CVB FINANCIAL CORP

Previous wording

For the second quarter of 2024, we reported net earnings of $50.0 million, compared with $48.6 million for the first quarter of 2024 and $55.8 million for the second quarter of 2023. Diluted earnings per share were $0.36 for the second quarter, compared to $0.35 for the prior quarter and $0.40 for the same period last year. Net income of $50.0 million for the second quarter of 2024 produced an annualized return on average equity (“ROAE”) of 9.57%, an annualized return on average tangible common equity (“ROATCE”) of 15.51%, and an annualized return on average assets (“ROAA”) of 1.24%. Our net interest margin, tax equivalent (“NIM”), was 3.05% for the second quarter of 2024, while our efficiency ratio was 45.10%.

Current wording

For the third quarter of 2024, we reported net earnings of $51.2 million, compared with $50.0 million for the second quarter of 2024 and $57.9 million for the third quarter of 2023. Diluted earnings per share were $0.37 for the third quarter, compared to $0.36 for the prior quarter and $0.42 for the same period last year. Net income of $51.2 million for the third quarter of 2024 produced an annualized return on average equity (“ROAE”) of 9.40%, an annualized return on average tangible common equity (“ROATCE”) of 14.93%, and an annualized return on average assets (“ROAA”) of 1.23%. Our net interest margin, tax equivalent (“NIM”), was 3.05% for the third quarter of 2024, while our efficiency ratio was 46.53%.

Previous wording

Noninterest income was $14.4 million for the second quarter of 2024, compared with $14.1 million for the first quarter of 2024 and $12.7 million for the second quarter of 2023. Second quarter income from Bank Owned Life Insurance (“BOLI”) decreased by $651,000 from the first quarter of 2024 and increased by $845,000 compared to the second quarter of 2023. Death benefits that exceeded the asset value on certain policies totaled $531,000 in the first quarter of 2024 and approximately $800,000 in the second quarter of 2023. There were no death benefits received in the second quarter of 2024. The year-over-year increase in BOLI income was primarily due to restructuring and enhancements in BOLI policies in the fourth quarter of 2023.

Current wording

Noninterest income was $12.8 million for the third quarter of 2024, compared with $14.4 million for the second quarter of 2024 and $14.3 million for the third quarter of 2023. During the third quarter of 2024, the Bank executed sale-leaseback transactions with the sale of two buildings, which operate as Banking Centers, and were simultaneously leased back, resulting in a pre-tax net gain of $9.1 million. The gains on selling the buildings were offset by realizing a pre-tax net loss of $11.6 million on the sale of $312 million of AFS securities. Third quarter income from Bank Owned Life Insurance (“BOLI”) increased by $557,000 from the second quarter of 2024 and increased by $2 million compared to the third quarter of 2023. We recognized $320,000 in death benefits that exceeded the asset value on certain policies in the third quarter of 2024, compared to no death benefits in the second quarter of 2024 and no death benefits in the third quarter of 2023. The year-over-year increase of $2 million in BOLI income was primarily due to the restructuring and enhancements in BOLI policies during the fourth quarter of 2023.

Previous wording

Total assets of $16.15 billion at June 30, 2024 increased by $130.5 million, or 0.81%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $14.55 billion at June 30, 2024 increased by $90.9 million, or 0.63%, when compared with $14.46 billion at December 31, 2023. The increase in interest-earning assets was primarily due to a $559.9 million increase in interest-earning balances due from the Federal Reserve, offset by a $245.1 million decrease in investment securities, and a $223.1 million decrease in total loans.

Current wording

At September 30, 2024, total assets of $15.40 billion decreased by $617.8 million, or 3.86%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $13.74 billion at September 30, 2024 decreased by $723.2 million, or 5.0%, when compared with $14.46 billion at December 31, 2023. The decrease in interest-earning assets was primarily due to a $549.9 million decrease in investment securities, and a $328.4 million decrease in net loans, partially offset by a $142.9 million increase in interest-earning balances due from the Federal Reserve.

Previous wording

Total investment securities were $5.18 billion at June 30, 2024, a decrease of $245.1 million, or 4.52%, from $5.42 billion at December 31, 2023. At June 30, 2024, investment securities held-to-maturity (“HTM”) totaled $2.43 billion, a $34.7 million, or 1.41%, decline from December 31, 2023. At June 30, 2024, investment securities available-for-sale (“AFS”) totaled $2.75 billion, inclusive of a pre-tax net unrealized loss of $487.9 million. AFS securities decreased by $210.3 million, or 7.12%, from $2.96 billion at December 31, 2023. The pre-tax unrealized loss grew by $38.1 million from December 31, 2023. Fair value hedges in which $1 billion notional pay-fixed interest rate swaps with maturities ranging from 2027 to 2028, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR, had a fair value totaling $13.7 million and were reflected as an asset June 30, 2024. The fair value of these pay fixed interest rate swaps increased by $20.7 million from December 31, 2023. Our tax equivalent yield on investments was 2.71% for the quarter ended June 30, 2024, compared to 2.64% for the first quarter of 2024 and 2.37% for the second quarter of 2023.

