multiplying the change in interest rate by the initial volume. The changes attributable to interest rate and volume changes are calculated by multiplying the change in rate times the change in volume and reflect an adjustment for the number of days as appropriate.
Rate and Volume Analysis for Changes in Interest Income, Interest Expense and Net Interest Income
|
Comparison of Three Months Ended September 30, |
|||||||||||||||
|
2025 Compared to 2024 |
|||||||||||||||
|
Increase (Decrease) Due to |
|||||||||||||||
|
Rate/ |
|||||||||||||||
|
Volume |
Rate |
Volume |
Total |
||||||||||||
|
(Dollars in thousands) |
|||||||||||||||
|
Interest income: |
|||||||||||||||
|
Available-for-sale securities: |
|||||||||||||||
|
Taxable investment securities |
$ |
(1,034 |
) |
$ |
(267 |
) |
$ |
13 |
$ |
(1,288 |
) |
||||
|
Tax-advantaged investment securities |
(27 |
) |
5 |
(1 |
) |
(23 |
) |
||||||||
|
Held-to-maturity securities: |
|||||||||||||||
|
Taxable investment securities |
(501 |
) |
100 |
(1 |
) |
(402 |
) |
||||||||
|
Tax-advantaged investment securities |
(75 |
) |
5 |
- |
(70 |
) |
|||||||||
|
Investment in FHLB stock |
- |
1 |
1 |
2 |
|||||||||||
|
Interest-earning deposits with other institutions |
(8,092 |
) |
(3,257 |
) |
1,594 |
(9,755 |
) |
||||||||
|
Loans |
(3,119 |
) |
(1,325 |
) |
340 |
(4,104 |
) |
||||||||
|
Total interest income |
(12,848 |
) |
(4,738 |
) |
1,946 |
(15,640 |
) |
||||||||
|
Interest expense: |
|||||||||||||||
|
Savings deposits |
683 |
(2,054 |
) |
4 |
(1,367 |
) |
|||||||||
|
Time deposits |
(1,381 |
) |
(1,268 |
) |
291 |
(2,358 |
) |
||||||||
|
FHLB advances, other borrowings, and |
(12,153 |
) |
(4,621 |
) |
2,571 |
(14,203 |
) |
||||||||
|
Interest expense - Other interest-bearing liabilities |
- |
- |
330 |
330 |
|||||||||||
|
Total interest expense |
(12,851 |
) |
(7,943 |
) |
3,196 |
(17,598 |
) |
||||||||
|
Net interest income |
$ |
3 |
$ |
3,205 |
$ |
(1,250 |
) |
$ |
1,958 |
||||||
|
Comparison of Nine Months Ended September 30, |
|||||||||||||||
|
2025 Compared to 2024 |
|||||||||||||||
|
Increase (Decrease) Due to |
|||||||||||||||
|
Rate/ |
|||||||||||||||
|
Volume |
Rate |
Volume |
Total |
||||||||||||
|
(Dollars in thousands) |
|||||||||||||||
|
Interest income: |
|||||||||||||||
|
Available-for-sale securities: |
|||||||||||||||
|
Taxable investment securities |
$ |
(7,509 |
) |
$ |
(1,859 |
) |
$ |
2,487 |
$ |
(6,881 |
) |
||||
|
Tax-advantaged investment securities |
(117 |
) |
32 |
17 |
(68 |
) |
|||||||||
|
Held-to-maturity securities: |
|||||||||||||||
|
Taxable investment securities |
(1,868 |
) |
224 |
404 |
(1,240 |
) |
|||||||||
|
Tax-advantaged investment securities |
(263 |
) |
34 |
57 |
(172 |
) |
|||||||||
|
Investment in FHLB stock |
- |
(4 |
) |
- |
(4 |
) |
|||||||||
|
Interest-earning deposits with other institutions |
(22,815 |
) |
(8,327 |
) |
11,054 |
(20,088 |
) |
||||||||
|
Loans |
(17,048 |
) |
(5,106 |
) |
5,417 |
(16,737 |
) |
||||||||
|
Total interest income |
(49,620 |
) |
(15,006 |
) |
19,436 |
(45,190 |
) |
||||||||
|
Interest expense: |
|||||||||||||||
|
Savings deposits |
4,092 |
(642 |
) |
(950 |
) |
2,500 |
|||||||||
|
Time deposits |
(2,182 |
) |
(2,653 |
) |
1,416 |
(3,419 |
) |
||||||||
|
FHLB advances, other borrowings, and |
(53,990 |
) |
(18,503 |
) |
26,385 |
(46,108 |
) |
||||||||
|
Interest expense - Other interest-bearing liabilities |
- |
- |
1,137 |
1,137 |
|||||||||||
|
Total interest expense |
(52,080 |
) |
(21,798 |
) |
27,988 |
(45,890 |
) |
||||||||
|
Net interest income |
$ |
2,460 |
$ |
6,792 |
$ |
(8,552 |
) |
$ |
700 |
||||||
Third Quarter of 2025 Compared to the Third Quarter of 2024
Net interest income, before provision for credit losses, of $115.6 million for the third quarter of 2025 increased by $2.0 million, or 1.72%, from the third quarter of 2024. The increase in net interest income in the third quarter of 2025 compared to the third quarter of 2024 was the net result of a $17.6 million decrease in interest expense that exceeded a $15.6 million decline in interest income. The decrease in interest expense was primarily due to a $14.9 million decrease in interest expense from a $1.2 billion decrease in average borrowings.
Total interest income of $150.1 million declined by $15.6 million, or 9.44%, when compared to the third quarter of 2024. This decrease was primarily due to a $1.06 billion decline in average interest-earning assets and an 11 basis point decrease of the yield on earning assets. Average loan balances declined by $232.9 million from the third quarter of 2024. Compared to the third quarter of 2024, the average balance of investment securities decreased by $244.1 million, while the average amount of funds held at the Federal Reserve decreased by $581.3 million.
Total interest income and fees on loans for the third quarter of 2025 was $110.8 million, a decrease of $4.1 million, or 3.57%, from the third quarter of 2024. This decrease in income was due to both the decline in average loan balances and a decline in loan yields from 5.31% for the third quarter of 2024, to 5.25% for the third quarter of 2025. Loan yields decreased as declining short term interest rates, such as the Prime rate, lowered the yield on variable indexed loans.
Interest income from investment securities was $31.7 million, a decrease of $1.8 million, or 5.33%, from the third quarter of 2024. The decrease was driven primarily by a $3.0 million decrease in the positive carry on pay-fixed swaps that are available-for-sale investment fair value hedges. The spread between daily SOFR and fixed rate paid on these swaps decreased from 1.71% in the third quarter of 2024 to .74% in the third quarter of 2025. Excluding the impact of the fair value hedges, investment security yields increased by 22 basis points, partially offsetting the impact on interest income from the $244.1 million decrease in average investment balances.
Interest expense was $34.5 million for the third quarter of 2025, a decrease of $17.6 million, compared to the third quarter of 2024. Total cost of funds of 1.05% for the third quarter of 2025 decreased from 1.47% for the year ago quarter. This 42 basis point decrease in cost of funds was primarily the result of a $1.2 billion decrease in average borrowings, as well as the 16 basis point decrease in average borrowing costs, when compared to the third quarter of 2024. The redemption of $1.3 billion of Federal Reserve Bank Term Funding Program borrowings in the third quarter of 2024 resulted in the year over year decline in
the level of borrowings. A 29 basis point decrease in the cost of total interest-bearing deposits was primarily due to a 19 basis point decrease in the cost of non-maturing interest bearing deposits. Additionally, time deposits declined by $159.8 million and the cost of time deposits decreased by 68 basis points. The cost of customer repurchase agreements increased from 1.73% in the third quarter of 2024 to 2.00% in the third quarter of 2025. Average noninterest-bearing deposits were 59.3% of total average deposits for the third quarter of 2025, compared to 59.1% for the third quarter of 2024.
Nine Months of 2025 Compared to Nine Months of 2024
Net interest income, before provision for credit losses, was $337.6 million for the nine months ended September 30, 2025, an increase of $0.7 million, or 0.21%, compared to $336.9 million for the same period in 2024. The increase in net interest income for the nine months ended September 30, 2025 compared to the same period in 2024 was due to the net impact of a 26 basis point increase in the net interest margin that offset a $1.1 billion decrease in average earning assets. The average balance on interest-bearing liabilities decreased by $1.1 billion, or 16.25%, to $5.76 billion for the nine months ended September 30, 2025, from $6.88 billion for the same period in the prior year. Our net interest margin (TE) was 3.32% for the first nine months of 2025, compared to 3.06% for the same period of 2024.
Total interest income was $437.3 million for the nine months ended September 30, 2025, which was $45.2 million, or 9.37%, lower than the same period of 2024. The decline was due to the decrease in the average balance in interest-earning assets which decreased by $1.1 billion, or 7.38%, to $13.66 billion for the nine months ended September 30, 2025 from $14.75 billion for the same period in 2024, and a nine basis point decrease in the yield on earning assets, to 4.29% for the first nine months of 2025, compared to 4.38% for the same period in 2024. The year-over-year decrease in average earning assets resulted from a decline of $350.7 million in average investment securities, a $322.2 million decrease in our average loan balances, and a $408.3 million decrease in the average amount of funds held at the Federal Reserve. The decrease in the average earning asset yield compared to the first nine months of 2024 resulted from a six basis point decrease in loan yields, from 5.29% for the first nine months of 2024 to 5.23% for the same period of 2025, and a four basis point decrease in the tax-equivalent yield on investment securities. Including the impact of fair value hedges, the yield on investment securities decreased from 2.68% for the first nine months of 2024 to 2.64% for the nine months ended September 30, 2025. The decrease in yield includes the positive carry on the fair value hedges, which resulted in $3.6 million of interest income for the nine months ended September 30, 2025, compared to $12.1 million in the first nine months of 2024.
