CVB FINANCIAL CORP

Total assets of $16.02 billion at December 31, 2023 decreased by $455.5 million, or 2.76%, from total assets of $16.48 billion at December 31, 2022. Interest-earning assets of $14.46 billion at December 31, 2023, decreased by $509.5 million, or 3.40%, when compared with $14.97 billion at December 31, 2022. The decrease in interest-earning assets was primarily due to a $388.8 million decrease in investment securities and a $174.5 million decrease in total loans, partially offset by an increase of $64.7 million in interest-earning balances due from the Federal Reserve and a $53.2 million increase in the cash surrender value of BOLI.

Total liabilities were $13.94 billion at December 31, 2023, a decrease of $585.0 million, or 4.03%, from total liabilities of $14.53 billion at December 31, 2022. Total deposits declined by $1.4 billion, or 10.93%. Higher interest rates that have resulted from the Federal Reserve’s significant increase in the federal funds rate over the last two years has continued to impact deposit levels, including approximately $800 million of funds on deposit at the end of 2022 that our customers transferred from the Bank's balance sheet to CitizensTrust for investment in higher yielding securities such as treasury notes. The velocity of deposit movements to our CitizensTrust slowed in the fourth quarter of 2023, as approximately $60 million was transferred in the quarter. Short-term borrowings increased by $1.08 billion from December 31, 2022. As of December 31, 2023, total short-term borrowings, consisted of $1.91 billion of one-year advances from the Federal Reserve’s Bank Term Funding Program, at a cost of 4.78% and $160 million of short-term Federal Home Loan Bank advances, at an average cost of approximately 5.7%. The BTFP advances as of December 31, 2023 include maturities of approximately $700 million in May and $1.2 billion in December of 2024.

Total equity increased $129.5 million to $2.08 billion at December 31, 2023, compared to total equity of $1.95 billion at December 31, 2022. Increases to equity included $221.4 million in net earnings and a $31.2 million increase in other comprehensive income, that were partially offset by $111.6 million in cash dividends. We engaged in no stock repurchases during the second, third and fourth quarters of 2023. In the first quarter of 2023, we repurchased 791,800 shares of common stock, at an average repurchase price of $23.43, totaling $18.5 million. The Company's 2022 10b5-1 stock repurchase plan expired on March 2, 2023 and no new plan has been put in place since that time.

Investment Securities and BOLI

The Company maintains a portfolio of investment securities to provide interest income and to serve as a source of liquidity for its ongoing operations. We continued to shrink our investment portfolio. At December 31, 2023, total investment securities were $5.42 billion. This represented a decrease of $388.8 million, or 6.69%, from total investment securities of $5.81 billion at December 31, 2022. The overall decrease in investment securities was primarily due to a $299.1 million decline in our AFS securities. At December 31, 2023, our AFS investment securities totaled $2.96 billion, inclusive of a pre-tax net unrealized loss of $449.8 million. The after-tax unrealized loss reported in AOCI on AFS investment securities was $316.8 million. The changes in the net unrealized holding loss resulted primarily from fluctuations in market interest rates. At December 31, 2023, total HTM investment securities of $2.46 billion declined by $89.7 million from December 31, 2022. For the years ended December 31, 2023 and 2022, repayments/maturities of investment securities totaled $450.3 million and $661.5 million, respectively. The Company purchased additional investment securities totaling $48.4 million and $1.8 billion for the years ended December 31, 2023 and 2022, respectively. There were no investment securities sold during the years ended December 31, 2023 and 2022.

At December 31, 2023, the Company had $308.7 million of BOLI. The $53.2 million increase in the value of BOLI, when compared to December 31, 2022, was primarily due to a restructuring of the Company’s life insurance policies, including a $4.5 million write-down in value on surrender policies that was offset by an $10.9 million enhancement to cash surrender values, as well as additional policy purchases totaling $41 million. This restructuring is expected to increase future returns on our BOLI policies resulting in additional non-taxable noninterest income in future years.

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

The distribution of the AFS and HTM portfolios by estimated average life consist of the following as of the date presented.

(1)

The weighted average yield for the portfolio is based on projected duration and is not tax-equivalent. The tax-equivalent yield at December 31, 2023 was 3.18%.