Current wording

Total investment securities were $4.87 billion at September 30, 2024, a decrease of $549.9 million, or 10.14%, from $5.42 billion at December 31, 2023. At September 30, 2024, investment securities held-to-maturity (“HTM”) totaled $2.41 billion, a $59.4 million, or 2.41%, decline from December 31, 2023. At September 30, 2024, investment securities available-for-sale (“AFS”) totaled $2.47 billion, inclusive of a pre-tax net unrealized loss of $367.7 million. AFS securities decreased by $490.5 million, or 16.59%, from $2.96 billion at December 31, 2023, including the impact of the sale of $312 million of AFS securities, during the third quarter of 2024. The sale of these securities resulted in a net pre-tax loss of $11.6 million. The pre-tax unrealized loss declined by $82.1 million from December 31, 2023. Fair value hedges in which $1 billion notional pay-fixed interest rate swaps with maturities ranging from 2027 to 2028, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR, had a fair value totaling

Previous wording

Total loans and leases, at amortized cost, of $8.68 billion at June 30, 2024, decreased by $223.1 million, or 2.50%, from December 31, 2023. The decrease in total loans included decreases of $119.6 million in commercial real estate loans, $62.3 million in dairy & livestock and agribusiness loans, $14.5 million in construction loans, and $13.7 million in commercial and industrial 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 80% at December 31, 2023 to 74% at June 30, 2024. Our yield on loans was 5.26% for the quarter ended June 30, 2024, compared to 5.30% for the quarter ended March 31, 2024 and 5.01% for the second quarter of 2023.

Current wording

Total loans and leases, at amortized cost, of $8.57 billion at September 30, 2024, decreased by $332.3 million, or 3.73%, from December 31, 2023. The decrease in total loans included decreases of $165.9 million in commercial real estate loans, $70.5 million in dairy & livestock and agribusiness loans, $52.0 million in construction loans, and $33.4 million in commercial and industrial 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 80% at December 31, 2023 to 71% at September 30, 2024. Our yield on loans was 5.31% for the quarter ended September 30, 2024, compared to 5.26% for the quarter ended June 30, 2024 and 5.07% for the third quarter of 2023.

Previous wording

The allowance for credit losses totaled $82.8 million at June 30, 2024, compared to $86.8 million at December 31, 2023. There was no provision for credit losses in the first or second quarters of 2024. The decline in the allowance was due to $4 million of net charge-offs in the first quarter of 2024, primarily due to two borrowers in which specific loan loss reserves were previously established in 2023.

Current wording

The allowance for credit losses totaled $82.9 million at September 30, 2024, compared to $86.8 million at December 31, 2023. There was no provision for credit losses in the first three quarters of 2024. The decline in the allowance was due to $4 million of net charge-offs in the first quarter of 2024, primarily due to two borrowers in which specific loan loss reserves were previously established in 2023.

Previous wording

Noninterest-bearing deposits were $7.09 billion at June 30, 2024, a decrease of $116.1 million, or 1.61%, when compared to $7.21 billion at December 31, 2023. At June 30, 2024, noninterest-bearing deposits were 60.13% of total deposits, compared to 63.03% at December 31, 2023.

Current wording

Noninterest-bearing deposits were $7.14 billion at September 30, 2024, a decrease of $69.4 million, or 0.96%, when compared to $7.21 billion at December 31, 2023. At September 30, 2024, noninterest-bearing deposits were 59.12% of total deposits, compared to 63.03% at December 31, 2023.

Previous wording

Interest-bearing deposits were $4.70 billion at June 30, 2024, an increase of $472.8 million, or 11.18%, when compared to $4.23 billion at December 31, 2023. The increase in interest-bearing deposits included $400 million in new brokered time deposits issued during the first six months of 2024. These brokered time deposits mature every 90 days. $300 million of these time deposits were combined with $300 million in cash flow hedges during the first quarter of 2024, resulting in a fixed rate of approximately 4.2%. Customer repurchase agreements totaled $268.8 million at June 30, 2024, compared to $271.6 million at December 31, 2023. Our average cost of total deposits including customer repurchase agreements was 0.87% for the quarter ended June 30, 2024, compared to 0.73% for the quarter ended March 31, 2024 and 0.35% for the second quarter of 2023.

Current wording

Interest-bearing deposits were $4.94 billion at September 30, 2024, an increase of $708.2 million, or 16.75%, when compared to $4.23 billion at December 31, 2023. The increase in interest-bearing deposits included $400 million in new brokered time deposits issued during the first quarter of 2024. These brokered time deposits mature every 90 days. $300 million of these time deposits were combined with $300 million in cash flow hedges during the first quarter of 2024, resulting in a fixed rate of approximately 4.2%. Customer repurchase agreements totaled $394.5 million at September 30, 2024, compared to $271.6 million at December 31, 2023. Our average cost of total deposits including customer repurchase agreements was 1.01% for the quarter ended September 30, 2024, compared to 0.87% for the quarter ended June 30, 2024 and 0.51% for the third quarter of 2023.

Previous wording

The Company’s total equity was $2.11 billion at June 30, 2024. This represented an overall increase of $34.5 million from total equity of $2.08 billion at December 31, 2023. Increases to equity included $98.6 million in net earnings, that were partially offset by $55.9 million in cash dividends and a $10.8 million decrease in other comprehensive income from the tax effected impact of the net decline in market value of available-for-sale securities and increase in value of pay fixed swaps. We engaged in no stock repurchases during the first half of 2024. Our tangible book value per share at June 30, 2024 was $9.55.

Current wording

The Company’s total equity was $2.20 billion at September 30, 2024. This represented an overall increase of $119.9 million from total equity of $2.08 billion at December 31, 2023. Increases to equity included $149.9 million in net earnings and a $48.7 million increase in other comprehensive income from the tax effected impact of the net increase in market value of available-for-sale securities, that were partially offset by $83.9 million in cash dividends. We engaged in no stock repurchases during the first nine months of 2024. Our tangible book value per share at September 30, 2024 was $10.17.