Interest expense of $99.7 million for the nine months ended September 30, 2025, was $45.9 million lower than the same period of 2024. Total cost of funds for the first nine months of 2025 was 1.04%, compared with 1.39% for the same period of 2024. Average noninterest-bearing deposits for the nine months ending September 30, 2025 decreased by $92.6 million, compared to the first nine months of 2024. Average noninterest-bearing deposits represented 59.34% of our total average deposits for the nine months ended September 30, 2025, compared to 60.32% for the same period of 2024. The average rate paid on interest-bearing liabilities decreased by 52 basis points, to 2.31% for the first nine months of 2025, from 2.83% for the same period of 2024. The average rate paid on interest-bearing deposits for the first nine months of 2025 decreased by eight basis points from the same period in 2024. The average balance of time deposits decreased by $68.3 million to $572.6 million in the first nine months of 2025 compared to $640.9 million in the same period in 2024, while the cost of time deposits decreased to 2.78%, from 3.19% in the same period in 2024. The average balance on non-maturity interest-bearing deposits increased from the prior year period by $201.3 million, with the cost of these deposits decreasing by one basis point. Average borrowings for the first nine months of 2025 were $507.0 million at a cost of 4.61%, compared with $1.86 billion at cost of 4.76% of average borrowings for the same period of 2024. The decrease in rates on deposits and borrowings was due to declining market rates and the redemption of Bank Term Funding Program borrowings.
Provision for (Recapture of) Credit Losses
The provision for (recapture of) credit losses is a charge to earnings to maintain the allowance for credit losses at a level consistent with management's assessment of expected lifetime losses in the loan portfolio as of the balance sheet date.
There was a $1.0 million provision for credit losses in the third quarter of 2025, compared to no provision in the third quarter of 2024. Net recoveries for the third quarter of 2025 were $333,000, compared to net recoveries of $156,000 in the third quarter of 2024. Projected loss rates were 0.94% at September 30, 2025, compared to 0.97% at September 30, 2024.
There was a $1.0 million recapture of credit losses for the nine months ended September 30, 2025, compared to no provision or recapture for credit losses for the same period of 2024. For the nine months ended September 30, 2025, we experienced credit charge-offs of $536,000 and total recoveries of $750,000, resulting in net recoveries of $214,000. For the nine months ended September 30, 2024, we experienced credit charge-offs of $4.3 million and total recoveries of $444,000, resulting in net charge-offs of $3.9 million. Refer to the discussion of "Allowance for Credit Losses" in Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operationscontained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.
No assurance can be given that economic conditions which affect the Company's service areas or other circumstances will or will not be reflected in future changes in the level of our allowance for credit losses and the resulting provision or recapture of provision for credit losses. The process to estimate the allowance for credit losses requires considerable judgment and our economic forecasts may continue to vary due to the uncertainty of the future impact from geopolitical events, trade barriers, including tariff policies, and global inflation will have on future interest rates, unemployment, the overall economy and resulting impact on our customers. See "Allowance for Credit Losses" under Analysis of Financial Conditionherein.
Noninterest Income
Noninterest income includes income derived from financial services offered to our customers, such as CitizensTrust, merchant processing and card services, international banking, and other business services. Also included in noninterest income are service charges and fees, primarily from deposit accounts, gains (net of losses) from the disposition of investment securities, loans, other real estate owned, and fixed assets, and other revenues not included as interest on earning assets.
The following table sets forth the various components of noninterest income for the periods presented.
|
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||||||||||||
|
September 30, |
Variance |
September 30, |
Variance |
||||||||||||||||||||||||||||
|
2025 |
2024 |
$ |
% |
2025 |
2024 |
$ |
% |
||||||||||||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||||||||||||||
|
Noninterest income: |
|||||||||||||||||||||||||||||||
|
Service charges on deposit |
$ |
4,859 |
$ |
5,120 |
$ |
(261 |
) |
-5.10 |
% |
$ |
14,726 |
$ |
15,273 |
$ |
(547 |
) |
-3.58 |
% |
|||||||||||||
|
Trust and investment services |
3,875 |
3,565 |
310 |
8.70 |
% |
11,002 |
10,217 |
785 |
7.68 |
% |
|||||||||||||||||||||
|
Bankcard services |
684 |
355 |
329 |
92.68 |
% |
1,961 |
1,110 |
851 |
76.67 |
% |
|||||||||||||||||||||
|
BOLI income |
3,267 |
3,499 |
(232 |
) |
-6.63 |
% |
9,326 |
10,034 |
(708 |
) |
-7.06 |
% |
|||||||||||||||||||
|
Loss on sale of AFS investment securities |
(8,185 |
) |
(11,582 |
) |
3,397 |
29.33 |
% |
(8,185 |
) |
(11,582 |
) |
3,397 |
29.33 |
% |
|||||||||||||||||
|
Gain on OREO, net |
- |
- |
- |
- |
2,183 |
- |
2,183 |
- |
|||||||||||||||||||||||
|
Gain on sale leaseback transactions |
- |
9,106 |
(9,106 |
) |
-100.00 |
% |
- |
9,106 |
(9,106 |
) |
-100.00 |
% |
|||||||||||||||||||
|
Other |
8,506 |
2,771 |
5,735 |
206.96 |
% |
12,965 |
7,213 |
5,752 |
79.74 |
% |
|||||||||||||||||||||
|
Total noninterest income |
$ |
13,006 |
$ |
12,834 |
$ |
172 |
1.34 |
% |
$ |
43,978 |
$ |
41,371 |
$ |
2,607 |
6.30 |
% |
|||||||||||||||
Third Quarter of 2025 Compared to the Third Quarter of 2024
The $172,000 increase in noninterest income in the third quarter of 2025 compared to the same period in 2024 was due to a $5.7 million increase in other income and a $3.4 million decrease in the loss on sale of AFS securities, partially offset by a $9.1 million gain on a sale leaseback transaction in the third quarter of 2024. The increase in other income included a $6.0 million legal settlement received in the third quarter of 2025.
Trust and Investment Services represents our CitizensTrust group. The CitizensTrust group is made up of wealth management and investment services. They provide a variety of services, which include asset management, financial planning,
estate planning, retirement planning, private and corporate trustee services, and probate services. Investment Services provides self-directed brokerage, 401(k) plans, mutual funds, insurance and other non-insured investment products. At September 30, 2025, CitizensTrust had approximately $5.2 billion in assets under management and administration, including $3.7 billion in assets under management. CitizensTrust generated fees of $3.9 million for the third quarter of 2025, compared to $3.6 million for the same period of 2024.
Nine Months of 2025 Compared to Nine Months of 2024
The $2.6 million year-over-year increase in noninterest income included a $2.2 million gain on sale of OREO, a $3.4 million decrease in the loss on sale of AFS securities, a $5.7 million increase in other income, and a $785,000 increase in trust and investment services, partially offset by a $9.1 million gain on a sale leaseback transaction in the third quarter of 2024. The increase in other income included a $6.0 million legal settlement received in the third quarter of 2025.
Noninterest Expense
The following table summarizes the various components of noninterest expense for the periods presented.
|
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||||||||||||
|
September 30, |
Variance |
September 30, |
Variance |
||||||||||||||||||||||||||||
|
2025 |
2024 |
$ |
% |
2025 |
2024 |
$ |
% |
||||||||||||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||||||||||||||
|
Noninterest expense: |
|||||||||||||||||||||||||||||||
|
Salaries and employee benefits |
$ |
35,876 |
$ |
36,647 |
$ |
(771 |
) |
-2.10 |
% |
$ |
107,352 |
$ |
108,474 |
$ |
(1,122 |
) |
-1.03 |
% |
|||||||||||||
|
Occupancy |
4,703 |
4,997 |
(294 |
) |
-5.88 |
% |
14,331 |
14,232 |
99 |
0.70 |
% |
||||||||||||||||||||
|
Equipment |
1,120 |
1,207 |
(87 |
) |
-7.21 |
% |
3,596 |
3,309 |
287 |
8.67 |
% |
||||||||||||||||||||
|
Professional services |
2,350 |
2,855 |
(505 |
) |
-17.69 |
% |
6,622 |
7,836 |
(1,214 |
) |
-15.49 |
% |
|||||||||||||||||||
|
Computer software expense |
4,350 |
3,906 |
444 |
11.37 |
% |
12,981 |
11,380 |
1,601 |
14.07 |
% |
|||||||||||||||||||||
|
Marketing and promotion |
1,738 |
1,964 |
(226 |
) |
-11.51 |
% |
5,543 |
5,550 |
(7 |
) |
-0.13 |
% |
|||||||||||||||||||
|
Amortization of intangible assets |
1,003 |
1,286 |
(283 |
) |
-22.01 |
% |
3,312 |
4,161 |
(849 |
) |
-20.40 |
% |
|||||||||||||||||||
|
Telecommunications expense |
520 |
479 |
41 |
8.56 |
% |
1,574 |
1,461 |
113 |
7.73 |
% |
|||||||||||||||||||||
|
Regulatory assessments |
2,030 |
2,104 |
(74 |
) |
-3.52 |
% |
6,065 |
7,963 |
(1,898 |
) |
-23.84 |
% |
|||||||||||||||||||
|
Insurance |
494 |
507 |
(13 |
) |
-2.56 |
% |
1,468 |
1,523 |
(55 |
) |
-3.61 |
% |
|||||||||||||||||||
|
Provision for (recapture of) |
500 |
(750 |
) |
1,250 |
166.67 |
% |
1,000 |
(1,250 |
) |
2,250 |
180.00 |
% |
|||||||||||||||||||
|
Directors' expenses |
316 |
306 |
10 |
3.27 |
% |
913 |
961 |
(48 |
) |
-4.99 |
% |
||||||||||||||||||||
|
Other |
3,576 |
3,327 |
249 |
7.48 |
% |
10,519 |
9,503 |
1,016 |
10.69 |
% |
|||||||||||||||||||||
|
Total noninterest expense |
$ |
58,576 |
$ |
58,835 |
$ |
(259 |
) |
-0.44 |
% |
$ |
175,276 |
$ |
175,103 |
$ |
173 |
0.10 |
% |
||||||||||||||
|
Noninterest expense to average |
1.50 |
% |
1.42 |
% |
1.53 |
% |
1.43 |
% |
|||||||||||||||||||||||
|
Efficiency ratio (1) |
45.56 |
% |
46.53 |
% |
45.93 |
% |
46.29 |
% |
|||||||||||||||||||||||
(1)
Noninterest expense divided by net interest income before provision for credit losses plus noninterest income.