(1)

The weighted average yield for the portfolio is based on projected duration and is not tax-equivalent. The tax equivalent yield at December 31, 2023 was 3.35%.

The maturity of each security category is defined as the contractual maturity except for the categories of mortgage-backed securities and CMO/REMIC whose maturities are defined as the estimated average life. The final maturity of mortgage-backed securities and CMO/REMIC will differ from their contractual maturities because the underlying mortgages have the right to repay such obligations without penalty. The speed at which the underlying mortgages repay is influenced by many factors, one of which is interest rates. Mortgages tend to repay faster as interest rates fall and slower as interest rate rise. This will either shorten or extend the estimated average life. Also, the yield on mortgage-backed securities and CMO/REMIC are affected by the speed at which the underlying mortgages repay. This is caused by the change in the amount of amortization of premiums or accretion of discounts of each security as repayments increase or decrease. The Company obtains the estimated average life of each security from independent third parties.

The weighted-average yield on the total investment portfolio at December 31, 2023 was 2.16% with a weighted-average life of 6.7 years. This compares to a weighted-average yield of 2.13% at December 31, 2022 with a weighted-average life of 6.9 years. The weighted average life is the average number of years that each dollar of unpaid principal due remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal pay-downs.

Approximately 91% of the securities in the total investment portfolio, at December 31, 2023, are issued by the U.S. government or U.S. government-sponsored enterprises, with the implied guarantee of payment of principal and interest. The remaining securities are predominately AA or better general-obligation municipal bonds. As of December 31, 2023, approximately $31.4 million in U.S. government agency bonds are callable. The Agency CMO/REMIC 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 Company held investment securities in excess of 10% of shareholders’ equity from the following issuers as of the dates presented.

Municipal securities held by the Company are issued by various states and their various local municipalities. The following tables present municipal securities by the top holdings by state as of the dates presented.

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

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 December 31, 2023 and 2022.

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

Loans

Total loans and leases, at amortized cost, of $8.90 billion at December 31, 2023, decreased by $174.5 million, or 1.92%, from $9.08 billion at December 31, 2022. Loan growth continues to be impacted by a slowdown in loan demand. After adjusting for PPP loans, which declined by $6.4 million, our core loans decreased by $168.1 million, or 1.85%, from December 31, 2022. The $168.1 million decreases included $100.4 million in commercial real estate loans, $21.5 million in construction loans, $20.7 million in dairy & livestock and agribusiness loans, $20.3 million in SBA loans, $7.5 million in municipal lease financings, and $22.7 million in consumer and other loans, partially offset by an increase of $21.2 million in commercial and industrial loans, although line utilization decreased from 33% to 29% at December 31, 2023.

Total loans, at amortized cost, comprised 61.58% of our total earning assets as of December 31, 2023. The following table presents our loan portfolio by type as of the dates presented.

Distribution of Loan Portfolio by Type

(1)

Beginning with June 30, 2019, PCI loans were accounted for and combined with Non-PCI loans and were reflected in total loans and lease finance receivables.

(2)

Beginning with March 31, 2020, gross loans are presented net of deferred loan fees (at amortized cost) by respective class of financing receivables.

As of December 31, 2023, $497.7 million, or 7.34% of the total commercial real estate loans included loans secured by farmland, compared to $517.8 million, or 7.52%, at December 31, 2022. The loans secured by farmland included $122.4 million for loans secured by dairy & livestock land and $375.3 million for loans secured by agricultural land at December 31, 2023, compared to $140.5 million for loans secured by dairy & livestock land and $377.3 million for loans secured by agricultural land at December 31, 2022. As of December 31, 2023, dairy & livestock and agribusiness loans of $412.9 million were comprised of $374.9 million for dairy & livestock loans and $38.0 million for agribusiness loans, compared to $388.5 million of dairy & livestock loans and $45.1 million for agribusiness loans at December 31, 2022.