Previous wording

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of June 30, 2024, the Company’s Tier 1 leverage capital ratio was 10.55%, common equity Tier 1 ratio was 15.29%, Tier 1 risk-based capital ratio was 15.29%, and total risk-based capital ratio was 16.10%. Refer to our Analysis of Financial Condition – Capital Resources.

Current wording

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of September 30, 2024, the Company’s Tier 1 leverage capital ratio was 10.60%, common equity Tier 1 ratio was 15.77%, Tier 1 risk-based capital ratio was 15.77%, and total risk-based capital ratio was 16.59%. Refer to our Analysis of Financial Condition – Capital Resources.

Previous wording

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the three and six months ended June 30, 2024 and 2023. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management included herein.

Current wording

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments (interest-earning assets) and the interest paid on deposits and borrowed funds (interest-bearing liabilities). Net interest margin is net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin. The net interest spread is the yield on average interest-earning assets minus the cost of average interest-bearing liabilities. Net interest margin and net interest spread are included on a tax equivalent (TE) basis by adjusting interest income utilizing the federal statutory tax rates of 21% in effect for the three and nine months ended September 30, 2024 and 2023. Our net interest income, interest spread, and net interest margin are sensitive to general business and economic conditions. These conditions include short-term and long-term interest rates, inflation, monetary supply, and the strength of the international, national and state economies, in general, and more specifically, the local economies in which we conduct business. Our ability to manage net interest income during changing interest rate environments will have a significant impact on our overall performance. We manage net interest income through affecting changes in the mix of interest-earning assets as well as the mix of interest-bearing liabilities, changes in the level of interest-bearing liabilities in proportion to interest-earning assets, and in the growth and maturity of earning assets. See Item 2 –Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability and Market Risk Management – Interest Rate Sensitivity Management included herein.

Previous wording

Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended June 30, 2024 and June 30, 2023. The non TE rates for total investment securities were 2.71% and 2.33% for the three months ended June 30, 2024 and June 30, 2023, respectively.

Current wording

Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the three months ended September 30, 2024 and 2023. The non TE rates were 2.63% and 2.60% for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Includes loan fees of $721,000 and $890,000 for the three months ended June 30, 2024 and June 30, 2023, respectively. Prepayment penalty fees of $440,000 and $686,000 are included in interest income for the three months ended June 30, 2024 and June 30, 2023, respectively.

Current wording

Includes loan fees of $748,000 and $763,000 for the three months ended September 30, 2024 and 2023, respectively. Prepayment penalty fees of $830,000 and $373,000 are included in interest income for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the six months ended June 30, 2024 and June 30, 2023. The non TE rates for total investment securities were 2.63% and 2.33% for the six months ended June 30, 2024 and June 30, 2023, respectively.

Current wording

Includes tax equivalent (TE) adjustments utilizing federal statutory rates of 21% in effect for the nine months ended September 30, 2024 and 2023. The non TE rates were 2.63% and 2.42% for the nine months ended September 30, 2024 and 2023 respectively.

Previous wording

Includes loan fees of $1.4 million and $1.7 million for the six months ended June 30, 2024 and June 30, 2023, respectively. Prepayment penalty fees of $1.1 million and $1.3 million are included in interest income for the six months ended June 30, 2024 and June 30, 2023, respectively.

Current wording

Includes loan fees of $2.2 million and $2.4 million for nine months ended September 30, 2024 and 2023, respectively. Prepayment penalty fees of $1.9 million and $1.6 million are included in interest income for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Net interest income, before provision for credit losses, of $110.8 million for the second quarter of 2024 decreased by $8.7 million, or 7.27%, from the second quarter of 2023. The decline in net interest income compared to the second quarter of 2023 was due to a 17 basis point decrease in net interest margin and a $294.2 million decrease in average earning assets. The decline in net interest margin was the result of a 55 basis point increase in funding costs, which was partially offset by a 36 basis point increase in the average earning asset yield.

Current wording

Net interest income, before provision for credit losses, of $113.6 million for the third quarter of 2024 decreased by $9.8 million, or 7.90%, from the third quarter of 2023. The decline in net interest income compared to the third quarter of 2023 was primarily due to a 26 basis point decline in net interest margin. The decline in net interest margin was the result of a 55 basis point increase in funding costs, which was partially offset by a 25 basis point increase in the average earning asset yield. The increase in earning asset yield was positively impacted by a 24 basis point increase in loan yields and a modest change in the mix of assets, with higher yielding balances at the Federal Reserve increasing and the lower yielding investment portfolio declining. Compared to the third quarter of 2023, the average balance of investment securities decreased by $462.6 million, declining from 37% to 34% of total earning assets. Conversely, the average amount of funds held at the Federal Reserve increased by $748.8 million, growing from 3.1% of total earning assets in the third quarter of 2023 to 8.2% for the third quarter of 2024.

Previous wording

Total interest income of $159.1 million grew by $9.8 million, or 6.59%, when compared to the second quarter of 2023. This increase was primarily due to a 36 basis point expansion of the yield on earning assets, which offset a $294.2 million decline in average interest-earning assets. Average loan balances declined by $160.8 million. Loan yields grew from 5.01% for the second quarter of 2023 to 5.26% for the second quarter of 2024. Likewise, the yield on investment securities increased by 34 basis points from the prior year, including the $3.7 million increase in interest income associated with fair value hedges executed in June of 2023. Compared to the second quarter of 2023, the average balance of investment securities decreased by $482.6 million, while the average amount of funds held at the Federal Reserve increased by $356.9 million.