Our ability to control noninterest expenses in relation to asset growth can be measured in terms of total noninterest expenses as a percentage of average assets. Noninterest expense as a percentage of average assets was 1.50% for the third quarter of 2025, compared to 1.42% for the third quarter of 2024.
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 45.56% for the third quarter of 2025, compared to 46.53% for the third quarter of 2024.
Third Quarter of 2025 Compared to the Third Quarter of 2024
Noninterest expense of $58.6 million for the third quarter of 2025 was $260,000, or 0.44%, lower than the third quarter of 2024. The decrease in noninterest expense from the third quarter of 2024 was the net result of decreases in most expense categories, that were partially offset by a $444,000 increase in software expense related to technology investments and a $1.25 million increase in the provision for unfunded loan commitments. The $771,000 decrease in salaries and employee benefits was primarily due to lower benefit expense.
Nine Months of 2025 Compared to Nine Months of 2024
Noninterest expense of $175.3 million for the first nine months of 2025 was $173,000 higher than the prior year period. Year-over-year expense increases included $1.6 million, or a 14.1% increase in computer software expense related to data processing costs from continued investments in technology and automation, which coincides with a $1.1 million decrease in salary and benefit expense. Regulatory assessment expense declined by $1.9 million as there was additional accruals in the first half of 2024 for the FDIC special assessment fee from initial estimates of losses from bank failures in 2023. This was offset by the impact of the change in unfunded commitment reserve. The first nine months of 2025 included $1.0 million in provision for unfunded loan commitments, compared to $1.3 million in recapture of provision for in the same period of 2024, resulting in a $2.3 million increase in expense. Legal expenses decreased by $1.3 million in the first nine months of 2025, primarily due to legal expenses incurred in the first nine months of 2024 related to the lawsuit the Company pursued related to allegations of trade secrets misappropriation that was settled in the third quarter of 2025. As a percentage of average assets, noninterest expense was 1.53% for the nine months ended September 30, 2025, compared to 1.43% for the same period of 2024. For the nine months ended September 30, 2025, the efficiency ratio was 45.93%, compared to 46.29% for the same period of 2024.
Income Taxes
The Company's effective tax rate for the three and nine months ended September 30, 2025 was 23.80% and 25.60% compared to 24.25% and 26.25%, for the three and nine months ended September 30, 2024, respectively. Our estimated annual effective tax rate also varies depending upon the level of tax-advantaged income from municipal securities and bank owned life insurance ("BOLI"), as well as available tax credits. The decrease in the effective tax rate was primarily driven by increased investments in solar 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.
ANALYSIS OF FINANCIAL CONDITION
Total assets of $15.67 billion at September 30, 2025 increased by $512.6 million, or 3.38%, from total assets of $15.15 billion at December 31, 2024. Interest-earning assets of $14.01 billion at September 30, 2025 increased by $483.9 million, or 3.58%, when compared with $13.53 billion at December 31, 2024. The increase in interest-earning assets was primarily due to a $581.2 million increase in interest-earning balances due from the Federal Reserve, offset by a $65.5 million decrease in total loans, and a $44.5 million decrease in investment securities.
Total liabilities were $13.38 billion at September 30, 2025, an increase of $416.8 million, or 3.21%, from total liabilities of $12.97 billion at December 31, 2024. Total deposits increased by $175.9 million, or 1.47%, with noninterest-bearing deposits increasing by $207.9 million, or 2.95%. Interest-bearing deposits declined by $32.0 million, or 0.65%. Borrowings remained the same balance as of December 31, 2024. At September 30, 2025, total borrowings consisted of $500 million of FHLB advances, at an average cost of approximately 4.6%.
Total equity increased $95.8 million to $2.28 billion at September 30, 2025, compared to total equity of $2.19 billion at December 31, 2024. Increases to equity included $154.3 million in net earnings and a $64.3 million increase in other comprehensive income that were partially offset by $83.1 million in cash dividends. In the first nine months of 2025, we repurchased, under our stock repurchase plan, 2,360,070 shares of common stock, at an average repurchase price of $18.43, totaling $43.5 million. We engaged in no stock repurchases during the first nine months of 2024.
Investment Securities
The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. At September 30, 2025, total investment securities were $4.88 billion. This represented a decrease of $44.5 million, or 0.90%, from $4.92 billion at December 31, 2024. The overall decrease in investment securities was primarily due to a $81.8 million decline in our HTM securities. At September 30, 2025, our AFS investment securities totaled $2.58 billion, inclusive of a pre-tax net unrealized loss of $333.8 million. The $113.9 million increase in fair value of our AFS securities since December 31, 2024 was partially offset by a $18.4 million decrease in the fair value of our derivatives that hedge the change in value of our AFS portfolio. The after-tax unrealized loss reported in AOCI on our AFS investment securities at September 30, 2025 was $236.8 million. The changes in the net unrealized holding loss resulted primarily from fluctuations in market interest rates. At September 30, 2025, investment securities HTM totaled $2.30 billion. For the nine months ended September 30, 2025 and 2024, repayments/maturities of investment securities totaled $339.4 million and $366.4 million, purchases totaled $250.2 million and $44.9 million, and sales totaled $65.5 million and $245.3 million, respectively. Total Commercial Property Assessed Clean Energy ("C-PACE") bonds which are included in our HTM securities portfolio at September 30, 2025 were $17.7 million, of which $6.2 million was originated in the first nine months of 2025.
The tables below set forth our investment securities AFS and HTM portfolio by type for the dates presented.
|
September 30, 2025 |
|||||||||||||||||||
|
Amortized Cost |
Gross Unrealized Holding Gain |
Gross Unrealized Holding Loss |
Fair Value |
Total Percent |
|||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||
|
Investment securities available-for-sale: |
|||||||||||||||||||
|
Government agency/GSE |
$ |
34,738 |
$ |
14 |
$ |
- |
$ |
34,752 |
1.35 |
% |
|||||||||
|
Mortgage-backed securities |
2,186,896 |
1,810 |
(225,199 |
) |
1,963,507 |
76.13 |
% |
||||||||||||
|
CMO/REMIC |
668,135 |
1,170 |
(111,026 |
) |
558,279 |
21.64 |
% |
||||||||||||
|
Municipal bonds |
21,778 |
34 |
(609 |
) |
21,203 |
0.82 |
% |
||||||||||||
|
Other securities |
1,656 |
- |
- |
1,656 |
0.06 |
% |
|||||||||||||
|
Unallocated portfolio layer fair value basis |
(10,838 |
) |
10,838 |
- |
- |
0.00 |
% |
||||||||||||
|
Total available-for-sale securities |
$ |
2,902,365 |
$ |
13,866 |
$ |
(336,834 |
) |
$ |
2,579,397 |
100.00 |
% |
||||||||
|
Investment securities held-to-maturity: |
|||||||||||||||||||
|
Government agency/GSE |
$ |
502,460 |
$ |
- |
$ |
(86,096 |
) |
$ |
416,364 |
21.87 |
% |
||||||||
|
Mortgage-backed securities |
570,690 |
2 |
(87,814 |
) |
482,878 |
24.84 |
% |
||||||||||||
|
CMO/REMIC |
760,193 |
- |
(157,362 |
) |
602,831 |
33.07 |
% |
||||||||||||
|
Municipal bonds |
446,881 |
861 |
(31,602 |
) |
416,140 |
19.45 |
% |
||||||||||||
|
Other securities (2) |
17,685 |
- |
- |
17,685 |
0.77 |
% |
|||||||||||||
|
Total held-to-maturity securities |
$ |
2,297,909 |
$ |
863 |
$ |
(362,874 |
) |
$ |
1,935,898 |
100.00 |
% |
||||||||
|
December 31, 2024 |
|||||||||||||||||||
|
Amortized Cost |
Gross Unrealized Holding Gain |
Gross Unrealized Holding Loss |
Fair Value |
Total Percent |
|||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||
|
Investment securities available-for-sale: |
|||||||||||||||||||
|
Government agency/GSE |
$ |
34,149 |
$ |
106 |
$ |
- |
$ |
34,255 |
1.35 |
% |
|||||||||
|
Mortgage-backed securities |
2,460,573 |
337 |
(326,376 |
) |
2,134,534 |
83.97 |
% |
||||||||||||
|
CMO/REMIC |
471,921 |
- |
(120,399 |
) |
351,522 |
13.82 |
% |
||||||||||||
|
Municipal bonds |
21,755 |
28 |
(1,406 |
) |
20,377 |
0.80 |
% |
||||||||||||
|
Other securities |
1,427 |
- |
- |
1,427 |
0.06 |
% |
|||||||||||||
|
Unallocated portfolio layer fair value basis |
7,222 |
- |
(7,222 |
) |
- |
0.00 |
% |
||||||||||||
|
Total available-for-sale securities |
$ |
2,997,047 |
$ |
471 |
$ |
(455,403 |
) |
$ |
2,542,115 |
100.00 |
% |
||||||||
|
Investment securities held-to-maturity: |
|||||||||||||||||||
|
Government agency/GSE |
$ |
514,572 |
$ |
- |
$ |
(106,315 |
) |
$ |
408,257 |
21.62 |
% |
||||||||
|
Mortgage-backed securities |
614,383 |
- |
(110,020 |
) |
504,363 |
25.82 |
% |
||||||||||||
|
CMO/REMIC |
784,059 |
- |
(170,121 |
) |
613,938 |
32.95 |
% |
||||||||||||
|
Municipal bonds |
455,199 |
1,158 |
(40,025 |
) |
416,332 |
19.13 |
% |
||||||||||||
|
Other securities (2) |
11,455 |
- |
- |
11,455 |
0.48 |
% |
|||||||||||||
|
Total held-to-maturity securities |
$ |
2,379,668 |
$ |
1,158 |
$ |
(426,481 |
) |
$ |
1,954,345 |
100.00 |
% |
||||||||
(1)
Represents the amount of portfolio layer method basis adjustments related to AFS MBS securities hedged in a closed portfolio. Under U.S. GAAP, portfolio layer method basis adjustments are not allocated to individual securities, however the amounts impact the unrealized gains or losses for the individual securities being hedged. Refer to Note 3 and Note 9 for additional information.