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

As of December 31, 2023, the Company had $198.3 million of total SBA 504 loans. SBA 504 loans include term loans to finance capital expenditures and for the purchase of commercial real estate. Initially the Bank provides two separate loans to the borrower representing a first and second lien on the collateral. The loan with the first lien is typically at a 50% advance to the acquisition costs and the second lien loan provides the financing for 40% of the acquisition costs with the borrower’s down payment of 10% of the acquisition costs. The Bank retains the first lien loan for its term and sells the second lien loan to the SBA subordinated debenture program. A majority of the Bank’s 504 loans are granted for the purpose of commercial real estate acquisition. As of December 31, 2023, the Company had $72.3 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 an active participant in the SBA’s Paycheck Protection Program, we originated during 2020 approximately 4,100 PPP loans totaling $1.10 billion in round one and originated approximately 1,900 PPP loans totaling $420 million in round two. As of December 31, 2023, the remaining outstanding balance of PPP loans totaled $2.7 million.

As of December 31, 2023, the Company had $66.7 million in construction loans. This represented 0.75% of total held-for-investment loans at amortized cost. Although our construction loans are located throughout our market footprint, the majority of construction loans consist of commercial land development and construction projects throughout California. There were no nonperforming construction loans at December 31, 2023.

Our loan portfolio is geographically disbursed throughout our marketplace. The following is the breakdown of our total held-for-investment commercial real estate loans, by region as of December 31, 2023.

The table below breaks down our real estate portfolio.

(1)

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

(2)

The loans secured by farmland included $122.4 million for loans secured by dairy & livestock land and $375.3 million for loans secured by agricultural land at December 31, 2023.

(3)

Other loans consist of a variety of loan types, none of which exceeds 2.0% of total commercial real estate loans.

At December 31, 2023, commercial real estate loans on office properties totaled $1.11 billion or approximately 16.4% of total commercial real estate loans. At origination, these loans on office properties were underwritten with loan-to-values averaging approximately 55%. Approximately 33% of these loans were originated prior to 2018. The average loan size for office loans was approximately $1.7 million and 88% of these loans have a balance of $10 million or less.

At December 31, 2023, commercial real estate loans on retail properties totaled $939.9 million or approximately 13.9% of total commercial real estate loans. At origination, these loans on retail properties were underwritten with loan-to-values averaging approximately 48%. Approximately 33% of these loans were originated prior to 2018.

The table below provides the maturity distribution for held-for-investment total gross loans as of December 31, 2023. The loan amounts are based on contractual maturities although the borrowers have the ability to prepay the loans. Amounts are also classified according to repricing opportunities or rate sensitivity.

Loan Maturities and Interest Rate Category

As a normal practice in extending credit for commercial and industrial purposes, we may accept trust deeds on real property as collateral. In some cases, when the primary source of repayment for the loan is anticipated to come from the cash flow from normal operations of the borrower, and real property has been taken as collateral, the real property is considered a secondary source of repayment for the loan. Since we lend primarily in Southern and Central California, our real estate loan collateral is concentrated in this region.

Nonperforming Assets

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

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

The table below reflects the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified as of December 31, 2023.

The following table describes the financial effect of the loan modifications made to borrowers experiencing financial difficulty as of December 31, 2023.

As of December 31, 2023, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during 2023 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first.

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

Troubled Debt Restructurings (“TDRs”)

Prior to January 1, 2023, loans reported as TDRs were considered impaired and charge-off amounts were taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 –Summary of Significant Accounting Policies, of the notes to the consolidated financial statements for a more detailed discussion regarding TDRs.

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

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

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

Nonperforming Assets and Delinquencies

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

(1)

Includes $2.6 million of nonaccrual loans past due 30-89 days at December 31, 2023.

Nonperforming loans, defined as nonaccrual loans, nonperforming TDR loans and loans past due 90 days or more and still accruing interest, were $21.3 million at December 31, 2023, or 0.24% of total loans. This compares to nonperforming loans of $4.9 million, or 0.05% of total loans, at December 31, 2022. The $16.4 million increase in nonperforming loans was primarily due to one $12.4 million nonperforming commercial real estate loan, which is a syndicated loan entered into by Suncrest prior to its acquisition by Citizens Business Bank, as well as an increase of $3.2 million in nonperforming commercial and industrial loans. Classified loans are loans that are graded “substandard” or worse. Classified loans of $102.2 million increased $10 million quarter-over-quarter, primarily due to a $9.8 million increase in classified commercial real estate loans. Classified loans as a percentage of total loans was 1.15% at December 31, 2023, compared to 1.04% at September 30, 2023 and 0.87% at December 31, 2022.

At December 31, 2023 and December 31, 2022, we had no OREO properties. There were no additions to OREO properties for the year ended December 31, 2023.