Current wording

Total interest income of $165.8 million grew by $9.5 million, or 6.10%, when compared to the third quarter of 2023. This increase was primarily due to a 25 basis point expansion of the yield on earning assets. Average loan balances declined by $257.2 million. Loan yields grew from 5.07% for the third quarter of 2023 to 5.31% for the third quarter of 2024. Likewise, the yield on investment securities increased by 3 basis points from the prior year, including the $496,000 increase in interest income associated with fair value hedges executed in June of 2023.

Previous wording

Total interest income and fees on loans for the second quarter of 2024 was $114.2 million, an increase of $3.2 million, or 2.89%, from the second quarter of 2023. This increase in income was primarily due to higher loan yields, which grew from 5.01% in the second quarter of 2023 to 5.26% in the second quarter of 2024. Loan yields grew year-over-year, as rising interest rates contributed to an increase in yields on loans indexed to the Prime rate or other short-term indexes, as well as higher rates from newly originated loans.

Current wording

Total interest income and fees on loans for the third quarter of 2024 was $114.9 million, an increase of $1.7 million, or 1.54%, from the third quarter of 2023. This increase in income was primarily due to higher loan yields, which grew from 5.07% in the third quarter of 2023 to 5.31% in the second quarter of 2024. Loan yields grew year-over-year, as rising interest rates contributed to an increase in yields on loans indexed to the Prime rate or other short-term indexes, as well as higher rates from newly originated loans.

Previous wording

Interest income from investment securities was $34.7 million, an increase of $1.6 million, or 4.76%, from the second quarter of 2023. The increase was driven by a 34 basis point increase in the yield on securities, compared to 2023. The increase in yield includes the positive carry on the fair value hedges executed in late June of 2023, which resulted in $4.1 million of interest income in the second quarter of 2024, compared to $446,000 in the second quarter of 2023. Excluding the impact of these swaps, interest income on investment securities would have declined by $2.1 million, as average investment securities declined by $482.6 million when compared with the second quarter of 2023.

Current wording

Interest income from investment securities was $33.5 million, a decrease of $2.6 million, or 7.09%, from the third quarter of 2023. The decrease was driven by a $462.6 million decline in the average balance of investment on securities, including the impact from the sale of $312 million of AFS securities during the third quarter of 2024. The three basis point increase in yield includes the positive carry on the fair value hedges executed in late June of 2023, which resulted in $4.3 million of interest income in the third quarter of 2024, compared to $3.8 million in the third quarter of 2023. Excluding the impact of these swaps, interest income on investment securities would have declined by $3.1 million.

Previous wording

This 55 basis point increase in cost of funds was primarily the result of a 125 basis point increase in the cost of total interest-bearing deposits, including the impact from a $400 million increase in average brokered time deposits. Total time deposits grew by $437.5 million over the prior year quarter, while interest expense on time deposits grew by $5.7 million. Interest expense for non-maturity interest-bearing deposits, increased by $9.5 million over the second quarter of 2023, as a $190.4 million decline in the average balance of these deposits was offset by an increase in the cost of these interest-bearing deposits from 0.99% in the prior year quarter to 2.00% for the second quarter of 2024. Average noninterest-bearing deposits were 60.20% of total deposits for the second quarter of 2024, compared to 63.58% for the second quarter of 2023. Interest expense on borrowings increased by $3.2 million, compared to the second quarter of 2023, due to an increase in average borrowings of $323.4 million, which had an average borrowing cost of 4.76% in the second quarter of 2024, compared to 4.90% in the prior year quarter.

Current wording

Interest expense of $52.1 million for the third quarter of 2024, increased $19.3 million, compared to the third quarter of 2023. Total cost of funds of 1.47% for the third quarter of 2024 increased from 0.92% for the year ago quarter. This 55 basis point increase in cost of funds was primarily the result of a 104 basis point increase in the cost of total interest-bearing deposits. Interest expense on time deposits grew by $5.5 million, as total time deposits grew by $431.9 million on average over the prior year quarter, including the impact from adding $400 million of brokered time deposits during the first quarter of 2024. Interest expense for non-maturity interest-bearing deposits, increased by $7.8 million over the third quarter of 2023, as a $270.6 million decline in the average balance of these deposits was offset by an increase in the cost of these interest-bearing deposits from 1.39% in the prior year quarter to 2.22% for the third quarter of 2024. Average noninterest-bearing deposits were 59.10% of total deposits for the third quarter of 2024, compared to 62.09% for the third quarter of 2023. Interest expense on borrowings increased by $4.6 million, compared to the third quarter of 2023, due to an increase in average borrowings of $411.3 million, which had an average borrowing cost of 4.77% in the third quarter of 2024, compared to 4.84% in the prior year quarter.

Previous wording

Net interest income, before provision for credit losses, was $223.3 million for the six months ended June 30, 2024, a decrease of $22.0 million, or 8.95%, compared to $245.3 million for the same period of 2023. Interest-earning assets decreased on average by $226.8 million, or 1.52%, from $14.89 billion for the six months ended June 30, 2023 to $14.66 billion for the same period in the current year. Our net interest margin (TE) was 3.07% for the first six months of 2024, compared to 3.33% for the same period of 2023.