(2)
Represents Commercial Property Assessed Clean Energy ("C-PACE") bonds.
As of September 30, 2025, $21.8 million in U.S. government agency bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds, which represented approximately 9% of the total investment portfolio, are predominately AA or higher rated securities.
The following table presents the Company's AFS investment securities and HTM investment securities, by investment category, in an unrealized loss position for which an allowance for credit losses has not been recorded as of September 30, 2025 and December 31, 2024.
|
September 30, 2025 |
|||||||||||||||||||||||
|
Less Than 12 Months |
12 Months or Longer |
Total |
|||||||||||||||||||||
|
Fair Value |
Gross Unrealized Holding Losses |
Fair Value |
Gross Unrealized Holding Losses |
Fair Value |
Gross Unrealized Holding Losses |
||||||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||||||
|
Investment securities available-for-sale: |
|||||||||||||||||||||||
|
Mortgage-backed securities |
$ |
192,418 |
$ |
(957 |
) |
$ |
1,621,368 |
$ |
(224,242 |
) |
$ |
1,813,786 |
$ |
(225,199 |
) |
||||||||
|
CMO/REMIC |
30,549 |
- |
346,830 |
(111,026 |
) |
377,379 |
(111,026 |
) |
|||||||||||||||
|
Municipal bonds |
- |
- |
18,318 |
(609 |
) |
18,318 |
(609 |
) |
|||||||||||||||
|
Total available-for-sale securities |
$ |
222,967 |
$ |
(957 |
) |
$ |
1,986,516 |
$ |
(335,877 |
) |
$ |
2,209,483 |
$ |
(336,834 |
) |
||||||||
|
Investment securities held-to-maturity: |
|||||||||||||||||||||||
|
Government agency/GSE |
$ |
- |
$ |
- |
$ |
416,364 |
$ |
(86,096 |
) |
$ |
416,364 |
$ |
(86,096 |
) |
|||||||||
|
Mortgage-backed securities |
1,826 |
- |
463,805 |
(87,814 |
) |
465,631 |
(87,814 |
) |
|||||||||||||||
|
CMO/REMIC |
- |
- |
602,831 |
(157,362 |
) |
602,831 |
(157,362 |
) |
|||||||||||||||
|
Municipal bonds |
61,397 |
(1,224 |
) |
294,987 |
(30,378 |
) |
356,384 |
(31,602 |
) |
||||||||||||||
|
Total held-to-maturity securities |
$ |
63,223 |
$ |
(1,224 |
) |
$ |
1,777,987 |
$ |
(361,649 |
) |
$ |
1,841,210 |
$ |
(362,874 |
) |
||||||||
|
December 31, 2024 |
|||||||||||||||||||||||
|
Less Than 12 Months |
12 Months or Longer |
Total |
|||||||||||||||||||||
|
Fair Value |
Gross Unrealized Holding Losses |
Fair Value |
Gross Unrealized Holding Losses |
Fair Value |
Gross Unrealized Holding Losses |
||||||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||||||
|
Investment securities available-for-sale: |
|||||||||||||||||||||||
|
Mortgage-backed securities |
$ |
204,428 |
$ |
(700 |
) |
$ |
1,757,066 |
$ |
(325,677 |
) |
$ |
1,961,494 |
$ |
(326,377 |
) |
||||||||
|
CMO/REMIC |
1 |
- |
351,521 |
(120,399 |
) |
351,522 |
(120,399 |
) |
|||||||||||||||
|
Municipal bonds |
3,215 |
(155 |
) |
16,262 |
(1,250 |
) |
19,477 |
(1,405 |
) |
||||||||||||||
|
Total available-for-sale securities |
$ |
207,644 |
$ |
(855 |
) |
$ |
2,124,849 |
$ |
(447,326 |
) |
$ |
2,332,493 |
$ |
(448,181 |
) |
||||||||
|
Investment securities held-to-maturity: |
|||||||||||||||||||||||
|
Government agency/GSE |
$ |
- |
$ |
- |
$ |
408,257 |
$ |
(106,315 |
) |
$ |
408,257 |
$ |
(106,315 |
) |
|||||||||
|
Mortgage-backed securities |
2,072 |
(42 |
) |
502,292 |
(109,978 |
) |
504,364 |
(110,020 |
) |
||||||||||||||
|
CMO/REMIC |
- |
- |
613,937 |
(170,121 |
) |
613,937 |
(170,121 |
) |
|||||||||||||||
|
Municipal bonds |
63,668 |
(1,067 |
) |
286,868 |
(38,958 |
) |
350,536 |
(40,025 |
) |
||||||||||||||
|
Total held-to-maturity securities |
$ |
65,740 |
$ |
(1,109 |
) |
$ |
1,811,354 |
$ |
(425,372 |
) |
$ |
1,877,094 |
$ |
(426,481 |
) |
||||||||
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, 2025 and December 31, 2024.
Refer to Note 4 - Investment Securitiesof the notes to the unaudited condensed consolidated financial statements of this report for additional information on our investment securities portfolio.
Loans
Total loans and leases, at amortized cost, of $8.47 billion at September 30, 2025 decreased by $65.5 million, or 0.77%, from December 31, 2024. The decrease in total loans included decreases of $138.5 million in dairy & livestock loans, offset partially by increases of $14.0 million in commercial and industrial loans, $27.9 million in commercial real estate loans, $13.9 million in construction loans, $11.6 million in agribusiness loans, and $16.9 million in single family residential loans. The decline in dairy & livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 81% at the end of 2024 to 64% at September 30, 2025. Excluding the decline in dairy & livestock loans, total gross loans would have increased by $73.0 million.
The following table presents our loan portfolio by type as of the dates presented.
|
September 30, 2025 |
December 31, 2024 |
||||||
|
(Dollars in thousands) |
|||||||
|
Commercial real estate |
$ |
6,535,319 |
$ |
6,507,452 |
|||
|
Construction |
29,976 |
16,082 |
|||||
|
Small Business Administration ("SBA") |
266,228 |
273,013 |
|||||
|
SBA - Paycheck Protection Program ("PPP") |
51 |
774 |
|||||
|
Commercial and industrial |
939,174 |
925,178 |
|||||
|
Dairy & livestock and agribusiness |
292,963 |
419,904 |
|||||
|
Municipal lease finance receivables |
61,383 |
66,114 |
|||||
|
SFR mortgage |
286,111 |
269,172 |
|||||
|
Consumer and other loans |
59,701 |
58,743 |
|||||
|
Total loans, at amortized cost |
8,470,906 |
8,536,432 |
|||||
|
Less: Allowance for credit losses |
(79,336 |
) |
(80,122 |
) |
|||
|
Total loans and lease finance receivables, net |
$ |
8,391,570 |
$ |
8,456,310 |
|||
As of September 30, 2025, $411.4 million, or 6.30% of the total commercial real estate loans included loans secured by farmland, compared to $449.8 million, or 6.91%, at December 31, 2024. The loans secured by farmland included $102.0 million for loans secured by dairy & livestock land and $309.4 million for loans secured by agricultural land at September 30, 2025, compared to $109.1 million for loans secured by dairy & livestock land and $340.7 million for loans secured by agricultural land at December 31, 2024. As of September 30, 2025, dairy & livestock and agribusiness loans of $293.0 million were comprised of $246.7 million of dairy & livestock loans and $46.2 million of agribusiness loans, compared to $419.9 million comprised of $385.3 million of dairy & livestock loans and $34.6 million of agribusiness loans December 31, 2024.
Real estate loans are loans secured by conforming trust deeds on real property, including property under construction, land development, commercial property and single-family and multi-family residences. Our real estate loans are comprised of industrial, office, retail, medical, single family residences, multi-family residences, and farmland. Consumer loans include installment loans to consumers as well as home equity loans, auto and equipment leases and other loans secured by junior liens on real property. Municipal lease finance receivables are leases to municipalities. Dairy & livestock and agribusiness loans are loans to finance the operating needs of wholesale dairy farm operations, cattle feeders, livestock raisers and farmers.
As of September 30, 2025, the Company had $211.2 million of total SBA 504 loans. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with the first lien is typically at a 50% advance to the acquisition costs and the second lien loan provides the financing for 40% of the acquisition costs with the borrower's down payment of 10% of the acquisition costs. The Bank retains the first lien loan for its term and sells the second lien loan to the SBA subordinated debenture program. A majority of the Bank's 504 loans are granted for the purpose of commercial real estate acquisition. As of September 30, 2025, the Company had $55.0 million of total SBA 7(a) loans that include a guarantee of payment from the SBA (typically 75% of the loan amount, but up to 90% in certain cases) in the event of default. The SBA 7(a) loans include revolving lines of credit (SBA Express) and term loans of up to ten (10) years to finance long-term working capital requirements, capital expenditures, and/or for the purchase or refinance of commercial real estate.
As of September 30, 2025, the Company had $30.0 million in construction loans. This represents 0.36% of total loans held-for-investment. There were no nonperforming construction loans at September 30, 2025.