Changes in economic and business conditions have had an impact on our market area and on our loan portfolio. We continually monitor these conditions in determining our estimates of needed reserves. However, we cannot predict the extent to which the deterioration in general economic conditions, real estate values, changes in general rates of interest and changes in the financial conditions or business of a borrower may adversely affect a specific borrower’s ability to pay or the value of our collateral. See “Risk Management – Credit Risk Management” included herein.

Allowance for Credit Losses

The allowance for credit losses totaled $86.8 million as of December 31, 2023, compared to $85.1 million as of December 31, 2022. Our allowance for credit losses at December 31, 2023 was 0.98% of total loans, compared to 0.94% at December 31, 2022. The ACL was increased by $1.7 million for 2023, including $2.0 million in provision for credit losses. The ACL increased by $20.1 million for 2022 compared to December 31, 2021, including $8.6 million for the acquired Suncrest PCD loans and $10.6 million in provision for credit losses for 2022. Net charge-offs were $275,000 for 2023, which compares with net recoveries of $893,000 for 2022.

The allowance for credit losses as of December 31, 2023 is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. The allowance for credit loss is sensitive to both changes in these portfolio characteristics and the forecast of macroeconomic variables. Risk attributes for commercial real estate loans include Original Loan to Value ratios ("OLTV"), origination year, loan seasoning, and macroeconomic variables that include GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans. The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of Small Business Administration (SBA) loans (excluding Paycheck Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the portfolio, and expectations for macroeconomic changes.

Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with downside risks weighted among multiple forecasts. The resulting economic forecast reflects a modest decline in GDP during the first three quarters of 2024, with a return to positive GDP growth in the fourth quarter of 2024. On a full year basis, GDP is forecasted to increase by 0.92% in 2025, before reaching a more robust growth rate of 2.6% in 2026. Commercial Real Estate values are forecasted to continue their decline until reaching their lowest level in the third quarter 2024. Unemployment is forecasted to rise in 2024 and throughout 2025. The unemployment rate is forecasted to exceed 5% in 2024 and then peak at 5.7% in the first quarter of 2025. The unemployment rate is then forecasted to decline to less than 5% in the third quarter of 2026.

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.

(1)

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

The Bank’s ACL methodology also produced an allowance of $7.5 million for our off-balance sheet credit exposures as of December 31, 2023, compared to $8.0 million as of December 31, 2022. The fourth quarter of 2023 included $500,000 in recapture of provision for unfunded loan commitments.

While we believe that the allowance at December 31, 2023 was appropriate to absorb losses from known or inherent risks in the portfolio, no assurance can be given that future economic conditions, interest rate fluctuations, conditions of our borrowers (including fraudulent activity), or natural disasters, which adversely affect our service areas or other circumstances or conditions, including those defined above, will not be reflected in increased provisions for credit losses in the future.

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

The following table provides a summary of the allocation of the allowance for credit losses by loan type at the dates indicated for total loans. The allocations presented should not be interpreted as an indication that loans charged to the allowance for credit losses will occur in these amounts or proportions.

Allowance for Credit Losses by Loan Type

The ACL/Total Loan Coverage Ratio as of December 31, 2023 increased to 0.98%, compared to 0.94% as of December 31, 2022.

Deposits

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

Total deposits were $11.43 billion at December 31, 2023. This represented a decrease of $1.4 billion, or 10.93%, from total deposits of $12.84 billion at December 31, 2022.

The average balance of deposits by category and the average effective interest rates paid on deposits is summarized for the periods presented in the table below.

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. Average noninterest-bearing deposits were $7.79 billion for 2023, representing a decrease of $1.05 billion, or 11.84%, from average demand deposits of $8.84 billion for 2022. Average noninterest-bearing deposits represented 62.66% of total average deposits for 2023, compared to 62.85% of total average deposits for 2022.

Average savings deposits, which include savings, interest-bearing demand, and money market accounts, were $4.34 billion for 2023, representing a decrease of $526 million, or 10.81%, from average savings deposits of $4.87 billion for 2022.

Average time deposits totaled $304.1 million for 2023, representing a decrease of $54.5 million, or 15.21%, from total average time deposits of $358.6 million for 2022.