Current wording

Net interest income, before provision for credit losses, was $336.9 million for the nine months ended September 30, 2024, a decrease of $31.7 million, or 8.6%, compared to $368.6 million for the same period of 2023. Interest-earning assets decreased on average by $138.6 million, or 0.93%, from $14.89 billion for the nine months ended September 30, 2023 to $14.75 billion for the same period in the current year. Our net interest margin (TE) was 3.06% for the first nine months of 2024, compared to 3.32% for the same period of 2023.

Previous wording

Total interest income $316.8 million for the six months ended June 30, 2024, was $24.7 million, or 8.47%, higher than the same period of 2023. This increase was primarily due to a 40 basis point expansion of the yield on earning assets, which offset a $226.8 million decline in average earning assets. The $226.8 million year-over-year decrease in average earning assets resulted from a decline of $443.6 million in average investment securities and a $149.6 million decrease in our average loan balances, offset by a $375.8 million increase the average amount of funds held at the Federal Reserve. The 40 basis point increase in the average earning asset yield compared to the first six months of 2023 resulted from both a 33 basis point increase in loan yields, from 4.95% for the first six months of 2023 to 5.28% for the same period of 2024 and a 30 basis point increase in the non tax-equivalent yield on investment securities. Including the impact of fair value hedges, the yield on investment securities increased from 2.33% for the first six months of 2023 to 2.63% for the six months ended June 30, 2024. Interest income from funds deposited at the Federal Reserve increased by $10.7 million, primary due to a $376 million increase in average balances at the Federal Reserve.

Current wording

Total interest income of $482.5 million for the nine months ended September 30, 2024, was $34.3 million, or 7.64%, higher than the same period of 2023. This increase was primarily due to a 34 basis point expansion of the yield on earning assets, which offset a $138.6 million decline in average earning assets. The $138.6 million year-over-year decrease in average earning assets resulted from a decline of $449.8 million in average investment securities and a $185.6 million decrease in our average loan balances, offset by a $500.7 million increase the average amount of funds held at the Federal Reserve. The 34 basis point increase in the average earning asset yield compared to the first nine months of 2023 resulted from both a 30 basis point increase in loan yields and a $7.8 million increase in interest income from the fair value hedges that were initiated in June of 2023. The fair value hedges impacted the yield on investment securities, resulting in an increase from 2.42% for the first nine months of 2023 to 2.63% for the nine months ended September 30, 2024. Interest income from funds deposited at the Federal Reserve increased by $12.9 million, primary due to a $500.7 million increase in average balances at the Federal Reserve.

Previous wording

Total interest income and fees on loans for the six months ended June 30, 2024, was $230.5 million, an increase of $11.2 million, or 5.09%, when compared to the same period of 2023. This increase in income was due to higher loan yields, which grew year-over-year, as rising interest rates contributed to an increase in yields from 4.95% for the first six months of 2023 to 5.28% for the same period of 2024.

Current wording

Total interest income and fees on loans for the nine months ended September 30, 2024, was $345.5 million, an increase of $12.9 million, or 3.88%, when compared to the same period of 2023. This increase in income was due to higher loan yields, which grew year-over-year, as rising interest rates contributed to an increase in yields from 4.99% for the first nine months of 2023 to 5.29% for the same period of 2024.

Previous wording

Interest income from investment securities of $69.5 million for the six months ended June 30, 2024, increased $2.9 million from $66.6 million for the first six months of 2023. This increase was driven by a 30 basis point increase in the yield on securities, compared to the first six months of 2023. The increase in yield includes the positive carry on the fair value hedges executed in late June of 2023, which resulted in $7.8 million of interest income for the six months ended June 30, 2024, compared to $446,000 in the second quarter of 2023. Excluding the impact of these swaps, interest income on investment securities would have declined by $4.5 million, as average investment securities decreased by $443.6 million when compared with the second quarter of 2023.

Current wording

Interest income from investment securities of $103.0 million for the nine months ended September 30, 2024, increased $315,000 from $102.7 million for the first nine months of 2023. This increase was driven by a 22 basis point increase in the yield on securities, compared to the first nine months of 2023. The increase in yield includes the positive carry on the fair value hedges executed in late June of 2023. Excluding the impact of these swaps, interest income on investment securities would have declined by $7.5 million, as average investment securities decreased by $449.8 million when compared with the third quarter of 2023.

Previous wording

Interest expense of $93.5 million for the six months ended June 30, 2024, increased by $46.7 million from the same period of 2023. Total cost of funds for the first six months of 2024 was 1.34%, compared with 0.66% for the same period of 2023. Noninterest-bearing deposits for the six months ending June 30, 2024, declined on average by $789.3 million, compared to the first six months of 2023, but continued to represent more than 60% of total average deposits for the six month period. Average noninterest-bearing deposits represented 60.96% of our total deposits for the six months ended June 30, 2024, compared to 63.62% for the same period of 2023. The average rate paid on interest-bearing liabilities increased by 127 basis points, to 2.76% for the first six months of 2024, from 1.49% for the same period of 2023. Likewise, the rate on interest-bearing deposits for the first six months of 2024 increased by 136 basis points from the same period in 2023. Time deposits increased on average between the two periods by $299.6 million, with the cost of time deposits increasing from 0.37% in the prior year period to 3.04% for the first six months of 2024. The increase in both the cost and average balance of time deposits was driven by the addition in 2024 of $400 million in brokered time deposits. Non-maturity interest-bearing deposits declined on average from the prior year period by $259.2 million, while the cost of these deposits increased by 1.19%. Average borrowings for the first six months of 2024 were $1.92 billion at a cost of 4.76%, compared with 4.87% on $1.25 billion of borrowings for the same period of 2023.