Our loan portfolio is geographically disbursed throughout our marketplace. The following is the breakdown of our total held-for-investment commercial real estate loans, by region as of September 30, 2025.
|
September 30, 2025 |
|||||||||||||||
|
Total Loans |
Commercial Real |
||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||
|
Los Angeles County |
$ |
3,047,648 |
36.0 |
% |
$ |
2,244,360 |
34.3 |
% |
|||||||
|
Central Valley and Sacramento |
1,936,895 |
22.9 |
% |
1,525,975 |
23.4 |
% |
|||||||||
|
Orange County |
1,275,191 |
15.0 |
% |
763,425 |
11.7 |
% |
|||||||||
|
Inland Empire |
981,350 |
11.6 |
% |
865,278 |
13.2 |
% |
|||||||||
|
Central Coast |
441,366 |
5.2 |
% |
380,311 |
5.8 |
% |
|||||||||
|
San Diego |
319,646 |
3.8 |
% |
311,839 |
4.8 |
% |
|||||||||
|
Other California |
144,468 |
1.7 |
% |
104,006 |
1.6 |
% |
|||||||||
|
Out of State |
324,342 |
3.8 |
% |
340,125 |
5.2 |
% |
|||||||||
|
$ |
8,470,906 |
100.0 |
% |
$ |
6,535,319 |
100.0 |
% |
||||||||
The table below breaks down our commercial real estate portfolio.
|
September 30, 2025 |
|||||||||||||||
|
Loan Balance |
Percent |
Percent |
Average |
||||||||||||
|
(Dollars in thousands) |
|||||||||||||||
|
Commercial real estate: |
|||||||||||||||
|
Industrial |
$ |
2,228,294 |
34.1 |
% |
46.5 |
% |
$ |
1,655 |
|||||||
|
Office |
1,025,127 |
15.7 |
% |
27.5 |
% |
1,678 |
|||||||||
|
Retail |
898,769 |
13.8 |
% |
11.0 |
% |
1,722 |
|||||||||
|
Multi-family |
819,750 |
12.5 |
% |
0.5 |
% |
1,538 |
|||||||||
|
Secured by farmland (2) |
411,359 |
6.3 |
% |
99.5 |
% |
1,418 |
|||||||||
|
Medical |
326,848 |
5.0 |
% |
32.1 |
% |
1,520 |
|||||||||
|
Other (3) |
825,172 |
12.6 |
% |
42.4 |
% |
1,858 |
|||||||||
|
Total commercial real estate |
$ |
6,535,319 |
100.0 |
% |
35.0 |
% |
$ |
1,650 |
|||||||
(1)
Represents percentage of reported owner-occupied at origination in each real estate loan category.
(2)
The loans secured by farmland included $102.0 million for loans secured by dairy & livestock land and $309.4 million for loans secured by agricultural land at September 30, 2025.
(3)
Other loans consist of a variety of loan types, none of which exceeded 2.0% of total commercial real estate loans at September 30, 2025.
Nonperforming Assets
The following table provides information on nonperforming assets as of the dates presented.
|
September 30, 2025 |
December 31, 2024 |
||||||
|
(Dollars in thousands) |
|||||||
|
Nonaccrual loans |
$ |
27,804 |
$ |
27,795 |
|||
|
Total nonperforming loans |
27,804 |
27,795 |
|||||
|
OREO, net |
661 |
19,303 |
|||||
|
Total nonperforming assets |
$ |
28,465 |
$ |
47,098 |
|||
|
Modified loans to borrowers experiencing financial difficulty |
$ |
10,756 |
$ |
6,467 |
|||
|
Total nonperforming loans and performing modified loans to borrowers |
$ |
38,560 |
$ |
34,262 |
|||
|
Percentage of nonperforming loans and performing modified loans to |
0.46 |
% |
0.40 |
% |
|||
|
Percentage of nonperforming assets to total loans, at amortized cost, |
0.34 |
% |
0.55 |
% |
|||
|
Percentage of nonperforming assets to total assets |
0.18 |
% |
0.31 |
% |
|||
Modifications of Loans to Borrowers Experiencing Financial Difficulty
There were 16 loans to borrowers experiencing financial difficulty that were modified during the nine months ended September 30, 2025 with an amortized cost totaling $10.8 million at September 30, 2025, including seven commercial real estate loans totaling $8.4 million, eight commercial and industrial loans totaling $1.9 million and a dairy & livestock and agribusiness loan of $395,000.
The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified as of September 30, 2025 and December 31, 2024, and the financial effect of those modifications.
|
Amortized Cost Basis |
% of Total Class of Financing Receivables |
Financial Effect |
||||||||
|
September 30, 2025 |
||||||||||
|
Term Extension |
||||||||||
|
Commercial real estate loans |
$ |
7,754 |
0.09 |
% |
Added a weighted-average 1.8 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
|||||
|
Commercial and industrial |
1,149 |
0.01 |
% |
Added a weighted-average 1.4 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
||||||
|
Dairy & livestock and agribusiness |
395 |
0.00 |
% |
Added a weighted-average 1.6 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
||||||
|
Total |
$ |
9,298 |
||||||||
|
Term Extension and Interest Rate Reduction |
||||||||||
|
Commercial real estate loans |
675 |
0.01 |
% |
Added a weighted-average 7.6 years to the life of loans, which reduced monthly payment amounts for the borrowers; reduced weighted-average contractual interest rate from 10.00% to 7.25%. |
||||||
|
Commercial and industrial |
783 |
0.01 |
% |
Added a weighted-average 1.6 years to the life of loans, which reduced monthly payment amounts for the borrowers; reduced weighted-average contractual interest rate from 8.50% to 7.75%. |
||||||
|
Total |
1,458 |
|||||||||
|
Total Modified |
$ |
10,756 |
||||||||
|
Amortized Cost Basis |
% of Total Class of Financing Receivables |
Financial Effect |
||||||||
|
December 31, 2024 |
||||||||||
|
Term Extension |
||||||||||
|
Commercial real estate loans |
$ |
2,180 |
0.03 |
% |
Added a weighted-average 1.7 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
|||||
|
Commercial and industrial |
2,804 |
0.03 |
% |
Added a weighted-average 1.2 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
||||||
|
Dairy & livestock and agribusiness |
800 |
0.01 |
% |
Added a weighted-average 0.9 years to the life of loans, which reduced monthly payment amounts for the borrowers. |
||||||
|
Total |
$ |
5,784 |
||||||||
|
Term Extension and Interest Rate Reduction |
||||||||||
|
Commercial real estate loans |
$ |
683 |
0.01 |
% |
Added a weighted-average 7.6 years to the life of loans, which reduced monthly payment amounts for the borrowers; reduced weighted-average contractual interest rate from 10.00% to 7.25%. |
|||||
|
Total |
683 |
|||||||||
|
Total Modified |
$ |
6,467 |
||||||||
During the three and nine months ended September 30, 2025, a commercial real estate loan defaulted within 12 months after the loan was modified with a term extension. The amortized cost of the loan was $244,300. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first.
The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty as of September 30, 2025.
|
Payment Status (amortized cost basis) |
|||||||||||||
|
Current |
30-89 Days |
90+ Days |
|||||||||||
|
(Dollars in thousands) |
|||||||||||||
|
Commercial real estate loans |
$ |
8,386 |
$ |
43 |
$ |
- |
|||||||
|
Commercial and industrial |
1,932 |
- |
- |
||||||||||
|
Dairy & livestock and agribusiness |
395 |
- |
- |
||||||||||
|
Total |
$ |
10,713 |
$ |
43 |
$ |
- |
|||||||
At September 30, 2025 and December 31, 2024, there was no ACL allocated to modified loans to borrowers experiencing financial difficulty. Impairment amounts identified are typically charged off against the allowance at the time the loan is considered uncollectible. There were no charge-offs on loans to borrowers experiencing financial difficulty for the nine months ended September 30, 2025 and 2024.
Nonperforming Assets and Delinquencies
The table below provides trends in our nonperforming assets and delinquencies as of the dates presented.
|
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
||||||||||||||||
|
2025 |
2025 |
2025 |
2024 |
2024 |
||||||||||||||||
|
(Dollars in thousands) |
||||||||||||||||||||
|
Nonperforming loans: |
||||||||||||||||||||
|
Commercial real estate |
$ |
23,707 |
$ |
24,379 |
$ |
24,379 |
$ |
25,866 |
$ |
18,794 |
||||||||||
|
SBA |
3,952 |
1,265 |
1,024 |
1,529 |
151 |
|||||||||||||||
|
Commercial and industrial |
145 |
265 |
173 |
340 |
2,825 |
|||||||||||||||
|
Dairy & livestock and agribusiness |
- |
60 |
60 |
60 |
143 |
|||||||||||||||
|
Total |
$ |
27,804 |
$ |
25,969 |
$ |
25,636 |
$ |
27,795 |
$ |
21,913 |
||||||||||
|
% of Total loans |
0.33 |
% |
0.31 |
% |
0.31 |
% |
0.33 |
% |
0.26 |
% |
||||||||||
|
Past due 30-89 days (accruing): |
||||||||||||||||||||
|
Commercial real estate |
$ |
43 |
$ |
- |
$ |
- |
$ |
- |
$ |
30,701 |
||||||||||
|
SBA |
42 |
3,419 |
718 |
88 |
- |
|||||||||||||||
|
Commercial and industrial |
- |
- |
- |
399 |
64 |
|||||||||||||||
|
Total |
$ |
85 |
$ |
3,419 |
$ |
718 |
$ |
487 |
$ |
30,765 |
||||||||||
|
% of Total loans |
0.00 |
% |
0.04 |
% |
0.01 |
% |
0.01 |
% |
0.36 |
% |
||||||||||
|
OREO: |
||||||||||||||||||||
|
Commercial real estate |
$ |
661 |
$ |
661 |
$ |
495 |
$ |
18,656 |
$ |
- |
||||||||||
|
SFR mortgage |
- |
- |
- |
647 |
647 |
|||||||||||||||
|
Total |
$ |
661 |
$ |
661 |
$ |
495 |
$ |
19,303 |
$ |
647 |
||||||||||
|
Total nonperforming, past due, and OREO |
$ |
28,550 |
$ |
30,049 |
$ |
26,849 |
$ |
47,585 |
$ |
53,325 |
||||||||||
|
% of Total loans |
0.34 |
% |
0.36 |
% |
0.32 |
% |
0.56 |
% |
0.62 |
% |
||||||||||
|
Classified Loans |
$ |
78,180 |
$ |
73,422 |
$ |
94,169 |
$ |
89,549 |
$ |
124,606 |
||||||||||
Nonperforming loans, defined as nonaccrual loans, including modified loans on nonaccrual, and loans past due 90 days or more and still accruing interest, were $27.8 million at September 30, 2025, or 0.33% of total loans. This compares to nonperforming loans of $27.8 million, or 0.33% of total loans, at December 31, 2024 and $21.9 million, or 0.26% of total loans, at September 30, 2024. The $1.8 million increase in nonperforming loans from June 30, 2025 was primarily due to the addition of one nonperforming SBA loan in the amount of $3.4 million, that was past due at the end of the second quarter of 2025.