Our deposits are 100% relationship based core deposits and customer repurchase agreements ("repos"). We had zero brokered deposits throughout 2023 and at the end of 2023 with 73% of our deposits consisting of business deposits and 27% consisting of consumer deposits, primarily the owners and employees of our business customers. The largest percentage of our deposits, 40%, 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 December 31, 2023, 48% of our total deposits and customer repos were uncollateralized and uninsured.

Our customer deposit relationships represent long tenured customers representing a diverse set of industries. The industry classification with the largest concentration is manufacturing, which represented approximately 7% of our deposits at December 31, 2023. Overall, there are 15 different industry classifications that represent 2% or more of our deposits as of December 31, 2023. Our depositors have typically banked with us for many years. As of December 31, 2023, 45% of our deposit relationships have banked with us more than 10 years and 77% of our deposit relationships have been with us for three or more years.

The unprecedented increase in short-term interest rates impacted our deposit levels. Overall, we have experienced a decline in deposit levels due to the inflationary pressures on our customers cash balances, as well as the impact of higher interest rates that has led to deposits moving to higher yielding alternatives, such as money market funds and short-term treasury notes. Total deposits and customer repos were $11.71 billion at December 31, 2023, a $923.1 million, or 7.31%, decrease from September 30, 2023. At the end of fourth quarter of 2023, deposits and customer repos were $1.7 billion lower than the end of 2022. This decline includes the impact of approximately $800 million in customer deposits that were moved by customers into CitizensTrust, where these funds were invested in higher yielding liquid assets such as United States treasury notes or bonds. The velocity of deposits moving to CitizensTrust continued to moderate in the fourth quarter of 2023, with approximately $60 million transferred off balance sheet in the quarter, compared to $170 million in the third quarter of 2023, $180 million in the second quarter of 2023, and $370 million in the first quarter of 2023.

The following table provides the remaining maturities of large denomination ($250,000 or more) time deposits, including public funds, at December 31, 2023.

Maturity Distribution of Large Denomination Time Deposits

Time deposits totaled $396.4 million at December 31, 2023, representing an increase of $101.8 million, or 34.54%, from total time deposits of $294.6 million for December 31, 2022.

Borrowings

The following table summarizes information about our term FHLB advances, repurchase agreements and other borrowings outstanding for the periods presented.

At December 31, 2023, our borrowings included $271.6 million of repurchase agreements and $2.07 billion in borrowings including $1.91 billion of one-year advances from the Federal Reserve’s Bank Term Funding Program at an average cost of 4.78%. At December 31, 2022, our borrowings included $565.4 million in repurchase agreements and $995.0 million with the FHLB at an interest rate of 4.65%.

The Federal Reserve's Bank Term Funding Program ("BTFP") was created in March of 2022, during the regional banking crisis. The BTFP offers favorable borrowing terms, including collateral value of investment securities at par value, no prepayment penalties for early termination, and until January, 24, 2024 the borrowing rate was one-year OIS plus 10 basis points. As of January 24, 2024, the Federal Reserve changed the BTFP borrowing rate to equal at a minimum the rate paid by the Federal Reserve on reserve balances. The BTFP will no longer be available for new borrowings in March of 2024. The Bank repaid $1.2 billion in BTFP borrowings in early January of 2024 and simultaneously borrowed $1.3 billion at a rate of 4.76%, which matures January 15, 2025. Additionally, the Bank continues to have $695 million of BTFP borrowings at a rate of 4.70% that matures May 3, 2024. As a result of these changes in borrowings, the Bank had approximately $2 billion of BTFP borrowings at January 31, 2024 and no FHLB borrowings. The Company will evaluate options to replace the BTFP borrowings throughout 2024, which may include principal repayments from our investment securities, growth in core deposits, wholesale deposits, and alternative borrowing sources such as the FHLB. As of January 31, 2024, the Bank had unused borrowing capacity at the FHLB of $4.77 billion.

We offer a repurchase agreement product to our deposit customers. This product, known as Citizens Sweep Manager, sells our investment securities overnight to our customers under an agreement to repurchase them the next day at a price which reflects the market value of the use of funds by the Bank for the period concerned. These repurchase agreements are signed with customers who want to invest their excess deposits, above a pre-determined balance in a demand deposit account, in order to earn interest. As of December 31, 2023, total funds borrowed under these agreements were $271.6 million with a weighted average interest rate of 0.29%, compared to $565.4 million with a weighted average interest rate of 0.11% as of December 31, 2022.