Current wording

Interest expense of $145.6 million for the nine months ended September 30, 2024, increased by $66.0 million from the same period of 2023. Total cost of funds for the first nine months of 2024 was 1.39%, compared with 0.75% for the same period of 2023. Noninterest-bearing deposits for the nine months ending September 30, 2024, declined on average by $755.2 million, compared to the first nine months of 2023, but continued to represent more than 60% of total average deposits for the nine month period. Average noninterest-bearing deposits represented 60.32% of our total deposits for the nine months ended September 30, 2024, compared to 63.10% for the same period of 2023. The rate on interest-bearing deposits for the first nine months of 2024 increased by 125 basis points from the same period in 2023. Time deposits increased on average between the two periods by $344.0 million, with the cost of time deposits increasing from 0.62% in the prior year period to 3.19% for the first nine months of 2024. The $13.9 million increase in interest expense on time deposits was driven by the addition of $400 million in brokered time deposits during the first quarter of 2024. Non-maturity interest-bearing deposits declined on average from the prior year period by $263.3 million, while the cost of these deposits increased by 1.06%, resulting in a $30.6 million increase in interest expense. Average borrowings for the first nine months of 2024 were $1.86 billion at a cost of 4.76%, compared with 4.86% on $1.27 billion of borrowings for the same period of 2023, resulting in a $19.9 million increase in interest expense.

Previous wording

There was no provision for credit losses in the second quarter of 2024, compared to $500,000 in provision in the second quarter of 2023. Net charge-offs for the second quarter of 2024 were $31,000, compared to $73,000 in the second quarter of 2023. Projected loss rates were 0.95% at June 30, 2024, compared to 0.98% at June 30, 2023.

Current wording

There was no provision for credit losses in the third quarter of 2024, compared to $2.0 million in provision in the third quarter of 2023. Net recoveries for the third quarter of 2024 were $156,000, compared to $28,000 in the third quarter of 2023. Allowance for credit losses represented 0.97% of total loans at September 30, 2024, compared to 0.98% at December 31, 2024 and 1.00% at September 30, 2023.

Previous wording

There was no provision for credit losses for the six months ended June 30, 2024, compared to $2.0 million in provision for credit losses for the same period of 2023. We experienced credit charge-offs of $4.3 million and total recoveries of $262,000, resulting in net charge-offs of $4.1 million for 2024 year-to-date. For the six months ended June 30, 2023, we experienced credit charge-offs of $198,000 and total recoveries of $48,000, resulting in net charge-offs of $150,000. Refer to the discussion of “Allowance for Credit Losses” in Item 2 –Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.

Current wording

There was no provision for credit losses for the nine months ended September 30, 2024, compared to $4.0 million in provision for credit losses for the same period of 2023. We experienced credit charge-offs of $4.3 million and total recoveries of $444,000, resulting in net charge-offs of $3.9 million for 2024 year-to-date. For the nine months ended September 30, 2023, we experienced credit charge-offs of $224,000 and total recoveries of $102,000, resulting in net charge-offs of $122,000. Refer to the discussion of “Allowance for Credit Losses” in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein for discussion concerning observed changes in the credit quality of various components of our loan portfolio as well as changes and refinements to our methodology.

Previous wording

No assurance can be given that economic conditions which affect the Company’s service areas or other circumstances will or will not be reflected in future changes in the level of our allowance for credit losses and the resulting provision or recapture of provision for credit losses. The process to estimate the allowance for credit losses requires considerable judgment and our economic forecasts may continue to vary due to the uncertainty of the future impact from the recent rise in interest rates, geopolitical events in Europe, and global inflation will have on future interest rates, unemployment, the overall economy and resulting impact on our customers. See “Allowance for Credit Losses” under Analysis of Financial Condition herein.

Current wording

No assurance can be given that economic conditions which affect the Company’s service areas or other circumstances will or will not be reflected in future changes in the level of our allowance for credit losses and the resulting provision or recapture of provision for credit losses. The process to estimate the allowance for credit losses requires considerable judgment and our economic forecasts may continue to vary due to the uncertainty of the future impact from the recent rise in interest rates, geopolitical events, and the continued inflationary pressures will have on future interest rates, unemployment, the overall economy and resulting impact on our customers. See “Allowance for Credit Losses” under Analysis of Financial Condition herein.

Previous wording

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 June 30, 2024, CitizensTrust had approximately $4.3 billion in assets under management and administration, including

Current wording

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, 2024, CitizensTrust had approximately $4.7 billion in assets under management and administration, including $3.3 billion in assets under management. CitizensTrust generated fees of $3.6 million for the third quarter of 2024, compared to $3.2 million for the same period of 2023.

Previous wording

The increase in BOLI income was primarily due to the restructuring and enhancements in our BOLI policies in the fourth quarter of 2023. There were no death benefits in the second quarter of 2024, compared with $806,000 in death benefits that exceeded the asset value of certain BOLI policies in the second quarter of 2023. As a result of the restructuring and enhancements in BOLI policies during the fourth quarter of 2023, the income derived from increases in the cash-surrender value of the policies was $1.6 million higher in the second quarter of 2024, when compared to the second quarter of 2023.