Classified loans are loans that are graded "substandard" or worse. Classified loans increased $4.8 million quarter-over-quarter, primarily due to a downgrade of a $2.9 million commercial and industrial loan.
At September 30, 2025, we had two OREO properties totaling $661,000. At December 31, 2024 we had four OREO properties totaling $19.3 million. In the first quarter of 2025, we sold four properties with a total book value of $19.3 million. These sales resulted in gains on sale of approximately $2.0 million.
Allowance for Credit Losses
The allowance for credit losses totaled $79.3 million as of September 30, 2025, compared to $80.1 million as of December 31, 2024 and $82.9 million as of September 30, 2024. Our allowance for credit losses at September 30, 2025 was 0.94% of total loans. This compares to 0.94% at December 31, 2024 and 0.97% at September 30, 2024. The decrease in our allowance for credit losses from December 31, 2024 was due to a $1.0 million recapture of credit losses compared to no provision for credit losses recorded for the nine months ended September 30, 2024. Net recoveries were $214,000 for the nine months ended September 30, 2025, compared to net charge-offs of $3.9 million for the same period of 2024.
The allowance for credit losses as of September 30, 2025 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. The allowance for credit loss is sensitive to both changes in these portfolio characteristics and the forecast of macroeconomic variables. Risk attributes for commercial real estate loans include Original Loan to Value ratios ("OLTV"), origination year, loan seasoning, and macroeconomic variables that include Real GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans. The Commercial and Industrial methodology is applied over a substantial portion of the Company's commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA loans (excluding PPP loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.
Our economic forecast continues to be a blend of multiple forecasts produced by Moody's. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with both upside and downside risks weighted among multiple forecasts. As of September 30, 2025, the resulting weighted forecast reflects lower GDP in 2027 and 2028. GDP growth is forecasted to be below 1.5% until the end of 2027 and will not reach 2% until 2028. The unemployment rate is forecasted to increase, with unemployment averaging 5% by the beginning of 2026 and stay above 5% through 2028.
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, |
|||||||
|
2025 |
2024 |
||||||
|
(Dollars in thousands) |
|||||||
|
Allowance for credit losses at beginning of period |
$ |
80,122 |
$ |
86,842 |
|||
|
Charge-offs: |
|||||||
|
Commercial real estate |
- |
(2,258 |
) |
||||
|
SBA |
(118 |
) |
(165 |
) |
|||
|
Commercial and industrial |
(413 |
) |
(1,917 |
) |
|||
|
Consumer and other loans |
(5 |
) |
(4 |
) |
|||
|
Total charge-offs |
(536 |
) |
(4,344 |
) |
|||
|
Recoveries: |
|||||||
|
Construction |
171 |
61 |
|||||
|
SBA |
47 |
94 |
|||||
|
Commercial and industrial |
532 |
289 |
|||||
|
Total recoveries |
750 |
444 |
|||||
|
Net recoveries (charge-offs) |
214 |
(3,900 |
) |
||||
|
(Recapture of) provision for credit losses |
(1,000 |
) |
- |
||||
|
Allowance for credit losses at end of period |
$ |
79,336 |
$ |
82,942 |
|||
|
Summary of reserve for unfunded loan commitments: |
|||||||
|
Reserve for unfunded loan commitments at beginning of period |
$ |
6,250 |
$ |
7,500 |
|||
|
Provision for (recapture of) unfunded loan commitments |
1,000 |
(1,250 |
) |
||||
|
Reserve for unfunded loan commitments at end of period |
$ |
7,250 |
$ |
6,250 |
|||
|
Reserve for unfunded loan commitments to total unfunded loan |
0.34 |
% |
0.33 |
% |
|||
|
Amount of total loans at end of period (1) |
$ |
8,470,906 |
$ |
8,572,565 |
|||
|
Average total loans outstanding (1) |
$ |
8,397,900 |
$ |
8,720,058 |
|||
|
Net recoveries (charge-offs) to average total loans |
0.00 |
% |
-0.04 |
% |
|||
|
Net recoveries (charge-offs) to total loans at end of period |
0.00 |
% |
-0.50 |
% |
|||
|
Allowance for credit losses to average total loans |
0.94 |
% |
0.95 |
% |
|||
|
Allowance for credit losses to total loans at end of period |
0.94 |
% |
0.97 |
% |
|||
|
Net recoveries (charge-offs) to allowance for credit losses |
0.27 |
% |
-4.70 |
% |
|||
|
Net (charge-offs) recoveries to recapture for credit losses |
-21.40 |
% |
-0.00% |
||||
(1)
Net of deferred loan origination fees, costs and discounts (amortized cost).
The Bank's ACL methodology also produced an allowance of $7.3 million for our off-balance sheet credit exposures as of September 30, 2025, compared with $6.3 million as of December 31, 2024 and September 30, 2024. There was a $1.0 million provision for unfunded loan commitments in the first nine months of 2025, compared to a $1.3 million recapture for the same period of 2024.
While we believe that the allowance at September 30, 2025 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that future economic conditions, interest rate fluctuations, conditions of our borrowers (including fraudulent activity), or natural disasters, which adversely affect our service areas or other circumstances or conditions, including those defined above, will not be reflected in increased provisions for credit losses in the future.
Changes in economic and business conditions could have an impact on our market area and on our loan portfolio. We continually monitor these conditions in determining our estimates of needed reserves. However, we cannot predict the extent
to which the deterioration in general economic conditions, real estate values, changes in general rates of interest and changes in the financial conditions or business of a borrower may adversely affect a specific borrower's ability to pay or the value of our collateral. See "Risk Management - Credit Risk Management" contained in our Annual Report on Form 10-K for the year ended December 31, 2024.
Deposits
The primary source of funds to support earning assets (loans and investments) is the generation of deposits.
Total deposits were $12.12 billion at September 30, 2025. This represented an increase of $175.9 million, or 1.47%, when compared with total deposits of $11.95 billion at December 31, 2024. The composition of deposits is summarized as of the dates presented in the table below.
|
September 30, 2025 |
December 31, 2024 |
||||||||||||||
|
Balance |
Percent |
Balance |
Percent |
||||||||||||
|
(Dollars in thousands) |
|||||||||||||||
|
Noninterest-bearing deposits |
$ |
7,244,968 |
59.76 |
% |
$ |
7,037,096 |
58.90 |
% |
|||||||
|
Interest-bearing deposits |
|||||||||||||||
|
Investment checking |
487,738 |
4.02 |
% |
551,305 |
4.61 |
% |
|||||||||
|
Money market |
3,413,769 |
28.16 |
% |
3,363,804 |
28.15 |
% |
|||||||||
|
Savings |
395,999 |
3.26 |
% |
422,583 |
3.54 |
% |
|||||||||
|
Time deposits |
581,765 |
4.80 |
% |
573,593 |
4.80 |
% |
|||||||||
|
Total Deposits |
$ |
12,124,239 |
100.00 |
% |
$ |
11,948,381 |
100.00 |
% |
|||||||
The amount of noninterest-bearing deposits in relation to total deposits is an integral element in our strategy of seeking to achieve a low cost of funds. Noninterest-bearing deposits totaled $7.24 billion for the third quarter of 2025, an increase of $207.9 million, or 2.95%, from $7.04 billion at December 31, 2024. Noninterest-bearing deposits were 59.76% of total deposits at the end of the third quarter of 2025, compared to 58.90% at December 31, 2024.
Interest-bearing non-maturity deposits, which include savings, interest-bearing demand, and money market accounts, totaled, totaled $4.30 billion at September 30, 2025, representing a decrease of $40.2 million, or 0.93%, from $4.34 billion at December 31, 2024.
Time deposits totaled $581.8 million at September 30, 2025, representing an increase of $8.2 million, or 1.42%, from total time deposits of $573.6 million at December 31, 2024.
During the first nine months of 2024, $400 million of brokered time deposits were issued and cash flow hedging transactions were simultaneously executed in which $300 million of notional pay-fixed interest rate swaps were consummated with maturities of three years, wherein the Company pays a weighted average fixed rate of approximately 4.2% and receives daily SOFR. We entered into these interest rate derivative contracts that are designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate. The fair value of these instruments totaled $2.76 million and were reflected as a liability at September 30, 2025.
Our deposits are primarily relationship based and include deposits and customer repurchase agreements ("repos"). For the third quarter of 2025, 79% of our deposits consisted of business deposits and 21% consisted of consumer deposits, with consumer deposits coming primarily from the owners and employees of our business customers. One of the largest percentage of our deposits, 39%, are analyzed business accounts, which represent customer operating accounts that generally utilize a wide array of treasury management products. As most of our business customers need to operate with more than $250,000 in their operating account, we have a significant percentage of deposits that are uninsured. As of September 30, 2025, 42% of our total deposits and customer repos were uncollateralized and uninsured.
Our customer deposit relationships represent a diverse set of industries. Overall, there are 15 different industry classifications that represent 2% or more of our deposits as of September 30, 2025. The industry classification with the largest concentrations is finance & insurance, which represent 14% of our deposits. Manufacturing and construction each represents 7%, while property management, and other real estate rental & leasing, each represents 6% of our deposits. Our depositors have typically banked with us for many years. As of September 30, 2025, 47% of our deposit relationships have banked with us more than 10 years and 75% of our deposit relationships have been with us for three or more years.
Average total deposits and customer repos for the third quarter of 2025 increased by $52.8 million when compared to the third quarter of 2024. Our average noninterest-bearing deposits continued to be greater than 59% of our average total deposits for the third quarter of 2025.