As of December 31, 2023, total short-term borrowings, consisted of $1.91 billion of one-year advances from the Federal Reserve’s BTFP at a cost of 4.78%, which replaced higher cost borrowings from the FHLB, and $160 million of short-term FHLB advances, at an average cost of approximately 5.7%. Refer to Note 12 —Borrowings of the notes to the consolidated financial statements for a more detailed discussion.

At December 31, 2023, loans with a carrying value of $4.04 billion were pledged to secure available lines of credit from the FHLB and the Federal Reserve Bank.

At December 31, 2023, investment securities with carrying value of $2.26 billion were pledged to secure various types of deposits, including $1.38 billion of public funds. In addition, investment securities with carrying values of $3.02 billion were pledged to secure $372.5 million for repurchase agreements, $1.8 billion for outstanding borrowings, $796 million for unused borrowing capacity and approximately $51 million for other purposes as required or permitted by law.

Aggregate Contractual Obligations

The following table summarizes the aggregate contractual obligations as of December 31, 2023.

(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.

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 22 —Leases of the notes to the consolidated financial statements for a more detailed discussion about leases.

Off-Balance Sheet Arrangements

The following table summarizes the off-balance sheet items at December 31, 2023.

(1)

Total commitments to extend credit to agribusiness were $34.7 million at December 31, 2023.

As of December 31, 2023, we had commitments to extend credit of approximately $1.71 billion, and obligations under letters of credit of $54.3 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 December 31, 2023 and December 31, 2022, the balance in this reserve was $7.5 million and $8.0 million, respectively, and was included in other liabilities. The fourth quarter of 2023 included $500,000 in recapture of provision for unfunded loan commitments. There was no provision or recapture of provision for unfunded commitments for the year ended December 31, 2022.

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

Capital Resources

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

Total equity increased $129.5 million, or 6.64%, to $2.08 billion at December 31, 2023, compared to total equity of $1.95 billion at December 31, 2022. Increases to equity included $221.4 million in net earnings and a $31.2 million increase in other comprehensive income, that were partially offset by $111.6 million in cash dividends. We engaged in no stock repurchases during the second, third and fourth quarters of 2023, compared to the first quarter of 2023, when we repurchased 791,800 shares of common stock, at an average repurchase price of $23.43, totaling $18.5 million. Our tangible book value per share at December 31, 2023 was $9.31.

During 2023, the Board of Directors of CVB declared quarterly cash dividends totaling $0.80 per share. Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future. CVB’s ability to pay cash dividends to its shareholders is subject to restrictions under federal and California law, including restrictions imposed by the Federal Reserve, and covenants set forth in various agreements we are a party to.

On February 1, 2022, we announced that our Board of Directors authorized a share repurchase plan to repurchase up to 10,000,000 shares of the Company’s common stock ("2022 Repurchase Program"), including by means of (i) an initial $70 million dollar Accelerated Share Repurchase, or ASR Plan, and (ii) one or more Rule 10b5-1 plans or other appropriate buy-back arrangements, including open market purchases and private transactions. We completed the execution of the $70 million accelerated stock repurchase program in the second quarter of 2022, and retired a total of 2,993,551 shares of common stock at an average price of $23.38. During 2022, we also repurchased, under our 10b5-1 stock repurchase plan, 1,914,590 shares of common stock, at an average repurchase price of $23.43, totaling $44.9 million. During the first quarter of 2023, we repurchased 791,800 shares at an average price of $23.43. We engaged in no stock repurchases during the second, third and fourth quarters of 2023. This 10b5-1 plan expired on March 2, 2023 and no new plan has been put in place since that time.

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 December 31, 2023, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios required to be considered “well-capitalized” for regulatory purposes. For further information about capital requirements and our capital ratios, see “Item 1. Business—Regulation and Supervision—Capital Adequacy Requirements”.

At December 31, 2023, the Bank and the Company exceeded the minimum risk-based capital ratios and leverage ratios, under the revised capital framework referred to as Basel III, required to be considered “well-capitalized” for regulatory purposes. We did not elect to phase in the impact of CECL on regulatory capital, as allowed under the interim final rule of the FDIC and other U.S. banking agencies.

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