Current wording

The increase in BOLI income was primarily due to the restructuring and enhancements in our BOLI policies in the fourth quarter of 2023. We recognized $320,000 in death benefits that exceeded the asset value on certain policies in the third quarter of 2024, compared with no death benefits in the third quarter of 2023. As a result of the restructuring and enhancements in BOLI policies during the fourth quarter of 2023, the income derived from increases in the cash-surrender value of the policies was $1.5 million higher in the third quarter of 2024, when compared to the third quarter of 2023.

Previous wording

The $3.3 million year-over-year increase in BOLI income was primarily due to the restructuring and enhancements in our BOLI policies in the fourth quarter of 2023. Trust and investment fees grew by $423,000 or 6.79% due to increased assets under management. The swap related fees reflected in 2023 resulted from the conversion to SOFR of all of our previously originated interest rate swaps indexed to LIBOR, resulting in a $600,000 period-over-period decline in these fees.

Current wording

The $5.2 million year-over-year increase in BOLI income was primarily due to the restructuring and enhancements in our BOLI policies in the fourth quarter of 2023. Trust and investment fees grew by $742,000 or 7.83% due to increased assets under management. The swap related fees reflected in 2023 resulted from the conversion to SOFR of all of our previously originated interest rate swaps indexed to LIBOR, resulting in a $600,000 period-over-period decline in these fees.

Previous wording

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 1.40% for the second quarter of 2024, compared to 1.32% for the second quarter of 2023.

Current wording

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 1.42% for the third quarter of 2024, compared to 1.33% for the third quarter of 2023.

Previous wording

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 45.10% for the second quarter of 2024, compared to 40.86% for the second quarter of 2023.

Current wording

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 46.53% for the third quarter of 2024, compared to 39.99% for the third quarter of 2023.

Previous wording

Noninterest expense of $116.3 million for the first six months of 2024 was $7.4 million higher than the prior year period. Year-over-year increases included a $3.0 million increase in salaries and employee benefits primarily due to inflationary pressures on salary and benefits. The $1.6 million net increase in the FDIC accrual year-over-year was the result of the FDIC increasing its initial estimate of losses from last year’s bank failures. Marketing and promotion expense increased by $550,000 primarily due to $478,000 in higher donations in the first half of 2024. Year-over-year expense increases included $750,000 in higher data processing costs from new technology investments, a $400,000 increase in deferred compensation expense, and a $790,000 increase in legal expense. The first six month of 2024 included $500,000 in recapture of provision for unfunded loan commitments, compared to $900,000 in provision for the same period of 2023. As a percentage of average assets, noninterest expense was 1.44% for the six months ended June 30, 2024, compared to 1.34% for the same period of 2023. For the six months ended June 30, 2024, the efficiency ratio was 46.17%, compared to 40.17% for the same period of 2023.

Current wording

Noninterest expense of $175.1 million for the first nine months of 2024 was $11.1 million higher than the prior year period. Year-over-year increases included a $4.9 million increase in salaries and employee benefits primarily due to inflationary pressures on salary and benefits. The $1.5 million net increase in the FDIC accrual year-over-year was the result of the FDIC increasing its initial estimate of losses from last year’s bank failures. Marketing and promotion expense increased by $886,000 primarily due to $600,000 in higher donations in the first nine months of 2024. Year-over-year expense increases included $1.0 million in higher data processing costs from new technology investments, a $614,000 increase in deferred compensation expense, and a $1.4 million increase in legal expense. The first nine month of 2024 included a $1.3 million in recapture of provision for unfunded loan commitments, compared to no provision for the same period of 2023. As a percentage of average assets, noninterest expense was 1.43% for the nine months ended September 30, 2024, compared to 1.34% for the same period of 2023. For the nine months ended September 30, 2024, the efficiency ratio was 46.29%, compared to 40.11% for the same period of 2023.

Previous wording

The Company’s effective tax rate for the three and six months ended June 30, 2024 was 27.25%, compared to 28.20% for the three and six months ended June 30, 2023, respectively. Our estimated annual effective tax rate also varies depending upon the level of tax-advantaged income from municipal securities and BOLI, as well as available tax credits.

Current wording

The Company’s effective tax rate for the three and nine months ended September 30, 2024 was 24.25% and 26.25%, respectively, compared to 28.20% for both the three and nine months ended September 30, 2023. Our estimated annual effective tax rate also varies depending upon the level of tax-advantaged income from municipal securities and BOLI, as well as available tax credits. Investments in tax credits and higher BOLI income were the primary drivers of the lower effective tax rate in 2024.

Previous wording

At June 30, 2024, total assets of $16.15 billion increased by $130.5 million, or 0.81%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $14.55 billion at June 30, 2024 increased by $90.9 million, or 0.63%, when compared with $14.46 billion at December 31, 2023. The increase in interest-earning assets was primarily due to a $559.9 million increase in interest-earning balances due from the Federal Reserve, offset by a $245.1 million decrease in investment securities, and a $223.1 million decrease in total loans.

Current wording

Total assets of $15.40 billion at September 30, 2024 decreased by $617.8 million, or 3.86%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $13.74 billion at September 30, 2024 decreased by $723.2 million, or 5.0%, when compared with $14.46 billion at December 31, 2023. The decrease in interest-earning assets was primarily due to a $549.9 million decrease in investment securities and a $332.3 million decrease in total loans, partially offset by a $142.9 million increase in interest-earning balances due from the Federal Reserve.