Our cost of deposits was 86 basis points on average for the third quarter of 2025, which compares to 98 basis points for the third quarter of 2024. During the Federal Reserve's interest rates tightening cycle from the first quarter of 2022 through the third quarter of 2024, our cost of deposits increased by 95 basis points, representing a deposit beta of 18%, compared to the 525 basis point increase in the Fed Funds rate during the rising rate period.
Borrowings
At September 30, 2025, our borrowings were $951.3 million, which consisted of $451.3 million of customer repurchase agreements and $500.0 million of FHLB advances, at an average cost of approximately 4.55%. At December 31, 2024, our borrowings were $761.9 million including $261.9 million of customer repurchase agreements and $500.0 million of FHLB advances, at an average cost of approximately 4.55%. Refer to Note 6 - Borrowingsof the notes to the consolidated financial statements for a more detailed discussion.
We offer a repurchase agreement product to our customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price that reflects the market value of the use of these funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a pre-determined balance in a demand deposit account, in order to earn interest. As of September 30, 2025 and December 31, 2024, total funds borrowed under these agreements were $451.3 million and $261.9 million, respectively, with a weighted average interest rate of approximately 2.00% for the third quarter of 2025, compared to 1.73% for the third quarter of 2024.
At September 30, 2025, loans with a carrying value of $6.43 billion were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank. At September 30, 2025, the Bank had unused borrowing capacity at the FHLB of $3.89 billion and unused borrowing capacity at the FRB of $1.09 billion.
At September 30, 2025, investment securities with total carrying values of $4.56 billion were pledged, of which, $2.70 billion were pledged to secure various types of deposits. In addition, investment securities with carrying values of $1.86 billion were pledged to secure $569 million for repurchase agreements, $57 million for other purposes as required or permitted by law, and $1.24 billion were for unused borrowing capacity.
Aggregate Contractual Obligations
The following table summarizes the aggregate contractual obligations as of September 30, 2025.
|
Maturity by Period |
|||||||||||||||||||
|
Total |
Less Than One Year |
One Year Through |
Four Years Through |
Over Five Years |
|||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||
|
Deposits (1) |
$ |
12,124,239 |
$ |
12,116,423 |
$ |
6,407 |
$ |
1,311 |
$ |
98 |
|||||||||
|
Customer repurchase agreements (1) |
451,258 |
451,258 |
- |
- |
- |
||||||||||||||
|
Other borrowings |
500,000 |
300,000 |
200,000 |
- |
- |
||||||||||||||
|
Deferred compensation |
21,994 |
577 |
1,150 |
1,150 |
19,117 |
||||||||||||||
|
Operating leases |
65,401 |
9,813 |
15,839 |
9,217 |
30,532 |
||||||||||||||
|
Equity investments |
116,767 |
86,417 |
27,831 |
684 |
1,835 |
||||||||||||||
|
Total |
$ |
13,279,659 |
$ |
12,964,488 |
$ |
251,227 |
$ |
12,362 |
$ |
51,582 |
|||||||||
(1)
Amounts exclude accrued interest.
Deposits represent noninterest-bearing, money market, savings, NOW, certificates of deposits, brokered and all other deposits held by the Bank.
Customer repurchase agreements represent excess amounts swept from customer demand deposit accounts, which mature the following business day and are collateralized by investment securities. These amounts are due to customers.
Other borrowings represent amounts due for FHLB advances based on their contractual maturity dates.
Deferred compensation represents the amounts that are due to former employees based on salary continuation agreements as a result of acquisitions and amounts due to current and retired employees under our deferred compensation plans.
Operating leases represent the total minimum lease payments due under non-cancelable operating leases. Refer to Note 12 - Leases of the notes to the Company's unaudited condensed consolidated financial statements for a more detailed discussion about leases.
Equity investments represent commitments to contribute capital to LIHTC and other CRA related investment partnerships.
Off-Balance Sheet Arrangements
The following table summarizes the off-balance sheet items at September 30, 2025.
|
Maturity by Period |
|||||||||||||||||||
|
Total |
Less Than One Year |
One Year Through |
Four Years Through |
After Five Years |
|||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||
|
Commitment to extend credit: |
|||||||||||||||||||
|
Commercial real estate |
$ |
388,470 |
$ |
74,363 |
$ |
164,384 |
$ |
126,166 |
$ |
23,557 |
|||||||||
|
Construction |
111,651 |
39,774 |
67,617 |
- |
4,260 |
||||||||||||||
|
SBA |
856 |
529 |
- |
- |
327 |
||||||||||||||
|
Commercial and industrial |
1,070,281 |
835,062 |
202,156 |
3,279 |
29,784 |
||||||||||||||
|
Dairy & livestock and agribusiness (1) |
328,308 |
179,153 |
149,155 |
- |
- |
||||||||||||||
|
SFR Mortgage |
710 |
- |
- |
- |
710 |
||||||||||||||
|
Consumer and other loans |
123,338 |
13,287 |
19,654 |
1,676 |
88,721 |
||||||||||||||
|
Total commitment to extend credit |
2,023,614 |
1,142,168 |
602,966 |
131,121 |
147,359 |
||||||||||||||
|
Obligations under letters of credit |
96,714 |
73,180 |
18,529 |
4,987 |
18 |
||||||||||||||
|
Total |
$ |
2,120,328 |
$ |
1,215,348 |
$ |
621,495 |
$ |
136,108 |
$ |
147,377 |
|||||||||
(1)
Total commitments to extend credit to agribusiness were $21.5 million at September 30, 2025.
As of September 30, 2025, we had commitments to extend credit of approximately $2.02 billion, and obligations under letters of credit of $96.7 million. Commitments to extend credit are agreements to lend to customers, provided there is no violation of any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments are generally variable rate, and many of these commitments are expected to expire without being drawn upon. As such, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit underwriting policies in granting or accepting such commitments or contingent obligations as we do for on-balance sheet instruments, which consist of evaluating customers' creditworthiness individually. As of September 30, 2025 and December 31, 2024, the balance in this reserve was $7.3 million and $6.3 million, respectively, and was included in other liabilities. Year-over-year, the reserve included $1.0 million provision for unfunded loan commitments for the nine months ended September 30, 2025, compared to $1.3 million in recapture for the same period of 2024.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing or purchase arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. When deemed necessary, we hold appropriate collateral supporting those commitments.
Capital Resources
Our primary source of capital has been the retention of operating earnings and issuance of common stock in connection with periodic acquisitions. In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources, needs and uses of capital in conjunction with projected increases in assets and the level of risk. As part of this ongoing assessment, the Board of Directors reviews the various components of our capital plan and capital stress testing.
Total equity increased $95.8 million to $2.28 billion at September 30, 2025, compared to total equity of $2.19 billion at December 31, 2024. Increases to equity included $154.3 million in net earnings and a $64.3 million increase in other comprehensive income, that were partially offset by $83.1 million in cash dividends. During the third quarter of 2025, we repurchased 296,506 shares at an average price of $20.35, totaling $6.0 million. Total shares repurchased for the nine months ended September 30, 2025 was 2,360,070, at an average price of $18.43, totaling $43.5 million. We did not engage in stock repurchases during the first nine months of 2024 other than the shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards. Our tangible book value per share at September 30, 2025 was $10.98, compared to $10.10 at December 31, 2024.
During the third quarter of 2025, the Board of Directors of CVB declared a quarterly cash dividend totaling $0.20 per share. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB's ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the Federal Reserve, and covenants set forth in various agreements we are a party to.
On November 20, 2024, our Board of Directors approved a program to repurchase up to 10,000,000 shares (the "Maximum Amount") of CVB common stock including by means of one or more Rule 10b5-1 plans or other appropriate buy-back arrangements, including open market purchases and private transactions, based on the prices and timing considered appropriate due to prevailing market conditions and other corporate and legal considerations ("2024 Repurchase Program"). This 2024 Repurchase Program replaced in its entirety the Company's previous 2022 share repurchase program under which 4,300,059 shares remained available for repurchase and which has now been terminated. The 2024 Repurchase Program terminates on the earlier of the repurchase of the Maximum Amount, or five years from the date of authorization. During the first quarter of 2025, we repurchased 782,063 shares at an average price of $19.55, totaling $15.3 million, while during the second quarter of 2025 1,281,501 shares were repurchased at an average price of $17.30, totaling $22.2 million, and during the third quarter of 2025 296,506 shares were repurchased at an average price of $20.35, totaling $6.0 million. Total shares repurchased under the 2024 Repurchase Program was 2,360,070 shares, resulting in 7,639,930 remaining shares for repurchase. We engaged in no stock repurchases during the nine months ended September 30, 2024 other than the shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.
The Bank and the Company are required to meet risk-based capital standards under the revised capital framework referred to as Basel III set by their respective regulatory authorities. The risk-based capital standards require the achievement of a minimum total risk-based capital ratio of 8.0%, a Tier 1 risk-based capital ratio of 6.0% and a common equity Tier 1 ("CET1") capital ratio of 4.5%. In addition, the regulatory authorities require the highest rated institutions to maintain a minimum leverage ratio of 4.0%. To be considered "well-capitalized" for bank regulatory purposes, the Bank and the Company are required to have a CET1 capital ratio equal to or greater than 6.5%, a Tier 1 risk-based capital ratio equal to or greater than 8.0%, a total risk-based capital ratio equal to or greater than 10.0% and a Tier 1 leverage ratio equal to or greater than 5.0%. At September 30, 2025, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios required to be considered "well-capitalized" for regulatory purposes. For further information about capital requirements and our capital ratios, see "Item 1. Business - Capital Adequacy Requirements" as described in our Annual Report on Form 10-K for the year ended December 31, 2024.