Previous wording

Total liabilities were $14.04 billion at June 30, 2024, an increase of $96.0 million, or 0.69%, from total liabilities of $13.94 billion at December 31, 2023. The increase of $356.7 million in total deposits at June 30, 2024 included the addition of $400 million in brokered time deposits. These brokered time deposits mature every 90 days, including $300 million of these deposits that were issued in connection with cash flow hedges during the first quarter of 2024. The result of these hedged time deposits is a weighted average fixed rate of approximately 4.2%. Borrowings decreased by $270.0 million from December 31, 2023. At June 30, 2024, total borrowings of $1.8 billion consisted of $1.3 billion from the Federal Reserve’s Bank Term Funding Program, at a cost of 4.76%, maturing in January of 2025, and $500 million of FHLB advances. The FHLB advances include maturities of $300 million, at an average cost of approximately 4.73%, maturing in May of 2026, and $200 million, at a cost of 4.27% maturing in May of 2027.

Current wording

Total liabilities were $13.21 billion at September 30, 2024, a decrease of $737.6 million, or 5.29%, from total liabilities of $13.94 billion at December 31, 2023. The $638.8 million increase in total deposits at September 30, 2024 included the addition of $400 million in brokered time deposits. These brokered time deposits mature every 90 days, including $300 million of these deposits that were issued in connection with cash flow hedges during the first quarter of 2024. The result of these hedged time deposits is a weighted average fixed rate of approximately 4.2%. Borrowings decreased by $1.57 billion from December 31, 2023, as $2.1 billion of borrowings from the Federal Reserve’s Bank Term Funding Program were paid-off and $500 million of FHLB advances were issued. At September 30, 2024, total borrowings consisted of $500 million of FHLB advances. The FHLB advances include maturities of $300 million, at an average cost of approximately 4.73%, maturing in May of 2026, and $200 million, at a cost of 4.27% maturing in May of 2027. During the third quarter of 2024, we repaid $1.3 billion of borrowings from the Federal Reserve’s Bank Term Funding Program, with a cost of 4.76%, that were scheduled to mature in January of 2025.

Previous wording

Total equity increased $34.5 million to $2.11 billion at June 30, 2024, compared to total equity of $2.08 billion at December 31, 2023. Increases to equity included $98.6 million in net earnings, that were partially offset by $55.9 million in cash dividends and a $10.8 million decrease in other comprehensive income. We did not engage in stock repurchases during the second quarter of 2024 or 2023. Our tangible book value per share at June 30, 2024 was $9.55.

Current wording

Total equity increased $119.9 million to $2.20 billion at September 30, 2024, compared to total equity of $2.08 billion at December 31, 2023. Increases to equity included $149.9 million in net earnings and a $48.7 million increase in other comprehensive income, that were partially offset by $83.9 million in cash dividends. We engaged in no stock repurchases during the first nine months of 2024. Our tangible book value per share at September 30, 2024 was $10.17.

Previous wording

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 June 30, 2024, total investment securities were $5.18 billion. This represented a decrease of $245.1 million, or 4.52%, from $5.42 billion at December 31, 2023. The overall decrease in investment securities was primarily due to a $210.3 million decline in our AFS securities. At June 30, 2024, our AFS investment securities totaled $2.75 billion, inclusive of a pre-tax net unrealized loss of $487.9 million. The $38.1 million decrease in fair value of our AFS securities was partially offset by a $20.7 million increase 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 June 30, 2024 was $335.4 million. The changes in the net unrealized holding loss resulted primarily from fluctuations in market interest rates. At June 30, 2024, investment securities HTM totaled $2.43 billion. For the six months ended June 30, 2024 and 2023, repayments/maturities of investment securities totaled $258.4 million and $231.9 million, respectively. The Company purchased $33 million of short-term treasury notes in the second quarter of 2024 for pledging purposes. We also originated $11.5 million of Commercial Property Assessed Clean Energy ("C-PACE") bonds in the first half of 2024, which are included in our HTM securities portfolio. There were no purchases of investment securities during the six months ended June 30, 2023 as cashflows generated from the portfolio were not reinvested during the year. There were no investment securities sold during the second quarter of 2024 and 2023.

Current wording

At September 30, 2024, our AFS investment securities totaled $2.47 billion, inclusive of a pre-tax net unrealized loss of $367.7 million. The $82.1 million increase in fair value of our AFS securities was partially offset by an $8.0 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, 2024 was $271.1 million. The changes in the net unrealized holding loss resulted from the sale of AFS securities and fluctuations in market interest rates. At September 30, 2024, investment securities HTM totaled $2.41 billion. For the nine months ended September 30, 2024 and 2023, repayments/maturities of investment securities totaled $366.4 million and $358.6 million, respectively. The Company purchased $33 million of short-term treasury notes in the second quarter of 2024 for pledging purposes. We also originated $11.5 million of Commercial Property Assessed Clean Energy ("C-PACE") bonds in the first nine months of 2024, which are included in our HTM securities portfolio. There were no purchases of investment securities during the nine months ended September 30, 2023 as cashflows generated from the portfolio were not reinvested during the year. There were no investment securities sold during the nine months ended September 30, 2023.

Previous wording

As of June 30, 2024, approximately $29.0 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.

Current wording

As of September 30, 2024, approximately $27.6 million in U.S. government agency bonds are callable. The Agency CMO/REMIC securities are backed by agency-pooled collateral. Municipal bonds, which represented approximately 10% of the total investment portfolio, are predominately AA or higher rated securities.