The table below presents the Company's and the Bank's risk-based and leverage capital ratios for the periods presented.
|
September 30, 2025 |
December 31, 2024 |
|||||||||||||
|
Capital Ratios |
Adequately Capitalized Ratios |
Minimum Required Plus Capital Conservation Buffer |
Well Capitalized Ratios |
CVB Financial Corp. Consolidated |
Citizens Business Bank |
CVB Financial Corp. Consolidated |
Citizens Business Bank |
|||||||
|
Tier 1 leverage capital ratio |
4.00% |
4.00% |
5.00% |
11.76% |
11.62% |
11.46% |
11.30% |
|||||||
|
Common equity Tier 1 capital ratio |
4.50% |
7.00% |
6.50% |
16.33% |
16.14% |
16.24% |
16.01% |
|||||||
|
Tier 1 risk-based capital ratio |
6.00% |
8.50% |
8.00% |
16.33% |
16.14% |
16.24% |
16.01% |
|||||||
|
Total risk-based capital ratio |
8.00% |
10.50% |
10.00% |
17.13% |
16.94% |
17.06% |
16.82% |
|||||||
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, as well as the input assumptions and results from various models. In addition, the Company has a Balance Sheet Management Committee of the Board of Directors that meets at least quarterly to review the Company's balance sheet and liquidity position. This committee provides oversight to the balance sheet and liquidity management process and recommends policy guidelines for the approval of our Board of Directors, and courses of action to address our actual and projected liquidity needs.
In general, our liquidity is managed daily by controlling the level of liquid assets as well as the use of funds provided by the cash flow from the investment portfolio, loan demand, deposit fluctuations, and borrowings. Our definition of liquid assets includes cash and cash equivalents in excess of minimum levels needed to fulfill normal business operations, short-term investment securities, and other anticipated near term cash flows from investments. In addition to on balance sheet liquidity, we have significant off-balance sheet sources of liquidity. To meet unexpected demands, lines of credit are maintained with correspondent banks, the Federal Home Loan Bank and the Federal Reserve, although availability under these lines of credit are subject to certain conditions. In addition to having more than $780 million of cash on the balance sheet at September 30, 2025, we had substantial sources of off-balance sheet liquidity. These sources of available liquidity include $3.89 billion of secured and unused capacity with the Federal Home Loan Bank, $1.09 of secured unused borrowing capacity at the Fed's discount window, more than $286 million of unpledged AFS securities that could be pledged at the discount window and $300 million of unsecured lines of credit. In addition to these borrowing sources, the Bank has capacity to utilize additional brokered deposits as of September 30, 2025. We can also obtain additional liquidity from deposit growth by utilizing state and national wholesale markets.
Our primary sources of funds for the Company are deposits, customer repurchase agreements and borrowings. Total deposits and customer repos of $12.58 billion at September 30, 2025 increased $365.2 million, or 2.99%, over total deposits and customer repos of $12.21 billion at December 31, 2024. As of September 30, 2025, total borrowings, consisted of $500 million of FHLB advances, at an average cost of approximately 4.55%. Our deposit levels and cost of deposits may fluctuate from period-to-period due to a variety of factors, including the stability of our deposit base, prevailing interest rates, and market conditions. At September 30, 2025, our deposits and customer repurchase agreements that are neither collateralized nor insured were approximately $5.3 billion, or 42% of our total deposits and customer repos.
Additional sources of liquidity include cash on deposit at the Federal Reserve, which exceeded $630 million at September 30, 2025, and principal and interest payments from our investment portfolio. Our total investment portfolio declined by $44.5 million from December 31, 2024 to $4.88 billion as of September 30, 2025. The decrease was primarily $81.8 million decline in held-to-maturity securities offset by $37 million increase in AFS securities. AFS securities increased to $2.58 billion at September 30, 2025 with new purchases of approximately $243 million exceeding sales of $74 million carrying value of AFS securities during the year. This is inclusive of a pre-tax net unrealized loss of $333.8 million. Pre-tax unrealized loss decline by $113.9 million from December 31, 2024. Market risk is partly managed by $700 million notional pay fixed swaps hedging the fair value of the AFS portfolio. The increase in fair value of our AFS securities was partially offset by a $18.1 million decrease in the fair value of our derivatives that hedge the change in value of our AFS portfolio.
CVB is a holding company separate and apart from the Bank that must provide for its own liquidity and must service its own obligations. Substantially all of CVB's revenues are obtained from dividends declared and paid by the Bank to CVB. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to CVB. In addition, our regulators could limit the ability of the Bank or CVB to pay dividends or make other distributions.
Below is a summary of our average cash position and statement of cash flows for the nine months ended September 30, 2025 and 2024. For further details see our "Condensed Consolidated Statements of Cash Flows(Unaudited)" under Part I, Item 1 of this report.
|
Nine Months Ended |
|||||||
|
2025 |
2024 |
||||||
|
(Dollars in thousands) |
|||||||
|
Average cash and cash equivalents |
$ |
531,049 |
$ |
948,667 |
|||
|
Percentage of total average assets |
3.47 |
% |
5.81 |
% |
|||
|
Net cash provided by operating activities |
$ |
176,528 |
$ |
175,014 |
|||
|
Net cash provided by investing activities |
167,962 |
891,830 |
|||||
|
Net cash provided by (used in) financing activities |
234,732 |
(894,669 |
) |
||||
|
Net increase in cash and cash equivalents |
$ |
579,222 |
$ |
172,175 |
|||
Average cash and cash equivalents decreased by $417.6 million, or 44.02%, to $531.0 million for the nine months ended September 30, 2025, compared to $948.7 million for the same period of 2024.
At September 30, 2025, cash and cash equivalents totaled $783.9 million. This represented an increase of $579.2 million, or 282.96%, from $204.7 million at December 31, 2024. Our cash on deposit at the Federal Reserve increased by $581.2 million when compared to December 31, 2024.
Interest Rate Sensitivity Management
During periods of changing interest rates, the ability to re-price interest-earning assets and interest-bearing liabilities can influence net interest income, the net interest margin, and consequently, our earnings. Interest rate risk is managed by attempting to control the spread between rates earned on interest-earning assets and the rates paid on interest-bearing liabilities within the constraints imposed by market competition in our service area. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the Board of Directors. These limits and guidelines reflect our risk appetite for interest rate risk over both short-term and long-term horizons. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models, which, as described in additional detail below, are employed by management to understand net interest income (NII) at risk and economic value of equity (EVE) at risk. Net interest income at risk sensitivity captures asset and liability repricing mismatches and is considered a shorter term measure, while EVE sensitivity captures mismatches within the period end balance sheets through the financial instruments' respective maturities or estimated durations and is considered a longer term measure.
One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model NII from the Company's balance sheet under various interest rate scenarios. We use simulation analysis to project rate sensitive income under many scenarios. The analyses may include rapid and gradual ramping of interest rates, rate shocks, basis risk analysis, and yield curve scenarios. Specific balance sheet management strategies are also analyzed to determine their impact on NII and EVE. Key assumptions in the simulation analysis relate to the behavior of interest rates and pricing spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments. This analysis incorporates several assumptions, the most material of which relate to the re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, and prepayment of loans and securities.
Our interest rate risk policy measures the sensitivity of our net interest income over both a one-year and two-year cumulative time horizon.
The simulation model estimates the impact of changing interest rates on interest income from all interest-earning assets and interest expense paid on all interest-bearing liabilities reflected on our balance sheet. This sensitivity analysis is compared to policy limits, which specify a maximum tolerance level for net interest income exposure over a one and two year horizon assuming no balance sheet growth, given a 200 basis point upward and a 200 basis point downward shift in interest rates depending on the level of current market rates. The simulation model uses a parallel yield curve shift that adjusts rates up or down on a pro rata basis ramped over 12-months and measures the resulting net interest income sensitivity over both the 12-month and 24-month time horizons.
The following depicts the Company's net interest income sensitivity analysis for the periods presented below, when rates are adjusted by ramping up 200 bps or ramping down 200 bps over a 12-month and 24-month time horizons.
|
Estimated Net Interest Income Sensitivity (1) |
||||||||||
|
September 30, 2025 |
December 31, 2024 |
|||||||||
|
Interest Rate Scenario |
12-month Period |
24-month Period (Cumulative) |
Interest Rate Scenario |
12-month Period |
24-month Period (Cumulative) |
|||||
|
+ 200 basis points |
4.45% |
6.66% |
+ 200 basis points |
4.66% |
6.26% |
|||||
|
- 200 basis points |
-3.88% |
-7.48% |
- 200 basis points |
-3.63% |
-6.36% |
|||||
(1)
Percentage change from base scenario.
Based on our current simulation models, we believe that the interest rate risk profile of the balance sheet is modestly asset sensitive over both a one-year and a two-year horizon. The estimated sensitivity does not necessarily represent a forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences might change.
We also perform valuation analysis, which incorporates all cash flows over the estimated remaining life of all material balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows minus the discounted present value of all liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. EVE uses instantaneous changes in rates, as shown in the table below. Assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected duration and pricing of the indeterminate deposit portfolios. EVE sensitivity is reported in both upward and downward rate shocks. At September 30, 2025 and December 31, 2024, the EVE profile indicates a decline in net balance sheet value due to instantaneous downward changes in rates. From December 31, 2024 to September 30, 2025, our EVE sensitivity to declining interest rates was modestly lower. Our overall sensitivity of EVE to changes in interest rates is generally modest, with the exception of more meaningful reductions in value if rates were to immediately decline by 300 or 400 basis points.
Economic Value of Equity Sensitivity
|
September 30, 2025 |
December 31, 2024 |
|||
|
400 bp decrease in interest rates |
15.6% |
15.7% |
||
|
300 bp decrease in interest rates |
15.6% |
17.1% |
||
|
200 bp decrease in interest rates |
16.8% |
17.9% |
||
|
100 bp decrease in interest rates |
17.7% |
18.4% |
||
|
Base |
18.3% |
19.0% |
||
|
100 bp increase in interest rates |
18.6% |
19.2% |
||
|
200 bp increase in interest rates |
18.7% |
19.6% |
||
|
300 bp increase in interest rates |
18.4% |
19.8% |
||
|
400 bp increase in interest rates |
18.1% |
20.0% |
As EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in asset and liability mix, changes in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.
CVB Financial Corporation published this content on November 07, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 07, 2025 at 22:36 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]